In re: Mark E. Stuart ( 2020 )

FILED
JUL 28 2020
NOT FOR PUBLICATION
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. AZ-19-1332-LBT
MARK E. STUART,
Debtor. Bk. No. 2:19-bk-5481-BKM
MARK E. STUART,
Appellant,
v. MEMORANDUM*
CITY OF SCOTTSDALE; ERIC
ANDERSON, Assistant City Attorney;
VAIL C. CLOAR; KATHERINE
ANDERSON SANCHEZ,
Appellees.
Appeal from the United States Bankruptcy Court
for the District of Arizona
Honorable Brenda K. Martin, Bankruptcy Judge, Presiding
Before: LAFFERTY, BRAND, and TAYLOR, Bankruptcy Judges.
INTRODUCTION
Chapter 131 debtor Mark Stuart appeals the bankruptcy court’s
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, “Rule” references are to the Federal Rules of
Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil
(continued...)
orders: (1) denying his motions for damages under § 362(k) and contempt
sanctions against appellees; and (2) denying his motion for reconsideration.
After Mr. Stuart filed his chapter 13 case, appellee City of Scottsdale
(the “City”) filed in the Arizona Court of Appeals a notice of the
bankruptcy filing and a request to stay Mr. Stuart’s pending appeal of a
pre-petition judgment in favor of the City. The court of appeals paused2 the
appeal pending Mr. Stuart’s advising it of any bankruptcy court order
terminating the stay or dismissing the bankruptcy case.
Mr. Stuart, through counsel, filed a status report indicating that his
bankruptcy attorney would be moving for relief from stay “shortly,” but no
such motion was filed. Instead, after taking no action for months,
Mr. Stuart demanded that the City do so. When the City did not respond,
he filed a motion in the bankruptcy court for damages under § 362(k) and a
separate motion for contempt against the City and its attorneys, arguing
that the City’s motion to pause the state court appeal violated the
automatic stay. The bankruptcy court found that the automatic stay did not
apply to the state court appeal and that the City’s action in filing the
motion to pause the appeal was not a willful stay violation because it was
1
(...continued)
Procedure.
2
Like the bankruptcy court, we will refer to the court of appeals’ proceeding as
being “paused” rather than “stayed” to avoid confusing the state court’s order with the
automatic bankruptcy stay.
2
essentially a notification to the court of appeals that Mr. Stuart had filed the
bankruptcy case. The court therefore denied both motions. Mr. Stuart
moved for reconsideration, which the bankruptcy court also denied.
We AFFIRM.
FACTUAL BACKGROUND3
In January 2018, the City obtained a judgment against Mr. Stuart in
Arizona state court. He appealed the judgment to the Arizona Court of
Appeals. On May 4, 2019, while that appeal was pending, Mr. Stuart filed a
chapter 13 bankruptcy case. About a week later, the City filed in the court
of appeals a document entitled “Appellee’s Notice of Bankruptcy Filing
and Request to Stay Proceedings” (“Notice”). The Notice stated:
City of Scottsdale (“the City”), by and through
undersigned counsel, hereby moves this court for an order
staying all matters in these proceedings including the oral
argument currently set for June 11, 2019.
Undersigned has been informed that the
Appellant/Judgment Debtor, Mark Stuart, filed a Voluntary
Petition for Chapter 13 Bankruptcy in the United States
Bankruptcy Court, for the District of Arizona, on May 4, 2019,
case number 2:19-bk-05481-BKM. Among other things, the
issues in this matter include a judgment against Mark Stuart. In
accordance with the “automatic stay” of 11 U.S.C. § 362, the
3
The parties did not provide a complete record. We have therefore exercised our
discretion to examine the bankruptcy court’s docket and imaged papers. Woods &
Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).
3
City requests that all pending matters in this case, including
any scheduled hearings, be stayed pending resolution from the
bankruptcy proceedings.
In response, the court of appeals issued an order to show cause
(“OSC”) ordering Mr. Stuart to show cause why the appeal should not be
paused. Mr. Stuart, through counsel, filed a response to the OSC, arguing
that the bankruptcy stay did not apply to the appeal because it was an
action brought by the debtor and that the City lacked standing to enforce
the stay in the court of appeals; he also requested sanctions against the City
under Rule 25 of the Arizona Rules of Civil Appellate Procedure for filing a
frivolous motion. On May 23, 2019, the court of appeals paused the appeal
and directed Mr. Stuart “to advise this court within 10 days of any
bankruptcy court order terminating the stay or dismissing the bankruptcy
case” or possibly face sanctions.
