Gilchrist v. General Electric Capital Corp.

Filed: September 5, 2001
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 01-1823
(CA-01-2316)
Margaret Gilchrist, et al.,
Appellants,
versus
General Electric Capital Corporation,
Plaintiff - Appellee.
O R D E R
The court amends its opinion filed August 16, 2001, as
follows:
On page 4, second full paragraph, line 1 -- the paragraph is
corrected to begin “On or about May 3, 2001.”
On page 4, fourth full paragraph, line 5 -- the phrase
“Spartan agreed to the receivership” is corrected to read “Spartan
did not object to the receivership.”
On page 5, third full paragraph, line 1 -- the words “GE
obtained” are corrected to read “the receiver obtained.”
- 2 -
On page 8, first full paragraph, line 12 -- the bracketed
phrase “to address the WARN Act claims” is corrected to read
“address the WARN Act claims.”
On page 10, first full paragraph, line 7 -- the phrase “the
July 11 order” is corrected to read “the June 11 order.”
For the Court - By Direction
/s/ Patricia S. Connor
Clerk
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MARGARET GILCHRIST; JOHN BROWN;
GLORIA RENEW; MARTHA GRIFFIN;
ESTRELLA D. ARD; GRANT L. COBB;
MANUEL HOUSE; CLIFFORD GRIFFIN;
MARY E. MOORE; MARSHALL
KITCHENS; DANIEL A. BEARD; LINDA
FISHBURN; LILLIE M. SAMUELS;
DELORES A. WILLIAMS; CORAL L.
HYDE; PATRICIA GRUBBS; BRENDA
BEAL; ANNETTE E. IRBY; RUBY H.
MCCULLOUGH; BRENDA BUSH; JOSIE
M. HEARST; TUYET T. PARHAM;
CORINE P. ROBBIN; ADA S. SPIVEY;
NGUYEN THU YOUNG; THOMASENIA J.
WEAVER; CARRIE THURMOND;
No. 01-1823
DOROTHY M. FRANKLIN; ERNESTINE
ESTES; WARREN CARTER; JOHN DIGGS;
DONNIE SPIRES; ROBERT E. COOPER;
CORA K. JAMES; BARBARA ROYE;
MIA FARROW; WILLIE E. SPIVEY;
SHIRLEY A. DONALDSON; THOMAS
HENLEY; STAR-DELTA ELECTRIC
COMPANY; MOTION IND; SILVER SHEET
METAL, INCORPORATED; CLAIR
TURNER; THU KIM VO; MY VAN VO;
EDWARD L. SLOT, SR.; RICKY
JACKSON; WANESSA GILMORE;
PATRICK THURMOND; DENNIES L.
SCOTT; LARRY W. WHITE; FRANCIS
A. GREINER; MARY E. CLARK;
RICHARDEAN P. CLARK; CHT R.
BEITLICH CORPORATION, Petitioning
creditors in an involuntary
bankruptcy in the United States
bankruptcy Court for the Southern
District of Georgia,
Appellants,
v.
GENERAL ELECTRIC CAPITAL
CORPORATION,
Plaintiff-Appellee,
and
SPARTAN INTERNATIONAL,
INCORPORATED, CLEVELAND MILLS
COMPANY; HOME FURNISHINGS,
INCORPORATED,
Defendants-Appellees,
and
PETER L. TOURTELLOT, Receiver,
Appellee,
and
AVONDALE MILLS, INCORPORATED,
Movant.
Appeal from the United States District Court
for the District of South Carolina, at Spartanburg.
Margaret B. Seymour, District Judge.
(CA-01-2316)
Argued: August 2, 2001
Decided: August 16, 2001
Before NIEMEYER, KING, and GREGORY, Circuit Judges.
2
Reversed and remanded by published opinion. Judge Niemeyer wrote
the opinion, in which Judge King and Judge Gregory joined.
