United States District Court, N.D. Illinois, Eastern Division
September 1, 2005.
IN RE: KEVIN L. ADAMS Debtor.
The opinion of the court was delivered by: SAMUEL DER-YEGHIAYAN, District Judge
This matter is before the court on Appellant Kevin Adams'
("Adams") appeal of an order issued by a bankruptcy court. For
the reasons stated below, we affirm the bankruptcy court.
Appellee MidAmerica Bank, fsb (MidAmerica") held a mortgage
lien on property owned by Adams that is located in Aurora,
Illinois ("Property"). Adams filed a Chapter 13 petition in the
bankruptcy court in August of 2003. In December of 2003,
MidAmerica filed a motion in those bankruptcy proceedings to
modify the automatic stay in the proceedings to allow MidAmerica
to institute a foreclosure of mortgage case against the Property.
The motion to modify the stay was granted and MidAmerica
subsequently filed a foreclosure of mortgage case. Judgment of foreclosure was entered on August 5, 2004, and the judgment
provided that the redemption period expired on November 8, 2004.
Adams subsequently filed a Chapter 13 bankruptcy petition on
November 22, 2004 instituting the present action. MidAmerica
claimed that before the Property was sold on November 23, 2004,
MidAmerica conducted a search for Adams' name to make sure that
he had not filed another Chapter 13 bankruptcy and MidAmerica
discovered no such filing by Adams. On November 23, 2004, the
Property was auctioned at a Sheriff's sale and was sold to a
third party and on December 8, 2004, the state court entered an
order approving the sale. After the sale was confirmed, Adams'
counsel informed MidAmerica that Adams had filed a Chapter 13
petition for bankruptcy before the sale of the Property, but that
the filing had been made under the name of "Keith L. Adams"
rather than "Kevin L. Adams."
MidAmerica then appeared before the bankruptcy court in the
instant action and filed a motion to annul the automatic stay in
the instant action in order to validate the final approval by the
state court of the sale of the Property on December 8, 2004. We
note that Adams claims that the sale was confirmed on December 8,
2005, (Applt. 2), but that such a date is clearly inaccurate, in
that it is in the future. MidAmerica pointed out in its motion to
annul the stay that Adams was in substantial default on the
mortgage for the Property prior to the filing of his petition for
bankruptcy. The bankruptcy court granted MidAmerica's motion to
annul the stay, noting that the court lacked jurisdiction to
nullify the state court order approving the sale. Adams filed a motion with the bankruptcy
court seeking a rehearing and a vacation of the order granting
MidAmerica's motion to annul. The bankruptcy court denied the
motion for rehearing and the motion to vacate. Adams is now
before this court to appeal the bankruptcy court's ruling
granting MidAmerica's motion to annul and denying the motion for
a rehearing and vacation of the order.
A federal district court has jurisdiction, pursuant to
28 U.S.C. § 158, to hear appeals from the rulings of a bankruptcy
court. On appeal, the district court reviews the factual findings
of the bankruptcy court under the clearly erroneous standard and
reviews the bankruptcy court's legal findings under the de novo
standard. In re A-1 Paving and Contracting, Inc., 116 F.3d 242,
243 (7th Cir. 1997).
Adams argues that the bankruptcy court erred in concluding that
it lacked jurisdiction over the third party-purchaser of the
property. Adams argues that the automatic stay under
11 U.S.C. § 362 ("Section 362") encompassed the Property. Pursuant to
11 U.S.C. § 541, the bankruptcy estate includes "all legal or
equitable interests of the debtor in property as of the
commencement of the case." 11 U.S.C. § 541(a)(1). Adams argues
that the Property was thus part of the bankruptcy estate on November 22, 2004, before the Property was sold and was covered
by the automatic stay. Under Section 362, the stay applies to
"any act to obtain possession of property of the estate or of
property from the estate or to exercise control over property of
the estate." 11 U.S.C. § 362(a)(3). Adams argues that the sale of
the Property, which is part of the bankruptcy estate, constitutes
an exercise of control over the property of the estate and falls
within the prohibition of Section 362.
Adams acknowledges that he failed to notify MidAmerica of his
filing of bankruptcy on November 22, 2004 until after the sale
and the approval of the sale by the state court. Adams claims
that his attorney attempted to send a letter to MidAmerica
informing it of Adams' filing, but that "[t]he letter was
inadvertently sent via the wrong fax number. . . ." (Mot. 9).
