NATIONAL MEDICAL IMAGING, LLC v. LYON FINANCIAL SERVICES, INC., etc. ( 2021 )

Third District Court of Appeal
State of Florida
Opinion filed January 13, 2021.
Not final until disposition of timely filed motion for rehearing.
________________
No. 3D20-730
Lower Tribunal No. 15-23495
________________
National Medical Imaging, LLC, et al.,
Appellants,
vs.
Lyon Financial Services, Inc., etc.,
Appellee.
An Appeal from a non-final order from the Circuit Court for Miami-Dade
County, Michael A. Hanzman, Judge.
Genovese Joblove & Battista, P.A., and W. Barry Blum and Jessica Serell
Erenbaum, for appellants.
Shutts & Bowen LLP, and Jack C. McElroy, John W. Bustard and Patrick G.
Brugger, for appellee.
Before EMAS, C.J., and FERNANDEZ, LOGUE, SCALES, LINDSEY, HENDON,
MILLER, GORDO, and LOBREE, JJ.
SCALES, J.
This Court, on its own motion, 1 rehears en banc National Medical Imaging,
LLC v. Lyon Financial Services, Inc., 3D20-730, 2020 WL 5228979 (Fla. 3d DCA
Sept. 2, 2020) (“panel opinion”). The panel opinion, in reliance upon Shop in the
Grove, Ltd. v. Union Federal Savings & Loan Ass’n of Miami, 425 So. 2d 1138(Fla. 3d DCA 1982), begrudgingly denied Appellee Lyon Financial Services, Inc.
d/b/a U.S. Bank Portfolio Services’ August 14, 2020 motion to stay the proceedings
in our Court (“stay motion”) during the pending bankruptcy proceedings in which
Appellants National Medical Imaging, LLC and National Medical Imaging Holding
Company, LLC are the debtors. Shop in the Grove held that the automatic stay
provision in 11 U.S.C. § 362(a)(1) is inapplicable in this Court where the debtor –
who is the defendant below and who has filed for federal bankruptcy protection – is
the appellant. Shop in the Grove, Ltd., 425 So. 2d at 1139. Persuaded by (a) the clear
and unambiguous text of the federal bankruptcy code’s automatic stay provision, (b)
precedent from virtually every other jurisdiction to have addressed the issue, and (c)
a slight nudge by the federal bankruptcy judge presiding over appellants’ bankruptcy
case, we take this opportunity to, en banc, recede from Shop in the Grove (and,
necessarily, the result reached in the panel opinion), and grant Appellee’s stay
motion.
1
“A rehearing en banc may be ordered by a district court of appeal on its own motion
or on motion of a party.” Fla. R. App. P. 9.331(d)(1).
2
I. RELEVANT BACKGROUND, THE PANEL OPINION, AND THIS
COURT’S EN BANC CONSIDERATION
In 2015, Appellee obtained a $12 million judgment against Appellants in a
Pennsylvania state court. Appellee domesticated the judgment in the Miami-Dade
County Circuit Court and obtained an April 28, 2020 final order below authorizing
Appellee’s execution on certain choses in action owned by Appellants. On May 7,
2020, Appellants appealed this final order to our Court (appellate case number
3D20-730). After Appellants served their initial brief, Appellants, on June 12, 2020,
filed voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy
Court for the Eastern District of Pennsylvania (“Bankruptcy Court”). See In re:
National Medical Imaging, LLC, Case No. 20-12618-elf (Bankr. E.D. Pa.)
(consolidated). Not wanting to violate the automatic stay by filing an answer brief,
or otherwise defending against the appeal in our Court, on August 14, 2020,
Appellee filed the instant stay motion seeking an order from this Court staying
appellate proceedings in appellate case number 3D20-730 pending further order of
the Bankruptcy Court. On September 22, 2020, a panel of this Court, in reliance
upon this Court’s 1982 opinion in Shop in the Grove, issued the panel opinion
denying Appellee’s stay motion. Nat’l Med. Imaging, LLC, 2020 WL 5228979, at
*1.
