Easley v. Pettibone Michigan CorporationEasley v. Pettibone Michigan Corporation
Donald Payton (argued and briefed), Kaufman & Payton, Farmington Hills, MI, Robert D. Kolar, Eric G. Patt, Robert D. Kolar & Associates, Ltd., Chicago, IL, for defendants-appellants.
KENNEDY, Circuit Judge.
We certified this interlocutory appeal under
I.
This case has a long procedural history. In July 1985, Carl Easley, Jr., a General Motors employee, was injured while operating a forklift that he alleges was designed and manufactured by defendants. Mr. Easley and his wife Mary Easley (“plaintiffs“) filed this products liability action in Genessee County, Michigan in July 1988. Plaintiffs filed the claim five days before the three-year Michigan statute of limitations for products liability actions ran under
In January 1986, however, Pettibone Corporation, an Illinois corporation, and its United States subsidiaries, including Pettibone Michigan Corporation (“defendant“),1 filed for bankruptcy under Chapter XI in the United States Bankruptcy Court for the Northern District of Illinois. Pursuant to
On September 15, 1988, plaintiffs filed an application in the bankruptcy court for an order authorizing them to file a late claim in the bankruptcy proceeding and for an order modifying the automatic stay to permit them to proceed with their lawsuit. On November 25, 1988, the bankruptcy court granted plaintiffs’ leave to file a late claim against the debtors, but denied their request for a modification of the stay. On December 9, 1988, the bankruptcy court approved the reorganization plan, which merged Pettibone Corporation and all of its subsidiaries into a reorganized Pettibone, a Delaware corporation, with its principal place of business in Illinois. On December 28, 1988, the plan went into effect and the stay was dissolved. This permitted products liability claimants who had pending actions to prosecute their claims.
On January 27, 1989, Pettibone Michigan filed a notice of removal of the state action to the federal district court for the Eastern District of Michigan under
Thereafter, defendant moved to dismiss plaintiffs’ action in the District Court for the Eastern District of Michigan; the motion was denied. The court based the denial on its interpretation of an unpublished opinion of this Court, In re White Motor Corporation, 863 F.2d 50 (1988),2 which treated an action filed in violation of the stay as voidable. We granted the parties’ motion for interlocutory appeal to determine whether an action filed in violation of an automatic stay imposed pursuant to
We are required to note any jurisdictional defects whether or not raised by the parties. “[E]very federal appellate court has a special obligation to satisfy itself not only of its own jurisdiction, but also that of the lower courts in a cause under review.” Greater Detroit Resource Recovery Authority v. United States Environmental Protection Agency, 916 F.2d 317, 319 (6th Cir.1990) (citations omitted). We have jurisdiction under
The Bankruptcy Rules governing removal are not inconsistent with this conclusion.
We also conclude that regardless of whether actions filed in violation of the automatic stay are void or voidable, a defendant may invoke the removal jurisdiction of the federal courts to seek dismissal of the action. A defendant cannot ignore the reality of a complaint, whether or not it contains a valid claim or whether properly or improperly filed, and must respond to it. Where, for example, the federal courts have exclusive jurisdiction of a claim so that a state court lacks jurisdiction, a defendant may remove. Similarly, where a party lacks standing, the claim may be invalid. In both instances, the defendant cannot ignore the complaint and leave it sitting on a court docket; it must respond with a motion to dismiss, which will dispose of the claim. We hold that actions filed in violation of the automatic stay are removable once the stay is lifted, if only to have a federal court declare that the action is void.
For the aforementioned reasons, we hold that when a debtor seeks to remove a state cause of action filed in violation of the automatic stay to federal court based on diversity jurisdiction, that action is commenced and thus diversity must first exist at the time the stay is lifted. Further, the debtor must file its petition for removal within 30 days after the termination of the stay.
In this case, the stay was lifted on December 28, 1988. As of that day, Pettibone Michigan Corporation no longer existed, having been merged into a reorganized Pettibone, along with all of the other Pettibone subsidiaries. Reorganized Pettibone is a Delaware corporation with its principal place of business in Illinois. Therefore, diversity of citizenship between plaintiffs, Michigan residents, and reorganized Pettibone existed upon the commencement of the plaintiffs’ state action and at the time of removal, January 27, 1989, which was within 30 days of the lifting of the stay.
