Richard Garden, Jr. v. Central Nebraska Housing Corp., et al
Filing
OPINION FILED - THE COURT: Roger L. Wollman, Raymond W. Gruender and Bobby E. Shepherd AUTHORING JUDGE:Roger L. Wollman (PUBLISHED), CONCUR AND DISSENT BY: RAYMOND W. GRUENDER [4049305] [12-2344]
United States Court of Appeals
For the Eighth Circuit
___________________________
No. 12-2344
___________________________
Richard P. Garden, Jr., Trustee
lllllllllllllllllllll Plaintiff - Appellee
v.
Central Nebraska Housing Corp.
lllllllllllllllllllll Defendant - Appellant
Pinnacle Bank, of Newcastle Wyoming; Security First Bank
lllllllllllllllllllll Defendants
Rick Roberts; Loretta Sue Roberts
lllllllllllllllllllll Defendants - Appellees
John Zapata; Coljo Investments, LLC
lllllllllllllllllllll Defendants - Appellants
Pinnacle Bank; Unverzagt Feed Lot
lllllllllllllllllllll Defendants
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Appeal from United States District Court
for the District of Nebraska - Omaha
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Appellate Case: 12-2344
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Date Filed: 06/27/2013 Entry ID: 4049305
Submitted: January 17, 2013
Filed: June 27, 2013
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Before WOLLMAN, GRUENDER, and SHEPHERD, Circuit Judges.
____________
WOLLMAN, Circuit Judge.
Richard Garden, acting as trustee for certain farm property pursuant to a deed
of trust, brought this interpleader action seeking a determination of rights to the sales
proceeds from an auction of the farm. Central Nebraska Housing Corp. (CNH) and
John Zapata challenge the district court’s1 orders: 1) denying CNH’s partial motion
for summary judgment, in which CNH argued that it had a contract to purchase the
farm for $113,000; 2) granting Rick and Loretta Robertses’ partial motion for
summary judgment concerning whether the sale of the farm to Gittaway Ranch, LLC
could be set aside; 3) granting in part the Robertses’ second motion for partial
summary judgment concerning the reduction of CNH’s secured claim; and
4) awarding sanctions against Zapata and CNH. We affirm.
I. Background
The Robertses owned a farm in Sheridan County, Nebraska. On January 22,
2010, they filed for Chapter 7 bankruptcy, claiming a homestead exemption in the
farm under Nebraska Revised Statutes §§ 40-101 to 40-108. On May 19, 2010,
Zapata’s company, CNH, acquired a first deed of trust in the farm by virtue of a post
petition assignment of a promissary note and trust deed. The trust deed granted the
trustee a power of sale and secured, among other things, the following:
1
The Honorable Laurie Smith Camp, Chief Judge, United States District Court
for the District of Nebraska.
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Payment of any sums advanced by Beneficiaries or Trustee (with interest
as herein provided), which sums are reasonably necessary or incidental
to improvement or protection of the Trust Property; or which sums are
expended in the exercise of rights granted herein. These sums include,
but are not limited to, sums advanced for payment of taxes, insurance,
abstracting, survey, recording, publication expense, court costs,
expenses of litigation (including any fees of an attorney to the extent
authorized by law), and expenses of sale.
The trust deed provided beneficiaries with the right to “inspect the Trust Property at
any reasonable time and [to] perform any acts authorized hereunder.”
On June 1, 2010, the Robertses defaulted on their obligations arising under
CNH’s trust deed, thereby triggering the trustee’s authority to sell the farm. On July
15, 2010, CNH obtained relief from the automatic bankruptcy stay and filed a proof
of claim asserting a secured claim. On July 20, 2010, CNH filed notices of default
and elections to sell the farm.
On November 15, 2010, Greg Frayser, acting as the representative for the
trustee, conducted an auction to sell the farm. Rick Roberts and representatives from
Pinnacle Bank, CNH, Coljo Investment, and Gittaway Ranch, LLC attended the sale.
