Clyde Rusk Veltmann and Diantha Lynn Veltmann

1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	CLYDE RUSK VELTMANN and 	No. 11-07-11370 MR
DIANTHA LYNN VELTMANN,
Debtors.
ORDER DENYING MOTION FOR RETROACTIVE ANNULMENT
OF AUTOMATIC STAY
THIS MATTER is before the Court on the Motion for Order to Reopen Case and For
Order Annulling Automatic Stay (“Motion”) filed by Michael H. Hagan, individually, and on
behalf of Craigmyle Halter Company, LLC, (“Movant” or Hagan) by and through his attorney of
record, George M. Wallace. 	The Court held a final hearing on the Motion on June 23, 2008 and
took the matter under advisement. 	Movant requests the Court to annul the automatic stay
retroactively for the purpose of validating a judgment entered by the United States District Court
for the Central District of California (“District Court”) against Clyde Veltmann and Diantha
Veltmann (together, Debtors or Veltmanns) and others in Case No. EDCV 07-64-0DW (“District
Court Action”). 	Upon review of the Motion and after consideration of the arguments of
counsel, the Court finds that Movant has failed to establish sufficient grounds for retroactive
annulment of the automatic stay. Consequently, the Court will deny the Motion.
FACTS AND PROCEDURAL BACKGROUND
The Veltmanns filed a voluntary petition under Chapter 11 of the Bankruptcy Code on
June 8, 2007. 	Hagan initiated the District Court Action and filed and served a motion for
partial summary judgment in the District Court Action before the Veltmanns filed their
bankruptcy petition. 	A Notice of Bankruptcy was filed in the District Court Action on June 14,
2007. 	Shortly thereafter, despite having actual notice of the pending bankruptcy proceeding,
Case 07-11370-m11 Doc 113 Filed 07/07/08 Entered 07/07/08 15:12:36 Page 1 of 6

1The Veltmanns’ bankruptcy case was closed on December 6, 2007. Hagan filed the
Motion on January 1, 2008. The Court required Hagan to seek to reopen the case before
proceeding with the Motion. (See Order on Motion for Order Annulling Automatic Stay
Determining that Movant Must First Seek to Reopen Debtors’ Closed Bankruptcy Case before
Court Can Consider any Further Request for Relief - Docket # 99). 	The case was reopened on
March 17, 2008.
2
and notwithstanding that the District Court Action was subject to the automatic stay imposed by
11 U.S.C. § 362, the District Court entered a partial summary judgment against the Veltmanns
and others. 	Hagan did not seek relief from the automatic stay from this Court before the entry
of the partial summary judgment in the District Court Action.
In November of 2007, the United States Trustee filed a motion to dismiss or convert the
Veltmanns’ bankruptcy case (Docket # 62 and Docket # 63). 	Creditor Fore Enterprises LTD
joined in the motion to dismiss or convert. (Docket # 81). Hagan did not join in the United
States Trustee’s motion to dismiss or convert but nevertheless participated in the hearing and
urged conversion rather than dismissal. 	The Court dismissed the Veltmanns’ bankruptcy
proceeding on November 21, 2007, following an evidentiary hearing on the motion to dismiss or
convert. (Docket # 90). Hagan did not file the Motion until after the Veltmanns’ bankruptcy
case had been dismissed and closed. 1
DISCUSSION
Relief from the automatic stay is governed by 11 U.S.C. § 362(d), which provides that
the “court shall grant relief from the stay . . . for cause.” 11 U.S.C. § 362(d). Because 11 U.S.C.
§ 362(d) provides for “terminating, annulling, modifying or conditioning” the stay, it is possible
Case 07-11370-m11 Doc 113 Filed 07/07/08 Entered 07/07/08 15:12:36 Page 2 of 6