About a month later, Mr. Stuart, through counsel, filed a status report
with the court of appeals in which he stated that his bankruptcy counsel
was preparing and would shortly file a motion for relief from stay. The
court of appeals entered an “Order for Status Report” in which it noted that
no motion to lift the stay had been filed in the bankruptcy court. As with
the previous order, it directed Mr. Stuart to file a status report advising the
court of appeal of any order terminating the stay or dismissing the
bankruptcy case or possibly face sanctions.
Mr. Stuart took no further action until September 30, 2019, when he
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sent an email to the City’s counsel requesting that the City seek relief from
stay in the bankruptcy court and withdraw its “stay motion” in the appeal.
Mr. Stuart threatened to move for contempt if the City did not comply. The
City did not respond.
On October 19, 2019, Mr. Stuart filed an “Emergency Motion to
Enforce the Bankruptcy Stay Against Creditor City of Scottsdale and For
Violation of the Automatic Stay and Request to Prove Compensatory and
Punitive Damages under 11 U.S.C. § 362(k)” (“Enforcement Motion”). He
requested the bankruptcy court enter an order: (1) finding the City in
contempt for willfully violating the automatic stay; (2) compelling the City
to purge its contempt by seeking relief from stay by October 24, 2019;
(3) providing that the City would be fined $1,000 per day for every day
after October 24 that it did not seek stay relief; (4) awarding sanctions in
the form of actual damages incurred by Mr. Stuart due to the City’s
ongoing stay violation; and (5) awarding punitive damages. The next day,
he filed an “Emergency Motion for Civil Contempt Order for Creditor City
of Scottsdale, its Agent Eric Anderson and its Counsel Katherine
Anderson-Sanchez and Vail Cloar for Ongoing Violations of the Automatic
Stay under 11 U.S.C. § 362(a)” (“Contempt Motion”), in which he sought
essentially the same relief against the City and its counsel.
The City filed responses to both motions, denying that its actions in
filing the Notice violated the automatic stay. It acknowledged that the
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bankruptcy stay did not affect Mr. Stuart’s ability to prosecute his appeal,
but it noted that, in the appeal, the City sought affirmance of a judgment
against him as well as attorneys’ fees and costs on appeal, which
potentially implicated the stay. And because Mr. Stuart had not notified the
court of appeals of the bankruptcy filing, the City had done so.
After hearing argument on both motions, the bankruptcy court found
that the automatic stay did not apply to the state court appeal because that
appeal was brought by Mr. Stuart, but, if the City prevailed on appeal, it
could not enforce the judgment without first obtaining stay relief. Shortly
thereafter, the bankruptcy court entered an order finding that the City’s
action in filing the Notice was not an action to control an estate asset and
thus there was no stay violation. Accordingly, it granted the motions in
part and denied them in part. Specifically, it found: (1) the bankruptcy stay
did not prevent Mr. Stuart from proceeding with his state court appeal;
(2) the bankruptcy stay would prohibit the City from attempting to collect
on its state court judgment; (3) the City and its agents did not violate the
bankruptcy stay by filing the Notice or by failing to file a motion for relief
in the bankruptcy court; and (4) there had been no contempt, and no
damages would be awarded.
Mr. Stuart filed a timely notice of appeal. Two days later, he moved
for reconsideration under Civil Rule 59, applicable via Rule 9023, which the
bankruptcy court denied. Mr. Stuart amended his notice of appeal to
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include the order denying reconsideration.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Whether the bankruptcy court erred in denying in part the
Enforcement Motion and Contempt Motion.
Whether the bankruptcy court abused its discretion in denying the
motion for reconsideration.
STANDARDS OF REVIEW
Whether the automatic stay has been violated is a question of law
reviewed de novo. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1213 (9th
Cir. 2002). Whether a creditor willfully violated the stay is a question of fact
that we review for clear error. Id.
A finding of fact is clearly erroneous if it is illogical, implausible, or
without support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189,
1196 (9th Cir. 2010). “Where there are two permissible views of the
evidence, the factfinder’s choice between them cannot be clearly
erroneous.” Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).
We review the denial of a motion for reconsideration under Civil
Rule 59 for abuse of discretion. See Clinton v. Deutsche Bank Nat’l Trust Co.
(In re Clinton), 449 B.R. 79, 82 (9th Cir. BAP 2011) (citing Ta Chong Bank Ltd.
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v. Hitachi High Techs. Am., Inc., 610 F.3d 1063, 1066 (9th Cir. 2010)). Under
the abuse of discretion standard, we first “determine de novo whether the
[bankruptcy] court identified the correct legal rule to apply to the relief
requested.” United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en
banc). If the bankruptcy court identified the correct legal rule, we then
determine under the clearly erroneous standard whether its factual
findings and its application of the facts to the relevant law were:
“(1) illogical, (2) implausible, or (3) without support in inferences that may
be drawn from the facts in the record.” Id. (internal quotation marks
omitted).
