Johnson v. Smith (In Re Johnson)

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
August 28, 2007
UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
FO R TH E TENTH CIRCUIT

In re: TOM M Y DEAN JOHNSO N and
C AN D IC E A N N JO H N SO N ,

Debtors,

TO M M Y D EA N JO H N SO N ;
CANDICE ANN JOHNSON,
Plaintiffs - Appellees, No. 05-8089
v.
KEITH SM ITH, individually and as
Vice President of M & M Auto Outlet -
W yoming, Inc.; M & M AU TO
OUTLET - W YOM IN G, IN C., a
W yoming Corporation,
Defendants - Appellants.

APPE AL FRO M TH E U NITE D STA TE S
BANK RUPTCY APPELLATE PANEL
(BAP No. W Y-04-87)

Submitted on the briefs:

Ken M cCartney and Carrol Nelson, Law Offices of Ken M cCartney, P.C.,
Cheyenne, W yoming, for Plaintiffs-Appellees.

Stephen R. W inship, W inship & W inship, P.C., Casper, W yoming, for
Defendants-Appellants.

Before KELLY, M cKA Y, and BR ISC OE, Circuit Judges.
M cK A Y, Circuit Judge.

M & M Auto Outlet–W yoming, Inc. appeals the merits portion of a

Bankruptcy Appellate Panel decision affirming the W yoming bankruptcy court’s

determination that M & M willfully violated the automatic stay of 11 U.S.C. § 362

by repossessing a pickup truck after a Chapter 13 bankruptcy petition had been

filed. M &M ’s appeal presents a host of issues, including the finality of the BAP

decision, the burden of proof required by § 362, the m eaning of “willful” under §

362, and the application of that definition to M & M ’s actions.

B ACKGROUND

This tortured tale about “a truck and those that would possess it” began

when Debtors Tommy Dean and Candice Ann Johnson purchased a pickup truck

from M & M . Johnson v. Smith (In re Johnson), 330 B.R. 880 (table), 2005 W L

2300370, at *1 (BAP 10th Cir. Sept. 7, 2005). Pursuant to a Retail Installment

Contract and Security Agreement (the “Sales Contract”) signed by the parties on

M arch 30, 2004, Debtors agreed to purchase the vehicle for $13,138. The Sales

Contract specified that Debtors would make a $2,300 down payment, consisting

of $1,500 previously paid to M & M for the failed purchase of a different vehicle,

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$500 in cash, and a deferred $300 payment due April 13, 2004. 1 On M arch 30,

2004, Debtors paid the additional $500, took possession of the vehicle, and

received a Bill of Sale. The Bill of Sale listed “Wells Fargo Fin” as the

lienholder. 2 It contained no contingencies other than a statement that the sale

would not “become binding until accepted by the DEALER or his authorized

representative.” (App. at 61 (Decision on Debtors’ Am. Compl. for Turnover,

Sanctions and Injunctive Relief at 4, Adv. No. 04-2036 (Bankr. D. W yo. July 30,

2004) [hereinafter Bankr. Ct. Order]).) M & M ’s authorized representative

executed the Bill of Sale on M arch 30, 2004.

Debtors financed the rest of the purchase price. The terms of the financing

required repayment over thirty months at a sixteen percent interest rate, with the

first installment due on April 30, 2004. The parties understood that financing

would be arranged through W ells Fargo Financial, and the Sales Contract

contained an assignment provision apparently for that purpose. W ells Fargo was

not, however, a party to the Sales Contract. Rather, the Sales Contract listed

M & M as the seller, required Debtors to make payments to the seller, and granted

M & M a security interest in the vehicle.

M & M informed Debtors that W ells Fargo would contact them w ithin ten

1
Debtors promptly tendered the $300 payment.
2
Neither W ells Fargo nor M & M ever properly perfected the lien in
accordance w ith Wyoming law .

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days of the vehicle purchase, although the parties dispute the purpose of this call.

According to M & M , the call was intended to allow W ells Fargo to conduct a loan

interview, a fact which M & M alleges D ebtors were aware of given their past

attempts to finance a vehicle purchase with M & M . Debtors believed the call was

meant merely to inform them how to make loan payments. Debtors assumed,

based on a previous vehicle purchase through M & M and a document entitled

“M & M Auto Outlet Casper*Gillette*RockSprings Your [sic] Approved!” that

appeared to indicate loan approval, that W ells Fargo had already approved the

financing arrangement. (App. at 61-62 (Bankr. Ct. Order at 4-5).)

Regardless, W ells Fargo either did not call Debtors or was unable to reach

them. Testimony illustrated that on or around April 25, 2004, Debtors called

W ells Fargo in order to ascertain how to make the upcoming initial loan payment.

W ells Fargo informed them that it had no account in their name. Debtors then

called M & M . M & M required that Debtors supply additional paperwork, which

they apparently delivered on April 30, 2004, the due date for the first payment.

According to Debtors, M & M represented that it would contact W ells Fargo to

obtain the payment information for Debtors, but did not do so. Debtors,

therefore, did not make their initial loan payment.

Just days later, on M ay 6, 2004, Debtors filed a Chapter 13 bankruptcy

petition. That petition listed W ells Fargo as a secured creditor and M & M as an

unsecured creditor. The court sent out notice of Debtor’s bankruptcy to all listed

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creditors. Debtors erroneously listed M & M ’s physical address on the petition,

rather than M & M ’s postal mailing address. Accordingly, M & M never received

official notice of the bankruptcy proceeding.

On either M ay 10 or M ay 13, 2004, M & M repossessed the pickup truck.

On M ay 13, 2004, Debtor’s attorney contacted M & M and spoke to its vice-

president, informing him of the bankruptcy and demanding the vehicle’s

immediate return. M & M refused because the vice-president believed that the call

was merely a ruse put on by Debtors in an attempt to illegally recover the pickup

truck.

