-
USCA1 Opinion
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT
_________________________
No. 96-2110
IN RE: NAPOLEON G. SOARES,
Debtor.
_________________________
NAPOLEON G. SOARES,
Appellant,
v.
BROCKTON CREDIT UNION,
Appellee.
_________________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge] ___________________
_________________________
Before
Selya, Circuit Judge, _____________
Aldrich, Senior Circuit Judge, ____________________
and Boudin, Circuit Judge. _____________
_________________________
Michael P. Cashman for appellant. __________________
Gary W. Cruickshank for appellee. ___________________
_________________________
March 10, 1997
_________________________
SELYA, Circuit Judge. "[T]he dead tree gives no SELYA, Circuit Judge. ______________
shelter." T.S. Eliot, The Waste Land, I, The Burial of the Dead ______________ ______________________
(1922). Like a shade tree, the automatic stay which attends the
initiation of bankruptcy proceedings, 11 U.S.C. 362(a) (1994),
must be nurtured if it is to retain its vitality. This appeal,
which pits a Chapter 13 debtor bent on saving his home against a
creditor bent on enforcing its rights under a mortgage, raises
issues which touch upon the degree of judicial protection that
the automatic stay invites. These issues are whether the
automatic stay precludes a state court from undertaking
ministerial acts after a bankruptcy filing; if not, what acts are
exempt under that rubric; whether a bankruptcy court may grant
retroactive relief from the automatic stay; and if so, what legal
standard it should apply in prescribing such an anodyne.
I. LAYING THE FOUNDATION I. LAYING THE FOUNDATION
We begin by retracing the labyrinthine corridors
through which this litigation has passed. In 1990 the debtor,
Napoleon G. Soares, purchased a home in Brockton, Massachusetts.
He executed a $70,000 promissory note to the Brockton Credit
Union (BCU) and secured the note by a first mortgage on the real
estate. After sustaining injuries in a motorcycle accident,
Soares lagged in his monthly payments. BCU grew restive and
commenced foreclosure proceedings in the state superior court.
Soares did not file an answer. On March 22, 1995, BCU sent a
letter to the clerk of court seeking an order of default and a
judgment authorizing foreclosure. Two days later Soares filed a
2
bankruptcy petition, thus triggering the automatic stay. He
immediately gave notice to BCU, but neither party alerted the
state court. On April 10, with the stay still firmly in place, a
judge of that court issued the requested default order. One week
later, she authorized the entry of a foreclosure judgment.
Soares missed some post-petition mortgage payments. On
June 14, 1995, BCU, without apprising the bankruptcy court of the
orders previously obtained in the state proceedings, filed a
motion seeking relief from the automatic stay. The debtor's
then-counsel, Gerard Williamson, neglected to oppose BCU's
motion. The bankruptcy court granted the unopposed motion on
June 29 (the same day, coincidentally, that Soares, unbeknownst
to the judge, paid the post-petition arrearage). The court
subsequently refused to entertain a belated objection filed by
Williamson.
When Soares missed his November payment, BCU activated
the state court judgment. At the ensuing foreclosure sale, held
on November 29, BCU itself bid in the mortgaged premises and paid
approximately $14,200 in overdue municipal taxes to clear the
title. Soares thereafter sought relief in the state court on the
ground that the foreclosure judgment had been issued in
contravention of the automatic stay. The court denied the
motion, saying that its post-petition actions had been
"ministerial" and that any error was harmless.1
____________________
1Although Soares did not appeal from this ruling, BCU has
never urged it as a basis for res judicata or collateral
estoppel. Hence, we deem any such asseveration waived.
3
Soares' unsuccessful foray apparently rang warning
bells for BCU, which asked the bankruptcy court to clarify
whether the June 29 order (lifting the automatic stay) ratified
the earlier state court judgment. BCU served this so-called
clarification motion on the attorney, Williamson, but not on
Soares.2 In a margin order entered on February 9, 1996, Judge
Kenner addressed the question of retroactivity for the first time
and vacated the automatic stay retroactive to March 24, 1995,
"such that the [state] judgment and movant's foreclosure shall
not be deemed to have violated the automatic stay."
Less than three weeks later Soares, through newly
retained counsel, filed a motion to reconsider both the February
9 order and the original grant of relief from the automatic stay.