Before the auction opened, Frayser read aloud a bid sheet that stated, in part, “The
Trustee’s Sale will remain open for ten (10) minutes and I will accept any bids
offered during that time.” Frayser did not announce that he would close the sale
immediately upon the expiration of ten minutes and refuse to accept any further bids.
CNH opened the bidding, and thereafter Pinnacle Bank, CNH, Coljo
Investments, and Gittaway Ranch bid against each other. Immediately before the tenminute period expired, CNH bid $113,000. Frayser then announced the expiration
of the ten-minute period. Frayser did not issue a warning that the ten-minute period
was about to expire, nor did he solicit any additional bids before closing the auction.
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Frayser did not announce that the property was sold to CNH. Pinnacle Bank
protested the auction’s conclusion. After Frayser consulted with the trustee, he
accepted additional bids, over CNH’s protestation. CNH bid $166,100, but its bid
was topped by a $166,500 bid by Gittaway Ranch. Frayser recorded Gittaway Ranch
as the “highest and prevailing bidder” on the bid sheet. Gittaway Ranch assigned its
successful bid to Coljo Investments (owned by Zapata and his wife), which paid the
trustee $166,500 for the farm.
Pinnacle, CNH, and Security First made competing claims to the sales
proceeds. The trustee then filed an interpleader action in the bankruptcy court
seeking a determination of the claims. The bankruptcy court found that it lacked
jurisdiction over the interpleader complaint and transferred the case to the district
court.
CNH and the Robertses filed cross motions for partial summary judgment.
CNH argued that it had purchased the farm for $113,000 and that $53,500 of the sales
proceeds should be returned to it. The Robertses argued that the district court should
uphold the sale of the farm to Gittaway Ranch. The district court denied CNH’s
motion and granted the Robertses’ motion.
The Robertses later filed a second motion for partial summary judgment,
arguing that their homestead exemption entitled them to $60,000 from the sales
proceeds and disputing, among other things, the amount of CNH’s secured claim.
Specifically, the Robertses argued that CNH’s claims for $17,426 for monthly
inspections of the farm and for $7,553.57 in attorney’s fees were not part of its
secured claim. The district court granted the Robertses’ motion in part, finding that
CNH’s inspections of the farm before July 15, 2010, were attempts to further
encumber the farm and were void as being in violation of the automatic stay; that the
Bankruptcy Code allowed the Robertses to avoid the inspection fees occurring after
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July 15, 2010; and that CNH had failed to set forth evidence that the attorney’s fees
should be included as part of its secured claim.
Following the receipt of briefs and affidavits, the district court issued findings
of fact and conclusions of law concerning the parties’ rights to the remaining sales
proceeds. The Robertses then filed an amended motion seeking sanctions against
Zapata and CNH for violating the automatic stay and the bankruptcy court’s
discharge order and for failing to admit and deny discovery questions. The district
court, relying on an affidavit from the Robertses’ attorney and an accompanying
invoice, granted the Robertses’ motion in part, finding that as a result of CNH’s and
Zapata’s violation of the automatic stay, the Robertses had incurred $25,792.25 in
actual damages in the form of attorney’s fees incurred from November 16, 2010
through January 31, 2012.
II. Discussion
CNH challenges the district court’s rulings, arguing that it had a contract to
purchase the farm for $113,000 and that it had established that the sale to Gittaway
Ranch should be set aside. CNH also argues that the district court erred in its ruling
concerning the amount of CNH’s secured claim and that the district court abused its
discretion in imposing sanctions.
A. Summary Judgment Orders
We review de novo the district court’s grants of summary judgment and may
affirm the district court on any basis supported by the record. Hohn v. BNSF Ry. Co.,
707 F.3d 995, 1000 (8th Cir. 2013). “Summary judgment is appropriate if there are
no genuine disputes of material fact and the moving party is entitled to judgment as
a matter of law.” Id. (citing Fed. R. Civ. P. 56).
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1)
Whether CNH had a valid contract to purchase the farm
CNH argues that a contract was formed between the trustee and CNH when
CNH made its $113,000 bid immediately before the close of the ten-minute bidding
period. CNH, as the entity seeking to enforce the alleged contract, bears the “burden
of proving there was a definite offer and an unconditional acceptance.” Marten v.
