In Re Coletta

MEMORANDUM OPINION

I. INTRODUCTION

Presently before me is the motion of Nicholas Mattera (“the Movant”) to Reopen Closed Case and Annul Automatic Stay (“the Motion”).

During the pendency of this chapter 11 bankruptcy case filed by David Coletta (“the Debtor”), the Movant entered default judgment against him in a state court mortgage foreclosure action. Three (3) months after the dismissal of the Chapter 11 case for failure to file bankruptcy schedules and required statements, the Movant commenced execution proceedings on that judgment. The Movant’s efforts to sell the Debtor’s real property then were further delayed when the Debtor filed another bankruptcy case, this time under chapter 13. The Movant obtained relief from the automatic stay just before the short-lived chapter 13 case was dismissed by the court, again for failure to file bankruptcy schedules and required statements. Eight (8) months after the entry of the judgment, the Movant caused the Debtor’s real property to be sold at a sheriffs sale.

The Debtor has filed a motion in state court requesting that the foreclosure judgment be stricken and the sheriffs sale set aside on the ground that the foreclosure judgment was void, having been entered in violation of the automatic stay. The Mov-ant contends that the Debtor failed to provide him with notice of the fifing of the Chapter 11 case and that his violation of the automatic stay was, therefore, unwitting. Presumably to undermine the legal premise of the Debtor’s state court motion, the Movant filed the Motion in this court, requesting annulment of the automatic stay.

*143 The Motion was filed on October 29, 2007. The Debtor filed a response to the Motion on November 6, 2007. An eviden-tiary hearing on the Motion was held and concluded on November 21, 2007.

Based on the Findings of Fact and Conclusions of Law set forth below, I will grant, in substance, the relief requested by the Movant. Since, in a technical sense, it is unnecessary to “reopen” this case, I will vacate the dismissal order and reinstate this chapter 11 case for the purpose of considering the Motion. On the merits, I will exercise my discretion to annul the automatic stay as of January 16, 2007, the date the Debtor commenced this case. The case will then be dismissed again.

II. FINDINGS OF FACT

The Subject Real Estate and State Court Proceedings

1. The Debtor owns real property located at 6201 Grays Avenue Philadelphia, PA 19142 and 6241-43 Dicks Avenue, Philadelphia, PA 19142 (collectively, “the Subject Properties”). 1 See Motion ¶ 2. 2

2. On June 21, 2005, to secure repayment of a note in the principal amount of $60,000, the Debtor granted the Movant a mortgage against the Subject Properties. See id. ¶¶ 3-4 & Exhibit “A” thereto.

3. On June 20, 2006, the Movant filed a mortgage foreclosure complaint against the Debtor in the Court of Common Pleas, Philadelphia County, docketed at No. 2037, June Term 2006 (“the State Court Action”). See Motion ¶ 5; Docket in the State Court Action. 3

4. Stuart Eisenberg, Esquire (“Mr.Ei-senberg”), an attorney with McCullough & Eisenberg, P.C., represented the Debtor in the State Court Action. See id. 4

5. On October 16, 2006, the Debtor filed an answer to the complaint on October 16, 2006. See Docket in the State Court Action.

6. On January 8, 2007, the state court entered an Order striking the Debtor’s answer to the complaint for lack of conformity with the requirements of Pa. R. Civ. P. 1024. The Order granted the Debtor twenty (20) days in which file an answer to the complaint in conformity with the rules of court. The Order further provided that “failure to so file will result in this court entering upon praecipe of plaintiff a default judgment in favor of plaintiff.” See id.

The Chapter 11 Bankruptcy Case

7. On January 16, 2007, the Debtor filed a voluntary petition under chapter 11 of the Bankruptcy Code in this court, thereby commencing the Chapter 11 Case (Docket No. 07-10285). See Chapter 11 Case Docket Entry No. I. 5

*144 8. Mr. Eisenberg represented the Debtor in the Chapter 11 Case. 6

9. Despite requesting and receiving an extension of time, the Debtor failed to file any of the bankruptcy schedules or statements that were required to be filed after the filing of the “bare” voluntary petition. This inaction resulted in the dismissal of the Chapter 11 Case by Order entered February 22, 2007. See Chapter 11 Case Docket Entry Nos. 7,12,16.