Judge Kenner denied the reconsideration motion on the merits3 and
also denied a companion motion to void the foreclosure sale. The
judge advanced three reasons for having lifted the automatic stay
____________________
2The title "clarification motion" is a misnomer. Neither
the June 29 order nor the motion leading up to it mentioned the
state court judgment, and the order clearly had not been meant to
ratify the judgment.
3The judge was wise to reach the merits. The so-called
clarification motion had been served in derogation of a standing
order promulgated by the bankruptcy judges in the District of
Massachusetts, which provides in pertinent part:
(a) All motions and requests for orders must
be served on the Chapter 13 trustee, the
debtor, the debtor's attorney, persons who
have requested notice, and all creditors . .
. .
Joint Procedural Order 13.5 (Sept. 1, 1994). Despite this
order, BCU had not served the motion on the debtor.
4
retroactively on February 9. First, because BCU "had done
everything right," it would be inequitable to upset its
expectations. Second, because the foreclosure had wiped out
junior lienholders, it would be too complicated to "unscramble
the egg." Third, because Soares could not immediately repay the
funds that BCU had expended to clear title to the property, the
economic realities favored ratification of the foreclosure.
Soares appealed. The district court temporarily stayed
further proceedings (blocking both a planned eviction and a
possible resale of the property). Eventually, however, the
district court although finding that BCU had neglected its
responsibility to apprise the state tribunal of Soares'
bankruptcy (an error which it termed "harmless") determined
that the retroactive lifting of the automatic stay did not
constitute an abuse of discretion.
Soares again appealed. We enlarged the earlier stay on
condition that Soares make monthly payments to BCU for use and
occupancy of the premises (to be credited against the mortgage
indebtedness, should Soares prevail on appeal).
II. DISCUSSION II. DISCUSSION
To the extent that the threshold inquiries in this case
involve questions of statutory interpretation, we exercise
plenary review.4 See In re Jarvis, 53 F.3d 416, 419 (1st Cir. ___ _____________
____________________
4A different standard of review applies to the bankruptcy
court's discretionary decision to lift the automatic stay
retroactively. See Part II(B)(4), infra. We review that ruling ___ _____
for abuse of discretion. See Tringali v. Hathaway Mach. Co., 796 ___ ________ __________________
F.2d 553, 561 (1st Cir. 1986).
5
1995). From this vantage point we first address the purported
exemption for "ministerial acts," as it is only necessary to
reach the retroactivity question if a violation of the automatic
stay in fact occurred.
A. The Nature of the State Court's Actions. A. The Nature of the State Court's Actions. _______________________________________
The parties clash head-on in respect to classification
of the state court's actions. The debtor claims that the state
court order and judgment transgressed the automatic stay. The
creditor claims that these entries, though occurring post-
petition, were purely ministerial and, thus, not offensive to the
stay. The debtor has the better argument.
Section 362(a)(1) of the Bankruptcy Code provides that
the filing of a bankruptcy petition stays the commencement or
continuation of all nonbankruptcy judicial proceedings against
the debtor.5 Here, the state court default order eventuated more
than two weeks after Soares filed for bankruptcy and the _____
____________________
5Leaving to one side exceptions inapplicable to this appeal,
the statute provides that a filed bankruptcy petition
operates as a stay, applicable to all
entities, of
(1) the commencement or
continuation, including the
issuance or employment of process,
of a judicial, administrative, or
other action or proceeding against
the debtor that was or could have
been commenced before the
commencement of the case under this
title, or to recover a claim
against the debtor that arose
before the commencement of the case
under this title; . . . .
11 U.S.C. 362(a)(1).
6
foreclosure judgment one week later. The issue, then, is whether
these entries contravened the mandate of section 362(a)(1). BCU
asserts that they did not because the stay was not in effect when
the creditor requested the state court to act and because the
state court's actions, when taken, constituted ministerial acts.
The creditor's first assertion is mere buzznacking.
The focus here is whether or not the state court's actions, when
effected, transgressed the automatic stay. The date on which the
creditor asked the state court to act, while material to an
assessment of the creditor's good faith (which is not seriously
questioned here), does not bear on whether the activities
themselves constituted the forbidden continuation of a judicial
proceeding.
BCU's second assertion is more substantial.