There is no dispute that the July 1988 state filing violated the automatic stay provisions of
In our opinion, the only path that will lead us to the correct answer in the void/voidable debate must begin by defining “void” and “voidable.” As should be evident, these words are not synonyms, however, they are often used interchangeably and imprecisely. “There is great looseness and no little confusion in the books in the use of the words void and voidable, growing, perhaps, in some degree, out of the imperfection of the language, since there are several kinds of defects which are included under the expressions void and voidable, while there are but two terms to express them all.” Bryan A. Garner, A Dictionary of Modern Legal Usage 570 (1987) (quoting, 92 C.J.S. at 1020-23 (1955)).
“Void” is defined as “an instrument or transaction [that] is nugatory and ineffectual so that nothing can cure it,” Black‘s Law Dictionary 1573 (6th ed. 1990); and as that “of no legal force or effect and so incapable of confirmation or ratification.” Webster‘s Third New International Dictionary 2562 (1971). “Voidable” is defined as “not void in itself,” Black‘s Law Dictionary 1574 (6th ed. 1990), and as “capable of being adjudged void, invalid, and of no force,” Webster‘s Third New International Dictionary 2562 (1971). We think that “invalid” is a more appropriate adjective to use when defining an action taken against a debtor during the duration of the automatic stay. Like the word “void,” “invalid” describes something that is without legal force or effect. However, something that is invalid is not incurable, in contrast to a void action which is incapable of being ratified.
Bankruptcy courts have the jurisdiction to modify the automatic stay so as to allow actions against the debtor.
The Ninth Circuit has rejected this reasoning and has instead reasoned that the power to grant retroactive stay relief under section 362(d) “does not require the conclusion that actions in violation of the automatic stay are merely voidable.” In re Schwartz, 954 F.2d at 573 (quoting In re Garcia, 109 B.R. 335, 339 (N.D.Ill.1989)). “If a creditor obtains retroactive relief under section 362(d), there is no violation of the automatic stay, and whether violations of the stay are void or voidable is not at issue.” Id. We think that this approach to the problem creates a needless legal fiction, for when an action takes place during the stay, a violation of section 362(a) occurs. Any subsequent relief under section 362(d) validates the previously invalid act.
We are well aware of the importance and purpose of the automatic stay provision in providing fundamental protection to the debtor. “It stops all collection efforts, all harassment, and all foreclosure actions.” H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 6297. By finding that actions in violation of the stay are voidable instead of void, we are not imposing added or undue burdens on the debtor as the Ninth Circuit believes will happen:
If violations of the stay are merely voidable, debtors must spend a considerable amount of time and money policing and litigating creditor actions. If violations are void, however, debtors are afforded better protection and can focus their attention on reorganization.
In re Schwartz, 954 F.2d at 571. We believe the Ninth Circuit overstates the difference between what would be required of debtors if actions in violation of the stay are void or voidable, because in either case, the debtor must respond in some fashion to the action. A debtor need only file a motion to dismiss on the grounds that the action violates section 362(a) and should be declared void. Indeed, this is the procedure followed in all cases in which the void/voidable issue has arisen. And unless equity dictates otherwise, these actions will be voided by the court in which the invalid action against the debtor was filed. We emphasize that we are not encouraging creditors to violate the stay, and we offer no new exceptions to the operation of the stay by the mere holding that actions in violation of the stay are voidable.
Another reason for concluding that actions in violation of the automatic stay are voidable rather than void is the recognition by several circuits of an equitable exception to the operation of the stay. In re Calder, 907 F.2d 953; Matthews, 739 F.2d 249; In re Smith Corset Shops, 696 F.2d 971. By recognizing this exception, these circuits are really viewing actions taken in violation of the stay as voidable. In all three of these cases, the bankruptcy court acted within its equitable jurisdiction to lift the stay while the bankruptcy proceedings were taking place. Additionally, in all three cases, the courts found that the debtors were attempting to use the stay as a shield after an unreasonable delay in asserting the debtors’ rights under section 362. In In re Calder, the debtor failed to notify the creditor that it was in Chapter 13 proceedings and actively participated in state court litigation while in bankruptcy proceedings. The Tenth Circuit recognized that generally, actions in violation of the stay are invalid regardless of notice of the stay. But where the debtor unreasonably withholds notice, and where the creditor would be prejudiced, the debtor cannot use the automatic stay provision as “a trump card played after an unfavorable result was reached in state court.” In re Calder, 907 F.2d at 956-57. In Matthews, the bankruptcy court found the debtor, who initiated the claim while in Chapter 13 proceedings, and who “unreasonably and inexcusably delayed asserting his claim,” guilty of laches which prevented the court from nullifying the three-year-old state order in favor of the creditor. Matthews, 739 F.2d at 251. In In re Smith Corset Shops, the debtor knew that the creditor, who did not know that the debtor began bankruptcy proceedings four days earlier, obtained a default judgment from the state court. Although the debtor watched as the constable removed his property from his warehouse, it was only after removal that the debtor notified the creditor of the stay and then sued the creditor for conversion. If successful in the conversion action, the debtor would have obtained from the innocent creditor the full original cost of the inventory which may have been unmarketable. The court found that equity prevented the debtor, who remained “stealthily silent,” to essentially use section 362 to void the creditor‘s claim. In re Smith Corset Shops, 696 F.2d at 977.
