AMENDED MEMORANDUM OPINION
This matter presents the question of whether a trustee or debtor-in-possession may unilaterally waive the protections of the automatic stay to proceed with acts of estate administration that would otherwise violate 11 U.S.C. § 362(a) if performed by anyone else. Clark Polk Land, LLC (“Clark Polk”) has requested an award of costs and attorneys’ fees incurred as the result of an appeal that the debtor-in-possession, Mid-City Parking, Inc. (“MidCity”), allegedly filed in willful violation of the automatic stay imposed by § 362(a). The Court holds that a trustee or debtor-in-possession has such authority and furthermore denies Clark Polk’s motion.
Mid-City became a debtor-in-possession upon filing a petition for Chapter 11 bankruptcy relief on December 8, 2004, thereby triggering the automatic stay of 11 U.S.C. § 362(a). Prior to this filing, Clark Polk obtained a state court judgment against the debtor in the amount of $337,198.27 on August 4, 2004; the debtor’s counterclaims against Clark Polk and Richard G’Sell were defeated the same day. On November 29, 2004, Clark Polk received an additional award of $90,582.08 for attorneys’ fees, costs, and prejudgment interest. Subsequent to the Chapter 11 filing, on January 24, 2005, the debtor-in-possession appealed the entire $427,780.35 judgment to the Appellate Court of Illinois but did so without obtaining stay modification under § 362(d). Clark Polk brought a motion to dismiss the appeal before the Appellate Court of Illinois, arguing that the automatic stay in the Chapter 11 case prevented the debtor-in-possession from filing a notice of appeal from the state court judgment. On March 4, 2005, the Appellate Court of Illinois agreed with Clark Polk’s position and dismissed Mid-City’s appeal from the judgment.
In this bankruptcy case, Clark Polk has brought the instant motion for the costs and attorneys’ fees incurred both to obtain dismissal of the state court appeal and to recover the costs and fees incurred in pursuing this motion. Clark Polk contends that the award is warranted under 11 U.S.C. § 105(a) because Mid-City’s violation of § 362(a) was willful-that is, because MidCity was aware the stay existed when it engaged in an intentional act in violation thereof.
Jurisdiction
Initially, the Court must determine whether it has subject matter jurisdiction over this controversy, and if need be, federal courts must do so
sua sponte. See Maritime Electric Co. v. United Jersey Bank,
Bankruptcy is a particularly difficult area of law in which to determine whether a state court decision is subject to collateral attack in spite of the
Rooker-Feldman
doctrine. The federal district courts — and by reference, the bankruptcy courts — have “original and exclusive jurisdiction of all cases under title 11” while also having “original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334. A problem results from the fact that any type of civil proceeding concerning the automatic stay of 11 U.S.C. § 362 could rationally be deemed a “civil proceeding[] arising under title 11, or arising in ... cases under title 11,” § 1334(b), and could furthermore be deemed a proceeding over which state courts have concurrent jurisdiction. If a state court enters a final order for a federal question over which it has concurrent jurisdiction, the
Rooker-Feldman
doctrine will normally prevent a collateral attack in a federal district or bankruptcy court. If a state court enters an order for an issue that is within the exclusive province of federal courts, the order is subject to collateral attack in federal courts with original jurisdiction.
See Gruntz,
While the federal statute provides little guidance on these questions, case law has established a sort of
ad hoc,
hybrid system for dealing with the various stay issues listed above.
E.g., Halas,
But see infra
note 3. This concept appears to be consistent with the idea of inherent jurisdiction to determine jurisdiction.
See Lockyer v. Mirant Corp.,
This modification would occur both if the state court eliminated a portion of the stay by utilizing an inapplicable exception in § 362(b),
see, e.g., Benalcazar,
This understanding of the automatic stay and the
Rooker-Feldman
doctrine goes beyond the rationale sometimes used to justify a bankruptcy court’s independent, successive review of the scope and applicability of § 362(a) and (b). In some scenarios the state court determines that the automatic stay does not apply (or that an exception does apply), but the bankruptcy court subsequently reaches the opposite conclusion, meaning that the proceeding was in fact stayed. In those instances the federal court can deem the state court proceeding to be null and void
ab initio, see Kalb v. Feuerstein,
A rule has emerged for both state and federal courts handling nonbankruptcy litigation that is somehow tied to the filing of a federal bankruptcy case: The state or federal forum handling the nonbankruptcy litigation has concurrent jurisdiction to initially determine whether § 362(a)-(b) stays the proceeding, but the federal bankruptcy forum may entertain a collateral attack on that ruling.
3
See Baldwin-United Corp.