Ministerial acts, even if undertaken in a state judicial
proceeding subsequent to a bankruptcy filing, do not fall within
the proscription of the automatic stay. See Rexnord Holdings, ___ _________________
Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir. 1994); Savers Fed. ____ _________ ___________
Sav. & Loan Ass'n v. McCarthy Constr. Co. (In re Knightsbridge __________________ ____________________ ___________________
Dev. Co.), 884 F.2d 145, 148 (4th Cir. 1989). But the state ________
court's actions in this case cannot properly be characterized as
ministerial.
A ministerial act is one that is essentially clerical
in nature. See Black's Law Dictionary 996 (6th ed. 1990). Thus, ___ ______________________
when an official's duty is delineated by, say, a law or a
judicial decree with such crystalline clarity that nothing is
7
left to the exercise of the official's discretion or judgment,
the resultant act is ministerial. See United States ex rel. ___ ______________________
McLennan v. Wilbur, 283 U.S. 414, 420 (1931) (indicating that a ________ ______
duty is ministerial if "the obligation to act [is] peremptory,
and plainly defined"); Neal v. Regan, 587 F. Supp. 1558, 1562 ____ _____
(N.D. Ind. 1984) (describing a ministerial act as "one which ``the
law prescribes and defines . . . with such precision as to leave
nothing to the exercise of discretion or judgment'") (citation
omitted). Such acts can usefully be visualized as the antithesis
of judicial acts, inasmuch as the essence of a judicial act is
the exercise of discretion or judgment. See Black's Law ___ ____________
Dictionary, supra, at 846. __________ _____
Virtually by definition, a judicial proceeding does not
conclude until the judicial function is completed, that is, until
the judicial decision is made. See, e.g., Bidermann, 21 F.3d at ___ ____ _________
528 (holding that the judicial function is completed "at the
moment the judge direct[s] entry of judgment"). Frequently,
routine scrivening, such as recordation or entry on the docket,
follows on the heels of a judicial decision. Such actions
taken in obedience to the judge's peremptory instructions or
otherwise precisely defined and nondiscretionary are
ministerial and, consequently, do not themselves violate the
automatic stay even if undertaken after an affected party files
for bankruptcy. See, e.g., Knightsbridge Dev., 884 F.2d at 148 ___ ____ __________________
(suggesting that merely recording a previously decided award
would be a "clerical act" and therefore would not infract the
8
automatic stay); In re Capgro Leasing Assocs., 169 B.R. 305, 315- ____________________________
16 (Bankr. E.D.N.Y. 1994) (stating that "entry of a judgment will
constitute a ``ministerial act' where the judicial function has
been completed and the clerk has merely to perform the rote
function of entering the judgment upon the court's docket"). By
the same token, however, acts undertaken in the course of
carrying out the core judicial function are not ministerial and,
if essayed after bankruptcy filing, will be deemed to violate the
automatic stay.
Bidermann captures this distinction. There, the _________
district judge ruled ora sponte and endorsed the motion papers. ___ ______
The defendant then sought refuge in bankruptcy. The Second
Circuit held the clerk's subsequent, post-petition entry of the
judgment on the docket to be ministerial (and, therefore,
unaffected by the automatic stay). 21 F.3d at 528. Other cases
are to the same effect. See Heikkila v. Carver (In re Carver), ___ ________ ______ ____________
828 F.2d 463, 464 (8th Cir. 1987) (holding that a "routine
certification" by the clerk, entered post-petition, did not
transgress the automatic stay); Capgro Leasing, 169 B.R. at 315- ______________
16 (holding the clerk's entry of judgment on the docket to be
ministerial when, prior to the bankruptcy filing, the court had
ordered summary judgment). A parallel line of cases reinforces
the notion that the compendium of ministerial acts excludes those
involving deliberation, discretion, or judicial involvement.
See, e.g., Ellis v. Consolidated Diesel Elec. Corp., 894 F.2d ___ ____ _____ _________________________________
371, 372-73 (10th Cir. 1990) (invalidating a judicial decision
9
that granted summary judgment two weeks after a bankruptcy
filing); Knightsbridge Dev., 884 F.2d at 148 (voiding an ___________________
arbitration award because the bulk of the panel's deliberations
occurred after the stay arose); Ellison v. Northwest Eng'g Co., _______ ___________________
707 F.2d 1310, 1311 (11th Cir. 1983) (holding that while the
automatic stay was in effect a court could not render a decision
in a case which had been briefed and argued pre-petition).
This line of demarcation makes perfectly good sense.
