Sinclair v. Bank of America, N.A. (In re Sinclair)

Summarized by Janel Glynn , The Burgess Law Group
12 years 9 months ago

Citation:

Opinion not published.

Tag(s):

Ruling:

The Bankruptcy Appellate Panel of the Ninth Circuit (the "BAP") determined that proceedings to annul the automatic stay after the underlying bankruptcy case is dismissed fall within the ambit of "arising under" bankruptcy jurisdiction. Further, the BAP concluded that the matter was not equitably moot because no changed circumstances were shown that would render consideration of the appeal inequitable or impractical. Finally, the BAP concluded that the bankruptcy court did not abuse its discretion in annulling the automatic stay. The BAP determined that § 362(d) provides authorization for bankruptcy courts to annul the automatic stay, which in effect, retroactively ratifies or validates acts that otherwise violated the stay. Determining whether "cause" exists to annul the stay retroactively is a case-by-case inquiry based on a balance of the equities, including an analysis of 12 factors, including the debtor's overall good faith under a totality of the circumstances; whether the creditor was aware of the stay but nonetheless took action; how quickly the creditor moved for annulment, or how quickly the debtor moved to set aside the violative sale; whether, after learning of the bankruptcy, the creditor proceeded to take steps in continued violation of the stay, or whether it moved expeditiously to gain relief; and the extent of prejudice to creditors or third parties if the stay relief is not made retroactive. The BAP found that the bankruptcy court properly balanced the factors and the record in the case supported the bankruptcy court's finding that Sinclair filed his bankruptcy case in bad faith. Sinclair filed his petition three weeks after Spence purportedly transferred a partial interest in the property and one week after after BOA notified Spence about the foreclosure sale. There was no consideration for the sale. And while BOA was on notice of the bankruptcy filing, nothing in the record shows that Sinclair contacted or notified BOA about Sinclair's interest in the property or subsequent filing. Consequently, the BAP affirmed the ruling of the bankruptcy court.

Procedural context:

Appellant and debtor Jermaine Sinclair (“Sinclair”) appealed to the BAP the bankruptcy court’s order granting retroactive annulment of the automatic stay under § 362(d)(1) to appellees Bank of America, N.A. (with its predecessors, collectively “BOA”). On appeal, the following issues were presented to the BAP: (1) Did the bankruptcy court have jurisdiction to annul the automatic stay retroactively? and (2) Did the bankruptcy court err when it annulled the automatic stay retroactively?

Facts:

In 2006, Sinclair's grandmother Gloria Spence ("Spence") obtained a loan from BOA secured by real property. Spence defaulted on the promissory note evidencing the loan. In May 2009, Spence executed and recorded a grant deed purported to grant a 25% interest in the property to Sinclair. Approximately, two weeks later, BOA notified Spence that a foreclosure sale of the property was scheduled for July 2009. Spence did not obtain the prior approval of or otherwise notify BOA of the purported transfer. Prior to the foreclosure, Sinclair filed a Chapter 13 bankruptcy petition. The case was later converted to Chapter 7. BOA was listed on Sinclair's creditor mailing list and the property was listed on his bankruptcy schedules. Unaware of Sinclair's purported interest in the property, BOA conducted the foreclosure sale postpetition. Bank of New York Mellon ("BONYM") purchased the property at the sale and subsequently moved the bankruptcy court to annul the automatic stay to validate the foreclosure. Before the matter was heard, however, the bankruptcy court dismissed Sinclair's bankruptcy case. In March 2011, Sinclair commenced an action against BOA and BNYM in Texas state court for (among other things), violation of the automatic stay in Sinclair's bankruptcy case. The case was removed to federal court. Nearly a year later, in April 2012, BOA and BNYM filed an ex-parte application to reopen his bankruptcy case and moved the bankruptcy court for retroactive annulment of the stay. In response, Sinclair disputed that he filed his bankruptcy petition in bad faith and asserted that the foreclosure sale was malicious, unethical, and violated state and federal law. BOA and BNYM replied that Sinclair filed his bankruptcy case in bad faith, which established cause to annul the stay under § 362(d)(1). The bankruptcy court determined that Sinclair's case was filed in bad faith, and accordingly, that cause existed to grant stay relief. Stay relief was granted retroactively.

Judge(s):

TAYLOR, PAPPAS, and MARKELL.

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