3
Noting infirmities in Shop in the Grove, including the overwhelming
precedent making Shop in the Grove an outlier, the panel opinion questioned the
continued viability of Shop in the Grove, and not-so-subtly suggested en banc
review was in order. Id. Tellingly, the panel opinion noted how Shop in the Grove’s
outlier status placed parties, and their counsel, “on the horns of a dilemma.” Id. at
*2. Specifically, the panel opinion noted not only that federal bankruptcy courts are
not bound by Shop in the Grove, but also that the Bankruptcy Court in which the
Appellants’ bankruptcy case is pending is bound by precedent that is contrary to
Shop in the Grove. Id.
Indeed, after the parties in this case provided the Bankruptcy Court with a
copy of the panel opinion, the Bankruptcy Court entered an October 20, 2020 order
enjoining the parties “from filing any briefs in, or in any other way continuing” the
parties’ appellate proceedings in this Court. 2
II. JUSTIFICATION FOR REHEARING EN BANC
2
In addition to appellate case number 3D20-730, there are three related matters
pending in our court. In appellate case number 3D20-773, Appellants seek review
of lower court orders directing the lower court clerk to schedule an online auction
for the sale of certain choses in action owned by Appellants. In appellate case
number 3D20-786, Appellants seeks review of a trial court order denying
Appellants’ motion to dismiss the operative pleading for improper venue. In
appellate case number 3D20-820, Appellants seek to prohibit the trial court judge
from presiding further over the lower court proceedings in this case.
4
While critical of this Court’s Shop in the Grove precedent, the panel opinion
noted that the panel was powerless to, on its own, recede from Shop in the Grove;
only this Court, sitting en banc, may recede from a prior panel’s decision. Nat’l Med.
Imaging, LLC, 2020 WL 5228979, at *1 n.2. The Bankruptcy Court’s injunction
order – filed in the multiple appellate cases pending before different panels of this
Court – placed into sharp focus the dilemma that our continued adherence to Shop
in the Grove places on parties who are involved in bankruptcy proceedings in this
Court. Viewed against the backdrop of both the plain text of the automatic stay
provision and Shop in the Grove’s outlier status (both of which were highlighted in
the panel opinion), the Bankruptcy Court’s injunction order provides this Court with
sufficient justification to determine, on its own motion, that the issue of whether we
should recede from Shop in the Grove is a matter of exceptional importance, and
that rehearing en banc of the panel opinion is therefore warranted.
III. ANALYSIS
While the panel opinion touches upon some of the problems posed by Shop
in the Grove, we feel it important to, in this en banc opinion, detail with more
specificity the three principal reasons why we are receding from Shop in the Grove’s
long-standing precedent.
A. The Plain Text of the Automatic Stay Provision Compels Receding from Shop
in the Grove and Granting the Stay Motion
5
Congress enacted the Bankruptcy Reform Act of 1978 (“Act”) and included
in it a provision that automatically stays all legal proceedings against a debtor upon
the debtor’s filing of a petition seeking bankruptcy protection. The Act provides, in
relevant part:
(a) Except as provided in subsection (b) of this section, a petition filed
under section 301, 302, or 303 of this title, or an application filed under
section 5(a)(3) of the Securities Investor Protection Act of 1970,
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.A. § 362(a)(1) (2020).
The Act’s text is clear and unambiguous. The debtor’s filing of a bankruptcy
petition stays any “action or proceeding against the debtor,” including the
“continuation” of an “action or proceeding against the debtor.” Id. When the debtor
is a defendant in a legal action, as Appellants are here, the debtor-defendant’s appeal
of an adverse order or judgment in that legal action, as occurred here, is plainly a
“continuation” of the legal action against the debtor. See Pa. Ins. Guar. Ass’n v.
Sikes, 590 So. 2d 1051, 1052 (Fla. 3d DCA 1991) (“An appeal is not a new action;
it is a continuation of the original proceeding.”).
