Over a dissent, the Fifth Circuit ducked a juicy issue of first impression regarding violation of the automatic stay: If two bankruptcies are pending in the same district, does a creditor in case #1 violate the automatic stay by impleading a debtor in case #2 as third party defendant in a pending adversary proceeding in case #1?
A corporate bankruptcy was pending alongside the personal bankruptcy of the owner of the bankrupt company. The company’s trustee sued a creditor that in turn filed a third party complaint in the corporate bankruptcy against the owner.
Bankruptcy Judge Robert L. Jones of Abilene, Texas, assessed $3,300 in attorneys’ fees against the creditor for violating the automatic stay in the owner’s bankruptcy. He declined to follow a decision by a bankruptcy judge in a different circuit finding no stay violation so long as the suit was filed in bankruptcy court.
Judge Jones certified the question for direct appeal to the Fifth Circuit, and a motions panel of the appeals court granted the motion. By the time the appeal came up for argument, the parties had settled. The debtor waived all but $1 of the sanction.
The merits panel – with Circuit Judges Rhesa H. Barksdale, Edith Brown Clement and Catharina Haynes – took additional briefing on whether the appeal became moot after the settlement. The parties contended that the $1 in remaining sanctions was sufficient to keep the appeal alive.
Over a dissent by Judge Haynes, the merits panel said the motions panel may have been correct in originally authorizing a direct appeal. The merits panel nonetheless vacated the order authorizing a direct appeal, saying the motions panel would not have granted the appeal “under the circumstances as they now exist.”
Judge Haynes agreed that the merits panel is not bound by the decision of a motions panel. She would have decided the appeal on the merits “because there is no controlling authority in the Fifth Circuit.”
Since the appeals court had already “devoted a considerable amount of time” to the issue, Judge Haynes said that relegating the appeal to the district court “unnecessarily delays a merits determination of an issue of first impression.”