All acts are void that violate the automatic stay, regardless of whether they are willful or merely technical, according to Bankruptcy Judge Christopher D. Jaime of Sacramento, Calif.
In his December 2 opinion, Bankruptcy Judge Jaime disagreed with 2021 decision by the Ninth Circuit Bankruptcy Panel, which he characterized as having “recently suggested” that a technical violation may be voidable, not void.
The Alleged Stay Violations
An unsophisticated 80-year-old woman was evidently having trouble paying the mortgage after her husband died. A man convinced her to give him a quitclaim deed to her home, and he would help resolve problems with the holder of the mortgage.
One month later, the woman filed a lawsuit in state court to set aside the quitclaim deed, claiming it was fraudulently obtained. In another week, she filed a lis pendens. Eight months afterwards, the woman filed a chapter 13 petition.
While the chapter 13 case was pending, the transferee of the quitclaim deed transferred the property to a third party. It’s unclear whether the third-party transferee or the original holder of the quitclaim deed knew the debtor was in chapter 13.
One month following the subsequent transfer, the third party served a notice on the debtor, demanding that she vacate the property. Later still, the third party named the debtor in an action to quit title alongside an unlawful detainer action.
Following the notice to vacate and the unlawful detainer action, the debtor commenced an adversary proceeding in bankruptcy court against everyone who had disputed title to her home or was involved in the actions against her. The complaint now seeks to cancel the original quitclaim deed and hold some of the defendants liable for violations of the automatic stay.
Sua sponte, Judge Jaime notified the parties that he would rule on a motion for partial summary judgment to decide whether all acts taken in violation of the automatic stay were void, including technical violations of the stay.
The Lis Pendens Is an Interest in Property
There could be no violation of the automatic stay if the debtor had no interest in the property, given that she had conveyed a quitclaim deed, which was recorded before the chapter 13 filing.
Citing the Ninth Circuit, Judge Jaime said that a “lis pendens is a real property interest under California law.” More specifically, it is a contingent interest in the real property until judgment in the underlying action.
Although contingent, the contingent interest “is no less property of the bankruptcy estate,” Judge Jaime said.
Because the debtor had filed the lis pendens before bankruptcy, Judge Jaime held that the debtor’s contingent interest in the property “is protected by the automatic stay.”
Are Technical Stay Violations Void or Only Voidable?
Judge Jaime said that violations of the automatic stay can be either willful or technical. A technical violation, he said, “may occur when actions are taken without notice of the bankruptcy case or knowledge of the automatic stay.”
The Ninth Circuit, Judge Jaime said, holds that automatic stay violations are void, not voidable. However, he said that the Ninth Circuit Bankruptcy Appellate Panel had “recently suggested” in a footnote that a technical stay violation may only be voidable, not void. See Koeberer v. California Bank of Commerce (In re Koeberer), 632 B.R. 680, 690 n.4 (B.A.P. 9th Cir. Nov. 18, 2021). To read ABI’s report on Koeberer, click here.
For several reasons, Judge Jaime said he had “doubts” about whether the Ninth Circuit would adopt the exception. First, he cited a 2008 decision by the Ninth Circuit that he interpreted to mean that the court of appeals “recognize[s]” that all stay violations are void.
Second, Judge Jaime said that the authority for the exception “is questionable at best.”
Judge Jaime said that knowledge or notice of the stay “is relevant, of course, for purposes of determining if damages and attorney’s fees are warranted under 11 U.S.C. § 362(k).” Because he was not yet dealing with damages or findings of contempt, he held that “all acts that violate the automatic stay are void without regard to any knowledge or notice of a bankruptcy case or the automatic stay.”
The determination of whether a violation was willful or technical “exists independent of the bankruptcy court’s authority to declare void all acts that violate the automatic stay.”
At this juncture of the case, Judge Jaime said that he “need not determine who knew what with regard to the Plaintiff’s bankruptcy case and/or the automatic stay when each act occurred.” He therefore found that the actions taken after the chapter 13 filing were stay violations, because the “underlying objective of each of the foregoing acts was to divest Plaintiff of all right, title, interest in — and ownership and possession of — her residence.”
Judge Jaime granted partial summary judgment on the claims in the debtor’s complaint asserting that some of the defendants violated the automatic stay.
Observation
For practical reasons, the decision by Judge Jaime makes good sense. Sometimes, it’s hard enough to know whether an act violates the stay. It can be even more difficult to decide whether the stay violation was willful or technical.
After Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), stay violators can’t be held in contempt for technical violations, as Judge Jaime defined the term. If Taggart protects technical stay violators from the imposition of sanctions, little purpose would be served by throwing more hurdles in front of a debtor aiming to restore the status quo ante following a technical stay violation.
All acts are void that violate the automatic stay, regardless of whether they are willful or merely technical, according to Bankruptcy Judge Christopher D. Jaime of Sacramento, Calif.
In his December 2 opinion, Bankruptcy Judge Jaime disagreed with 2021 decision by the Ninth Circuit Bankruptcy Panel, which he characterized as having “recently suggested” that a technical violation may be voidable, not void.