In re: Shawne Merriman ( 2020 )

FILED
JUL 13 2020
ORDERED PUBLISHED
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-19-1245-LTaF
SHAWNE MERRIMAN,
Debtor. Bk. No. 2:18-bk-23173-VZ
SHAWNE MERRIMAN,
Appellant,
v. OPINION
FERDINAND FATTORINI; DEANN
FATTORINI,
Appellees.
Appeal from the United States Bankruptcy Court
for the Central District of California
Honorable Vincent Zurzolo, Bankruptcy Judge, Presiding
APPEARANCES:
Raymond H. Aver of Law Offices of Raymond H. Aver argued for
appellant; Torsten M. Bassell of LARI-JONI & BASSELL, LLP argued for
appellees.
Before: LAFFERTY, TAYLOR, and FARIS, Bankruptcy Judges.
LAFFERTY, Bankruptcy Judge:
INTRODUCTION
Chapter 131 debtor Shawne Merriman appeals the bankruptcy court’s
order retroactively annulling the automatic stay to permit appellees
Ferdinand and Deann Fattorini to proceed with a state court wrongful
death action against him and others. Post-petition, and shortly before the
statute of limitations was set to run on the wrongful death claim, the
Fattorinis filed their state court complaint without knowledge of the
bankruptcy case. Upon being notified of the case, they promptly moved to
annul the stay to validate the filing of the state court complaint and to
liquidate their claim against Mr. Merriman. The bankruptcy court found
cause retroactively to lift the stay and granted the motion.
We AFFIRM. We publish to address the impact, if any, of Roman
Catholic Archdiocese of San Juan, Puerto Rico v. Acevedo Feliciano, 140 S. Ct. 696
(2020) (per curiam), which was decided during the pendency of this appeal,
on the issues raised therein.
FACTUAL BACKGROUND
Mr. Merriman filed a chapter 13 petition in November 2018. Notice of
the case was not served on the Fattorinis.
In July 2019, several months after Mr. Merriman’s bankruptcy filing,
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, and “Rule” references are to the Federal Rules
of Bankruptcy Procedure.
2
the Fattorinis filed a lawsuit against Mr. Merriman and others in Los
Angeles County Superior Court seeking damages under state law in
connection with the July 2017 death of their daughter Kimberly (“State
Court Action”). A few days later, after learning of Mr. Merriman’s
bankruptcy through his counsel, they filed a motion for relief from stay
(the “Stay Motion”).2 They asked the court to annul the stay to permit them
to continue litigating the State Court Action, which was set for trial in
January 2021. The motion was supported by the form declaration
prescribed by the Local Rules for the Central District of California and a
supplemental declaration of the Fattorinis’ counsel, to which was attached
a copy of the state court complaint and other documents. In the
supplemental declaration, counsel testified that he had researched
Mr. Merriman but did not discover that he had filed a bankruptcy petition.
Counsel also testified that the State Court Action was filed in July 2019
because the applicable limitations period was about to expire.
Mr. Merriman filed an opposition, arguing that the Stay Motion was
not supported by sufficient evidence and did not demonstrate that “cause”
existed to lift the stay pursuant to § 362(d)(1) in light of the relevant factors.
He also argued that the request for retroactive annulment lacked factual or
legal grounds other than “suspicious and objectionable statements” in
counsel’s declaration regarding lack of notice of the bankruptcy filing.
2
The Fattorinis also filed a proof of claim on July 30, 2019.
3
In addition, Mr. Merriman objected to statements contained in
counsel’s supplemental declaration in support of the Stay Motion. Those
statements pertained to the circumstances of Kimberly’s death and
included information obtained through the Los Angeles County Sheriff’s
investigation and information about Mr. Merriman discovered through
internet searches. He argued that the declaration testimony lacked
foundation, was not based on personal knowledge, was hearsay, and
constituted improper opinion testimony.
