Gonzales v. Beery et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
JEROME GRIGGS BEERY,
Debtor. No. 7-94-10504 SS
YVETTE J. GONZALES, TRUSTEE,
Plaintiff,
v. Adv. No. 09-1191 S
JEROME GRIGGS BEERY,
JOYCE K. BEERY,
COUNTRYWIDE BANK FSB,
UNITED STATES OF AMERICA, (IRS), and
FIRST NATIONAL BANK OF SANTA FE,
Defendants.
AMENDED MEMORANDUM OPINION IN SUPPORT OF ORDER DENYING
PARTIAL JUDGMENT ON THE PLEADINGS FILED BY FIRST NATIONAL
BANK OF SANTA FE AND COUNTRYWIDE BANK, FSB (DOC 26)
The Motion by First National Bank of Santa Fe (“First
National”) and Countrywide Bank, FSB (“Countrywide”) for Partial
Judgment on the Pleadings as to §549 Avoidance Action Set Forth
[in] Counts I and II (“Motion”) (doc 26) has come before the
Court. Movant Banks have also filed a memorandum brief in	1
support of their position (doc 27), the Trustee Yvette Gonzales
has filed a response (doc 31), and Banks have filed a reply (doc
33). Having considered the filings, the Court will deny the
Motion.
Background
The Court is issuing this amended memorandum opinion,	1
which replaces the Memorandum Opinion in Support of Order Denying
Partial Judgment on the Pleadings filed by First National Bank of
Santa Fe and Countrywide Bank, FSB (doc 38), on its own motion
pursuant to F.R.B.P. 9023.
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For purposes of deciding the Motion, the following facts are
relevant and not disputed by the parties.
1. Debtor Jerome Beery filed his voluntary chapter 7 petition
on February 25, 1994.
2. At all relevant times, Joyce Beery has been Debtor’s spouse.
3. Yvette Gonzales was appointed as a successor trustee on
August 15, 1995.
4. Trustee recorded a notice of the bankruptcy filing in the
real estate records of Los Alamos County, New Mexico on
September 13, 1995.
5. The real property at issue – 565 Navajo, Los Alamos, New
Mexico (“Los Alamos Residence”) - is located in Los Alamos
County, New Mexico.
6. There is no indication that Debtor claimed as exempt an
interest in the Los Alamos Residence.2
7. On March 25, 1997, Trustee initiated an earlier adversary
proceeding, Gonzales v. Beery et al., Adv Pro 97-1059,
against Debtor, Joyce Beery, Los Alamos National Bank and
others, which sought a determination of the ownership of the
Los Alamos Residence.
The Court has added this fact based on the record and the	2
parties’ filings, which make it obvious that there was no such
filing.
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8. Trustee recorded a notice of lis pendens of AP 97-1059 in
the real estate records of Los Alamos County on July 31,
2000.
9. Debtor executed a warranty deed for what, prior to the
filing of the chapter 7 petition, had been his undivided
one-half interest in the Los Alamos Property, to Joyce Beery
on March 4, 2002.
10. The warranty deed from Debtor to Joyce Beery was recorded in
the real estate records of Los Alamos County on March 5,
2002.
11. The Court (the Honorable Mark B. McFeeley, United States
Bankruptcy Judge for the District of New Mexico, who
subsequently transferred the instant adversary proceeding to
this judge) issued its findings of fact, conclusions of law
and judgment in AP 97-1059 on July 14, 2003, ruling that
“[t]he Debtor’s undivided one half interest in the Los
Alamos Property [565 Navajo] as a joint tenant entered the
Debtor’s estate at the time he filed his Chapter 7
petition....” Id., Judgment, at 3 of 5 (AP 97-1059 doc
195). The judgment was appealed, Notice of Appeal (AP 97-
1059 doc 197), which appeal was dismissed. Mandate to
Dismiss Appeal (AP 97-1059 doc 208).
12. On November 28, 2006, First National and Joyce Beery
executed the loan documents whereby First National loaned
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Joyce Beery $320,000, repayment of which was secured by a
mortgage on the Los Alamos Property.
