Church Mutual Insurance v. American Home Assurance Co. (In Re Heating Oil Partners, LP)

10-733-bk
In re: Heating Oil Partners, LP
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after
January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court’s
Local Rule 32.1.1. When citing a summary order in a document filed with this court, a party must cite either
the Federal Appendix or an electronic database (with the notation “summary order”). A party citing a
summary order must serve a copy of it on any party not represented by counsel.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York,
on the 16th day of May, two thousand eleven.
PRESENT:
JON O. NEWMAN,
GUIDO CALABRESI,
PETER W. HALL,
Circuit Judges.
_______________________________________________
IN RE: HEATING OIL PARTNERS, LP,
Debtor.
_______________________________________________
CHURCH MUTUAL INSURANCE CO.,
Appellant,
v. 10-733-bk
AMERICAN HOME ASSURANCE COMPANY,
Appellee.
______________________________________________
FOR APPELLANT: JAMES M. NUGENT, (James R. Winkel, on the brief),
Harlow, Adams & Friedman, P.C., Milford,
Connecticut.
FOR APPELLEE: EDWARD M. KAY, (Don R. Sampen, on the brief),
Clausen Miller, P.C., New York, New York.
Appeal from a judgment of the United States District Court for the District of
Connecticut (Haight, J.) affirming the order of the United States Bankruptcy Court for the
District of Connecticut (Shiff, J.). UPON DUE CONSIDERATION, IT IS HEREBY
ORDERED, ADJUDGED, AND DECREED, that the judgment of the district court is
AFFIRMED.
Appellant Church Mutual Insurance Co. (“Church”) appeals from a judgment of the
district court affirming the bankruptcy court’s order declaring Church’s default judgment entered
in New Jersey Superior Court against Beacon Oil Company (“Beacon”) and Beacon’s successor
in interest, debtor Heating Oil Partners, LP (“HOP”), void ab initio. We assume the parties’
familiarity with the facts, procedural history, and issues on appeal.
“On an appeal from the district court’s affirmance of a bankruptcy court’s order, we
review the decision of the bankruptcy court independently, assessing its conclusions of law de
novo and its factual findings for clear error.” In re Dana Corp., 574 F.3d 129, 144-45 (2d Cir.
2009).
A brief discussion of the proceedings below is warranted. The debtor’s insurer, appellee
American Home Assurance Co. (“AHA”), moved in bankruptcy court for an order declaring the
New Jersey default judgment against Beacon and HOP void because it was entered in violation
of the automatic stay triggered by the filing of HOP’s Chapter 11 bankruptcy petition under 11
U.S.C. § 362, the confirmation order, and the discharge injunction under 11 U.S.C. § 524(a).
The bankruptcy court declared that the default judgment was void ab initio because it was
entered in violation of the section 524(a) discharge injunction and the confirmation order. On
appeal, the district court affirmed, holding that the state court action and entry of the subsequent
default judgment were in violation of the section 362 automatic stay and, therefore, were void ab
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initio. According to the district court, AHA had standing to move for a declaration that the
default judgment against the debtor was void because it was a “party in interest” to the
bankruptcy proceeding as the debtor’s liability insurer.
On appeal to this court, Church contests AHA’s standing to bring a motion in the
bankruptcy court seeking an order declaring the default judgment void. Church argues that AHA
is a third-party and lacks standing to invoke the protections of the discharge injunction or the
automatic stay provision.
The district court’s holding with respect to standing is sound. 11 U.S.C. § 1109(b) states
that “[a] party in interest . . . may raise and may appear and be heard on any issue in a case under
[Chapter 11].” Even so, section 1109(b) does not abrogate constitutional standing
requirements―a party in interest must still demonstrate that it meets the general requirements of
the standing doctrine, including whether it has alleged a personal stake in the outcome of the
proceedings and whether it is asserting its own legal rights and remedies. Etuk v. Slattery, 936
F.2d 1433, 1440 (2d Cir. 1991) (citing Warth v. Seldin, 422 U.S. 490, 498-99 (1975)); see also In
re Quigley Co., 391 B.R. 695, 702-03 (Bankr. S.D.N.Y. 2008).