A flurry of litigation followed. On M ay 20, 2004, Debtors filed a

complaint against M &M alleging violation of the automatic stay under 11 U.S.C.

§ 362 and seeking declaratory and compensatory relief. Debtors also filed a

motion for a temporary restraining order (“TRO”) seeking to enjoin any potential

sale of the vehicle and to obtain possession of the vehicle. The bankruptcy court

granted Debtor’s TRO motion and ordered M & M to deliver the vehicle to

Debtors. Debtors moved to amend their complaint in order to request turnover of

the vehicle title in addition to the previously requested relief. Debtors also filed a

separate motion requesting turnover of the vehicle title.

M & M complied with the TRO order. Due to confusion over the vehicle’s

location at the delivery site not attributable to M & M , however, Debtors were

unable to retrieve the vehicle. As a result, Debtors filed a “M otion for Expedited

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Impositions of Sanctions and Order Directing M arshall to Collect Property.” The

motion w as rendered moot w hen, at an expedited hearing on the motion, M & M

explained that it had delivered the vehicle and its location at the delivery location

became apparent. Debtors nevertheless modified their motion to request turnover

of the vehicle title.

The bankruptcy court then granted Debtors’ motion to amend their

complaint. Following Debtors’ filing of the amended complaint, M & M moved to

dismiss the action. Thereafter, M & M filed a motion to modify the automatic stay

in order to repossess and sell the pickup truck or, in the alternative, to require

Debtors to assume or reject the Sales Contract. The bankruptcy court denied

M & M ’s motion to dismiss and held an evidentiary hearing in order to address the

outstanding motions.

The bankruptcy court subsequently granted Debtors’ various motions

requesting the vehicle title and denied M & M ’s request for relief from the

automatic stay. In addition, the bankruptcy court ruled in favor of Debtors on

their amended complaint, finding that M & M willfully violated § 362. The

bankruptcy court deferred assessing damages until it held an additional

evidentiary hearing on that issue.

M & M issued a new title reassignment pursuant to the bankruptcy court’s

order. That title, however, listed M & M as the lienholder rather than W ells

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Fargo. 3 As a result, Debtors w ere unable to register and license the vehicle

without providing the W yoming motor vehicle department with a lien release or a

copy of the security agreement. Although M & M faxed the necessary materials to

the proper state official, Debtors refused to proceed with the registration and

licensing. Thus, the pickup truck sat unused.

The bankruptcy court then held the evidentiary hearing to determine the

amount of damages stemming from M & M ’s w illful violation of the stay. In its

order on damages, the bankruptcy court required M & M to provide Debtors with a

title clear of M & M ’s lien and awarded $6,198.23 in damages. Specifically, the

bankruptcy court awarded Debtors $937.50 for loss of use of the pickup truck,

$5,028.50 in attorney’s fees, and $232.23 in costs.

M & M appealed the grant of the TRO, the denial of the motion to dismiss,

the order requiring turnover of the vehicle title, and the merits decision to the

BAP. The BAP affirmed the bankruptcy court’s decision on the merits, but

reversed the bankruptcy court’s damages award on loss of use due to insufficient

evidence, vacated the attorney’s fees, and remanded that issue for further

proceedings. Those proceedings regarding attorney’s fees remain outstanding.

M & M now appeals the merits portion of the BAP’s decision.

3
The bankruptcy court found that the title listed M & M as the holder of a
lien in the amount of $0.00.

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 A NALYSIS

I. Jurisdiction

On M arch 23, 2006, this court issued an order to show cause why this

appeal should not be dismissed for lack of jurisdiction. Specifically, we

questioned whether the BAP’s decision was a final, appealable order when further

proceedings w ere required to resolve damages. Recognizing that the BAP

remanded only for a redetermination of attorney’s fees, we now hold that our

jurisdiction is appropriate under 28 U.S.C. § 158(d). See Budinich v. Becton

Dickinson & Co., 486 U.S. 196, 201-02 (1988) (promulgating “uniform rule that

an unresolved issue of attorney’s fees” under 28 U.S.C. § 1291, regardless of “the

characterization of those fees by the statute or decisional law that authorizes

them,” does not affect finality of lower court orders); see also Groetken v. Davis

(In re Davis), 35 Fed. App’x 826, 828 (10th Cir. 2002) (unpublished) (analogizing

jurisdictional holding in Budinich to § 158(d) and finding jurisdiction despite

outstanding attorney’s fee determination); Unified People’s Fed. Credit Union v.

Yates (In re Yates), 2005 W L 50188, at *2-3 (BAP 10th Cir. Jan. 11, 2005)

(unpublished) (examining various circuit court approaches to Budinich in

determining that remand for attorney’s fee determination does not nullify

jurisdiction under § 158(d)). This conclusion is consistent with that of several of

our sister circuits that have had occasion to examine the finality of bankruptcy

orders where only attorney’s fee calculations remain unresolved. See, e.g.,

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United States v. Rivera Torres (In re Rivera Torres), 432 F.3d 20, 22-23 (1st Cir.

2005) (stating that “[t]he fact that here we are operating under § 158(d) rather

than § 1291 makes little difference . . . given ‘[t]he great similarity between an

adversary proceeding in bankruptcy and an ordinary civil action’” (quoting

Estancias La Ponderosa Dev. Corp. v. Harrington ( In re Harrington ), 992 F.2d

3, 6 n.3 (1st Cir. 1993)) (alteration in original); Colon v. Hart (In re Colon), 941

F.2d 242, 245 (3d Cir. 1991) (analogizing to Budinich in determining that

decision on merits was final regardless of whether or not attorney’s fees had been

quantified).

II. Automatic Stay Violation

Under § 362(a)(3), a Chapter 13 petition triggers a stay against any act

aimed at obtaining possession of property belonging to the debtor’s estate.