Staab, 543 N.W.2d 436, 443 (Neb. 1996) (quoting Satellite Dev. Co. v. Bernt, 429
N.W.2d 334, 337 (Neb. 1988)). That is, CNH must demonstrate that “a valid, legally
enforceable contract exists.” Id. (quoting Bernt, 429 N.W.2d at 337).
Generally speaking, there are two types of auctions that give rise to a contract
for the sale of property: those without reserve, and those with reserve. Id. In an
auction without reserve, the seller is the offeror and the bidder is the offeree. Id.
“[T]he contract is consummated with each bid, subject only to a higher bid being
received.” Id. (quoting Pitchfork Ranch Co. v. Bar TL, 615 P.2d 541, 548 (Wyo.
1980)). “In this type of sale, the seller may not withdraw his property once any
legitimate bid has been submitted[.]” Id. (quoting Pitchfork, 615 P.2d at 548).
The roles of the seller and bidder are reversed in an auction with reserve, with
the bidder acting as the offeror and the seller as the offeree. Id. “[T]he auctioneer,
as agent of the seller, invites bids (offers) with the understanding that no bargain
exists until the seller has made a further manifestation of assent; the auctioneer may
reject all bids and withdraw the goods from sale until he announces completion of the
sale.” Id. (quoting Rosin v. First Bank of Oak Park, 466 N.E.2d 1245, 1249 (Ill. App.
Ct. 1984)). “[A]uctions are presumed to be with reserve unless they are expressly
stated to be without reserve.” Id. (quoting Cuba v. Hudson & Marshall, Inc., 445
S.E.2d 386, 387 (Ga. Ct. App. 1994)).
CNH contends that the following language on the bid sheet created an auction
without reserve: “The Trustee’s Sale will remain open for ten (10) minutes and I will
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accept any bids offered during that time.” This language, however, does not
constitute an express statement that the auction would be without reserve. Instead,
the language indicates a “preliminary negotiation, not intended and not reasonably
understood to be intended to affect legal relations.” Marten v. Staab, 537 N.W.2d
518, 523 (Neb. Ct. App. 1995) (citation omitted) (explaining that seller’s statements
that property “will be sold to the highest bidder” does not ordinarily transform an
auction into one without reserve), aff’d, 543 N.W.2d 436 (Neb. 1996).
CNH argues that even if the auction was with reserve, it need only show that
there was an offer, an acceptance, and closure of the auction to create a valid sale
under the Nebraska Trust Deeds Act. CNH contends that it has met this burden,
pointing to its $113,000 bid as the offer, Frayser’s statement before the auction that
he would “accept any bids offered during that time” as the acceptance, and Frayser’s
announcement that the ten-minute time period had expired as the closure of the sale.
The general rule is that “acceptance of a bid at auction is denoted by the fall of the
hammer or by any other audible or visible means signifying to the bidder that he or
she is entitled to the property[.]” 7 Am. Jur. 2d Auctions and Auctioneers § 31 (2013)
(footnote omitted). Here, there was no fall of the hammer at the conclusion of the ten
minutes. Instead, Frayser simply announced that the ten-minute time period had
expired. Frayser did not make any indication that he had accepted CNH’s bid, such
as saying that the property was “going, going, gone” or “sold” to CNH. Id. (footnotes
omitted) (explaining that in addition to the fall of the hammer, an auctioneer’s use of
these expressions may also indicate acceptance of the last bid received). CNH’s
argument that Frayser’s statement that he would “accept any bids offered during that
time” constitutes an acceptance of their bid is a continued attempt by CNH to treat the
auction as one without reserve. When an auction is with reserve, as we conclude this
one was, Frayser’s initial statement could not have been the “audible or visible means
signifying to the bidder that he or she is entitled to the property[.]” Id. Accordingly,
the district court properly denied CNH’s motion for summary judgment.
