Scotus Offered Another Opportunity to Address Passive Conduct and the Automatic Stay

Posted by NCBRC - September 19, 2019

After recently declining cert in a case involving the issue of whether a creditor’s passive conduct can ever violate the automatic stay (Davis v. Tyson Prepared Foods, No. 18-941 (10th Cir. cert. denied, May 20, 2019) (blogged here)), the Supreme Court has been presented with another opportunity to take on the issue. In In re Fulton, Nos. 18-2527, 18-2793, 18-2835, 18-3023, 2019 U.S. App. LEXIS 18393 (7th Cir. June 19, 2019), (blogged here), the City of Chicago impounded the debtors’ vehicles prior to their filing for chapter 13 bankruptcy. Upon filing for bankruptcy, the debtors sought to have the vehicles returned. The City refused, and the bankruptcy court found its refusal constituted a violation of the automatic stay. The City appealed.

Citing its decision in Thompson v. General Motors Acceptance Corp., 566 F.3d 699 (7th Cir. 2009), the Seventh Circuit affirmed, holding that passively retaining, and refusing to return, estate property is an exercise of control within the meaning of section 362(a)(3). The court found that section 542(a) also mandates that an entity in possession of estate property turn it over to the trustee. The court rejected the City’s call to overturn Thompson, recognizing that one of the fundamental purposes of bankruptcy is to allow a debtor to improve her financial situation, and that a vehicle is frequently necessary to achieve that goal.

The City’s petition for certiorari, points out that five courts of appeals (the second, seventh, eighth, ninth and eleventh), have likewise found that passive conduct can be the basis for an automatic stay violation, while two courts of appeals (the tenth and the District of Columbia) have adopted the position that a creditor’s conduct must be affirmative.


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