The statutory proviso which gives rise to the automatic stay says
what it means and means what it says. See ICC v. Holmes Transp., ___ ___ _______________
Inc., 931 F.2d 984, 987 (1st Cir. 1991). Confining the exemption ____
for ministerial acts to those actions which are essentially
clerical, as opposed to judicial, honors this principle because
such an interpretation comports precisely with the text of
section 362(a)(1). In the bargain, this interpretation also
facilitates the statute's due administration.
Silhouetted against this legal landscape, it is readily
apparent that the state court's actions in ordering a default and
directing the entry of a judgment possess a distinctly judicial,
rather than a ministerial, character. The record is totally
barren of any evidence that the state court judge decided to
grant BCU's request prior to the date of the bankruptcy filing,
and all visible signs point in the opposite direction. The judge
did not enter the default order until more than two weeks after
Soares sought the protection of the bankruptcy court and she did
not direct the entry of a judgment authorizing foreclosure until
10
another week had elapsed. Moreover, the judge indicated after
the fact that she waited to confirm Soares' nonmilitary status
before directing the entry of judgment. This indicates
deliberativeness and a concomitant willingness to exercise
discretion.
Nor does the fact that the judge later characterized
her entry of the foreclosure judgment as "ministerial" require a
different result. An appellate court is not bound by a trial
judge's unsupported description, see, e.g., Estate of Soler v. ___ ____ ________________
Rodriguez, 63 F.3d 45, 47 n.1 (1st Cir. 1995); In re G.S.F. _________ _____________
Corp., 938 F.2d 1467, 1473-74 (1st Cir. 1991), and we are aware _____
of no reason why that salutary principle would not apply with
equal vigor to our assessment of a state court's actions when the
underlying question relates to the effect of those actions under _____
federal law. Hence, we decline to adopt the label that the state _______ ___
court judge chose in hindsight to affix to her activities.
We summarize succinctly. Because the decision which
animated the entry of the order and judgment occurred after the
stay was in force, those actions continued the state judicial
proceeding within the meaning of section 362(a)(1).
Consequently, the actions violated the automatic stay. Given
this infraction, we now must assess the availability of a
retroactive cure.
B. The Operation of the Automatic Stay. B. The Operation of the Automatic Stay. ___________________________________
We subdivide this part of our discussion into four
segments. In each segment, our comments reflect our awareness
11
that bankruptcy courts traditionally pay heed to equitable
principles. See Bank of Marin v. England, 385 U.S. 99, 103 ___ ______________ _______
(1966); Jarvis, 53 F.3d at 419. ______
1. The Nature of the Stay. The automatic stay is 1. The Nature of the Stay. ________________________
among the most basic of debtor protections under bankruptcy law.
See Midlantic Nat'l Bank v. New Jersey Dep't of Envtl. ___ ______________________ _______________________________
Protection, 474 U.S. 494, 503 (1986); see also S. Rep. No. 95- __________ ___ ____
989, at 54 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5840. It _________ __
is intended to give the debtor breathing room by "stop[ping] all
collection efforts, all harassment, and all foreclosure actions."
H.R. Rep. No. 95-595, at 340 (1977), reprinted in 1978 _________ __
U.S.C.C.A.N. 5963, 6296-97; see also Holmes Transp., 931 F.2d at ___ ____ ______________
987; In re Smith Corset Shops, Inc., 696 F.2d 971, 977 (1st Cir. ______________________________
1982).