At the hearing on the Stay Motion, the court sustained several of
Mr. Merriman’s evidentiary objections, but it nevertheless found that cause
existed to annul the stay. The court found that the Fattorinis did not have
notice of the bankruptcy case before they filed the State Court Action.
Additionally, it found that the issues in the State Court Action needed to be
litigated and that it made sense to have those issues tried in one place.
Accordingly, the court ruled that it would lift the stay retroactively to
permit the Fattorinis to liquidate their damages in state court and
potentially obtain findings and conclusions from the state court that could
be applied preclusively in a nondischargeability proceeding.
The bankruptcy court’s order granted retroactive relief from stay and
provided that if the Fattorinis were to obtain a final judgment against
Mr. Merriman in the State Court Action, they would be stayed from
enforcing the judgment without a further order of the bankruptcy court.
4
The court also ordered that if a final judgment were obtained in the State
Court Action, the Fattorinis could file it “as a liquidated claim in Debtor’s
bankruptcy action and commence an adversary proceeding to determine
whether any such judgment is enforceable or dischargeable.”
Mr. Merriman timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(G). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court abused its discretion in retroactively
annulling the automatic stay.
STANDARD OF REVIEW
A bankruptcy court’s decision retroactively to annul the automatic
stay is reviewed for an abuse of discretion. Gasprom, Inc. v. Fateh (In re
Gasprom, Inc.), 500 B.R. 598, 604 (9th Cir. BAP 2013) (citing Nat’l Envtl.
Waste Corp. v. City of Riverside (In re Nat’l Envtl. Waste Corp.), 129 F.3d 1052,
1054 (9th Cir. 1997); additional citation omitted). A bankruptcy court
abuses its discretion if its decision is based on the wrong legal standard or
its findings of fact were illogical, implausible, or without support in the
record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011)
(citing United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en
banc)).
5
We may affirm on any basis supported by the record. Caviata Attached
Homes, LLC v. U.S. Bank, Nat’l Ass’n (In re Caviata Attached Homes, LLC), 481
B.R. 34, 44 (9th Cir. BAP 2012).
DISCUSSION
Section 362(d)(1) provides that the bankruptcy court, on request of a
party in interest and after notice and a hearing, must grant relief from the
automatic stay, “such as by terminating, annulling, modifying, or
conditioning” the stay, upon a showing of “cause.”
“What constitutes ‘cause’ for granting relief from the automatic stay
is decided on a case-by-case basis.” Kronemyer v. Am. Contractors Indem. Co.
(In re Kronemyer), 405 B.R. 915, 921 (9th Cir. BAP 2009) (citing Christensen v.
Tucson Estates, Inc. (In re Tucson Estates, Inc.), 912 F.2d 1162, 1166 (9th Cir.
1990); additional citation omitted). In assessing whether relief from stay
should be granted to allow state court proceedings to continue in that
forum, the bankruptcy court should consider judicial economy, the
expertise of the state court, prejudice to the parties, and whether
exclusively bankruptcy issues are involved. Id.
In determining whether retroactive annulment of the stay is
appropriate, courts have focused on two main factors: “(1) whether the
creditor was aware of the bankruptcy petition; and (2) whether the debtor
engaged in unreasonable or inequitable conduct, or prejudice would result
to the creditor.” In re Nat’l Envtl. Waste Corp., 129 F.3d at 1055.
6
The bankruptcy court’s findings are sparse, but the record supports
its ruling. The State Court Action involves exclusively state law claims, and
Mr. Merriman has pointed to no prejudice to him resulting from permitting
the State Court Action to proceed, other than that he lacks insurance that
could fund his defense, and Mr. Merriman would face the same problem if
the case were litigated in bankruptcy court. Mr. Merriman is one of six
defendants in the State Court Action so the case would have to be tried in
state court, with or without Mr. Merriman; judicial economy dictates that
the matter be tried in one forum.3 Of course, if the Fattorinis prevail in the
State Court Action, they will need to return to the bankruptcy court to
litigate nondischargeability, but such a proceeding would likely be
relatively simple if the state court makes findings that may be applied
preclusively.