Section 362(k)(1) provides in part that an individual injured “by any willful

violation” of the automatic stay “shall recover actual damages, including costs

and attorneys’ fees.” 4

Although M & M appeals the BAP decision, we independently review the

bankruptcy court’s decision, conducting de novo review of its legal

determinations and clear error review of its factual determinations. Alderete v.

4
Section 362(k)(1) was previously designated subsection (h). This opinion
uses the most recent designation.

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Educ. Credit M gmt. Corp. (In re Alderete), 412 F.3d 1200, 1204 (10th Cir. 2005).

M & M argues that the bankruptcy court failed to apply the proper burden of

proof in analyzing whether M & M ’s repossession of the vehicle constituted a

“willful” violation of the automatic stay. Specifically, M & M asserts that the

evidence of its knowledge of Debtors’ Chapter 13 petition should have been

established by clear and convincing evidence, not by a preponderance of the

evidence. As a consequence, M & M contends that the bankruptcy court

erroneously concluded that M & M had sufficient knowledge of Debtors’ Chapter

13 petition to willfully violate § 362.

A. Standard of Proof

The burden of proof needed to establish a willful violation under §

362(k)(1) is less than certain in this circuit. Compare In re Sullivan, 357 B.R.

847, 854 n.21 (Bankr. D. Colo. 2006) (employing preponderance of the evidence

test, but noting “‘difference of opinion among the courts regarding the proper

standard of evidence to be used in an action to impose sanctions under § 362(h)’”

(quoting Clayton v. King (In re Clayton), 235 B.R. 801, 807 n.2 (Bankr.

M .D.N.C. 1998))), with Diviney v. NationsBank of Texas (In re Diviney), 211

B.R. 951, 961 (Bankr. N .D. Okla. 1997), aff’d 225 B.R. 762 (BAP 10th Cir. 1998)

(applying clear and convincing standard). Indeed, the BAP decision at issue on

appeal pointed out the intra-circuit divergent positions. Unfortunately, its attempt

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to resolve the issue only further jumbled it.

The BAP decision here correctly concluded that willful violations of the

automatic stay provision must be established by a preponderance of the evidence.

In arriving at this conclusion, the panel suggested that the Diviney panel’s choice

of the clear and convincing standard was merely applying, without considering,

the standard employed by the district court in that case. A plain reading of

Diviney belies that assertion. In view of our affirmance of the BAP’s correct

application of the preponderance of the evidence standard, we make clear that

Diviney incorrectly applied the wrong standard of proof.

In Grogan v. Garner, 498 U.S. 279 (1991), the Supreme Court stated:

“Because the preponderance-of-the-evidence standard results in a roughly equal

allocation of the risk of error between litigants, we presume that this standard is

applicable in civil actions between private litigants unless ‘particularly important

individual interests or rights are at stake.’” 5 Id. at 286 (quoting Herman &

5
An overwhelming majority of courts addressing this issue have elected the
preponderance of the evidence standard, a number basing that decision upon
Grogan and this quote in particular. See, e.g., Westman v. Andersohn (In re
Westman), 300 B.R. 338, 342 (Bankr. D. M inn. 2003); In re Clayton, 235 B.R. at
807 n.2; Elder-Beerman Stores Corp. v. Thomasville Furniture Indus. Inc. (In re
Elder-Beerman Stores Corp.), 206 B.R. 142, 155 (Bankr. S.D. Ohio 1997),
overruled on other grounds, 250 B.R. 609 (S.D. Ohio 1998); In re Sharon, 200
B.R. 181, 199 (Bankr. S.D. Ohio 1996), aff’d 234 B.R. 676 (BAP 6th Cir. 1999);
Estep v. Fifth Third Bank of N.W. Ohio (In re Estep), 173 B.R. 126, 129 (Bankr.
N.D. Ohio 1994); see also Heghmann v. Indorf (In re Heghmann), 316 B.R. 395,
404-05 (BAP 1st Cir. 2004); In re Gossett, 369 B.R. 361, 375 (Bankr. N.D. Ill.
(continued...)

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M acLean v. Huddleston, 459 U.S. 375, 389 (1983) (citing cases concerning

termination of parental rights, civil commitment, and deportation as examples of

“particularly important individual interests or rights”)). In Grogan, fraud victims

obtained a judgment in their favor, but were forced to file to have that judgment

excepted from discharge under 11 U.S.C. § 523(a) when the debtor filed for

bankruptcy in an attempt to discharge the judgment. Resolving the matter

required a determination as to the level of proof necessary to obtain an exception

from discharge. The Supreme Court compared the purposes of the bankruptcy

law’s fresh-start policy with the need to dispense justice to perpetrators of fraud

and concluded that the preponderance of the evidence standard achieved a “fair

balance between these conflicting interests.” Id. at 287.

No aspect of the instant circumstance suggests that a stricter standard

should apply. The automatic stay is crucial to effecting the fresh-start policy, see

M idlantic Nat’l Bank v. N.J. Dep’t of Envtl. Prot., 474 U.S. 494, 503 (1986), and

no dishonest action by Debtors warrants disciplining our application of the

preponderance of the evidence standard to rebalance the competing interests.

5
(...continued)
Apr. 24, 2007); M cCarthy v. Kramer Consulting, Inc. (In re M cCarthy), 350 B.R.
820, 826 (Bankr. N.D. Ind. 2006); In re Flack, 239 B.R. 155, 162 (Bankr. S.D.
Ohio 1999); In re Dunn, 202 B.R. 530 (Bankr. D .N.H. 1996). But see, e.g., Bolen
v. M ercedes Benz, Inc. (In re Bolen), 295 B.R. 803, 807 (Bankr. D.S.C. 2002)
(applying clear and convincing standard); In re Diviney, 211 B.R. at 961 (same);
Brockington v. Citizens & S. Nat’l Bank of S.C. (In re Brockington), 129 B.R. 68,
70 (Bankr. D.S.C. 1991) (same).

