In re Grason

486 B.R. 448

In re Anthony James GRASON, Debtor.

No. 09–71353.

United States Bankruptcy Court, C.D. Illinois.

Feb. 1, 2013.

Anthony James Grason, Decatur, IL, pro se.

OPINION

MARY P. GORMAN, Chief Judge.

An old adage warns that bad facts make bad law.¹ The theory behind the adage is that when the equities in a case favor a result that is contrary to a strict reading of the law, a court may be inclined to carve out an exception to the law or develop a strained interpretation of the law to reach the desired equitable result. But, when the law has been manipulated to reach the desired result in one case, the precedent set may result in undesired results in other cases. Thus, courts are cautioned that yielding to the equities in a case, despite contrary law, may result in the making of bad law. In this case, the Court is being urged, in the face of bad facts, to make bad law.

Before the Court is Karl Meurlot's Motion for Relief from Stay in this reopened case. Mr. Meurlot is not now, nor has he ever been, a creditor of the Debtor. Rather, he was the buyer at a sheriff's sale of real estate owned by the Debtor. The sheriff's sale took place literally minutes after this case was filed and, accordingly, occurred in violation of the automatic stay. After learning of this case filing, the foreclosing creditor, HSBC Bank U.S.A., took no action to seek relief from or annulment of the stay but, instead, proceeded to obtain a state court order confirming the sale. Relying on the sale confirmation, Mr. Meurlot obtained a state court order placing him in possession of the property. Now, more than three years after the sheriff's sale and after the Appellate Court of Illinois has twice reversed the state court orders, at least in part, because of the Debtor's claims that the sheriff's sale violated the stay, Mr. Meurlot, but not HSBC Bank U.S.A., seeks relief from this Court.

Mr. Meurlot claims that he has made a significant financial investment in the property he purchased and that he will be irreparably harmed unless this Court either finds that no stay took effect upon the filing of this case or annuls the stay that did take effect. He asserts that the Debtor has abused the system by filing multiple bankruptcies and that HSBC Bank U.S.A. will get a windfall if the original sale is vacated and a new sale of the now-much-improved and more valuable property occurs. Because he claims to be the least culpable of the all of the players here, Mr. Meurlot asks the Court to ignore the obvious defects in his arguments and simply make things right for him. For the reasons set forth below, this Court must decline to do so and will deny the Motion for Relief from Stay.

I. FACTUAL & PROCEDURAL BACKGROUND

The facts of this case are complex but undisputed.² Debtor, Anthony James Grason (“Debtor”), has filed three Chapter 13 bankruptcy cases in this Court. The first case (No. 08–71631) was filed July 8, 2008. In that case, HSBC Bank U.S.A. (“HSBC”) filed a Motion for Relief from the Automatic Stay, alleging that the Debtor was in default on post-petition mortgage payments for the property at 4202 West Route 36 in Decatur, Illinois. HSBC sought relief from the stay to foreclose on that property. Although the Debtor objected to HSBC's motion, after a hearing held November 20, 2008, the Court granted HSBC relief from the automatic stay.

On November 11, 2008, the Chapter 13 Trustee (“Trustee”) filed a motion to dismiss the Debtor's first case. The Trustee alleged that the Debtor had failed to provide copies of required tax returns and pay advices in a timely manner. After a hearing, the case was dismissed on December 8, 2008.

The Debtor filed this case on May 5, 2009. The Debtor filed his petition in person at 8:37 a.m. and the petition was uploaded into the Court's electronic filing system at 9:02 a.m. the same day. With his petition, the Debtor filed an Exhibit D—Individual Debtor's Statement of Compliance with Credit Counseling Requirement, which stated that he had obtained the requisite credit counseling but did not yet have the certificate from the counseling agency. The form admonishes debtors that the certificate must be filed within fifteen days after the case filing.

Because the Debtor failed to provide his certificate of credit counseling within the fifteen days allotted, this case was dismissed on May 21, 2009. Later that same day, an attorney entered an appearance for the Debtor and filed a credit counseling certificate evidencing that the Debtor had obtained the counseling on April 13, 2009. The certificate was docketed as a Motion to Reinstate Case but the filing consisted solely of the certificate. Still later that same day, the Debtor's attorney filed a Supplemental Motion to Reinstate Case which included another copy of the certificate of credit counseling and a request that the case be reinstated. At a hearing on June 2, 2009, the Debtor's attorney appeared and told the Court that, although the Debtor might be entitled to reinstatement because he actually had met his credit counseling obligation, the attorney did not have sufficient information to file the Debtor's schedules and other required documents in a timely fashion. Further, the attorney realized that, because of the earlier case filing within one year of this case filing, a motion to extend the stay should have been filed. But, such a motion could no longer be filed and heard within the thirty days after case filing time limit. Accordingly, the attorney asked that his Supplemental Motion to Reinstate be denied. The Court entered an order that day denying the motion.

