In Re: Tony R. Jones v. City of Chicago, Illinois

• Court: United States Bankruptcy Court, N.D. Illinois
• Decided: February 12, 2024
• Docket: 22-00206
• Status: Unknown

Opinion

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In Re: ) ) Bankr. Case No. 16-26076 Tony R. Jones, ) } Chapter 7 Debtor. ) ) Honorable Jacqueline P. Cox

) Tony R. Jones, ) ) Plaintiff, ) ) v. ) Ady. Case No, 22-00206 ) City of Chicago, Illinois, ) ) Defendant. ) )

Opinion on the City’s Motion to Dismiss (Adv. Dit. No. 20) This matter comes before the court on the City of Chicago’s (the “City”) Motion to Dismiss the First Amended Individual and Class Action Complaint for Damages for Violation of the Automatic Stay (Adv. Dkt. 20) (“Motion to Dismiss” or “Motion”). For the reasons explained below, the Motion is granted. Adversary proceeding No. 22-00206 is dismissed with prejudice. I. Jurisdiction The court has jurisdiction over this matter under 28 U.S.C. § 1334 and Internal Operating Procedure !5(a) of the U.S. District Court for the Northern District of Illinois. This matter is a “core” proceeding under 28 U.S.C. § 157(b)(2)(A), matters concerning the administration of the

estate. Il. Background This matter concerns the rights, if any, of Tony R. Jones (“Plaintiff,” “Plaintiff-Debtor,” or

“Debtor”), ina vehicle impounded and repossessed pre-petition. The City offered to turn the vehicle

over to the Chapter 7 Trustee during the Debtor’s bankruptcy case; the Trustee declined to accept

it due to its inconsequential value. Nov. 14, 2023 Hearing Transcript (hereinafter “Nov. 14, 2023

Hr’g Tr.”), pp. 23, 28. On August 15, 2016, the Debtor filed this pro se Chapter 7 case. See Petition (Dkt. 1), Jnre

Jones, Bankr. Case No. 16-26076 (Bankr. N.D. Til. 2016).2 Because his prior bankruptcy case,

Bankr. Case No. 16-22327, had been dismissed on August 11, 2016, the automatic stay came into

existence in the latter case for 30 days. 11 U.S.C. § 362(c) (3)(A). The Debtor filed a motion to

extend or impose the automatic stay herein on September 14, 2016. That motion was granted on

September 22, 2016; the automatic stay was extended generally as to all creditors, /d., Mot. to

Extend and/or Impose Automatic Stay (BK Dkt. 13) & Order (BK Dkt. 15). The Debtor scheduled a 1996 Dodge Ram vehicle (“the vehicle”) valued at $2,500 that had

been “seized by [the] City of Chicago.” Jd., Petition (BK Dkt. 1), Schedule A/B: Property, p. 14.

The vehicle was not claimed as exempt. /d., Petition (BK Dkt. 1), Schedule C: The Property You

□□ ' The City seeks to dismiss the case for lack of subject-matter jurisdiction. See Motion to Dismiss (“Mot. to Dismiss”) (Adv, Dkt. 20), p. 1, Jones v. City of Chi., Adv. No. 22-00206 (In re Jones), Ch. 7 Case No. 16-26076 (hereinafter “Jones”) (citing Fed. R. Civ. P. 12(b)(1); Fed. R. Bankr. P. 7012(b)). 2 References to docket entries in the Debtor’s Chapter 7 bankruptcy case, re Jones, Bankr. Case No. 16-26076, will hereinafter be referred to as “BK Dkt.” 3 The earlier case was dismissed because the Debtor failed to file a credit counseling certificate as required by 11 U.S.C. §§ 109(h) and 521(b)(1). -2-

Claim as Exempt, pp. 23-24. The Debtor scheduled the City of Chicago Department of Revenue as

a secured creditor with an $8,480 secured claim stemming from booting and seizing his vehicle for

traffic tickets. fad., Petition (BK Dkt. 1), Schedule D: Creditors Who Have Claims Secured by

Property, p. 25. The City was listed as having a lien from the automobile seizure. fd.

During this Chapter 7 case, the City offered to turn over the vehicle, which had been

impounded pre-petition, to the Chapter 7 Trustee, Phillip D. Levey. Nov. 14, 2023 Tr., pp. 10,

23. The Trustee declined the City’s offer. Nov. 14, 2023 Hr’g Tr., pp. 5, 15-16. The Chapter 7

Trustee filed a no-asset report herein and the Debtor’s debts were discharged under 11 U.S.C. § 727

on November 9, 2016. See Discharge Order (BK. Dkt. 20). The bankruptcy case was closed on

November 14, 2016; the trustee was discharged. See BK. Dkt. 22.

Note that the Discharge Order states that creditors cannot collect discharged debts but that

“a ereditor with a lien may enforce a claim against the debtors’ property subject to that lien unless

the lien was avoided or eliminated. For example, a creditor may have the right to foreclose a home

mortgage or repossess an automobile.” See Discharge Order (BK □□□ 20), p. 1.

On July 6, 2017, the Debtor filed a Chapter 13 bankruptcy case pro se, assigned to Judge A.

Benjamin Goldgar. See Inre Jones, Bankr. Case No. 17-20197 (Bankr. N.D. IL. 201 7). The Debtor

did not schedule the vehicle in question or claim it as exempt, but he did schedule a different vehicle

(a 2015 Dodge Journey) and claimed it as exempt. See Petition (Ch. 13 BK Dkt. 16), Schedule A/B,

4 References to docket entries in the Debtor's Chapter 13 bankruptey case, Jn re Jones, Bankr, Case No. 17-20197 (Bankr. N.D. IIL filed July 6, 2017) will hereinafter be referred to as “Ch. 13 Bk Dkt.” -3-

p. 2; Schedule C, p. 11. On August 7,2018, his Chapter 13 case was dismissed.* On November 13,

2018, the case was closed, the Chapter 13 Trustee was discharged.° On May 6, 2019, Chapter 13 Debtors whose vehicles had been impounded by the City pre-

petition (including the Plaintiff-Debtor herein) filed an adversary proceeding against the City; if was

assigned to Judge Timothy A. Barnes. See First Am. Compl. (Adv. Dkt. 1), {ff 6-15, Cordova v, City

of Chi. (In re Cordova), Ch. 7 Case No. 19-06255, Adv. No. 19-00684 (hereinafter “Cordova’’)

(stating the Plaintiffs joined in the action under Fed. R. Bankr. P. 7020), The Plaintiffs asserted they

had a private right of action to proceed under 11 U.S.C. § 362(k) and sought actual and punitive

damages, alleging the City violated the automatic stay under § 362(a)(3), (4), and (6). See Cordova,

First Am. Compl. (Adv. Dkt. 1), #95, 20, 29. The Complaint was subsequently amended to assert

class action allegations. /d., Ninth Am. Compl. (Adv. Dkt. 113), 1 72-83; Id., Tenth Am. Compl.

(Adv. Dkt. 155), {fj 68-80. For purposes of Fed. R. Civ. P. 23 (made applicable in adversary proceedings by Fed. R.

Bankr. P, 7023), the Tenth Amended Complaint in Cordova defined the class as:

All persons whose motor vehicles were impounded by the City of Chicago under Chicago Municipal Code Chapter 9-100, et seq, during the period of January 1, 2016 to June 19, 2019, who filed a Chapter 13 bankruptcy case in the United States Bankruptcy Court for the Northern District of linois during the aforesaid period, and who were thereby deprived by City of Chicago of the use or possession of their motor vehicle after demand for release. Cordova, Tenth Am. Compl. (Ady, Dkt. 155), { 69.

_ 5 The case was dismissed upon the Court’s Order granting the Chapter 13 Trustee’s Motion to Dismiss for unreasonable delay, See Order (Ch. 13 BK Dkt. 49}; Mot. to Dismiss (Ch. 13 BK Dkt. 47). 6 On November 2, 2022, afler the case was dismissed and closed, Charles A. King from the Chicago Department of Law filed an appearance on behalf of the City of Chicago. See Appearance (Ch. 13 BK Dkt. 53). -4.

In Cordova, the Plaintiff-Debtor in this case filed a Motion to Sever and Transfer the Case

(“Motion to Sever”) (Adv. Dkt. 296), asserting he was nota mernber of the proposed class and could

not receive class relief, since during discovery he learned the City disposed of his 1996 Dodge Ram

afier his Chapter 7 discharge but before his Chapter 13 filing, so he lacked an ownership interest in

the vehicle at the time of his Chapter 13 filing. /d., Motion to Sever (Adv. Dit. 296), □□□ 3-5

(citations omitted). In that motion, he argued that the City’s “permanent deprivation” of the vehicle

violated his rights under § 362, and he desired to resolve the merits of his claim “without the delay

of awaiting class certification” and any potential appeal from a ruling on class certification. □□□□ {|

6 (citations omitted). On October 20, 2022, the court granted the Motion to Sever. Cordova,

Order (Adv. Dkt. 351). On December 22, 2022, the Plaintiff-Debtor filed the instant Adversary Proceeding No. 22-

00206 in the closed Chapter 7 bankruptcy case, without re-opening it, individually and as a class

action, asserting the City violated 11 U.S.C. §§ 362(a)(2) and (a)(6) when it refused the demands of

Chapter 7 debtors for the return of their impounded vehicles after filing for bankruptcy relief. See

Compl}, (Ady. Dkt. 1), Jones v. City of Chi., Adv. No. 99-00206 (In re Jones), Ch. 7 Case No. 16-

26076 (Bankr. N.D. Iil. filed Dec. 22, 2022) (hereinafter Jones’) (citations omitted).’