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2) Whether CNH can set aside the sale of the farm to Gittaway Ranch
CNH argues that the district court erred by finding that CNH could not set
aside the sale to Gittaway Ranch and in granting the Robertses’ motion for partial
summary judgment. Relying on Gilroy v. Ryberg, 667 N.W.2d 544 (Neb. 2003),
CNH argues that the sale to Gittaway Ranch should be set aside because the auction
process was defective, causing prejudice to CNH in that Frayser’s acceptance of bids
after the ten-minute period expired resulted in Zapata’s having to pay a higher price
to purchase the farm. Assuming that CNH can even challenge the sale, it cannot
demonstrate prejudice, for, as set forth above, its $113,000 bid did not result in a
valid contract between it and the trustee.
3) Whether CNH set forth sufficient evidence to create a material question of fact
concerning its attorney’s fees
CNH argues that the district court erred in granting the Robertses summary
judgment on the issue whether the $7,553.57 in attorney’s fees were part of CNH’s
secured claim.2 Title 11, United States Code, Section 506(b) allows an oversecured
creditor to recover “any reasonable fees, costs, or charges provided for under the
agreement . . . under which such claim arose.” In First Western Bank & Trust v.
Drewes (In re Schriock Construction, Inc.), 104 F.3d 200, 201 (8th Cir. 1997), we
explained that a creditor seeking to recover attorney’s fees under § 506(b) must show:
“(1) that it is oversecured in excess of the fees requested; (2) that the fees are
reasonable; and (3) that the agreement giving rise to the claim provides for attorney’s
fees.”
2
To the extent that CNH disputes the district court’s finding that CNH’s
inspection fees were not part of its secured claim, this argument is waived, as CNH
has failed to develop it on appeal. See Cubillos v. Holder, 565 F.3d 1054, 1058 n.7
(8th Cir. 2009) (deeming an argument not developed on appeal to be waived).
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In their motion for partial summary judgment, the Robertses included a billing
statement from CNH’s attorney and, without conceding the reasonableness of the
fees, argued that CNH’s attorney’s fees that arose before the Robertses defaulted or
were unrelated to the trust deed’s foreclosure were not part of CNH’s secured claim.
The district court found that the trust deed secured the payment of certain attorney’s
fees “necessary or incidental to improvement or protection” of the farm, but that CNH
had failed to offer any evidence showing that its attorney’s fees satisfied this
requirement or were reasonable.
CNH argues that the district court’s finding was erroneous because the district
court improperly shifted to it the burden of demonstrating the necessity and
reasonableness of attorney’s fees. We disagree. A party opposing a properly
supported motion for summary judgment like the Robertses’ “has an affirmative
burden to designate specific facts creating a triable controversy.” Midwest Oilseeds,
Inc. v. Limagrain Genetics Corp., 387 F.3d 705, 714 (8th Cir. 2004) (quoting
Crossley v. Ga.-Pac. Corp., 355 F.3d 1112, 1113 (8th Cir. 2004) (per curiam)).
CNH’s only response to the Robertses’ motion for partial summary judgment on this
issue was a short statement that CNH’s claim for attorney’s fees was a question of
fact. Although CNH acknowledges that it would bear the burden at trial of showing
that its attorney’s fees were reasonable and that they were necessary or incidental to
the protection or improvement of the farm, it failed to offer any evidence on these
issues. In these circumstances, the district court did not err in granting summary
judgment in favor of the Robertses on this issue.3 See Crotty v. Dakotacare Admin.
3
In its brief on appeal, CNH asserts, without citation to the record, that there
were affidavits in the record from Zapata and Garden establishing that the attorney’s
fees were reasonable and were necessary to protect the farm. Although CNH
submitted affidavits from Zapata and Garden concerning attorney’s fees prior to the
district court’s final determination of the parties’ rights to the sales proceeds, these
affidavits were not before the district court when it ruled on the Robertses’ second
motion for partial summary judgment. Accordingly, we are unable to consider them.
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Servs., Inc., 455 F.3d 828, 831 (8th Cir. 2006) (“When a party . . . has the burden of
proof on an issue, it must present evidence sufficient to create a genuine issue of
material fact to survive a properly supported summary judgment motion.”).