Proceedings in State Court After the Filing of the Chapter 11 Case

10. On February 15, 2007, thirty-eight (38) days after the entry of the January 8, 2007 Order in the State Court Action (which gave the Debtor twenty (20) days to file an amended answer), and while the Chapter 11 Case was still pending, the Movant filed a praecipe entering judgment by default and assessing damages in the amount of $62,577.43. See Docket in State Court Action.

11. Shortly after February 15, 2007, the Debtor’s counsel, Mr. Eisenberg, received written notice of the entry of the judgment in the State Court Action. 7

12. On May 9, 2007, after the dismissal of the Chapter 11 Case, the Movant filed a writ of execution in the State Court Action, which resulted in the Subject Properties being scheduled for a sheriffs sale on August 7, 2007. See Motion ¶¶ 14-15; Docket in State Court Action.

The Chapter 13 Case

13. On August 6, 2007, the day before the scheduled sheriffs sale, the Debtor filed his second bankruptcy case of the calendar year. This case was filed under chapter 13 and docketed at Bky. No. 07-14551 (“the Chapter 13 Case”).

14. Mr. Eisenberg represented the Debtor in the Chapter 13 Case. 8

15. As a result of the filing of the Chapter 13 Case, the sheriffs sale scheduled for August 7, 2007 was postponed to October 2, 2007. See Motion ¶¶ 15, 19. 9

16. Two motions were filed in the Chapter 13 Case that are pertinent to the current Motion:

A. On August 9, 2007, the Movant filed a motion for relief from the automatic stay (“the Chapter 13 § 362 Motion”), to which the Debtor filed a response on August 13, *145 2007. See Chapter 13 Docket Entry Nos. 8, 12;

B. On August 13, 2007, the Debtor filed a Motion to Extend the Automatic Stay under 11 U.S.C. § 362(c)(3) (“the Debtor’s Motion to Extend”), to which the Movant filed a response on August 20, 2007. 10 See Chapter 13 Docket Entry Nos. 13, 17.

17. In the Debtor’s Motion to Extend, the Debtor disclosed that the Chapter 11 Case was filed on January 16, 2007 and dismissed on March 9, 2007. 11 See Debt- or’s Motion to Extend (third unnumbered paragraph).

18. On September 6, 2007, the Debtor withdrew the Debtor’s Motion to Extend.

19. On September 10, 2007, it was reported to the court that the Debtor had withdrawn his response to the Chapter 13 § 362 Motion.

20. The Chapter 13 § 362 Motion was granted by Order dated September 10, 2007 (“the § 362 Order”). The § 362 Order explicitly authorized the Movant to schedule a sheriffs sale of the Subject Properties. See Chapter 13 Case Docket Entry No. 25.

21. In the Chapter 13 Case, despite requesting and receiving an extension of time, the Debtor did not file the bankruptcy schedules or statements that are required to be filed after the filing of the “bare” voluntary petition. This inaction resulted in the dismissal of the Chapter 13 Case by Order entered September 11, 2007, the day after the entry of the § 362 Order. See Chapter 13 Case Docket Entry Nos. 18, 21, 26.

Proceedings in State Court After the Filing of the Chapter 13 Case

22. On October 2, 2007, the Movant caused the Subject Properties to be sold at a sheriffs sale. See Motion ¶ 19.

23. The Subject Properties were sold to the Movant. 12

24. On October 15, 2007, the Debtor filed a Petition to Strike Judgment and Set Aside Sheriffs Sale in the State Court Action (“the Petition to Strike”), asserting that: (a) the entry of the judgment violated the automatic stay in the Chapter 11 Case, thereby rendering it void; and (b) that all subsequent execution proceedings on the judgment were also invalid. See Motion ¶ 20.

