In re Gasprom, 500 B.R. 598 (9th Cir. BAP 2013)
In re Gasprom, 500 B.R. 598 (9th Cir. BAP 2013). The Ninth Circuit Bankruptcy Appellate Panel held that a secured creditor violated the automatic stay by foreclosing on collateral abandoned by the Trustee of a corporate chapter 7 debtor before the bankruptcy case was closed.
Facts
In Gasprom, after the corporation’s case was converted from chapter 11, the Trustee moved to abandon the debtor’s sole asset – an non-operational gas station for which there were troublesome issues concerning permitting, hazardous waste and underground storage compliance, and which was fully encumbered to a secured creditor. The debtor objected to the abandonment and asked for a continuance to avoid any sudden actions by the secured creditor against the property. Relying on In re D’Annies Restaurant, 15 B.R. 828 (Bankr. D.M.N. 1981), the bankruptcy court granted the motion to abandon, noting that the effect of the abandonment would be to vacate the automatic stay. The bankruptcy court entered an order for the abandonment of the property.
As the debtor feared, the secured creditor conducted the foreclosure sale later that day. Thereafter, the chapter 7 trustee issued a final "no asset" report, and the case was closed about two weeks later.
The debtor then filed a motion to reopen the bankruptcy case so that it could set aside the foreclosure sale and commence contempt proceedings for violation of the automatic stay. The bankruptcy court reopened the case, but denied the yet unfiled motions. It held that upon entry of the abandonment, the automatic stay no longer enjoined the sale of the gas station, and that the court would annul the automatic stay sua sponte to the extent necessary to validate the foreclosure. The debtor appealed.
The BAP’s Holding And Reasoning
The BAP reversed, holding that the bankruptcy court erred when in found that the foreclosure did not violate the automatic stay. Although the abandonment made the collateral no longer property of the estate, the automatic stay remained in effect to bar enforcement of liens against "property of the debtor" under section 362(a)(5). The BAP declined to follow the holding of D’Annes which held that after abandonment of estate property, Section 365(a)(5)only protects a debtor from foreclosure of that property if that debtor is an individual. The BAP found that nothing in the statutory language would permit it to read "of an individual" into the statutory language of Section 362(a)(5). The BAP found that references in prior Supreme Court and Ninth Circuit decisions that the effect of abandonment was to revert property to the debtor "nunc pro tunc" "as if no bankruptcy petition had been filed" concerned the effect on title, and not whether the property was subject to the automatic stay.
The BAP also held that it was an abuse of discretion for the bankruptcy court to annul the automatic stay sua sponte without affording the debtor an opportunity to brief and be heard on the appropriate factors for such an order.
As a result of Gasprom, even though the property has been abandoned, a secured creditor should always either: (1) file a motion for stay relief; or (2) wait to conduct the foreclosure sale until the case has been closed.
Commentary
Opinion does not state any reason why the automatic stay should protect abandoned property of a corporate debtor in the period between abandonment and the closing of the case. For an individual debtor, the reasons are clear; the Code grants the individual debtor the right to avoid certain judicial liens and certain nonpossessory, nonpurchase-money security interests and to redeem some collateral by paying the value of the property when less than the claim. There are no such rights for a corporate debtor. Indeed, one could question: (a) why GASPROM should have standing to object; (b) why the bankruptcy court would have subject matter jurisdiction to address the debtor’s claim regarding abandoned property where the debtor has no remaining rights under the Bankruptcy Code; or (c) why any bankruptcy court would deny a motion for stay relief if brought by a secured creditor under these circumstances?