Court Opinion

ID: 2644958
Source: CourtListenerOpinion
Date Created: 2013-12-05 16:34:43.718908+00
Date Added: 2024-06-11T12:54:20.899803
License: Public Domain

United States Bankruptcy Appellate Panel
                         For the Eighth Circuit
                     ___________________________

                             No. 13-6038
                     ___________________________

In re: James Allen Carter, Jr., also known as Jim Carter; Leigh Emory Carter

                                             Debtors

                         ------------------------------

                James Allen Carter, Jr.; Leigh Emory Carter

                               Debtors - Appellants

                                      v.

                      First National Bank of Crossett

                                Creditor - Appellee
                              ____________

               Appeal from United States Bankruptcy Court
             for the Western District of Arkansas - El Dorado
                             ____________

                       Submitted: October 17, 2013
                         Filed: December 5, 2013
                              ____________

  Before SCHERMER, SALADINO and SHODEEN, Bankruptcy Judges.
                       ____________
SHODEEN, Bankruptcy Judge.

The Debtors, James Allen Carter, Jr. and Leigh Emory Carter, appeal from the
Bankruptcy Court’s1 order entered on April 22, 2013 denying the Debtors’ Motion
for Sanctions against First National Bank of Crossett. For the reasons that follow,
we AFFIRM.

                                  BACKGROUND

       Jim A. Carter, Jr. Logging, LLC (the “LLC”) was formed with James Allen
Carter (“Carter”) as its sole member. First National Bank of Crossett (the “Bank”)
entered into two loans with the LLC dated October 22, 2009 and September 21,
2012. Each of these loans was secured by logging equipment owned by the LLC,
and personally guaranteed by Carter. On October 24, 2012, Carter, as the only
signatory, executed a document identified as an Assignment2 which stated:

             For valuable consideration, receipt of which is hereby
             acknowledged, Jim A. Carter, Jr., member, and Jim A
             Carter Logging, LLC, by Jim A. Carter, Jr., the sole
             member, sells, transfers, assigns and conveys to Jim A.
             Carter, Jr., his heirs and assigns, all of the right, title,
             and interest of assignors in and to the following
             property: all interests and assets of Jim A. Carter
             Logging, LLC.

   1
     The Honorable James G. Mixon, United States Bankruptcy Judge for the
Western District of Arkansas.
   2
     As explained by the record, the apparent purpose of this transaction was to
qualify the Carters for Chapter 13 relief, and to economically address the liabilities
of both the LLC and Carter, individually by way of a single bankruptcy case.
The Bank was not informed of this transaction nor provided a copy of the
Assignment at this time. The following day, Carter filed a joint chapter 13 petition
with his spouse, which was later dismissed for failure to file a listing of creditors.
A second chapter 13 petition was filed on November 2, 2012. On this same date,
naming only the LLC as a defendant, the Bank commenced a state court action to
recover the collateral subject to its secured loans.

      The Ashley County Clerk of Court provided notice of the replevin suit and
the time period to object to the issuance of an order requiring delivery of the
identified equipment to both the LLC and Carter as its registered agent. No
objections were filed. The right to immediate possession of the equipment was
granted under an Order of Delivery issued on November 14, 2012. On November
16, 2012, Carter filed, and served upon the Bank, a Motion requesting that the
Order of Delivery be stayed which included copies of the Assignment and Notice
of Commencement of his bankruptcy case. After conducting a telephonic hearing
on Carter’s stay request, the Ashley County Circuit Judge directed the Sheriff to
pick up the equipment and retain the items pending further order.

      Carter then filed a Motion for Contempt in his bankruptcy case and
requested an emergency hearing. The Bankruptcy Court ordered the equipment
returned to Carter, and specifically reserved ruling on whether the stay violation
was willful. Within the established time period, a Motion for Sanctions was filed
seeking compensatory and punitive damages for the Bank’s willful violation of the
automatic stay. On April 16, 2013, at the conclusion of the hearing3 on this
Motion, the Bankruptcy Court ruled that there was no willful violation of the stay,
and that Carter failed to establish his claim for damages. The Debtors appeal this
ruling.

                           STANDARD OF REVIEW

       A bankruptcy court’s findings of fact are reviewed for clear error and its
conclusions of law are reviewed de novo. First Nat’l Bank v. Pontow, 111 F.3d
604, 609 (8th Cir. 1997) (quoting Miller v. Farmers Home Admin. (In re Miller),
16 F.3d 240, 242 (8th Cir. 1994)). A decision on sanctions is reviewed for an
abuse of discretion. Garden v. Cent. Neb. Housing Corp., 719 F.3d 899, 906 (8th
Cir. 2013) (citing Schwartz v. Kujawa (In re Kujawa), 270 F.3d 578, 581 (8th Cir.
2001). Under this standard, our review focuses upon whether there was a failure to
apply the proper legal standard or whether the findings of fact are clearly
erroneous. Official Comm. Of Unsecured Creditors v. Farmland Indus. (In re
Farmland Indus.), 397 F.3d 647, 651 (8th Cir. 2005). A bankruptcy court’s ruling
will not be reversed unless there is a “‘definite and firm conviction that the
bankruptcy court committed a clear error of judgment in the conclusion it reached
upon a weighing of the relevant factors.’” Apex Oil Co. v. Sparks (In re Apex Oil
Co.), 406 F.3d 538, 541 (quoting Dworsky v. Canal St. Ltd. P’ship (In re Canal St.
Ltd. P’ship), 269 B.R. 375, 379 (B.A.P. 8th Cir. 2001)).

