The Ninth Circuit issued an opinion on Jan. 8 that is problematic on two issues: (1) Is wrongful possession of property sufficient to underpin an automatic stay violation?; and (2) Is the finding of a stay violation a final order subject to appeal if the bankruptcy court defers the determination of damages for further proceedings?
The opinion by Circuit Judge Johnnie B. Rawlinson reversed the Bankruptcy Appellate Panel and unanimously held under California law that an unlawful detainer judgment and a writ of possession together divested the bankrupt of all rights of possession, thus obviating the possibility of an automatic stay violation.
Whether that holding is right or wrong is of dubious utility elsewhere because it relies heavily on peculiarities of California law.
On the second question, Circuit Judge Paul J. Watford dissented. He would have found no appellate jurisdiction and invited a motion for rehearing en banc or a petition for certiorari by saying that Ninth Circuit precedent is at odds with other circuits’ decisions and “is probably wrong.”
The case involved a lender that sold a home at foreclosure. The buyer recorded the deed and sued the former owner, who still occupied the property. The buyer got a judgment of eviction from a California state court.
The former owner filed a chapter 13 petition and informed the buyer. The sheriff nonetheless executed the eviction warrant and locked out the former owner, who sued the buyer for violating the automatic stay.
The bankruptcy judge found a stay violation but deferred the calculation of damages until later. The debtor appealed, but the bankruptcy court dismissed the bankruptcy before holding a hearing on damages.
In a May 30, 2014, opinion by Bankruptcy Judge Ralph B. Kirscher, the three-judge appellate panel upheld the contempt finding, holding that physical occupation of the premises “conferred a possessory interest” under California law. The appellate panel did not address the issue of appealability.
Dissecting California law, Circuit Judge Rawlinson held that the procedural context ousted the bankrupt of any “equitable possessory interest in the property.” For lack of even a possessory interest, she found no stay violation.
Even if correct, the opinion sets a dangerous precedent because it invites creditors to act in situations where the existence of a stay violation turns on proper interpretation of arcane state law.
The majority decided that the appellate panel’s decision was appealable under the more pragmatic test of finality in bankruptcy cases. The two judges based their holding on the bankruptcy court’s definitive and final resolution of a discrete issue, which had “real effects,” including the possible later imposition of money damages.
Dissenting, Circuit Judge Watford said the order below was not final “by any stretch,” even under the “more relaxed standard” for bankruptcies, adding that the Ninth Circuit’s 2003 Dyer decision is “probably wrong.”
Dyer held that a stay violation was immediately appealable even though imposition of damages was postponed. Judge Watford pointed to two sister circuits that “uniformly held that an order finding a stay violation but postponing assessment of damages under Section 362(k) is not final.”