Opinion ID: 728144
Heading Depth: 3
Heading Rank: 2

Heading: Retention of the Disputed Taxes

Text: 10 Given the continuing viability of the automatic stay, we must next consider whether the State did, in fact, violate the automatic stay by retaining the disputed taxes. 11 U.S.C. § 362(a)(3) specifically enjoins any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.... In Del Mission III, we concluded that the State's efforts to collect the disputed taxes in the first instance did constitute a violation of the stay under subsection (3). 998 F.2d at 758. 4 Now, we take the analysis one step further, and determine whether the State's continued retention of the disputed taxes was an act ... to exercise control over the property of the estate, in continuing violation of the automatic stay. 11 U.S.C. § 362(a)(3). 11 The exercise control clause of § 362(a)(3) was added by the Bankruptcy Amendments and Federal Judgeship Act of 1984. Pub.L. No. 98-353, 1984 U.S.C.C.A.N. (98 Stat.) 371. Congress did not provide an explanation of that amendment. In re Young, 193 B.R. 620, 623 (Bankr.D.C.1996). The Ninth Circuit BAP has interpreted this amendment as broadening the scope of § 362(a)(3) to proscribe the mere knowing retention of estate property. Abrams v. Southwest Leasing & Rental Inc. (In re Abrams), 127 B.R. 239, 241-43 (9th Cir. BAP 1991) (failure to return repossessed car after receiving notice of Chapter 7 filing constituted a violation of the automatic stay). In dicta, this circuit has accepted that interpretation. Chugach, 23 F.3d at 246. We now adopt the reasoning of Abrams and Chugach, and hold that the knowing retention of estate property violates the automatic stay of § 362(a)(3). 12 11 U.S.C. § 542(a) provides that an entity in possession of estate property shall deliver such property to the trustee. This is a mandatory duty arising upon the filing of the bankruptcy petition. Knaus v. Concordia Lumber Co. (In re Knaus), 889 F.2d 773, 775 (8th Cir.1989). Thus, [w]ithout doubt, 'a creditor's knowing retention of property of the estate constitutes a violation of' § 362(a)(3). Chugach 23 F.3d at 246 (quoting Abrams, 127 B.R. at 242); accord Knaus, 889 F.2d at 775 (The failure to [turn over], regardless of whether the original seizure was lawful, constitutes a prohibited attempt to 'exercise control over the property of the estate' in violation of the automatic stay.); Carlsen v. IRS (In re Carlsen), 63 B.R. 706, 711 (Bankr.C.D.Cal.1986) (failure of IRS to return funds received pursuant to a levy after receiving notice violated automatic stay). 13 These cases emphasize the underlying purpose of the automatic stay, which is to alleviate the financial strains on the debtor. See, e.g., Knaus, 889 F.2d at 775; see also Utah State Credit Union v. Skinner (In re Skinner), 90 B.R. 470 (D.Utah 1988), aff'd, 917 F.2d 444 (10th Cir.1990). To effectuate the purpose of the automatic stay, the onus to return estate property is placed upon the possessor; it does not fall on the debtor to pursue the possessor. Abrams, 127 B.R. at 243. 14 [I]f persons who could make no substantial adverse claim to a debtor's property in their possession could, without cost to themselves, compel the debtor or his trustee to bring suit as a prerequisite to returning the property, the powers of a bankruptcy court and its officers to collect the estate for the benefit of creditors would be vastly reduced. 15 Knaus, 889 F.2d at 775. Moreover, the case law and the legislative history of § 362 indicate that Congress did not intend to place the burden on the bankruptcy estate to absorb the expense of potentially multiple turnover actions, at least not without providing a means to recover damages sustained as a consequence thereof. Abrams, 127 B.R. at 243. 16 Under this line of authority, we conclude that the State's knowing retention of the disputed taxes violated the automatic stay. As this case shows, the potential for multiple actions to obtain what is rightfully due to a bankruptcy estate is a very real concern. The State contends that it did not repay Del Mission in a timely manner because Taxel did not make any specific demand on it. As noted by the BAP, [t]his argument is frivolous. BAP Dec. at 7. In Del Mission I, the bankruptcy court specifically held that Del Mission was entitled to a refund of the disputed taxes. 116 B.R. at 739. Moreover, the State cites no support for its contention that no obligation to repay arose until it received a specific request from the trustee. That contention is in direct conflict with Abrams and Chugach. 17 In summary, both the case law and policy considerations compel the conclusion that the State violated the automatic stay by knowingly retaining the disputed taxes, following the bankruptcy court's order to repay Del Mission. 18