Discussion and Analysis
To determine the application of § 362(a)(1),
5
one must disaggregate all
To the extent that the claim was not “against” the debtor at its inception because the debtor occupied a plaintiffs position, its further prosecution is not stayed pursuant to § 362(a)(1).
7
See Aiello v.
Here, because Clark Polk initially filed a complaint against Mid-City in the Circuit Court of Cook County, the suit was an “action or proceeding against the debt- or” within the meaning of § 362(a)(1), and all stages of the controversy were automatically stayed, at least initially, when Mid-City filed the present Chapter 11 bankruptcy case. 11 U.S.C. § 362(a)(1). This is well-settled law that does not depend on which party had most recently prevailed, the ultimate disposition of the claim, the current stage of the litigation, or the existence of any pending appeal from a final judgment.
See Byrd,
Nevertheless, an additional legal issue remains in Chapter 11 cases in which the debtor-in-possession acts in the capacity of a trustee under § 1107(a), having not been replaced with a case trustee under § 1104(a) of the Code.
8
The issue in these cases is whether the debtor-in-possession must always seek modification of the stay to proceed with actions that are otherwise stayed automatically or, alternatively, whether the debtor-in-possession (acting as a trustee) may proceed without a court order by simply waiving the protections of the automatic stay and taking action on behalf of the estate. It is important to note that if scrutinized properly, the long line of case law that some courts, including
Capgro Leasing,
cite as the so-called “majority” position does not actually address this issue; it merely stands for the much broader proposition that a debtor and a creditor are enjoined from continuing any particular lawsuit that is in essence an “action or proceeding against the debtor.” The so-called majority position does not even begin to address what happens when the Code bestows upon a debtor all of the rights, power, functions, and duties of a trustee. It is particularly telling that of the so-called majority position cases, five make no reference whatsoever to the chapter of Title 11 under which the bankruptcy was filed,
see Delpit,
Even in these eight Chapter 11 opinions, the language does not make any mention
When the issue in the instant case is properly understood more specifically as the interplay between a trustee’s role and § 362(a), the case law is much more evenly divided.
Parker v. Bain (In re Parker),
On the other hand,
Chaussee v. Lyngholm (In re Lyngholm),
Of particular significance is the fact that
Capgro Leasing’s
reasoning explicitly applies to trustees in addition to debtors-in-possession,
see Capgro Leasing,
But, we must then ask what a trustee may or may not generally do in spite of the automatic stay of § 362(a). Section 1107(a) further provides that the debtor-in-possession’s role as a trustee is “[s]ub-ject to any limitations on a trustee serving in a case under this chapter, and to such limitations or conditions as the court prescribes.” § 1107(a). Section 362(a) in turn states that “a petition filed under section 301 ... operates as a stay, applicable to all entities.” § 362(a). An “entity” has been defined to include a “person, estate, trust, governmental unit, and United States trustee.” 11 U.S.C. § 101(15). Is a bankruptcy trustee an “entity”? A bankruptcy case trustee is distinguishable from the U.S. trustee. Cases interpreting § 362(h) have held that while a bankruptcy trustee may be an individual, i.e., a natural person, he does not act in that capacity while administering the estate; he instead represents a “thing” that is not a human being or corporation but that is another type of legal entity not included within words such an “individual.”
Havelock v. Taxel (In re Pace),
So far, courts addressing this problem have begun and ended this inquiry with Federal Rule of Bankruptcy Procedure 6009:
With or without court approval, the trustee or debtor in possession may prosecute or may enter an appearance and defend any pending action or proceeding by or against the debtor, or commence and prosecute any action or proceeding in behalf of the estate before any tribunal.
Fed. R. Bankr.Pro. 6009;
see, e.g., Lyngholm,
Bankruptcy Rule 6009 nevertheless fails to provide a
sufficient
authority for declaring that bankruptcy trustees of any type are not subject to § 362(a) and can waive its protections while administering the bankruptcy estate (though it may later shed light on how other Bankruptcy Code provisions are to be read). A more significant problem with
Autoskill’s
use of Bankruptcy Rule 6009 went unidentified in
Capgro Leasing:
To the extent any inconsistency may exist, a civil-procedure rule promulgated under the Supreme Court’s analogous Rules Enabling Act authority for bankruptcy cases
12
cannot overcome a
It is a well-established canon of statutory construction that a court should go beyond the literal language of a statute if reliance on that language would defeat the plain purpose of the statute:
“The general words used in the clause ..., taken by themselves, and literally construed, without regard to the object in view, would seem to sanction the claim of the plaintiff. But this mode of expounding a statute has never been adopted by any enlightened tribunal— because it is evident that in many cases it would defeat the object which the Legislature intended to accomplish. And it is well settled that, in interpreting a statute, the court will not look merely to a particular clause in which general words may be used, but will take in connection with it the whole statute ■■■ and the objects and policy of the law ••••” Brown v. Duchesne,19 How. 183 , 194,15 L.Ed. 595 (1856) (emphasis added).
