In Re: Myers

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit

6-21-2007

In Re: Myers
Precedential or Non-Precedential: Precedential

Docket No. 05-4882

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Case No: 05-4882

IN RE: MARGARET J. MYERS,

Debtor

Margaret J. Myers,

Appellant

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
District Court No.: 04-cv-5282
District Judge: The Honorable Anita B. Brody
Bankruptcy Judge: The Honorable Bruce Fox

Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
June 4, 2007

Before: SMITH, COWEN, and SILER, Circuit Judges*

*
The Honorable Eugene E. Siler, Senior Circuit Judge for
the United States Court of Appeals for the Sixth Circuit, sitting

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 (Filed: June 21, 2007)

David A. Scholl
6 St. Albans Avenue
Newtown Square, PA 19073
Counsel for Appellant

Francis J. Sullivan
Hill Wallack
403 Executive Drive
Langhorne, PA 19047
Counsel for Appellee

OPINION OF THE COURT

SMITH, Circuit Judge.

Every now and then, we encounter an appeal where just
about everyone appears to have behaved badly. Unfortunately,
this is such a case.

In June 1999, Appellee-creditor Southern Medical Supply
Co. (“SMS”) obtained a $739,044.32 judgment in Georgia state
court against Margaret Myers and her husband, Paul Myers, and

by designation.

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two corporations owned by him, Alpha Technology and Micro
Design. SMS then transferred the Georgia judgment to Bucks
County, Pennsylvania, where Mr. and Mrs. Myers reside.

SMS also filed a lawsuit in the Bucks County Court of
Common Pleas (“the CP Court”) against Mr. Myers, Mrs.
Myers, and Alpha Watch, Inc. (“AWI”), a corporation of which
Mrs. Myers was the president and sole shareholder. All
corporations owned by Mr. and Mrs. Myers sold
“wander-control” patient-monitoring systems to nursing homes.
The couple was involved in the operations of AWI and earned
income from it. The CP Court suit alleged that the Myerses had
fraudulently conveyed the assets of Mr. Myers’s corporations,
Alpha Technology and Micro Design, to AWI. On January 15,
2003, Mr. Myers filed a voluntary Chapter 7 bankruptcy petition
and received a bankruptcy discharge.

On August 9, 2004, a bench trial began in the CP Court
suit to decide SMS’s fraudulent conveyance claim. Mrs. Myers
and AWI were the only remaining defendants. On Wednesday,
August 11, 2004, the trial judge in the CP Court suit stated that
he would issue his judgment in open court on Friday, August 13.
Mrs. Myers was not present in court for this announcement.
However, the Bankruptcy Court concluded that Mr. Myers and
his attorney, who were both present, believed that the CP Court
intended to enter judgments against both AWI and Mrs. Myers
and advised Mrs. Myers to therefore file for bankruptcy.

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 On Thursday, August 12, 2004, the day before the state
court was to render its judgment, Mrs. Myers filed a bankruptcy
petition under Chapter 13. Her counsel immediately informed
SMS and the CP Court of the bankruptcy filing. Earlier that
week, SMS had commenced an additional lawsuit in the CP
Court against the Myerses and Stroll Control, Inc. (“SCI”),
another corporation formed and owned by Mr. Myers. SMS
sought to enjoin defendants from transferring any assets from
AWI to SCI. A preliminary injunction hearing before the same
state court was scheduled for August 13, 2004.