2See In re Albany Partners, Ltd., 749 F.2d 670, 675 (11 th Cir. 1984)(“The word
‘annulling’ in this provision [§ 362(d)] evidently contemplates the power of bankruptcy courts to
grant relief from the stay which as retroactive effect . . . ”).
3Pursifull v. Eakin, 814 F.2d 1501, 1504 (10 th Cir. 1987) (“The decision as to whether to
lift the stay is committed to the discretion of the judge presiding over the bankruptcy
proceedings . . .”)(citations omitted); Hall v. Vance, 887 F.2d 1041, 1044 (10 th Cir. 1989)(“The
bankruptcy court has broad discretion under § 1112(b).”)(citing S.Rep. No. 989, 95th Cong., 2d
Sess. 117, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5903)(remaining citation
omitted)).
4Albany Partners, 749 F.2d at 675 (acknowledging “that the important congressional
policy behind the automatic stay demands that courts be especially hesitant to validate acts
committed during the pendency of the stay.”); In re Laine, 383 B.R. 166, 178 (Bankr.D.Kan.
2008)(“Tenth Circuit authority is very clear that the circumstances in which a stay may be
annulled are extremely limited.”); In re Dupuy, 308 B.R. 843, 848 (Bankr.E.D.Tenn.
2004)(noting that “[t]he equitable exceptions justifying annulment of the stay ‘must be applied
sparingly.’”)(quoting In re Printup, 264 B.R. 169, 176 (Bankr.E.D.Tenn. 2001)); Schewe v.
Fairview Estates (In re Schewe), 94 B.R. 938, 951 (Bankr.W.D.Mich. 1989)( “Retroactive relief
is only appropriate when a combination of factors justify the exercise of discretion to take such
3
for a creditor to obtain retroactive annulment of the automatic stay.2 11 U.S.C. § 362(d).
Movant asserts that the grounds for dismissal of Debtors’ bankruptcy proceeding found by the
Court in its Order Dismissing Chapter 11 Bankruptcy Case likewise establish sufficient cause for
retroactive annulment of the automatic stay. 	This Court disagrees.
The Court exercises its discretion both in determining whether “cause” exists to lift the
automatic stay and in determining whether sufficient “cause” exists for granting a motion to
dismiss or convert. 3 But, unlike a motion to dismiss or convert which requires the court to
consider whether dismissal or conversion of the case is in the best interest of all creditors and the
bankruptcy estate, a request for retroactive annulment of the automatic stay benefits only the
creditor who failed at the outset to request relief from the stay before taking action in violation of
the stay. 	Perhaps in part for this reason, retroactive annulment of the automatic stay is
appropriate only in certain very limited circumstances. 4
Case 07-11370-m11 Doc 113 Filed 07/07/08 Entered 07/07/08 15:12:36 Page 3 of 6

extraordinary action.”)(citing In re Boston Business Machines, 87 B.R. 867, 871 (Bankr.E.D.Pa.
1988). But see In re Fjeldsted, 293 B.R. 12, 15 (9th Cir. BAP 2003)(clarifying that the standard
for retroactive annulment in the Ninth Circuit requires a balancing of the equities, which
"standard is not ‘extreme circumstances,’ which is at odds with the court's broad exercise of its
discretion.")
5See, In re Coletta, 380 B.R. 140, 147 n.18 (Bankr.E.D.Pa. 2007)(debtor’s inequitable
conduct, such as repetitive, bad faith bankruptcy filings, is relevant to the determination of
whether to annul stay); In re Elder-Beerman Stores Corp., 195 B.R. 1012, 1017 (Bankr.S.D.Ohio
1996)(factors to consider include “the debtor’s bad faith in filing the bankruptcy petition and the
moving party’s knowledge of the bankruptcy at the time of its action.”); In re Siciliano, 167 B.R.
999, 1008 (Bankr.E.D.Pa. 1994)(stating that “many courts will annul the stay only if the debtor
is guilty of some inequitable conduct, such as abusive and/or repetitive bankruptcy
filings.”)(citations omitted); Scrima v. John Devries Agency, Inc., 103 B.R. 128, 135 (W.D.Mich.
1989)(“Generally, courts grant or affirm annulments of automatic stays only where evidence of
the debtor's bad faith exists.”)(citations omitted).
4
The Tenth Circuit has stated that “[w]hile district courts and bankruptcy courts have the
authority to ‘annul’ a stay, . . . thereby reinstating previous claims retroactively, such a result is
rare and probably available only to claimants who were honestly ignorant of the bankruptcy
stay.” Franklin Sav. Ass’n v. Office of Thrift Supervision, 31 F.3d 1020, 1022, 1023 (10 th Cir.
1994)(citations omitted). 	In addition to the creditor’s knowledge of debtor’s pending
bankruptcy when taking action in violation of the stay, courts determining whether to annul the
stay also consider whether the debtor filed the petition in bad faith or otherwise acted in bad
faith.5 Other factors include the prejudice to creditors if retroactive relief is not granted;
whether the debtor has complied with the Bankruptcy Code and Rules; how quickly the creditor
sought annulment or how quickly the debtor sought to set aside the act taken in violation of the
stay; and whether the creditor continued to violate the stay after learning of the bankruptcy or
moved expeditiously to seek annulment. Fjeldsted, 293 B.R. at 25. 	Even under Fjeldsted’s
balancing of equities standard, “one factor may so outweigh the others as to be dispositive.” Id.
Case 07-11370-m11 Doc 113 Filed 07/07/08 Entered 07/07/08 15:12:36 Page 4 of 6