As for retroactive relief, the bankruptcy court found that the
Fattorinis lacked notice of the bankruptcy filing, and the record shows that
if they were not granted such relief, their wrongful death claim may be
time-barred.4
3
Although not raised by any party, personal injury tort and wrongful death
claims are non-core proceedings, see 28 U.S.C. §§ 157(b)(2)(B) and (O), and such claims
are to be tried in the district court in which the bankruptcy case is pending, see 28 U.S.C.
§ 157(b)(5).
4
We note, however, that California Code of Civil Procedure § 356 provides that
“[w]hen the commencement of an action is stayed by injunction or statutory
(continued...)
7
Mr. Merriman contends that the bankruptcy court abused its
discretion in annulling the stay because: (1) the Stay Motion was not
supported by sufficient evidence; (2) the court did not apply correct
standards in determining that cause existed to lift the stay and that
retroactive annulment was appropriate; and (3) the facts weighed against
granting the requested relief. We disagree.
A. The Stay Motion was supported by sufficient evidence.
As noted, the bankruptcy court sustained many of Mr. Merriman’s
evidentiary objections to the supplemental declaration filed with the Stay
Motion. He contends that the remaining evidence was insufficient to
support a finding of cause under § 362(d)(1). He argues that the
“unverified complaint” attached to the declaration should be deemed
without evidentiary effect, citing Esteem v. City of Pasadena, No.
CV 04-662-GHK, 2007 WL 4270360, at *3 (C.D. Cal. Sept. 11, 2007) (citing
Moron v. Selig, 447 F.3d 748, 759 & n.16 (9th Cir. 2006)). Those cases
involved litigants attempting to use unverified complaints in summary
judgment proceedings to prove the matters asserted therein. Here, the
complaint was submitted only to describe the nature of the state court
litigation, not to prove the truth of its allegations. It was thus properly
4
(...continued)
prohibition, the time of the continuance of the injunction or prohibition is not part of the
time limited for the commencement of the action.” No party cited this statute or its
potential impact on the analysis of whether retroactive relief was warranted.
8
considered by the court.
Mr. Merriman also asserts that many of counsel’s statements in the
supplemental declaration were not based on personal knowledge. But the
bankruptcy court excluded much of the supplemental declaration, and Mr.
Merriman does not indicate which portions of the remainder he finds
objectionable. Thus he has not shown that the bankruptcy court relied on
any inadmissible evidence, and the non-excluded evidence attached to the
Stay Motion supports its findings (i.e., the fact that counsel did not learn of
the bankruptcy until after filing the State Court Action, and the procedural
posture and nature of the claims being asserted in that action).
B. The bankruptcy court applied the correct legal standards.
Mr. Merriman argues that the bankruptcy court erred in finding
cause for granting relief from stay by failing to make findings as to the
“Curtis factors,” which were cited by this Panel in Kronemyer. Those factors
were initially articulated in In re Curtis, 40 B.R. 795, 799-800 (Bankr. D. Utah
1984), and were adopted by the bankruptcy court in Truebro, Inc. v.
Plumberex Specialty Prods., Inc. (In re Plumberex Specialty Prods., Inc.), 311
B.R. 551, 559–60 (Bankr. C.D. Cal. 2004).5
5
Those factors are:
(1) Whether the relief will result in a partial or complete resolution of the
issues[;]
(continued...)