On Friday, August 13, 2004, the CP Court issued rulings
in both suits against the Myerses and SCI. The Myerses did not
attend the August 13 hearing, but their attorney was present and
asserted that Mrs. Myers’s bankruptcy filing the day before and
Mr. Myers’s prior bankruptcy filing prevented any judgment in
the two lawsuits. The state court stated that it was aware of
Mrs. Myers’s bankruptcy filing, but that the bankruptcy stay
only applied to matters against her in her individual capacity, not
in her capacity as president of AWI. The CP Court ruled that
Mr. and Mrs. Myers had transferred all of the assets of Alpha
Technology and Micro Design to AWI with the intent to defraud
SMS. Furthermore, the CP Court found that because AWI
operated from the same location as the other two corporations,
in the same business, with the same telephone numbers, and
involving the same customers, it was appropriate to pierce the
corporate veil of AWI and hold Mrs. Myers personally liable for
the fraudulent conveyance. The CP Court entered judgments

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against AWI and Mrs. Myers in the amount of the original
Georgia state court judgment, plus interest, totaling
$1,198,778.19. The CP Court decreed that judgment was
entered against Mrs. Myers “in her corporate capacity, and will
be [entered against her] in her individual capacity when the stay
is lifted, in the similar amounts.”

The CP Court also froze all of the assets of AWI and
announced its intention to appoint a receiver for the corporation.
The CP Court sanctioned the Myerses by awarding attorney’s
fees to SMS and referring the case for possible criminal
sanctions. The CP Court entered nine orders. It (1) entered
judgment against Mrs. Myers and AWI in the amount of
$1,198,778.19; (2) placed Mrs. Myers’s stock in AWI in a
constructive trust in favor of SMS with the stock to be held by
the state court; (3) froze the assets of AWI and enjoined
defendants from transferring, selling or otherwise disposing of
AWI’s assets; (4) appointed a receiver for AWI; (5) assessed
sanctions against defendants in the amount of $55,284.37; (6)
directed Appellant-debtor to appear for a contempt hearing on
August 16 due to her failure to appear in court on August 13; (7)
enjoined SCI, as well as Mr. and Mrs. Myers, from transferring
any assets already delivered from AWI to SCI; (8) appointed a
receiver for SCI; and (9) enjoined Mr. and Mrs. Myers from
owning, operating, investing in, or working for any entity
involved in the business of patient monitoring.

Mr. and Mrs. Myers were not present in court to witness

5
these events. The Bankruptcy Court concluded that their
attorney probably informed them of the state court’s rulings,
because on Saturday, August 14, 2004, Mr. Myers withdrew
$6,000 from AWI’s bank account and $1,184.10 (the entire
balance) from SCI’s account, in violation of the CP Court’s
orders. The Bankruptcy Court found that Mrs. Myers knew of
these actions. The Bankruptcy Court also found that she
appointed her husband vice-president of AWI, and that together
they approved corporate bankruptcy filings of AWI and SCI.
Mr and Mrs. Myers used the $6,000 withdrawn from the AWI
account to pay state court counsel for AWI and Mrs. Myers,
bankruptcy counsel for Mrs. Myers, and bankruptcy counsel for
AWI and SCI.

SMS filed a motion to dismiss Mrs. Myers’s bankruptcy
case as filed in bad faith. Mrs. Myers sought to void the CP
Court orders against her as violations of the automatic
bankruptcy stay. Mrs. Myers also requested a temporary
restraining order (“TRO”) and preliminary injunction (“PI”)
enjoining SMS from enforcing the orders. The Bankruptcy
Court issued a TRO preventing SMS from enforcing certain
provisions of the CP Court’s orders. SMS moved for relief from
the automatic stay. The Bankruptcy Court consolidated SMS’s
motions to dismiss and for relief from the stay with Mrs Myers’s
motion for a PI.

Mrs. Myers duly filed her bankruptcy schedules and
proposed Chapter 13 plan. She identified SMS as an unsecured

6
creditor holding a contingent, unliquidated, and disputed claim
for $740,000. She stated that she and her husband had no
income and proposed payments to the Chapter 13 trustee of $10
per month for three months. Mrs. Myers was current on all of
her debts other than her obligations to SMS.

The CP Court scheduled a hearing to hold Mrs. Myers
and her husband in civil contempt for violating its orders. Mrs.
Myers filed a second motion for a TRO, asking the Bankruptcy
Court to enjoin the CP Court contempt hearing as a violation of
the automatic stay. Mrs. Myers and her husband were
incarcerated for civil contempt by the CP Court until they could
each pay $5,196 to counsel, at which point Mrs. Myers filed an
addendum asking the Bankruptcy Court to order her release
from custody.