_________________________________________________________________
COUNSEL
ARGUED: John Bush Long, TUCKER, EVERITT, LONG, BREW-
TON & LANIER, P.A., Augusta, Georgia; Louis Saul, SAUL &
MITCHELL, P.C., Augusta, Georgia, for Appellants. James A. Pardo,
Jr., KING & SPALDING, Atlanta, Georgia; Robert L. Widener,
MCNAIR LAW FIRM, P.A., Columbia, South Carolina, for Appel-
lees. ON BRIEF: Joseph B. Mitchell, III, SAUL & MITCHELL,
P.C., Augusta, Georgia; James Thomas Wilson, Jr., JAMES T. WIL-
SON, JR., P.C., Augusta, Georgia, for Appellants. Sarah Robinson
Borders, Mark M. Maloney, Brian C. Walsh, KING & SPALDING,
Atlanta, Georgia; Michael M. Beal, MCNAIR LAW FIRM, P.A.,
Columbia, South Carolina; Paul R. Hibbard, JOHNSON, SMITH,
HIBBARD & WILDMAN, L.L.P., Spartanburg, South Carolina, for
Appellees.
_________________________________________________________________
OPINION
NIEMEYER, Circuit Judge:
When Spartan International, Incorporated, and its subsidiaries (col-
lectively "Spartan") closed their doors for business, their major credi-
tor commenced this debt-collection action in the District of South
Carolina under State law. To facilitate the foreclosure of the creditor's
lien interest in Spartan's assets, the district court appointed a receiver
for all of Spartan's assets. It also issued an injunction directed to "all
persons," commanding them not to file any action that "affects" Spar-
tan's assets.
A week later, over 50 creditors in the Southern District of Georgia
(the "Georgia creditors") filed a petition against Spartan for involun-
tary bankruptcy. The district court in South Carolina declined to rec-
ognize the automatic stay of all judicial proceedings imposed by 11
U.S.C. § 362(a) with the filing of the bankruptcy petition and found
3
the Georgia creditors in contempt of court, but allowed them to purge
their contempt by withdrawing their bankruptcy petition.
On this interlocutory appeal taken by the Georgia creditors, we
conclude, in the circumstances of this case, that the district court erred
in failing to recognize the stay imposed by 11 U.S.C. § 362(a), and
therefore we reverse and remand for proceedings consistent with this
opinion.
I
On or about May 3, 2001, Spartan closed its doors and turned over its assets
to General Electric Capital Corporation ("GE"), which had extended
Spartan a line of credit of $65 million, secured by substantially all of
Spartan's assets. At the time, Spartan owed GE approximately $35
million.
Spartan had been engaged in the manufacture of textiles for over
100 years, and its headquarters were located in Spartanburg, South
Carolina. It operated textile mills in six different locations, four in
South Carolina and two in Georgia. Spartan closed its business
because it was unable to meet its obligations to GE, largely as a result
of the generally deteriorating business conditions faced by the domes-
tic textile industry.
Invoking the district court's diversity jurisdiction, GE promptly
filed a verified complaint commencing this action against Spartan for
collection of the indebtedness and for the appointment of a receiver
to take custody of Spartan's assets, dispose of them, and pay GE the
amounts owed. Spartan did not object to the receivership, and, on May 22,
2001, on GE's motion and without notice to creditors of Spartan, the
district court appointed a receiver and required him to file a $500,000
bond. Paragraph 5 of the district court's May 22 order provides in rel-
evant part:
The Defendants [Spartan], as well as their agents, ser-
vants, employees, attorneys and any persons acting for or on
behalf of the Receiver Estates, and any persons receiving
notice of this order, by personal service or otherwise, having
4
possession or control of any of the property, business,
books, records, accounts, or assets of the Defendants or the
Receiver Estates are hereby directed to deliver the same to
the Receiver, and all persons are enjoined from in any way
commencing or prosecuting any action, suit or proceeding
that affects the Receiver Estates or the Defendants .
(Emphasis added). The order required that the receiver serve a copy
of the May 22 order on "all persons identifiable from the books and
records of the Defendants as either employees as of May 3, 2001 or
persons listed in the Defendants' accounts payable registers as soon
as reasonably practicable by first-class mail."
The receiver duly filed a copy of this order in each district where
Spartan had assets, including the Southern District of Georgia where
one of its mills was located. The receiver also promptly commenced
the liquidation of Spartan's assets, selling the mill in the Southern
District of Georgia on May 31, 2001, for $4.2 million. This sale was
also made without notice to creditors. The receiver formally notified
creditors and employees of the receivership in early June 2001.