B. Sanctions
CNH contends that the district court erred by awarding the Robertses
$25,792.25 in sanctions. The Robertses’ January 22, 2010, bankruptcy filing triggered
the automatic stay provisions of 11 U.S.C. § 362. Section 362(k)(1) provides that a
debtor injured by a “willful” violation of the automatic stay “shall recover actual
damages, including costs and attorneys’ fees[.]” To recover under § 362(k), the
debtor must show that the creditor’s violation of the automatic stay was willful and
that the violation injured the debtor. See Lovett v. Honeywell, Inc., 930 F.2d 625,
628 (8th Cir. 1991). We review a district court’s award of sanctions for an abuse of
discretion. Schwartz v. Kujawa (In re Kujawa), 270 F.3d 578, 581 (8th Cir. 2001).
CNH argues that even if it violated the automatic stay, the district court abused
its discretion by awarding sanctions because the Robertses did not suffer any actual
damages. Specifically, CNH argues that our decision in Lovett establishes that
attorney’s fees can never, by themselves, constitute independent “actual damage”
under § 362(k). We do not read Lovett so broadly. In Lovett, the only evidence of
damages presented was that of bringing a motion for a temporary restraining order
and contempt sanctions in the bankruptcy court. 930 F.2d at 629. There was no
evidence of the trustee’s costs and attorney’s fees associated with defending the
property of the bankruptcy estate from the alleged violation of the bankruptcy stay.
Id. Here, the district court awarded the Robertses the attorney’s fees they incurred
See ACLU of Minn. v. Tarek ibn Ziyad Acad., 643 F.3d 1088, 1095 (8th Cir. 2011)
(“Generally, we cannot consider evidence that was not contained in the record below
when the district court rendered its decision.”).
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“to protect their homestead exemption from CNH and Zapata’s attempts to further
encumber estate property in violation of the automatic stay.” D. Ct. Order of May 10,
2012, at 9. Had the Robertses not incurred these fees, the district court explained,
“they would have lost most, if not all, of the value of their homestead exemption.”
Id. This is not a situation in which the district court awarded attorney’s fees for time
the Robertses’ attorney spent prosecuting the March 13, 2012, motion for sanctions.
Indeed, the district court specifically declined to award the Robertses attorney’s fees
incurred after January 31, 2012, finding that the Robertses had failed to point “to any
evidence indicating with reasonable certainty that those fees have actually been
incurred or that they were incurred as a result of protecting their homestead from
violations of the automatic stay or discharge injunction.” Id. at 10.
Alternatively, CNH argues that the district court abused its discretion because
the fees awarded were not incurred solely in response to issues raised by CNH and
because the Robertses failed to show with specificity those fees attributable to CNH’s
and Zapata’s violations of the automatic stay. Our review of the entire record
satisfies us that the district court, which was most familiar with this litigation and in
the best position to determine the amount of actual damages, did not abuse its
discretion in finding that the Robertses had incurred $25,792.25 in actual damages
as a result of CNH’s and Zapata’s violation of the automatic stay. See Hutchins v.
A.G. Edwards & Sons, Inc., 116 F.3d 1256, 1260 (8th Cir. 1997) (“Because ‘the
district courts are more familiar with proceedings before them and with the conduct
of counsel than we are, . . . we should give them a large measure of discretion in
deciding what sanctions are appropriate for misconduct.’” (quoting Givens v. A.H.
Robins Co. Inc., 751 F.2d 261, 263 (8th Cir. 1984))); Hubbard v. Fleet Mortg. Co.,
810 F.2d 778, 782 (8th Cir. 1987) (per curiam) (“In contempt cases, the trial court has
discretion to fashion the punishment to fit the circumstances.”).
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III. Conclusion
The judgments and award of sanctions are affirmed.
GRUENDER, Circuit Judge, concurring in part and dissenting in part.
