Gruntz v. County of Los Angeles (In re Gruntz) Part I

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Oct 2000

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One of the more interesting appellate decisions concerning the automatic stay, bankruptcy court jurisdiction
and criminal proceedings is Gruntz v. County of Los Angeles (In re Gruntz).<a href="#1" name="1a">1</a> A divorce decree obligated
the debtor to pay $300 per month in child support, and the debtor failed to pay child support. The debtor
then filed for chapter 13. Under the debtor's chapter 13 plan, he was to continue paying $300 a month in
child support, and pay $291 a month to cure the arrears. The debtor's chapter 13 case was converted to
chapter 11, and the child support payments ceased. The Los Angeles County District Attorney filed a
criminal complaint against the debtor for failure to support a dependent child, and the debtor was convicted.
The debtor filed an adversary proceeding against the County of Los Angeles to enjoin the debtor from
being sentenced. The bankruptcy court declined to issue an injunction, and the debtor was sentenced to 360
days in jail. The California Court of Appeals affirmed the debtor's conviction.<a href="#2" name="2a">2</a>

While the debtor's appeal was pending, the debtor was convicted a second time for failing to support
a minor and disobeying a court order. Thereafter, the debtor commenced another adversary proceeding
against the county in bankruptcy court, seeking a declaratory judgment that the state criminal proceedings
were void as violative of Bankruptcy Code §362. The bankruptcy court held that the debtor was collaterally
estopped by the state court judgment. The district court affirmed the dismissal of the complaint pursuant
to the Rooker-Feldman doctrine. A divided three-judge panel of the Ninth Circuit Court of Appeals
reversed.<a href="#3" name="3a">3</a> The Ninth Circuit agreed to hear the case en banc, and it reversed the three-judge panel.<a href="#4" name="4a">4</a>

The Ninth Circuit Court of Appeals held that the federal courts were not bound by state court
determinations as to the applicability of the automatic stay. The county contended that the state court had
made a determination as to the applicability of the automatic stay, and therefore the lower federal courts
were precluded from reviewing this determination. Under the Rooker-Feldman doctrine, federal courts are
courts of original jurisdiction, and direct appellate review of state court judgments must be conducted by
the Supreme Court. The Ninth Circuit stated:

<blockquote>
Rooker-Feldman is not a constitutional doctrine. Rather, the doctrine arises out of a pair of negative inferences drawn from two statutes: <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §1331</a>, which establishes the district court's "original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States"; and <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §1257</a>, which allows Supreme Court review of "[f]inal judgments or decrees rendered
by the highest court of a state of a state in which a decision could be had."<a href="#5" name="5a">5</a> (Footnote omitted).
</blockquote>

Bankruptcy law presented an exception to the Rooker-Feldman doctrine. The court noted:

<blockquote>
In apparent contradiction to the Rooker-Feldman theory, bankruptcy courts are empowered to avoid state judgments. (See, e.g., <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §§544, 547, 548, 549</a>; to modify them; see, e.g., <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §§727, 1141, 1328</a>.) By statute, a post-petition state judgment is not binding on the bankruptcy court to establish the amount of a debt for bankruptcy purposes.<a href="#6" name="6a">6</a>

</blockquote>

The Ninth Circuit Court of Appeals reasoned that final judgments in state courts are not necessarily
preclusive in bankruptcy cases. It has long been established that a state court judgment can be subject to
collateral attack in a federal court exercising bankruptcy jurisdiction. Congress has plenary power to
establish bankruptcy laws, and thus it has the authority to limit the jurisdiction of state and federal courts
to address bankruptcy issues.

The current statutory scheme has expanded the role of the federal judiciary over bankruptcy matters.
The court stated:

<blockquote>
District courts have "original and exclusive jurisdiction of all cases under title 11." By the plain
wording of the statute, Congress has expressed its intent that bankruptcy matters be handled
exclusively in a federal forum. In short, "Congress intended to grant comprehensive jurisdiction to
the bankruptcy courts so that they might deal efficiently and expeditiously with all matters
connected with the bankruptcy estate."<a href="#7" name="7a">7</a>
</blockquote>

The automatic stay is central to the administration of a bankruptcy case, and a motion to terminate or modify the automatic stay is a core proceeding. The Ninth Circuit Court of Appeals stated:
<blockquote>
The automatic stay is an injunction issuing from the authority of the bankruptcy court, and
bankruptcy court orders are not subject to collateral attack in other courts. That is so not only
because of the "comprehensive jurisdiction" vested in the bankruptcy courts...but also because
"persons subject to an injunctive order issued by a court with jurisdiction are expected to obey that
decree until it is modified or reversed, even if they have proper grounds to object to the order."<a href="#8" name="8a">8</a>
</blockquote>

Therefore, any state court modification of the automatic stay would constitute an unauthorized infringement on the bankruptcy court's jurisdiction to enforce the automatic stay. Congress has not relaxed the established common-law rule that state courts are powerless to restrain federal court proceedings in in personam actions.

