Lead Opinion
The principal question raised in this appeal is whether Appellant’s action alleging willful violation of the automatic stay was rendered moot by dismissal of the underlying bankruptcy case. We conclude that the action was not rendered moot and reverse the bankruptcy court’s order dismissing the action.
FACTS
On June 24, 1992, Betty Jean Davis (Appellant) filed an action in Fresno County Superior Court alleging that certain secured lenders and their agents (Appellees): (1) wrongfully refused to accept loan payments from Appellant; (2) misapplied loan payments from Appellant; (3) initiated foreclosure proceedings in violation of California law; (4) dеfamed Appellant by falsely stating she had served time in prison and was a drug dealer; and (5) deliberately attempted to drive Appellant out of business. Appellant filed a chapter 13 petition on August 7, 1992 before the action came to trial. On August 12, 1992 and September 8, 1992, Appellees
On July 16,1993, Appellant filed the adversary proceeding at issue. The complaint alleges six causes of action. The third сause of action alleges that the postpetition foreclosures constituted willful violation of the automatic stay under 11 U.S.C. § 362(h). The fifth and sixth causes of action allege that Appellees committed other violations of the automatic stay. The remaining three causes of action allege various state-law wrоngful foreclosure theories similar to those alleged in the prior state-court action. Ap-pellees McGuire, Guthrie, Rose, and San Joaquin Investments, Inc. are named only in the state-law causes of action.
On July 20, 1993, the bankruptcy court granted the chapter 13 trustee’s motion to dismiss Appellant’s chapter 13 bankruptcy case because of Appellant’s failure to propose a feasible plan of reorganization. The order dismissing the case was entered on July 23, 1993.
On August 18, 1993, Appellees filed a motion to have the bankruptcy court dismiss Appellant’s adversary proceeding for lack of subject-matter jurisdiction, or to have the bankruptcy court abstain from hearing the action. Appellant did not file any written opposition to the motion.
The court granted Appellees’ motion to dismiss. The court reasoned that because the underlying bankruptcy case had been dismissed, the complaint for damages for violation of the automatic stay was moot.
There’s no dispute that the underlying case has been dismissed. That’s a fact.
The Court makes such a finding.
The case having been dismissed, the only bankruptcy or federal-related issue, namely, the one on sanctions for the violation of the automatic stay, becomes moot in that the dismissal of the case restores the parties as much as possible to their status before the case, which would mean that there was, in fact, no stay to violate.
[[Image here]]
Without reaching the jurisdictional issue, the Court will grant the motion to dismiss. It will be without prejudice, Ms. Davis, in the event your appeal on the dismissal of the main case is successful.
ISSUES
(1) Whether a complaint under section 362(h) of the Bankruptcy Code for willful violation of the automatic stay becomes moot upon the dismissal of the underlying bankruptcy case.
(2) Whether the bankruptcy court had subject-matter jurisdiction over the dismissed action.
(3) Whether dismissal of the action was an appropriate exercise of discretionary abstention.
JURISDICTION AND STANDARD OF REVIEW
This panel has jurisdiction to hear appeals from final judgments, orders, and decrees entered by bankruptcy courts. 28 U.S.C. § 167(a), (b). Although the bankruptcy court dismissed the complaint without prejudice, the order was a final one, because it terminated the instant action. The bankruptcy court contemplated that Debtor could bring the action before that court аgain only by filing a new adversary proceeding if the dismissal of the underlying chapter 13 case was set aside on appeal.
The propriety of dismissal of a complaint on the ground that the complaint is moot or on the ground that the court lacks subject-matter jurisdiction is a question of law that is subject to de novo review. In re Omoto,
DISCUSSION
1. Mootness. The weight of authority suggests that the dismissal of a bankruptcy case does not render moot an action for damages based on a willful violation of the automatic stay during the pеndency of the bankruptcy case. See Price v. Rochford,
In re Income Property Builders, Inc.,
In re Omoto,
When the underlying case is dismissed, the issue of whether the court should have approved the foreclosure sale is rendered moot because there is no longer an attempt to pursue a Chapter 13 plan. There is, therefore, no reason to restrain the creditor’s right to foreclose.
Id. at 100. We did not address whether any claim for damages would have been rendered moot by the dismissal of the bankruptcy case, because appellant had not sought such relief.
Nor does section 349 of the Bankruptcy Code, which specifies the effects of dismissal of an underlying case, provide that dismissal moots an action for willful violation of the automatic stay. Section 349(b) provides that dismissal revests property of the estate in the debtor and vacates orders entered avoiding certain liens and transfers. Section 349(b) does not, however, retroactively vacate the automatic stay, vacate orders remedying violation of the stay, or vitiate any cause of action based upon violation of the stay.