Acting with actual notice of the May 22 order but before receiving
formal notice, over 50 former employees of Spartan's Georgia mill
who had claims against Spartan for wages, health care benefits, and
amounts alleged to be due under the WARN Act, 29 U.S.C. § 2101
et seq., filed an involuntary-bankruptcy petition against Spartan in the
Southern District of Georgia, where these petitioning employees had
worked for Spartan. These Georgia creditors also filed, with their
petition, a motion for the appointment of an interim trustee. GE
objected to the appointment of an interim trustee and filed a motion
to dismiss the bankruptcy petition or to transfer it to the District of
South Carolina. Similarly, the receiver, on behalf of Spartan, filed a
motion to dismiss the bankruptcy proceeding or to transfer the case
to South Carolina based on improper venue. Following a hearing on
June 6 and 7, 2001, the bankruptcy court overruled the objections of
GE and the receiver, denied their motion to dismiss or transfer, and
appointed an interim trustee.
While that hearing in Georgia was in progress, the receiver obtained a tem-
porary restraining order from the District of South Carolina dated
5
June 7, 2001, which specifically enjoined 38 listed Georgia creditors
from "undertaking any action in furtherance of the involuntary peti-
tion filed against Spartan International in the Southern District of
Georgia." This order was brought to the attention of the bankruptcy
judge during the course of the hearing, and in response, the bank-
ruptcy judge stated:
The TRO did not enjoin this Court from acting. I received
a copy of the TRO after all parties had completed their pre-
sentation on June 7, 2001 on the issues now determined but
prior to my ruling from the bench. An interim trustee now
appointed is not covered under the scope of the TRO. Addi-
tionally, the act of petitioning Judge Seymour [district judge
in the District of South Carolina] for the TRO by Mr. Beal,
attorney on behalf of Mr. Tourtellot, the receiver appointed
by Judge Seymour, violated the provisions of 11 U.S.C.
§ 362(a)(1) and (3). Any act taken in violation of the auto-
matic stay of § 362 is void.
The bankruptcy court also directed the interim trustee to show cause
on June 9, 2001, "why he or she should not be immediately directed
to pay benefits from the assets recovered by the interim trustee to the
petitioning creditors and all other similarly situated former employees
under [the WARN Act]."
A few days later, on June 11, 2001, the district court in South Caro-
lina held a hearing, at which the receiver, the interim trustee, and the
lawyer for the Georgia creditors presented their positions and follow-
ing which the court issued an order, dated June 11, 2001, finding the
Georgia creditors in contempt of the district court's May 22 order.
But the court added, "The [Georgia] Creditors may purge themselves
of contempt by withdrawing the involuntary petition in bankruptcy
within five days of the date of this order." The district court also
directed that "any persons desiring to proceed in bankruptcy court or
otherwise evade the restrictions of paragraph 5 of [the May 22 order]
appointing receiver may do so only upon prior application to this
court for permission." In response to the interim trustee's argument
that the district court was bound by the automatic stay imposed by 11
U.S.C. § 362(a), the district court stated that it had "``jurisdiction to
determine not only its own jurisdiction but also the more precise
6
question whether the proceeding pending before it is subject to the
automatic stay,'" quoting In re: Baldwin-United Corp. Litigation, 765
F.2d 343, 347 (2d Cir. 1985). Exercising this power, the district court
concluded that it was not subject to the stay imposed by § 362(a).
Rather, relying on the All Writs Act, 28 U.S.C. § 1651, the court
declared that it had authority to issue writs necessary to aid in protect-
ing its jurisdiction. It explained that because it had properly entered
the receivership order, its injunction of May 22, 2001 was authorized
under the All Writs Act:
The court finds and concludes that issuance of an injunction
pursuant to the [All Writs] Act is a necessary means of
allowing the Court to discharge its duties and to prevent
creditors of Defendants from collaterally attacking the
court's order appointing receiver [the May 22 order]. The
court finds use of the [All Writs] Act to be justified under
the facts presented, wherein the [Georgia] Creditors have
made no showing that they will obtain relief in bankruptcy
court for their unsecured claims, or that their claims may be
paid over and above those claims of secured creditors and
those of other unsecured creditors.
