Court Opinion

ID: 9696656
Source: CourtListenerOpinion
Date Created: 2023-08-25 18:53:59.278333+00
Date Added: 2024-06-11T18:20:24.714913
License: Public Domain

STOSBERG,
dissenting.
The panel’s automatic turnover approach sanctions a procedure used to bludgeon creditors by employing the petition as a device to recover a repossessed vehicle without a hearing. A debtor can then dismiss the petition by simply not filing a plan, which is not required for 15 days after the case is filed. This procedure does not preserve the status quo — it alters the rights of the parties without the opportunity for a hearing. The panel’s strained interpretation of the statutes suggests that “rights” in the property belong to the debtor. Any rights to property lawfully repossessed prepetition belong instead to the creditor.
*689This turnover procedure raises the troubling and fundamental question of standing. Under section 1306, the filing of a chapter" 13 petition creates an estate. Upon the filing, the trustee owns all of the debtor’s property and the debtor owns nothing until confirmation when, pursuant to 11 U.S.C. § 1327(b), the property vests in the debtor. Chapter 13 is distinguishable from chapter 11 in that chapter 13 does not confer upon a debtor the rights, powers and duties of a trustee under the avoidance and recovery provisions of the Code. Compare 11 U.S.C. I 1107 & 1303. More importantly, section 542(a) provides that the entity in possession of property of the estate shall turn it over to the trustee, and that the trustee may use, sell, or lease the property under section 363. I would overturn the contempt sanctions on grounds of standing alone.
Furthermore, the procedure utilized by the Debtor to obtain possession of the vehicle was fatally flawed. The debtor requested turnover of the car via motion. Bankruptcy Rule 7001 sets forth a procedure for resolving turnover disputes which affords each party a fair opportunity to present its respective position. In re Estes, 185 B.R. 745, 746 (Bankr.W.D.Ky.1995)(quoting Carter). The bankruptcy rules mandate that the court await the filing of an adversary proceeding before determining whether to allow turnover. Id. Accord, In re Wheeler Technology, Inc., 139 B.R. 235 (9th Cir. BAP 1992); In re Perkins, 902 F.2d 1254 (7th Cir.1990); In re Chanticleer Assoc., Ltd., 592 F.2d 70 (2d Cir.1979); In re Ace Industries, Inc., 65 B.R. 199 (Bankr.W.D.Mich.1986). An adversary proceeding serves simultaneously the interests of efficiency and due process. The case of In re Jackson, 142 B.R. 172 (Bankr.N.D.Ohio 1992), demonstrates the effectiveness of employing a complaint plus temporary in-junctive relief.
Moreover, Transouth was clearly entitled to adequate protection payments on the vehicle. Transouth maintained that it was entitled to retain possession of the vehicle until resolution of the adequate protection question. This position is meticulously laid out in the case of In re Young, 193 B.R. 620 (Bankr.D.Dist.Col.1996). As the Young court correctly notes, many courts conclude that the bankruptcy filing “freezes” the status quo and the creditor does not violate the stay by refusing to return property lawfully repossessed prepetition. Id. at 623; See also, In re Briggs, 143 B.R. 438, 448 n. 15 (Bankr.E.D.Mich.1992); and In re Troy Industrial Catering Serv., 2 B.R. 521 (Bankr.E.D.Mich.1980). By forcing immediate turnover of the collateral without adequate protection, the creditor loses the costs of repossession and the prospects of obtaining some type of payments toward depreciating collateral, upon which the creditor will not receive any further payments until after confirmation. Id. at 627.
