“Constructive Notice”  The  Newsletter

The Unlocked Gate & the Automatic Stay

Debtor owned riverfront property that benefitted from an access and utility Easement over Neighbor’s land. The parties had a long-simmering disagreement over the scope of the Easement. Independent of the disagreement, Debtor filed for Chapter 11 protection. Neighbor then constructed a barrier across the Easement, which first consisted of a rope and chain and was later replaced with a "16' farm gate" across the Easement. The gate was unlocked and Neighbor believed state law permitted its construction. Debtor-in-Possession alleged the erection of these barriers "effectively destroyed" its ability to market the property.

The Bankruptcy Court determined the easement is property of the estate and the construction and maintenance of the gate or any other barrier on the easement represents an attempt by Neighbor to "exercise control over property of the estate," in violation of 11 U.S.C. § 362(a)(3).

The Court reasoned first, the gate creates a visual barrier, the presence of which signals a restraint on access to the easement. Further, the gate imposes a physical barrier to entry. Unlike a gateless right of way, the gate is large, traverses the Easement, and is enclosed by wooden fencing on both sides.  It must be unchained and manually opened and closed by anyone attempting to access the Easement. The Court found that collectively, the gate's features significantly curtail access to the property. Although unlocked, its presence on the Easement nevertheless imposes a barrier to entry and restrains access to the Easement, thereby exerting control over estate property in violation of the automatic stay.

Even assuming state law permits a gate over the easement, because its erection violates the automatic stay, the Court has the authority to enjoin its maintenance during the course of this case. In ReColonial Penniman, LLC, Case No.16-50394-FJS, No. APN 17-05003-FJS (Bankr. Ct, E.D. VA, August 18, 2017).

Comment:

Another issue in this case concerned Neighbor’s right to verbally express his opinion of the scope of the easement to others. He admitted to advising prospective purchasers that “the lot owner could use the easement, but not guests” and that the Debtor's workmen or invitees were also not permitted to use the easement. The Debtor sought an injunction prohibiting Neighbor from communicating this to prospective purchasers because it had already “waylaid prospective purchasers, resulting in the withdrawal of purchase offers.”

Despite its broad interpretation of §362(a)(3), the Court declined to enjoin Neighbor from ”communicating in any manner with prospective purchasers or business invitees of the Debtor” because, inter alia, “[r]egardless of method, communicating one's interpretation of the scope of an easement is not an act that violates 11 U.S.C. §§ 362(a)(1)-(8).” The Court offered no direct authority in support of this statement. In addition, it seems to contradict the holding regarding the gate.