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M oreover, the competing interest of preserving creditor rights is constrained by §

362(d), w hich permits creditors to seek relief from the automatic stay.

Further support for employing the preponderance standard is found in the

text of § 362(k)(1), which imposes a condition for recovery of punitive damages

but not for actual damages, attorney’s fees, or costs. Cf. Ramirez v. Fuselier (In

re Ram irez), 183 B.R. 583, 589 (BAP 9th Cir. 1995) (“The w ords ‘shall recover’

indicate that Congress intended that the award of actual damages, costs and

attorney’s fees be mandatory upon a finding of a willful violation of the stay.”).

The subsection’s allowance for punitive damages only “in appropriate

circumstances” suggests that a stricter evidentiary standard should apply only to a

determination on punitives. The courts addressing this issue observe that

imposition of punitive damages harkens to the original civil contempt actions that

were required prior to enactment of § 362, and they draw a distinction between

the standard used for assessing punitives as opposed to actual damages, attorney’s

fees, and costs. See, e.g., Green Tree Servicing, LLC v. Taylor, ___ F. Supp. 2d

___, 369 B.R. 282, 289 (S.D. W . Va. M ar. 30, 2007) (“One point that seems clear

from the different standards articulated is that ‘punitive damages usually require

more than mere willful violation of the automatic stay.’” (quoting Heghmann,

316 B.R. at 405)); Ford M otor Credit Co. v. Florio (In re Florio), 229 B.R. 606,

608 (S.D.N.Y. 1999) (“It is well established that the ‘clear and convincing’

standard applies only when there is an adjudication of contempt for the violation

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of an automatic stay; if that is not the case, the ‘clear and convincing’ standard of

proof does not apply.”); M ack v. Pa. Dep’t of Pub. Welfare (In re M ack), 46 B.R.

652, 657 (Bankr. E.D. Pa. 1985) (“In order to prevail on an action for contempt

the moving party must prove his case by clear and convincing evidence rather

than by the usual standard of a preponderance of the evidence.”). Accordingly,

we hold that willful violations of an automatic stay must be proven by a

preponderance of the evidence.

B. M eaning of “W illful”

This court has yet to define “willful” in the § 362 context. A number of

courts in this circuit cite In re Diviney’s definition of “willful.” Although not

incorrect, that definition is based in part on our decision in C.I.T. Financial

Services, Inc. v. Posta (In re Posta), 866 F.2d 364, 367 (10th Cir. 1989), which

defined “w illful” in the context of 11 U.S.C. § 523(a)(6). 6 In re Posta was

abrogated, however, by Kawaauhau v. Geiger, 523 U.S. 57 (1998). Geiger, in

analyzing the impact of the word “willful” as a modifier in the phrase “willful

injury,” held that in the § 523(a)(6) context, “nondischargeability takes a

deliberate or intentional injury, not merely a deliberate or intentional act that

leads to injury.” Id. at 61 (emphasis omitted). Because M & M questions the

6
Section 523(a)(6) excepts from discharge any “willful and malicious
injury by the debtor to another.”

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scope of w hat constitutes a “willful” violation of an automatic stay and at least

one district court in this circuit has used Geiger’s restrictive definition in the

automatic stay context, 7 we believe it necessary to provide a comprehensive

definition of “willful” applicable to § 362.

W e agree with the interpretation of “willful” provided by a large number of

courts that have analyzed § 362(k)(1). Thus, we hold that in order to demonstrate

a violation of § 362(k)(1), the debtor bears the burden of establishing, by a

preponderance of the evidence, that the creditor knew of the automatic stay and

intended the actions that constituted the violation; no specific intent is required.

See, e.g., Brown v. Chestnut (In re Chestnut), 422 F.3d 298, 302 (5th Cir. 2005);

Fleet M ortgage Group, Inc. v. Kaneb, 196 F.3d 265, 269 (1st Cir. 1999); Cuffee v.

Atl. Bus. & Cm ty. Dev. Corp. (In re Atl. Bus. & Cm ty. Corp.), 901 F.2d 325, 329

(3d Cir. 1990); Knaus v. Concordia Lumber Co. (In re Knaus), 889 F.2d 773, 775

(8th Cir. 1989); G oichm an v. Bloom (In re Bloom), 875 F.2d 224, 227 (9th Cir.

7
In Jardine’s Professional Collision Repair, Inc. v. Gamble, 232 B.R. 799
(D. Utah 1999), the court followed Geiger’s reasoning in concluding that § 362’s
use of “willful” modified “violation” such that a stricter intent requirement was
necessary. As aptly noted by the C olorado bankruptcy court, however:
This construction is inconsistent with the fact that objections to
dischargeability are narrowly construed because discharge is
favored, while the automatic stay is a fundamental protection given
to the debtor designed to stop all activity by creditors against the
debtor or property of the estate during the pendency of a case,
unless and until modified by court order.
In re Gagliardi, 290 B.R. 808, 819 n.25 (Bankr. D. Colo. 2003).

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1989). Accordingly, a creditor’s good faith belief that it had a right to the

property is irrelevant. See, e.g., In re Chestnut, 422 F.3d at 302; Kaneb, 196 F.3d

at 268-69; Tsafaroff v. Taylor (In re Taylor), 884 F.2d 478, 483 (9th Cir. 1989).

Notice of the bankruptcy filing need not be formal or official to put a creditor on

notice. See, e.g., Taylor, ___ F. Supp. 2d ___, 369 B.R. 286 (collecting cases).

