Kenneth Williford v. Charlotte Williford

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
September 24, 2008
No. 08-10172 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket Nos. 07-00105-CV-W-E & 03-81486-WRS
IN RE:
CHARLOTTE TERESA WILLIFORD
a.k.a Charlotte Teresa Dawkin-Williford,
KENNETH WILLIFORD,
Debtors.
__________________________________________________
KENNETH WILLIFORD,
Plaintiff-Appellant,
versus
CHARLOTTE WILLIFORD,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Alabama
_________________________
(September 24, 2008)
Before MARCUS, WILSON and FAY, Circuit Judges.
PER CURIAM:
Kenneth Williford, proceeding pro se, appeals the district court’s affirmance
of the bankruptcy court’s order (1) annulling the automatic stay imposed when
Kenneth and Charlotte Williford (jointly, “the Willifords”) petitioned for
bankruptcy, pursuant to 11 U.S.C. § 326(a)(8); and (2) thereby giving retroactive
effect to the divorce decree entered against Kenneth in violation of that automatic
stay. For the reasons set forth below, we affirm.
I.
The Willifords filed a joint voluntary petition for bankruptcy, under Chapter
11, on October 3, 2003. The bankruptcy court confirmed a Chapter 11
Reorganization Plan on January 30, 2006. Kenneth, however, filed a motion to
vacate confirmation of the Chapter 11 Reorganization Plan on the grounds of fraud
on the bankruptcy court.
Specifically, Kenneth explained that, in April 2003, Charlotte filed for
divorce. In October 2003, while the divorce was pending, the Willifords jointly
petitioned for bankruptcy. The bankruptcy petition operated as a stay on other
proceedings, pursuant to 11 U.S.C. § 362(a)(8). However, on October 31, 2003,
two weeks after the Willifords jointly filed for bankruptcy, the circuit court entered
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a decree of divorce and division of marital property, awarding 100% of the
Willifords’ marital property to Charlotte. Both the state appellate court and state
Supreme Court affirmed the divorce decree. See Williford v. Williford, 945 So.2d
494 (Ala. Civ. App. 2005); Ex parte Williford, 946 So.2d 545 (Ala. 2005). The
Willifords’ joint bankruptcy attorneys knowingly chose not to inform the
bankruptcy court of the divorce proceedings or decree.
Kenneth argued that, because the automatic stay was in effect, the divorce
decree and division of marital property was void. Because the Willifords’
attorneys failed to inform the bankruptcy court of the divorce proceedings and the
division of marital property that occurred in violation of the automatic stay, the
Willifords’ attorneys committed fraud on the bankruptcy court.
The bankruptcy court heard arguments on the motion at a status conference,
at which Kenneth appeared telephonically. Kenneth clarified that he did not wish
the bankruptcy court to vacate the Chapter 11 Reorganization Plan, but rather to
vacate the divorce decree.
The bankruptcy court explained that it could: (1) annul the automatic stay
and validate the divorce decree, pursuant to 11 U.S.C. § 362(d)(1); (2) declare the
divorce decree void for violating the automatic stay and remand the case to the
circuit court to re-divide the marital property; or (3) declare the divorce decree
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void for violating the automatic stay and re-divide the marital property itself.
Kenneth argued that the bankruptcy court should void the divorce decree and
divide the marital property itself. Kenneth asserted that the divorce decree was
void, because the circuit court entered it in violation of the bankruptcy automatic
stay, and unfair, because it gave Charlotte 100% “of everything.” Charlotte argued
that the bankruptcy court should annul the automatic stay and validate the divorce
decree.
The bankruptcy court explained that it was reluctant to re-divide the marital
property itself, as it never had “undo[ne]” a divorce case in this manner and was
not sure of the extent of his power to do so. It also was wary of giving Kenneth the
“redo” in federal court that he apparently sought. To this end, the bankruptcy court
noted that Kenneth knew of the automatic stay and nonetheless appealed the
divorce decree in state court and did not seek federal relief until the state appellate
courts did not reach the result he desired.
