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City National Violates the Automatic Stay
In bankruptcy law, an automatic stay is an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy. Under section 362 of the United States Bankruptcy Code, 11 U.S.C. § 362, the stay begins at the moment the bankruptcy petition is filed. A filed bankruptcy petition immediately operates as an automatic stay, holding in abeyance various forms of creditor action against the debtor.
In other words, as soon as I filed my bankruptcy petition City National was supposed to stop taking -
Automatic stay provisions work to protect the debtor against certain actions from the creditor, including:actions to obtain debtor's property.
City National nevertheless continued taking my property (my trust income) even after they had notice of my petition.
The bankruptcy court issued and served an order dated September 17, 1996, ORDER GRANTING MOTION FOR ORDER RE: CIVIL CONTEMPT, granting my motion for an Order to Show Cause re Civil Contempt, and ordering City National's trust officer "to show cause why she should not be held in civil contempt for the alleged violation of the automatic stay".
City National presented arguments attempting to justify its continued violation of the Automatic Stay, relying on the case, Citizens Bank of Maryland v. Strumpf (1995) 116 S. Ct. 286, arguing as follows:
". . . . Strumpf addresses the very issue in this case, the 'banker's dilemma', which forces a banker to choose between freezing an account and possibly violating the automatic stay, or not doing so and risking allowing the funds which constitute the amount due from the debtor to be withdrawn, never to be seen again. Despite the Debtor's argument to the contrary, although the Bank is not, in a strict sense, a traditional bank as in In Re Strumpf nevertheless it is submitted that there is no real distinction between the Bank here and the bank in Strumpf. Nor should it make any difference. The reasoning in Strumpf should apply to any situation in which a creditor holds cash funds which can be utilized to offset a Debtor's obligation to that creditor. In this case, the Bank holds all cash funds which come into the Trust and is not obligated to make any funds available to the Beneficiaries until all Trust expenses are paid. (Rae Decl.), thus, in any sense it is like the Bank in Strumpf, holding cash subject to its claim." (City National's Trial Brief at 37-
My argument against this was the following:
"However, City National has missed the whole point of Strumpf. The bank in Strumpf-
'" . . . the Court held in In re Strumpf that the bank's mere failure to perform its promise to pay by freezing debtor's account 'was neither a taking of possession of respondent's property nor an exercising of control over it, but merely a refusal to perform its promise.'" (Shulman, The Strumpf Case: Implications for Banks, Governmental Units, and Other Creditors, 113 Banking Law J., 382-
"To the extent, as is likely, that a debtor's bank account is held to be property of the estate,the imposition of a temporary administrative freeze, even if not a prohibited setoff, still could be construed to be an action to exercise control over property of the estate, which would be a violation of the automatic stay." (Shulman, The Strumpf Case at 384). "Precisely because a bank account is 'nothing more or less than a promise to pay from the bank to the depositor,' not actual property being held by the bank on behalf of the debtor depositor, the Court held that a bank's imposition of a temporary freeze on an account is 'merely a refusal to perform its promise' and hence was not an attempt to take possession of or exercise control over property of the debtor that would be otherwise prohibited by the automatic stay of Section 363." (Shulman, The Strumpf Case: at 384-
"The logic of In re Strumpf is that mere failure to pay debts owed to a debtor does not constitute a violation of the automatic stay. As the Court held, a temporary refusal to pay is 'merely a refusal to perform its promise' by the bank, and hence was not an attempt to exercise control over property of the debtor otherwise prohibited by the automatic stay of Section 363."
(Shulman, The Strumpf Case: at 386).
In the instant case City National did not "freeze" debtor's property or property interest. City National's use of "freezing" language-
"froze" that bank account-
I also argued the following based on City National's role as trustee:
". . . the mechanical application of bankruptcy law principles to trusts -
City National, as trustee, has no rights whatsoever except as defined by its mission as trustee. The rights of a trustee depend completely on the obligations that the trustee has to fulfill.
' ... the rights of the trustee have their foundation in his obligations: they are tools given to him in order to achieve the work assigned to him. The trustee gets all the tools necessary for such end, but only those, ... ' (An Outsider's View Point at 61).
Nothing in the declaration of trust permits City National to "freeze" the beneficiary's trust income. It is, therefore, impossible for City National as trustee -