The stay springs into being immediately upon the filing
of a bankruptcy petition: "[b]ecause the automatic stay is
exactly what the name implies ``automatic' it operates without
the necessity for judicial intervention." Sunshine Dev., Inc. v. ___________________
FDIC, 33 F.3d 106, 113 (1st Cir. 1994). It remains in force ____
until a federal court either disposes of the case, see 11 U.S.C. ___
362(c)(2), or lifts the stay, see id. 362(d)-(f). This ___ ___
respite enables debtors to resolve their debts in a more orderly
fashion, see In re Siciliano, 13 F.3d 748, 750 (3d Cir. 1994), ___ ________________
and at the same time safeguards their creditors by preventing
"different creditors from bringing different proceedings in
different courts, thereby setting in motion a free-for-all in
12
which opposing interests maneuver to capture the lion's share of
the debtor's assets." Sunshine Dev., 33 F.3d at 114; see ______________ ___
generally 3 Collier on Bankruptcy 362.03 (15th rev. ed. 1996). _________ _____________________
In order to secure these important protections, courts
must display a certain rigor in reacting to violations of the
automatic stay. See Kalb v. Feuerstein, 308 U.S. 433, 438-39 ___ ____ __________
(1940); Holmes Transp., 931 F.2d at 987-88; Smith Corset Shops, ______________ ___________________
696 F.2d at 976. The circuits are split on whether actions taken
in derogation of the automatic stay are merely "voidable" or,
more accurately, "void." Some courts characterize unauthorized
post-petition proceedings as "voidable." See, e.g., Jones v. ___ ____ _____
Garcia (In re Jones), 63 F.3d 411, 412 & n.3 (5th Cir. 1995), ______ ____________
cert. denied, 116 S. Ct. 1566 (1996); Bronson v. United States, _____ ______ _______ _____________
46 F.3d 1573, 1578-79 (Fed. Cir. 1995); Easley v. Pettibone Mich. ______ _______________
Corp., 990 F.2d 905, 911 (6th Cir. 1993). Other courts a _____
majority, insofar as we can tell call such actions "void," but
recognize that equitable considerations may alter some outcomes.
See, e.g., Siciliano, 13 F.3d at 751; In re Schwartz, 954 F.2d ___ ____ _________ _______________
569, 571 (9th Cir. 1992); Job v. Calder (In re Calder), 907 F.2d ___ ______ _____________
953, 956 (10th Cir. 1990) (per curiam); 48th St. Steakhouse, Inc. _________________________
v. Rockefeller Group, Inc. (In re 48th St. Steakhouse, Inc.), 835 _______________________ _______________________________
F.2d 427, 431 (2d Cir. 1987), cert. denied, 485 U.S. 1035 (1989); _____ ______
Albany Partners Ltd. v. Westbrook (In re Albany Partners, Ltd.), ____________________ _________ ____________________________
749 F.2d 670, 675 (11th Cir. 1984).
Our earlier opinions which we today reaffirm align
us with the majority view. See Holmes Transp., 931 F.2d at 987- ___ ______________
13
88; Smith Corset Shops, 696 F.2d at 976. This semantic ____________________
difference has practical consequences because the
characterization of an infringing action as "void" or "voidable"
influences the burden of going forward. Treating an action taken
in contravention of the automatic stay as void places the burden
of validating the action after the fact squarely on the shoulders
of the offending creditor. In contrast, treating an action taken
in contravention of the automatic stay as voidable places the
burden of challenging the action on the offended debtor. We
think that the former paradigm, rather than the latter, best
harmonizes with the nature of the automatic stay and the
important purposes that it serves. See generally 3 Collier on ___ _________ __________
Bankruptcy, supra, 362.11[1] & n.1 (observing that most courts __________ _____
hold violations void and terming this the better view).
2. The Availability of Retroactive Relief. While the 2. The Availability of Retroactive Relief. ______________________________________
automatic stay is significant, it is not an immutable article of
faith. Indeed, the Bankruptcy Code, 11 U.S.C. 362(d),
expressly authorizes courts to lift it in particular situations.
Whether this statutory authorization encompasses retroactive
relief is not entirely clear. We previously hinted that a court
may set aside the automatic stay retroactively in an appropriate
case. See Smith Corset Shops, 696 F.2d at 976-77. We now ___ ____________________
confirm Smith's adumbration, holding that 11 U.S.C. 362(d) _____
permits bankruptcy courts to lift the automatic stay
retroactively and thereby validate actions which otherwise would
be void.
14
Section 362(d) confers upon courts discretionary power
in certain circumstances to terminate, annul, modify, or place
conditions upon the automatic stay.6 In drafting the law,
Congress chose to include both the power to terminate the stay
and the power to annul it. When construing this language, we
must try to give independent meaning to each word. See United ___ ______
States Dep't of Treasury v. Fabe, 508 U.S. 491, 504 n.6 (1993); ________________________ ____
United States v. Ven-Fuel, Inc., 758 F.2d 741, 751-52 (1st Cir. _____________ _______________
1985). The only plausible distinction between the two verbs in
this context is that terminating the stay blunts it
prospectively, from the moment the court's order enters, whereas
annulling the stay erases it retrospectively, as of some date
prior to the entry of the court's order (reaching as far back as
the date when the debtor filed the bankruptcy petition, if the
court so elects).