Bob Jones University v. United States,
Role and capacity of trustee
(a) The trustee in a case under this title is the representative of the estate.
(b) The trustee in a case under this title has capacity to sue and be sued.
11 U.S.C. § 323;
see also Cobb,
Even though bankruptcy trustees and debtors-in-possession have these special powers and duties with respect to estate litigation, we must continue to ask whether Congress intended to constrain their exercise through § 101(15) and § 362(a).
15
As a matter of bankruptcy pol
Answering in the negative creates several situations that are odd in terms of bankruptcy policy. The automatic stay is intended to benefit creditors collectively by preventing individual creditors from acting unilaterally to the detriment of other creditors. This benefit can be fully realized only if a single entity proceeds to adminis
All of these policy problems are related to a much larger practical dilemma created by the
Capgro Leasing
interpretation. The
Capgro Leasing
line does not fully consider what applying the automatic stay to trustees would really entail; it does not carry its reasoning to its logical conclusion. The language of the eight subsections of § 362(a) describing different categories of automatically stayed activities contains no basis for concluding that trustees are subject to some of the subsections but not others. Under the
Capgro Leasing
interpretation, trustees and debtors-in-possession would be subject to all eight forms of the stay, not just the one in § 362(a)(1). Section 362(a)(3) is particularly telling: “[A] petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of ... (3) any act to obtain possession of property of the estate ... or to exercise control over prop
The end result in all those cases would be called into doubt because § 362(a)(3) would prohibit the trustee or debtor-in-possession from prosecuting the suit, which would be a form of exercising control over estate property. The
Capgro Leasing
interpretation carried to its logical conclusion produces unintended results and, indeed, could cause a nationwide bankruptcy revolution. And, this conclusion is not as overstated as it might first appear. The vast weight of authority holds that legal actions violating the automatic stay are null and void
ab initio. See Kalb v. Feuerstein,
Additionally, § 362(a)(6) prohibits “all entities” from engaging in
“any
act to
We should avoid applying the various subsections of § 362(a) to trustees and debtors-in-possession in a random manner. The better interpretation holds that an automatically stayed “trust” or “estate” under § 101(15) includes neither the bankruptcy estate itself nor the trustee who administers it in that particular case.
But cf. In re Wlodarski,
It goes without saying that once a trustee or debtor-in-possession unilaterally waives the protections of the automatic stay by proceeding with estate administration, he cannot contend that a creditor-appellee has violated the automatic stay by opposing the appeal he himself has initiated and prosecuted. If the trustee has waived the protections of the stay, it would logically no longer exist to restrain the creditor-appellee. Also, from an equitable standpoint, one court has held that the debtor-in-possession is estopped from asserting the stay against a creditor-appellee once it has initiated an appeal in the face of § 362(a).
See In re Horkins,
CONCLUSION
A Chapter 11 debtor-in-possession or case trustee may waive the protections afforded by § 362(a) when the actions that would otherwise violate the stay are in furtherance of his statutory duties of administering the bankruptcy estate, including appealing judgments against the debt- or’s estate in nonbankruptcy forums. 22 In so holding, this Court approves the result reached by the U.S. Court of Appeals for the Tenth Circuit and the Indiana Supreme Court rather than that reached by the First Circuit and the Ninth Circuit. Until a debtor-in-possession or trustee takes affirmative action showing an intent to prosecute the appeal of a judgment claim, however, an appeal from a judgment against the debtor’s estate is stayed pursuant to § 362(a)(1).
Here, the Chapter 11 debtor-in-possession took affirmative action by filing a notice of appeal in the Appellate Court of Illinois, thereby waiving the protections of § 362(a)(1) on behalf of the bankruptcy estate. Because no automatic stay violation occurred, Clark Polk’s “Motion for Costs and Fees Incurred as a Result of Mid-City Parking Inc.’s Willful Violation of the Automatic Stay” is denied.
Notes
.
See, e.g., In re Motley,
. In
Gruntz,
for example, a California court determined that a stay exception in § 362(b) permitted a criminal prosecution of a debtor to proceed, and the Ninth Circuit Court of Appeals independently reached the same conclusion. Thus, the Ninth Circuit conducted an independent review even though the California proceeding was never deemed null and void
ab initio.
Although Judge Wedoff's
Be-nalcazar
opinion relied on the "null and void
ab initio”
rationale to relitigate the scope of § 362 in that case, it also contained dicta indicating that a federal court may separately address such questions in every case in spite of the
Rooker-Feldman
doctrine.