9
In Kronemyer, the Panel articulated the factors to be considered in
5
(...continued)
(2) The lack of any connection with or interference with the bankruptcy
case[;]
(3) Whether the foreign proceeding involves the debtor as a fiduciary[;]
(4) Whether a specialized tribunal has been established to hear the
particular cause of action and that tribunal has the expertise to hear such
cases[;]
(5) Whether the debtor’s insurance carrier has assumed full financial
responsibility for defending the litigation[;]
(6) Whether the action essentially involves third parties, and the debtor
functions only as a bailee or conduit for the goods or proceeds in
question[;]
(7) Whether litigation in another forum would prejudice the interests of
other creditors, the creditors' committee and other interested parties[;]
(8) Whether the judgment claim arising from the foreign action is subject
to equitable subordination under Section 510(c)[;]
(9) Whether movant’s success in the foreign proceeding would result in a
judicial lien avoidable by the debtor under Section 522(f)[;]
(10) The interest of judicial economy and the expeditious and economical
determination of litigation for the parties[;]
(11) Whether the foreign proceedings have progressed to the point where
the parties are prepared for trial[; and]
(12) The impact of the stay on the parties and the “balance of hurt.”
In re Curtis, 40 B.R. at 799–800 (citations omitted).
10
lifting the stay to permit state court litigation to proceed as set forth
above–judicial economy, the expertise of the state court, prejudice to the
parties, and whether exclusively bankruptcy issues are involved. 405 B.R.
at 921. The Panel noted that the bankruptcy court had appropriately
considered the Curtis factors in deciding to grant relief from stay to allow
pending litigation to continue in another forum. Id. But the Panel did not
hold that express consideration of each of the Curtis factors was required.
In fact, it based its affirmance of the bankruptcy court’s order primarily on
grounds that judicial economy weighed in favor of stay relief. See id. at 921-
22.
In a similar vein, Mr. Merriman contends that the bankruptcy court
erred in not properly applying the factors in the balancing of the equities
test for retroactive annulment of the stay set forth in Fjeldsted v. Lien (In re
Fjeldsted), 293 B.R. 12, 24-25 (9th Cir. BAP 2003).6 In Fjeldsted, although the
6
Application of that test involves consideration of the following factors:
1. Number of filings;
2. Whether, in a repeat filing case, the circumstances indicate an intention
to delay and hinder creditors;
3. A weighing of the extent of prejudice to creditors or third parties if the
stay relief is not made retroactive, including whether harm exists to a bona
fide purchaser;
4. The Debtor’s overall good faith (totality of circumstances test);
(continued...)
11
Panel held that the bankruptcy court must consider the equities in
determining whether retroactive relief is appropriate and articulated
factors that may be considered in that determination, it also noted that “a
mechanistic application of factors is inappropriate in making this
determination, [but] such factors may be considered as an aid to the court
in weighing the equities.” 293 B.R. at 24.
In summary, the bankruptcy court was not required to make findings
6
(...continued)
5. Whether creditors knew of stay but nonetheless took action, thus
compounding the problem;
6. Whether the debtor has complied, and is otherwise complying, with the
Bankruptcy Code and Rules;
7. The relative ease of restoring parties to the status quo ante;
8. The costs of annulment to debtors and creditors;
9. How quickly creditors moved for annulment, or how quickly debtors
moved to set aside the sale or violative conduct;
10. Whether, after learning of the bankruptcy, creditors proceeded to take
steps in continued violation of the stay, or whether they moved
expeditiously to gain relief;
11. Whether annulment of the stay will cause irreparable injury to the
debtor;
12. Whether stay relief will promote judicial economy or other efficiencies.
In re Fjeldsted, 293 B.R. at 25 (citation omitted).
12
as to each suggested factor when determining whether cause existed for
granting relief from stay or whether the equities weighed in favor of
retroactive annulment. Mr. Merriman has not shown that the bankruptcy
court failed to apply the correct legal standards for both findings as set
forth in Kronemyer and National Environmental Waste.
C. The bankruptcy court did not err in finding cause for relief from
stay.