On March 20, 2023, after the City filed a motion to dismiss, the Plaintiff-Debtor amended

the complaint, again asserting individual and class claims against the City and seeking actual and

compensatory damages for the City’s alleged stay violations. Jones, First Am. Compl. (Adv. Dkt.

17), ff 18-57. The Plaintiff-Debtor admits that “Ti]mmediately after plaintiff's filing of his [chapter 7 Unless otherwise specified, all references to the “Adv. Dt.” from hereon in this opinion refer to pleadings and documents filed in Jones v. City of Chi., Adversary Proceeding No. 22-00206 (Banks. N.D. ILL. filed Dec. 22, 2022). -5-

7| bankruptcy case, Defendant City offered to turnover the impounded vehicle to the Chapter 7

Trustee ....,” but the “Chapter 7 Trustee declined the City’s offer of turnover of plaintiff's

impounded vehicle because such property was of inconsequential value or benefit to the estate.” □□□□

414. However, he asserts that when the Chapter 7 Trustee (the “Trustee”) declined the City’s

turnover offer, the vehicle was presumptively abandoned, and thus it became properly of the

Plaintiff-Debtor. Id., { 50. In the First Amended Complaint, the Plaintiff-Debtor alleges, individually and on behalf of

a class of plaintifits, the City violated the stay due to (1) its acts taken to enforce pre-petition

judgments of vehicle impoundment (§ 362(a\(2)); (2) its acts taken against the Debtor’s property

(e.g., keeping the impounded vehicle after the Trustee declined the turnover offer) (and property of

class members) to enforce liens that purport to secure pre-petition claims (§ 362(a)(5)); and (3) its

acts taken to “collect assess, or recover” pre-petition claims against the Plaintiff-Debtor and others

(§ 362(a)(6)). Ia., 4] 45-54, He also argues the City violated § 554(c) by refusing to abandon

impounded vehicles to the Debtor and the class members after their Chapter 7 cases were closed,

again relying on the theory that the Chapter 7 Trustees abandoned the vehicles and they then became

the debtors’ property. /d., 55-57. Like the Cordova plaintiffs, Mr. Jones relies on a private right of action to proceed under

§ 362(k). Am. Compl. (Ady. Dkt. 17), 417. He defines the class under Fed. R. Civ. P. 23 as:

All persons whose motor vehicles were impounded by the City of Chicago under City of Chicago Municipal Code §§ 9-100-120 or 2-14-132, other than for a drug use- related offense, between May 15, 2012 to the present, who filed a Chapter 7 bankruptcy case in the United States Bankruptcy Court for the Northern District of Illinois during the period of impoundment, who demanded the release of their vehicle after filing their petition for voluntary bankruptcy, and who were deprived by City

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of Chicago of the use or possession of their motor vehicle after the demand for release was made. First Am. Compl. (Adv. Dkt. 17), {{ 34. IIL. Discussion In this Motion to Dismiss (“Motion”), the City argues that the adversary complaint should

be dismissed (1) for lack of subject matter jurisdiction because the Debtor lacks standing to assert

stay violations or abandonment claims as to the vehicle and (2) for failure to state a claim upon

which relief can be granted. See Mot. to Dismiss (Adv. Dkt. 20), p. 1, [20-22 (citing Fed. R. Civ.

P, 12(b)(1), (b)(6); Fed. R. Banks. P. 7012(b)). The City disputes the Debtor’s abandonment theory.

Id.,42. Tt argues to the contrary that the Trustee did not abandon the impounded vehicle during the

pendency of the chapter 7 case; the vehicle remained property of the estate and the Debtor had no

interest in it. Id. A. Failure to Reopen and Potential for Judge Shopping First, the case has not been formally re-opened. Bankruptcy Code § 350 provides that

“Ta]fter an estate is fully administered and the court has discharged the trustee, the court shall

close the case.” 11 U.S.C. § 350. This case was closed in 2016, Section 350(b) provides that

“[a] case may be reopened in the court in which such case was closed to administer assets, to

accord relief to the debtor, or for other reasons.” 11 U.S.C. § 350(b). A motion to re-open would have provided due process to the Debtor’s creditors, including

the City of Chicago, and the trustee. Additionally, the Adversary Proceeding has been filed before this court in a manner that may

amount to judge shopping. The complaint mentions that the City has claimed a possessory lien

Te

against the motor vehicle pursuant to the common law. Jones, First Am. Compl. (Adv. Dkt. 17), 4

li. See Ally Fin., Inc. v. Pira, 2017 TL App (2d) 170213, $f] 40-46, 96 N.E.3d 61, 69-71 (ill. App.

2017). The complaint then argues that the City’s claim of a possessory lien was invalid under

Illinois law because it did not secure payment for services or materials furnished with respect to

goods by a person in the ordinary course of business, that it was not created by statute or rule of law

and that its effectiveness did not depend on the City’s possession of any goods. First Am. Compl.

(Ady, Dkt. 17), (| 12. In his response to the motion to dismiss, the Debtor argues because the City

did not havea valid lien, it was in effect a “mere converter” of the Debtor’s vehicle. Response (Adv.

Dkt. 24), p. 14. The complaint alleges that despite receiving notice of the Debtor’s Chapter 7 case and his

demand for release of the motor vehicle, the City refused to release it and instead demanded payment

on the Debtor’s pre-petition debt as a condition of release of the vehicle. First Am. Compl. (Adv.

Dkt. 17), | 13. The complaint also alleges that the City acted without leave or approval from the

Bankruptcy Court. Id. According to Fulton, however, generally the City did not have an obligation

to turn the vehicle over. See City of Chi. v. Fuiton, 592 U.S, 154, 161-62, 141 S. Ct. 585, 591-92,

208 L. Ed, 2d 384 (2021). In 2018, this court ruled in In re Howard that the City of Chicago did not have a possessory

lien under Illinois law and that the City of Chicago wilfully violated the automatic stay by refusing

to return to the debtor a vehicle the City impounded pre-petition.” The Seventh Circuit Court of

Appeals affirmed that ruling without addressing whether the City had a possessory lien. See In re

8 coe S84 B.R, 252, 257-58 (Bankr. N.D. Ill, 2018), aff'd sub nom, In re Fulton, 926 F.3d 916 (7th Cir. 2019), vacated & remanded sub nom. City of Chi. v. Fulton, 592 U.S. 154, 141 8. Ct. 585, 208 L. Ed. 2d 384 (2021), and vacated & remanded sub nom, In re Fulton, 843 F. App’x 799 (7th Cir, 2021). -8-

Fulton, 926 F.3d 916, 920 (7th Cir. 2019). The U.S. Supreme Court vacated the Seventh Circuit’s

ruling in 2021. See City of Chi. v. Fulton, 592 U.S, at 161-62, 1418, Ct. at 592, clarifying the scope

of § 362(a}(3). The Seventh Circuit did not address this court’s ruling that the City did not have a possessory

lien under INinois law. The Supreme Court did not rule on that issue either.

Adversary Proceeding No. 22-00206 may be an effort to get a federal court to determine

whether Illinois law allows the City of Chicago to claim a possessory lien. By filing this claim in

a bankruptcy case assigned to a judge who has previously ruled the City does not have a possessory

lien, may amount to judge shopping. Possessory liens generally allow a creditor to retain possession of collateral until payment

of an underlying debt. IHinois law at 810 ILCS 5/9-333 states that a possessory lien is one which

secures payment or performance of an obligation for services or materials furnished with respect to

goods by a person in the ordinary course of the person’s business. The lien is created by statute or

rule of law in favor of the person; its effectiveness depends on the person’s possession of the goods.

This court ruled that “{t}he City of Chicago does not have a possessory lien as it has not supplied the

Debtor with goods or services and it does not cite to a statute or rule of law in its favor.” In re

Howard, 584 B.R. at 255. Our court assigns cases randomly amongst its judges. Allowing a party to proceed on such

an important issue by filing a lawsuit in a closed bankruptcy case initially assigned to this judge, who

favors its interpretation of Illinois possessory lien law, would circumvent the random assignment of

cases and allow parties to select the judge who will hear their matters. See Nov. 14, 2023 Hr’g Tr.,

p. 26 (Debtor's attorney arguing that under re Howard, the City was a “mere converter” of the

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Debtor’s impounded vehicle), This could start a terrible practice, undermining our policy of

assigning cases randomly. Moreover, since the Plaintiff-Debtor’s complaint raises issues under Illinois law, including

the validity of the City’s lien under Illinois law and conversion of the vehicle, state court may have

been a more appropriate forum had he brought the action there in a timely manner. First Am.