Applying this definition to the facts of the instant action, we cannot say

that the bankruptcy court was clearly erroneous in finding that M & M possessed

sufficient knowledge of D ebtors’ bankruptcy to w arrant a conclusion that M & M ’s

refusal to return the pickup truck constituted a willful violation of the automatic

stay. On M ay 13, 2004, Debtors’ attorney telephoned M & M ’s vice-president and

demanded the immediate return of the repossessed vehicle. This fact was

established via an affidavit submitted by Debtors’ attorney. The M & M vice

president testified that Debtors’ attorney’s manner was “abrupt and harsh” (App.

at 242) and, in his experience, unlike that of other debtors’ counsel. He also

testified that Debtors’ attorney failed to offer any documentation that might prove

that Debtors in fact had filed for bankruptcy. As a result, he believed the

telephone call was a scam designed to trick M & M into returning the otherwise

lawfully repossessed vehicle.

The bankruptcy court determined that Debtors’ counsel’s telephone call to

M & M ’s vice-president placed M & M on actual notice. W e agree. First, the vice

president testified that immediately after the telephone call with Debtors’ counsel

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ended, he “called several employees in to sound it off them” because he was

suspicious about the veracity of the attorney’s assertions. (App. at 243.) Second,

the vice president testified that, because Debtors previously had filed for

bankruptcy, he did not believe that enough time had passed since that filing to

render them eligible to refile. 8 This belief about Debtors’ eligibility to refile,

coupled w ith M & M ’s suspicion following the telephone call, causes us to affirm

the bankruptcy court’s conclusion that “M &M had a responsibility to investigate

further if it seemed [Debtors’ counsel] was making false representations, despite

[his] demeanor.” (A pp. at 54 (Order on Damages at 4, Adv. No. 04-2036 (Bankr.

D. W y. Nov. 17, 2004) [hereinafter Damages O rder]).)

The dissent overemphasizes the degree to w hich the bankruptcy court

credited the vice-president’s testimony and the relevancy of M & M ’s beliefs,

reasonable or otherwise. By blending testimony given by M & M ’s vice-president

at two separate hearings some three months apart, the dissent attempts to paint a

picture different from that necessarily credited by the bankruptcy court in

reaching its decision that M & M violated the automatic stay, a decision arrived at

after lengthy and acrimonious litigation. W hile the finding of fact regarding the

vice-president’s suspicion was listed in the bankruptcy court’s July 2004 order, it

8
M & M argues that this good faith belief immunizes its violation of the
automatic stay. As noted above, however, good faith belief is irrelevant in
determining whether an automatic stay violation was w illful.

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was not until the October 2004 hearing on damages, however, that the vice-

president alluded to having been rebuffed in his requests for verifying

documentation. This claimed attempt to make inquiry was not stated by the vice-

president at the earlier hearing. Rather, at the first hearing the bankruptcy court

had before it Debtors’ counsel’s affidavit stating that bankruptcy notice was

mailed and faxed to M & M prior to the telephone call. Despite the dissent’s heavy

reliance on the vice-president’s alleged attempted inquiry, it is notable that the

bankruptcy court made no such finding in any of its orders. In addition, M & M

provided this testimony only after the bankruptcy court faced no less than three

different excuses from M & M for its failure to return the vehicle, all of which

were rejected by the bankruptcy court. Indeed, the vice-president’s apparently

crucial testimony about being refused proof of the bankruptcy filing was provided

nearly three months after the bankruptcy court concluded that M & M had violated

the automatic stay.

The dissent’s reliance on the “reasonableness” of M & M ’s excuses is

irrelevant. W illfulness is to be “liberally construed to bolster the protections of

the automatic stay,” In re Sharon, 234 B.R. at 688, and is “designed to ensure

compliance with the stay by encouraging creditors to seek relief from the court

whenever they are on notice of even a potential stay violation,” Commercial Bank

v. Hundley (In re Hundley), 2007 W L 1042135, at *12 (D . Kan. Apr. 6, 2007).

Accordingly, M & M ’s beliefs, however reasonable, have no bearing on

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willfulness. See, e.g., In re Chestnut, 422 F.3d at 302; Kaneb, 196 F.3d at 268-

69; In re Taylor, 884 F.2d at 483. M oreover, the travails envisioned by the

dissent in verifying Debtors’ true bankruptcy status are fanciful: M & M is a

sophisticated car dealership represented by counsel and admittedly quite familiar

with repossession and bankruptcy procedure. M & M knew Debtors’ name and

address and could easily have called the clerk for the single bankruptcy court

covering the area in which Debtors resided.

Although Debtors presented limited evidence about the nature of the phone

call, they nevertheless proved the automatic stay violation by a preponderance of

the evidence. That conclusion is consistent with the factual findings made by the

bankruptcy court over the course of this protracted litigation, factual findings that

we cannot say are clearly erroneous. See Coons v. City of Silver Springs (In re

Coons), 123 B.R. 649, 652 (Bankr. N.D. Okla. 1991) (observing that while “vague

indefinite statement by the Debtors that they had filed bankruptcy, without giving

the number of the case or where it was filed, would not be sufficient notice,” fact

that debtor’s attorney telephoned creditor to inform it of bankruptcy filing

imposed duty upon creditor “to inquire of the Court Clerk”); In re Bragg, 56 B.R.

46, 48-49 (Bankr. M .D. Ala. 1985) (finding knowledge where facts are sufficient

to “cause a reasonably prudent person to make further inquiry” and stating that

“simple telephone call to the clerk’s office” would have resolved confusion); cf.

Serm ersheim v. Serm ersheim (In re Sermersheim), 97 B.R. 885, 888-89 (Bankr.

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N.D. Ohio 1989) (finding uncontested affidavit of debtor’s attorney that he

provided telephonic notice of debtor’s bankruptcy case sufficient to hold creditor

in violation of § 362(h)).

III. Nature of the Sales Contract

M & M argues on appeal that the Sales Contract is an executory contract

that, in accordance with 11 U.S.C. § 365, Debtors must either accept or reject.

This argument, made in conjunction with M & M ’s contention that Debtors

breached the Sales Contract, constitutes a clever attempt to force Debtors to cure

their alleged breach while accepting the contract, as mandated under § 365(b)(1).