We сoncur with the authorities holding that dismissal of the underlying bankruptcy ease does not render moot an action for damages based on willful violation of the automatic stay. Willful violation of the automatic stay is an intentional tort for which compensatory and punitive damages may be awarded. 11 U.S.C. § 362(h). Imposition of damages for willful violation of the automatic stay serves an important purpose even after the underlying bankruptcy case has been dismissed; it provides compensation for and punishment of intentionally wrongful conduct. See In re Carroll,
2. Subject-Matter Jurisdiction. Appellees contend that the order dismissing the adversary proceeding without prejudice should be affirmed on the basis that the bankruptcy court lacked subject-matter jurisdiction over the action. Although the bankruptcy court did not rely upon that basis in dismissing the adversary proceeding, this court can affirm upon any basis presented by the record. See In re Woosley,
The bankruptcy court had subject-matter jurisdiction over all claims аlleging willful violation of the automatic stay. Bankruptcy courts have jurisdiction over “all civil proceedings arising under title 11, or arising in or related to eases under title 11.” 28 U.S.C. § 1334(b). Appellant’s action for willful violation of the automatic stay is created by section 362(h) of title 11 of the United States Code. Thus, the action arises under title 11 and is within the subject-matter jurisdiction of the bankruptcy court. Price v. Rochford,
The bankruptcy court had supplemental jurisdiction over Appellant’s state law claims. During the pendency of the bankruptcy case, the court had subject-matter jurisdiction over the state law claims because the Appellant was a chapter 13 debtor and the action would have an effect on her bankruptcy estate. See In re Fietz,
Appellant’s complaint alleges a pattern of wrongful refusal to accept tender of payments on various deeds of trust, misapplication of payments, wrongful foreclosure proceedings, and wrongful interference with Appellant’s real estate investment activities both before and after Appellant filed for bankruptcy. We conclude that the federal and state claims arisе out of the same general controversy and that the bankruptcy court had supplemental jurisdiction over the state-law claims.
None of the cases cited by Appellees for the proposition that the bankruptcy court lacked jurisdiction involved a federal cause of action that survived dismissal of the bankruрtcy case. The only cases holding that the bankruptcy court lacked jurisdiction following dismissal ctf the underlying ease involved motions for prospective relief regarding the automatic stay. See In re Taylor,
3. Discretionary Abstention. Our conclusion that Appellant’s action is not moot and that the bankruptcy court had subject-matter jurisdiction does not end our inquiry. The Ninth Circuit has recognized the bankruptcy court’s discretion to decline to exercise jurisdiction over pending adversary proceedings following dismissal of the underlying bankruptcy case. In re Carraher,
We cannot affirm the order dismissing the adversary proceeding as an exercise of discretionary abstention, however, because the trial judge did not consider the appropriate factors in making his decision. A judge does not properly exercise discretion where the judge relies upon an erroneоus interpretation of law in making a decision. Lawson,
We reverse the order dismissing the adversary proceeding and remand for further proceedings not inconsistent with our decision.
Notes
. The complaint acknowledges that Appellant had not held record title to the two foreclosed properties, but alleges that Appellees knew Appellant often held property in the name of her brother.
. The bankruptcy court is authorized in appropriate circumstances to abstain from proceedings arising under title 11. 28 U.S.C. § 1334(c)(1). The bankruptcy court should exercise great cаre, however, in abstaining from proceedings arising under title 11, because of the court's expertise in such matters.
Dissenting Opinion
dissenting:
Although I agree with the premise that dismissal of the underlying bankruptcy does not automatically moot a § 362(h) action for damages, I feel that a dismissal can moot the issue, and generally does. In this ease, there are sufficient reasons to affirm the bankruptcy court’s finding that the issue was moot. First, title to the рroperty involved was not held in the debtor’s name, and therefore was arguably not property of the estate nor subject to the automatic stay. Second, even if we assume that there was a stay violation, bankruptcy courts have authority to make terminations of the stay retroactive. In re Carroll,
I also disagree with the majority’s analysis of subject-matter jurisdiction. The majority states that the debtor’s state law claims arose out of the same common nucleus of operative fact as the debtor’s claim for § 362(h) damages, concluding that the bankruptcy court therefore has supplemental jurisdiction over the state law claims. The facts simply do not support this conclusion. The debtor initially filed a complaint alleging five state law claims in state court on June 24, 1992, six weeks before she filed bankruptcy. Clearly, the state law claims did not “arise out of the same controversy” as the alleged stay violations, since the state law claims arose before the bankruptcy petition was filed. As a result, the bankruptcy court does
For the foregoing reasons, I respectfully dissent.