The Bankruptcy Court did not address this motion or
SMS’s motion for relief from the automatic stay directly. On
September 21, 2004, the Bankruptcy Court dismissed Mrs.
Myers’s case under 11 U.S.C. § 1307(c) as having been filed in
bad faith. This dismissal effectively granted SMS relief from
the automatic stay. Mrs. Myers filed a motion for
reconsideration and to convert her case to Chapter 7, which the
Bankruptcy Court denied.

Mrs. Myers timely appealed to the United States District
Court for the Eastern District of Pennsylvania. The District
Court affirmed both the dismissal of Mrs. Myers’s bankruptcy

7
case and the Bankruptcy Court’s refusal to convert the case to
Chapter 7. The District Court, unlike the Bankruptcy Court,
noted that the CP Court had violated the automatic stay by
entering orders against Mrs. Myers, holding her in contempt,
and incarcerating her. However, the District Court also held that
these violations had been retroactively ratified by the annulment
of the automatic stay. This appeal followed.

We have jurisdiction over this matter pursuant to 18
U.S.C. § 158(d) and 28 U.S.C. § 1291. “Because the district
court acted as an appellate court in reviewing the final order of
the bankruptcy court, our review of its determination is plenary.
In reviewing the decision of the bankruptcy court, we exercise
the same standard of review as the district court. Legal
determinations are reviewed de novo. Factual determinations
are reviewed under the clearly erroneous standard.” Sovereign
Bank v. Schwab, 414 F.3d 450, 452 n.3 (3d Cir. 2005) (citations
omitted).

In support of reversing the Bankruptcy and District
Courts, Mrs. Myers contends: (1) that the Bankruptcy Court
abused its discretion by dismissing Mrs. Myers’s bankruptcy
case and refusing to convert it from Chapter 13 to Chapter 7; (2)
that actions taken in violation of the automatic stay are void ab
initio and must be set aside; and (3) that the Bankruptcy Court
abused its discretion by retroactively annulling the automatic
stay. We conclude that these arguments are without merit and
will affirm the District Court.

8
(1) The Bankruptcy Court did not abuse its discretion by
dismissing Mrs. Myers’s bankruptcy case and refusing to
convert it from Chapter 13 to Chapter 7

We review the Bankruptcy Court’s decision to dismiss
the bankruptcy case as a bad faith filing for abuse of discretion.
See In re SGL Carbon Corp., 200 F.3d 154, 159 (3d Cir. 1999).
The determination of bad faith is “a fact intensive determination
better left to the discretion of the bankruptcy court.” In re
Lilley, 91 F.3d 491, 496 (3d Cir. 1996). Accordingly, we will
not set aside the Bankruptcy Court’s factual findings unless they
are clearly erroneous. See id.

A bankruptcy filing made in bad faith may be dismissed
“for cause” under 11 U.S.C. § 1307(c), although § 1307(c) does
not explicitly mention the good faith requirement. See id. The
Bankruptcy Court looks to the totality of the circumstances to
determine bad faith, and may consider a wide range of factors,
including, “the nature of the debt . . . ; the timing of the petition;
how the debt arose; the debtor’s motive in filing the petition;
how the debtor’s actions affected creditors; the debtor’s
treatment of creditors both before and after the petition was
filed; and whether the debtor has been forthcoming with the
bankruptcy court and the creditors.” Id.

The Bankruptcy Court noted five factors that supported
its finding of bad faith: (1) that Mrs. Myers filed the petition
after the CP Court announced its intention to rule, but just

9
before it did so; (2) that the filing was a tactic to prevent adverse
rulings; (3) that SMS’s state claim against Mrs. Myers was for
fraudulent conveyance and represented the vast majority of her
debt; (4) that Mrs. Myers allowed her husband to withdraw
$6,000 from ACI’s account, in violation of the CP Court’s
order, and used a portion of the funds to pay her bankruptcy
counsel; and (5) that Mrs. Myers did not meet the requirements
for filing a Chapter 13 petition.