Forcing Debtors to accept the Sales Contract at this late date also gives M &M a

second chance to perfect its lien. Obviously, rejecting the Sales Contract would

cause Debtors to lose the vehicle.

According to the widely adopted classic definition provided by Professor

Countryman, an executory contract is “a contract under which the obligation of

both the bankrupt and other party to the contract are so far unperformed that the

failure of either to complete performance would constitute a material breach

excusing performance of the other.” Vern Countryman, Executory Contracts in

Bankruptcy: Part I, 57 M inn. L. Rev. 439, 460 (1973). M & M contends that both

parties’ substantial remaining obligations render the Sales Contract executory.

According to M & M , Debtors were obligated to make payment in full, provide

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necessary residency and income verification documentation, and complete a

financing interview with W ells Fargo. For its part, M & M remained obligated to

transfer the vehicle title to Debtors after the final installment payment was

tendered.

W e disagree with M & M ’s characterization of the Sales Contract. As the

bankruptcy court pointed out, Debtors paid the entire down payment in

accordance with the deferred payment schedule and delivered all requested,

extracontractual documentation. Nor do we disagree with the bankruptcy court’s

determination that Debtors’ failure to complete the financing interview was not

attributable to them. Debtors’ sole obligation to tender installment payments and

M & M ’s sole obligation to release the lien when handing over the vehicle title are

insufficient to warrant classifying the Sales Contract as executory. A host of

courts have found similar automobile retail installment contracts nonexecutory in

nature. See, e.g., In re Steffen, 181 B.R. 981, 985 (Bankr. W .D. W ash. 1995)

(“[W ]here (as here) the goods have already been delivered and the seller’s only

remaining obligation is delivery of title on receipt of full payment, there is no

executory contract.”); Chrysler Credit Corp. v. Sparago (In re Sparago), 31 B.R.

552, 554 (Bankr. E.D.N.Y. 1983) (finding § 365 inapplicable “because a secured

car loan is not an executory contract or lease”); In re Shada Truck Leasing, Inc.,

31 B.R. 97, 99-100 (Bankr. D. Neb. 1983) (finding retail installment sales

contract for eight vehicles nonexecutory where debtor’s only obligation was

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payment and creditor’s only obligation concerned limited repair warranty); Riggs

Nat. Bank of Wash., D.C. v. Perry (In re Perry), 25 B.R. 817, 819-20 (Bankr. D .

M d. 1982) (finding installment sales contracts for vehicles not executory within

meaning of § 365); Brock v. Am. Sec. Bank (In re Brock), 23 B.R. 998, 1002 n.8

(Bankr. D.D.C. 1982) (noting, without deciding, that installment sales contract for

vehicle purchase “would not ordinarily be deemed an executory contract simply

because the sole and remaining obligation under the contract is that of the debtor

to maintain periodic contractual payments called for in the contract itself”); In re

Whatley, 16 B.R. 394, 398 (Bankr. N.D. Ohio 1982) (holding creditor’s obligation

to cancel lien “not sufficient to make the contract executory”). Accordingly, w e

affirm the nonexecutory classification of the Sales Contract.

IV. Lien Avoidance

M & M also argues that the bankruptcy court improperly released M & M ’s

lien on the vehicle when it ordered M & M to turn over the vehicle title. State law

governs whether a property interest has been perfected. See Butner v. United

States, 440 U.S. 48, 55 (1979). Under W yoming law , perfecting a lien in vehicle

requires a two-step process that, for unknown reasons, neither M & M nor W ells

Fargo ever performed prior to Debtors’ bankruptcy filing. 9

9
W yoming requires that: (1) “[a] financing statement or security agreement
must be filed in the office of the county clerk of the county in which the vehicle
(continued...)

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 Only after the bankruptcy court ordered return of the vehicle as well as the

turnover of the vehicle title did M & M attempt to note a lien on the title in the

am ount of $0.00. This action failed to satisfy the requirements of W yoming law ,

prompting the bankruptcy court to observe that M & M made the notation “out of

spite.” (App. at 55 (Damages O rder at 5).)

The court also noted that M & M did not seek relief from the automatic stay

before attempting to note its lien. As a result, it was entirely proper for the

bankruptcy court to prevent M & M ’s attempt at perfecting its lien post-petition.

See Obuchowski v. U nion Bank (In re Cottrell), 2005 W L 1899489, at *6 (Bankr.

D. Vt. Aug. 1, 2005) (stating that creditor’s failure to obtain relief from stay

before attempt to perfect its lien post-petition rendered perfection voidable); Am .

State Bank v. Swearingen (In re Swearingen), 27 B.R. 379, 384-85 (Bankr. D.

Kan. 1983) (finding that attempted compliance with state lien perfection law after

bankruptcy petition was filed was proscribed by § 362(a)(4)). Thus, the

bankruptcy court correctly characterized M & M as an unsecured creditor.

9
(...continued)
is located” and (2) “[a] notation of the security interest must be endorsed on the
certificate of title to the vehicle or motor vehicle, the endorsement to be made
concurrently with the filing of the financing statement or security agreement.”
W yo. Stat. Ann. § 31-2-801.

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 C ONCLUSION

For the foregoing reasons, we AFFIRM the determination by a

preponderance of the evidence that M & M willfully violated the automatic stay,

that the R etail Installment Contract and Security Agreement was not an executory

contract, and that M & M was properly denied its post-petition attempt to perfect

its lien.

