What a relief! The Ninth Circuit Bankruptcy Appellate Panel held that this year’s Acevedo decision from the Supreme Court does not bar bankruptcy courts from annulling the automatic stay. Except in unusual circumstances, Acevedo effectively bars federal courts from entering orders nunc pro tunc.
To uphold the bankruptcy court, the BAP was obliged to disagree with In re Telles, 20-70325, 2020 WL 2121254 (Bankr. E.D.N.Y. Apr. 30, 2020). In Telles, a bankruptcy court on Long Island, N.Y., appeared to hold that Acevedo does not permit annulling the automatic stay, or modifying the stay nunc pro tunc, if a foreclosure sale was conducted in violation of the automatic stay. To read ABI’s report on Telles, click here.
Filing a Lawsuit Violated the Automatic Stay
The appeal in the BAP didn’t involve a foreclosure sale like Telles. Rather, a creditor filed a wrongful death suit against the debtor, not knowing the debtor had filed a chapter 13 petition eight months earlier.
On being told about the bankruptcy, the creditor filed a motion within a few days to annul the automatic stay.
Over the debtor’s objection, Bankruptcy Judge Vincent P. Zurzolo found cause to annul the automatic stay. He allowed the creditor to liquidate its claim in state court and obtain findings that might have preclusive effect in later dischargeability litigation in bankruptcy court. However, Judge Zurzolo did not permit the creditor to enforce a judgment without further order of the bankruptcy court.
The debtor appealed and lost, in a July 17 opinion for the BAP by Bankruptcy Judge William Lafferty.
Judge Lafferty agreed there was cause to modify the automatic stay. The creditor did not have notice of the bankruptcy. The judge said there was no prejudice to the debtor aside from the fact that he had no insurance to defend the wrongful death suit. The debtor would have had the same problem were the suit in bankruptcy court. There were other defendants in the wrongful death suit, so modifying the stay would promote judicial economy.
What Does Acevedo Mean for Bankruptcy?
While the appeal was pending, the Supreme Court handed down Acevedo. Roman Catholic Archdiocese of San Juan, Puerto Rico v. Acevedo Feliciano, 140 S. Ct. 696 (2020). In a per curiam opinion, the high court strictly limited the ability of federal courts to enter orders nunc pro tunc.
Quoting one of its prior decisions, the Supreme Court said that a nunc pro tunc order must “‘reflect[] the reality’” of what has occurred. A nunc pro tunc order, the Court said, “presupposes” that a court has made a decree that was not entered on account of “inadvertence.” Id. at 700-701.
In other words, the high court will allow nunc pro tunc orders only if the court had made a ruling but failed to enter an order at the time. To read ABI’s report on Acevedo, click here.
Acevedo therefore raised a cloud over the ability of bankruptcy courts to annul the automatic stay or modify the stay nunc pro tunc. Judge Lafferty interpreted Telles as “prohibiting a grant of retroactive or nunc pro tunc relief from stay.”
Judge Lafferty disagreed with Telles. “We do not believe that the ruling in Acevedo prohibits a bankruptcy court’s exercise of the power to grant retroactive relief from stay,” he said.
Judge Lafferty noted the statutory underpinning of the case on appeal compared to Acevedo. In the Supreme Court case, the federal removal statute expressly divested a state court of jurisdiction after the suit was removed.
In the case on appeal, Congress “expressly” gave power to modify the stay retroactively, Judge Lafferty said. In that regard, Section 362(d) confers power to grant relief from the stay, “such as by terminating, annulling, modifying, or conditioning such stay.”
“[T]he conclusion that Acevedo prohibits the annulment of the stay based on jurisdiction and property of the estate concerns reads too much into the Supreme Court’s opinion,” Judge Lafferty said. Although he did not say so, the Supreme Court might not have the capacity to take away the ability to annul the stay, a power granted by Congress, unless there was a constitutional infirmity or lack of subject matter jurisdiction.
Judge Lafferty upheld the ruling of the bankruptcy court, saying that the “statutory language, and longstanding and sound experience, make clear that the effective use of these remedies must occasionally include the option of granting retroactive relief.”
What a relief! The Ninth Circuit Bankruptcy Appellate Panel held that this year’s Acevedo decision from the Supreme Court does not bar bankruptcy courts from annulling the automatic stay. Except in unusual circumstances, Acevedo effectively bars federal courts from entering orders nunc pro tunc.
To uphold the bankruptcy court, the BAP was obliged to disagree with In re Telles, 20-70325, 2020 WL 2121254 (Bankr. E.D.N.Y. Apr. 30, 2020). In Telles, a bankruptcy court on Long Island, N.Y., appeared to hold that Acevedo does not permit annulling the automatic stay, or modifying the stay nunc pro tunc, if a foreclosure sale was conducted in violation of the automatic stay. To read ABI’s report on Telles, click here.
Filing a Lawsuit Violated the Automatic Stay
The appeal in the BAP didn’t involve a foreclosure sale like Telles. Rather, a creditor filed a wrongful death suit against the debtor, not knowing the debtor had filed a chapter 13 petition eight months earlier.
On being told about the bankruptcy, the creditor filed a motion within a few days to annul the automatic stay.
Over the debtor’s objection, Bankruptcy Judge Vincent P. Zurzolo found cause to annul the automatic stay. He allowed the creditor to liquidate its claim in state court and obtain findings that might have preclusive effect in later dischargeability litigation in bankruptcy court. However, Judge Zurzolo did not permit the creditor to enforce a judgment without further order of the bankruptcy court.
The debtor appealed and lost, in a July 13 opinion for the BAP by Bankruptcy Judge William Lafferty.