I agree with the Court that CNH’s bid of $113,000 failed to create a legally
enforceable contract and that the sale to Gittaway Ranch for $166,500 should not be
set aside. Furthermore, I would affirm the district court’s conclusion that CNH fell
short of establishing a genuine issue of material fact regarding whether its attorneys’
fees were both reasonable and authorized by the trust deed. But while some of
CNH’s arguments to this court may not have been expressed with ideal clarity, I
conclude that CNH did not waive the argument that its inspection costs should be
included in its secured claim pursuant to § 506(b), see supra n. 2. The district court
analyzed this matter incorrectly, and I would reverse and remand to the district court
for further proceedings. I also would vacate the award of sanctions.
CNH did not waive its claim to inspection costs under § 506(b). In order to
understand the arguments CNH presented to this court, it is first necessary to
understand the district court ruling to which CNH was responding. As the district
court noted in its January Memorandum and Order (“January Order”),
Section 506(b) of the Bankruptcy Code governs whether fees, costs, or
charges become part of a creditor’s allowed secured claim. See 11
U.S.C. § 506(b). “To recover attorney’s fees under section 506(b) . . . a
creditor must establish: (1) that it is oversecured in excess of the fees
requested; (2) that the fees are reasonable; and (3) that the agreement
giving rise to the claim provides for attorney’s fees.”
(alteration in original) (quoting First W. Bank & Trust v. Drewes (In re Schriock
Constr., Inc.), 104 F.3d 200, 201 (8th Cir. 1997)). The district court refused to
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incorporate CNH’s attorneys’ fees into CNH’s secured claim because CNH failed to
bring forth evidence creating a genuine issue of material fact as to whether the
attorneys’ fees were reasonable and whether they were authorized under the trust deed
as “reasonably necessary or incidental to improve[] or protect[]” the property.4
Despite recognizing the applicability of the § 506(b) framework to the attorneys’ fees
issue, the district court inexplicably determined that CNH’s analogous request also
to incorporate its inspection costs into its secured claim should be analyzed using an
entirely different framework. Instead of applying the three-part test from First
Western Bank & Trust v. Drewes, the district court examined whether the inspections
violated the automatic stay or were avoidable post-petition transfers. The court first
concluded that any inspection costs “that occurred prior to July 15, 2010,” the date
the automatic stay was lifted, were “void as a violation of the automatic stay.” As to
any inspection costs incurred after this date, the court made an alternative holding and
determined that they also should be excluded as avoidable post-petition transfers “to
the extent such [inspection costs] are not void as a violation of the automatic stay.”5
In its brief to this court, CNH first argued that the district court reached the
wrong result under the three-part test from First Western Bank & Trust with regard
to its request to incorporate attorneys’ fees into its secured claim under § 506(b).
CNH then built on this discussion and argued that the district court had further erred
by failing to apply this test to its claim for inspection costs. As CNH observed,
“[c]ontrary to the law allowing for the collection of such fees as part of the secured
claim, the trial court found that such inspection fees were an attempt to encumber the
4
As mentioned above, I agree with the district court’s analysis on this point.
5
The district court’s May Memorandum and Order regarding sanctions further
indicates that the district court believed inspections conducted after the automatic stay
was lifted in July could nonetheless be violations of the automatic stay. The district
court noted that “CNH violated the automatic stay when it inspected, and thereby
attempted to further encumber, property of the bankruptcy estate during the months
of May through August of 2010.” (emphasis added)
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property without specific permission from the bankruptcy court.” CNH then cited to
the portion of the January Order in which the district court concluded that none of the
inspection costs could be incorporated into CNH’s secured claim because they were
either a violation of the automatic stay or avoidable post-petition transfers, or both.
CNH pointed out that under the district court’s approach, secured creditors would
have to obtain “successive relief from the stay for each individual step taken” to
“enforce his or her rights under a trust deed.” Even after the stay was lifted, the
consequence of the district court’s holding would be to require secured creditors to
specifically “seek additional relief from the stay” if they hoped to subsequently
recover costs authorized by a trust deed. CNH went on to argue that the correct
approach was for the district court to instead analyze whether the inspection costs
could be included in its secured claim under the three-part test in First Western Bank
& Trust.