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05-8089, In re Johnson

BRISCO E, Circuit Judge, concurring:

I concur, but write separately to clarify why, in my view, the district court

did not commit clear error in finding that M & M willfully violated the automatic

stay. In its “Order On Damages,” the bankruptcy court found that “M & M had

actual notice of the bankruptcy filing on M ay 13, 2004 when the D ebtors’

attorney [Ken M cCartney] spoke with Keith Smith, a vice president of M & M , and

requested M & M return the repossessed Chevy.” A pp. at 53-54. This finding is

amply supported by the testimony of Smith. Smith testified that in mid-M ay

2004, M cCartney contacted him by telephone. Id. at 170. Smith further testified

that “M cCartney said that he was counsel for the Johnsons and that they were in

bankruptcy,” and that M cCartney “suggest[ed] that [M & M ] . . . return the truck

immediately to the Johnsons at their address.” Id. at 171. In short, Smith

acknowledged that he was advised that (a) the Johnsons had filed for bankruptcy,

(b) were represented by counsel, and (c) that M & M had a legal obligation under

the Bankruptcy Code to return the truck to the Johnsons.

A ccording to the record, Smith chose not to believe M cCartney for two

reasons. First, Smith testified he was aware “that the Johnsons had prior been in

bankruptcy and [he] felt that it was too quick for them to be in a bankruptcy”

again. Id. In other words, Smith, despite being a non-lawyer, reached a legal

conclusion that the Johnsons were ineligible to file for bankruptcy in M ay of

2004. Second, Smith testified that his “guard went up” due to M cCartney’s rude
and gruff demeanor. Id. According to Smith, when he began questioning

M cCartney about the information he had provided, M cCartney’s “voice got

louder” and M cCartney became upset. Id. Smith also noted that M cCartney “did

not offer to fax [him] a notice that [the Johnsons] were in bankruptcy or anything

of the meeting.” Id.

The bankruptcy court concluded, in assessing this testimony, that, even

assuming M cCartney was “rude and gruff” as asserted by Smith, “M & M had a

responsibility to investigate further if it seemed M r. M cCartney [the Johnsons’

attorney] was making false representations . . . .” Id. at 54. In my view , this

conclusion is entirely reasonable. To the extent that Smith questioned

M cCartney’s veracity, either due to M cCartney’s demeanor or to Smith’s own

faulty legal reasoning, Smith could and should have taken reasonable steps to

investigate Smith’s assertions.

In taking issue with the district court’s finding and related conclusion, the

concurring/dissenting opinion suggests that Smith in fact attempted to make

further inquiry “by asking counsel to fax him the cover sheet of the Johnsons’

bankruptcy petition,” but that Smith’s request “was rebuffed . . . .” Conc. at 4.

Importantly, however, the bankruptcy court made no such finding. M oreover,

Smith’s own testimony on this point, which amounts to a single sentence, is

ambiguous: “Nor did he [M cCartney] offer to fax me any proof and when I

challenged him on that, he got extremely upset.” A pp. at 171. Because it is w ell-

-2-
established that it is not the function of an appellate court “to decide factual

issues de novo,” Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100,

123 (1969), it would be improper for us to find that Smith asked M cCartney to

fax him the cover sheet of the bankruptcy petition, or that M cCartney refused to

do so.

-3-
No. 05-8089, Johnson v. Smith (In re Johnson)

KELLY, Circuit Judge, concurring in part and dissenting in part:

I join the majority of the court’s opinion, but I respectfully dissent from its

conclusion that M & M willfully violated the automatic stay by failing to return the

Chevy pickup after receiving a telephone call from the Johnsons’ attorney.

To prove a violation of the automatic stay, the Johnsons “bear[] the burden

of establishing, by a preponderance of the evidence, that [M & M ] knew of the

automatic stay and intended the actions that constituted the violation.” Ct. Op. at

15. M & M cannot have wilfully violated the stay unless it had actual notice of it.

See id. at 15-16. “N otice is regarded as actual where the person charged with

notice either knows the particular facts in question or is conscious of having the

means to know them, even though such means have not been used. . . . Actual

notice embraces those things that reasonably diligent inquiry and exercise of the

means of information at hand would disclose.” 58 Am. Jur. 2d Notice § 4 (2002).

The dispute in this case arises from two nearly simultaneous events: the

Johnsons filed for bankruptcy on M ay 6, 2004, and M & M repossessed the Chevy

pickup on either M ay 10 or M ay 13. Aplt. App. at 63. The bankruptcy court

found–and the parties do not dispute–that M & M had not received notice of the

bankruptcy stay at the time that it repossessed the pickup. Id. The court further

found that M r. Smith, the Vice President of M & M , “took a M ay 13, 2004

telephone call from the Debtors’ counsel requesting a turnover of the Chevy.” Id.
Crucially, the court credited M r. Smith’s testimony that “[b]ecause of counsel’s

demeanor, M r. Smith was suspicious that the Debtors w ere simply attempting to

get the Chevy back improperly.” Id. It likewise credited M r. Smith’s assertion

that he refused to return the pickup because of these suspicions. Id.

Specifically, M r. Smith testified that he frequently dealt with customers’

bankruptcies as part of his job responsibilities. Id. at 174. Therefore, he was

accustomed to speaking with bankruptcy attorneys, and he was familiar with the

court-provided notice sent to creditors in conjunction with the filing of a

bankruptcy petition. Id. at 170-71. However, M r. Smith did not know the

Johnsons’ counsel, and he testified that he harbored serious doubts about the truth

of counsel’s assertions because “it wasn’t [like] any phone call I’ve ever taken in

my professional career in regards to bankruptcy matters. Certainly from an

attorney.” Id. at 172. He further testified: “[i]n a very abrupt and harsh manner

[counsel] explained that we better get our act together and return the vehicle, at

which time I started questioning him and he just got downright irate with me so

that was the end of the phone call.” Id. at 242. Notably, M r. Smith explained

that counsel “did not offer to fax me a notice that they were in bankruptcy or

anything . . . and when I challenged him on that, he got extremely upset.” Id. at

171. The call ended when counsel hung up on M r. Smith. Id. at 243.

Following the incident, M r. Smith “sat there and shook [his] head and

thought something wasn’t right.” Id. In his experience, “more often everyone is

-2-
very honorable, but sometimes you come across those that know the system and

know how to get around things and therefore you have to have your guard up to

protect the interest of your company.” Id. at 172-73. Therefore, he explained,

“[i]t’s not as if you would assume that when someone represents that they’re an

attorney that they’re liars because you try not to, but unfortunately, when a

volatile situation like a repossession occurs, naturally you’re going to put up the

safeguards and the safeguards indicated this isn’t normally how I speak to an

attorney.” Id. at 242-43. Indeed, M r. Smith recalled that he had such doubts

about the validity of the call that he spoke to several colleagues to “sound it off to

them because I w as just in pure shock that I had a conversation [of] this nature

with this gentleman.” Id. at 243.

