Written By: Alan S. Wolf
The Ninth Circuit Bankruptcy Appellate Panel (BAP) in the case of In re Williams, 323 BR 691 (9th Cir. B.A.P. 2005), held in dicta (the part of a judicial opinion that is informative or explanatory, not directly addressing the specifics of the case) that a creditor could still be liable for a willful violation of the automatic stay even if it is annulled. In Williams, the debtor filed the second of what would eventually be three serial Chapter 13 petitions. Subsequent to the second filing, a nonjudicial foreclosure was conducted on behalf of a homeowners’ association resulting (as it often does) in the sale of the property to a third party purchaser.
The third party purchaser then commenced an eviction proceeding and, after some action by the debtor to stop the eviction (but without the debtor taking any action to set aside the sale), the second case was dismissed. The successful purchaser then brought an action in state court to essentially quiet title. After that lawsuit was commenced, the debtor filed his bankruptcy case and sought sanctions for the willful violation of the stay [11 U.S.C. Section 362(h)]. The third party purchaser countered by filing in the third bankruptcy case a motion to annul the stay in the previous bankruptcy case.
The BAP upheld the bankruptcy judge’s annulment of the stay in the second case even though the order was made in the third case. This was largely because there was the same judge in the second and third cases. However, the court rejected the third party purchaser’s argument that the annulment of the stay precluded sanctions under section 362(h) and sent the case back on remand to the bankruptcy court to review this issue. The Ninth Circuit BAP’s dicta regarding the availability of sanctions even if the stay is annulled is contrary to the Fourth Circuit’s position (covering North and South Carolina, West Virginia, and Virginia) that annulling the automatic stay precludes an award of damages for a stay violation [In re Thompson 92 F.3d 1182 (4th Cir. 1996)].