Turning to section 1109(b), we note that “‘party in interest’ is not defined in the
[Bankruptcy] Code”; when interpreting the meaning of that phrase “we are governed by the
Code’s purposes.” In re Comcoach Corp., 698 F.2d 571, 573 (2d Cir. 1983); see also In re
Quigley, 391 B.R. at 702; In re Johns-Manville Corp., 36 B.R. 743, 747 (Bankr. S.D.N.Y. 1984)
. Whether a party qualifies as a “party in interest” is determined on a case-by-case basis, taking
into consideration whether that party has a “sufficient stake” in the outcome of that proceeding,
which can include having a pecuniary interest directly affected by the bankruptcy proceeding.
In re Stone Barn Manhattan, LLC, 405 B.R. 68, 74 (Bankr. S.D.N.Y. 2009); see also In re
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Standard Insulations, Inc., 138 B.R. 947, 950 (Bankr. W.D. Mo. 1992) (concluding insurers
exposed to claims against the debtor were “parties in interest” under section 1109(b)).
AHA’s pecuniary interest here is the default judgment against Beacon and HOP, for
which it will indemnify HOP in full or in part. Church does not dispute that its sole interest is to
satisfy its claims against Beacon and HOP with the insurance coverage provided by AHA.
AHA’s motion has a direct impact on the enforceability of a $856,874.40 default judgment
against the debtor, for which AHA will be held responsible to satisfy in whole or in part
(depending on whether the $250,000 self-insured retention clause applies). Without a doubt,
AHA, which has a personal stake in whether the default judgment is void, is a party in interest
pursuant to section 1109(b).
The next issue on appeal is whether the default judgment violated the automatic stay
provision that went into effect upon the filing of HOP’s Chapter 11 petition. Notwithstanding
the fact that the district court affirmed the bankruptcy court’s order declaring the default
judgment void ab initio on the ground that the New Jersey action proceeded in violation of the
automatic stay provision, Church disputes whether this case involves a violation of the automatic
stay provision at all and instead maintains that the default judgment is an undischarged claim
because Church never received notice of the bar date for claims.
We disagree. 11 U.S.C. § 362(a) provides that the filing of a bankruptcy petition creates
an automatic stay against “the commencement or continuation . . . 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.” The automatic stay provision is considered “‘one
of the fundamental debtor protections provided by the bankruptcy laws.’” Eastern Refractories
Co. v. Forty Eight Insulations Inc., 157 F.3d 169, 172 (2d Cir. 1998) (quoting H.R. Rep. No. 95-
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595, at 340 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6296-97). “The stay is effective
immediately upon the filing of the petition, and any proceedings or actions described in section
362(a)(1) are void and without vitality if they occur after the automatic stay takes effect.”
Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir. 1994) (citations omitted). The
stay takes effect automatically and without the requirement of notice to affected parties; “[b]y its
very terms, no action by any court is necessary for the stay to take effect.” In re Colonial Realty
Co., 980 F.2d 125, 137 (2d Cir. 1992); see also In re Marine Pollution Serv., Inc., 99 B.R. 210,
217 (Bankr. S.D.N.Y. 1989) (“[A]ctions taken in violation of the stay are void even where there
is no actual notice of the existence of the stay.”). The automatic stay remains in effect until the
granting of a discharge injunction pursuant to 11 U.S.C. § 524(a). See 11 U.S.C. § 362(c)(2); In
re James, 285 B.R. 114, 116 (Bankr. W.D.N.Y. 2002). Here, the discharge injunction did not
take effect until the plan’s effective date of August 6, 2006.
We conclude, first, that because HOP listed “Beacon Oil” as a name under which it was
conducting business in its Chapter 11 petition, Beacon is a common entity with HOP so that the
automatic stay applied to all actions against Beacon as well. Thus, Church’s initial suit against
Beacon violated that stay when the suit proceeded after the September 25, 2005 petition filing
date. We further conclude, that when Church filed its amended complaint on June 29, 2006 to
add HOP as a defendant (noting that HOP was a successor in interest to Beacon), that filing
violated the automatic stay, rendering that proceeding and all subsequent actions, including the
default judgment, in that case void and without vitality.
On appeal, Church has not confronted the issue of the automatic stay in any meaningful
way, skipping right to its argument that its claim (the default judgment) was never discharged by
the discharge injunction because it never received notice of the bankruptcy. That argument
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presupposes, however, that Church has a claim. The effect of the automatic stay provision is to
render that default judgment void ab initio because the suit commenced and/or continued while
that stay was in effect. Church having no viable claim in hand, it is not necessary for us to reach
the issues raised by Church with respect to the section 524 discharge injunction.
We have considered all of Church’s remaining contentions on this appeal and have found
them to be without merit. The judgment of the district court is AFFIRMED.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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