DISCUSSION
The filing of a bankruptcy petition operates as a stay of, among other
things, “any act to obtain possession of property of the estate or of property
from the estate or to exercise control over property of the estate[.]” 11
U.S.C. § 362(a)(3). And § 362(k) provides that “an individual injured by any
willful violation of a stay provided by this section shall recover actual
damages, including costs and attorneys’ fees, and, in appropriate
circumstances, may recover punitive damages.” § 362(k)(1). A willful
violation occurs if a party knew of the automatic stay, and its actions in
violation of the stay were intentional. Eskanos & Adler, P.C. v. Leetien, 309
F.3d 1210, 1215 (9th Cir. 2002) (citing Pinkstaff v. United States (In re
Pinkstaff), 974 F.2d 113, 115 (9th Cir. 1992)).
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Mr. Stuart assigns error to the bankruptcy court’s conclusion that
neither the City nor its counsel willfully violated the automatic stay by
filing the Notice with the Arizona Court of Appeals and by failing to move
for relief from stay. His arguments are based upon the following
assumptions: (1) the appeal was property of the estate; (2) appeals brought
by debtors are not subject to the automatic stay; (3) any creditor action that
has an adverse effect on an estate asset is prohibited by the automatic stay;
and (4) pausing the appeal damaged the estate by delaying resolution of
the appeal and increasing legal fees and costs.
A. The bankruptcy court did not err in denying the Enforcement and
Contempt Motions.
Mr. Stuart begins from the premise that the Notice was, in essence, a
request for an injunction. In support, he cites Smith v. Arizona Citizens Clean
Elections Comm’n, 132 P.3d 1187, 1190 (Ariz. 2006). But Smith has no bearing
on the issue before us. That case involved a request for a stay pending
appeal, and the Arizona Supreme Court simply noted that a party seeking
such a stay must satisfy the same criteria as it would for the issuance of a
preliminary injunction. Although a stay can have a similar impact as an
injunction, a stay and an injunction differ in critical ways. An injunction
“directs the conduct of a party, and does so with the backing of its full
coercive powers.” Nken v. Holder, 556 U.S. 418, 428 (2009) (citation omitted).
In contrast, “a stay operates upon the judicial proceeding itself. It does so
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either by halting or postponing some portion of the proceeding, or by
temporarily divesting an order of enforceability.” Id. See also Gulfstream
Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 279 (1988) (“An order by a
federal court that relates only to the conduct or progress of litigation before
that court ordinarily is not considered an injunction and therefore is not
appealable under § 1292(a)(1).”).
The City simply requested that the court of appeals pause the
proceedings. Its request was not for the court of appeals to order Mr. Stuart
to do or not do something. The court of appeals’ order requiring Mr. Stuart
to advise it when something occurred in the bankruptcy court to resolve
the issue was issued sua sponte; it was not done at the City’s request.
Accordingly, we reject (as did the bankruptcy court) Mr. Stuart’s
interpretation of the Notice as a request for an injunction. As such, the
cases he cites holding that a request for an injunction is a stay violation
–National Tax Credit Partners, L.P. v. Havlik, 20 F.3d 705 (7th Cir. 1994), In re
Mahurkar Double Lumen Hemodialysis Catheter Patent Litigation, 140 B.R. 969,
977 (N.D. Ill. 1992), and Adelphia Communications Corp. v. America Channel,
LLC (In re Adelphia Communications Corp.), 345 B.R. 69,76 (Bankr. S.D.N.Y.
2006)–are inapposite.
Next, Mr. Stuart argues that the Notice constituted an act to exercise
control over property of the estate, which is expressly prohibited under
§ 362(a)(3). Mr. Stuart cites Sternberg v. Johnston, 582 F.3d 1114 (9th Cir.
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2009), opinion amended and superseded on denial of rehearing, 595 F.3d 937 (9th
Cir. 2010). In that case, the Ninth Circuit Court of Appeals held that a
debtor’s ex-spouse’s counsel had violated the automatic stay by (1) urging
a state court to rule on a motion for contempt for non-payment of spousal
support because he did not think it would violate the stay, and
(2) continuing to urge on an appeal from the contempt order that it was not
void. Noting that a party has an affirmative duty to remedy a stay violation
once known, the court held that “[a]t a minimum, he had an obligation to
alert the state appellate court to the conflicts between the order and the
automatic stay.” Id. at 1121.
We agree with the bankruptcy court that Sternberg is distinguishable.