The Ninth Circuit Court of Appeals also rejected the argument that under Judicial Code §1334(b), the state courts have concurrent jurisdiction over the automatic stay. The court stated:
<blockquote>
That section provides that the district courts "have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to a case under title 11." Of course, nothing in that section vests the states with any jurisdiction over a core bankruptcy proceeding, including "motions to terminate, annul or modify the automatic stay." The only grant of jurisdiction to do so involves the exercise of the federal bankruptcy power. (Citations omitted).<a href="#9" name="9a">9</a>
</blockquote>

The Ninth Circuit posited that by the authority vested in the federal courts by Congress, the federal
courts had the final authority to determine the applicability of the automatic stay. The states cannot vest
state courts with the power to violate federal law. Thus, the Ninth Circuit declared:

<blockquote>
Thus, the Rooker-Feldman doctrine is not implicated by collateral challenges to the automatic stay
in bankruptcy. A bankruptcy court simply does not conduct an improper appellate review of a state
court when it enforces an automatic stay that issues from its own federal statutory authority. In fact,
a reverse Rooker-Feldman situation is presented when state courts decide to proceed in derogation
of the stay, because it is the state court which is attempting impermissibly to modify the federal
court's injunction. (Footnote omitted).<a href="#10" name="10a">10</a>

</blockquote>

The Ninth Circuit reached the correct conclusion. There is no express textual support for the Ninth
Circuit's holding. The Judicial Code is silent concerning whether the bankruptcy court has exclusive
jurisdiction to determine the purview of the automatic stay. The Judicial Code fails to provide authority
concerning whether the bankruptcy court has exclusive jurisdiction to determine the applicability of the
automatic stay. The Ninth Circuit's analysis fails under the principles of strict statutory construction because
there is no express textual support for the court's conclusion. Therefore, the Ninth Circuit's reliance on the
Judicial Code to reach its conclusion is unpersuasive.

The Ninth Circuit's decision is a policy-oriented decision. In order to administer a bankruptcy case, a
bankruptcy court needs to be the sole arbiter concerning the scope of the automatic stay. If the bankruptcy
court had concurrent jurisdiction to determine the scope of the stay with the state courts, then this would
deprive the bankruptcy court of the ability to administer the bankruptcy system. The Ninth Circuit stated:

<blockquote>
If state courts were empowered to issue binding judgments modifying the federal injunction
created by the by the automatic stay, creditors would be free to rush into friendly courthouses
around the nation to garner favorable relief. The bankruptcy court would then be stripped of its
ability to distribute the debtor's assets equitably, or to allow the debtor to reorganize financial
affairs. "Such an exercise of authority would be inconsistent with and subvert the exclusive
jurisdiction of the federal courts by allowing state courts to create their own standards as to when
persons may properly seek relief in cases Congress has specifically precluded those courts from
adjudicating."<a href="#11" name="11a">11</a>
</blockquote>

The bankruptcy laws are essential to the orderly administration of the American economy. The federal
judiciary is vital to the orderly administration of the bankruptcy system because it provides for uniformity
throughout the United States and it is not susceptible to local political influence. If the state judiciary
were able to determine the applicability of the automatic stay, then this would impede the orderly
administration of bankruptcy estates. Creditors with politically connected lawyers would be able to
prematurely dismantle bankruptcy estates. Thus, this portion of Gruntz can be viewed as a pre-emption
decision. The automatic stay is such an integral element of federal law that only the federal judiciary is
empowered to make determinations concerning the purview of the automatic stay. Decisions made by
the state judiciary concerning the scope of the stay are not binding upon the federal judiciary because
these decisions would thwart the operation of the federal bankruptcy system.

The ability of state courts to interfere with the operation of the bankruptcy system could be
detrimental to the national economy. State courts in different jurisdictions could simultaneously make
conflicting decisions regarding the automatic stay in the same bankruptcy case, which would produce
havoc. The bankruptcy system would be rendered inefficient because it would no longer be a centralized
forum for the administration of corporate reorganization and insolvency proceedings. Accordingly, there
is an important need to have the bankruptcy court be the exclusive judge as to the applicability of the
automatic stay. As a matter of public policy, only the federal judiciary should be permitted to determine
the scope of the automatic stay.<a href="#12" name="12a">12</a>

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… F.3d 1074 (9th Cir. 2000) (en banc)</a>. Many of the thoughts for this article were developed in the consumer bankruptcy law course at the LL.M. Program at St. John's University School of Law. <a href="#1a">Return to article</a>

<a name="2">2</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… Cal. App. 4th 412, 35 Cal. Rptr. 2d 55 (1994)</a>. <a href="#2a">Return to article</a>

<a name="3">3</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… F.3d 728 (9th Cir. 1999)</a>; rev'd, <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… F.3d 1074 (9th Cir. 2000) (en banc)</a>. <a href="#3a">Return to article</a>

<a name="4">4</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. County of Los Angeles (In re Gruntz), 202 F.3d 1074 (9th Cir. 2000) (en banc)</a>. <a href="#4a">Return to article</a>

<a name="5">5</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 1078</a>. <a href="#5a">Return to article</a>

<a name="6">6</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; <a href="#6a">Return to article</a>

<a name="7">7</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 1080</a>. <a href="#7a">Return to article</a>

<a name="8">8</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 1082</a>. <a href="#8a">Return to article</a>

<a name="9">9</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 1083</a>. <a href="#9a">Return to article</a>

<a name="10">10</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; <a href="#10a">Return to article</a>

<a name="11">11</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…; at 1083-84</a>. <a href="#11a">Return to article</a>

<a name="12">12</a> The debtor did not receive a "Get Out of Jail Free Card" as the Ninth Circuit did not authorize his release from incarceration. <a href="#12a">Return to article</a>

Journal Authors

Carlos J. Cuevas

Journal Date

Sunday, October 1, 2000 - 12:00