The childhood riposte “none of your beeswax” has some legal analogs; among them is the doctrine of standing. Standing limits the scope of legal rules, including the automatic stay. [1] Many courts agree that acts in violation of the automatic stay are not voidable but void. [2] If this is true, who may assert that voidness? Whose “beeswax” is an automatic stay violation? In Bank of New York Mellon v. Enchantment at Sunset Bay Condo Ass’n (“Enchantment”), [3] the Ninth Circuit addressed and affirmed a nondebtor’s standing to assert a stay violation where such a violation is void rather than voidable.
The facts of Enchantment are quotidian: The debtor fell behind in dues owed to the Condominium Association, which then filed lien notices. The debtor filed a chapter 13 case, did not list the association as a creditor, and indicated in his plan that he would surrender the property to the mortgagee (the “bank”) in full satisfaction of its claims. [4] During the bankruptcy, the association noticed, and proceeded with, a foreclosure without obtaining relief from the automatic stay, and sold to a purchaser.[5] Under state law, in the absence of a stay violation, the association’s foreclosure would convey title free of the Bank’s mortgage. The Bank then sued the purchaser and condominium association to, among other things, declare the association’s foreclosure a violation of the automatic stay, and therefore void.
The trial court held that the bank did not have standing to assert the violation of the stay. [6] The bank appealed, and the Ninth Circuit panel reversed.
The Ninth Circuit issued three opinions. The majority held that the district court erred by applying precedent incorrectly. The bank would not have had standing to appeal a bankruptcy order under In re Pecan Groves, [7] but that case did not apply in this instance, where the bank was attempting to assert that the “foreclosure sale occurred in violation of the bankruptcy stay and was thus void.” [8]
The concurring opinion emphasized that standing derives from the Ninth Circuit’s more recently accepted doctrine that acts in violation of the automatic stay are void, not merely voidable, and that earlier case law arose prior to the adoption of this doctrine. [9] A void act “is as if it never existed.” [10] If the association’s foreclosure never existed, then there could have been no conveyance free of the bank’s mortgage and the bank would have had standing to so assert in the state law quiet title action.
In the dissenting opinion, Judge Forrest wrote that the doctrine of voidness was more nuanced than the concurring opinion allowed, and that “void” was not viewed in absolute terms. [11] However, she did appear to acknowledge that if an act in violation of the stay is, in fact, void ab initio, then standing excludes no person injured by the act. [12]
The Ninth Circuit’s opinion makes clear that any injured party likely has standing to assert that an action in violation of the stay was void. But this is not the end of the story. The parties did not ask, and the opinion did not address, the association and purchaser’s ability to retroactively annul the stay. [13] The foreclosure and sale actions may well be the bank’s “beeswax,” but the association and the purchaser may have some sting left.
[1] 11 U.S.C. § 362(a).
[2] See, e.g., In re Soares, 107 F.3d 969 (1st Cir. 1997) (finding acts in violation of the automatic stay void, rather than voidable); In re Schwartz, 954 F.2d 569, 571 (9th Cir. 1992) (same); Raymark Indus. Inc. v. Lai, 973 F.2d 1125, 1131 (3d Cir. 1992) (same); Ellis v. Consol. Diesel Elec. Corp., 894 F.2d 371, 372 (10th Cir. 1990) (same); but see Bronson v. United States, 46 F.3d 1573 (Fed. Cir. 1995) (finding such acts voidable); Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir. 1993) (same, but such actions shall be voided absent limited equitable circumstances).
[3] 2 F.4th 1229 (9th Cir. 2021).
[4] Enchantment at 1232.
[5] Id.
[6] Bank of New York Mellon v. Hill, No. 17-cv-01916, 2019 WL 4781838 at *3 (D. Nev. Sept. 30, 2019). The trial court also ruled against the bank on due process issues.
[7] 951 F.2d 242 (9th Cir. 1991).
[8] Enchantment, 2 F.4th at 1232.
[9] Id. at 1235-36.
[10] Id.
[11] Id. at 1243.
[12] Such standing is a proposition many state courts have accepted: see, e.g., Doe v. Fireman’s Fund Ins. Co., 287 Neb. 486, 843 N.W.2d 639 (2014)(nondebtor insurer granted summary judgment against nondebtor personal-injury plaintiff because default judgment against debtor was entered in violation of the automatic stay); Krondes v. O'Boy, 69 Conn. App. 802, 812, 796 A.2d 625, 631 (2002) (judgment against nondebtor spouse reversed because of stay violations before trial, even though trial was after discharge); In re Cty. Treasurer & Ex Officio Cty. Collector of Cook Cty., 308 Ill. App. 3d 33, 45–46, 719 N.E.2d 143, 152 (1999) (appeal of judgment in favor of nondebtor bank dismissed where appellate filings were in violation of the automatic stay and were therefore without effect even with respect to the bank); Foresta v. Previte, No. 13 Misc. 476508, 2014 WL 5323066, at *5 (Mass. Land Ct. Oct. 20, 2014) (recognizing nondebtor standing and finding Superior Court order void as in violation of the automatic stay); SNR Dev. LLC v. 126 Henry St. Inc., 65 Misc. 3d 1071, 1074, 112 N.Y.S.3d 478, 480 (N.Y. Dist. Ct. 2019) (nondebtor tenant defeated nondebtor landlord’s eviction proceeding because tax deed to landlord was void due to prior owner’s bankruptcy). Many bankruptcy courts have likewise accepted this proposition; see In re Teleservices Grp. Inc., 463 B.R. 28, 32 (Bankr. W.D. Mich. 2012) (nondebtor fraudulent conveyance defendant has standing to assert automatic stay); In re Lesick, No. 03-00038, 2006 WL 2083655, at *5 (Bankr. D.D.C. July 19, 2006) (purchaser of estate property has standing to challenge tax deeds as stay violation). Even state courts in the Ninth Circuit have permitted nonparties to the bankruptcy to assert automatic stay violations; see, e.g., Lewis v. Daybreak Grp. Inc., No. E042364, 2008 WL 4801647, at *4 (Cal. Ct. App. Nov. 5, 2008) (nonprecedential). (successor in interest to purchaser at foreclosure sale can assert automatic stay violation where mortgage recorded in violation of the stay).
[13] 11 U.S.C.A. § 362(d) (“On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay.…”) (emphasis added); see In re Myers, 491 F.3d 120, 127 (3d Cir. 2007) (“[T]his and other courts have held that actions in violation of the stay, although void, may nevertheless be reinvigorated through a retroactive annulment of the stay.”); In re Soares, 107 F.3d 969, 976 (1st Cir. 1997) (“11 U.S.C. § 362(d) permits bankruptcy courts to lift the automatic stay retroactively and thereby validate actions which otherwise would be void.”); see also, e.g., In re Nat'l Env't Waste Corp., 129 F.3d 1052, 1056 (9th Cir. 1997); In re Albany Partners, Ltd., 749 F.2d 670, 675 (11th Cir. 1984).