Adams argues that, regardless of the fact that MidAmerica did not
receive notice of his filing prior to the sale, the automatic
stay is effective without the necessity of notice to any party
that would be subject to the stay. See In re Garcia,
23 B.R. 266, 267 (N.D. Ill. 1982) (stating that notice to creditor of
stay is not required).
I. Rooker-Feldman Doctrine
The bankruptcy court did not, as Adams suggests, find that the
automatic stay was not in effect on November 23, 2004 when the
Property was sold. Rather, the bankruptcy court pointed out that
it was not disputed that at that juncture, the Property had
already been sold and that the sale had already been approved by
the state court. (1/15/05 Hr. tr. 4-5). The bankruptcy court
acknowledged that a third-party purchaser had acquired a deed in
the Property and that the state court entered an order approving
the sale. (1/15/05 Hr. tr. 6-7). The bankruptcy court properly
concluded that it did not have jurisdiction over the state court
matter and that it did not have jurisdiction over the third-party
purchaser. The bankruptcy court granted the annulment of the
automatic stay, but did so with the express proviso that, if
Adams pursued his remedies in the state court and the state court
vacated the sale, Adams could renew his arguments before the
bankruptcy court. (1/15/05 Hr. tr. 4-5). Also, in denying Adams'
motion to vacate, the bankruptcy court denied the motion without
prejudice, stating that if Adams was able to get the state court
to vacate the confirmation of the sale, Adams could renew his
motion to vacate with the bankruptcy court. (2/4/05 Hr. tr. 5).
The bankruptcy court stated that under the Rooker-Feldman
doctrine, a federal bankruptcy court does not have jurisdiction
to reverse the final orders of state courts and that a judgment
of foreclosure that has proceeded to an order confirming a sale
is a final order. Under the Rooker-Feldman Doctrine, the lower
federal courts are precluded from "jurisdiction over claims
seeking review of a state court judgment" and over claims
"inextricably intertwined" with a state court judgment. Rooker
v. Fidelity Trust, 263 U.S. 413, 415-16 (1923); District of
Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482-86
(1983). In determining whether Rooker-Feldman is applicable, an
inferior federal court must determine whether the claim seeks to "set aside a state court judgment" or whether the claim
is in fact "an independent claim." 4901 Corporation v. Town of
Cicero, 220 F.3d 522, 527-28 (7th Cir. 2000). If a claim in
federal court seeks to set aside a previous state court judgment,
regardless of whether the state court judgment is "erroneous or
even unconstitutional," an inferior federal court lacks
jurisdiction under Rooker-Feldman. Id.
In the instant action, the bankruptcy court properly concluded
that it lacked jurisdiction to issue any ruling that would have
the effect of nullifying the state court order confirming the
sale of the property. See Homola v. McNamara, 59 F.3d 647, 650
(7th Cir. 1995) (stating that "the Rooker-Feldman doctrine
. . . is based on the principle that inferior federal courts
cannot reexamine the decisions of state tribunals in civil
litigation."); In re Alpern, 191 B.R. 107, 110 (N.D.Ill. 1995)
(stating that "[i]t is clear that [the district court] and the
bankruptcy court have no power to vacate a state court judgment"
and that "[a]ny attempt to do so would run afoul of the
Rooker-Feldman doctrine, which teaches that lower federal
courts have no jurisdiction to reexamine the decisions of state
tribunals in civil litigation."). Adams argues that the
Rooker-Feldman doctrine does not apply in the instant action.
Adams acknowledges that, if he is indeed attempting to set aside
a state court judgment, he is barred by the Rooker-Feldman
doctrine. (Applt. 10). Adams argues, however, that the doctrine
does not apply because "prior to the bankruptcy, the court never
entered an order approving the sheriff's [sic] sale" and that
"`[i]t is undisputed that the order signed by the state court confirming the sheriff's
[sic] sale of the Debtor's home was signed after the bankruptcy
filing and, therefore [sic] violated § 362." (Applt. 10). Adams
acknowledges that the state court did ultimately sign an order
confirming the sale and that the order is currently in effect and
was in effect when the motion to annul the stay was filed. Thus,
whether the state court issued the order before or after the
filing of the instant proceedings is not relevant. The fact
remains that Adams is seeking to nullify the legal effect of the
state court order confirming the sale of the Property.
