- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- NC-15-1206-BSKu (9th Circuit, Jul 12,2017) Not Published
- Tag(s):
-
- Ruling:
- Debtor in a involuntary Chapter 7 bankruptcy lacked standing to argue that the Chapter 11 trustee for a business trust formerly owned by the debtor (the "Other Trustee") violated the automatic stay with respect to five adversary proceedings that did not name her as a defendant. Further, the debtor's appeal of the bankruptcy court's decision (that two adversary proceedings filed by the Other Trustee against the debtor did not violate the automatic stay) was jurisprudentially and equitably moot due to a subsequent settlement by her Chapter 7 trustee and the Other Trustee.
- Procedural context:
- The bankruptcy court overruled the (at the time) alleged debtor's objections that seven adversary proceedings filed by the Other Trustee violated the automatic stay resulting from the filing of an involuntary Chapter 7 petition against the debtor. The debtor timely appealed before an order for relief was entered against her and a Chapter 7 trustee was appointed.
- Facts:
- The debtor had owned a business trust that became a Chapter 11 debtor. The trustee for the business trust (Other Trustee) filed seven adversary proceedings, including two against the debtor, after an involuntary Chapter 7 petition was filed against the debtor. The alleged debtor objected and argued that the filing of the adversary proceedings violated the automatic stay in her involuntary case. The bankruptcy court rejected the (at the time) alleged debtor's objection, and the alleged debtor appealed.
An order for relief was entered in the debtor's case, and a Chapter 7 trustee was appointed. The business trust case was converted to a Chapter 7 proceeding, and a Chapter 7 trustee was appointed for the business trust. The two Chapter 7 trustees entered into a settlement agreement that resolved the alleged stay violations arising from the two adversary proceedings filed against the debtor.
The most interesting issue in this opinion is the "same court" exception to automatic stay found in the Ninth Circuit. This judicial gloss on (modification of the plain language of) the Bankruptcy Code was recognized in a 1992 opinion by the 9th Circuit BAP, Prewitt v. North Coast Village, Ltd. (In re North Coast Village, Ltd.), 135 B.R. 641, 643 (9th Cir. BAP 1992). This doctrine provides that a party does not violate the automatic stay if the "proceeding" is commenced in the bankruptcy court -- not even the same bankruptcy case -- where the debtor's case is pending.
Instead of dealing with this non-statutory doctrine, the BAP held that the subsequent settlement between the debtor's and the business trust's Chapter 7 trustees made the debtor's appeal moot.
While this piece of judicial tap-dancing was appropriate -- courts shouldn't rule on disputes that are not before them -- the BAP pointedly ignored the North Coast Village exception to the automatic stay. So that issue remains alive for some other litigants at a later date.
- Judge(s):
- BRAND, SPRAKER (Chief Bankruptcy Judge, D. Alaska, sitting by designation), KURTZ
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