Mrs. Myers is correct that a bankruptcy filing during the
pendency of related state court litigation is not necessarily in bad
faith. See In re James Wilson Assocs., 965 F.2d 160, 170-71
(7th Cir. 1992). However, we have specifically held that
suspicious timing of a bankruptcy petition is an appropriate
factor for a court to consider in the bad faith analysis. See In re
Tamecki, 229 F.3d 205, 208 (3d Cir. 2000). We have no doubt
that Bankruptcy Courts may reasonably find that bad faith exists
“where the purpose of the bankruptcy filing is to defeat state
court litigation without a reorganization purpose.” In re Dami,
172 B.R. 6, 10 (Bankr. E.D.Pa. 1994).

We cannot conclude that the Bankruptcy Court’s second
reason, that the bankruptcy filing was a mere tactic to prevent
the adverse judgment, was clearly erroneous. The Bankruptcy
Court is best positioned to assess the facts, particularly those
related to credibility and purpose. See Lilley, 91 F.3d at 496.
Even courts of appeals applying a narrow definition of bad faith
have held that it is appropriate for a bankruptcy court to assess

10
the debtor’s purpose and, if that purpose is to frustrate another
court’s jurisdiction, to consider it in the bad faith inquiry. See,
e.g., In re Huckfeldt, 39 F.3d 829, 832 (8th Cir. 1994). Indeed,
this inquiry is inseparable from the bankruptcy courts’ broad
power to “decide whether the petitioner has abused the
provisions, purpose, or spirit of bankruptcy law.” Tamecki, 229
F.3d at 207.

Mrs. Myers argues that the Bankruptcy Court’s third
point, that the vast majority of her debt arose from an adverse
judgment of fraudulent conveyance, is relevant only to whether
the debt is ultimately dischargeable. This argument is without
merit. We have specifically held that the bad faith inquiry
properly includes consideration of the “nature of the debt,” and
“how the debt arose.” Lilley, 91 F.3d at 496. That these factors
are also relevant to dischargeability in no way dictates that they
are excised from the bad faith analysis. We have also
specifically held that “intention to avoid a large single debt” is
properly a factor in the bad faith inquiry. Tamecki, 229 F.3d at
207.

Mrs. Myers also claims that the withdrawal of $6,000
from AWI’s account, in violation of the CP Court’s order, was
innocent, as neither she nor her husband had notice of that order
which had been issued the day before. The Bankruptcy Court
found that, “in all probability,” the Myerses did have actual
notice of the CP Court’s orders. Although we take issue with
the Bankruptcy Court’s formulation–it is the trial court’s unique

11
obligation to find the facts, not to determine whether they are
merely probable–we see no support for the position that this
finding was clearly erroneous. Even if Mr. and Mrs. Myers had
no actual notice of the CP Court’s orders, the Bankruptcy Court
could have reasonably concluded that this was deliberate
ignorance that would have likewise been relevant to the bad
faith inquiry.

Finally, Mrs. Myers attacks the Bankruptcy Court’s
conclusion that she was ineligible for Chapter 13 relief as she
satisfied the requirements neither of “regular income,” nor of
“noncontingent, liquidated, unsecured debts of less than
$307,675.” 11 U.S.C. § 109(e). The Bankruptcy Court
reasoned that Mrs. Myers knew that she was likely ineligible for
Chapter 13 relief and filed the petition as a mere delaying tactic.
As to the first requirement, Mrs. Myers and her husband argued
that they could find employment, but they nevertheless listed
their income as zero on their schedules and proposed initial
payments of $10 per month to the Chapter 13 trustee. As to the
second requirement, the Bankruptcy Court conducted a lengthy
and learned analysis, echoed by the District Court, on the
definitions of “contingent” and “liquidated.” The Bankruptcy
Court concluded that the judgment against Mrs. Myers, totaling
more than one million dollars, was both noncontingent and
liquidated. We need not repeat the analysis here. Even if Mrs.
Myers could show that she was eligible for Chapter 13 relief on
the date she filed her petition, this was but one of five factors
that the Bankruptcy Court examined. We would not find that

12
the Bankruptcy Court had abused its discretion by dismissing
Mrs. Myers’s Chapter 13 case even if this fifth factor had never
been mentioned.