Mr. Merriman contends that the Fattorinis failed to demonstrate
cause to grant relief from stay. He reaches this conclusion based on his
analysis of the Curtis factors, which he submits weigh against a finding of
cause. Specifically, he argues that (1) the State Court Action had only
recently been filed, (2) he has no insurance policy that could fund his
defense of the State Court Action and he is financially unable to defend it,
(3) the Fattorinis presented no evidence regarding their chances of success
in the State Court Action, (4) he would be prejudiced by the continuance of
the State Court Action, and (5) the deadline for filing a complaint to
determine nondischargeability has expired.
As discussed, the bankruptcy court was not required expressly to
analyze each of the Curtis factors in reaching its conclusions. In any event,
there is no requirement that the moving party show it would be likely to
prevail in the state court litigation. And Mr. Merriman is wrong that the
Fattorinis are time-barred from filing a nondischargeability complaint. The
13
deadline for filing a nondischargeability complaint under § 523(a)(2), (4), or
(6) expired on February 11, 2019, but that deadline does not apply to the
Fattorinis because they lacked notice of the bankruptcy filing in time to file
a timely complaint. See 11 U.S.C. § 523(a)(3)(B) (a debt is not discharged if it
is not listed or scheduled in time for the creditor to file a timely proof of
claim and request for determination of nondischargeability under
§ 523(a)(2), (4), or (6), unless the creditor had notice or actual knowledge);
Rule 4007(b) (“A complaint other than under § 523(c) may be filed at any
time.”). And the bankruptcy court’s order explicitly provides that if the
Fattorinis prevail in state court, they may return to the bankruptcy court
for a determination of nondischargeability.7
As discussed, the relevant factors–judicial economy, expertise of the
state court, prejudice to the parties, and whether exclusively bankruptcy
issues are involved–weighed in favor of finding cause to grant relief from
the stay. The first, second, and fourth considerations weigh in favor of
relief because the State Court Action involves exclusively state law claims
against multiple defendants. And the only evidence of prejudice before the
bankruptcy court was Mr. Merriman’s declaration testimony that he has no
insurance coverage to defend against the State Court Action. Although one
7
Although laches may be asserted as a defense to a complaint under
§ 523(a)(3)(B), see Beaty v. Selinger (In re Beaty), 306 F.3d 914, 926 (9th Cir. 2002), the
language of the court’s order permitting the Fattorinis to return to the bankruptcy court
for a determination of nondischargeability would foreclose this defense.
14
of the Curtis factors is “[w]hether the debtor’s insurance carrier has
assumed full financial responsibility for defending the litigation,“ 40 B.R. at
800, Mr. Merriman has not cited any authority that this factor alone would
have warranted denial of the Stay Motion in light of all the relevant
circumstances, particularly where he would probably face the same
problem no matter which court adjudicated the claims.
D. The bankruptcy court did not err in finding that retroactive relief
was appropriate.
Finally, Mr. Merriman argues that the bankruptcy court abused its
discretion in annulling the stay retroactively because it made no finding of
cause for retroactive relief. He notes that when he objected to the form of
order submitted by the Fattorinis, the bankruptcy court added language to
the order that retroactive relief was appropriate because the Fattorinis did
not have notice of the bankruptcy filing, but he still contends that the
bankruptcy court abused its discretion by not applying the Fjeldsted
“balancing of the equities” factors.
As noted, the bankruptcy court was not required to analyze each and
every factor articulated in Fjeldsted, but it was required to balance the
equities by considering whether the Fattorinis were aware of the
bankruptcy petition and whether prejudice would result to them by not
granting retroactive relief. See In re Nat’l Envtl. Waste Corp., 129 F.3d at 1055.
Here, the court found that the Fattorinis did not have notice of the
15
bankruptcy case; Mr. Merriman does not dispute that finding. Moreover,
the record supports retroactive relief: the Fattorinis moved for relief from
stay only a few days after learning of the bankruptcy case, and if
retroactive relief were not granted so as to validate the filing of the state
court complaint, they might be time-barred from pursuing their wrongful
death claim.8
E. The Supreme Court’s Acevedo opinion does not preclude
retroactive relief from stay.