The Motion

25. On October 29, 2007, the Movant filed the Motion in the Chapter 11 Case, requesting that this court:

a. reopen the bankruptcy case;

b. annul the automatic stay retroactive to January 16, 2007 (the date the Chapter 11 Case was filed); and

c. “validate” the October 2, 2007 sheriffs sale of the Subject Properties.

The Movant’s Knowledge of the Chapter 11 Case

26. Neither the Debtor nor his counsel gave timely notice to the Movant of the filing of the Chapter 11 Case. 13

*146 27. During the pendency of the Chapter 11 Case, the Movant lacked actual knowledge of the case.

28. Between August 13, 2007 and August 20, 2007, the Movant received actual notice of the filing (and subsequent dismissal) of the Chapter 11 Case. Compare Finding of Fact No. 16.B with id. No. 17.

III. CONCLUSIONS OF LAW

1. The Motion to Reopen is more appropriately treated as a motion under Fed. R. Bankr.P. 9024 for relief from the Order dismissing the Chapter 11 Case so as to vacate the dismissal and permit consideration of the Motion to Annul the Automatic Stay. 14

2. Pursuant to Fed. R. Bankr.P. 9024, incorporating Fed.R.Civ.P. 60(b)(6), 15 it is appropriate to revisit the Order dismissing the Chapter 11 Case to permit the *147 court to consider the merits of the Mov-ant’s request for annulment of the automatic stay. 16

3. The Movant inadvertently violated the automatic stay, 11 U.S.C. § 362(a), by entering a default judgment against the Debtor in the State Court Action on February 15, 2007.

4. “[Ajctions in violation of the stay, although void (as opposed to voidable), may be revitalized in appropriate circumstances by retroactive annulment of the stay.” E.g., In re Myers, 491 F.3d 120, 127 (3d Cir.2007) (citing In re Siciliano, 13 F.3d 748, 750 (3d Cir.1994)).

5. The decision whether to annul the automatic stay is committed to the discretion of the bankruptcy court, see, e.g., In re Porter, 371 B.R. 739, 744-45 (Bankr.E.D.Pa.2007), and requires a “weighing of the equities, since the remedy is equitable in nature,” In re Wilkerson, 2004 WL 2977564, at *3 (Bankr.E.D.Pa. Dec.8, 2004)

6. The stay should be annulled only in exceptional circumstances. E.g., In re Miller, 1998 WL 151427, at *5 (Bankr.E.D.Pa. Mar.23, 1998); see also In re Soares, 107 F.3d 969, 977 (1st Cir.1997). 17 But see In re Fjeldsted, 293 B.R. 12, 21-24 (B.A.P. 9th Cir.2003) (rejecting the “exceptional circumstances” standard for annulment of the stay in favor of “balancing of the equities” standard).

7. In determining whether the automatic stay should be annulled, the court may consider various relevant factors, including:

• if the creditor acted without knowledge of the debtor’s bankruptcy filing;

• if the debtor is guilty of some inequitable conduct; 18

*148 • if the creditor has changed its position to its detriment;

• whether the additional expenses necessarily incurred by the creditor who must begin anew with its enforcement remedy outweigh the benefit to anyone;

• whether a motion for relief from stay would likely have been granted before the creditor acted in violation of the stay, had it been filed earlier.

Compare In re Siciliano, 167 B.R. 999, 1007-08 (Bankr.E.D.Pa.1994) with In re Wilkerson, 2004 WL 2977564, at *3. 19

IV. DISCUSSION

A. The Movant Lacked Knowledge of the Chapter 11 Case Until August 2007

After careful consideration of the record, I resolve the primary factual issue in this case in the Movant’s favor. I find it more likely than not that neither the Mov-ant nor his counsel received notice of the filing of the Chapter 11 Case in January 2007. Rather, it was not until August 2007, in the context of the Debtor’s Motion to Extend in the Chapter 13 Case, that the Movant received notice of the existence of the Chapter 11 Case. Because this was the fact issue on which the parties devoted most of their energy during the hearing, I will explain the basis for my finding below.

1.