Compl. (Adv. Dkt. 17), {fj 11-12; see 735 ILCS 5/13-205 (Illinois’ five-year statute of limitations

for, inter alia, actions to recovery damages for an injury to personal property, damages for the

detention or conversion of personal property, and all civil actions not otherwise provided for... □□□□

The adversary proceeding will be dismissed with prejudice because the case was not

reopened under 11 U.S.C. § 350(b) and because allowing it to proceed would amount to judge

shopping. B. Standing and Federal Rule of Civil Procedure 12(b)(1) Under Federal Rule of Civil Procedure 12(b)(1), a defendant may move to dismiss a claim

for lack of subject matter jurisdiction. See Cmty. Banc Mortg. Corp. v. N. Salem State Bank, No.

15-3051, 2017 WL 2371747, at *2 (C.D. IIL May 3), 2017) (citing Fed. R. Civ. P. 12(b)()). “A

federal court’s jurisdiction is limited to ‘Cases’ and ‘Controversies,’ and no case or controversy

exists if the plaintiff lacks standing.” Jd. (citing U.S. Const., Art. HY, § 2; Johnson v. U.S. Office of

Pers. Mgmt., 783 F.3d 655, 660 (7th Cir, 2015)). When considering a motion to dismiss under Rule

12(b)(1), a court must accept as true all well-pleaded factual allegations and draw all reasonable

inferences in favor of the plaintiff. See Alicea-Hernandez v. Cath. Bishop of Chi., 320 F.3d 698, 701

(7th Cir. 2003). If the defendant factually challenges standing, the court may look beyond the

allegations in the complaint and view whatever evidence has been submitted to determine whether

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subject-matter jurisdiction exists. 7d. (citation omitted). The plaintiff has the burden to establish

standing by a preponderance of the evidence. Cmty, Banc Mortg. Corp., 2017 WL 2371747 at *2

(citations omitted). The City alleges there is no subject matter jurisdiction because the Debtor lacks standing to

assert stay violations or abandonment claims as to the vehicle. Mot. to Dismiss (Adv. Dkt. 20), 4]

20. The City asserts the PlaintiffDebtor lacks standing to assert the stay violation claims, since he

does not allege he (or the other plaintiffs) had an interest in the vehicle by claiming an exemption

or that the vehicle was abandoned prior to the closure of the Chapter 7 case. id., | 20. Thus, the

vehicle remained property of the estate for as long as the stay was in effect. /d.

The court has to determine whether this Chapter 7 debtor has standing to pursue claims for

violation of the automatic stay based on actions taken against the vehicle when he did not claim it

as exempt. To determine whether the Debtor has standing, the court must first look to the

Bankruptcy Code’s provisions on property of the estate, abandonment, and turnover.

The filing of the bankruptcy petition creates an estate (the “property of the estate”) that, with

some exceptions, includes “all legal or equitable interests of the debtor in property as of the

commencement of the case.” See City of Chi. v. Fulton, 592 U.S, at 156, 141 S. Ct. at 589 (citing

11 U.S.C. § 541 (a)(1)); dt re Trujillo, A85 B.R. 238, 244 (Bankr. D. Colo. 2012) (citations omitted).

Here, the bankruptcy estate included the vehicle that was seized pre-petition because the debtor still

held an interest in it on the petition date. See In re Trujillo, 485 B.R. at 244 (citing United States v.

Whiting Pools, Inc., 462 U.S. 198, 210-11 (1983)); Willoughby v. City of Chi., No. 15-CV-5373,

9016 WL 11811372, at *1-2 (N.D. HL Feb, 19, 2016) (reasoning that the chapter 7 debtor’s vehicle

that was seized pre-petition was property of the estate).

-li-

“Property ceases to be property of the estate when: (1) it revests in the debtor at confirmation

of a plan of reorganization, (2) it is abandoned by the chapter 7 trustee in compliance with § 554,

and/or (3) once the property becomes exempt property.” In re Trujillo, 485 B.R. 238, 245 (Bankr.

—D. Colo. 2012), For the reasons explained below, the court finds that even when accepting as true

all well-pleaded factual allegations and drawing all reasonable inferences in the Plaintiff-Debtor’s

favor, he has not met his burden to show he has standing by a preponderance of the evidence. Cmty.

Banc Mortg. Corp., 2017 WL 9371747 at *2, The court finds the Plaintiff-Debtor lacks standing

because he did not claim the vehicle in question as exempt and the vehicle was not abandoned back

to the Plaintiff-Debtor. The City had a pre-petition lien on the vehicle, which the Plaintiff-Debtor

did not timely assert was invalid; the lien survived his chapter 7 bankruptcy discharge. Thus, Count

I (§ 362(a)(2)), 1S 362(a)(5)), HE (§ 362(a)6)), and IV (§ 554{c)) are dismissed with prejudice

under Federal Rule of Civil Procedure 12(b)(1), made applicable to this proceeding by Federal Rule

of Bankruptcy Procedure 7012(b), because the Debtor-Plaintiff lacked standing. 1. Claim of Exemption “(P jroperty that the debtor claims is exempt does not cease being property of the estate until

the exemption is allowed or until the time for making objections expires.” Wells Fargo Bank, N.A.

y. Jimenez, 406 B.R. 935, 942 (D.N.M. 2008) (citing in re Villegas, 364 B.R. 781, 785 (Bankr.

D.N.M. 2007); see also Fed. R. Bankr. P. 4003; in re Trujillo, 485 BR. at 245, After the deadline

for objecting to a claimed exemption passes or an obj ection is filed but is overruled, “the exemption

becomes final and the property ceases to be ‘property of the estate.’ It then reverts to its pre-

bankruptcy status as “property of the debtor.” In re Trujillo, 485 B.R. at 245 (citations omitted);

11 U.S.C. § 522(1); Fed. R. Bankr.P. 4003(b)(1).

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Many courts have held that a claim of exemption does not confer standing on a chapter 7

debtor to assert violations of the automatic stay. In re Cook, No. BAP NM-11-082, 2012 WL

1356490, at *9 (B.A.P. 10th Cir. Apr. 19, 2012), aff'd, 520 F.App’x 697 (10th Cir. 2013); Wells

Fargo Bank, N.A. v, Jimenez, 406 B.R. 935, 940-43, 949 (D.N.M. 2008) (reversing the bankruptcy

court’s ruling that the chapter 7 debtor had standing based on a creditor’s denial of her access to

funds she claimed as exempt); In re Young, 439 BR. 211, 213, 219-20 (Bankr. M.D. Fia. 2010)

(finding a chapter 7 debtor lacked standing to assert stay violations after creditor placed an

administrative freeze on his bank accounts prior to allowance of the exemption); Jnre Bucchino, 439

B.R. 761, 770-72 (Bankr. D.N.M. 2010), aff'd sub nom. Bucchino v. Wells Fargo Bank, N.A., No.

CY 10-1177 BB/CG, 2011 WL 13284466 (D.N.M, Sept. 14, 2011) (holding a chapter 7 debtor

lacked standing to assert automatic stay violations due to an administrative freeze on his bank

accounts claimed as exempt because the time to object to the claimed exemption had not yet

expired). But see In re Moreira, 173 B.R. 965, 973 (Bankr. D. Mass. 1994) (holding a chapter 7

debtor had standing to oppose setoff or oppose creditor’s stay relief motion to the extent she could

claim an exemption). Similar to this case, in Willoughby v. City of Chicago, the district court addressed a chapter

7 debtor’s standing to bring stay violation claims, the impact of claiming properly as exempt, and

the City’s turnover obligation under § 542(a), which will be discussed more below. See Willoughby,

No. 15-CV-5373, 2016 WL 1181 1372, at *1-2 (N.D. TIL Feb. 19, 2016). In that case, the chapter 7

debtor asked the City to return his vehicle that was repossessed pre-petition, presenting evidence of

the bankruptcy filing, but the City refused to return the vehicle without the chapter 7 trustee’s

approval. /d. at +1. The debtor filed a Rule to Show Cause against the City, which the court

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interpreted as a request for sanctions for stay violations, Id. The court denied the motion, finding

it had not yet been established whether the vehicle was exempt (since the trustee had not determined

ifs value yet) and “Chicago had acted in accordance with its legal obligations.” Jd. On appeal, the

district court noted that itwas “uncertain” whether the debtor “even has standing to bring this claim.”

Id. at □□ nA? In affirming the bankruptcy court’s decision, the district court reasoned that assuming the

debtor had standing, he had not offered evidence showing that when he filed the motion, the vehicle

had becn exempted or he had claimed it as exempt from the bankruptcy estate. Jd. at *1 (citing Fed.