After entry of the district court's June 11 order, the Georgia credi-
tors, in an effort to purge their contempt, filed a petition in the bank-
ruptcy court to withdraw their involuntary petition in bankruptcy. The
bankruptcy court, however, denied the petition, concluding that the
statutory requirements for dismissal of an involuntary-bankruptcy
petition had not been met. It did, however, stay further proceedings
in the bankruptcy case pending our review of the South Carolina dis-
trict court's orders.
The Georgia creditors filed this appeal to review the district court's
May 22, June 7, and June 11 orders, and they filed a motion to expe-
dite the appeal. By order dated July 6, 2001, we granted the petition
to expedite the appeal and heard oral argument from the parties on
August 2, 2001.
II
At the outset, we must resolve GE's challenge to our jurisdiction,
made on the ground that the Georgia creditors did not have standing
7
to appeal because they were not parties to the action below, having
never intervened there to challenge the district court's injunctions. As
GE states its position, "Because the appellants have elected not to
intervene or to otherwise become parties to this action, they lack
standing to appeal." GE also argues that because the Georgia employ-
ees purged their contempt by filing a motion to withdraw their peti-
tion in bankruptcy, their appeal is moot.
Appearing informally before the district court during the June 11
hearing, two of the Georgia creditors, who worked and now live in
the Southern District of Georgia, contended that they were not subject
to the district court's May 22 order and therefore could not have vio-
lated it when they filed their petition in bankruptcy. First, they argued
that the language of the order did not prohibit the filing of a petition
in bankruptcy. Second, they suggested that the district court did not
have power to enjoin them because they were not in the district of
South Carolina and, to be effective, all creditors had to be made par-
ties. As counsel for these Georgia creditors argued, "I think your
Honor would have to make all the people parties to the lawsuit as
opposed to a bankruptcy in order to [address the WARN Act
claims]. In other words, you would have to make 1200 employees
party to this particular lawsuit." Finally, counsel for these Georgia
creditors argued that the district court's receivership order, directing
the receiver to pay GE on its secured claim, violated South Carolina
Code § 29-11-10, which gives manufacturing employees a lien in the
products on which they worked superior to that of secured creditors,
as does similar Georgia law, and that therefore the May 22 order was
illegal in directing a violation of that priority.
Although GE is correct in pointing out the general rule that only
parties may appeal an adverse judgment, it must also recognize that
in limited circumstances courts have held that nonparties have a right
to challenge on appeal an order directed against them in a proceeding
to which they were not a party. See generally S.E.C. v. Lincoln Thrift
Ass'n, 577 F.2d 600, 602-03 (9th Cir. 1978); see also Zenith Radio
Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 110-12 (1969) (not-
ing that a parent company was entitled to appeal judgments and an
injunction entered against it, when its subsidiary, but not it, was the
named party to the action below). In R.M.S. Titanic, Inc. v. Haver,
171 F.3d 943 (4th Cir. 1999), we faced a circumstance similar to that
8
presented here. The district court entered a preliminary injunction
against a person who had never been served process and probably
would not have been subject to service of process. Even though the
persons against whom the order was directed had notice of the district
court's order, we concluded that "[d]ue process dictates and principles
of fairness counsel that [appellant] be given an opportunity to chal-
lenge the district court's assertion of jurisdiction over it, particularly
when the court specifically entered an injunction against [appellant]."
Id. at 955. We also noted in Titanic that the plaintiff's position in
seeking an injunction against the nonparty in the district court was
inconsistent with its position that the persons covered by the injunc-
tion did not have standing to challenge the injunction on appeal. See
id.
In the case before us, the district court clearly had personal juris-
diction over the parties -- GE, Spartan, and the receiver -- as well
as in rem jurisdiction over the assets of Spartan. And while a district
court's in rem jurisdiction ordinarily extends only to property within
its jurisdiction, in the case of a federal receivership, Congress has
conditionally extended the scope of a court's jurisdiction. See 28
U.S.C. §§ 754, 959. Section 754 provides that a receiver may be
appointed for property situated "in different districts," who thereby
becomes vested with jurisdiction and control over such property sub-
ject to the condition that the receiver file a copy of the complaint and
order of appointment in the district where the subject property is
located, within ten days. It also provides that the receiver may sue and
be sued in any district where such property is located without leave
of the appointing court. See 28 U.S.C. § 754. But such in rem jurisdic-
tion over property in other districts does not give a district court per-
sonal jurisdiction over persons in such other districts absent an
express congressional grant of personal jurisdiction. While the court
has power to protect the res before the court, any injunction entered
against individuals is an in personam action that may be enforced
against individuals only over whom the court has personal jurisdic-
tion. See Titanic, 171 F.3d 957-58. Thus, unless the district court had
personal jurisdiction over the Georgia creditors and they were served
with process, the district court could be without power to enforce an
injunction against them, unless, of course, they could be shown to
have been "in active concert or participation with" parties over whom
the court had jurisdiction. See Fed. R. Civ. P. 65(d).
