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In re Fulton

United States Court of Appeals, Seventh Circuit

June 19, 2019

In re: Robbin L. Fulton, Debtor-Appellee. Appeal of: City of Chicago In re: Jason S. Howard, Debtor-Appellee. Appeal of: City of Chicago In re: George Peake, Debtor-Appellee. Appeal of: City of Chicago In re: Timothy Shannon, Debtor-Appellee. Appeal of: City of Chicago

          Argued May 14, 2019

          Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 18-02860 - Jack B. Schmetterer, Bankruptcy Judge.

          Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 17-25141 - Jacqueline P. Cox, Bankruptcy Judge.

          Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 18-16544 - Deborah Lee Thorne, Bankruptcy Judge.

          Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 18-04116 - Carol A. Doyle, Chief Bankruptcy Judge.

          Before Flaum, Kanne, and Scudder, Circuit Judges.

          FLAUM, CIRCUIT JUDGE.

         In this consolidated appeal of four Chapter 13 bankruptcies, we consider whether the City of Chicago may ignore the Bankruptcy Code's automatic stay and continue to hold a debtor's vehicle until the debtor pays her outstanding parking tickets. Prior to the debtors' filing for bankruptcy, the City impounded each of their vehicles for failure to pay multiple traffic fines. After the debtors filed their Chapter 13 petitions, the City refused to return their vehicles, claiming it needed to maintain possession to continue perfection of its possessory liens on the vehicles and that it would only return the vehicles when the debtors paid in full their outstanding fines. The bankruptcy courts each held that the City violated the automatic stay by "exercising control" over property of the bankruptcy estate and that none of the exceptions to the stay applied. The courts ordered the City to return debtors' vehicles and imposed sanctions on the City for violating the stay.

         This is not our first time addressing this issue: in Thompson v. General Motors Acceptance Corp., 566 F.3d 699 (7th Cir. 2009), we held that a creditor must comply with the automatic stay and return a debtor's vehicle upon her filing of a bankruptcy petition. We decline the City's request to overrule Thompson. We therefore affirm the bankruptcy courts' judgments relying on Thompson, and we also agree with the bankruptcy courts that none of the exceptions to the stay apply.

         I. Background

         The Chicago Municipal Code permits creditor-appellant the City of Chicago to immobilize and then impound a vehicle if its owner has three or more "final determinations of liability," or two final determinations that are over a year old, "for parking, standing, compliance, automated traffic law enforcement system, or automated speed enforcement system viola-tion[s]." Municipal Code of Chicago ("M.C.C.") §9-100-120(b); see also id. § 9-80-240(a) (providing for impoundment of vehicles "operated by a person with a suspended or revoked driver's license"). The fines for violations of the City's Traffic Code range from $25 (e.g., parallel parking violation) to $500 (e.g., parking on a public street without displaying a wheel tax license emblem). Id. § 9-100-020(b)-(c). Failure to pay the fine within twenty-five days automatically doubles the penalty. Id. § 9-100-050(e). After a vehicle is impounded, the owner is further subjected to towing and storage fees, see id. § 9-64-250(c), and to the City's costs and attorney's fees for collection activity. Id. §§ 1-19-020, 2-14-132(c)(1)(A). To retrieve her vehicle, an owner may either pay the fines, towing and storage fees, and collection costs and fees in full, id. § 2-14-132(c)(1)(A), or pay the full amount via an installment plan over a period of up to thirty-six months, provided she makes an initial payment of half the fines and penalties plus all of the impoundment, towing, and storage charges. Id. § 9-100-101(a)(2)-(3).

         In 2016, the City amended the Code to include: "Any vehicle impounded by the City or its designee shall be subject to a possessory lien in favor of the City in the amount required to obtain release of the vehicle." Id. § 9-92-080(f). Based on this provision, the City began refusing to release impounded vehicles to debtors who had filed Chapter 13 petitions. That is just what occurred in these four cases.