13. On December 7, 2006, the First National mortgage was
recorded in the real estate records of Los Alamos County.
14. In December, 2006 First National sold the loan package to
Countrywide.
15. On May 23, 2007, Trustee sent a letter to First National
informing First National of the Trustee’s position that
Debtor had no legal basis for transferring any interest in
the Los Alamos Property and requesting that First National
release from the operation of the mortgage the undivided
one-half interest of the estate that had belonged to Debtor
at the time of the filing of the bankruptcy petition.3
16. On December 11, 2007, First National sent a letter to
Countrywide notifying Countrywide of Trustee’s request.
17. On July 31, 2009 Trustee sent another letter to First
National essentially repeating the contents of the May 23,
2007 letter.
18. On August 27, 2009, First National responded to the more
recent letter from Trustee saying that it had not responded
To be clear, the correspondence went from Trustee’s	3
counsel to First National’s counsel, as also was the case with
other communications between Trustee and First National and other
parties.
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to the first letter because by the time it had received the
first letter, it had sold the loan to Countrywide.
19. On November 23, 2009, Trustee filed the instant adversary
proceeding, Adv Pro 09-1191, suing Debtor, Joyce Beery,
First National, Countrywide, and the United States Treasury,
Internal Revenue Service.4
20. The complaint seeks (Count I) a declaratory judgment that
because the undivided one-half interest in the Los Alamos
Property that Debtor purported to transfer to Joyce Beery
was not effective to transfer anything, Joyce Beery’s
mortgage to First National was insufficient to – was void as
an attempt to - transfer the estate’s interest in the Los
Alamos Property; (Count II) quieting of title to the one-
half undivided interest in the estate; and (Count III)
damages against Debtor and Joyce Beery for slander of title.
Analysis
Banks correctly state the law in connection with a motion
for judgment on the pleadings.
A motion for judgment on the pleadings under
Fed.R.Civ.P. 12(c) is treated as a motion to dismiss
under Fed.R.Civ.P. 12(b)(6). McHenry v. Utah Valley
Hosp., 927 F.2d 1125, 1126 (10th Cir.1991) cert.
denied, 502 U.S. 894, 112 S.Ct. 263, 116 L.Ed.2d 217
(1991) (quoting Bishop v. Federal Intermediate Credit
Bank of Wichita, 908 F.2d 658, 663 (10th Cir.1990)),
cert. denied, 502 U.S. 894, 112 S.Ct. 263, 116 L.Ed.2d
The Internal Revenue Service has filed a disclaimer. Doc	4
14.
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217 (1991). We review the sufficiency of a complaint de
novo, and will uphold dismissal “only when it appears
that the plaintiff can prove no set of facts in support
of the claims that would entitle the plaintiff to
relief.” Jacobs, Visconsi & Jacobs Co. v. City of
Lawrence, 927 F.2d 1111, 1115 (10th Cir.1991). We must
accept all well-pleaded allegations in the complaint as
true and “construe them in the light most favorable to
the plaintiff.” Williams v. Meese, 926 F.2d 994, 997
(10th Cir.1991).
Mock v. T.G. & Y. Stores Co., 971 F.2d 522, 528-29 (10 Cir.	th
1992).
Banks’ argument on the merits is grounded in the notion that
Trustee’s only bankruptcy cause of action that permits her to	5
obtain a declaration that the actions of Debtor were not
effective to transfer the property is §549 of the Code. This
section provides in relevant part as follows:
(a) Except as provided in subsection (b) or (c) of this
section, the trustee may avoid a transfer of property
of the estate--
(1) that occurs after the commencement of the case; and
(2) (A) that is authorized only under section 303(f)
or 542(c) of this title; or
(B) that is not authorized under this title or by
the court.
