Collett v. Lee Oil Co (In re Collett)

Summarized by Brian Meldrum , Kaplan Johnson Abate & Bird LLP
11 years 9 months ago

Citation:

Case No. 13-8033; File Name 14b0004n.06

Tag(s):

Ruling:

Party's pre-petition initiation of criminal proceedings for criminal theft against debtor, and post-petition cooperation with county attorney, did not constitute violation of automatic stay. Panel declined to rule whether Section 362(b)(1) is an absolute bar to stay violation proceedings based on criminal prosecution.

Procedural context:

Appeal to the Sixth Circuit Bankruptcy Appellate Panel from Bankruptcy Court's denial of Debtor's Motion for Sanctions

Facts:

Individual Chapter 7 debtor leased and operated a grocery store in Bell County, Kentucky. Among other things, the grocery sold gasoline supplied by Lee Oil Company. The arrangment between Lee Oil and the Debtor was this: Lee Oil delivered gasoline to the store, and also installed a credit card machine in its own name at the store. All sales on the credit card machine (for gas and other items) were credited to Lee Oil. At the end of each day, the Debtor would calculate the difference between the amount of gasoline sold and the amount of credit card purchases, and would place the difference in cash first in a safe (to be retrieved by Lee Oil) and later on, in a bank account. The debtor ultimately fell behind on depositing the cash difference between fuel sales and credit card receipts, and owed Lee Oil in excess of $50,000. Lee Oil made an insurance claim, and its carrier required it to report the matter to the local police. On September 5, 2012, it contacted the local county attorney, reporting it as "criminal theft." On October 5, 2012, the Debtor filed a Chapter 7. On October 15, 2012, a criminal complaint was issued against the Debtor. On January 10, 2013, the Debtor was arrested. On January 18, 2013, the Debtor filed a sanctions motion against Lee Oil asserting automatic stay violations. On April 3, 2013, the grand jury declined to prosecure the Debtor. On April 17, 2013, after an evidentiary hearing, the bankruptcy court denied the sanctions motion. The BAP noted that Section 362(b)(1) excepts from the operation of the automatic stay "the commencement or continuation of a criminal actionor proceeding against the debtor," but that there is a split of authority over whether this excepts all criminal proceedings, or whether it does not apply where the primary motivation of the criminal proceeding is to collect a pre-petition debt. The BAP further noted that the Sixth Circuit has not yet taken a position on the issue. The bankruptcy court recognized the split of authority and determined that it could resolve the case without ruling on the legal question of whether Section 362(b)(1) is an absolute bar to the sanctions motion. The bankruptcy court ruled that, even if Section 362(b)(1) was not an absolute bar to the sanctions motion, sanctions were not warranted because the primary purpose of the criminal proceeding was not to collect a pre-bankruptcy debt for Lee Oil from the Debtor. Rather, the bankruptcy court held that the primary purpose of the pre-petition referral to the county attorney was to enable Lee Oil to collect on its insurance claim. Further, the primary purpose of the post-petition actions of Lee Oil was simply to cooperate with the county attorney's investigation. The BAP held that the bankruptcy court's evaluation of the evidence as to Lee Oil's "primary motivation" was not clearly erroneous, and affirmed.

Judge(s):

Emerson, Harrison, Lloyd

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