The Debtor contends that his counsel gave notice of the filing of the Chapter 11 Case to the Movant’s counsel shortly after the Chapter 11 Case was filed on January 16, 2007. In support of this contention, the Debtor relies primarily on the testimony of Mr. Eisenberg, who served as the Debtor’s counsel in the State Court Action, the Chapter 11 Case and the Chapter 13 Case. 20

Mr. Eisenberg is an attorney who regularly represents bankruptcy debtors in this court. Mr. Eisenberg testified concerning his customary office policies and procedures for giving notice to creditors upon the filing of a bankruptcy case. Those procedures are:

• when notice is given, it is given on the same day as the bankruptcy filing, as *149 soon as his office receives a confirming e-mail from the Clerk of the Bankruptcy Court providing a case number pursuant to the electronic filing procedure employed in this district;

• notice is provided, in most instances, by regular mail or by facsimile transmission; 21

• when notice is provided in writing, a facsimile cover sheet or a copy of the letter sent by first class mail is retained in the client file;

• his office does not ordinarily notify unsecured creditors whose claims are not in litigation at the time of the bankruptcy filing;

• his office notifies secured creditors whose claims are in litigation;

• his office notifies the sheriffs office if a sheriffs sale of a debtor’s property has been scheduled.

Pursuant to his office policies, Mr. Ei-senberg does not personally prepare the written communications or provide oral notice of a bankruptcy filing. He has delegated those task to his legal assistant. The legal assistant responsible for the Debtor’s file in January 2007 was subsequently terminated from her position. Mr. Eisenberg testified that the termination was caused by her excessive absences and not due to the quality of her work.

In this case, because the State Court Action was pending at the time the Chapter 11 Case was filed, the customary notice procedures described above should have resulted in Mr. Eisenberg’s office giving notice to the Movant’s counsel shortly after the filing of the Chapter 11 Case. Mr. Eisenberg testified that he has no reason to believe that the usual procedures were not followed in this case. However, he did not produce any written evidence (such as a copy of a facsimile cover sheet or a letter) of the notice he contends was given to the Movant’s counsel at or around the time of the filing of the Chapter 11 Case. He explained that he did not review the file he maintained for the Chapter 11 Case before appearing in court on the day of the hearing on the Motion and therefore, did not know if such written evidence exists.

Jeffrey M. Cooper, the Movant’s counsel, testified that he did not receive any written notice of the filing of the Chapter 11 Case. He denied that he had any actual knowledge of the Chapter 11 Case until approximately October 15, 2007, when the Debtor filed the Petition to Strike in the State Court Action. However, he acknowledged that another attorney in his office, Barry Rosen, whom he described as “an associate,” must have reviewed the Debt- or’s Motion to Extend (filed in the Chapter 13 Case) in August 2007 — which disclosed the filing and dismissal dates of the Chapter 11 Case — because Mr. Rosen prepared and filed a response to the Debtor’s Motion to Extend. Therefore, it is indisputable that the Movant, through counsel, was on notice of the filing of the Chapter 11 Case some time between the filing of the Debtor’s Motion to Extend on August 13, 2007 and the filing of the Movant’s response thereto on August, 20, 2007. See Finding of Fact No. 27. 22

2.

There is little or no basis in the record, aside from the testimony described above, to assist me in determining whether the *150 Debtor provided notice of the Chapter 11 Case to the Movant. Certainly, nothing in the court record states that the Debtor provided such notice. 23 Nor is there anything else in the public record that sheds any further light on the issue. 24 Thus, the central fact issue in this dispute turns on how I resolve the conflicting testimony of Messrs. Eisenberg and Cooper. The testimony of each witness was plausible and I have no reason to doubt the good faith and sincerity of either of them.

I resolve the fact issue in the Movant’s favor for two reasons.