Adams also cites Weniger v. Arrow Financial Servs. LLC, 2004
WL 2609192 (N.D. Ill. 2004) arguing that in Weniger "the court
faced a similar issue as the [sic] instant case." (Applt. 12).
The court in Weniger did conclude that the plaintiff's claims
were not barred under the Rooker-Feldman doctrine. Id. at *2.
However, the plaintiff in Weniger was not engaged in bankruptcy
proceedings as in the instant action. Rather, the plaintiff in
Weniger had filed a claim in a district court alleging
violations of the Fair Debt Collection Practices Act ("FDCPA"),
15 U.S.C. 1692 et seq. Id. at *1. Also, the court in Weniger,
in concluding that the Rooker-Feldman doctrine was not
applicable, noted that the state court decision at issue was a
dismissal of the defendant's suit for lack of prosecution and
that "[h]is claim is wholly distinct from the final disposition
of [the defendant's] state court suit against" the plaintiff.
Id. at *7. In the instant action, unlike in Weniger, the
state court action at issue is a final order confirming the sale
of the property. The court in Weniger also referred to a specific rule of law applied to FDCPA claims
arising from prejudgment collection activities that has no
application to the facts in the instant action. Id. Thus,
Weniger is distinguishable from the instant action. Also, the
ruling in Weniger is not controlling precedent.
II. Whether Sale is Void
Adams also argues that any order that violates a Section 362
automatic stay is void ab initio and therefore the state
court's order confirming the sale of the property is invalid. In
support of such a proposition, Adams cites Matthews v. Rosene,
739 F.2d 249 (7th Cir. 1984). However, in Matthews the
court was never presented with the issue of whether or not the
bankruptcy court had jurisdiction to declare a state court's
order void. Rather, the court was presented with the limited
issue of whether or not the lower courts were correct in finding
that the equitable doctrine of laches barred the petitioner from
even seeking such a remedy. Id. at 250-51. Adams cites a host
of other cases, none of which are controlling precedent.
III. Bankruptcy Court's Discretion and Motion to Vacate
The bankruptcy court also acted within its discretion in
granting the motion to annul the stay. At the hearing on the
motion to annul the stay, MidAmerica specifically asked that the
court, in its "discretion," grant the motion due to the facts of
the case and that there was a substantial pre-petition default.
(1/15/05 Hr. tr. 3). The bankruptcy court, in its ruling, did not specifically state
that it was "exercising its discretion," but no such explicit
reference is required. Pursuant to 11 U.S.C. § 362(d) a court may
issue an order "terminating, annulling, modifying, or
conditioning" an automatic stay. 11 U.S.C. § 362(d). The
determination of whether an automatic stay should be lifted
"pursuant to Section 362(d) is committed to the discretion of the
bankruptcy court, and the decision may be overturned only upon a
showing of abuse of discretion." Christian v. Citibank, F.S.B.,
231 B.R. 288, 289 (N.D. Ill. 1999). In the instant action, the
bankruptcy court examined the facts, noting, for example, the
confusion on MidAmerica's part due to Adams' failure to file
under the correct name. (1/15/05 Hr. tr. 4). The bankruptcy court
also noted the fact that there was already a third-party
purchaser. (1/15/05 Hr. tr. 4). The bankruptcy court properly
exercised its discretion in granting the motion to annul the
stay. See In re Syed, 238 B.R. 133, 144 (Bankr. N.D. Ill. 1999)
(stating that "[t]he bankruptcy court has wide latitude to grant
relief from the automatic stay including the ability to
retroactively annul the stay."); In re Pleasant, 320 B.R. 889,
894 (Bankr. N.D. Ill. 2004) (stating that "[t]he discretion to
retroactively annul the stay lies with the bankruptcy court.").
In addition, Adams did not present any of the arguments to the
bankruptcy court when it granted the motion to annul the stay.
The bankruptcy court thus correctly denied the motion to vacate
because none of the arguments in the motion were presented by
Adams in his answer to the motion to annul the stay. The bankruptcy court commented for the first time about the cases
cited by Adams and the arguments which Adams was presenting for
the first time in his motion to vacate. (2/4/05 Hr. tr. 4); See
also In re Syed, 238 B.R. at 139 (stating for motion to vacate
before the bankruptcy court that "Rule 59(e) . . . is not a
`vehicle for a party to undo its own procedural failures, and it
certainly does not allow a party to introduce new evidence or
advance arguments that could or should have been presented to the
district court prior to the judgment.'").
