17 F.4th 1349
11th Cir.2021Background
- In 1999 Kristina Gaime severely injured her sons; one child died. Gaime had auto and homeowners insurance with State Farm.
- The Rotells (Matthew’s estate, Adam, and Stephen Rotell) sued Gaime for wrongful death; State Farm sought declaratory judgments that it owed no coverage, won, and withdrew its defense.
- The state court entered default liability against Gaime and a jury awarded the Rotells ≈ $505 million on damages.
- The Rotells filed an involuntary Chapter 7 petition against Gaime; a trustee was appointed and sued State Farm for bad faith in rejecting a pretrial settlement.
- After the trustee sued State Farm, State Farm moved post-judgment to intervene in the wrongful-death suit and to vacate the judgment; it sought relief from the bankruptcy automatic stay, which the bankruptcy court denied and the district court affirmed.
Issues
| Issue | State Farm (appellant) | Trustee/Rotells (respondents) | Held |
|---|---|---|---|
| Whether § 362(a) automatic stay bars State Farm’s post-judgment motion to intervene in a pre-petition wrongful-death action | Stay does not apply to intervention or a defensive filing; intervention should be allowed | Intervention would "continue" a pre-petition action against the debtor and thus is barred absent relief from stay | Stay applies; intervention is a continuation of the pre-petition action and is barred without relief |
| Whether enforcing the stay deprives State Farm of due process | Denial deprives State Farm of any forum to challenge the judgment’s validity | State Farm had meaningful opportunities earlier (chose declaratory suits and withdrew; litigated defense in bad-faith action) | No due process violation; State Farm had meaningful opportunities to be heard and may appeal state rulings |
| Proper allocation of burden when movant seeks relief from stay under § 362(d) | Section 362(g)(2) places burden on trustee (opponent) to disprove cause to lift stay | Trustee says bankruptcy court may consider totality and any error was harmless | Bankruptcy court erred by placing burden on State Farm, but error was harmless because trustee demonstrated no cause to lift stay |
| Whether bankruptcy court abused its discretion in denying relief from stay (i.e., whether cause to lift exists) | State Farm sought to vacate judgment to avoid liability and relitigate issues | Allowing intervention would let State Farm relitigate strategic choices, increase trustee expenses, and harm estate administration | No abuse of discretion; denying relief protected the estate and prevented a second bite at the apple |
Key Cases Cited
- In re Colortex Indus., Inc., 19 F.3d 1371 (11th Cir. 1994) (standards of review: legal conclusions de novo, factual findings for clear error)
- In re Dixie Broad., Inc., 871 F.2d 1023 (11th Cir. 1989) (abuse-of-discretion standard for stay decisions)
- Armstrong v. Manzo, 380 U.S. 545 (U.S. 1965) (due process requires opportunity to be heard in a meaningful manner)
- Grannis v. Ordean, 234 U.S. 385 (U.S. 1914) (fundamental requisite of due process is the opportunity to be heard)
- Am. Nat’l Bank & Tr. Co. v. City of Chicago, 826 F.2d 1547 (7th Cir. 1987) (due process requires meaningful opportunity, not guaranteed success)
- In re Allstar Bldg. Prods., Inc., 834 F.2d 898 (11th Cir. 1987) (party opposing relief from stay bears burden to show absence of cause)
- In re Feingold, 730 F.3d 1268 (11th Cir. 2013) (courts assess lifting stay under the totality of the circumstances)