R. Bankr. P. 4003; In re Cook, 2012 WL 1356490, at #6 (B.A.P. 10th Cir. Apr. 19, 2012). The other

portion of the court’s rationale related to turnover under § 542, which will be discussed more later

in this opinion. In In re Trujillo, the court had a broader view of standing. See 485 B.R. at 252. That case

involved a law firm’s alleged violation of the automatic stay by refusing to turn over garnished pre-

petition wages received post-petition after being told of the bankruptcy. Jd. at 242-44. The

bankruptcy court held the chapter 7 debtor had standing to seek sanctions attributable to the stay

violation even though the Debtor had no exemption in the funds, Jd. at 242-43, 252-55. The court * he District Court summarized other courts’ findings regarding chapter 7 debtors’ standing to pursue stay violations: Compare In re Cook, Nos. NM-1 1-082, 04-17704, 2012 WL 1356490, at *6 (B.A.P. 10th Cir. Apr. 19, 2012) (claimed exemptions do not confer standing upon a Chapter 7 debtor to pursue stay violations involving property claimed to be exempt), In ve Young, 439 B.R. 211, 218 (Bankr. M.D. Fla. 2010) (holding that a Chapter 7 debtor lacked standing to pursuc claims for stay violations because the debtor could not establish an injury in fact); Za re Bucchino, 439 □□□ 761, 771 (Bankr. D.N.M. 2010) (recognizing that in Chapter 7 bankruptcies only the trustee has standing to assert stay violations) with In re Mwangi, 432 BR, 812, 822—23 (B.A.P. 9th Cir, 2016) (holding that the right to claim exemptions in property of the estate bestows standing on debtors to pursue claims for stay violations). Willoughby, 2016 WL 11811372, at *lnt. -|4-

ruled that “[i]f.a violation of the automatic stay causes an injury to either a particular creditor or to

a debtor's breathing spell, that injury should be sufficient to confer standing.” Jd, at 252.

Here, however, the Debtor did not bring the issue of his right to the vehicle before the

bankruptcy court in his Chapter 7 case. It could have resolved that issued in 2016. See eg.,

Willoughby, 2016 WL 11811372, at (finding the City’s continued possession of a chapter 7

debtor’s impounded vehicle, which the trustee had not authorized the City to release and which the

debtor did not establish was exempt, did not violate the stay). The Debtor did not claim an exemption in the vehicle, and thus would lack standing even

under the view that a claimed exemption may confer standing on a chapter 7 debtor. See, ¢.g., Inre

Moreira, 173 B.R. at 973. In his response, the Debtor relies on Morlan to assert that he has standing herein. See

Response (Adv. Dkt. 24), pp. 8-9 (citing Morlan v. Universal Guar. Life Ins. Co., 298 F.3d 609, 619-

20 (7th Cir. 2002)). In Morlan, before filing for chapter 7 bankruptcy, a debtor brought a class action

against insurance companies asserting they violated ERISA, a claim which he had not scheduled in

his bankruptcy case, See 298 F.3d at 613-14, 618. After receiving a discharge and having his

chapter 7 case dismissed, the district court certified the suit as a class action with the debtor as the

only named plaintiff. Jd. at 613-14. Upon learning of the debtor’s bankruptcy, the district court

decertified the class in the ERISA suit and dismissed the case without prejudice, reasoning the

debtor’s ERISA claim became an asset of the bankruptcy estate and was not abandoned by the

trustee, so that when the class was certified, the named plaintiff (the debtor) lacked standing, since

he did not own the claim he was suing on. Zd. at 614, On appeal, the Seventh Circuit reversed,

finding the dismissal of the ERISA suit was improper because Morlan’s claim was in part a claim

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for non-agsignable pension benefits, which Morlan (not the trustee) was entitled to sue to enforce.

Id, at 618-19. As to the assignable portion of the claim, the court found dismissal of the ERISA

lawsuit was improper because although the trustee’s abandonment claim was ineffective under § 554

of the Bankruptcy Code, the steps the trustee took to abandon the claim would suffice to establish

abandonment under the ordinary property law principles applicable to abandonment, and the

Bankruptcy Code provisions regarding abandonment were meant to protect creditors, none of whom

objected or were complaining. Id. at 618-21. The court finds Morlan is distinguishable, given that itinvolved the unique context of ERISA

rights, a portion of which were non-assignable. 2. Duty to Turn Over Property of the Estate

Section 542(a), the turnover statute, states that “any entity, other than a custodian of property

that the trustee may use, sell or lease under section 363... or that the debtor may exempt under

section 522... . shall deliver to the trustee, and account for, such property or the value” thereof,

“unless such property is of inconsequential value or benefit to the estate.” 11 U.S.C. § 542(a); see

also City of Chi. v. Fulton, 592 U.S. at 157, 141 S. Ct. at 589 (analyzing § 542). In Willoughby v. City of Chicago, the debtor filed a Rule to Show Cause (interpreted as a

request for sanctions for stay violations) against the City for its failure to return his vehicle

repossessed pre-petition, but the City refused to return the vehicle without the chapter 7 trustec’s

approval. See 2016 WL 1181 1372, at*2. In denying the motion, the bankruptcy court reasoned that

“Chicago had acted in accordance with its legal obligations.” /d. In affirming the bankruptcy court’s

decision, the district court reasoned in part that even if the vehicle was exempt, the court did not err

in concluding Chicago’s continued possession of the vehicle did not constitute a stay violation

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because § 542(a) requires those in possession of bankruptcy estate property that the debtor may

exempt to deliver said property to the trustee, and the evidence showed that although the trustee did

not ask the City to continue to hold the vehicle, the trustee had not authorized the City to release if.

Id. at *2 (citing 11 U.S.C. § 542). In In re Zarco, pre-petition, after his bank account with Chase Bank was frozen anda creditor

placed a levy on it, a chapter 7 debtor filed various motions alleging the creditor violated the

automatic stay by failing to release the levy, seeking damages from the creditor and Chase, in an

attempt to compel the creditor and Chase to release the levy. See 507 B.R. 247, 248-49 (Banks. N.D.

Il. 2014).° The court reasoned that upon debtor’s filing, the funds in the account became property

of the estate and under § 542(a), “Chase had a duty to turn the funds over to the chapter 7 trustee,

not the debtor.” Jd. at 251-52 (citations omitted). The court stated that “[h]ad Chase turned over the

aecount’s funds to anyone other than the trustee, it would be liable to the bankruptcy estate for

turning over the funds to the wrong entity.” /d. at 251 (citing 1) U.S.C. § 542(a)). Similarly, in Yoon v. Minter—Higgins, a bank paid checks that the debtor wrote pre-petition

that were not charged to the debtor’s account until after the petition date. 399 B.R. 34, 36-37 (N.D.

Ind. 2008), The court found that under § 542(a) the chapter 7 trustee was entitled to recover from

the debtor the value of the funds that were in her account on the petition date. /d. at 43-44 (citing

11 U.S.C. § 542(a); In re Dybalski, 316 B.R. 312, 315-17 (Bankr. S.D. Ind. 2004)).

10 here were notice and service issues regarding the debtor’s motions: the first motion (which sought to compel the creditor’s release of the levy and sought damages for creditor’s alleged stay violations) was not served on Chase and the second motion (which sought to compel Chase to release the levy and sought damages against Chase) was not served on an officer or employee of Chase, Chase had not received adequate notice of the motion. See In re Zarco, 507 BR. at 248-49, The third motion, which sought to compel Chase to release the levy and sought damages against Chase, was denied after Chase was belatedly notified and its attorney testificd at the hearing on the matter that per the debtor's schedules, there was no money in the account and the debtor did not claim an exemption in the account. Id, at 249-30, -|7-

Relying on Willoughby, the City argues that “[t}urnover is aright which the Bankruptcy Code

expressly reserves to chapter 7 trustees in section 542.” Mot, to Dismiss (Adv. Dkt. 20), [38 (citing

Willoughby, 2016 WL 11811372, at *2). The City also argued that if it gave the car to the debtor

during the bankruptcy case, it would have been liable to the trustee for giving the vehicle to the

wrong party. Nov. 14, 2023 lrg Tr., p. 6. The court finds the City’s argument is valid. Had the City given the car to the debtor during

the bankruptcy case, it could have been liable to the trustee for turnover under § 542(a). See In re

Zarco, 507 B.R. at 251. 3. Duty to Reaffirm, Redeem or Surrender Property of the Estate

The court does not disagree with the reasoning of other courts that have found chapter 7

debtors may continue to use estate property during the bankruptcy case. For instance, in fn re

Trujillo, the court reasoned that “ijn reality, chapter 7 debtors continue to use property of the estate

post-petition,” such as their home, clothes, car, or televisions. See 485 B.R. at 249. That court

interpreted the chapter 7 debtor’s “surrender” obligation under 11 U.S.C. § 521(a)(4) to mean

“something different than actual delivery.” Id.'' However, the Plaintiff-Debtor herein did not have

possession of the vehicle at issue when the case was filed or while it was pending, so these cases do

not help him. Section 521(a)(2) provides that ifa debtor's “schedule of assets and liabilities includes debts

which are secured by property of the estate,” within 30 days of the petition date of the chapter 7 case

or before the meeting of creditors, whichever is earlier, the debtor shall file a “statement of his

1] Section 521(a)(4) states that the debtor shall “surrender to the trustee al! property of the estate and any recorded information, including books, documents, records, and papers, relating to properly of the estate, whether or not immunity is granted under section 344 of this title... .” 11 U.S.C. § 521 (a){4). -18-

intention with respect to the retention or surrender of such property and, if applicable, specifying that

such property is claimed as exempt, that the debtor intends to redeem such property, or that the

debtor intends to reaffirm debts secured by such property . . . > 1EUS.C. § 521(a)(2)(A). The

problem here is that the Debtor did not redeem or reaffirm the debt.