During the pendency of this appeal, the Supreme Court decided
Acevedo, 140 S. Ct. 696, in which it held that a United States District Court’s
nunc pro tunc order remanding a removed lawsuit to state court was not
effective to retroactively confer jurisdiction so as to validate the state
court’s orders entered before remand. See id. at 699-701.9 At least one
bankruptcy court has interpreted Acevedo as prohibiting a grant of
retroactive or nunc pro tunc relief from stay. In re Telles, No. 8-20-70325-reg,
2020 WL 2121254 (Bankr. E.D.N.Y. Apr. 30, 2020).
We do not believe that the ruling in Acevedo prohibits a bankruptcy
court’s exercise of the power to grant retroactive relief from stay. But this
8
See footnote 4, supra.
9
Acevedo was published during briefing for this appeal, albeit after the parties
had already submitted their opening briefs. Neither party filed a notice of supplemental
authority and, when asked at oral argument whether they intended to discuss it, they
declined.
16
court should always carefully consider the scope and reach of Supreme
Court opinions; and in light of our disagreement with Telles–that Acevedo is
directly relevant to requests to terminate or annul the stay retroactively–we
consider the issue here and at some length.
In Acevedo, employees of Roman Catholic academies in the
Archdiocese of San Juan, Puerto Rico, sued the Archdiocese and other
entities in the Puerto Rico Court of First Instance for alleged termination of
pension benefits. Id. at 697. During the litigation, the Archdiocese filed a
chapter 11 case and removed the lawsuit to the United States District Court
for the District of Puerto Rico. Id. at 699-700. Roughly a month later, the
bankruptcy court dismissed the chapter 11 case, but the lawsuit was not
immediately remanded to the Court of First Instance. Id. at 700.
Nevertheless, shortly after the bankruptcy case was dismissed, the Court of
First Instance issued orders against various defendants requiring payments
and ordering seizure of assets. Id. Approximately five months later, the
District Court entered an order remanding the lawsuit to the Court of First
Instance; the order provided that the remand was effective as of the date of
dismissal of the bankruptcy case. Id.
The defendants appealed the payment and seizure orders to the
Puerto Rico Court of Appeals, which reversed. Id. at 698. The Puerto Rico
Supreme Court reversed the court of appeals. Id. The Supreme Court then
granted the Archdiocese’s writ of certiorari. Id. at 701. But the Supreme
17
Court did not reach the merits of the appeal. The Court held that the Court
of First Instance lacked jurisdiction to issue the payment and seizure orders
at the time it did so because the District Court still had jurisdiction over the
lawsuit, despite the fact that its remand order purported to be effective
retroactively:
Once a notice of removal is filed, “the State court shall proceed
no further unless and until the case is remanded.” 28 U.S. C. §
1446(d). The state court loses all jurisdiction over the case, and,
being without jurisdiction, its subsequent proceedings and
judgment are not . . . simply erroneous, but absolutely void . . . .
The Court of First Instance issued its payment and seizure
orders after the proceeding was removed to federal district
court, but before the federal court remanded the proceeding
back to the Puerto Rico court. At that time, the Court of First
Instance had no jurisdiction over the proceeding. The orders are
therefore void.
Id. at 700 (citations, quotation marks, and alterations omitted).
The Court held that nunc pro tunc orders could not be used
retroactively to confer jurisdiction where none existed:
Federal courts may issue nunc pro tunc orders . . . to
reflect the reality of what has already occurred. Such a decree
presupposes a decree allowed, or ordered, but not entered,
through inadvertence of the court.
Put colorfully, nunc pro tunc orders are not some
Orwellian vehicle for revisionist history—creating facts that
never occurred in fact. Put plainly, the court cannot make the
18
record what it is not.
Id. at 700–01 (citations, quotations, and alterations omitted).
