Bartel v. Walsh (Bartel)Bartel v. Walsh (Bartel)
Dennis M. Bartel (the “Debtor”) appeals from the October 10, 2008, bankruptcy court order (the “Order”) granting the motion of Paul F. Walsh
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and Lieutenant Stephen O’Reilly (“Lieutenant O’Reilly”) (together, the “Defendants”) for summary judgment on the Debtor’s complaint alleging violations of the Federal Civil Rights Act, 42 U.S.C. § 1983; the Massachusetts Civil Rights Act, General Laws Chapter 12 § 111; the automatic stay provisions of the bankruptcy code, 11 U.S.C. § 362;
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and
BACKGROUND 3
The Debtor was a contractor who owned a home construction company called New Dimensions Construction Services. He filed a chapter 13 petition in 2005, and later converted his case to chapter 11. After he commenced the adversary proceeding that is the subject of this appeal, but before the court issued the Order, the court converted his case to chapter 7.
While the Debtor was a debtor-in-possession under chapter 11, Lieutenant O’Reilly appeared at the Debtor’s home, served the Debtor with a search warrant, and seized the Debtor’s financial books and records. While doing so, he allegedly told the Debtor that the attorney general of the Commonwealth of Massаchusetts had “placed a block” on the Debtor’s bankruptcy case and that the Debtor was not going to be allowed to go forward with the case. Additionally, Lieutenant O’Reilly allegedly asked the Debtor, “what did you do with Berghaus’ money?,” which the Debtor understood to be reference to Larry Berghaus, who was a client of New Dimensions and a state police officer.
The Debtor further alleged that, the next day, the Debtor’s attorney received a call from attorney James Rudser, who stated that he represented Jose and Isabelle Rodriguez in state court actions against the Debtor and New Dimensions. The Rodriguezes had filed a proof of claim in the bankruptcy case. Rudser allegedly told the Debtor’s attorney that he (Rud-ser) was the source of the actions taken by Lieutenant O’Reilly, that such actions were only the beginning of the Debtor’s troubles, and that he had Lieutenant O’Reilly on his “speed dial.” Rudser also allegedly asked whether the Debtor would provide him with an affidavit that he could use in the state court proceeding, in exchange for which Rudser would withdraw the Rodri-guezes’ claim and arrange for Lieutenant O’Reilly’s investigation to cease.
In February, 2006, the Debtor commenced the adversary proceeding that is the subject of this appeal. In his complaint, he alleged that the Defendants took the above-described actions under color of law, in exercise of the authority of the Commonwealth of Massachusetts and with knowledge that the Debtor was a debtor in a bankruptcy case. Additionally, he alleged that the actions were intended to deprive the Debtor of the rights and privileges afforded under the Bankruptcy Code, including the automatic stay, and were not related to any legitimate exercise of police power or any legitimate criminal matter. Rather, he alleged, the actions were designed and intended to harass and intimidate the Debtor to compel him to pay a debt through the unlawful use of criminal process. Moreover, the Debtor asserted that Lieutenant O’Reilly’s seizure of his financial records made it impossible for him to prosecute his bankruptcy case, make payments to creditors, and fully assist his counsel in preparing the necessary pleadings and papers, and deprived him of relief available under the Bankruptcy Code.
In July, 2008, the Defendants moved fоr summary judgment on the Debtor’s complaint, in which they argued that the automatic stay did not apply to the Defendants’ actions, that there was no merit to the Debtor’s theory that Lieutenant O’Reilly’s questioned him about “Berghaus’ money” to intimidate him into paying Berghaus’ claim, that the Defendants did not violate the Debtor’s civil rights because the automatic stay was inapplicable to their actions, and that the bankruptcy court lacked jurisdiction over the civil rights claims. The Debtor objected to the Defendants’ motion for summary judgment, arguing that they cannot “cloak” their abuse of authority within the police power exception to the automatic stay, that the Defendants were estopped from denying the content of Lieutenant O’Reilly’s conversation with the Debtor, and that the Debtor’s civil rights claims were well founded and were within the bankruptcy court’s jurisdiction.