Mrs. Myers also argues that the Bankruptcy Court erred
by refusing to convert her Chapter 13 case to Chapter 7. See 11
U.S.C. § 1307(a) (“The debtor may convert a case under this
chapter to a case under chapter 7 of this title at any time.”).
However, the decision whether to convert the case lies within
the sound discretion of the Bankruptcy Court, just as does the
decision whether to dismiss the case outright. See Matter of
Sullivan Central Plaza I. Ltd., 935 F.2d 723, 728 (5th Cir.
1991). Chapter 7 cases are subject to the same requirement of
good faith as Chapter 13 cases. See Tamecki, 229 F.3d at 207.
The Bankruptcy Court concluded that the same factors that
indicated that Mrs. Myers filed her Chapter 13 cases in bad faith
would apply with equal force to her Chapter 7 filing. The
Bankruptcy Court was clear that Mrs. Myers’s Chapter 13 case
was not dismissed because she was ineligible, but because she
lacked the requisite good faith intent. For the reasons already
discussed, the Bankruptcy Court did not abuse its discretion by
refusing to convert Mrs. Myers’s case to Chapter 7.

(2) Actions taken in violation of the automatic stay are
void, but ratifiable by annulment of the stay

A bankruptcy court has the authority to make exceptions
to and to annul the automatic stay under 11 U.S.C. § 362(d).

13
Section 362(d) sets forth the grounds for relief from the stay. It
provides that, “[o]n request of a party in interest and after notice
and a hearing, the court shall grant relief from the stay provided
under subsection (a) of this section, such as by terminating,
annulling, modifying, or conditioning such stay [] for cause.”
11 U.S.C. § 362(d), (d)(1).

Mrs. Myers argues that “it is well-established in this
Circuit that actions taken in violation of the automatic stay,
however innocently, are void ab initio and it is required that any
judgment or other court action taken in violation of the stay
must be set aside.” We have indeed held that actions taken in
violation of the stay are void. See In re Siciliano, 13 F.3d 748,
750 (3d Cir. 1994); Raymark Indus., Inc. v. Lai, 973 F.2d 1125,
1131 (3d Cir. 1992); Maritime Elec. Co. v. United Jersey Bank,
959 F.2d 1194, 1206 (3d Cir. 1991). However, this Court and
others have held that actions in violation of the stay, although
void (as opposed to voidable), may be revitalized in appropriate
circumstances by retroactive annulment of the stay. See
Siciliano, 13 F.3d at 750; see also Soares v. Brockton Credit
Union (In re Soares), 107 F.3d 969, 976-77 (1st Cir. 1997).

Mrs. Myers’s argument arises from semantic confusion,
owing to the fact that the void-versus-voidable nomenclature is
itself problematic. The term “voidable” implies that actions
taken in violation of the stay are valid unless cancelled by some
affirmative action, rather than invalid or dormant unless
subsequently ratified. On the other hand, the term “void”

14
implies an absolute bar amenable to no exception. Therefore,
this and other courts have held that actions in violation of the
stay, although void, may nevertheless be reinvigorated through
a retroactive annulment of the stay, see Siciliano, 13 F.3d at 750,
Mataya v. Kissinger (In re Kissinger), 72 F.3d 107, 109 (9th Cir.
1995), and still other courts have held such actions neither
“voidable” nor “void,” but “invalid” and subject to cure. Easley
v. Pettibone Michigan Corp., 990 F.2d 905, 909 (6th Cir. 1993).