The bankruptcy court ultimately denied Kenneth’s motion to vacate and
annulled the automatic stay to validate the divorce decree entered by the circuit
court. The bankruptcy court acknowledged that the divorce proceedings and the
divorce decree violated the automatic stay, such that the divorce decree was void.
The bankruptcy court also acknowledged, however, that it had the discretion to
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annul the automatic stay and, thereby, give retroactive effect to the divorce decree.
The bankruptcy court determined that this was the best course of action. It
reasoned that Kenneth voluntarily proceeded with the divorce proceedings
knowing that they violated the automatic stay and giving him a federal court “do
over” would violate the principle of comity and waste judicial resources. Also,
“[t]he overriding interest of the bankruptcy courts in such proceedings [was] to
protect the interests of creditors who could be harmed by collusive or fraudulent
activities in connection with the division of marital property,” and this interest was
not implicated by the instant, legitimate divorce proceedings and no creditors were
harmed.1
Kenneth filed a motion for reconsideration, arguing that the bankruptcy
court lacked good cause to validate the divorce decree because it was not fair and
equitable. The bankruptcy court heard arguments on the motion at a hearing, at
which Kenneth appeared telephonically and reiterated his arguments on the
fairness of the divorce decree. The bankruptcy court denied without opinion the
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The bankruptcy court acknowledged that Kenneth was not interested in vacating the
Chapter 11 Reorganization Plan, but nonetheless reasoned that the plan should not be revoked in
any event because the parties had not committed fraud on the court by making a false statement
regarding the divorce proceedings. Specifically, the bankruptcy court noted that, on June 29,
2005, seven months before the Chapter 11 Reorganization Plan was confirmed, the Willifords
filed an Amended Disclosure Statement with the bankruptcy court notifying it that Charlotte had
petitioned for divorce and that the circuit court had entered a divorce decree awarding Charlotte
100% of the estate.
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motion for reconsideration.
Kenneth appealed the bankruptcy court’s order to the district court. A
magistrate judge recommended affirming the order of the bankruptcy court. The
magistrate noted that the divorce decree was void for violating the automatic stay,
but concluded that the bankruptcy court did not abuse its discretion in annulling the
automatic stay.
The magistrate reasoned that the automatic stay was designed to protect the
debtor from the pressure of financial collection activities and any creditors from
the potential premature disbursement of the debtor’s estate. The instant annulment
did not disserve either of these purposes. The divorce petition was filed before the
bankruptcy petition, and Kenneth voluntarily appealed the divorce decree, such
that the offending proceeding was under way well before the automatic stay and
any work that Kenneth did in connection with this proceeding was voluntary.
Also, the divorce decree did not harm any creditors because it gave all of the
marital property to Charlotte, who was liable to the creditors.
The district court conducted a de novo review and adopted and affirmed the
magistrate’s recommendation over Kenneth’s objections.
II.
We review the bankruptcy court’s decision to annul an automatic stay for an
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abuse of discretion. In re Dixie Broadcasting, Inc., 871 F.2d 1023, 1026 (11th Cir.
1989). Pursuant to § 362(a)(8), an automatic stay on most proceedings goes into
effect upon commencement of a bankruptcy proceeding. The automatic stay
remains in effect until, inter alia, the earliest of the close or dismissal of the
bankruptcy case. 11 U.S.C. § 362(c)(2).
The automatic stay serves a dual purpose: (1) relieving the debtor from
added financial pressure during the pendency of bankruptcy proceedings, and
(2) protecting creditors by preventing the premature disbursement of the
bankruptcy debtor’s estate. Carver v. Carver, 954 F.2d 1573, 1576 (11th Cir.