First, I consider it is more likely that Mr. Eisenberg’s office inadvertently failed to send notice of the bankruptcy filing to Mr. Cooper than that Mr. Cooper received the notice and blatantly ignored the legal obligation to honor the automatic stay. In other words, I consider it more likely that there was a mistake than a conscious wrongdoing. 25

*151 Second, the Debtor failed to produce evidence within his control that, while not conclusive, would have been probative: i.e., copies of faxes or letters retained in the Debtor’s chapter 11 case file in Mr. Eisenberg’s office. Those writings, if they exist, documented the notice given to creditors of the existence of the Chapter 11 Case. However, Mr. Eisenberg did not review his file before coming to court to testify. As a result, he was unable to produce the relevant documents or even say whether they exist

The Debtor’s failure to produce probative evidence within his control 26 causes me to draw an adverse inference — namely, I infer that the case file lacks the evidence that would corroborate the Debtor’s position. See In re Butts, 350 B.R. 12, 19 n. 8 (Bankr.E.D.Pa.2006), aff'd, 2007 WL 1722805 (E.D.Pa. Jun 13, 2007). The absence of available corroborative evidence that should exist if Mr. Eisenberg’s testimony is accurate, undercuts the strength of Mr. Eisenberg’s testimony and contributes to my decision to credit Mr. Cooper’s testimony.

B. The Automatic Stay Will Be Annulled

Having resolved the key fact issue in this dispute, I now turn to the heart of the matter. Is this the “exceptional” case in which it is appropriate to exercise my discretion to annul the automatic stay? I conclude that it is.

The starting point in my consideration of the annulment issue is the Mov-ant’s lack of knowledge of the Chapter 11 Case when he entered judgment against the Debtor in the State Court Action in February 2007. Here, this innocent violation of the automatic stay provides the Movant with the initial foundation for making the case for annulment of the stay. Standing alone, the Movant’s lack of knowledge of the stay is not necessarily a sufficient basis for annulment. However, in this case, there is more. I find the Debtor chargeable with inequitable conduct. In particular, the Debtor allowed an inordinate period of time to pass before raising the violation of the automatic stay. This weighs heavily in favor of annulment of the stay.

In 2007, the same counsel represented the Debtor in the state court and in the two cases in this court. The Movant took the default judgment in the State Court Action on February 15, 2007. The Debtor has not asserted that he and his attorney did not receive timely notice of the entry of the judgment in the State Court Action, so I must assume that they were aware of the judgment. See Finding of Fact No. 11. After learning of the entry of judgment against the Debtor in violation of the stay, at a minimum, one would expect the Debt- or’s counsel to write a letter to the Mov-ant’s counsel putting him on notice of the violation of the stay and requesting that the judgment be vacated. Yet, no evidence was presented that Mr. Eisenberg took such action in response to the Mov-ant’s inadvertent violation of the stay. Nor did Mr. Eisenberg, or anyone else acting on the Debtor’s behalf, take any action to address the violation of the automatic stay for eight (8) months after the entry of the judgment in the State Court Action — until after the Movant took further action in this court and conducted the *152 October 2007 sheriffs sale in reliance upon the judgment. No reasonable explanation has been offered for this delay. In the circumstances presented here, I find the delay inexcusable.

It is especially troubling that the Debtor failed to raise the propriety of the default judgment when given the opportunity to do so during the Chapter 13 Case. In the Movant’s motion for relief from the automatic stay, filed three (3) days after the chapter 13 bankruptcy petition was filed, the Movant specifically alleged that he held a default judgment in mortgage foreclosure, entered on February 15, 2007. 27 The Debtor’s answer was essentially non-responsive: “Denied as the record speaks for itself.” 28 Given the significance of the issue to the Debtor, it is hard to understand why the Debtor did not raise the violation of the automatic stay during the Chapter 11 Case as part of his defense to the stay relief motion filed in the Chapter 13 Case. 29

Even more striking is the Debtor’s subsequent withdrawal of his answer to the stay relief motion. This resulted in the entry of a stay relief Order that specifically authorized the Movant to schedule a sheriffs sale of the Subject Properties. The § 362 Order provided for a modification of the stay:

to allow the Movant to enforce his mortgage by scheduling a sheriffs sale of [the Subject Properties], and to allow the purchaser of said premises at Sheriffs Sale (or purchaser’s assignee) to take any legal action for enforcement of its right to possession of said premises.