The bankruptсy court held a hearing on the matter, during which the parties essentially reiterated their positions. Additionally, the Defendants explained that the district attorney’s office had given the Debtor “100 per cent access” to the Debt- or’s financial records by making them available to him, for any reason, during business hours. The Debtor' responded that the state court judge had ordered the district attorney’s office to return the documents to the Debtor, that this did not occur, and that the Debtor filed a motion to compel in the bankruptcy court while the case was pending with a different bankruptcy judge. The bankruptcy court stated that the Debtor had taken no action with respect to compelling the return of the records in the five months since the case had been reassigned to a new judge, despite the Debtor having had “plenty of opportunity” to do so. The bankruptcy court concluded the hearing by taking the matter under advisement.
The bankruptcy court issued the Order granting the Defendants’ motion for summary judgment, accompanied by a memorandum of decision. In its decision, the bankruptcy court concluded that the Defendants had not violated the automatic stay as a matter of law, because § 362(b)(1) provides a categorical exception to the automatic stay and the scope of § 362(b)(1) includes property of the estate. Additionally, the court further concluded that the Debtor’s allegations of civil rights violations must fail as a matter of law because they were predicated on the Debt- or’s allegation of a stay violation. This appeal followed.
JURISDICTION
A bankruptcy appellate panel may hear appeals from “final judgments, orders and decrees [pursuant to 28 U.S.C. § 158(a)(1) ] or with leave of thе court, from interlocutory orders and decrees [pursuant to 28 U.S.C. § 158(a)(3) ].”
Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.),
STANDARD OF REVIEW
The Panel generally reviews findings of fact for clear error and conclusions of law
de novo. See TI Fed. Credit Union v. DelBonis,
DISCUSSION
A.The Summary Judgment Standard
Bankruptcy Rule 7056 incorporates Rule 56(c) as the appropriate standard for deciding a motion for summary judgment. Thus, the moving party bears the initial burden of demonstrating that “there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c);
see also Razzaboni v. Schifano (In re Schifano),
B. Exclusive Jurisdiction and the Automatic Stay
As an initial matter, we are compelled to clarify the relationship between the automatic stay and a bankruptcy court’s jurisdiction over property of the estate. The Debtor argues that because 28 U.S.C. § 1334(e) grants bankruptcy courts exclusive jurisdiction over property of the bankruptcy estate, the “inevitable conclusion is that a state may not issue a search warrant and use it to seize property of the bankruptcy estate in any circumstance without obtaining relief from the automatic stay, even in the context of a criminal prosecution.” This is not correct. The fact that the bankruptcy сourt has exclusive jurisdiction over property of the estate has no bearing on whether the automatic stay is in effect. Instead, the fact that the bankruptcy court has exclusive jurisdiction over property of the estate simply means that it has authority to determine whether the stay was in effect. We turn, then to the question of whether the bankruptcy court erred in determining that the stay was not in effect because the criminal рrosecution exception applied.
C. Alleged Violation of the Automatic Stay
1. The Criminal Prosecution Exception
The bankruptcy court concluded that the Defendants were entitled to summary judgment because § 362(b)(1) categorically excepts all criminal actions from the automatic stay. With some exceptions, § 362(a) imposes a self-executing automatic stay of collection efforts against a debt-
In questions of statutory construction, we begin our analysis with the language of the statute.
Phillips v. Pembroke Real Estate, Inc.,
As such, § 362(b)(1) is “a clear and straightforward declaration” that excepts all
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criminal prosecutions of the debtor from the automatic stay with “no hint of any exception for prosecutorial purpose or bad faith.”
In re Pickett,
Additionally, despite the Debtor’s assertion to the contrary, § 105 does not authorize the bankruptcy court to enjoin
(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
11 U.S.C. § 105(a). The First Circuit has observed that § 105(a) gives bankruptcy courts broad authority to “exercise its equitable powers.”
Bessette v. Avco Fin. Servs., Inc.,
Despite the broad language of § 105, the First Circuit has held that there are “important limitations” on a bankruptcy court’s authority to act рursuant to § 105(a).
In re Nosek,
This result does not thwart the purpose of bankruptcy.