Because the parties at this stage argue only the	5
invocation and effect of §§362 and 549 and not any state law
cause of action for, as an example, quiet title or conversion,
the Court does not now consider any such state law causes of
action. Cf. Jubber v. Search Market Direct, Inc. (In re Paige),
413 B.R. 882, 916-19 (Bankr. D. Utah 2009), aff’d Search Market
Direct, Inc. v. Jubber (In re Paige), 443 B.R. 1878 (D. Utah
2011) (unauthorized transfer of estate property constituted
conversion under Utah law and therefore transferee creditor did
not obtain good title); see also Irwin Mortgage Co. v. Tippett
(In re Tippett), 338 B.R. 82, 85 (9 Cir. BAP 2006) (declining	th
to consider non-bankruptcy remedies such as recovery for a breach
of escrow instructions or a claim against the title insurance).
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...
(c) The trustee may not avoid under subsection (a) of
this section a transfer of an interest in real property
to a good faith purchaser without knowledge of the
commencement of the case and for present fair
equivalent value unless a copy or notice of the
petition was filed, where a transfer of an interest in
such real property may be recorded to perfect such
transfer, before such transfer is so perfected that a
bona fide purchaser of such real property, against whom
applicable law permits such transfer to be perfected,
could not acquire an interest that is superior to such
interest of such good faith purchaser. A good faith
purchaser without knowledge of the commencement of the
case and for less than present fair equivalent value
has a lien on the property transferred to the extent of
any present value given, unless a copy or notice of the
petition was so filed before such transfer was so
perfected.
(d) An action or proceeding under this section may not
be commenced after the earlier of--
(1) two years after the date of the transfer
sought to be avoided; or
(2) the time the case is closed or dismissed.
Banks argue that from whatever point in the chain of
transactions that took place one reasonably locates the
“transfer” that triggers the use of §549, this adversary
proceeding was filed long after two years following the alleged
transfer. (A corollary of the Bank’s position is that §549(c)
does not come into play if Trustee is barred from pursuing
§549(a) relief.) In making the argument, Banks rely on the
chronology of events set out above, the citation to §549 in the
first line of the complaint , and Ninth Circuit case law. Were	6
The Court finds this argument insufficient to change a	6
result that is dictated by the Code and Tenth Circuit case law.
Indeed, Trustee cited a variety of statutes in that opening line,
(continued...)
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this district located in the Ninth Circuit, Banks might well be
successful, but because the Tenth Circuit requires a different
result, the Motion must be denied.7
Banks rely on Irwin Mortgage Co. v. Tippett (In re Tippett),
338 B.R. 82 (9 Cir. BAP 2006) (“BAP Tippett”), aff’d, Burkart	th
v. Coleman (In re Tippett), 542 F.3d 684 (9 Cir. 2008)	th
(“Circuit Tippett”). The Tippett cases in turn rely heavily on
Schwartz v. United States (In re Schwartz), 954 F.2d 569 (9th
Cir. 1992), which in turn relied on the district court case of
Phoenix Bond & Indemnity Co. v. Garcia (In re Garcia), 109 B.R.
335 (N.D. Ill. 1989). Schwartz and Garcia address the issue of
whether violations of the automatic stay, listed in §362(a), are
void ab initio or merely voidable.
Section 362(a) provides in relevant part as follows:
(a) Except as provided in subsection (b) of this
section, a petition filed under section 301, 302, or
(...continued)	6
and then relied almost only on §362.
Much of the case law discussed in this memorandum opinion	7
and directly or indirectly relied on by Banks dates from prior to
the passage of the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, P.L. 109-8 (2005). BAPCPA amended
§362(b) to add subsection (24), which excepts from the operation
of the automatic stay “any transfer that is not avoidable under
section 544 and that is not avoidable under section 549.”
Because the purported transfer from Debtor to Joyce Beery and
Trustee’s recordings in the Los Alamos County real estate records
occurred prior to the enactment of BAPCPA, §362(b)(24) is not
applicable to this matter, and the parties have not argued
otherwise.
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303 of this title ... operates as a stay, applicable to
all entities, of–
...
(3) 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;....
(Emphasis added.)
The sole issue before us is whether creditor violations
of the Bankruptcy Code’s automatic provision are void
or simply voidable. If violations of the automatic
stay are void, the IRS tax assessment made against the
Schwartzes in the Chapter 11 bankruptcy is without
effect. If, however, such violations are merely
voidable, the assessment is valid because the
Schwartzes made no attempt to have the assessment
voided in the Chapter 11 bankruptcy.
