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In Re: Christopher Weber v. Sefcu

May 8, 2013

IN RE: CHRISTOPHER WEBER, DEBTOR.
CHRISTOPHER WEBER, PLAINTIFF-APPELLEE,
v.
SEFCU, DEFENDANT-APPELLANT, ANDREA E. CELLI, CHAPTER 13 TRUSTEE, TRUSTEE.



Appeal from a final judgment of the United States District Court for the Northern District of New York (Suddaby, J.) finding that defendant-appellant SEFCU violated the Bankruptcy Code's automatic stay provision, 11 U.S.C. § 362, and remanding to the Bankruptcy Court (Littlefield, J.) for a determination regarding sanctions.

The opinion of the court was delivered by: Susan L. Carney, Circuit Judge:

12-1632-bk

Weber v. SEFCU

Argued: December 4, 2012

Before: CABRANES, RAGGI, and CARNEY, Circuit Judges.

SEFCU, which held a loan secured in part by a vehicle owned by plaintiff-appellee Christopher Weber, repossessed the vehicle pursuant to the loan agreement shortly before Weber filed a petition seeking relief under Chapter 13 of the Bankruptcy Code. Although it received notice of the petition, SEFCU refused -- absent entry of a court order and provision of protection that it deemed adequate -- to return Weber's vehicle to him as debtor-in-possession. Weber retained at least an equitable interest in the vehicle under New York law. Thus, under United States v. Whiting Pools, Inc., 462 U.S. 198 (1983), the filing of Weber's bankruptcy petition transformed the equitable interest into a possessory interest held by Weber's estate. We conclude that SEFCU "exercised control" over "property" of Weber's bankruptcy estate in contravention of section 362 when it failed to relinquish the vehicle promptly after it learned that a Chapter 13 petition was filed. Consequently, under section 362(k), SEFCU is liable for Weber's actual damages resulting from the wrongful retention, costs, and attorneys' fees. The judgment of the district court is AFFIRMED.

Defendant SEFCU, a lender, appeals from a judgment of the United States District Court for the Northern District of New York (Suddaby, J.) reversing an order of the United States Bankruptcy Court for the Northern District of New York (Littlefield, J.) and remanding the case to the Bankruptcy Court for further proceedings. The District Court concluded that SEFCU violated the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362, when, after lawfully repossessing a vehicle belonging to the debtor, plaintiff Christopher Weber, it failed to deliver the vehicle to him notwithstanding its knowledge of the debtor's pending petition under Chapter 13 of the Bankruptcy Code. The District Court affirmed, holding that, by declining to surrender the vehicle absent a turnover order and protection SEFCU considered adequate, the lender wrongfully "exercised control" over the vehicle in contravention of section 362 and was liable for Weber's related damages, attorneys' fees, and costs.

On appeal to our Court, SEFCU challenges the District Court's interpretation of section 362 and other relevant provisions of the Bankruptcy Code, and argues that, under the authority of Manufacturers & Traders Trust Co. v. Alberto (In re Alberto), 271 B.R. 223 (N.D.N.Y. 2001), it was entitled to retain the vehicle notwithstanding the pending bankruptcy proceedings. For the reasons set forth below, we AFFIRM the judgment of the District Court and REMAND the cause to the district court for a determination of the amount of damages, costs, and attorneys' fees that SEFCU owes Weber under section 362(k), and any other proceedings consistent with this opinion.

BACKGROUND

The relevant facts are undisputed.*fn1

In August 2006, Weber and SEFCU (identified in Bankruptcy Court pleadings as the "State Employees Federal Credit Union")*fn2 entered into a loan agreement pursuant to which SEFCU obtained a security interest in Weber's vehicle, a pickup truck. The loan agreement entitled SEFCU to repossess Weber's vehicle upon default.

In 2009, SEFCU became entitled to proceed against Weber. As a result, on January 10, 2010, SEFCU took possession of Weber's vehicle pursuant to the loan agreement, and, by notices dated January 10 and 11, 2010, advised him of his right under New York law to redeem the vehicle upon payment of amounts due and certain costs. Four days after the seizure, on January 14, Weber filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code, 11 U.S.C. §§ 109(e), 1301-08, 1321-30, in the United States Bankruptcy Court for the Northern District of New York. Weber's attorney concurrently gave SEFCU written notice of Weber's bankruptcy filing, and, invoking the stay imposed by Bankruptcy Code section 362, 11 U.S.C. § 362(a), requested the vehicle's return.

One week later, SEFCU still had the vehicle, and accordingly, on January 22, Weber filed an adversary proceeding against SEFCU seeking its return so that, as later explained by his counsel to the Bankruptcy Court, he could "continue his construction business" during the pendency of his petition. On March 1, with the vehicle still in SEFCU's possession, the Bankruptcy Court entered an order requiring SEFCU to show cause why it should not return the vehicle and why the court should not grant Weber an award of damages for SEFCU's violation of section 362 and for other relief. On March 4, the court heard argument on the order to show cause, and, although the record does not reflect entry of a related order at that time, SEFCU is reported to have returned the vehicle to Weber the following day.

The proceedings in the Bankruptcy Court continued, as Weber sought damages for his inability to use the vehicle between January 14 and March 5, attorneys' fees, and sanctions. In November 2010, SEFCU moved for summary judgment, putting to the Bankruptcy Court the question of law whether SEFCU's failure to release the vehicle promptly after the petition was filed constituted a "willful" violation of the automatic stay under subsections (a) and (k)(1) of section 362 (providing for recovery of damages, costs, and attorneys' fees for "any willful violation of a stay"). SEFCU maintained that there was no violation, and that an earlier district court decision in other proceedings, Alberto, 271 B.R. 223 (N.D.N.Y. 2001), gave it a reasonable basis for declining to release the vehicle absent a court order issued pursuant to Bankruptcy Code section 542, 11 U.S.C. § 542 (relating to "Turnover of property to the estate"). Weber, for his part, argued that Alberto was wrongly decided, and that section 362 required SEFCU to release the vehicle promptly after the petition was filed. The Bankruptcy Court, in a brief Order, granted summary judgment for SEFCU.

Weber appealed to the District Court. Relying primarily on the Supreme Court's decision in United States v. Whiting Pools, Inc., 462 U.S. 198 (1983), and rejecting the reasoning of the Alberto court, the district court concluded that SEFCU was bound to release the vehicle to Weber, the debtor-in-possession, upon learning of Weber's pending Chapter 13 proceedings. The district court further determined that, having failed to do so, SEFCU violated section 362. Because it knew of the petition and retained the vehicle, SEFCU's violation ...


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