See Chapter 13 Docket Entry No. 25 (emphasis added).

In assessing the propriety of annulling the stay, I find it unnecessary to make specific findings that the Debtor acted purposely to lull the Movant or that his conduct was a purposeful “lying in wait.” Whatever the Debtor’s scienter may have been, his conduct had inequitable consequences that I may consider. In this case, I conclude that it was fundamentally unfair for the Debtor, while represented by the same counsel, to remain silent while the Movant: (1) obtained a stay relief order from this court authorizing a sheriffs sale of the Subject Properties and (2) acted in reliance on that order in the state court. 30

My decision also is influenced by the Debtor’s conduct in the two (2) bankruptcy cases that he filed. In both cases, the Debtor invoked the benefit of the automatic stay without fulfilling even the most basic of a debtor’s responsibilities, *153 the filing of bankruptcy schedules. At the hearing, the Debtor presented no compelling justification for his abject failure to meet his obligations as a bankruptcy debt- or. 31 Without determining that the Debt- or’s failures amounted to a purposeful manipulation, I must question whether, in an objective sense, the Debtor’s bankruptcy filings were made in good faith. See generally In re Ferguson, 376 B.R. 109, 123-124 (Bankr.E.D.Pa.2007) (discussing objective and subjective good faith). The Debt- or’s one-sided use of the bankruptcy process militates in favor of the annulment of the stay.

Finally, in reaching my decision, I have considered one countervailing consideration: the Movant’s conduct after learning of the Chapter 11 Case in August 2007. The Debtor decries the Movant’s conduct in proceeding with the October 2007 sheriffs sale based on a judgment that the Debtor maintains the Movant must have known to be void because it was entered in violation of the automatic stay.

To the extent that the Movant’s delay in seeking annulment of the stay compounded the problems arising from the inadvertent stay violation, there is some merit to the Debtor’s position. It may well have been preferable for the Movant to have requested annulment of the stay more expeditiously and, in any event, prior to the October 2, 2007 sheriffs sale. However, there are certain extenuating circumstances.

When the Movant learned of the Chapter 11 Case in August 2007, he was subject to a “new” automatic stay, the one arising in the Chapter 13 Case. Filing the Chapter 13 § 362 Motion was a natural response to the Debtor’s eve-of-sheriffs sale chapter 13 filing. In these circumstances, I cannot fault him entirely for failing to realize that it may have been optimal to file a second motion, in the dismissed Chapter 11 Case, seeking annulment of the stay. And, arguably, the stay relief Order that he did obtain in the Chapter 13 Case authorized him to proceed with the sheriffs sale. At a minimum, after the entry of the § 362 Order in the Chapter 13 Case, there was some ambiguity regarding his authority to proceed with the sheriffs sale of the Subject Properties. 32

IV. CONCLUSION

For the reasons set forth above, I will grant the Motion in part and deny it in *154 part. I will: (1) vacate the dismissal Order in the Chapter 11 Case for the purpose of considering the Motion on the merits; (2) annul the automatic stay that arose in the Chapter 11 Case as to the Movant, retroactive to January 16, 2007; (3) deny all other relief requested; 33 and (4) again dismiss the Chapter 11 Case.

An appropriate Order follows.

ORDER

AND NOW, upon consideration of the Motion of Nicholas Mattera (“the Movant”) to Reopen Closed Case and Annul Automatic Stay (“the Motion”), the response thereto, and after a hearing, and for the reasons set forth in the accompanying Memorandum Opinion, it is hereby ORDERED that:

1. The Motion is GRANTED IN PART AND DENIED IN PART.

2. The court’s Order entered February 22, 2007 is VACATED and this case is REINSTATED for purposes of determining whether the automatic stay should be

ANNULLED.

3. The automatic stay that arose in the Chapter 11 Case is ANNULLED as to the Movant, retroactive to January 16, 2007.

4. All other relief requested in the Motion is DENIED.

5. The merits of the Motion having been decided, this case is again DISMISSED.