Bugg v. Gray (In Re Gray)

United States Court of Appeals
For the Eighth Circuit
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No. 15-1345
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In re: Cyril M. Gray,

lllllllllllllllllllllDebtor,

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Eldon K. Bugg; Danny Bugg,

lllllllllllllllllllllAppellants,

Cyril M. Gray,

lllllllllllllllllllllAppellee.
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Appeal from the United States Bankruptcy
Appellate Panel for the Eighth Circuit
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Submitted: October 7, 2015
Filed: April 28, 2016
[Unpublished]
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Before SMITH, COLLOTON, and SHEPHERD, Circuit Judges.
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PER CURIAM.
Pro se creditors Eldon and Danny Bugg appeal from the judgment of the
Bankruptcy Appellate Panel (BAP). The BAP affirmed the bankruptcy court’s order
holding that the Buggs had willfully violated the automatic stay provision of 11
U.S.C. § 362 when they evicted Chapter 13 debtor Cyril Gray from his residence, and
removed his truck and personal effects therefrom; but reversed its award of punitive
damages based on the violation. For the following reasons, we conclude that the
bankruptcy court’s award of actual damages was also improper.

This court applies the same review standards as the BAP, reviewing the
bankruptcy court’s factual findings for clear error and its legal conclusions de novo.
See In re Vote, 276 F.3d 1024, 1026 (8th Cir. 2002). The commencement of a
bankruptcy case creates an estate which includes all of the debtor’s legal and
equitable interests in property as of the date the bankruptcy petition is filed. See 11
U.S.C. § 541(a)(1). The nature and extent of a bankruptcy debtor’s property interests
are governed by state law. See In re Broadview Lumber Co., Inc., 118 F.3d 1246,
1250 (8th Cir. 1997). The filing of a bankruptcy petition also triggers an automatic
stay, which prohibits, inter alia, any act to take possession of, or to exercise control
over, estate property. See 11 U.S.C. § 362(a). The automatic stay continues until the
property in question is no longer property of the estate, the case is closed or
dismissed, or a discharge is granted or denied. See 11 U.S.C. § 362(c).

An individual who is harmed by a willful violation of the automatic stay is
entitled to, as relevant to this appeal, actual damages. See 11 U.S.C. § 362(k)(1).
Because there is no dispute that the Buggs willfully took possession of the property
at issue, Gray was entitled to damages under section 362(k), if (1) he had legal or
equitable interests--as determined by Arkansas state law--in the residence, truck, or
personal effects; and (2) to the extent he had such interests, they had not been
released from the estate, and thus the protection of the automatic stay, before he was
evicted.

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First, assuming that the residence was properly included in the bankruptcy
estate, we conclude that the stay was terminated as to the residence before the Buggs
evicted Gray. The parties do not dispute that, after the Buggs moved for relief from
the automatic stay, the bankruptcy court did not comply with the statutorily mandated
time frames set forth in 11 U.S.C. § 362(e) (automatic stay shall terminate with
respect to party making request for relief from stay if bankruptcy court does not hold
hearings or rule on motion by certain deadlines). As such, the automatic stay was
terminated as to the residence by operation of law upon the section 362(e) violation.
See Grundy Nat’l Bank v. Harman Invs., Inc., 887 F.2d 1079, 1079, 1989 WL
117725, at *1 (4th Cir. 1989) (unpublished table decision). While the BAP found that
the Buggs had waived their right to enforce the section 362(e) deadlines, we conclude
that the BAP erred in relying on waiver because it is an affirmative defense that Gray
failed to raise before the bankruptcy court, the BAP, or this court. See Stephenson v.
Davenport Comm. Sch. Dist., 110 F.3d 1303, 1306 n.3 (8th Cir. 1997).