When taken together, this section of CNH’s brief challenges both of the district
court’s stated reasons for excluding all of the inspection costs from CNH’s secured
claim. In deeming this argument “waived,” the Court demands a level of clarity and
detail from CNH that is unprecedented. CNH argued that the district court analyzed
the issue incorrectly, it cited to the portion of the district court’s opinion that it
disputed, and it described the purportedly proper framework of analysis, including a
case citation. This is all that is required under Federal Rule of Appellate Procedure
28(a)(9)(A)6 and accordingly was sufficient to preserve for this court’s consideration
the question of whether CNH could include its inspection costs in its secured claim
pursuant to § 506(b), or whether these inspection costs were, as the district court
concluded, violations of the automatic stay or avoidable post-petition transfers.
6
“The appellant’s brief must contain . . . the argument, which must contain
appellant’s contentions and the reasons for them, with citations to the authorities and
parts of the record on which the appellant relies.”
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Furthermore, I agree with CNH that the district court’s analysis of the
inspection costs issue was fundamentally flawed. First, CNH’s incurring of
inspection costs were not violations of the automatic stay.
[T]he automatic stay does not bar all post-petition charges on real
property, as over-secured creditors are permitted by § 506(b) to add
post-petition interest to their secured claims as well as other charges
authorized by a creditor’s security agreement, including post-petition
attorney fees. The concept thus exists in the Bankruptcy Code itself for
reducing the bankruptcy estate’s equity in real property, thereby
eliminating any notion that the status quo must be preserved at all costs.
Mutual Ins. Co. of New York v. Cnty. of Fresno (In re D. Papagni Fruit Co.), 132
B.R. 42, 46 (Bankr. E.D. Cal. 1991) (internal citation omitted). The district court
seemed to be under the impression that where a trust deed authorizes a secured
creditor to recover certain costs and fees and a creditor takes actions during (and even
after) the pendency of the automatic stay that are potentially eligible to be included
in his secured claim, then this conduct necessarily encumbers the bankruptcy estate
in violation of the automatic stay. This court has found creditors to have violated an
automatic stay only where they have taken steps to circumvent the bankruptcy court’s
control of the bankruptcy estate. See Sosne v. Reinert & Dupree, P.C. (In re Just
Brakes Corporate Sys., Inc.), 108 F.3d 881, 884 (8th Cir. 1997) (finding that
collecting foreclosure sale proceeds violates automatic stay); Knaus v. Concordia
Lumber Co. (In re Knaus), 889 F.2d 773, 774-75 (8th Cir. 1989) (finding violation
of automatic stay where creditor failed to turn over to the bankruptcy estate
equipment belonging to debtor); Small Business Admin. v. Rinehart, 887 F.2d 165,
167-68 (8th Cir. 1989) (finding violation of automatic stay where creditor put a hold
on funds the debtor was entitled to receive instead of turning the funds over to the
bankruptcy estate as requested by the trustee); United States v. Ketelson (In re
Ketelsen), 880 F.2d 990, 993 (8th Cir. 1989) (finding violation of automatic stay
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where creditor directed IRS to offset a portion of a couple’s income tax return against
their debt).
The case the district court relied on in reaching its conclusion, In re Stark, 242
B.R. 866 (Bkr. W.D.N.C. 1999), reflects the foregoing line of cases. In In re Stark,
a secured creditor conducted inspections during the pendency of an automatic stay.
While the stay was still in effect, the creditor attempted to collect inspection fees from
the debtors by billing them directly, rather than filing a request with the court to
include the fees in its secured claim. Id. at 872. Although this type of creditor
activity may encumber the bankruptcy estate, the Robertses have not contended that
CNH attempted to collect inspection costs from them. A secured creditor, such as
CNH here, that expends its own funds for inspections and then merely seeks
reimbursement authorization from a court pursuant to § 506(b) has not violated the
automatic stay. The only question for the court is whether those costs and fees are
properly included in the secured claim.