Seen from this perspective, Congress' grant of a power
of annulment is meaningful only if the court may thereby validate
actions taken before the date on which the court rules. On any ______
other construction, annulment lacks any independent significance;
____________________
6The statute provides in pertinent part:
On request of a party in interest and after
notice and a hearing, the court shall grant
relief from the stay . . ., such as by
terminating, annulling, modifying, or
conditioning such stay
(1) for cause, including the lack
of adequate protection of an
interest in property of such party
in interest; . . . .
11 U.S.C. 362(d).
15
it merely replicates termination. It follows, therefore, that
section 362(d) authorizes retroactive relief from the automatic
stay. Accord Siciliano, 13 F.3d at 751; Albany Partners, 749 ______ _________ _______________
F.2d at 675; see also Franklin Sav. Ass'n v. Office of Thrift ___ ____ ___________________ _________________
Supervision, 31 F.3d 1020, 1023 (10th Cir. 1994) (recognizing the ___________
authority to annul the stay and thereby grant retroactive
relief); Sikes v. Global Marine, Inc., 881 F.2d 176, 178-79 (5th _____ ___________________
Cir. 1989) (same); see generally 3 Collier on Bankruptcy, supra, ___ _________ _____________________ _____
362.11[1].
3. The Limiting Principle. Recognizing the 3. The Limiting Principle. _________________________
discretionary authority of bankruptcy courts to relieve creditors
and other interested parties retroactively from the operation of
the automatic stay tells us nothing about the yardstick by which
attempts to secure such relief should be measured. We turn next
to this inquiry.
Once again, the overarching purpose of the automatic
stay informs our analysis. Because the stay is a fundamental
protection for all parties affected by the filing of a petition
in bankruptcy, it should not be dismantled without good reason.
See, e.g., Little Creek Dev. Co. v. Commonwealth Mortgage Corp. ___ ____ ______________________ ___________________________
(In re Little Creek Dev. Co.), 779 F.2d 1068, 1072 (5th Cir. ______________________________
1986). Undoing the stay retroactively should require a
measurably greater showing. Congress intended the stay to afford
debtors breathing room and to assure creditors of equitable
distribution. See H.R. Rep. No. 95-595, supra, at 340, 1978 ___ _____
U.S.C.C.A.N. at 6296-97. If retroactive relief becomes
16
commonplace, creditors anticipating post facto validation ____ _____
will be tempted to pursue claims against bankrupts heedless of
the stay, leaving debtors with no choice but to defend for fear
that post-petition default judgments routinely may be
resuscitated.
We believe that Congress created the automatic stay to
ward off scenarios of this sort. Thus, if congressional intent
is to be honored and the integrity of the automatic stay
preserved, retroactive relief should be the long-odds exception,
not the general rule. In our view, only a strict standard will
ensure the accomplishment of these objectives. See Albany ___ ______
Partners, 749 F.2d at 675 (explaining that "the important ________
congressional policy behind the automatic stay demands that
courts be especially hesitant to validate acts committed during
the pendency of the stay"). We conclude, therefore, that
although courts possess a limited discretion to grant retroactive
relief from the automatic stay, instances in which the exercise
of that discretion is justified are likely to be few and far
between.
We do not suggest that we can write a standard that
lends itself to mechanical application. Each case is sui generis
and must be judged accordingly. But, while it is not practical
to anticipate and catalogue the varied circumstances in which
retroactive relief from the automatic stay may be warranted, some
examples may be helpful.
When a creditor inadvertently violates the automatic
17
stay in ignorance of a pending bankruptcy, courts sometimes have
afforded retroactive relief. See, e.g., Jones, 63 F.3d at 412-13 ___ ____ _____
(affirming retroactive validation of a foreclosure sale where the
mortgagee had no notice of the bankruptcy filing); Mutual Benefit ______________
Life Ins. Co. v. Pinetree, Ltd. (In re Pinetree, Ltd.), 876 F.2d _____________ ______________ ____________________
34, 37 (5th Cir. 1989) (similar). By like token, debtors who act
in bad faith may create situations that are ripe for retroactive
relief. See, e.g., Calder, 907 F.2d at 956; Easley, 990 F.2d at ___ ____ ______ ______
911; Albany Partners, 749 F.2d at 675-76. _______________
These examples a creditor's lack of notice or a
debtor's bad faith clearly do not exhaust the possibilities.