6
Despite reciting the text of the Act’s automatic stay provision, Shop in the
Grove’s conclusion is not based on the provision’s text, but, rather, on two policy-
based reasons: (i) the purpose of the automatic stay’s “shield” is actually thwarted
when the debtor uses the stay as a “sword” to indefinitely suspend the debtor’s own
efforts to be relieved of an adverse judgment; and (ii) to control this Court’s docket,
the debtor should be required to “fish or cut bait” and either appeal the adverse
judgment or submit the judgment to the bankruptcy court for such relief as the
bankruptcy court deems appropriate. Shop in the Grove, Ltd., 425 So. 2d at 1139.
While Shop in the Grove’s stated policy rationale may seem reasonable, we
find the opinion’s conclusion to be without support in the clear and unambiguous
text of the Act’s automatic stay provision. We leave bankruptcy policy to the United
States Congress, and will, henceforth, follow the clear Congressional mandate
manifested in the text of the automatic stay provision. Guardian Ad Litem v.
ViajeHoy, LLC, 299 So. 3d 1130, 1136 (Fla. 3d DCA 2020) (recognizing that “State
public policy concerns could not override the express language of the federal statutes
and regulations”).
B. Precedent from other Jurisdictions Compels Receding from Shop in the Grove
and Granting the Stay Motion
1. Florida Precedent
7
There were no Florida cases addressing the Act’s automatic stay provision
prior to Shop in the Grove. 3 Over time, this Court’s conclusion that an appeal
initiated by a debtor-defendant is not subject to the automatic stay made it an outlier
in the state.
The Fourth District initially followed Shop in the Grove. See Marine Charter
& Storage, Ltd. v. All Underwriters at Lloyds of London Subscribing to Cover Notes
2H04/1291, 568 So. 2d 944, 946 (Fla. 4th DCA 1990) (“We do not believe a stay is
appropriate and adopt in toto the opinion of Chief Judge Schwartz in [Shop in the
Grove].”). Four years later, though, based on burgeoning case law from the federal
circuit courts, the Fourth District, in a unanimous en banc opinion, receded from
Marine Charter & Storage and held that the automatic stay provision applies “on
appeal, regardless of whether the debtor is an appellant or appellee, where the
original proceedings were against the debtor.” Fla. E. Dev. Co., Inc. of Hollywood
v. Len-Hal Realty, Inc., 636 So. 2d 756, 758 (Fla. 4th DCA 1994). Following in the
3
The United States Court of Appeals for the Third Circuit had, however, recently
determined that the automatic stay provision applied to appeals brought by debtor-
defendant. See Ass’n of St. Croix Condo. Owners v. St. Croix Hotel Corp., 682 F.2d
446, 449 (3d Cir. 1982) (“In our view, section 362 should be read to stay all appeals
in proceedings that were originally brought against the debtor, regardless of whether
the debtor is the appellant or appellee. Thus, whether a case is subject to the
automatic stay must be determined at its inception. That determination should not
change depending on the particular stage of the litigation at which the filing of the
petition in bankruptcy occurs.”) (decided July 6, 1982).
8
steps of the Fourth District, both the Second District4 and then the First District5
explicitly rejected Shop in the Grove. 6
2. Federal Precedent
Not only is Shop in the Grove now an outlier within Florida, but, at the federal
level, there now appears to be unanimous agreement among the circuit courts that
the automatic stay provision applies to appellate proceedings where a debtor-
defendant has filed an appeal. See, e.g., Simon v. Navon, 116 F.3d 1, 4 (1st Cir.
1997); Commerzanstalt v. Telewide Sys., Inc., 790 F.2d 206, 207 (2d Cir. 1986);
Ass’n of St. Croix Condo. Owners, 682 F.2d at 449 (decision by federal third
circuit); In re Byrd, 357 F.3d 433, 439 (4th Cir. 2004); Marcus, Stowell & Beye
Gov’t Sec., Inc. v. Jefferson Inv. Corp., 797 F.2d 227, 230 n.4 (5th Cir. 1986);
Cathey v. Johns–Manville Sales Corp., 711 F.2d 60, 62 (6th Cir. 1983); Sheldon v.
Munford, Inc., 902 F.2d 7 (7th Cir. 1990); Farley v. Henson, 2 F.3d 273, 275 (8th
4
Crowe Grp., Inc. v. Garner, 691 So. 2d 1089, 1089 (Fla. 2d DCA 1993)
(recognizing the decision “expressly and directly conflicts with” Shop in the
Grove”).