M r. Smith’s testimony at tw o hearings–one to determine w hether M & M

willfully violated the stay and the other to determine damages–is the only

evidence in the record describing the telephone call he received from counsel.

This testimony was consistent and uncontradicted, and it paints a clear picture of

a well-intentioned businessman confronted with an unsubstantiated demand from

an unknown caller that he relinquish property worth $13,000. The actual notice

standard requires the person receiving notice to be left free of reasonable

concerns about the validity of the communication purporting to give him notice. 1

1
Although a telephone call can provide actual notice, see, e.g., Rowe v.
(continued...)

-3-
Given the bankruptcy court’s uncontested finding that “[b]ecause of counsel’s

demeanor, M r. Smith was suspicious that the Debtors w ere simply attempting to

get the Chevy back improperly,” id. at 63, it is clear that the Johnsons did not

carry their burden of proving a willful violation by a preponderance of the

evidence. In other words, the bankruptcy court’s finding that M r. Smith acquired

actual notice of the stay despite his honestly-held doubts about the validity of the

call was clearly erroneous.

Even if the notice given here was sufficient to require M r. Smith to make

further inquiry, as the bankruptcy court concluded, see id. at 54, his attempt to do

so by asking counsel to fax him the cover sheet of the Johnsons’ bankruptcy

petition was rebuffed, id. at 171. Inquiry notice must at least contain enough

information to permit the creditor to verify that a petition has been filed. Here,

the unknown caller did not give M r. Smith any information suggesting when or

where the petition was filed. M r. Smith certainly cannot be expected to call each

of the 91 United States bankruptcy courts to ask whether they had any recent

bankruptcy filings by debtors named “Johnson.”

The court dismisses this concern because “M & M is a sophisticated car

1
(...continued)
Steinberg, 253 B.R. 524, 528 (E.D. M ich. 2000); In re Flack, 239 B.R. 155, 164
(Bankr. S.D. Ohio 1999), especially when it is accompanied by documentary
confirmation, see, e.g., Fleet M ortgage Group, Inc. v. Kaneb, 196 F.3d 265, 267
(1st Cir. 1999); Flack, 239 B.R. at 164, actual notice must always be reasonable
on the facts of the case, Flack, 239 B.R. at 164.

-4-
dealership represented by counsel and admittedly quite familiar with repossession

and bankruptcy.” Ct. Op. at 18-19. Ironically, however, M & M ’s sophistication

and familiarity with bankruptcy is what caused it to become suspicious in the first

place. M & M was accustomed to receiving bankruptcy notices, but it had not

received one in this case. M & M was accustomed to dealing with bankruptcy

attorneys, but M r. Smith testified that the call here was unlike any other he had

received in his professional career. Of course, M & M ’s experience also taught it

that dishonest debtors sometimes seek to fight repossession by ruse. If anything,

therefore, M & M ’s sophistication and bankruptcy experience made M r. Smith’s

doubts about the validity of the unknown caller’s assertions even more reasonable

than they otherwise would have been.

Although the court recognizes the validity of these doubts, id. at 5, it holds

that M r. Smith acquired actual notice of the Johnsons’ pending bankruptcy. This

holding excuses debtors from their filing obligations w hile placing creditors w ith

reasonable doubts about the validity of notice in an untenable position. If

Congress intended creditors to trust an unknown caller representing that a

bankruptcy petition had been filed, it would have spared courts the time and effort

of serving creditors. Instead, the law recognizes that reasonable creditors w ill

want concrete evidence of the pendency of a bankruptcy before relinquishing their

rights against the debtor; this is why notice of a bankruptcy is supposed to come

directly from the court. See Fed. R. Bankr. P. 2002(a). Even in a case like this,

-5-
where service failed due to a mistake, counsel could easily have provided actual

notice by faxing M & M a copy of the petition, see Fleet, 196 F.3d at 267; Flack,

239 B.R. at 164, bringing the petition to M & M and speaking with M r. Smith in

person, see In re Dunning, 269 B.R. 357, 368 (Bankr. N.D. Ohio 2001) (“[T]he

bank received actual notice of [the bankruptcy] filing because [the debtor] took

[his petition] to the B ank and showed it to the two named individuals who were

employed by the bank.”), or simply providing a case number to M & M ’s attorney,

see In re Smith, 180 B.R. 311, 318 (Bankr. N .D. Ga. 1995) (“[A] case number . . .

is essential in order to provide actual notice of a pending bankruptcy case.”).

Counsel’s failure to take one of these simple steps, especially in light of M r.

Smith’s request for documentation, see Aplt. App. at 171, justified M & M ’s

suspicion that the call was not genuine.

Accordingly, I would hold that M & M ’s violation of the stay between the

time it received the telephone call on M ay 13, 2004, and the time that it returned

possession of the truck to the Johnsons on M ay 28, 2004, was not willful. The

bankruptcy court’s order may be read as finding a separate willful violation of the

stay when M & M noted a lien on the title transfer documents. See Aplt. App. at

54-56. I have no quarrel with the bankruptcy court’s findings on this issue, and I

join the court in affirming them.

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