Schwartz, 954 F.2d at 570-71. See also Garcia:
Though acknowledging that the tax sale violated the
automatic stay, the appellants argue that the
Bankruptcy Court erred in concluding that acts in
violation of the automatic stay are void. Rather,
appellants contend that acts in violation of the
automatic stay are merely voidable, provided they are
avoided within the time period provided in § 549(d),
which governs the avoidance of post-petition
transactions not otherwise authorized by the Bankruptcy
Code or court order.
Garcia, 109 B.R. at 337 (footnote omitted).
In each case, the court concluded that the creditors’
actions at issue violated the stay and were void, not voidable.
But in analyzing the void/voidable issue, the Garcia court, and
the Schwartz court following Garcia, struggled to find a role for
§549 against the background of §362(a), and in the face of the
creditor arguments that what they had done was not void but
voidable, and the trustee or debtor in possession in each case
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had failed to timely avoid the transactions. That is, some
courts had ruled that if violations of §362(a) were void, there
would be no role for the avoidance action provided by §549,
making §549 superfluous or effectively devoid of content (as
explained most clearly in Schwartz, 954 F.2d at 573-74). Thus,
those courts had concluded that violations of §362(a) must be
voidable rather than void. E.g., Sikes v. Global Marine, Inc.,
881 F.2d 176, 178-79 (5 Cir. 1989); Jones v. Garcia (In re	th
Jones), 63 F.3d 411, 412 and n. 3 (5 Cir. 1995) (listing cases	th
and explaining “voidability” particularly in the context of
annulling of the stay as permitted by §362(d)); compare Easley v.
Pettibone Michigan Corp., 990 F.2d 905, 910 (6 Cir. 1993)	th
(actions taken in violation of automatic stay are “invalid” and
voidable, but shall be voided absent limited equitable
circumstances).
So it was in this context that the Garcia court contrived a
solution to the problem it saw:
Holding that, absent specific statutory exception, see,
e.g., §549(c), actions in violation of the automatic
stay are void, rather than merely voidable, is not as
appellants contend, necessarily irreconcilable with
§549, which requires that actions by the trustee to
avoid post-petition transactions be commenced the
earlier of the time the bankruptcy case is closed or
dismissed or two years after the transaction sought to
be avoided. §362(a) prevents creditors from
dismembering the bankruptcy estate through actions
which do not require the post-petition cooperation or
consent of the debtor. Concluding that §549(d) does
not limit the period in which a transfer may be
challenged as in violation of §362(a) does not render
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§549(d) a nullity, but rather leaves an entire realm of
of post-petition transfers subject to the time
limitations on avoidance contained in §549(d). These
are post-petition transfers in which the debtor is a
willing participant but which, though not prohibited by
the automatic stay, are not otherwise authorized by the
Bankruptcy Code.
Garcia, 109 B.R. at 339 (citation and footnotes omitted).
Schwartz adopted this approach:
On the surface, [the supposed conflict between §§549
and 362] appears troublesome. However, a
straightforward analysis of section 549 reveals that it
is not intended to cover the same type of actions
prohibited by the automatic stay nor rendered moot by
section 362's voiding of all automatic stay violations.
Section 549 applies to unauthorized transfers of estate
property which are not otherwise prohibited by the
Code. Garcia, 109 B.R. at 338-40; In re R & L Cartage &
Sons, 118 B.R. 646, 650-51 (Bankr. N.D. Ind. 1990)
(adopting Garcia analysis). In most circumstances,
section 549 applies to transfers in which the debtor is
a willing participant. See Garcia, 109 B.R. at 339.
For example, in a transfer unrelated to any antecedent
debt, the debtor may sell a portion of the estate's
property to a third person. The trustee has the power
to avoid such a transfer under section 549.
Section 362's automatic stay does not apply to sales or
transfers of property initiated by the debtor. Thus,
section 549 has a purpose in bankruptcy beyond the
potential overlap with section 362. In other words,
the automatic stay can void any violation and still
leave section 549 with a valid and important role in
bankruptcy. Section 549 exists as a protection for
creditors against unauthorized debtor transfers of
estate property. Although there are circumstances
where section 362 overlaps section 549 and renders it
unnecessary, this overlap falls far short of rendering
section 549 meaningless.
