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In re Bayley

United States District Court, C.D. California

January 14, 2015

IN RE EMILY ANN BAYLEY

CIVIL MINUTES - GENERAL

ORDER AFFIRMING THE BANKRUPTCY COURT'S ORDER GRANTING MOTION FOR INTENTIONAL VIOLATION OF THE AUTOMATIC STAY

BEVERLY REID O'CONNELL, District Judge.

Proceedings: (IN CHAMBERS)

This matter is on appeal from the United States Bankruptcy Court for the Central District of California (the "Appeal"). Appellant-Creditor The Best Service Co., Inc. appeals the Bankruptcy Court's order granting Appellee-Debtor Emily Ann Bayley's motion for intentional violation of the automatic stay (the "Automatic Stay Order"). The Court has appellate jurisdiction pursuant to 28 U.S.C. ยง 158(a)(1).[1] After reading and considering the papers filed in connection with this Appeal, and for the reasons discussed below, the Court AFFIRMS the bankruptcy court's Automatic Stay Order.

I. BACKGROUND

On August 22, 2011, Appellant-Creditor The Best Service Co., Inc. ("Appellant" or "Best Service") obtained a $12, 806.34 judgment against Appellee-Debtor Emily Ann Bayley ("Appellee" or "Bayley") in the Superior Court of California, County of Ventura. (ER 50.)[2] The judgment was secured by a lien on Bayley's real property located at 1466 Calle Morera, Thousand Oaks, California, 91360. (AR 58.)[3] Approximately two years after the judgment, on September 30, 2013, the superior court issued a writ of execution. (ER 51, 55-56.) On January 27, 2014, the Los Angeles County Sheriff ("Sheriff") served an execution garnishment on Bayley's bank account. (ER 51, 58.) On February 4, 2014, the Sheriff levied $4, 000 from the account. (ER 51, 58.)

Shortly thereafter, on February 20, 2014, Bayley filed a voluntary petition for Chapter 13 bankruptcy. (AR 1-13, 212-13.) She immediately notified Best Service and the Sheriff's department about the petition. (ER 21-24.) That same day, the Sheriff's department mailed a Notice of Bankruptcy Procedures (the "Notice") to the Chapter 13 trustee, Best Service, and Bayley. (ER 18-19.) The Notice stated that as the custodian in possession of property belonging to the bankruptcy estate, the Sheriff would release the $4, 000 to the trustee upon request. (ER 18.) The Notice also stated that if Best Service opposed any release, or if Bayley sought the return of the property, the Sheriff would not act without an order from the bankruptcy court. (ER 18-19.)

After receiving notice of the bankruptcy petition, Best Service immediately contacted the Sheriff's department and requested that the Sheriff stay any further execution of the state court judgment. (ER 59.) But the letter also directed the Sheriff to hold all funds levied before Bayley filed for bankruptcy-the $4, 000-"pending further instructions from the bankruptcy trustee or the judgment creditor (after bankruptcy discharge or dismissal)." (ER 59.)

Bayley completed her bankruptcy petition and filed the necessary schedules on March 6, 2014. (AR 14-56.) Bayley listed the $4, 000 held by the Sheriff in Schedule B.[4] (AR 19.) Bayley claimed the $4, 000 as exempt property pursuant to California's "wild card" exemption in Schedule C.[5] (AR 21.) Best Service did not object to the exemption. (ER 248.)

About one month later, Bayley filed a motion in the bankruptcy court to avoid the real property lien securing the state court judgment. (AR 57-61.) Best Service did not oppose the lien avoidance motion, and the bankruptcy court granted the motion on April 15, 2014, thereby rendering the lien void and unenforceable. (AR 204-08.) Later that day, Bayley notified the Sheriff's department about the order and requested that it "return all monies in [its] possession" to her. (ER 26.) The Sheriff's department responded that it would only return the $4, 000 to Bayley upon Best Service's release. (ER 9.)

The parties conferred on April 22, 2014. Bayley's counsel explained its position that Best Service was in violation of the automatic stay and asked Best Service to direct the Sheriff to release the $4, 000 bank levied funds. (ER 9.) Bayley's counsel also sent a letter demanding that the bank levy be released within forty-eight hours at the risk of a motion for sanctions for willful violation of the automatic stay. (ER 9, 34.) Best Service's counsel responded that Best Service had no authority to instruct the Sheriff's department to release the funds. Specifically, Best Service's counsel explained its position that the funds were the property of the trustee, and that the Sheriff was required to hold the funds pending resolution of the bankruptcy or further instruction from the trustee. (ER 39.)

Based on this disagreement and Best Service's representation that it could not instruct the Sheriff to release the funds, Bayley filed a motion for intentional violation of the automatic stay. (AR 216-17.) The bankruptcy court heard the motion on June 3, 2014 and continued the hearing for further briefing. (AR 217, 220; ER 231-43.) On September 9, 2014, the bankruptcy court held another hearing on the motion and concluded that Best Service had willfully violated the automatic stay by failing to direct the Sheriff to release the $4, 000 levied funds. (AR 221; ER 245-59.)

Shortly thereafter, on September 23, 2014, the bankruptcy court issued the Automatic Stay Order that is the subject of this Appeal. (ER 121-22.) Pursuant to the order, the bankruptcy court ordered Best Service to pay $4, 527.18 in compensatory damages to Bayley's counsel. (ER 122.) The order also directed the Sheriff's department to immediately release the $4, 000 in its possession to Bayley. (ER 122.)

On October 2, 2014, Best Service appealed the Automatic Stay Order to this Court. (AR 223; ER 135-41.) That same day, Best Service also filed a motion for stay pending appeal in the bankruptcy court. (AR 223; ER 146-52.) The bankruptcy court denied the motion. (ER 162-68.) Best Service then filed an ex parte application in this Court for a stay pending appeal. (Dkt. No. 8.)[6] The Court denied the motion on October 23, 2014. (Dkt. No. 10.)

Best Service failed to pay the compensatory damages to Bayley's counsel as required by the bankruptcy court's Automatic Stay Order. (ER 195-96.) Best Service apparently believed that doing so would moot its appeal. (ER 209-15.) As a result, Bayley filed a motion for an order to show cause regarding Best Service's failure to pay the compensatory damages. (ER 188-94.) On November 21, 2014, the bankruptcy court granted the motion and ordered Best Service to post a $100, 000 bond. (AR 228.)

II. STANDARD OF REVIEW

A district court reviews the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Fed.R.Bankr.P. 8013; In re Gebhart, 621 F.3d at 1209. "The clear error standard is significantly deferential and is not met unless the reviewing court is left with a definite and firm conviction that a mistake has been committed." Fisher v. Tucson Unified Sch. Dist., 652 F.3d 1131, 1136 (9th Cir. 2011) (internal quotation marks omitted). Thus, a court's factual determination is clearly erroneous only if it is illogical, implausible, or "without support in inferences that may be drawn from the facts in the record." United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (internal quotation marks omitted).

Whether a party has violated the automatic stay is a question of law reviewed de novo. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1213 (9th Cir. 2002). "Whether a party has willfully violated the automatic stay is a question of fact reviewed for clear error." Id. The amount of sanctions ...


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