Official Form 108 is the Statement of Intention for individuals filing under chapter 7. The

Debtor was required to fill it out because a creditor, the City, had a claim secured by the 1996 Dodge

Ram. The Debtor stated therein that he would surrender the vehicle and retain it or “surrender in lieu

of credit toward debt.” Official Form 108: Statement of Intention for Individuals Filing Under

Chapter 7 (BK Dkt. 1), p. 59. He also stated therein that he claimed the vehicle as exempt, although

his Schedule C: The Property You Claim as Exempt, Official Form 106 C, does not list the vehicle.

Schedule C (BK Dkt. 1), p. 23. As to secured claims, a chapter 7 debtor has to redeem, reaffirm, or surrender the collateral.

{1 ULS.C. § 521(a)(4) Since the vehicle was not redeemed or reaffirmed, and the debtor stated an

intention to surrender it, it was surrendered. See In ve Perez, 638 B.R. 248, 250 (Bankr. 8.D. Fla.

2022) (“Where debtors state an intention to surrender a property interest, they surrender their interest

to the chapter 7 trustee, 11 U.S.C. § 521 (a)(4), who can either abandon or administer the interest.”);

see also Cf, Bank of New York Mellon as Tr. for Certificate Holders of C WABS, Inc., Asset-Backed

Certificates, Series 2005-4 v. Rodriguez, 2020 IL App (2d) 190143, 22-24, 165 N.E.3d 431, 437-

39 (Ill. App. 2020) (affirming a lower court decision finding that debtors who indicated an intent to

surrender their encumbered property in bankruptcy could not contest a foreclosure action six years

after they received a bankruptcy discharge). “Surrender” in § 521 does not always require physical

delivery of the property to the chapter 4 wustee. In re Ware, 533 B.R. 701, 708 (Bankr. N.D. Il.

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2015) (citing In re Cornejo, 342 B.R. 834, 835-36 (Bankr. M.D. Fla. 2005); In re Kasper, 309 B.R.

82, 91 (Bankr. D.D.C. 2004)). Other courts have reasoned “[t]he legislative history [of § 521] does

not support an interpretation of the term surrender as requiring a debtor to physically deliver actual

possession of the collateral to the creditor’s place of business when it is not feasible.” In re Cornejo,

342 B.R. at 836. To comply with the requirements of surrender in § 521(a)(4), the debtor must allow

the trustee to “administer the property” and not interfere with the processes for administration of that

property as property of the estate. Inve Ware, 533 B.R. at 708 (citing In re Kasper, 309 B.R. at 91).

To determine whether checking the surrender box in the statement intention should prevent

debtors from taking action to regain the property, some courts have applied a fact-specific analysis

and consider whether debtors’ post-bankruptcy conduct, such as remaining current on their mortgage

payments post-bankruptcy, results in a waiver of their surrender, at least in the foreclosure context.

Fed. Nat’l Mortg. Ass'n v. Alarcon, No. 19-CV-5079 (ARR), 2020 WL 3 104034, at *5 (E.D.NLY.

June 11, 2020) (citing Jn re Ayala, 568 B.R. 870, 873-74 (Bankr. M.D. Fla. 2017). Here, there is no

indication the Debtor paid the tickets on the vehicle or took any other action inconsistent with

surrender for six years after the bankruptcy case was closed. 4, Abandonment under § 554(c) Under § 554, there are three methods by which property of the estate may be abandoned. See

In re Cook, 2012 WL 1356490, at *5 (citing 11 U.S.C. § 554); see also In re Mortan, 298 □□□□ at

618 (citing 11 U.S.C. §§ 5210), 554(a)-(d)). Property that is “burdensome to the estate or that is

of inconsequential value” may be abandoned in two ways: (1) “afier notice anda hearing, the trustee

may abandon [said] property... or (2) upon a party in interest’s “request,” “after notice and a

hearing,” the “court may order the trustee to abandon... . said property. See § 554(a)-(b). In

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addition, § 554(c) provides “[u]nless the court orders otherwise, any property scheduled under

section 521(a)(1) of this title not otherwise administered at the time of the closing of a case is

abandoned to the debtor and administered for purposes of section 350 of this title.” 11 U.S.C. §

554(c) (emphasis added). Section 554(d) provides that “[uJnless the court orders otherwise, property

of the estate that is not abandoned under this section and is not administered in the case remains

property of the estate.” § 554(d). Section 350 states that “[a]fter an estate is fully adminsitered and

the court has discharged the trustee, the court shall close the case.” 11 U.S.C. § 350.

“Where property is of inconsequential value to the estate, abandonment under § 554, rather

than sale under § 363, is the proper course.” In re Rambo, 297 B.R. 418, 433 (Bankr. E.D. Pa.

2003). However, in Rambo, the court explained how property of inconsequential value is handled

by chapter 7 trustees in practice: In reality, rather than file § 554 motions, most trustees simply do not administer (i.¢., seek to sell) such property, leaving the abandonment to occur at the closing of the case, § 554(c), absent a motion by some parly in interest to compe! abandonment, § 554(b), or a secured creditor for relief from the automatic stay under § 362(d).

In re Rambo, 297 B.R. at 433 0.23. Where there is no court order directing abandonment and unless the court orders otherwise,

the language of § 554(c) “deems abandoned to the debtor any scheduled property of the estate that

is unadministered at the close of the case.” 5 COLLIERON BANKRUPTCY § 554.02[7] (Richard Levin

& Henry J. Sommer eds., 16th ed. 2023) (hereinafter “COLLIER ON BANKRUPTCY (16th ed, 2023)")

(citing 11 U.S.C. § 554(c); Neveille v. Harris (Inre Neville), 192 B.R. 825, 829 (D.N.J. 1996); Figlio

vy. Am. Mgmt. Servs., Inc. (in re F iglio), 193 B.R. 420, 421-23 (Bankr. D.N.J. 1996)). Hence, “Tajn

asset that has been scheduled and not challenged by the trustee is deemed abandoned by the trustee

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by operation of law upon the case being closed.” In re Bell, 179 B.R. 129, 130 (Bankr. E.D. Wis.

1995) (citing 11 U.S.C. § 554(c); 4 COLLIER ON BANKRUPTCY § 554,02(5) (15th ed. 1994)).

Property abandoned under § 554 “ceases to be part of the estate” and generally, it “reverts

to the debtor and stands as if no bankruptcy petition was filed.” In re Dewsnup, 908 F.2d 588, 590

(10th Cir. 1990), aff'd sub nom. Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903

(1992) (citations omitted); see also Morlan, 298 F.3d at 617 (citations omitted). “Following

abandonment, ‘whoever had the possessory right to the property at the filing of the bankruptcy again

reacquires that right.”” Jn re Dewsnup, 908 F.2d at 590 (citing In re Dewsnup, 87 B.R. 676, 681

(Bankr. D. Utah 1988)); see also inre Popp, 166 B.R. 697, 700 (Bankr. D. Neb. 1993) (citing Brown

v. O’Keefe, 300 U.S, 598, 602, 57 S.Ct. 543, 546, 81 L.Ed. 827 (1937); Wallace v. Lawrence

Warehouse Co., 338 F.2d 392, 394 nt (9th Cir. 1964). Normally the party who had the possessory

right to the property at the filing of the bankruptcy case is the debtor, but “a creditor may be entitled

to possession if, by the exercise of its contractual or other rights, if held a possessory interest prior

to the filing of bankruptcy.” Jn re Cruseturner, 8 BR. $81, 591 (Bankr. D. Utah 1981). Courts have

held that abandonment should be to the party with the superior possessory interest and that party

should be the recipient of the abandoned asset. Jn re Popp, 166 B.R. at 700.