See In re Gruntz,
Although the plain language of § 362(b)(1) renders it unnecessary to examine its legislative history, such examination only bolsters the view that applying § 362(b)(1) strictly does nоt frustrate the purpose of bankruptcy: “The bankruptcy laws are not a haven for criminal offenders but are designed to give relief from financial over-extension. Thus, criminal actions and proceedings may proceed in spite of bankruptcy.” H.R. No. 95-595, 95th Cong. 1st Sess. at 342 (1977); S.R. Rep. No. 95-989, 95th Cong.2d Sess. at 51 (1978); U.S.Code Cong. & Admin.News 1978 at 5787, 5837, 6299;
see also In re Pickett,
Additionally, this result comports with strong principles of federalism.
Lastly, we reach the question of whether the § 362(b)(1) exception applies to property of the estate. Again, under the well-established cannon of statutory interpretation, we begin our analysis with the language of the statute.
Phillips,
Here, the Defendants’ actions were undertaken in connection with a criminal proceeding against the Debtor. Lieutenant O’Reilly acted under the authority of a valid search warrant. The Debtor does not allege that the financial records seized were outside the scope of the warrant. 5 Additionally, the financial records Lieutenant O’Reilly seized were directly linked to the criminal proceedings. Moreover, the Debtor made little or no effort to access the records in order to prosecute his bankruptcy case.
It is worth noting, as well, that the state succeeded not only in indicting the Debtor on multiple counts оf larceny, but in securing a conviction against him as well. He was sentenced to over seven years for his crimes. Thus, even if there were a “bad faith” exception to § 362(b)(1), the facts foreclose the Debtor from prevailing on such an argument.
See O’Brien v. Town of Agawam,
D. Alleged Violations of Civil Rights and Abuse of Process
The bankruptcy court concluded that the Defendants were entitled to summary judgment on the counts relating to alleged civil rights violations and abuse of process because the Debtor’s theories were predicated on a finding of a stay violation. The Debtor argues that the counts are separate from the stay violation allegation. The record reflects, however, that this is not the case, and that the civil rights claims are indeed predicated on the stay violation allegation.
In the complaint, the Debtor alleged that the Defendants had violated his civil rights and had committed abuse of process because the actions taken in connection with the criminal prosecution deprived him of the rights and/or privileges afforded to him under the Bankruptcy Code, and werе not related to any legitimate exercise of police power or any legitimate criminal matter. Additionally, the Debtor alleged that the seizure of his financial records made it impossible to prosecute his bankruptcy case, make payments to creditors, and fully assist his counsel. Lastly, the Debtor alleged that Lieutenant O’Reilly committed abuse of process by acting in a way that was designed and intended to harass аnd intimidate the Debtor and compel him to pay a debt through the unlawful or illegal use of criminal process.
These allegations are quite clearly predicated on a finding that the Defendants violated the automatic stay. In other words, if the Defendants’ actions were not in violation of the stay, then they did not deprive him of his rights under the Bankruptcy Code. Indeed, at the hearing on the Defendants’ motion for summary judgment, the Debtor reiterated that his allegations of civil rights violations and abuse of process were based on the theory that the criminal violation was a violation of the Debtor’s rights under the Bankruptcy Code. As it has previously been established that the Defendants’ actions were within the scope of the § 362(b)(1) exception, and therefore did not violate the automatic stay, the Defendants did not violate the Debtor’s rights under the Bankruptcy Code, and thus therе is no basis for the Debtor’s allegations of civil rights violations and abuse of process. As such, the bankruptcy court did not err in granting the Defendants’ motion for summary judgment on these counts.
CONCLUSION
For the reasons set forth above, we AFFIRM the Order.
Notes
. Walsh is no longer the district attorney for Bristol County and the Debtor did not amend the complaint to name the current district attorney as a defendant.
. Unless otherwise noted, all references to the
. As this appeal presents no factual disputes, and indeed the Debtor stated in his brief that the bankruptcy court had "well stated” the facts, we draw most of the background information from the bankruptcy court’s opinion that accompanied the Order.
. As the Defendants are both agents of the state, the question of whether an individual creditor's pursuit of criminal prosecution of the debtor in an effort to recover a debt is not at issue here.
See In re Byrd,
. The Debtor did not include a copy of the warrant in the record on appeal.