9
While an absence of personal jurisdiction has not yet been explic-
itly asserted nor been addressed by the district court, the Georgia
creditors had several nonfrivolous reasons on which to question the
district court's authority to issue an injunction directed against them
personally, which would reasonably justify their reluctance to inter-
vene below. But when they were faced with a contempt finding, made
in the June 11 order, they obviously had a legitimate reason to want
to challenge the order on appeal.
GE argues that even if the Georgia creditors have that right, their
appeal is moot because the Georgia creditors purged the contempt
finding by filing a motion to withdraw their petition in bankruptcy.
The Georgia creditors note, however, that they filed their motion to
withdraw only because the district court took a position that it had
effectively ordered them to do so when it found them in contempt and
declared that this finding could be purged only upon compliance with
the court's order to withdraw the petition. But they continue to dis-
agree with and challenge the district court's authority both to enter the
injunction against them and to find them in contempt.
Moreover, while the Georgia creditors did file a motion to with-
draw their bankruptcy petition, they could not withdraw the petition
because their motion was denied by the bankruptcy court. Therefore
their efforts may not in fact have been sufficient to purge themselves
of contempt. The district court's order authorized relief from con-
tempt only "by withdrawing the involuntary petition in bankruptcy."
More importantly, however, the injunctive orders directed against
these Georgia creditors have not been withdrawn and remain in effect.
GE did not hesitate, in oral argument, to take the position that if the
Georgia creditors were again to violate the July 11 order, they could
again be found in contempt.
Accordingly, we conclude that both the contempt finding, as well
as the continuing effect of the injunctions, provide a sufficient threat
to the Georgia creditors to give them standing to appeal. In doing so,
we do not rule on the question whether the district court has personal
jurisdiction over the Georgia creditors. That issue has been addressed
neither by the parties nor by the district court.
10
III
We come now to the question of whether the district court erred in
concluding that its receivership proceeding was not subject to the
automatic stay provisions of 11 U.S.C. § 362(a) and that therefore the
receivership should be given preference as the first-filed case. The
district court concluded that it did have preference because when the
receivership was commenced, it took legal custody of Spartan's assets
and was therefore entitled to employ the All Writs Act to protect its
exclusive jurisdiction over those assets. But even though the district
court in South Carolina was the court that first took custody over the
assets, it made no assessment of whether the assets could be, as a mat-
ter of equitable administration, better collected, managed, and dis-
posed of in a bankruptcy proceeding. And it never relied on any
exception to § 362(a) to avoid that provision's mandate.
We begin our analysis by recognizing that the district court has
within its equity power the authority to appoint receivers and to
administer receiverships. See Fed. R. Civ. P. 66. And when receivers
are appointed by a federal court, they may sue and be sued as pro-
vided by federal law. See 28 U.S.C. §§ 754, 959. Moreover, receivers
appointed by a federal court are directed to "manage and operate" the
receivership estate "according to the requirements of the valid laws of
the State in which such property is situated, in the same manner that
the owner or possessor thereof would be bound to do if in possession
thereof." 28 U.S.C. § 959(b).
We also confirm that the district court has within its equity power
the authority to protect its jurisdiction over a receivership estate
through the All Writs Act, 28 U.S.C. § 1651, and through its injunc-
tive powers, consistent with Federal Rule of Civil Procedure 65. Of
course, the exercise of this authority is always subject to other limita-
tions, statutory and constitutional, which limit the jurisdiction of fed-
eral courts.