5
Taylor v. Barnett Bank of N. Cent. Fla., N.A., 737 So. 2d 1105, 1106 (Fla. 1st
DCA 1998) (rejecting Shop in the Grove and aligning “with the decisions in Florida
Eastern Development and Crowe Group on the issue of the effect of the filing of a
suggestion of bankruptcy”).
6
It does not appear that the Fifth District has, in a published opinion, addressed the
issue of whether the Act’s automatic stay applies when a debtor-defendant initiates
the appeal.
9
Cir.1993); Ingersoll–Rand Fin. Corp. v. Miller Mining Co., 817 F.2d 1424, 1426
(9th Cir. 1987); Ellison v. Nw. Eng’g Co., 707 F.2d 1310, 1311 (11th Cir. 1983);
Carley Cap. Grp. v. Fireman’s Fund Ins. Co., 889 F.2d 1126, 1127 (D.C. Cir. 1989)
(agreeing with Third Circuit’s opinion in Ass’n of St. Croix Condo. Owners but
holding that the stay did not apply because the underlying action was not against the
debtor); Seiko Epson Corp. v. Nu-Kote Int’l, Inc., 190 F.3d 1360, 1365 (Fed. Cir.
1999).
Until 2011, the Tenth Circuit held to the minority position that the Act’s
automatic stay provision does not apply when a debtor-defendant initiates an appeal.
However, in an opinion authored by then-Circuit Court Judge Neil Gorsuch, the
court overruled its prior interpretation and followed the other circuits in holding that
section 362 stays “all appeals in proceedings that were originally brought against
the debtor, regardless of whether the debtor is the appellant or appellee.” TW
Telecom Holdings Inc. v. Carolina Internet Ltd., 661 F.3d 495, 497 (10th Cir. 2011)
(quoting Ass’n of St. Croix Condo. Owners, 682 F.2d at 449).7
It should be noted that early Tenth Circuit decisions relied on the leading
bankruptcy law treatise in support of the minority position. See Autoskill Inc. v.
7
TW Telecom was a panel decision that was circulated to, and approved, en banc
by the Tenth Circuit, which is a permissible practice in that jurisdiction. See United
States v. Payne, 644 F.3d 1111, 1113 n.2 (10th Cir. 2011).
10
Nat’l Educ. Support Sys., Inc., 994 F.2d 1476, 1486 (10th Cir. 1993) (citing Collier
on Bankruptcy). But as the court in TW Telecom explained:
Collier on Bankruptcy has explicitly rejected our reliance on it to
support our minority position. 10 Collier on Bankruptcy ¶ 6009.04 n. 5
(Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2011) (“Both [In
re Lyngholm and Autoskill Inc.] relied upon an earlier edition of this
treatise to support this minority position. However, the reference in the
prior edition to ‘continued prosecution of actions’ was a reference only
to actions in which the debtor was the plaintiff, actions not governed by
Code section 362(a)(1). Because the reference was not to appeals of
cases in which the debtor was a defendant, the Tenth Circuit’s reliance
on this treatise was inappropriate.”).
661 F.3d at 497.
3. Summary of Precedent
In summary, the approach in Shop in Grove is inconsistent with all other
Florida District Courts of Appeal and all federal circuit courts that have addressed
the issue. Shop in the Grove’s holding is also at odds with the leading treatise on
bankruptcy law. With respect to the reasoning underlying Shop in the Grove, the
unanimous consensus seems to be that an appeal initiated by a debtor-defendant is a
“continuation . . . of a judicial, administrative, or other action or proceeding against
the debtor” as set forth by the plain language in section 362. See, e.g., Nat’l Med.