An approach, however named, which allows for
retroactive relief from the stay is necessary to preserve the
meaning of the term “annulling” in 11 U.S.C. § 362(d), which
states that courts may grant relief from the automatic stay “such
as by terminating, annulling, modifying, or conditioning” the
stay. The use of the term “annulling” would be redundant with
“terminating” if courts were not empowered to grant retroactive
relief. The semantic difference between the voidable and
void-subject-to-exceptions approaches is not without
consequence. See Soares, 107 F.3d at 976. However, both
positions reject Mrs. Myers’s absolutist approach. We reaffirm
that actions in violation of the stay are void but retroactively
ratifiable if the stay is annulled, as this conclusion gives courts
flexibility to resolve conflicts involved in the resolution of
significant claims and reflects the most logical interpretation of
§ 362(d) of the Bankruptcy Code and other statutes, such as 11
U.S.C. § 549(c), which allow for other forms of retroactive stay
relief.

15
(3) The Bankruptcy Court did not abuse its discretion by
setting aside the automatic stay

SMS concedes that the CP Court committed two
violations of the automatic stay. First, the CP Court entered
orders against Mrs. Myers in her “corporate” capacity during the
pendency of the stay. Second, the CP Court held Mrs. Myers in
contempt of court and incarcerated her until she could pay
$5,196 to counsel. See In re Cherry, 78 B.R. 65, 70 (Bankr.
E.D.Pa. 1987) (holding that civil contempt proceedings are
subject to the automatic stay). SMS does not dispute that the CP
Court was promptly notified of Mrs. Myers’s bankruptcy filing
and the applicability of the automatic stay. Although the CP
Court, not SMS, technically committed the violations of the
stay, other courts have held that creditors have an affirmative
duty to prevent violations of the automatic stay and may be held
liable for passively failing to prevent such violations. See, e.g.,
Soares, 107 F.3d at 978. In addition, Mrs. Myers contends that
SMS actively urged the CP Court to violate the stay. As the
District Court appropriately noted, SMS was not entitled to
“take the law into its own hands” simply because it believed that
Mrs. Myers’s Chapter 13 petition was filed in bad faith. SMS
could have sought emergency relief from the Bankruptcy Court.
Instead, it encouraged the CP Court to violate federal law, a
suggestion to which the CP Court proved amenable.

Whether to annul the automatic stay is a decision
committed to the bankruptcy court’s discretion, and may be

16
reversed only for abuse of that discretion. See 11 U.S.C. § 362;
In re Brown, 311 B.R. 409, 412 (E.D.Pa. 2004). As discussed
above, we have held that bankruptcy courts may retroactively
ratify violations of the automatic stay by annulling the stay. See
In re Siciliano, 13 F.3d at 751. Every court of appeals to
consider the issue has held that whether the filing was in bad
faith is relevant to whether the bankruptcy court should annul
the automatic stay. See, e.g., Kissinger, 72 F.3d at 109; In re
Albany Partners, 749 F.2d 670, 674-75 (11th Cir. 1984).

SMS points to the Ninth Circuit’s decision in In re
Kissinger, 72 F.3d 107, as analogous to the instant case. In
Kissinger, a lawyer filed for Chapter 11 protection right before
a state court malpractice suit against him was to be submitted to
the jury. Id. at 108. The state court ordered the trial to proceed
in spite of the automatic stay. Id. The jury returned a $90,000
verdict against the lawyer. Id. The bankruptcy court found that
the bankruptcy petition was filed in bad faith and retroactively
ratified the judgment. Id. The Ninth Circuit observed:

The bankruptcy court did not abuse its discretion
in finding that retroactive relief was warranted.
The court first found that there would have been
cause to lift the stay prospectively at the time of
the Chapter 11 filing because: the state court
claim was sufficiently large such that it would
have to be resolved before Kissinger could
complete a reorganization; Kissinger was able to
defend himself in the state court action; and

17
 Kissinger’s decision to file a Chapter 11 petition
just before the state court action was to go to the
jury appeared to be in bad faith. Additionally,
the bankruptcy court found that there was
additional cause to annul the stay retroactively to
the time of the filing because: the failure to obey
the stay was caused by the state court judge, not
the creditor; and not annulling the stay would
either lead to nonsensical results, by submitting
the same case to the same jury that had just
rendered a decision, or impose an unwarranted
hardship on the creditors, since retrial would be
costly.