Thus, in appointing the receiver in this case for the assets of Spar-
tan, the district court acted within the scope of its equity power. In
reaching that conclusion, however, we do not review the terms of the
order appointing the receiver, particularly paragraph 5. Moreover,
when it appointed the receiver, the district court created a receivership
11
estate over which it had in rem jurisdiction, even though the property
might be located in other districts. See 28 U.S.C. § 754 ("A receiver
appointed in any civil action . . . involving property . . . situated in
different districts shall . . . be vested with complete jurisdiction and
control of all such property"). But its jurisdiction over assets in other
districts is dependent upon the receiver's filing a copy of the com-
plaint and appointment in that district, a condition that the receiver
fulfilled in this case. See id. Because assets and personal jurisdiction
may lie beyond the jurisdictional reach of the appointing court, 28
U.S.C. §§ 754 and 959 authorize the receiver to sue and be sued in
connection with the receivership estate in any district court without
an ancillary appointment. Thus, the statutory provisions for receiver-
ships anticipate that when a receivership involves assets in different
districts, there may be multiple litigations initiated by or against the
receiver in those districts.
After the district court appointed a receiver and asserted in rem
jurisdiction over assets of Spartan, more than 50 creditors in the
Southern District of Georgia filed a petition against Spartan for invol-
untary bankruptcy under 11 U.S.C. § 303, thus commencing a bank-
ruptcy proceeding there, and the bankruptcy court appointed an
interim trustee in that proceeding. By virtue of the jurisdictional pro-
visions of the United States Code, and the commencement of a bank-
ruptcy case against Spartan, the bankruptcy court obtained "exclusive
jurisdiction of all of the property, wherever located, of [Spartan] as
of the commencement of such case, and of property of the estate." 28
U.S.C. § 1334(e) (emphasis added). In addition, the filing of the peti-
tion in bankruptcy "operates as a stay, applicable to all entities, of the
. . . continuation . . . of a judicial, administrative, or other action or
proceeding against the debtor that was commenced before" the bank-
ruptcy petition. 11 U.S.C. § 362(a)(1). To give effect to its jurisdic-
tion, the bankruptcy court is given broad equitable powers, see 11
U.S.C. § 105, with nationwide service of process, see Bankr. R.
7004(d).
Under the plain meaning of these statutory provisions, proceedings
in the District of South Carolina were stayed as of May 31, 2001,
when the petition in bankruptcy was filed. When the interim trustee
appointed by the bankruptcy court appeared before the district court
on June 11 to urge that the district court recognize the operation of
12
the stay, the court properly concluded that it had authority to deter-
mine its own jurisdiction, see Texas & P. Ry. v. Gulf, Colo. & Santa
Fe Ry. Co., 270 U.S. 266, 274 (1926); McGowen v. Harns, 666 F.2d
60, 66 (4th Cir. 1981), and more particularly that it had jurisdiction
to determine whether the proceeding before it was subject to the statu-
tory stay, see U.S. Dep't of Hous. and Urban Dev. v. Cost Control
Mktg. & Sales Mgmt. of Va., Inc., 64 F.3d 920, 927 n.11 (4th Cir.
1995); Baldwin United, 765 F.2d at 347. In exercising its authority to
determine its own jurisdiction, however, the district court concluded
that because it already had jurisdiction over the receivership estate, it
should protect that jurisdiction through the All Writs Act, 28 U.S.C.
§ 1651, and that it need not recognize the effect of 11 U.S.C.
§ 362(a). The court provided no explanation of why, as a matter of
equity, the bankruptcy process was not superior to a receivership in
the liquidation of a large business, with assets in several jurisdictions
and with thousands of creditors, some of whom were claiming liens
superior to the lien relied upon by GE when it initiated the receiver-
ship proceeding. More importantly, it provided no explanation of why
the terms of § 362(a) were not applicable.
Similarly, in their briefs and arguments presented to us, counsel for
GE and the receiver advanced no exception to § 362(a) that would be
applicable. Instead, they argued for a "first-filed" principle, urging
that the court which first takes custody of assets for liquidation should
be given priority.
We cannot agree. Our examination of the Bankruptcy Code reveals
that Congress intended that the bankruptcy process be favored in cir-
cumstances such as these. Section 1334(e) of title 28 is unequivocal
in its grant of exclusive jurisdiction to the bankruptcy court, and
§ 362(a) imposes an automatic stay on all proceedings merely upon
the filing of a bankruptcy petition. If we were to frustrate these
express provisions to further a first-filed policy, we would have to
deny bankruptcy jurisdiction to every bankruptcy court in which fore-
closure proceedings had already commenced against the debtor's
property, on the grounds that the in rem nature of the foreclosure pro-
ceeding precludes the bankruptcy court from taking custody of the
res. Such a jurisdictional limitation on bankruptcy proceedings would
severely limit the efficacy of bankruptcy. In the absence of express
language suggesting that Congress intended for bankruptcy jurisdic-
13
tion to be so limited, we believe it would frustrate Congressional
intent to imply such a limitation based solely on consideration of a
first-filed policy.