Here, abandonment was not accomplished under § $54(a) or (6). The Chapter 7 Trustee did

not give the requisite notice ofa proposed abandonment; there was no opportunity for a hearing. The

Plaintiff-Debtor did not file a motion requiring the Chapter 7 Trustee to abandon the vehicle and,

since no motion was filed, he did not meet Bankruptcy Rule 6007(b)’s notice and service

requirements. See Fed. R. Bankr. P. 6007. Thus, the only way abandonment could be accomplished

here is under § 554({c).

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The Plaintiff-Debtor argues he had the right to possess the vehicle at the end of the case.

First Am. Compl (Adv. Dkt. 17), 15. Specifically, he argues the chapter 7 trustee permitted him

“to retain the right to use and possess the impounded vehicle pending further proceedings in the

bankruptcy case,” since the chapter 7 trustee declined the City’s turnover offer due to ifs

inconsequential value and “did not demand surrender or turnover of the impounded vehicle... .”

by the debtor. First Am. Compl. (Adv. Dkt. 17), 4 15. The City argues § 554(c) does not impose

an “affirmative duty” upon parties holding property of the estate to abandon such property to the

debtor (as the Plaintiff-Debtor asserts), regardless of whether the title reverted to the Plaintiff-Debtor

upon the conclusion of the chapter 7 case and regardless of whether he contests the validity of the

City's lien. Reply (Adv. Dkt. 29), The court finds the fact the Trustee declined the City’s turnover offer and did not demand

surrender or turnover of the vehicle does not mean that the trustee was permitting the Debtor to use

and/or possess the vehicle. Under § 521(a)(4), the Plaintiff-Debtor had a duty to “surrender”

property of the estate, including the vehicle, to the chapter 7 trustee, which required the debtor to

relinquish his rights in the property to the trustee and cooperate with the trustee’s efforts to take

possession of the property if the trustee had chosen to do so. 4 COLLIER ON BANKRUPTCY § 521.16

(16th ed. 2023). ‘The vehicle was abandoned by operation of law on the date the case was closed, November

14, 2016, under § 554(c). See Discharge Order (BK Dkt. 20); 11 U.S.C. §§ 350€), 554(c).

Following abandonment, the City and the Plaintiff-Debtor were returned to their pre-petition status

with respect to their rights to the property, which was that the City had possession and had claimed

a possessory lien against the vehicle under the common law. See Jones, First Am. Compl. (Adv.

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Dkt. 17), {| 11; Jere Cruseturner, 8 B.R. at591. As explained further below, at the time the case was

closed, the City had possession and may not have been required to return the vehicle to the debtor,

5, Liens “ride through” bankruptcy Where, as here, a chapter 7 debtor obtains a discharge under § 727, the debtor is released

from personal liability (7 personam) for debts that are deemed dischargeable under the bankruptcy

code. See 11 U.S.C. § 727(a)-(b) (explaining a discharge under the bankruptcy code); § 523

(explaining which debts are non-dischargeable). However, “a discharge in bankruptcy, being

personal to the bankrupt, does not act as a release of liens or security interests in property owned by

him. Thus, a valid pre-filed lien is not extinguished by the discharge of debtors.” Farmers State

Bank of Sherrard v. Hansen, 196 Ill. App. 3d 295, 297, 553 N.E.2d 751, 753 (IIL. App. 1990)

(citations omitted). Similarly, in Johnson v. Home State Bank, the Supreme Court stated that

“Tclodifying the rule of Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886), the

[Bankruptcy] Code provides that a creditor’s right to foreclose on the mortgage survives OF passes

through the bankruptcy.””” In Johnson, on the eve of foreclosure of a mortgage on his farm, the borrower filed for

chapter 7 bankruptcy and obtained a discharge under § 727, but the court lifted the stay, and the bank

obtained an in rem judgement in its favor. See 501 U.S. 78, 80, 111 S, Ct. 2150, 2152, 115 L. Ed.

2d 66 (1991) (citing 11 U.S.C. §§ 362 and 727), Before a foreclosure sale was scheduled to take

place, the borrower filed for chapter 13 bankruptcy and sought to include the bank’s mortgage lien

_ 2 Johnson v. Home State Bank, 501 US. 78, 83, 111 S. Ct. 2150, 2153, ILS L, Ed. 2d 66 (1991) (citing 11 U.S.C. § §22(c)(2); Owen v. Owen, 500 U.S. 305, 368-309, 111 5.Ct. 1833, 1835-1836, 114 L.Ed.2d 350 (1991); Farrey v. Sanderfool, 500 U.S. 291, 297, LEL S.Ct, 1825, 1829, 114 L.Ed.2d 337 (1991); H.R. Rep. No. 95--595, p. 361 (1977). -24-

in areorganization plan. Jd. at 80-81. The Supreme Court explained that when the debtor obtained

a chapter 7 discharge under § 727, the Bankruptcy Court had “discharged the debtor from personal liability on his promissory notes to the Bank,” but “{nJotwithstanding discharge, the Bank's right to

proceed against petitioner [the debtor] in rem survived the Chapter 7 liquidation.” Id. The court

determined that a surviving mortgage interest was a “claim” under § 101(5) subject to inclusion in

the Chapter 13 plan. Jd. at 84-88 (citations omitted), This was because a bankruptcy discharge extinguished only “one mode of enforcing a claim,” “an action against the debtor i personam,” but

left another mode of enforcing a claim, an action against the debtor in rem, intact. fd. at 84.

Where a junior creditor’s claim is secured by a lien and deemed allowed under § 502, a

chapter 7 debtor cannot avoid the junior lien when the first priority liens are underwater. Bank of

Am., N.A. v. Caulkett, 575 U.S. 790, 795, 135 S. Ct. 1995, 1999, 192 L, Ed. 2d 52 (2015) (citing

Dewsnup v. Timm, 502 U.S. 410, 417, 1128. Ct.773, 778, 116 L. Ed. 2d 903 (1992)). The Supreme

Court has defined a “‘secured claim” in § 506(d) “to mean a claim supported by a security interest

in property, regardless of whether the value of that property would be sufficient to cover the claim.”

Bank of Am., N.A. v. Caulkett, 575 U.S. 790, 794, 135 8. Ct. 1995, 1999, 192 L. Ed, 2d 52 (2015). Thus, the City’s lien on the vehicle in question survived the Plaintiff-Debtor’s chapter 7

bankruptcy discharge. Farmers State Bank of Sherrard v. Hansen, 196 Ul. App. 3d 295, 297, 553

N.E.2d 751, 753 (Ill. App. 1990) (citations omitted). Perhaps, the Plaintiff-Debtor could have sought

to avoid the City’s lien or contested its validity in 201 6, not 6 years later in 2022 when this adversary proceeding was filed. 6. Federal Rule of Civil Procedure 12(b)(6) Rule 12(b)(6) provides that a party may assert by motion its defense that a complaint “fails

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to state a claim upon which relief can be granted.” Fed. R. Civ. P, 12(b)(6) (made applicable to

adversary proceedings by Fed. R. Banks. P. 7012). Assuming that the City properly asserts that it has a possessory lien, the Plaintiff-Debtor has

not stated a claim upon which relief can be granted because the City held a lien pre-petition. Recall

that when a chapter 7 case closes, the parties revert to the situation as it existed when the case was

filed, i.c., possession reverted to the lienholder. See, e.g., In re Cruseturner, 8 B.R. at 591: Inre

Popp, 166 B.R. at 700. “To satisfy the pleading requirements of Federal Rule of Civil Procedure 8(a), made

applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7008(a), the complaint

must contain ‘a short and plain statement showing the pleader is entitled to relief.”’ Ja re Republic Windows & Doors, LLC, 460 B.R. 511,519 (Bankr. N.D. Ill, 2011) (citing Fed, R. Civ. P. 8(a)). “To

survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to

‘state a claim for relief that is plausible on its face.”” Ashcroft v. Igbal, 556 U.S. 662, 678, 129 S.Ct.

1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S, 544, 570, 127

S.Ct. 1955, 167 L.Ed.2d 929 (2007). In determining whether dismissal under Fed. R. Civ. P.

12(b)(6) is appropriate, the court will “view [the complaint] in the light most favorable to the

plaintiff, taking as true all well-pleaded factual allegations and making all possible inferences from

the allegations in the plaintiff's favor.” In re Collum, 649 B.R. 186, 193 (Bankr. N.D. IIL. 2023) (citing Anchorbank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011). The court will consider

“documents attached to the complaint, documents that are critical to the complaint and referred to

in it, and information that is subject to proper judicial notice.” Id. (citing Geinosky v. City of Chi.,

675 F.3d 743, 745 n.1 (7th Cir. 2012)).

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The party seeking dismissal bears the burden to establish “the legal insufficiency of the

complaint” by a preponderance of the evidence. See In re Collum, 649 B.R. at 192-93 (citations

omitted); Moriarty ex rel. Teamsters Loc. Union No. 727 Health & Welfare Fund v. K&M Plastics,

Inc., No. 03 C 7295, 2004 WL 1170000, at *{ (ND. IIL Feb. 6, 2004) (citing Yeksigian v. Nappt,

900 F.2d 101, 104-05 (7th Cir.1990)); Grogan v. Garner, 498 U.S. 279, 286, 111 S. Ct. 654, 659,

112 L. Ed. 2d 755 (1991) (applying the preponderance-of-the-evidence standard in a bankruptcy

proceeding). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court

to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Williams

State Farm Mut. Auto. Ins. Co., 609 F.Supp.3d 662, 674 (N.D. Ill. 2022) (citing Iqbal, 556 U.S.

at 678, 129 S.Ct. at 1937). To show the grounds of his entitlement to relief under Rule 12(b)(6), a

“formulaic recitation of a cause of action’s elements will not do.” Twombly, 550 U.S. at §55, 127

S.Ct. at 1964-65. The allegations “must be enough to raise a right to relief above the speculative

level.” Williams, 609 F.Supp.3d at 674 (citing Twombly, 550 US, at 555, 127 S.Ct. at 1964-65).