Imaging, LLC, 2020 WL 5228979, at *1 (“[T]he federal bankruptcy code’s
automatic stay provision is clear: the debtor’s filing of a bankruptcy petition stays
any action or proceeding, including the ‘continuation’ of an ‘action or proceeding
against the debtor.’ 11 U.S.C. § 362(a)(1) (2020). When the debtor is a defendant in
11
an action, it seems to us that the debtor-defendant’s appeal of an adverse judgment
in that action is plainly a ‘continuation’ of a ‘proceeding’ against the debtor-
defendant.”); see also Parker v. Bain, 68 F.3d 1131, 1135-36 (9th Cir. 1995) (“We
need not spill a great deal of ink discussing the assertion . . . that an appeal by the
debtor cannot constitute the continuation of an action against the debtor. This Court,
as well as seven other courts of appeals, has concluded that the automatic stay can
operate to prevent an appeal by a debtor when the action or proceeding below was
against the debtor. . . . This rule finds its source in the language of section 362, which
extends the automatic stay to the continuation, as well as the commencement, of an
action against the debtor.”) (footnote omitted).
C. Practical Considerations Compel Receding from Shop in the Grove and
Granting the Stay Motion
As mentioned in the panel opinion, this Court’s adherence to Shop in the
Grove presented significant practical, if not ethical, problems for practitioners,
especially multi-jurisdictional practitioners. Nat’l Med. Imaging, LLC, 2020 WL
5228979, at *2. While appellate practitioners could generally rely upon a debtor’s
filing a petition for bankruptcy protection automatically staying appellate
proceedings, the rules were different in Florida’s Third District. Here, Shop in the
Grove compelled the parties to continue to litigate the appeal, even when the
bankruptcy proceedings were occurring in a jurisdiction that had definitively
determined that continuation of the appeal violated the automatic stay.
12
Consequently, Shop in the Grove put practitioners, and their clients, in the
unenviable position of having to choose whether to violate either (i) the automatic
stay imposed by the Act or, alternatively, (ii) orders from this Court denying stay
relief.
Lest one think such a dilemma is merely academic, this case presented that
very Hobson’s choice. After Appellants initiated this appeal, Appellants filed for
bankruptcy protection in the Bankruptcy Court, a jurisdiction where a debtor-
appellant’s bankruptcy filing automatically stays all appellate proceedings,
irrespective of whether the appellant is the debtor or the creditor. See Ass’n of St.
Croix Condo. Owners, 682 F.2d at 449. In reliance upon Shop in the Grove, though,
we issued the panel opinion that denied Appellee’s stay motion and required
Appellee to file its answer brief. The Bankruptcy Court made short shrift of our
panel opinion, and, notwithstanding same, affirmatively enjoined the parties from
filing anything in our Court, except for, of course, a copy of the Bankruptcy Court’s
injunction order.
Upon our review of the Bankruptcy Court’s injunction order, and, in
appreciation of the dilemma that our continued adherence to Shop in the Grove has
caused, we take the hint.
IV. CONCLUSION
13
We conclude that the issue adjudicated in Shop in the Grove is of exceptional
importance, requiring rehearing en banc of the panel opinion. We recede from Shop
in the Grove because its principal conclusion – that an appeal initiated by the debtor-
defendant is not subject to Section 362(a)’s automatic stay provision – is not
supported by the text of the stay provision, is contrary to virtually all precedent from
all other jurisdictions, and because it sometimes forces parties and their counsel into
untenable positions.
We, therefore, also recede from panel opinion’s denial of the stay motion. We
grant the stay motion, and stay proceedings in this appeal pending further order of
the Bankruptcy Court.
Stay motion granted. 8
EMAS, C.J., and FERNANDEZ, LOGUE, LINDSEY, HENDON, MILLER,
GORDO, and LOBREE, JJ., concur.
8
Because this en banc opinion adjudicates an interlocutory, procedural issue, upon
this opinion becoming final, the en banc Court will no longer exercise jurisdiction
to adjudicate further matters in this appeal. Such jurisdiction will be relinquished to,
as appropriate, a temporary panel or a merits panel.
14
National Medical Imaging, LLC, et al. v. Lyon Financial Services, Inc.
Case No. 3D20-730
LOGUE, J. (concurring).
I concur in the majority opinion receding from Shop in the Grove, Ltd. v.