Schwartz, 954 F.2d at 573-574.
In each case, Garcia and Schwartz, the transactions that
were challenged occurred when the debtors were debtors in
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possession in chapter 11 cases. Garcia, 109 B.R. at 336;
Schwartz, 954 F.2d at 570. Nevertheless both courts in their
discussions refer only to “debtors” rather than debtors in
possession. And in neither case did the debtors themselves take
any action that constituted the transfer in question. Garcia,
109 B.R. at 336 (public sale of estate property for past due real
estate taxes); Schwartz, 954 F.2d at 570 (IRS assessment of 100%
tax penalty postpetition).
But given the (perhaps too loose) phrasing used by both
courts, the Garcia/Schwartz argument appears to have led the
Ninth Circuit courts astray. The Tippetts, after filing their
chapter 7 case, hired a realtor and sold their home without
anyone’s permission. BAP Tippett at 83. Unfortunately for the
chapter 7 trustee (and the unsecured creditors), the trustee had
failed to record a notice of the filing of the bankruptcy case in
Sacramento County, California, where the property was located.
Id. at 84; Circuit Tippett at 686. In consequence, the purchaser
apparently took for value and in good faith. Shortly after the
sale the chapter 7 trustee filed an action seeking turnover under
§542 (and not §549), to quiet title, and to avoid the liens of
purchaser’s mortgagees. The purchaser and the mortgagees sought
an annulment of the stay to retroactively validate their
purchase. The bankruptcy court denied annulment, and granted
judgment for the Trustee in the adversary proceeding.
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The BAP reversed, holding that “[t]he proposition is that
since Congress provided a mechanism to undo (or avoid) a transfer
of estate property, it obviously contemplated that there could be
an unauthorized transfer of estate property postpetition.” BAP
Tippett at 86. The court went on to reason that if every
exercise of control over estate property which was not excepted
from operation of the stay or was unauthorized constituted a
violation of the stay and was therefore void, there could never
be a postpetition unauthorized transfer to be undone. And that
would make §549 largely meaningless as well. BAP Tippett at 86-
87.8
But unlike the Garcias and the Schwartzes, the Tippetts were
never in charge of their bankruptcy estate. In consequence,
there was never a basis for arguing that they acted on behalf of
the estate. That was a crucial difference between the underlying
facts in Garcia and Schwartz on the one hand and the Tippett
cases on the other hand. Thus, to the extent that Garcia and
Schwartz do not distinguish between debtors versus debtors in
possession, those cases also state the principle too broadly to
be taken at face value.
Circuit Tippett dealt largely with the Code not preempting	8
the California state recording statute, which provides for first
in time filing determining the priority of the lien claims. Id.,
542 F.3d at 689-690.
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In their repeated citations to one of the purposes of the
automatic stay – to protect the estate from being dismembered by
creditors - the Garcia, Schwartz and Tippett cases appear to
overlook the obvious: it is also the trustee who is entitled to
the protection of the automatic stay in order to preserve the
estate intact. That is, in a chapter 7 case, a debtor can wreak
as much havoc on the estate as can a creditor (as amply
illustrated by these proceedings). In consequence, there is
nothing in §362(a) which says that its provisions are limited
only to creditors and in the process excepting chapter 7 debtors
(or chapter 11 debtors out of possession) from the prohibitions
of §362(a).
