Cavaretta v. Bixby CA2/8 ( 2014 )

Filed 9/2/14 Cavaretta v. Bixby CA2/8
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
TRACY M. CAVARETTA, as Special B243891
Administrator, etc.,
(Los Angeles County
Petitioner and Respondent, Super. Ct. No. YP011038)
v.
SHEILA BIXBY, as Special Administrator,
etc.,
Objector and Appellant.
APPEAL from an order of the Superior Court of Los Angeles County, Dudley
Gray, II, Judge. Reversed and remanded.
Law Offices of Najila K. Brent and Najila K. Brent for Objector and Appellant.
Burkley & Brandlin, Walter R. Burkley, Jr., and Deborah C. Keesey for Petitioner
and Respondent.
______________________________
Before his death, Albert W. Duclos retained the services of attorney Kelly W.
Bixby (now also deceased) for Mr. Duclos’s divorce from his wife. In the course of that
divorce, the family home was sold, and Mr. Duclos’s share of the proceeds was deposited
into Mr. Bixby’s client trust account. Mr. Bixby also received for deposit into
Mr. Bixby’s client trust account a cashier’s check settling an insurance claim for damage
to the family house. None of these funds were ever paid to Mr. Duclos.
Following Mr. Duclos’s death, his estate sought to recover the money during
probate proceedings to administer his will. Mr. Bixby failed to respond to a petition filed
pursuant to Probate Code section 850 to recover the funds, and a default judgment was
entered, ordering Mr. Bixby to turn over more than $317,000 to the estate, and to provide
an accounting.
Mr. Bixby failed to provide an accounting, and ultimately filed for bankruptcy
protection. The personal representative of the Duclos estate filed a subsequent petition
under Probate Code section 859, seeking double damages for Mr. Bixby’s bad faith
retention of Mr. Duclos’s money.
Before the hearing on that petition, the bankruptcy court granted the motion of the
personal representative of Mr. Duclos’s estate for relief from the bankruptcy stay.
However, the order granting relief from the stay was not signed and entered on the
bankruptcy court’s docket until after the hearing on the Probate Code section 859 petition
in probate court.
The probate court found that Mr. Bixby acted in bad faith, and doubled the
damages previously ordered.
After Mr. Bixby’s death, his widow, Sheila Bixby, special administrator of his
estate, substituted for her husband to pursue this appeal. Mrs. Bixby asserts a number of
arguments on appeal. Among them is her argument that the probate court lacked
jurisdiction to conduct the Probate Code section 859 hearing at which the court ordered
double damages, because the order granting relief from the bankruptcy stay had not been
entered. We agree, and on that basis, we reverse, declining to reach the other arguments
asserted on appeal.
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FACTUAL AND PROCEDURAL SUMMARY
On June 21, 2010, executor Mandie J. Saner filed a petition for probate of
Mr. Duclos’s will, and for letters testamentary. Notice of the petition to administer
Mr. Duclos’s estate was sent to a number of people, including his former attorney,
Mr. Bixby.
A supplemental petition for probate was filed on August 10, 2010, which included
a copy of the judgment of dissolution on reserved issues between Mr. Duclos and his
wife, Merry. The judgment provided that Mr. Duclos’s share of the proceeds from the
sale of the family home would be “payable to the client trust account of Kelly
Bixby . . . .” On August 11, 2010, the probate court admitted Mr. Duclos’s will to
probate, issued letters testamentary to Ms. Saner, and granted Ms. Saner full powers
under the Independent Administration of Estates Act. (Prob. Code, § 10400 et seq.)
On January 19, 2011, the estate filed a verified petition under Probate Code
section 850, seeking to reclaim property of the probate estate held by Mr. Bixby.
According to the petition, Mr. Bixby had represented Mr. Duclos in his divorce, and the
judgment of dissolution provided that certain funds belonging to Mr. Duclos were to be
deposited in Mr. Bixby’s client trust account. Mr. Bixby was in possession of
$288,064.58, representing Mr. Duclos’s share of the proceeds from the sale of the marital
home. Mr. Bixby was also in possession of an additional $29,735.95 in insurance
proceeds for damage to the marital home.