5
The Court dismissed the Veltmanns’ bankruptcy case based in part on the Veltmanns’
failure to file timely monthly operating reports, their failure to list in their initial statements and
schedules certain race horses which they admitted ownership of at the meeting of creditors, and
on the fact that they sold certain property of the estate without first obtaining permission from
the Court. 	See Order Dismissing Chapter 11 Bankruptcy Case, ¶¶ 11, 12, and 13. But the Court
did not make a finding that the Veltmanns filed their petition in bad faith. 	The Veltmanns’
shortcomings resulted in dismissal of their bankruptcy but are insufficient to justify retroactive
annulment of the stay in light of Hagan’s failure to timely seek relief from the automatic stay
despite having knowledge of the pending bankruptcy.
A notice of the Veltmanns’ bankruptcy was filed in the District Court Action, but Hagan
did not request relief from the automatic stay from this Court before the District Court entered its
judgment. 	And when the District Court entered its judgment in the face of the automatic stay,
Hagan still did not seek to remedy the situation until after the Veltmanns’ bankruptcy proceeding
had been dismissed and closed, some five months later. 	In sum, the Court will not grant
Hagan’s request for retroactive annulment of the automatic stay when it is clear that Hagan knew
of the existence of the automatic stay, knew that the District Court’s entry of the partial summary
judgment violated the stay, and failed to seek relief until after the Veltmanns’ bankruptcy case
had been dismissed.
The Partial Summary Judgment Entered by the District Court in Violation of the
Automatic Stay is Void.
“It is well established that any action taken in violation of the automatic stay is void and
without effect.” Ellis v. Consol. Diesel Elec. Corp., 894 F.2d 371, 372 (10 th Cir. 1990)(citing
Kalb v. Feuerstein, 308 U.S. 433, 438, 60 S.Ct. 343, 346, 84 L.Ed. 370 (1940)(“the action of the
Case 07-11370-m11 Doc 113 Filed 07/07/08 Entered 07/07/08 15:12:36 Page 5 of 6

6See also, In re Gagliardi, 290 B.R. 808, 814 (Bankr.D.Colo.2003)(noting that “[a]ctions
taken in violation of the automatic stay are void and of no force or effect, even when there is no
actual notice of the existence of the stay.”)(citing In re Calder, 907 F.2d 953, 956 (10 th Cir.
1990)(remaining citations omitted). 	Here, the parties, including the District Court, had actual
notice of the Veltmanns’ pending bankruptcy proceeding.
7Ellis v. Consol. Diesel Elec. Corp., 894 F.2d at 373 (holding that summary judgment
entered by the district court before the automatic stay was lifted was void, despite the fact that
the automatic stay was subsequently lifted).
6
. . . court was not merely erroneous but was beyond its power, void and subject to collateral
attack”)(remaining citations omitted)).6 The District Court entered the partial summary
judgment against the Veltmanns after the filing of the Veltmanns’ bankruptcy proceeding and
without prior relief from the automatic stay. It is void as a matter of law. 7 Having denied
Hagan’s request for retroactive annulment of the automatic stay, the District Court’s judgment
against these Debtors is void and of no effect.
WHEREFORE, IT IS HEREBY ORDERED that the Motion is DENIED.
_______________________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
Date entered on docket: July 7, 2008
COPY TO:
Charles E Hawthorne 	George M. Wallace
Attorney for Debtor 	Attorney for Michael Hagan
900 Sudderth Dr 	215 North Marengo Ave., 3 rd Floor
Ruidoso, NM 88345-7224 	Pasadena, CA 91101-1504
Case 07-11370-m11 Doc 113 Filed 07/07/08 Entered 07/07/08 15:12:36 Page 6 of 6