It is well accepted that the automatic stay not only
protects the debtor's attempt to repay his debts or
reorganize his financial affairs by giving the debtor a
respite from creditor demands, In re Parr Meadows
Racing Assn., 880 F.2d 1540, 1545 (2nd Cir.1989); In re
Ionosphere Clubs, Inc., 105 B.R. 765, 771
(S.D.N.Y.1989), but it also protects creditors by
preventing dismemberment of the estate. Martin–Trigona
v. Champion Federal Savings and Loan Asso., 892 F.2d
575, 577 (7th Cir.1989); In re Sky Group International,
Inc., 108 B.R. 86, 89 (Bankr.W.D.Pa.1989). Purposely,
the automatic stay maintains the status quo, to ensure
an orderly distribution of estate assets, In re
Vitreous Steel Products Co., 911 F.2d 1223, 1231–32
(7th Cir.1990); In re Dohm, 14 B.R. 701, 702
(Bankr.N.D.Ill.1981), and, more importantly, facilitate
the administration of the estate by allowing the court
to resolve claims and distribute assets in accord with
priorities recognized in the Code. Vitreous Steel
Products Co., 911 F.2d at 1231–32. The majority of
Circuit Court cases hold that acts in violation of the
automatic stay are void and without effect. In re
Calder, 907 F.2d 953, 956 (10th Cir.1990); In re
Taylor, 884 F.2d 478, 483 (9th Cir.1989); In re Smith,
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876 F.2d 524, 525–26 (6th Cir.1989); In re Ward, 837
F.2d 124, 126 (3rd Cir.1988). The court will not
tolerate unauthorized acts by debtors or creditors by
allowing possession of, or facilitating the exercise of
control over, or permitting the dismemberment of
property of the estate outside the provisions of the
Code. To do so would make a nullity of § 362 and what
it attempts to accomplish as well as invite horrendous
fraud upon the court.
Yorke v. Citibank, N.A. (In re BNT Terminals, Inc.), 125 B.R.
963, 971 (Bankr. N.D. Ill. 1991).
As for concerns that treating any violation of §362(a) as
void will leave nothing for §549, one could easily imagine a
situation in which a debtor in possession on behalf of the estate
and therefore not as a third party (the category of such third
parties including creditors but also an out of possession debtor
whether in chapter 7 or chapter 11), uses cash collateral without
the agreement of the parties having an interest in the cash
collateral and without court approval, and then finds the case in
the charge of a chapter 7 or chapter 11 trustee who invokes §549
to recover payments made with illegally used cash collateral.
That is exactly what happened in Marathon Petroleum Co., LLC v.
Cohen (In re Delco Oil, Inc.), 599 F.3d 1255 (11 Cir. 2010)	th
(affirming judgment requiring creditor to return cash to estate
pursuant to §§549(a) and 363(c)(2) arising from debtor in
possession’s unauthorized use of cash collateral). Delco Oil is
an example of an appropriate use of §549 by a trustee because the
transfer by the former debtor in possession of the cash
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collateral would not have been authorized by statute but also
would not have been a violation of the automatic stay. A similar
example would be the sale of property by a chapter 11 debtor in
possession without court permission; such a sale need not be
attacked by a §549 action because the transaction is already void
under §362. In re BNT Terminals, Inc., 125 B.R. at 971-7. “The
Trustee need not void an already void transfer.” Id. at 973.9
From what has been said, it is also clear that whether the
debtor was a “willing participant” in the alleged transfer makes
no difference, and does not convert an attempted transfer in
violation of the automatic stay into a transfer only voidable by
§549. Contra Paige, 413 B.R. at 915. This follows because there
is nothing in §362(a) which provides any basis for treating a
chapter 7 debtor attempting to transfer property of the estate
any differently than a creditor attempting to do the same.
The Tenth Circuit has repeatedly ruled that actions taken in
violation of the stay are void ab initio, not merely voidable.
Ellis v. Consolidated Diesel Electric Corp., 894 F.2d 371, 372
(10 Cir. 1990) (summary judgment for defendants in product	th
liability action void when it was entered by district court after
defendants had filed chapter 11 petitions; plaintiffs’ appeal of
summary judgment dismissed for lack of properly entered final
In the instant case of course, the purported transfer was	9
by a debtor out of possession and in consequence constituted a
violation of the stay.
