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Denby-Peterson v. Nu2u Auto World

United States District Court, D. New Jersey

November 1, 2018


          ELLEN M. MCDOWELL MCDOWELL LAW, PC Attorney for Appellant Joy Denby-Peterson

          DAVID A. SNYDER LAW OFFICE OF DAVID A. SNYDER Attorney for Appellees Nu2u Auto World and Pine Valley Motors


          NOEL L. HILLMAN, U.S.D.J.

         This appeal arises from the Bankruptcy Court's order denying Appellant Joy Denby-Peterson's (“Appellant” or “Denby-Peterson”) sanctions request, concerning an alleged violation of an automatic stay by Appellees Nu2u Auto World (“Nu2u”) and Pine Valley Motors (“PVM” and, collectively, “Appellees”). For the reasons expressed below, the decision of the Bankruptcy Court will be affirmed, and this appeal will be dismissed.


         This Court takes its brief recitation of facts from the briefs and notes any factual disputes where applicable. On July 21, 2016, Denby-Peterson purchased a 2008 Chevrolet Corvette (the “Vehicle”) from PVM. On the same day, Denby-Peterson entered into a Retail Installment Contract (the “Contract”) which required her to make certain down payments and installment payments. This was assigned to Nu2u.

         The contract required (1) an initial $3, 000 down payment, (2) installment payments of $200 per week for 212 weeks, and (3) a deferred $2, 491 down payment on or before August 11, 2016. Under the Contract, if Denby-Peterson did not make the deferred down payment, any excess payments would be applied to it. Denby-Peterson paid the initial down payment, did not pay the deferred down payment, and began to miss installment payments. Appellees did not apply her installment payments to the deferred down payments. Regardless, Nu2u (through a third-party) repossessed the Vehicle.[1] After the repossession of the Vehicle, Denby-Peterson lost work because she could not travel to the patients she treated as a licensed practical nurse.

         On March 21, 2017, Denby-Peterson filed the underlying Chapter 13 bankruptcy petition. Denby-Peterson, through her attorneys, notified Nu2u of the bankruptcy proceeding and demanded Nu2u return the vehicle to Denby-Peterson. Nu2u did not return the vehicle and Denby-Peterson filed a Motion for Turnover (the “Motion”) on March 24, 2017. The Motion included a request for sanctions for Nu2u's alleged violation of the automatic stay under 11 U.S.C. § 362(k).

         Nu2u resisted the Motion on April 3, 2017 by asserting that although Denby-Peterson had purchased the Vehicle she had surrendered all rights in the Vehicle when she signed a document on February 22, 2017 allegedly waiving her right to redeem the Vehicle (the “Waiver Document”). Nu2u alleged this document was signed when Denby-Peterson visited Nu2u to retrieve her personal property from the Vehicle after repossession.[2] Additionally, Nu2u filed a Proof of Claim, asserting a security interest in the Vehicle.

         On August 16 and 17, 2017, the United States Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”) held a plenary hearing on the Motion. Post-hearing memoranda were filed. On October 20, 2017, the Bankruptcy Court issued an Order and Opinion.

         Of relevance, the Opinion held that Denby-Peterson was the lawful owner of the Vehicle, the Waiver Document was invalid under New Jersey law, and Nu2u was not liable for sanctions for retaining possession of the Vehicle after the automatic stay was instituted. The contents of the hearing and the Bankruptcy Court Opinion and Order will be discussed in further detail infra where relevant.

         Denby-Peterson filed a timely notice of appeal on October 30, 2017. The issues presented infra were fully briefed by both parties. On May 4, 2018, the Bankruptcy Court dismissed the underlying bankruptcy case. On October 3, 2018, this Court issued an Order to Show Cause why this appeal was not mooted by the dismissal of the underlying case. Denby-Peterson timely responded to the Order to Show Cause on October 13, 2018. This appeal is ripe for adjudication.


         A. Subject Matter Jurisdiction

         This Court has jurisdiction over the appeal from the Bankruptcy Court's October 20, 2017 order pursuant to 28 U.S.C. § 158(a), which provides in relevant part: “The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders and decrees . . . of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title. An appeal under this subsection shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving.”

         B. Mootness

         This Court, sua sponte, ordered Appellant to show cause why this appeal was not mooted by the May 4, 2018 dismissal of the underlying bankruptcy case. Appellant responded to this Order to Show Cause within the allotted time. This Court is satisfied with Appellant's response that this matter is not moot.

         In coming to this conclusion, this Court considered the following. “In the bankruptcy context, the determination of whether a case becomes moot on the dismissal of the bankruptcy hinges on the question of how closely the issue in the case is connected to the underlying bankruptcy.” Tellewoyan v. Wells Fargo Home Mortg., No. 05-4653 (FLW), 2006 U.S. Dist. LEXIS 55558, at *3 (D.N.J. Aug. 10, 2006) (quoting In re Pattullo, 271 F.3d 898, 901 (9th Cir. 2001)). The appeal concerns issues related to an alleged violation of the automatic stay. This question is an ancillary issue not closely intertwined with the underlying bankruptcy.

         Circuit law agrees with this assessment. In cases where damages under 11 U.S.C. § 362(k) are at issue and the bankruptcy has been dismissed, the § 362(k) controversy generally survives. Javens v. City of Hazel Park (In re Javens), 107 F.3d 359, 364 n.2 (6th Cir. 1997). See also Lawson v. Tilem (In re Lawson), 156 Bankr. 43, 45 (B.A.P. 9th Cir. 1993); In re Carraher, 971 F.2d 327, 328 (9th Cir. 1992); In re Morris, 950 F.2d 1531, 1534 (11th Cir. 1992); Price v. Rochford, 947 F.2d 829, 830-31 (7th Cir. 1991); In re Smith, 866 F.2d 576, 580 (3d Cir. 1989). As Appellant points out, “[a] Court must have the power to compensate victims of violations of the automatic stay and punish the violators, even after the conclusion of the underlying bankruptcy case.” Johnson v. Smith (In re Johnson), 575 F.3d 1079, 1083 (10th Cir. 2009) (citing Davis v. Courington (In re Davis), 177 B.R. 907, 911 (B.A.P. 9th Cir. 1995)). This Court finds this appeal is not moot and will decide it on the merits.

         C. Standard of Review

         In reviewing a determination of the bankruptcy court, the district courts “review the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof.” Reconstituted Comm. of Unsecured Creditors of the United Healthcare Sys., Inc. v. State of N.J. Dep't of Labor (In re United Healthcare Sys.), 396 F.3d 247, 249 (3d Cir. 2005) (quoting Interface Grp.-Nev. v. TWA (In re TWA), 145 F.3d 124, 130-31 (3d Cir. 1998)).

         D. Analysis

         The central question presented by this appeal is what path this Court will take in the face of a split between the Circuit Courts - and no Third Circuit case law explicitly deciding the split - over the imposition of sanctions in cases of pre-petition repossession of vehicles. Surrounding this central legal question are a number of other legal and factual arguments ...

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