Even if general equitable principles could modify the application
of statutory jurisdictional grants, we do not believe that the equities
favor the common-law receivership process over the highly developed
and specific bankruptcy process. The procedural requirements for liq-
uidating a large corporation with thousands of creditors, many of
whom might challenge the priority of liens and the adequacy of asset
sales, present a task that would push the receivership process to its
limits. See Baldwin-United, 765 F.2d at 348 ("[T]o whatever extent
a conflict may arise between the authority of the Bankruptcy Court to
administer this complex reorganization and the authority of the Dis-
trict Court to administer consolidated pretrial proceedings, the equi-
ties favor maintenance of the unfettered authority of the Bankruptcy
Court"). In this case it can be seen, even from the initial transactions
in the receivership, that the customized receivership mechanisms are
wanting in comparison with established bankruptcy process. For
example, when the receiver in this case sold a mill in Georgia for $4.2
million, the creditors had no advance notice of the transaction, and
some have challenged the adequacy of compensation, proffering evi-
dence that the mill was worth over $20 million. More important to the
Georgia creditors in this case, the district court did not have in place
a mechanism to adjudicate the relative priority of liens. GE claims a
first lien by reason of its perfected security interest in most of the
assets of Spartan and proffered an order by which the proceeds of liq-
uidation would be paid to it as the superior lien holder. But Spartan's
employees claim a prior statutory lien in assets produced by them at
the manufacturing plants at which they worked, as created by state
law. While they surely could file claims in the receivership, the pro-
cess for making and adjudicating such claims was not spelled out.
To resolve the claims involving a large corporation with multiple
places of business in different districts and thousands of creditors, a
bankruptcy court has judicial tools better suited and more specifically
tailored to the task, and those tools include nationwide service of pro-
cess. See Bankr. R. 7004(d). While it is true that the district court has
broad equity power, any attempt to use that power to supervise a com-
plex corporate liquidation, in the absence of special circumstances,
14
would ultimately be more clumsy and expensive than long-established
bankruptcy procedures. At bottom, we are persuaded that in the cir-
cumstances of this case, the district court should have recognized the
stay provisions of § 362(a).
Unable to direct us to an exception to § 362(a), GE argues that the
entire bankruptcy proceeding is void ab initio because it was filed in
violation of the district court's May 22 order. But even if plaintiffs
were effectively subject to the court's order not to file a lawsuit or to
commence an action in Georgia, this impediment could not under-
mine the bankruptcy court's jurisdiction to entertain the matter. While
it might provide a basis for that court's dismissing the action, its
power to exercise jurisdiction is determined by Congress, not by a
competing court order. In this case, the petition in bankruptcy was
regulated by 28 U.S.C. § 1334 and the Bankruptcy Code. If those pro-
visions are not complied with, GE's remedy would be to present its
objection to the bankruptcy court. But having such an objection does
not render the proceeding void ab initio. To reach that conclusion
would make the injunction of one court determinative of the jurisdic-
tion of another, setting courts in different districts against one another.
This would completely frustrate the scheme of courts created by Con-
gress. In short, until the bankruptcy case is dismissed or otherwise
closed, it is viable and must be recognized by other courts.
IV
In reviewing the district court's orders in the receivership proceed-
ing, we do not pass on the legitimacy of the bankruptcy proceeding
or on any defense that has been or that may be presented in it. Those
are matters that must be addressed to the bankruptcy court in the
Southern District of Georgia. On this appeal, we only determine that,
in the present circumstances, the stay provided by 11 U.S.C. § 362(a)
must be recognized until further order in the bankruptcy proceeding.
Accordingly, we reverse the district court's ruling on the stay and
remand for proceedings appropriate to determine the applicability of
that stay to the district court's orders and the receivership proceeding
and to enter such order as is appropriate.
REVERSED AND REMANDED
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