IV. Equities Before the Court
Finally, the bankruptcy court considered the equities of the
facts before it and concluded that the proper decision was to
grant the motion to stay. In Matthews, which is cited by Adams
himself, the Court specifically stated that "[a] bankruptcy court
must be guided by equitable principles in exercising its
jurisdiction." 739 F.2d at 251. In the instant action, the
bankruptcy court correctly concluded that the equities do not
weigh in Adams' favor. Adams admitted in his answer to the motion
to annul the stay that Adams was served on April 8, 2004, with
notice of the fact that MidAmerica had filed a foreclosure of
mortgage case. (Ans. Mot. Ann. Par. 6). Adams admitted in his
answer to the motion to annul the stay that he was informed of
the judgment of foreclosure hearing, but that he never appeared
at the hearing and never filed any pleading in the state court
foreclosure action. (Ans. Mot. Ann. Par. 7). Adams admitted in his response to the motion to annul the
stay that he was served with notice of the scheduled sale of the
Property. (Ans. Mot. Ann. Par. 8). Despite the fact that Adams
took no part in the foreclosure proceedings, and had notice of
the scheduled sale to a potential third-party, Adams waited to
file his bankruptcy petition until the day before the scheduled
sale. Not only did Adams wait until the day before the sale, but
he also failed to notify MidAmerica of his filing. In a letter
attached to Adams' answer to the motion to annul the stay, Adams'
counsel actually apologizes for the "eleventh hour maneuvering."
(Ans. Mot Ann. Ex C). The letter explains that Adams first walked
into his counsel's office on November 20, 2004. (Ans. Mot Ann. Ex
C). Adams also admits that through his own error or his counsel's
error he sent a notice intended for MidAmerica to an incorrect
fax number. (Ans. Mot. Ann. Par. 12).
In addition, Adams failed to use his proper name when filing
the instant bankruptcy action. MidAmerica claims that, before the
sale of the Property MidAmerica conducted a name search to make
sure that Adams had not filed for bankruptcy again. Adams
acknowledged in his answer to the motion to annul that the
documents pertaining to the instant bankruptcy were
"inadvertently given the name `Kevin' a nickname of Keith Adams
on some of the documents filed, instead of his proper name,
`Kevin.'" (Ans. Mot Ann. Par 12). Adams claims that he eventually
corrected the mistake and that he "apologized for the confusion."
(Ans. Mot. Ann. Par. 12). Also, Adams has not contested the facts
presented at the hearing before the bankruptcy court on the
motion to annul the stay indicating that the default on the Mortgage since January of 2003 was approximately
$31,000 and that there was a substantial pre-petition default on
the mortgage. Finally, as is evidenced by the letter from Adams'
counsel to MidAmerica informing it of the instant bankruptcy
action, Adams waited until December 26, 2004, after the state
court approved the sale, to inform MidAmerica of the bankruptcy
filing. (Ans. Mot Ann. Ex C). Thus, in summation, according to
Adams' own allegations, exhibits, and admissions, Adams ignored
the state foreclosure proceedings including the sale of the
Property despite proper notice of the proceedings and sale. At
the last minute before the sale, he filed a bankruptcy petition.
Adams failed to notify MidAmerica of the instant action and
failed to file the bankruptcy petition using his correct name
which would have enabled MidAmerica to discover the filing. Only
months after the sale was conducted, and after the sale to the
third-party was approved by the state court did Adams finally
inform MidAmerica of the bankruptcy petition. The bankruptcy
court considered all of those facts including the "mess" that was
created by the fact that MidAmerica was unaware of the bankruptcy
filing prior to the sale and noting Adams' usage of the wrong
name. (1/15/05 Hr. tr. 2). The court noted that since Adams
allowed the state proceedings to proceed to the confirmation of
the sale, the proper avenue for Adams at that juncture was to go
before the state court. (1/15/05 Hr. tr. 4-5). The bankruptcy
court thus properly considered the equities in granting the
motion to annul the stay. Based upon all of the above analysis,
we conclude that the bankruptcy court did not err in its orders
granting MidAmerica's motion to annul the stay and denying Adams'
motion for a rehearing and denying Adams' motion to vacate.
Based on the foregoing analysis, we affirm the bankruptcy
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