   3
    The Bankruptcy Court and parties agreed that the record from the emergency
hearing conducted on November 19, 2012 would be included as evidence in the
Motion for Sanctions.
                                   DISCUSSION

      Effective upon the filing of a bankruptcy petition is the fundamental right
afforded to debtors by the automatic stay which stops collection actions by
creditors on pre-petition obligations. 11 U.S.C. § 362(a) (2012). “[A]n individual
injured by any willful violation of a stay provided by this section shall recover
actual damages, including costs and attorneys’ fees, and, in appropriate
circumstances, may recover punitive damages.” 11 U.S.C. section 362(k) (2012).
A debtor seeking such sanctions must demonstrate, by a preponderance of the
evidence, that a creditor acted willfully in violation of the stay and that an injury
resulted from that conduct. Frankel v. Strayer (In re Frankel), 391 B.R. 266, 271
(Bankr. M.D. Pa. 2008); In re Cedar Falls Hotel Properties. Ltd. P’ship, 102 B.R.
1009, 1014 (Bankr. N.D. Iowa 1989).

      To be willful, a creditor must take deliberate action “with the knowledge”
that a bankruptcy petition has been filed. Knaus v. Concordia Lumber Co. (In re
Knaus), 889 F.2d 773, 775 (8th Cir. 1989); In re Cullen, 329 B.R. 52, 57 (Bankr.
N.D. Iowa 2005). A willful violation does not require a finding of specific intent.
Associated Credit Servs. v. Campion (In re Campion), 294 B.R. 313, 316 (B.A.P.
9th Cir. 2003). “[A]n act is deemed to be a willful violation if the violator knew of
the automatic stay and intentionally committed the act regardless of whether the
violator specifically intended to violate the stay.” Preston v. GMPQ, LLC (In re
Preston), 395 B.R. 658, 663 (Bankr. W.D. Mo. 2008) (citing Jove Eng’g, Inc. v.
IRS, 92 F.3d 1539, 1555 (11th Cir. 1996)).

      Carter argues that the Bankruptcy Court’s decision is erroneous because the
Bank clearly had notice of the Debtors’ bankruptcy filing prior to the time the
repossession occurred. See Knaus v. Concordia Lumber Co. (In re Knaus), 889
F.2d 773, 775 (8th Cir. 1989) (a violation is willful if a creditor acts deliberately
with knowledge of the bankruptcy). He further asserts that the Bank’s refusal to
return the equipment until ordered to do so establishes a continuing willful
violation. These arguments are not persuasive.

       Carter’s argument is misplaced. Although the evidence suggests that the
Bank may have been aware of Carter’s personal bankruptcy filing, there is no
evidence that the Bank had knowledge of the Assignment and the purported
transfer of the LLC’s assets to him. The replevin action filed by the Bank did not
name Carter, individually, and sought only to repossess equipment owned by the
LLC in which the Bank had a properly perfected security interest. Consequently,
there can be no knowing or deliberate conduct attributed to the Bank in its conduct
to enforce its lien against the collateral it believed was owned by the LLC. At
issue here is not whether the Bank had knowledge of Carter’s personal bankruptcy
filing; but rather, whether it knew that its collateral had been transferred from the
LLC to Carter, personally, which it did not. Absent a showing that the Bank was
aware of the Assignment, a willful stay violation cannot be found. At the hearings
and in its brief, the Bank disputed whether the Assignment constituted a valid
transfer of the assets.4 Under this circumstance, its refusal to return the equipment
until ordered to do so was neither unreasonable nor willful.

   4
   The Bankruptcy Court made no dispositive determination on this issue.
Because our review is not dependent upon the validity of the Assignment, and
would not change the outcome of our decision, it is not addressed in this appeal.
        The Bank admitted that after it had knowledge of the Assignment and
Carter’s bankruptcy filing, it sent a required UCC notice to Carter. The Bank sent
the letter believing the Assignment was of no force and effect and was invalid.
The notice involved a legal process to liquidate the collateral and apply the
proceeds to its indebtedness. In Cash Am. Pawn, L.P. v. Murph, a creditor’s post-
petition letter to the debtor did not intentionally violate the automatic stay because
“it is not a violation of the automatic stay for a creditor to advise debtor’s counsel
that he will take any action that he may legally take under the Bankruptcy Code.”
209 B.R. 419, 424 (E.D. Tex. 1997) (quoting United States ex rel. Farmers Home
Admin. v. Nelson, 969 F.2d 626, 630 (8th Cir. 1992)). Here, the notice sent by the
Bank was a letter advising Carter of his rights under the Uniform Commercial
Code.     Although this action violated the automatic stay, we agree with the
Bankruptcy Court that any violation was technical and not willful in nature.

        A finding that there has been a willful violation of the automatic stay is a
prerequisite to an award of sanctions. Courts are unwilling to impose sanctions if
the violation is merely technical. In re Reisen, No. 03-01999, 2004 WL 764628, at
*6 (Bankr. N.D. Iowa Mar. 4, 2004). Accordingly, the legal notice provided to
Carter does not warrant an award of damages. Although the Bankruptcy Court
determined that there was no willful violation of the automatic stay by the Bank in
the repossession of the equipment, it further held that Carter failed to meet his
burden of proof to establish either compensatory or punitive damages. Because we
agree that there was no willful violation, it is not necessary to address the issue of
damages.
      Based upon the record and the applicable legal standards, the Bankruptcy
Court did not abuse its discretion when it denied the Motion for Sanctions.
Accordingly, the Bankruptcy Court’s Order is affirmed.
                                ________________________