Only factual allegations, not mere legal conclusions, are entitled to the assumption of trath. □□□

(citing Iqbal, 556 U.S. at 678-79), Here, the Plaintiff-Debtor asserts the City violated his rights under 11 U.S.C. § 362(a)(2),

(a)(5), and (a)(6) and § 554(c). Bankruptcy Code § 362(a) provides in relevant part:

(a) Except as provided in subsection (b) of this section, a petition filed under section 301... operates as a stay, applicable to all entities, of-... (2) the enforcement, against the debtor or against property of the estate, ofa judgment obtained before the commencement of the case under this title; . . .

(5) any act to create, perfect, or enforce against property of the debtor any lien

to the extent that such lien secures a claim that arose before the commencement of the case under this title; . . . [and] (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title; . . .

11 U.S.C. § 362(a)(2), (a)(5), and (a)(6). The Plaintiff-Debtor alleges individually and on behalf of the putative class that the City

violated § 362(a)(2) “by enforcing a judgment of vehicle impoundment against plaintiffs where such

judgments were obtained before commencement their Chapter 7 bankruptcy cases.” First Am.

Compl. (Adv. Dkt. 17), 4] 47. He alleges, individually and on behalf of the putative class, the City violated § 362(a)(5) by

acting to enforce against property of the Debtor a lien that purported to secure a claim that arose

before commencement of the chapter 7 bankruptcy case. /d., 4/51. He asserts the impounded vehicle

was his property because the chapter 7 trustee “declined turnover.” /d., 50. The chapter 7 trustee

issued a Report of No Distribution on September 1 1, 2016, stating there was no property available for distribution and certifying that the estate “has been fully administered.” See BK Dkt. 10 (text

entry on the docket). Thus, the Debtor asserts more specifically that 30 days later, since no party in

interest had objected within 30 days after the report was issued, under Bankruptcy Rule 5009, a

presumption arose that the bankruptcy case was fully administered, and the vehicle was

“presumptively abandoned” to him. □□□ § 16 (citing Fed. R. Bankr. P. 5009). On November 9, 2016,

a Discharge Order was entered. See Discharge Order (BK Dkt. 20). He alleges his bankruptcy case

was closed on November 14, 2016, at which time the Trustee was not administering the impounded vehicle, and thus “the impounded vehicle was finally abandoned” to him. /d., 17; See BK Dkt. 22

(text entry stating “Bankruptcy Case Closed and Trustee Discharged”).

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He asserts the City violated § 362(a)(6) “by acting to collect, assess, or recover a claim

against plaintiffs that arose before the commencement of their Chapter 7 bankruptcies.” /d., 4] 54.

Lastly, he argues the City violated § 554(c) “when it refused to abandon impounded vehicles

to debtors/plaintiffs upon the closing of their Chapter 7 bankruptcy cases where none of the

impounded vehicles were subject to administration and all rights, title and interests of the vehicles

had reverted to debtors/plaintiffs.” Id., { 57. 7. Laches and the Statute of Limitations The automatic stay under the Bankruptcy Code contains no statute of limitations. See 1}

U.S.C. 362; In re Collum, 649 B.R. 186, 198 (Bankr, N.D. Tl. 2023) (citations omitted); Jn re

Terrace Hous. Assocs., Ltd., No. CV 17-5458, 2018 WL 6308144, at *3 (E.D. Pa. Dec. 3, 2018).

“In the absence of such a limitation, the equitable doctrine of laches may serve to protect defendants against unreasonable, prejudicial delay in the prosecution of claims against them.” Jn re Terrace

Hous, Assocs., Ltd., 2018 WL 6308144, at *3 (citing fn re Bressman, 874 F.3d 142, 149 (3d Cir,

2017)).8 The Seventh Circuit has reasoned the language of the 1984 amendments to the Bankruptcy Code that added a cause of action for violating the automatic stay did not include a statute of

limitations and reversed a district court’s ruling which held a cause of action under the automatic

stay terminated when the stay expired. Price vy. Rochford, 947 F.2d 829, 831-32 (7th Cir. 1991)

13 Gor a discussion of other courts’ approaches regarding whether § 362(k) contains a statute of limitations, see fn re Collum, 649 B.R. at 198 (citing In re Terrace Hous, Assocs., Lid., 2018 WL 6308144, at *3; Barclay v. Reimer & Lorber Co, LPA Un re Barclay), 337 B.R. 728 (Table), 3006 WL 238139, at *5—6 (B.A.P. 6th Cir. 2006); Williams y. PRK Funding Servs., Inc., Case No. C18-48 RSM, 2018 WL 3328398, at *10 (W.D. Wash, July 6, 2018), aff'd, 817 F. App’x 524 (9th Cir. 2020); Koffaran v. Osteoimplant Tech., Inc., 182 B.R. 115, 124 (D. Md, 1995); Jn re Breul, 533 B.R. 782, 790 (Bankr. C.D, Cal. 2015); Stanwyck v. Bogen (In re Stanwyck), 450 B.R. 181, 193 □□□□□□□□ C.D. Cal. 2011); Nelson v. Post Falls Mazda (in re Nelson), 159 B.R, 924, 925 (Bankr. D. Idaho 1993).

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(citing 11 U.S.C. § 362(h), the predecessor of § 362(k)).4 A court may raise the issue of laches sua sponte. as jong as the parties are given notice of the

need to address laches and an opportunity to respond. See, e.g., Safeway Stores 46 Inc. v. WY Plaza

LC, 65 F.4th 474, 482-83 (10th Cir. 2023) (finding the district court erred by sua sponte applying laches to a restitution claim because the party who was ruled against lacked notice of a need to

address laches), cert. denied, 144 S. Ct, 379 (2023), In re Terrace Hous. Assocs., Ltd., No. BR

15-13368-MDC, 2023 WL 7030051, at *1-2 (Bankr, E.D. Pa. Oct. 25, 2023) (a bankruptcy judge raised laches defense sua sponte at a hearing and directed the parties to submit briefs addressing its

application, and, on remand, an evidentiary hearing on laches was held and the parties were

permitted to engage in in fact discovery on laches). “Laches requires proof of (1) lack of diligence by the party against whom the defense is asserted, and (2) prejudice to the party asserting the

defense.” Inre Stubbs, 565 B.R. 115, 126 (B.A.P. 6th Cir. 2017) (citing Costello v. United States,

365 U.S. 265, 282, 81 S.Ct. 534, 543, 5 L.Ed.2d 551 (1961)). “A defendant is prejudiced from delay

in asserting a claim where the defendant has changed its position in a way that would not have

occurred if the plaintiff had not delayed.” in re Richardson, 497 B.R. 546, 556 (Bankr. 8.D. Ind.

2013) (citing Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 824 (7th Cir. 1999). The court notes that although the parties did not brief the laches issue, in its initial Motion

to Dismiss (Adv. Dkt. 16), which sought to dismiss an earlier-filed complaint, the City sought dismissal based on the applicable statute of limitations. Jd., ff] 27-36; see also Motion to Dismiss

(Adv. Dkt. 20), p. 2 n.1. In this Motion to Dismiss, the City did not raise a statute of limitations

14 2005, § 362(h) was re-designated to § 362(k). Pub.L. 109-8, Title ITI, § 305(1)(B), Title XV, § 1501, Apr. 20, 2005, 119 Stat. 79, 216, In 2006, subscotion (k) was changed and split into subsections (k)(1) and (k)(2), Pub.L. 109-304, § 17¢b)(1), Oct. 6, 2006, 120 Stat. 1706. -30-

defense, but stated if the Court did not dismiss the complaint for the reasons proffered in this

Motion, “the City reserves the right to assert its statute of limitations defense.” Motion (Adv. Dkt.