Next, we conclude that the Buggs did not violate the automatic stay by taking
possession of the personal effects, as the stay had been lifted as to those items
because they were divested from the estate, prior to the eviction, by Gray’s claimed
exemptions for their full value. Cf. Schwab v. Reilly, 560 U.S. 770, 774-76 (2010);
In re Grueneich, 400 B.R. 680, 684 (8th Cir. BAP 2009). As such, Gray was not
entitled to relief under section 362(k) because the effects were no longer property of
the estate, and the estate suffered no harm. Finally, we conclude that--to the extent
the estate had a legal or equitable interest in the truck--the estate nevertheless did not
suffer any harm from its seizure, as a secured creditor had filed an uncontested claim
against the estate for the balance of a loan secured by the truck, and Gray’s co-signor
has since reimbursed the creditor the full balance of that loan. See 11 U.S.C.
§ 362(k).

Accordingly, we reverse the award of damages.

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COLLOTON, Circuit Judge, concurring in the judgment.

I agree that the bankruptcy court’s award of damages should be reversed, but
for different reasons. I am reluctant to declare that the Bankruptcy Appellate Panel
erred by holding that creditors Eldon and Danny Bugg waived their right to enforce
the statutory time limits under 11 U.S.C. § 362(e). As the BAP pointed out, the
Buggs did not object to debtor Cyril Gray’s request for a continuance of the hearing
required by § 362(e), and then the Buggs moved for a continuance themselves on
January 21, 2014—an act that “flies directly in the face of the argument that the stay
had lapsed on January 12.” In re Gray, No. 14-6027, slip op. 10 (8th Cir. BAP 2014).
Despite the Buggs’ present contention that the automatic stay had expired on January
12, they eventually came to an agreement with Gray in February 2014 to modify the
automatic stay. Even though Gray did not invoke an affirmative defense of waiver
of the time limits in his pro se pleadings, the BAP had discretion to overlook any
litigation waiver by Gray when the Buggs’ waiver of the statutory deadlines was so
obvious. Cf. Lufkins v. Leapley, 965 F.2d 1477, 1481 (8th Cir. 1992); United States
v. Vontsteen, 950 F.2d 1086, 1091 (5th Cir. 1992).

In my view, however, the Buggs did not violate the automatic stay because
Gray’s residence never became property of the bankruptcy estate. The undisputed
evidence showed that before Gray filed his Chapter 13 petition, he had defaulted on
the land installment contract involving the residence. As a result, the contract was
terminated, and Gray’s interest in the residence was converted to an at-will tenancy.
When Gray failed to pay rent pursuant to the parties’ agreement, the Buggs
terminated the at-will tenancy, and Gray became a holdover tenant. Thus, under the
better view of Arkansas law, the at-will tenancy ended with Gray’s default, and he
lost any interest in the residence when he failed to pay rent. The Buggs did not
violate the automatic stay by taking possession of the residence, because Gray had no
interest protected by the stay. See In re Ziemski, 338 B.R. 802, 804 (8th Cir. BAP
2006); Hosey v. Burgess, 890 S.W.2d 262, 267 (Ark. 1995); see also Ark. Code Ann.

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§ 18-16-101; cf. Polk v. State, 772 S.W.2d 368, 369-70 (Ark. App. 1989). Because
Gray’s interest in the residence was effectively terminated before he filed his
bankruptcy petition, he also lost any interest he had in the truck and personal effects
by leaving them at the premises. See Ark. Code Ann. § 18-16-108(a).

When the Buggs evicted Gray from the residence in March 2014, they had
initiated an unlawful-detainer action, but had not yet acquired a judgment of
possession. Whether the Buggs might have violated the Arkansas entry and detainer
statutes, however, is a separate matter from whether Gray retained an interest in the
property such that the Buggs violated the automatic stay. E.g., Floro v. Parker, 205
So.2d 363, 365 (Fla. Dist. Ct. App. 1967) (explaining that it is “immaterial” in a
forcible entry and detainer case whether the plaintiff had a legal right of possession
or not).

For these reasons, I agree that the Buggs did not violate the automatic stay, and
I concur in the judgment reversing the bankruptcy court’s award of damages.
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