The Debtor filed his third case (No. 09–72064) on July 13, 2009. The case was dismissed the next day because the Debtor failed to file a credit counseling certificate or a request to have the filing of the certificate waived or excused. On July 16th, the Debtor filed a motion to reinstate the case and a copy of his April 13th credit counseling certificate. The case was reinstated on August 11, 2009. Within two weeks of the case being reinstated, however, the Trustee filed a motion to dismiss because the Debtor had failed to commence plan payments within thirty days of the case filing. After the Debtor failed to timely object to the Trustee's motion, the case was dismissed on September 23, 2009.

While Debtor's three bankruptcy cases were pending, a lawsuit filed by HSBC against the Debtor in the Circuit Court of Macon County, Illinois, to foreclose on a mortgage on the property at 4202 West Route 36, Decatur, Illinois, was also proceeding. The case was filed in March 2008. On June 17, 2008, the state court entered a default judgment and a judgment of foreclosure and sale against the Debtor. On February 19, 2009, HSBC filed a notice of sheriff's sale, which was then continued twice by HSBC, and finally set for May 5, 2009, at 8:30 a.m. On May 4, 2009, the Debtor, through counsel, filed an emergency motion for a 30–day stay of the sheriff's sale. Arguments on the Debtor's motion were heard the next morning before the sale took place. Because the state court denied the motion, the sheriff's sale went forward thereafter.

At the sheriff's sale, Cynthia Deadrick and Mark Wolfer were the high bidders with a bid of $260,401, which they apparently made on behalf of Mr. Meurlot. The bid left the Debtor with a deficiency of $215,543.28 due to HSBC. The state court continued hearing on the confirmation of the sale until May 26, 2009.

Neither the Debtor nor his attorney were present at the May 26th confirmation hearing. However, Mr. Meurlot and an attorney for HSBC were present at the hearing and represented to the court that the Debtor might be in bankruptcy. The matter was continued for a further hearing on June 30, 2009.

Also on May 26th, Mr. Meurlot filed an objection to a motion the Debtor had filed to vacate the sale and a response to the Debtor's objection to confirmation of the sale.³ The Debtor had asserted that his bankruptcy filing resulted in the issuance of an automatic stay and, accordingly, the sheriff's sale which he claimed occurred thereafter violated the stay and was void. Mr. Meurlot filed a second objection and response on June 3, 2009. In the June 3rd filing, Mr. Meurlot argued that there was no automatic stay in place as a result of the Debtor's May 5th bankruptcy filing because the case had been dismissed on May 21, 2009, and because this Court denied the Debtor's request for reinstatement.

On June 29, 2009, HSBC filed a response to the Debtor's motion to vacate the sale. Apparently relying on the timing of the entry of this case into this Court's electronic filing system, HSBC argued that the sale did not violate the automatic stay because the sale actually took place before the Debtor filed this case. HSBC also noted that this case was dismissed, which HSBC averred allowed it to proceed.

On June 22, 2009, the following entry was made on the state court docket: “Phone communication from Plaintiff's counsel. On motion, allotment of 6/30/09 is VACATED. Cause continued to further order of court.” Notwithstanding this entry, on June 30th, the state court entered an order approving the report of sale and distribution, an order of possession, and an order for an in personam deficiency. Neither the Debtor nor his attorney were present at the June 30th hearing. But, Mr. Meurlot and HSBC's attorney were present and specifically discussed with the court that the docket contained the notation that the hearing had been cancelled. All agreed on the record that they were not concerned about the apparent lack of notice to the Debtor.

On July 2nd, the Debtor filed a motion to vacate the orders entered on June 30th. The Debtor cited the June 22nd docket entry as the reason for his failure to appear at the June 30th hearing. A hearing on July 14, 2009, was set for all pending motions. That hearing was continued because of a suggestion that the Debtor had filed bankruptcy again.

On October...