         A. In re Fulton

         Debtor-appellee Robbin Fulton uses a vehicle to commute to work, transport her young daughter to day care, and care for her elderly parents on weekends. On December 24, 2017, three weeks after she purchased a 2015 Kia Soul, the City towed and impounded the vehicle for a prior citation of driving on a suspended license. Fulton filed a Chapter 13 bankruptcy petition on January 31, 2018 and filed a plan on February 5, treating the City as a general unsecured creditor. The City filed a general unsecured proof of claim on February 23 for $9, 391.20. After the court confirmed Fulton's plan on March 21, she requested the City turn over her vehicle. The City then amended its proof of claim to add impound fees, for a total of $11, 831.20, and to assert its status as a secured creditor; it did not return Fulton's vehicle.

         On May 2, Fulton filed a motion for sanctions arguing the City was required to turn over her vehicle pursuant to Thompson and that its failure to do so was sanctionable conduct. The City countered that Fulton must seek turnover through an adversary proceeding. It asserted it was retaining possession to perfect its possessory lien and was thus excepted from the automatic stay pursuant to 11 U.S.C. § 362(b)(3).

         On May 25, the bankruptcy court held that the City was required to return Fulton's vehicle under Thompson and that the City was not excepted from the stay under § 362(b)(3). The court ordered the City to turn over Fulton's vehicle no later than May 29, imposed a sanction of $100 for every day the City failed to comply, and sustained Fulton's objection to the City's claim as a secured creditor. The City moved to stay the order in the district court pending appeal; the district court denied the stay request on September 10. Eventually, the City returned Fulton's vehicle. At no point did the City initiate proceedings to protect its rights under § 363(e).

         B. In re Shannon

         The City impounded debtor-appellee Timothy Shannon's 1997 Buick Park Avenue on January 8, 2018 for unpaid parking tickets. Shannon filed a Chapter 13 petition on February 15. On February 27, the City filed an unsecured proof of claim for $3, 160 in fines dating back to 1999. Shannon, in turn, filed a proposed plan that did not include the City as a secured creditor, to which the City did not object, and the court confirmed the plan on May 1. When Shannon sought the return of his vehicle, the City amended its proof of claim, adding fines, storage, and towing fees for a total of $5, 600, and stated the claim was secured by its possession of Shannon's vehicle.

         Shannon filed a motion for sanctions on June 12, asserting the stay required the City to turn over his vehicle. The court granted his motion on September 7; it held the City's claim was unsecured because it did not object to the plan that characterized the debt as such. It also determined the City violated the stay by failing to return Shannon's vehicle, that the §§ 362(b)(3) and (b)(4) exceptions to the stay did not apply, and that the City further violated § 362(a)(4) and (a)(6) by retaining the vehicle. The court noted the City was free to file a motion seeking adequate protection of its lien. The City returned Shannon's car and did not file any such motion.

         C. In re Peake

         Debtor-appellee George Peake relies on his car to travel approximately forty-five miles from his home to work. The City impounded his 2007 Lincoln MKZ for unpaid fines on June 1, 2018. Peake filed a Chapter 13 petition on June 9. In response, the City filed a secured proof of claim for $5, 393.27 and asserted a possessory lien on his vehicle. After the City refused Peake's request to return his vehicle, he filed a motion for sanctions and for turnover. On August 15, the bankruptcy court granted the motion; it held that neither § 362(b)(3) nor (b)(4) applied, so the City's retention of Peake's vehicle violated the stay, and it ordered the City to release his vehicle immediately. The City filed a motion to stay the order pending appeal, which the court denied on August 22. The same day, Peake filed a motion for civil contempt based on the City's refusal to release his vehicle. The court granted the motion and entered an order requiring the City to pay monetary sanctions-$100 per day from August 17 through August 22 and $500 per day thereafter until the City returned his vehicle. The City filed an emergency motion for a stay pending appeal in our Court, which we denied. Finally, the City released Peake's vehicle. At no point did the City file a motion to protect its interest in the vehicle.

         D. In re Howard

         The City immobilized debtor-appellee Jason Howard's vehicle on August 9, 2017 and impounded it soon after. Howard filed a Chapter 13 petition on August 22. The City filed a secured proof of claim on August 23 for $17, 110.80. The court confirmed Howard's plan on October 16, which included a nonpriority unsecured debt of $13, 000 owed to the City for parking tickets. Though the Code did not impose an automatic stay when Howard filed his petition due to his prior dismissed bankruptcy petitions, see 11 U.S.C. ยง 362(c)(4)(A), the court granted Howard's motion to impose a stay when it confirmed his plan on October 16. The City did not object to ...


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