20), p. 2n.1.” As explained in In re Peake, “[a}fter a period of time in possession of the vehicle, the City also accrues the separate ‘power [to dispose]’ of the vehicle.” In re Peake, 588 B.R. 811, 822 n.14

(Bankr, N.D. Hl. 2018) (citing Transcon. Oil Co. v. Emmerson, 298 Ill. 394, 397-99, 131 N.E. 645,

647 (Il. 1921); Municipal Code of Chicago (M.C.C.) §§ 9-100-120(f), 9-92-100; 625 ILCS § 5§/4-208(a)), aff'd sub nom. In re Fulton, 926 F.3d 916 (7th Cir. 2019), vacated & remanded sub

nom. City of Chi. v. Fulton, 592,U.S. 154, 141 8. Ct. $85,208 L. Ed. 2d 384 (2021), and vacated &

remanded sub nom. In re Fulton, 843 F. App’x 799 (7th Cir, 2021). linois law and the Municipal Code of Chicago permit quick disposition of impounded vehicles such that said vehicles may be

disposed of in around 28 days from the date of impoundment as long as the requisite notice is given

to the owner of record. See M.C.C. § 9-92-070; § 9-92-L00(a); 625 ILCS 5/4-205, -206, and -208.

Under the Municipal Code of Chicago § 9-92-070(a), the owner of a motor vehicle that has been

impounded will receive a notice of the impoundment by certified mail within ten days of the

impoundment. If the impounded motor vehicle remains unclaimed by the registered owner for a

period of 18 days after the notice of impoundment has been given, if an additional notice by first-

class mail is sent to the registered owner, the superintendent of police or commissioner of streets and

Hederal Rule of Civil Procedure 12(g) applies in adversary proceedings according to Federal Rule of Bankraptey Procedure 7012. It states: Except as provided in Rule 12(h)(2) or (3), a party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omilted from its earlier motion. Fed. R. Civ. P. 12(g)(2). The City should be careful about splitting its defenses. 3] -

sanitation “shall authorize the disposal or other disposition of such unclaimed vehicles...” M.C.C.

§ 9-92-100(a); accord 625 ILCS 5/4-208(a) (permitting disposal of “an abandoned, lost, stolen or

unclaimed vehicle” after it has remained unclaimed for 18 days after notice has been given under 625

ILCS 5/4205 and 625 ILCS 5/4-206 if during the 18-day period, an additional notice has been sent

via certified mail to the registered owner). However, M.C.C. § 9-92—100(a) states that the “the

registered owner may request from the department of streets and sanitation one extension of 15 days before a vehicle is sold or otherwise disposed of.” Hence, the Plaintiff-Debtor’s adversary proceeding, which was brought six years after the

bankruptcy case was filed, may be untimely. In the complaint, he contests the validity of the City's

possessory lien and in his response, he argues because the City did not have a valid lien, it was in

effect a “mere converter” of the Debtor's vehicle. First Am. Compl. (Adv. Dkt. 17), 11-12;

Response (Adv. Dkt. 24), p. 14. This argument could have helped the debtor if he had brought it to

the court’s attention in a timely manner. The court notes that under Illinois law, there is a five-year statute of limitations for claims to “recover damages for an injury done to [real or personal] property

_, , or to recover the possession of personal property or damages for the detention or conversion

thereof... .” 735 ILCS 5/13-205. Since the matter of laches has not been briefed by the parties, and since the court will dismiss each count of the complaint with prejudice on other grounds, the

court will not rule that the action is barred by laches. However, the court suspects that the Plaintiff-Debtor may be judge shopping. Since the

relevant five-year statute of limitations under Illinois expired five years after the City impounded and

disposed of his vehicle in 2016 or earlier, bringing these claims in federal bankruptcy court six years after the impoundment may be an effort to avoid that five-year bar to litigating his claims in state

court. In any event, “in the interest of comity with State courts or respect for State law,” whether

the City has a possessory lien is a matter best resolved by the state courts and this court would

permissively abstain from ruling on the issue. See 28 U.S.C. § 1334(c)(1). We know from Buéner

v. United States that state law generally determines property rights in bankruptcy. See 440 U.S. 48,

54, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136 (1979) (citations omitted) (“[C]Jongress has generally left

the determination of property rights in the assets of a bankrupt’s estate to state law.”). We should

let the state courts decide whether the City has a possessory lien. In addition, the court notes that trustees and creditors who seek to deny a debtor’s discharge

have to file an adversary proceeding within 60 days of the date first set for the section 341 creditors

meeting. Fed. R. Bankr. P. 4004(a). Objections to exemptions must be filed within 30 days after

the section 341 meeting concludes. Fed. R. Bankr. P. 4003(b)(1). Creditors and trustees are required

to promptly challenge a debtor’s right to a discharge or an exemption fairly carly in a chapter 7 case.

With that in mind, the court finds a debtor should challenge liens sooner than six years after the case

was closed. IV. Basis for Dismissal for Each Count The City argues the Plaintiff-Debtor’s conclusory allegations and formulaic recitations of the

statutory language are insufficient to state claims against it. Mot. to Dismiss (Adv. Dkt. 20), 40.

The City argues that the Plaintiff-Debtor fails to state a claim under Fed. R. Civ. P. 12(b)(6) because

under Willoughby, since the trustee, not the debtor, has the right to demand turnover, the City did

not violate the stay by withholding the vehicle from the Plaintiff. /d., { 42 (citing 2016 WL

11811372, at *2). The court finds the City has met its burden to show the legal insufficiency of the complaint

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by a preponderance of the evidence. See In re Collum, 649 B.R. at 192-93 (citations omitted). The complaint fails to state a claim under Federal Rule of Civil Procedure 12(b)(6) that the City violated 11 U.S.C. § 362(a)(6). The Plaintiff-Debtor merely recites the elements of § 362(a)(6) in the Complaint and its allegations are insufficient to raise a right to relief beyond a speculative level. See Twombly, 550 U.S. at 555, 127 S.Ct. at 1964-65. A, Section 326(a)(2) As to count I, which alleges a violation of § 362(a)(2), that count will be dismissed with prejudice because the Debtor does not allege or show that a judgment was enforced while the car was

property of the bankruptcy estate. The automatic stay ceased to operate against secured creditors, including the City, when the Debtor was granted a discharge on November 9, 2016. 11 U.S.C. § 362(c)(2)(C). After that, the City pursued its rights as a lienholder. B. Section 326(a}(5) Count II, which alleges a violation of § 362(a)(5), will be dismissed with prejudice because

the Debtor has not shown that during the case, the City initiated enforcement of a lien that arose before the commencement of the bankruptcy case. Our understanding based on what the Debtor- Plaintiff said in his Motion to Sever is that “[t]he City has disposed of the 1996 Dodge Ram after

entry of plaintiffs Chapter 7 Order of Discharge in Case Number 16-26076 and before his filing of

his Chapter 13 bankruptcy... .” See Cordova, Motion to Sever (Adv. Dkt. 296), 3-5 (citations omitted). He has not presented evidence to the contrary in this case. He cannot show that § 362(a)(5) was violated while this case was pending. C. Section 362(a)(6) As to count Il, which alleges a violation of § 362(a)(6), that count will be dismissed with

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prejudice because the Debtor does not allege or show that the City collected, assessed, or recovered

a claim while the case was pending; the City stood on its lien, and acted after the automatic stay ended, under § 362(c}(2)(C). The City did not violate § 362(a)(6) because it did not initiate collection on a pre-petition claim; it later enforced a lien that was not avoided at any point.'* It offered the vehicle to the Chapter 7 Trustee, who declined the offer. First Am. Compl. (Ady. Dkt. 17), 4 14; Nov. 14, 2023 Hr’g Tr., pp. 5, 15-16. Thus, Count Ill (§ 362(a)(6)) is dismissed with prejudice. D. Section 554(c) Count IV alleges a violation of § 554(c), asserting that it imposed an affirmative duty on the City to abandon the vehicle to the Debtor. That provision states that scheduled property which has not been administered becomes abandoned to the Debtor; it did not impose an affirmative duty on the City to turn over the vehicle to the Debtor. Because the City had possession of the vehicle when the case was filed, it was entitled to stand on its lien while the case was pending. Thus, count IV will be dismissed with prejudice. V. Conclusion As explained above, the City’s Motion to Dismiss (Adv. Dkt. 20) is granted. Since the court finds the Debtor lacks standing to assert the stay violations at issue and because the City did not have

a duty to turn over the vehicle to the Debtor, the court hereby dismisses Counts I, Uf, IM, and FV with prejudice under Federal Rule of Civil Procedure 12(b)(1) and (b)(6), made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7012(b).

6 tm City of Chicago v, Mance, the Seventh Circuit held that a lien on a vehicle held by the City of Chicago could be avoided under 11 U.S.C. § 522(D. City of Chi. v. Mance (in re Mance), 31 F.4th 104, 1021-24 (7th Cir, 2022). -35-

The Adversary Complaint is dismissed with prejudice as to both the Debtor-Plaintiff and as to the putative class.

Date: February 12, 2024 ENTER: J. > Chief Judge Jacqueline P. Cox U.S. Bankruptcy Court Northern District of Hlinois

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