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judgment); Franklin Sav. Assoc. v. Office of Thrift Supervision,
31 F.3d 1020, 1022 (10 Cir. 1994) (bill of costs submitted in	th
district court case postpetition; request for annulment of stay
denied and government required to resubmit bill of costs);
Goldston v. United States (In re Goldston), 104 F.3d 1198, 1201
(10 Cir. 1997) (IRS assessment in violation of stay during	th
chapter 11 case was void in subsequent chapter 13 case; “void is
void, whatever the context”. Sanction was for IRS to lose its
secured status.); see Kalb v. Feuerstein, 308 U.S. 433, 438
(1940) (Wisconsin state court did not have jurisdiction to
confirm sheriff’s sale and dispossess farmer debtors who had
filed bankruptcy petition). The Bankruptcy Court for the
District of Utah summarized it well:
In the Tenth Circuit, actions taken in violation of the
automatic stay are void ab initio, and knowledge of the
stay on the part of the offending party is irrelevant.
As such, they are without legal effect. From the law's
point of view, they simply did not happen.
Paige, 413 B.R. at 915 (footnotes omitted).
The one arguable exception to this long list of Tenth
Circuit cases is Calder v. Job (In re Calder), 907 F.2d 953, 956-
57 (10 Cir. 1990). In that case the debtor engaged in lengthy	th
state court litigation with a third party who was unaware of the
bankruptcy filing, and it was only after having a judgment
entered against him in the state court matter that debtor Calder
informed the third party that he had been in bankruptcy all along
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and thus the state court litigation and judgment were all void.
In those circumstances, essentially on equitable or “clean hands”
grounds, the Tenth Circuit refused to enforce the stay.
Strictly speaking, none of the Tenth Circuit cases involved
an out-of-possession debtor who “willingly” violated the
automatic stay, as did the Tippetts. So it is conceivable that	10
the Tenth Circuit, faced with exactly these facts, might take the
same position as the Tippetts cases. But given the single strand
that runs through all the Tenth Circuit cases of declaring stay
violations void ab initio, and given the unnecessary and
unsupported conceit that the Tippetts cases and their provenance
have created, that would seem to be quite unlikely. Particularly
is that the case here where an out-of-possession (chapter 7)
debtor has acted to cause so much mischief for so many parties.
Nor is the Tenth Circuit likely to yield to other circuits
that view stay violations are voidable rather than void. For
example, in Sikes, 881 F.2d at 178-79, plaintiffs/appellants had
filed a personal injury claim against defendant who had, unknown
to plaintiffs, filed a chapter 11 petition. Defendant maneuvered
Although the Paige courts, particularly the bankruptcy	10
court, discussed the effect of an out-of-possession debtor who
“willingly participates” in an attempted unauthorized transfer of
estate property and stated that in those circumstances the
transfer would be voidable by §549, rather than void, 413 B.R. at
913-14 (citing Garcia), the bankruptcy court found that there was
no willing participation by the debtor and therefore §549 was not
applicable. Id. at 915.
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to preclude the modification of the stay to allow the refiling of
the complaint until after the statute of limitations had passed.
The Fifth Circuit, in a divided ruling, first held that “the term
‘void’ can only be properly applied to those [transactions] ...
that are of no effect whatsoever, mere nullities, ... and
therefore incapable of confirmation or ratification [including by
annulment].” Id. at 178 (quotation marks and citation omitted).
The court also held that the bankruptcy court had modified the
stay after the fact, which it could not do if stay violations
were void rather than voidable. On that basis, the court held
generally that violations of the stay are voidable, not void, and
found support for its reasoning in part in the existence of §549.
The Tenth Circuit case law, e.g., Franklin Sav. Assoc. v.
Office of Thrift Supervision and In re Goldston, in which the
courts consider as possible but then reject requests to annul the
stay, resolves that dilemma. In addition, Calder provides
sufficient support for dealing with the one-off case in which a
debtor has (or, for that matter, a trustee might have) so misled
a party or gamed the system that a rigid application of the
principle that violations of the stay are “void” would be unfair.
In Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th
Cir. 1993), plaintiff/appellant filed an action, just days before
the statue of limitations was to expire, against defendant/debtor
in possession after the latter in 1986 had filed a chapter XI
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[sic] petition. Id. at 907. Debtor confirmed a plan permitting
personal injury actions to go forward, and then removed the
Easley action to the United States District Court. There, it
moved to dismiss the action based on the fact that the original
filing was in violation of the stay. The district court refused
to dismiss the action. The reorganized debtor then took an
interlocutory appeal, asserting that the district court had no
jurisdiction over the removed action. The Sixth Circuit held
that the action, filed postpetition, could not be considered
commenced until the stay had been modified by the bankruptcy
court, and that the reorganized debtor could raise this issue in
the removed proceeding in the district court, id. at 908, and
that plaintiff’s failure to timely refile, when he had been
informed of the void filing, cost him his right to sue. Id. at
912. The court ruled that “actions taken in violation of the
stay are invalid and voidable and shall be voided absent limited
equitable circumstances.” Id. at 911.
The Sixth Circuit’s position is in practice remarkably
similar to that of the Tenth Circuit, as illustrated in part by
its favorable citation to Calder. Thus, despite the use of terms
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such as “invalid” and “voidable”, the Sixth Circuit’s position	11
would not be likely to alter that of the Tenth Circuit.12
In any event, Trustee in this case filed a notice of the
bankruptcy filing and a notice of lis pendens in the Los Alamos
County records long before Debtor attempted the transfer of the
property to Joyce Beery. Thus, were Trustee required to file	13
an action under §549(a) to recover the half interest in the real
property (which she is not), her claim could not be defeated by
an innocent purchaser defense as provided in §549(c).
As subsection (a) and (d) make clear, section 549
concerns avoidance actions by the trustee, not
transfers that are already void under the automatic
stay. Subsection (c), which Lusardi invokes, prevents
such avoidance actions from succeeding against certain
bona fide purchasers. By its terms, subsection (c)
creates an exception only to subsection (a). 11 U.S.C.
§ 549(c) (describing transfers that “trustee may not
The Fifth Circuit used the same term in Bustamante v.	11
Cueva (In re Cueva), 371 F.3d 232, 236 (5 Cir. 2004).	th
The Sixth Circuit also suggested that treating actions in	12
violation of the stay as merely voidable would necessitate little
additional effort on a trustee’s part than if a transaction were
considered void from the outset. Easley, at 910. This adversary
proceeding, and a good part of the proceedings in the underlying
chapter 7 case, amply evidence how erroneous that observation is.
The Court has listed the facts in ¶¶7, 8 and 11 in part	13
because of Banks’ argument that the doctrine of res judicata
means they are not bound by the ruling in AP 97-1059. Although
Banks were not parties to the litigation, they would have been on
notice of that pending litigation and the judgment arising out of
it. As the Tenth Circuit case law cited above makes clear,
whether Banks even knew of the litigation, much less participated
in it, is irrelevant, since Debtor’s purported transfer was void.
In any event, Joyce Beery was a party to that adversary
proceeding, and Banks took from her.
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avoid under subsection (a) of this section”). Thus, as
[Value T Sales, Inc. v. Mitchell (In re Mitchell), 279
B.R. 839, 841-44 (9th Cir. BAP 2002)] noted, the
language and the structure of both section 362 and
section 549 support the view that section 549(c) does
not create an exception to the automatic stay
provision.
40235 Washington Street Corp. v. Lusardi, 329 F.3d 1076, 1081
(9 Cir. 2003). Accord, In re Cueva, 371 F.3d at 236, 238 (“In	th
short, §549(c) is not an exception to the automatic stay imposed
by §362....”).14
Conclusion
For the foregoing reasons, the Court finds that Trustee was
not bound in any way by §549, including any statute of
limitations therein. Therefore the Motion by First National Bank
of Santa Fe and Countrywide Bank, FSB for Partial Judgment on the
Pleadings as to §549 Avoidance Action Set Forth [in] Counts I and
II (doc 26) is not well taken and will be denied.
James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: April 22, 2011
Copies to:
William J Arland, III
PO Box 1089
Santa Fe, NM 87504-1357
Clifford C Gramer, Jr
3733 Eubank Blvd NE
Albuquerque, NM 87111-3536
To be clear, however, both Lusardi and Cueva continue the	14
distinction between creditor-initiated versus debtor-initiated
postpetition transactions as the raison d’etre for §549.
Lusardi, 329 F.3d at 1081-82; Cueva, 371 F.3d at 236.
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