This critical distinction between “actions taken by creditors outside the
bankruptcy court forum” and “legal actions taken within the bankruptcy court,” In re
Sammon, 253 B.R. 672, 681 (Bankr. D.S.C. 2000), reflects one of the primary
purposes of the automatic stay provision, to “protect[] creditors by averting a
scramble for the debtor’s assets and promoting instead ‘an orderly liquidation
procedure under which all creditors are treated equally,’” Farley v. Henson, 2 F.3d
273, 274 (8th Cir. 1993) (quoting H.R. Rep. No. 595, 95th Cong., 1st Sess. 340
(1970), reprinted in 1978 U.S.C.C.A.N. 5787, 6297). The automatic stay should not
be used to prevent creditors from presenting their competing claims to a court. Cf.
Campbell v. Countrywide Home Loans, Inc., 545 F.3d 348, 356 (5th Cir. 2008) (“The
Bankruptcy Code allows creditors to assert any claim, even if that claim is contingent,
unmatured, or disputed. A debtor may object to the claim; the bankruptcy court then
determines whether to allow the claim.” (internal citation omitted)). The consequence
of the district court’s approach is that if a creditor seeks to incorporate attorneys’ fees
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and other costs into its secured claim—as it is entitled to do under § 506(b)—but ends
up being wrong about whether it is actually entitled to those costs, then this error
becomes a sanctionable violation of the automatic stay. See 11 U.S.C. § 362(k). If
the district court’s interpretation were accepted, it would place a substantial
roadblock in the way of actions authorized elsewhere in the Bankruptcy Code. See
United States v. Inslaw, Inc., 932 F.2d 1467, 1474 (D.C. Cir. 1991) (ruling that
although “the literal words of § 362(a) might actually” render the creditor’s action a
violation of the automatic stay, “[f]or obvious reasons, however, courts have
recognized that § 362(a) cannot stay actions specifically authorized elsewhere in the
bankruptcy code”).
The district court also erred when it determined that at least some of CNH’s
inspections were avoidable post-petition transfers. This portion of the district court’s
analysis primarily relied on Snyder v. Dewoskin (In re Mahendra), 131 F.3d 750 (8th
Cir. 1997). In that case, the debtor spent bankruptcy estate funds during the pendency
of an automatic stay by incurring ongoing legal services pursuant to a pre-petition
representation agreement that was secured by a trust deed. Id. at 753-55. By
continuing to utilize his attorney’s services post-petition, the debtor was necessarily
draining the bankruptcy estate because the attorney was to be paid for his work from
the proceeds of the sale of the debtor’s house. Id. at 753. In re Mahendra is
inapposite because it did not involve, as here, a secured creditor requesting a court
to authorize it to recover its previously expended inspection costs. In this situation,
there is no transfer of property from the bankruptcy estate unless and until a court
authorizes inclusion of the secured creditor’s costs and fees under § 506(b). As this
court noted in In re Mahendra, once the automatic stay went into effect, “[o]nly the
bankruptcy court could control the further encumbrance of the estate property.” Id.
at 755. By filing a claim for its inspection fees with the district court, CNH was
respecting the court’s control of the estate property. If the inspection costs were
improper, the appropriate response was for the district court to refuse to add them to
CNH’s secured claim.
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The analysis, therefore, should turn on whether the inspection fees, like the
attorneys’ fees, can be recovered under § 506(b) because they “are reasonable and
provided for in the agreement under which the claim arose.” In re White, 260 B.R.
870, 880 (B.A.P. 8th Cir. 2001) (quoting United States v. Ron Pair Enters., Inc., 489
U.S. 235, 241 (1989)). I would remand to the district court to consider if CNH
created a genuine issue of material fact as to whether the inspection costs were of a
reasonable amount and whether they were authorized by the trust deed.
The district court also awarded sanctions to the Robertses after determining
that they suffered actual damages attributable to CNH’s supposed violations of the
automatic stay. The only violation of the automatic stay identified by the district
court was the costs CNH incurred for inspections. Because the district court erred in
concluding that CNH’s incurring of inspection costs were violations of the automatic
stay, and a violation of the automatic stay is a necessary prerequisite for awarding
sanctions under § 362(k)(1), I would vacate the award of sanctions. On remand, the
district court would be free to address the Robertses’ alternative basis for sanctions
under FRCP 37(a), (c).
For these reasons, I respectfully dissent.
_______________________________________
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