This holding–that nunc pro tunc orders may not create jurisdiction
where none exists–is consistent with other Supreme Court opinions
holding that jurisdiction in the federal courts must emanate from the
United States Constitution or a statute and cannot be created by the actions
of a court. See, e.g., Hamer v. Neighborhood Hous. Servs. of Chicago, 138 S. Ct.
13, 17 (2017) (only Congress may determine a lower federal court’s
jurisdiction; court-made rules may not create or withdraw federal
jurisdiction).
We do not interpret Acevedo as pertaining to the bankruptcy court’s
power to annul the automatic stay under § 362(d). The language of the
removal statute explicitly prohibits the state court from exercising
jurisdiction over the removed action. Acevedo, 149 S. Ct. at 700; see also
Resolution Tr. Corp. v. Bayside Developers, 43 F.3d 1230, 1238 (9th Cir. 1994)
(“the clear language of the general removal statute provides that the state
court loses jurisdiction upon the filing of the petition for removal.”
(Citations omitted)).
In contrast, § 362(d) does not purport to deprive the bankruptcy court
of jurisdiction; rather, it explicitly grants the court the power to modify the
stay to permit another court or entity to exercise control over an asset or
claim. To the extent that jurisdiction describes a statutory grant of authority
19
to adjudicate a matter or exercise a power, it is absolutely clear that
Congress expressly gave such power, including the power retroactively to
grant relief, to bankruptcy courts. “On request of a party in interest and
after notice and a hearing, the court shall grant relief from the stay
provided under subsection (a) of this section, such as by terminating,
annulling, modifying, or conditioning such stay . . . .” 11 U.S.C. § 362(d)
(emphasis added). Congress’ decision to deploy four verbs to describe the
various ways in which a bankruptcy court might grant relief from stay
indicates an express decision to grant bankruptcy courts the broadest
possible range of options in respect of the stay, including annulling it,
which has the effect of treating it as if it had never existed.
In Telles, the bankruptcy court ruled that, under Acevedo, it lacked
authority to grant retroactive relief from stay to validate a post-petition
foreclosure sale because after the bankruptcy case was filed, the state court
lost jurisdiction over estate property, and jurisdiction could not be
retroactively restored. 2020 WL 2121254 at *4-5. The bankruptcy court’s
holding in Telles rests on the premise that Acevedo’s prohibition of using
nunc pro tunc orders to create jurisdiction in a state court pertained to the
bankruptcy court’s ability to annul the stay. As a result, despite the fact
that Congress, in enacting § 362(d), explicitly empowered bankruptcy
courts to annul the stay, the Telles court concluded that it lacked an
effective method to do so.
20
The bankruptcy court’s reasoning in Telles implicitly depends on the
fact that when a bankruptcy case is filed, two things happen: (1) an estate is
created, comprised of all property interests of the debtor, “wherever
located and by whomever held,” § 541(a), and the district court obtains
exclusive jurisdiction over those property interests, 28 U.S.C. § 1334(e); and
(2) the automatic stay under § 362(a) goes into effect, which prohibits most
acts to exercise control over property of the estate or to pursue pre-petition
claims against the estate.
But the conclusion that Acevedo prohibits the annulment of the stay
based on jurisdiction and property of the estate concerns reads too much
into the Supreme Court’s opinion. As previously demonstrated, Congress
drafted the language of § 362(d) to give bankruptcy courts broad authority
to modify the stay to maximize its value as a flexible and useful tool in the
bankruptcy process and to preserve and balance the rights of the parties.
Although the bankruptcy court obtains jurisdiction over estate assets
once a bankruptcy petition is filed, see § 541(a), the stay does not transfer
jurisdiction from one court to another, and granting relief from stay does
not remove an asset from the bankruptcy estate. See Catalano v. Comm’r of
Internal Revenue, 279 F.3d 682, 686-87 (9th Cir. 2002). It merely eliminates, to
a greater or lesser degree, an impediment to the pursuit or enforcement of
claims or the pursuit of assets.