This Circuit impliedly adopted this equitable exception in In re Smith, 876 F.2d 524 (6th Cir.1989). We cautioned that “any equitable exception to the stay must be applied sparingly.” Id. at 527. The Court indicated that in the absence of 1) an attempt to exploit the stay to gain an unfair advantage or 2) the fraudulent, willful delay in asserting the stay as a defense, actions taken during the pendency of the stay are void. This position is in conflict with the position this Court took in In re Potts, 142 F.2d 883, finding all such actions void without exception. The Supreme Court‘s decision in Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370 (1940), is also cited as support for finding actions in violation of the stay void. Kalb involved a post-petition real property foreclosure action by a state court and was found to be
“not merely erroneous but ... beyond its power, void, and subject to collateral attack.”
[Kalb, 308 U.S. at 438, 60 S.Ct. at 345.] When the Supreme Court decided Kalb in 1940, bankruptcy referees had the express statutory power only to modify or terminate the automatic stay. The power to annul the stay had not been authorized.4 Accordingly, where the violation of the stay was statutorily proscribed and an applicable exception did not exist, the violative action was void. That scenario no longer applies. Sikes, 881 F.2d at 179 n. 2. See also, In re Columbus Broadway Marble, 84 B.R. at 325 n. 2. Potts also was decided before the Bankruptcy Code permitted annulment of a stay.
In summary, we hold that actions taken in violation of the stay are invalid and voidable and shall be voided absent limited equitable circumstances. We suggest that only where the debtor unreasonably withholds notice of the stay and the creditor would be prejudiced if the debtor is able to raise the stay as a defense, or where the debtor is attempting to use the stay unfairly as a shield to avoid an unfavorable result, will the protections of section 362(a) be unavailable to the debtor. Under this framework, defendant in this case did not behave unreasonably and the equitable exception should not apply. As previously pointed out, as soon as defendant was made aware of plaintiffs’ lawsuit, it notified plaintiffs that their action was in violation of the automatic stay. Defendant did nothing to lull plaintiffs into believing it would not rely on the stay. Indeed, defendant moved to have plaintiffs’ action declared null and void after the thirty-day grace period for filing had expired. Although plaintiffs will be prejudiced because they have lost their products liability claim against defendant, this is because they failed to refile their action within the thirty-day grace period afforded by
IV.
Plaintiffs raise additional issues not properly certified to this Court. However, “we recognize that even those issues not properly certified are subject to our discretionary power of review if otherwise necessary to the disposition of the case.” Pinney Dock & Transport Co. v. Penn Central Corp., 838 F.2d 1445, 1455 (6th Cir.1988), cert. denied, 488 U.S. 880, 109 S.Ct. 196, 102 L.Ed.2d 166 (1988).
Plaintiffs argue that filing a bankruptcy claim constitutes commencement of an action within the meaning of Michigan‘s statute of limitations and thus tolls the statute.
Plaintiffs also argue that even if their July 1988 complaint was void due to the automatic stay, it still served to toll the statute of limitations. There is an equitable tolling doctrine in Michigan. See Sumner v. Goodyear Tire & Rubber Co., 427 Mich. 505, 528-29 n. 8, 398 N.W.2d 368 (1986). Michigan courts, however, have only recognized an estoppel action to limit a statute of limitations defense where the defendant engaged in deceitful conduct designed to induce the plaintiff to refrain from bringing the action within the period. Lothian v. Detroit, 414 Mich. 160, 177, 324 N.W.2d 9 (1982); Renackowsky v. Board of Water Commissioners, 122 Mich. 613, 616, 81 N.W. 581 (1900). Defendant never engaged in any such conduct. In fact, defendant alerted plaintiffs that the stay prohibited their action and also instructed them on how to protect their interests by filing a proof of claim with the bankruptcy court.
V.
Accordingly, the District Court‘s order is REVERSED and the case is REMANDED for dismissal in accordance with this opinion.
Notes
Section 362(d) provides in pertinent part:
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--
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest....
Except as provided in section 524 of this title, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, ... and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of--
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or
(2) 30 days after notice of the termination or expiration of the stay under section 362, 922, or 1301 of this title, as the case may be, with respect to such claim.