But they illustrate that a rarely dispensed remedy like
retroactive relief from the automatic stay must rest on a set of
facts that is both unusual and unusually compelling. The case
law echoes this conclusion. See Mataya v. Kissinger (In re ___ ______ _________ _____
Kissinger), 72 F.3d 107, 109 (9th Cir. 1995) (stating that courts _________
should indulge retroactive annulment only in extreme
circumstances); In re Pulley, 196 B.R. 502, 504 (Bankr. W.D. Ark. ____________
1996) (similar).
4. Applying the Standard. Having constructed the 4. Applying the Standard. _______________________
limiting principle, we now consider whether the bankruptcy court
erred in validating the foreclosure judgment which had been
obtained in violation of the automatic stay. We conclude that no
proper predicate existed for doing so and that the bankruptcy
court therefore abused its discretion in ordering retroactive
relief. See Anderson v. Beatrice Foods Co., 900 F.2d 388, 394 ___ ________ __________________
18
(1st Cir.) (equating abuse of discretion with a meaningful error
in judgment), cert. denied, 498 U.S. 891 (1990). _____ ______
Contrary to BCU's importunings, it is the creditor's
knowledge, not the state court's nescience, that is relevant to
the question at hand. Bankruptcy law forbids creditors from
continuing judicial proceedings against bankrupts, see 11 U.S.C. ___
362(a)(1), and, accordingly, it is the creditor's obligation to
inform other courts of the situation, see In re Timbs, 178 B.R. ___ ____________
989, 991 (Bankr. E.D. Tenn. 1989) (collecting cases). Here, both
BCU's knowledge and its failure to act are undisputed; the debtor
immediately notified BCU of the bankruptcy filing, but BCU kept
quiet and permitted the superior court to proceed in ignorance of
the stay. We are reluctant to reward creditors who, despite
notice of a bankruptcy filing, fail for no discernible reason to
notify courts in which they have initiated proceedings of the
changed circumstances.
The other facts are no more conducive to the bestowal
of retroactive relief. The creditor was represented by counsel
throughout and does not claim that it misapprehended the effect
of the filing. The bankruptcy court made no finding that Soares
acted in bad faith, and, at any rate, the record does not contain
any basis for such a finding. The procedural errors committed by
both parties, such as BCU's failure to serve Soares with the so-
called clarification motion and Soares' failure to lodge timely
objections at various points in the proceedings, seemingly cancel
each other out. And BCU's entreaty that the equities favor
19
retroactive relief rings unmistakably hollow; though BCU expended
funds to clear title and maintain the property after foreclosing,
this financial hardship is the natural consequence of its own
failure to abide by the terms of the automatic stay. Thus, it is
unredressable. See K-Mart Corp. v. Oriental Plaza, Inc., 875 ___ _____________ _____________________
F.2d 907, 916 (1st Cir. 1989) (declining to deny permanent
injunctive relief which would require substantial demolition of
an expensive structure where "appellant's wound, deep as it
appears, was self-inflicted"). In the last analysis, BCU is the
author of its own misfortune.
III. CONCLUSION III. CONCLUSION
To sum up, we hold that the state court's post-petition
issuance of a foreclosure judgment violated the automatic stay;
that bankruptcy courts ordinarily must hold those who defile the
automatic stay to the predictable consequences of their actions
and can grant retroactive relief only sparingly and in compelling
circumstances; and that, because this case involves no
sufficiently unusual circumstances, the bankruptcy court abused
its discretion in granting retroactive relief from the automatic
stay.7
In an abundance of caution, we note that our review is
confined to the order granting the so-called clarification motion
and the retroactive relief awarded therein. Although Soares may
____________________
7We recognize the difficulties that attend the undoing of
the foreclosure sale and the restoration of the pre-petition
status quo, but that problem cannot in and of itself justify
overlooking BCU's unexcused violation of the automatic stay. Cf. ___
K-Mart, 875 F.2d at 916. ______
20
ask the bankruptcy court to reconsider its decision to lift the
automatic stay, BCU can request a new foreclosure judgment in the
state court unless and until the bankruptcy court reinstates the
stay. For our part, we need go no further.
Reversed and remanded. Reversed and remanded. _____________________
21
Document Info
Docket Number： 96-2110
Filed Date： 3/13/1997
Precedential Status： Precedential
Modified Date： 9/21/2015