Relief from stay usually permits another (frequently state law based)
21
process to go forward, and notions of bankruptcy court jurisdiction are no
impediment to that result. Viewed another way, stay relief is premised
upon the pursuit of the correct economic or equitable result, in light of the
purposes of a bankruptcy filing. For example, stay relief is appropriate
when an asset to be pursued in state court is of no economic use to the
estate, i.e., the asset has no equity, or when a debtor has acted in bad faith,
i.e., by filing multiple bankruptcy cases affecting the property. Such
concerns are baked into every stay relief determination that involves a
request to pursue an asset, whether prospective (terminating the stay), or
retroactive (annulling it). The Telles decision, taken to its logical end, would
essentially prohibit relief from stay in all circumstances, including granting
prospective relief, where the movant seeks to exercise control over an
estate asset. Such a conclusion would render § 362(d) meaningless.
Where the stay enjoins pursuit of litigation of a claim, such as the
case before us, granting relief from stay raises even fewer jurisdictional
concerns. Although district courts have original and exclusive jurisdiction
over bankruptcy cases, 28 U.S.C. § 1334(a), they have original but not
exclusive jurisdiction over all civil proceedings airing in or arising under or
related to a bankruptcy case, 28 U.S.C. § 1334(b). Further, Congress clearly
contemplated that in certain circumstances, other courts would hear and
determine proceedings arising in or related to a bankruptcy case (subject to
limits on enforcement), i.e., abstention, 28 U.S.C. § 1334(c), and removal
22
and remand, 28 U.S.C. § 1452.
Congress left to the judgment of bankruptcy courts (via the reference)
the decision about where a claim or action should be litigated by leaving
the concept of “cause” to terminate, annul, modify, or condition the stay
purposefully undefined and flexible. It has long been acknowledged that
the decision to grant relief from stay to permit litigation to continue in
another forum is related to decisions regarding abstention and is one best
determined via reference to a multi-part test that seeks to balance concerns
re judicial economy, harm to the estate, and prejudice to third parties. See
In re Tucson Estates, Inc., 912 F.2d at 1167 (reciting factors to be considered
in determining whether permissive abstention is appropriate); In re Curtis,
40 B.R. at 799-800 (reciting factors to be considered when determining to
grant stay relief to litigate claims in another court). These concerns are part
of every competent determination to grant or deny relief from stay to
pursue a claim in another forum, whether prospective or retroactive.
Additional considerations are appropriate when determining whether
retroactive relief is warranted. See In re Nat’l Envtl. Waste Corp., 129 F.3d at
1055; In re Fjeldsted, 293 B.R. at 24-25.
This result is perfectly consistent with the requirement that, in the
performance of its “traffic cop” role, bankruptcy courts must have broad
authority to determine the appropriate forum for dispute resolution, taking
into account and giving full respect to the panoply of interests to be
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weighed and protected in these matters, as well as to the dignity and
power of other judicial processes. The statutory language, and
longstanding and sound experience, make clear that the effective use of
these remedies must occasionally include the option of granting retroactive
relief.
CONCLUSION
Mr. Merriman has not shown that the bankruptcy court abused its
discretion in granting retroactive annulment of the stay to permit the State
Court Action to be litigated.10 Acevedo does not dictate otherwise.
Accordingly, we AFFIRM.
10
In both their Stay Motion and their responsive brief in this appeal, the Fattorinis
argued that the allegations of the state court complaint constitute domestic violence and
thus the State Court Action falls into the exception to the automatic stay for civil
proceedings regarding domestic violence under § 362(b)(2)(A)(v). The bankruptcy court
did not make any findings on this issue, and Mr. Merriman did not raise it in his
opening brief. Because this issue is not necessary to our disposition of this appeal, we
express no opinion on it.
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