The courts adopting this approach rely upon Whiting Pools, 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), for the proposition that the rights of creditors must be adequately protected before requiring turnover of the collateral. See Richardson, 135 B.R. 256, 259 (Bankr.E.D.Tex.1992). In other words, adequate protection is a prerequisite to turnover of the collateral. See, e.g., In re Empire for Him, Inc., 1 F.3d 1156 (11th Cir.1993); In re Swedeland Development Group, Inc., 16 F.3d 552 (3rd Cir.1994); In re Crowe, 160 B.R. 299 (Bankr.N.D.Tex.1993); In re Deiss, 166 B.R. 92 (Bankr.S.D.Tex.1994); In re Health Science Products, Inc., 181 B.R. 121 (Bankr.N.D.Ala.1994); Gold Leaf Corp. v. Hamilton Projects, Inc., 78 B.R. 1018 (Bankr.N.D.Fla.1987); In re Williams, 6 B.R. 789, 792 (Bankr.E.D.Mich.1980); and In re Hinckley, 40 B.R. 679, 681 (Bankr.D.Utah 1984). By retaining seized property and preserving the status quo pending the adequate protection determination, a creditor is merely “complying with the spirit of the 362 freeze.” Richardson, 135 B.R. at 259.
*690Transouth did not violate 11 U.S.C. § 362 but merely maintained the status quo as of the filing date by retaining possession of the vehicle pending the adequate protection determination. The bankruptcy court misapplied the language of § 362(a)(3). In re Richardson, 135 B.R. 256, 258 (Bankr.E.D.Tex.1992). Under section 362, the filing of a petition operates as a stay of any creditor’s collection attempts. Id. Should the creditor affirmatively act to collect after the imposition of the stay, and thereby “exercise control” over property of the estate, the creditor is subject to sanctions pursuant to § 362(h). Id. at 259. “However, this provision for creditors who affirmatively act in violation of the stay post-petition can not be extrapolated to punish creditors who, while legally seizing the property of the estate prepetition, failed to return this property immediately to the debtor post-petition.” Id. In maintaining the property in the same status it enjoyed just prior to the filing, the creditor is merely “complying with the spirit of the § 362 freeze.” Id.
Any “exercise of control” over property of the estate, to be sanctionable, must occur post filing and must involve an affirmative act on the part of the creditor beyond maintaining the status quo. See Id. See also, In re Young, 193 B.R. 620, 621 (Bankr.D.C.1996). Where the creditor has not taken any action to sell the property, the Debtor’s rights in the property have not changed from the date of the filing. Id. Section 542 is not self-executing; rather, the creditor may hold the property pending the court’s resolution of the adequate protection question. Young, 193 B.R. at 622. Accord, In re Fitch, 217 B.R. 286, 290 (Bankr.S.D.Cal.1998). This freezing of the status quo is intended to protect the creditor from the harm that adequate protection is designed to avoid if the property is turned over before the debtor proves that the creditor is being provided the adequate protection to which it is entitled under the Code. Id. at 625.
Bringing this discussion full-circle, the concept of maintaining the status quo, effectuated by the creditor’s retention of the vehicle pending the court’s resolution of adequate protection, is in accord with the purpose of Bankruptcy Rule 7001, which provides for the filing of an adversary proceeding to recover property of the estate. By invoking the procedural requirements of Bankruptcy Rule 7001, a debtor is able to preserve the status quo, by requesting a temporary restraining order against the creditor to prevent any further affirmative act on the part of the creditor to sell the collateral. This approach likewise affords the creditor due process in providing for a 20 day answer period and the opportunity for a full hearing to determine the debtor’s entitlement to permanent relief and the creditor’s concomitant entitlement to adequate protection of its interest in the collateral.
Technicalities notwithstanding, I feel constrained to briefly comment on the panel’s characterization of this case, depicting it as a routine chapter 13. At the time of the petition, the Debtor had two children and was pregnant, yet the luxury vehicle she recovered had only two seats! Moreover, the $984.98 monthly payment on the car exceeded her rent by $350.00. The trustee should have intervened and recommended surrender of this vehicle, instead of assisting the Debtor in a bad faith endeavor which ended rapidly after confirmation when she defaulted and dismissal followed.
I respectfully dissent.