Counsel for the estate’s representative sent letters to Mr. Bixby demanding the
return of the money, but Mr. Bixby did not respond. The petition also provided:
“Petitioner further requests an order of this Court that if the court finds that Kelly Bixby,
Esq. has in bad faith wrongfully taken, concealed, or disposed of property belonging to
the Decedent’s estate, that Kelly Bixby, Esq. shall be liable for twice the value of the
property recovered in this action in accordance with Probate Code § 859.” In the prayer
for relief, the estate requested an order compelling the return of Mr. Duclos’s money, an
accounting, and double damages under section 859.
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Mr. Bixby failed to appear at the June 8, 2011 hearing on the Probate Code
section 850 petition, did not file a response to the petition, and did not seek a continuance
from the court. The court declined to award double damages under section 859, and
entered an order requiring Mr. Bixby to return $317,800.53 to the estate, and to submit an
accounting for all client trust funds held for Mr. Duclos within 30 days of service of the
order. The court set an order to show cause regarding failure to file an accounting for
August 10, 2011. Mr. Bixby did not file an accounting by the deadline, but the parties
stipulated to continue the order to show cause hearing until September 21, 2011, and the
court extended Mr. Bixby’s deadline to provide an accounting until September 9, 2011.
On August 18, 2011, the estate filed a “Petition for Order Increasing Liability of
Kelly Bixby, Esq. and for Attorneys’ Fees [Probate Code §859 and Code of Civil
Procedure §1218].” The verified petition stated that Mr. Bixby had not paid any of the
$317,800.53 he had been previously ordered to pay, and had not provided an accounting.
Mr. Bixby was cited to compel his attendance at the September 21, 2011 hearing.
The parties appeared at the September 21 hearing. Mr. Bixby had not paid any
money to Mr. Duclos’s estate, and he had not completed an accounting. The parties had
been engaged in settlement discussions, and agreed to report back to the court by
September 29 if those negotiations were successful. On September 28, 2011, Mr. Bixby
filed for bankruptcy protection. Notice of the automatic stay was filed on September 30,
2011.
On January 25, 2012, counsel for the estate’s representative filed and served upon
Mr. Bixby a notice of the continued hearing on the Probate Code section 859 petition,
setting the hearing for March 7, 2012. On February 27, 2012, Mr. Bixby filed a verified
response to the petition, averring that he had paid the proceeds of the insurance check to
the estate, and that this should be credited to the $317,800.53 he had been ordered to pay.
The response also set forth the affirmative defense of res judicata, claiming the
section 859 petition was barred by the court’s June 8, 2011 order on the section 850
petition, where the court declined to order double damages. The response also requested
a statement of decision.
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On March 7, 2012, the estate filed a reply, asserting the bankruptcy stay had been
lifted, and responding to the affirmative defense of res judicata. The estate’s bankruptcy
attorney, J. Scott Bovitz, submitted a declaration stating that he had filed a motion in the
bankruptcy court seeking relief from the automatic bankruptcy stay of the probate
proceedings and that the bankruptcy court granted the motion, which meant the probate
court was permitted to proceed with the hearing on the Probate Code section 859 petition.
The declaration stated Mr. Bovitz had lodged a proposed written order granting the
motion for relief from stay and that the bankruptcy court had not yet entered the order as
of the last time he examined the docket on March 1.
The probate court held the hearing on the Probate Code section 859 petition on
March 7, 2012. Mr. Bixby and his attorney appeared at the hearing, and the court heard
argument from the parties, and allowed Mr. Bixby to explain why he had not prepared an
accounting. After considering (and rejecting) Mr. Bixby’s argument that res judicata
barred an award under section 859, the trial court granted the petition for double damages
under section 859.
On May 7, 2012, the estate submitted a proposed order granting the petition, in
advance of a May 9, 2012 hearing on the status of the administration of the estate.1 On
July 11, 2012, the probate court entered its order increasing Mr. Bixby’s liability under
Probate Code section 859. The order doubled the previous award against Mr. Bixby to
$635,601.06, finding that Bixby acted in “bad faith” and wrongfully took, “concealed or
disposed of trust funds held for the benefit of . . . Duclos.” A copy of the bankruptcy
court order granting relief from the automatic stay was appended to the probate court’s
order. The order granting relief from the stay was entered on the bankruptcy court’s
docket on March 20, 2012.
1 A supplemental petition for probate of will was filed on July 6, 2012, nominating
the decedent’s sister, Tracy M. Cavaretta, to administer the estate, following the death of
the executor, Ms. Saner, on May 4, 2012.