The City did not ask the court of appeals to take any action in violation of
the stay. In fact, the Notice sought to prevent a stay violation by
maintaining the status quo, based on the City’s concern that it sought
affirmance of a judgment against Mr. Stuart and fees and costs on appeal,
which could implicate the stay. See Gordon v. Whitmore (In re Merrick), 175
B.R. 333, 337-38 (9th Cir. BAP 1994) (noting that the prosecution of
counterclaims against a debtor requires stay relief, but appellant/defendant
had waived his right to costs, “thus eliminating any arguably affirmative
aspect to the relief he obtained in state court.”).The bankruptcy court
correctly found that there was no legal basis for concluding that notifying a
state court that a bankruptcy stay is in place constitutes an act of control,
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even if that assertion is incorrect. And implicit in the bankruptcy court’s
reasoning is the understanding that while the stay did not bar the
continuation of a proceeding commenced by the debtor, the City’s caution
was understandable in light of the fact that, as part of the appeal, the City
sought to affirm an award of attorneys’ fees against the debtor, and its
request to pause the proceedings was consistent with its duty affirmatively
to cease any activities that would violate the stay.
Mr. Stuart also argues that the City violated the stay by not obtaining
an order from the bankruptcy court regarding the stay either before or after
it filed the Notice. He cites Hillis Motors v. Hawaii Automobile Dealers’ Ass’n,
997 F.2d 581, 585 (9th Cir. 1993), and Achterberg v. Creditors Trade Ass’n, Inc.
(In re Achterberg), 573 B.R. 819, 830 (Bankr. E.D. Cal. 2017), both of which
hold that a creditor has the burden to determine the extent of the automatic
stay and seek relief if appropriate before taking any action to exercise
control over estate property. But he cites no authority that the City was
required to seek stay relief (or confirmation that the stay was inapplicable)
before filing the Notice, which simply requested that the court of appeals
pause the appeal to maintain the status quo–which is exactly what the stay
requires. In re Achterberg, 573 B.R. at 830. And he cites no authority that the
City was required to seek an order regarding the stay after the court of
appeals paused the proceedings. Although it could have done so,
Mr. Stuart had the burden to prosecute his appeal, which arguably put the
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onus on him to seek a clarifying order from the bankruptcy court. We note
that this argument is particularly inapt in light of the status report filed in
the court of appeals indicating that Mr. Stuart’s bankruptcy counsel
intended to file a motion for relief from stay.
Mr. Stuart also contends that the City lacked standing to enforce the
automatic stay, citing, among other cases, Tilley v. Vucurevich (In re Pecan
Groves of Arizona), 951 F.2d 242, 244 (9th Cir. 1991), which holds that only
the debtor and trustee have standing to challenge acts that violate the
automatic stay.4 But the Notice was not an attempt by the City to enforce
the automatic stay, and, as a party to the appeal, it had standing (and
possibly even an obligation) to notify the court of appeals of the
bankruptcy case.
Finally, Mr. Stuart argues that the bankruptcy court permitted a
“wrong without a remedy.” This argument is meritless. It hinges on his
assertion that “[t]he Estate incurred increased legal fees, increased legal
costs and emotional injuries, solely as a result of [the City’s] actions.” But
even if the bankruptcy court had found a willful stay violation, it is not
clear what Mr. Stuart’s damages would have been. He made no attempt to
4
Although Mr. Stuart made this argument to the court of appeals, he did not raise
it in his motions before the bankruptcy court and mentioned it only in passing at oral
argument, and not sufficiently for the bankruptcy court to rule on it. But because
standing is a jurisdictional issue that can be raised at any time, we do not consider it
waived. See Ctr. for Biological Diversity v. Kempthorne, 588 F.3d 701, 707 (9th Cir. 2009).
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quantify or otherwise detail his damages (keeping in mind that he was not
represented by counsel during most of the relevant time period), and he
did not address the fact that he failed to mitigate any damages by not
following through with his stated intent to move for relief from stay. And,
as noted by the bankruptcy court, he could have advised the court of
appeals that the City was not seeking relief in the bankruptcy court and
requested that the appeal proceed with or without the City’s participation.
He did none of those things.
B. Mr. Stuart has waived any argument that the bankruptcy court
abused its discretion in denying reconsideration.
Given our conclusion that the bankruptcy court did not err in
denying in part Mr. Stuart’s motions, we cannot conclude that the
bankruptcy court abused its discretion in denying Mr. Stuart’s motion for
reconsideration. In any event, he did not address the bankruptcy court’s
denial of reconsideration in his briefing and has thus waived any argument
that it was an abuse of discretion.
CONCLUSION
For the reasons explained above, Mr. Stuart has not shown that the
bankruptcy court’s rulings were erroneous. We therefore AFFIRM.
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