Union Fed. Sav. & Loan Ass’n of Miami, 425 So. 2d 1138 (Fla. 3d DCA 1982). I
write only to point out that we are adopting almost word-for-word the legal
interpretation of section 362(a)(1) of the United States Bankruptcy Code put forward
some forty years ago by Judge Wilkie D. Ferguson, Jr. of our Court in his dissent.
Shop in the Grove concerned the issue of whether an appeal by a debtor of an
adverse judgment qualified as a “continuation . . . of a judicial . . . proceeding against
the debtor” under the Bankruptcy Code and therefore automatically stayed. The
majority in Shop in the Grove held it was not. Judge Ferguson dissented, writing:
. . . The requirement imposed upon an appellant-debtor by the majority
to “fish or cut bait” translates into a Hobson’s choice between waiver
of bankruptcy for the purpose of an appeal from the adverse judgment
or conceding the contested debt in order to seek relief in the bankruptcy
court. I am aware of no rule of bankruptcy law or federal procedure that
would require such an election. In my opinion the appeal by the
appellant-debtor from a judgment against it is a continuation of the
judicial proceeding against debtor, clearly within the purview of the
Act’s automatic stay provision.
Id. at 1140 (Ferguson, J. dissenting).
When Judge Ferguson issued his dissent in 1982, the “new” form of the
Bankruptcy Code was only four years old. Over the ensuing decades, as the majority
15
points out, every state and federal court that considered the issue reached the
interpretation first put forward by Judge Ferguson. The judgment of this soft spoken,
scholarly, and insightful jurist has stood the test of time on this highly technical issue
of commercial law, as it has in so many matters reaching to civil rights and
constitutional law. 9 Although known for his gracious good will and punctilious
courtesy, Judge Ferguson did not hesitate to chide lawyers and even colleagues for
indulging in cant10 or legal obscurities.11
9
See, e.g., Cramer v. Chiles, 33 F. Supp. 2d 1342, 1352 (S.D. Fla. 1999) (upholding
constitutional and statutory rights of disabled persons to home and community-based
treatment in a decision that caused the State of Florida to substantially increase its
funding of these programs).
10
See, e.g., Allstate Ins. Co. v. Metro. Dade Cnty., 436 So. 2d 976, 980 (Fla. 3d
DCA 1983) (Ferguson, J., concurring) (“I write only to express disapproval of the
attempt to distinguish and salvage our earlier opinion in Fireman’s Fund Insurance
Co. v. Rojas, 409 So. 2d 1166 (Fla. 3d DCA 1982). Rojas blurred the differences
between indemnification and subrogation to an incorrect conclusion and should be
revisited solely for the purpose of giving it a decent burial.”).
11
See, e.g., Cramer, 33 F. Supp. 2d at 1352, n.4 (“In discussing the notice issue the
parties have used the term ‘procedural due process’ which I shun because it is, as
one commentator observed, redundant. John Hart Ely, Democracy and Distrust 18
(1980). The word following ‘Due’ in the Fourteenth Amendment is ‘Process’ the
writer notes, which is the same as procedure. Process is defined as a ‘normal course
of procedure.’ Black’s Law Dictionary 1205 (6th Ed. 1992). By the same token, he
continues, ‘substantive due process’ is a contradiction in terms. A right in the
constitutional sense, generally, is either substantive or procedural. Writers who use
substantive or procedural to describe due process appear trapped and the work
product may lack clarity. There is no doubt that this discourse on advance notice and
opportunity to be heard is about procedural fairness. Saying it twice is
unnecessary.”).
16
Judge Ferguson was born in 1938 to Bahamian immigrants and was raised in
Miami’s Liberty Square public housing project. He joined the U.S. Army and rose
to the rank of captain. He obtained his B.A. from Florida A&M University and his
J.D. from Howard University School of Law. He served on this Court from 1980 to
1993 until he was appointed to the federal district court for the Southern District of
Florida where he served with distinction until shortly before his death in 2003. The
Congress of the United States named the federal courthouse in Miami in his honor.
As this case comes full circle, and we adopt the position first advocated by
Judge Ferguson almost forty years ago, I think it is fit and proper to bear in mind we
are following in the footsteps of this distinguished, past member of our conference.
17