College Columns May 2019 - Page 15

repossess the trucks at issue and threatening the debtor and his young son with a gang of men and a can of mace to accomplish that repossessionin violation of Colorado law did not violate the stay just because the creditors refused to return the trucks post-petition, there could still be a violation of the stay based on post-petition acts taken by the creditors in an “attempt to convince the Court that [the debtor’s] rights in the Trucks had been terminated pre-bankruptcy.” Id. at 945-46. The Circuit noted that the bankruptcy court found that the creditors “manufactured the paperwork . . . after the bankruptcy filing,” produced “likely forged documents and . . . perjured testimony” in the court, and “coached their witnesses on what to testify to during […] breaks,” and remanded the case for the bankruptcy court to determine whether these “would qualify as post-petition acts to exercise control over the debtor’s property in violation of the automatic stay.” Id. at 951.

The Third Circuit has yet to weigh in on this split, but a district court in the Third Circuit revisited the issue in a case involving a 2008 Chevrolet Corvette that had been purchased under a retail installment contract and repossessed prior to its owner’s bankruptcy filing. Denby-Peterson v. Nu2u Auto World, 595 B.R. 184 (D.N.J. 2018). While the U.S. District Court for the District of New Jersey reviewed the issue as one of first impression in the Third Circuit, it noted that “[t]his District, according to the Bankruptcy Court, has followed the minority position for the past twenty years.” Id. at 190. Unable to find reported cases to back up the lower court’s finding, the Court nonetheless adopted the minority position, finding it to be “more persuasive,” following the Tenth Circuit’s statutory construction in Cowen that Section 362(a)(3) only prohibits “any act . . . to exercise control over property of the estate.” Id. At 190 (emphasis in original).

Even within the Seventh Circuit, which came down on the side of passively holding property of the estate as violative of the stay, decisions rendered in this past year are still addressing this hot issue. In re Scott, 584 B.R.

252 (Bankr. N.D. Ill. 2018); In re Peake, 588 B.R. 811 (Bankr. N.D. Ill. 2018); Cross v. City of Chicago, 584 B.R. 833 (Bankr. N.D. Ill. 2018). A recent decision by the Bankruptcy Court for the Northern District of Illinois involved a debtor’s vehicle, which had been seized and impounded pre-petition by the City of Chicago. In re Fulton, 2018 Bankr. LEXIS 1555, 2018 WL 2392854 (Bankr. N.D. Ill. 2018); The City argued, among other things, that “the City’s passive possession of the Debtor’s vehicle is its means of maintaining perfection of its possessory lien, and thus, excepted from the automatic stay pursuant to 11 U.S.C. § 362(b)(3).” Id. at 2018 Bankr. LEXIS 1555 *10. The court rejected the City’s arguments, stating, “The City is attempting to destroy a basic bankruptcy protection. It has no basis […] to continue to hold vehicles of the debtor, seized prepetition, once the debtor made the request for turnover. The City does not have a possessory lien pursuant to Illinois law, and even if it did, such lien would not be excepted from the automatic stay.” Id. at 2018 Bankr. LEXIS 1555 *9-10.

With the proliferation of decisions in the past two years, and the recent reemergence of the minority view, this circuit split is ripe for Supreme Court intervention.


Annette represents banks, financial institutions, and numerous other parties nationwide in resolving concerns related to Chapter 11 bankruptcy cases and out-of-court

workouts. She is a member of her firm's Management Committee and the Partner-in-Charge of the Transactions Practice Groups at Dorsey.