1992). Regarding the latter purpose, we have explained that, “[w]ithout [an
automatic stay], certain creditors would be able to pursue their own remedies
against the debtor’s property” and that “[t]hose [creditors] who acted first would
obtain payment of the claims in preference to and to the detriment of other
creditors.” Id.“Actions taken in violation of the automatic stay are void and without
effect.” United States v. White, 466 F.3d 1241, 1244 (11th Cir. 2006). Pursuant to
§ 362(d)(1), however, on the request of an interested party and after notice and a
hearing, the bankruptcy court may annul the automatic stay “for cause.” An
annulment operates retroactively to validate actions taken after the petition for
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bankruptcy was filed. In re Albany Partners, Ltd., 749 F.2d 670, 675 (11th Cir.
1984).
Generally, we have advised that, “limited to its proper role, the bankruptcy
court will not duplicate the functions of state domestic relations courts, and its
rulings will impinge on state domestic relations issues in the most limited manner
possible.” In re Harrell, 754 F.2d 902, 907 (11th Cir. 1985) (regarding a Chapter 7
debtor’s argument that the bankruptcy court erred in holding that his obligation to
pay accrued alimony arrearages and postmajority child support and educational
expenses was not dischargeable).
III.
The bankruptcy court did not abuse its discretion in annulling the automatic
stay and, thereby, validating the divorce decree. See In re Dixie Broadcasting, Inc.,
871 F.2d at 1026. It is undisputed that the divorce decree violated the automatic
stay and was, therefore, void absent the annulment. See White, 466 F.3d at 1244.
The bankruptcy court, however, reasonably exercised its discretion to grant an
annulment for cause. See 11 U.S.C. § 362(d)(1).
When the true purpose of Kenneth’s motion to vacate confirmation of the
Chapter 11 Reorganization Plan became evident and Charlotte requested an
annulment of the automatic stay, the bankruptcy court heard Kenneth’s arguments
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in opposition of this course of action. See 11 U.S.C. § 362(d)(1) (requiring that a
party request the annulment and that the bankruptcy court hold a hearing on the
matter). The bankruptcy court acknowledged its full array of options. The
bankruptcy court ultimately granted Charlotte’s request, however, on the grounds
that the instant situation did not disserve the dual purposes of the automatic stay
and that the bankruptcy court was hesitant to interfere with the circuit court’s
jurisdiction over family affairs. See Carver, 954 F.2d at 1576; In re Harrell, 754
F.2d at 907.
To this end, the record supports the bankruptcy court’s decision. The record
demonstrates that the divorce petition was filed long before the bankruptcy petition
and that Kenneth knew of the divorce petition when he agreed to file for
bankruptcy, such that the divorce decree was not the product of the sort of added
financial stressor that the automatic stay provision contemplated. See Carver, 954
F.2d at 1576. The record also demonstrates that the Willifords’ creditors were not
harmed by the invalid proceeding in the manner contemplated by the automatic
stay proceeding, as (1) the divorce appears to be legitimate, rather than a sham to
shield the marital property in question from Kenneth’s creditors, and (2) the
Willifords’ creditors would be able to pursue remedies against the marital property
awarded to Charlotte. Because the bankruptcy court held a hearing, considered all
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of its options, and chose a course of action that comported with the purposes of the
automatic stay, it did not abuse its discretion in annulling the automatic stay. See
In re Dixie Broadcasting, Inc., 871 F.2d at 1026.
The fact that the divorce decree itself was inequitable in Kenneth’s view
does not alter our conclusion, as it was not unreasonable for the bankruptcy court
to decline to interfere with the circuit court’s division of marital property and as
two appellate courts, including the state Supreme Court, already had affirmed this
division. See In re Harrell, 754 F.2d at 907; Williford, 945 So.2d 494; Ex parte
Williford, 946 So.2d 545.
Likewise, the fact that Kenneth appeared telephonically and without counsel
does not alter this conclusion, as the bankruptcy court afforded Kenneth ample
opportunity to voice his arguments, both at an initial hearing and at a hearing on
Kenneth’s motion to reconsider. Accordingly, we affirm.
AFFIRMED.
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