Chizzali v. Gindi (In re Gindi)

Summarized by Eric Madden , Reid Collins & Tsai LLP
15 years 2 weeks ago

Citation:

Chizzali v. Gindi (In re Gindi), No. 10-1186 (10th Cir. Feb. 14, 2011)

Tag(s):

10th Circuit

Ruling:

The Tenth Circuit sustained a ruling that the automatic stay did not apply to a debtor’s pending state-court appeal of an adverse judgment based on Chaussee v. Lyngholm (In re Lyngholm), 24 F.3d 89 (10th Cir. 1994). The court explained that Lyngholm “rests on a shaky foundation” because: (1) nine circuit courts have ruled to the contrary; and (2) the treatise relied upon in Lyngholm has explicitly rejected its approach. Nonetheless, the court declined to reverse Lyngholm in this particular case because the state appellate court had already resolved the debtor’s appeal.

Procedural context:

Creditor appealed from Bankruptcy Appellate Panel decision affirming the bankruptcy court’s decision refusing to lift the automatic stay to permit creditor to pursue a pending appeal before the Colorado Court of Appeals.

Facts:

The debtor filed a voluntary Chapter 11 petition while the Colorado Court of Appeals was considering three issues arising out of a lawsuit brought against the debtor by his former business partner. First, the former partner had appealed a state court decision to dismiss a “contempt citation” that it initially entered after the debtor defaulted under a partial settlement agreement. Second, the former partner had appealed the state court’s decision to set aside the entry of default in a garnishment action against the debtor’s bank. Third, the debtor had appealed the state court’s judgment affirming a $2.16 million arbitration award to the debtor’s former partner. The former partner sought relief from the automatic stay to pursue his two appellate issues, arguing that: (1) the stay did not apply to the first issue because it involved criminal contempt; and (2) the stay should be lifted as to the second issue because he had shown cause under 11 U.S.C. 362(d)(1) and the debtor had no equity in the bank account under 11 U.S.C. 362(d)(2). The debtor argued that the stay did not apply to his appeal of the adverse judgment. The Tenth Circuit ruled that the stay applied to the first appellate issue because the underlying proceeding must have involved civil contempt; there could be no appeal as to dismissal of a criminal contempt order under the Fifth Amendment’s Double Jeopardy Clause. The Tenth Circuit, however, ruled that the stay should have been lifted as to the second appellate issue because the debtor had no equity in the bank account and no one had shown that it was necessary to an effective reorganization. Finally, the Tenth Circuit sustained the bankruptcy court’s ruling that the automatic stay did not apply to the debtor’s appeal of the adverse judgment based on Chaussee v. Lyngholm (In re Lyngholm), 24 F.3d 89 (10th Cir. 1994). The court explained that this precedent “rests on a shaky foundation” because: (1) nine circuit courts have ruled to the contrary; and (2) the treatise relied upon in Lyngholm has explicitly rejected its approach. Nonetheless, the court declined to reverse Lyngholm in this particular case because the Colorado Court of Appeals had already resolved the debtor’s appeal. The Tenth Circuit concluded by stating that “the bankruptcy courts in this circuit may wish to rule in the alternative when the issue arises in future cases.”

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