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DISCUSSION
The filing of a bankruptcy petition “operates as an automatic stay of the
commencement or continuation of any action against a bankrupt debtor or against the
property of a bankruptcy estate.” (Pioneer Construction, Inc. v. Global Investment Corp.
(2011) 202 Cal. App. 4th 161, 167; see also In re Doser (9th Cir. 2005) 412 F.3d 1056,
1062; 11 U.S.C. § 362(a)(1).) The purpose of the stay is to provide debtors with
“ ‘breathing room’ ” and to “prevent[] creditors from racing to the courthouse in an
attempt to drain the debtor’s assets.” (In re LPM Corp. (9th Cir. 2002) 300 F.3d 1134,
1137.) The stay “serves as one of the most important protections in bankruptcy law,” and
the scope of protection is broad. (Eskanos & Adler, P.C. v. Leetien (9th Cir. 2002)
309 F.3d 1210, 1214.) The stay remains in effect with respect to property of the estate
“until such property is no longer property of the estate.” (11 U.S.C. § 362(c)(1); see In re
Spirtos (9th Cir. 2000) 221 F.3d 1079, 1081.)
The bankruptcy court has exclusive jurisdiction to determine the scope and
applicability of the automatic stay. (In re Gruntz (9th Cir. 2000) 202 F.3d 1074, 1082
[“[a]ny state court modification of the automatic stay would constitute an unauthorized
infringement upon the bankruptcy court’s jurisdiction to enforce the stay”].) Any action
taken in violation of the automatic stay is void, even if there is no actual notice of the
stay. (Id. at p. 1087; see also Pioneer Construction, Inc. v. Global Investment Corp.,
supra, 202 Cal.App.4th at p. 167.)
A creditor may move in the bankruptcy court for relief from the automatic stay to
pursue claims in state court. (11 U.S.C. § 362(d).) An order granting relief from the
automatic stay is effective when that order is entered on the bankruptcy court’s docket.
(Cooper v. GGGR Invs., LLC (Bankr. E.D.Va. 2005) 334 B.R. 179, 192; see also In re
Latture (10th Cir. 2010) 605 F.3d 830, 832-833; Fed. Rules Bankr. Proc., rules 9021,
[“A judgment or order is effective when entered under Rule 5003.”], 5003(a) [“The entry
of a judgment or order in a docket shall show the date the entry is made.”], 11 U.S.C.)
At the time of the March 7, 2012 hearing on the Probate Code section 859 petition,
the order granting the estate’s motion for relief from the stay had not been entered on the
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bankruptcy court’s docket. Therefore, the order granting relief from the stay was not
effective, and the stay was still in place at the time of the probate court’s hearing on the
petition. (Fed. Rules Bankr. Proc., rules 9021, 5003(a), 11 U.S.C.)
We recognize that the probate court’s order doubling Mr. Bixby’s liability was
entered in the minutes of the probate court on July 11, 2012, after the order lifting the
stay was entered in the bankruptcy court docket on March 20, 2012. But the probate
court had no legal basis for entering a minute order reporting proceedings that were
conducted on March 7, 2012, before the stay had been lifted. The order granting the
Probate Code section 859 petition is void because the court issued the order in
proceedings held in violation of the stay, and, therefore, it must be reversed. (Pioneer
Construction, Inc. v. Global Investment Corp., supra, 202 Cal.App.4th at p. 167.)
Respondent has cautioned that we should not exalt “form” over “substance.”
However, the law is clear. The rules requiring bankruptcy orders be entered before they
become effective serve important purposes. Entry of an order on the bankruptcy court’s
docket provides notice of the precise terms of the order. (See In re Henry Brothers
Partnership (Bankr. 8th Cir. 1997) 214 B.R. 192, 195.) The bankruptcy court may not
sign counsel’s proposed order and may modify the terms of the proposed order before it
is entered. The final order here differed materially from the proposed order submitted by
counsel in advance of the March 7 hearing.
Since we find the probate court order was entered in violation of the automatic
bankruptcy stay and is void, we need not consider appellant’s remaining arguments about
the order.
DISPOSITION
The order is reversed, and the matter is remanded for further proceedings.
Appellant is awarded costs on appeal.
GRIMES, J.
We concur:
BIGELOW, P. J. RUBIN, J.
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