Kissinger, 72 F.3d 109. This case is analogous, although not
without differences. This case does not involve a jury.
Moreover, the record raises the significant likelihood that the
creditor actively encouraged the violation of the automatic stay.
Nevertheless, the only effect of refusing to ratify the state court
action would be to reward Mrs. Myers for her attempted abuse
of the bankruptcy system. That, we will not do.

Kissinger and its antecedents persuasively argue that
bankruptcy courts have “wide latitude in crafting relief from the
automatic stay, including the power to grant retroactive relief
from the stay” and lay out a non-exhaustive list of factors that
the bankruptcy court may consider. Schwartz v. United States
(In re Schwartz), 954 F.2d 569, 573 (9th Cir. 1992). However,
there is “less appellate clarity” as to the appropriate “test for
retroactive stay relief.” In re Fjelsted, 293 B.R. 12, 21 (B.A.P.
9th Cir. 2003). Some cases have observed that relief is

18
appropriate only in “extreme circumstances,” Phoenix Bond &
Indemnity Company v. Shamblin (In re Shamblin), 890 F.2d 123,
126 (9th Cir. 1989), while others have purported to give the
court “wide latitude” to “balance[ ] the equities” on a case by
case basis. Nat’l Envtl. Waste Corp. v. City of Riverside (In re
Nat’l Envtl. Waste Corp.), 129 F.3d 1052, 1054-55 (9th Cir.
1997). In Shamblin, the Ninth Circuit held that retroactive
annulment of the stay is an “extraordinary action” and a “radical
form of relief” that should be used “sparingly,” but nevertheless
allowed that retroactive annulment may be appropriate where
the bankruptcy filing has been in bad faith. Shamblin, 890 F.2d
at 126. Although the Shamblin Court reserved the question of
“whether equitable principles may, in a proper case, justify
retroactive annulment of the stay,” the Ninth Circuit balanced
the equities and determined that “equity favor[ed] enforcement
rather than annulment of the stay.” Id. at 126. Even those cases
that have subscribed to a narrow conception of the power to
retroactively annul the stay have affirmed that balancing the
equities is the appropriate test.

Bearing that in mind, we cannot conclude that the
Bankruptcy Court abused its discretion by retroactively
annulling the stay in this case. Other courts have observed that
the most important factors in making this determination are (1)
whether the creditor was aware of the filing or encouraged
violation of the stay; (2) whether the debtor engaged in
inequitable, unreasonable, or dishonest behavior; and (3)
whether the creditor would be prejudiced. See, e.g., Nat’l Envtl.
Waste Corp., 129 F.3d at 1055. In effect, the Bankruptcy Court
concluded that Mrs. Myers’s manifestly dilatory tactics and the
prejudice to SMS outweighed SMS’s unclean hands in pushing

19
forward the CP Court orders in violation of the stay. We cannot
say that this was an abuse of discretion, particularly given the
wide latitude accorded to the Bankruptcy Court to balance the
equities when granting relief from the automatic stay.

As we noted at the outset, the Bankruptcy Court was
faced with rewarding the inequitable conduct of either the
creditor or the debtor. We will not gainsay the Bankruptcy
Court’s resolution of this question. We note, however, that it is
appropriate for the Bankruptcy Court to impose damages under
11 U.S.C. § 362(h) against any parties that created, encouraged,
or actively participated in violations of the automatic stay, even
if those violations are later ratified by annulment of the stay.
See In re Atlantic Bus. & Cmty. Corp., 901 F.2d 325, 328-29 (3d
Cir. 1990).

We will affirm the judgment of the District Court.

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