See Benalcazar,
. Some authorities have suggested that state courts have no subject matter jurisdiction at all to rule on the scope and applicability of the automatic stay in the first instance, because such a matter is a "core proceeding” under 28 U.S.C. § 157(b) as well as an integral part of the overarching bankruptcy "case.”
See Gruntz, 202
F.3d at 1082-83 (one of two alternative holdings);
In re Sermersheim,
The conclusion drawn in the second line of authority would mean that in every instance the automatic stay could potentially apply to a state court proceeding, the state court may have to consider issuing an independent stay under state law while awaiting an individualized order from the bankruptcy court so as to avoid any sort of implicit ruling on a matter over which it has no subject matter jurisdiction.
See In re Benalcazar,
Yet a third approach was created in
Singleton v. Fifth Third Bank (In re Singleton),
. "The necessary uniformity is best achieved by centralizing construction of the automatic stay in the Bankruptcy Court, subject to review in the Sixth Circuit, with ultimate review in the Supreme Court available if warranted.”
Baldwin-United Corp. Litigation,
. (a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of—
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debt-or that arose before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate... .
11 U.S.C. § 362(a)(1), (3).
.
Contra Greenspoint Palms, Ltd. v. Greenspoint Co.,
. In this latter scenario, claims that a debtor holds against creditors or third parties are considered property of the bankruptcy estate pursuant to § 541(a).
See Martin-Trigona v. Champion Federal Sav. & Loan Asso.,
In
Martin-Trigona,
the Seventh Circuit held that the state court defendant's motion to dismiss the debtor-plaintiff's lawsuit did not violate the automatic stay provision in § 362(a)(3), but it did so without any discussion of whether such an action should be deemed an attempt "to exercise control over property of the estate.” The absence of analysis on this point has caused other courts to reject it by finding that a debtor-plaintiff's opponent’s motion to dismiss the civil proceeding is an attempt to "control” the cause of action belonging to the bankruptcy estate.
See General Associated Investors,
In another line of cases, a Chapter 7 debtor is in violation of § 362(a) by attempting to wrest control over the
prosecution
of an action in a nonbankruptcy forum from the case trustee. In
Henkel v. Lickman (In re Lickman),
. "In this chapter — (1) ‘debtor in possession' means debtor except when a person that has qualified under section 322 of this title is serving as trustee in the case...." 11 U.S.C. § 1101(1).
. Unlike Chapter 11 cases, Chapter 7 and 13 cases feature case and standing trustees, respectively, who are unlike Chapter 11 debtors-in-possession. Chapter 13 debtors do share a few of the powers of a Chapter 11 debtor-in-possession by remaining in possession of all property of the estate, see 11 U.S.C. § 1306(b); by exercising the authority to use, sell, or lease property of the estate under § 363(b)-(c), see §§ 1303 & 1304(b); and by occasionally incurring postpetition business debt under § 364, see § 1304(b). See also infra notes 14 & 22.
. "While a debtor cannot waive the automatic stay, ... when the debtor-in-possession appears and defends a suit on any basis other than application of the automatic stay, then the debtor-in-possession waives the automatic stay.”
In re Cobb,
. The exceptions for compensation, investigation, and production of an examiner's report do not bear on a trustee’s prerogative to proceed with respect to the automatic stay.
. The Supreme Court shall have the power to prescribe by general rules, the forms of process, writs, pleadings, and motions, and the practice and procedure in cases under title 11.
Such rules shall not abridge, enlarge, or modify any substantive right.
. For example, in
Citizens Bank of Maryland
v.
Strumpf
. Because debtors-in-possession under Chapters 11, 12, and 13 generally retain possession of estate property, see 11 U.S.C. §§ 1207(b), 1306(b), 1106(a)(1), 1107(a), 1108, they are also considered to be in control of lawsuits belonging to the bankruptcy estate under § 541(a) and, therefore, to have the exclusive right under § 323(b) to prosecute these claims on behalf of the estate. See 10 Collier on Bankruptcy ¶ 6009.01, at 6009-2, ¶ 6009.03[3], at 6009-6 to -6.1 (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev. 2005).
. Capgro Leasing relies on the following statement in the legislative history to support its contention of restraint:
[I]t is important that the trustee have an opportunity to inventory the debtor's position before proceeding with the administration of the case. Undoubtedly the court will lift the stay for proceedings before specialized or nongovernmental tribunals to allow those proceedings to come to a conclusion. ... Nevertheless, it will often be more appropriate to permit proceedings to continue in their place of origin, when no great prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen forum and to relieve the bankruptcy court from many duties that may be handled elsewhere.
Capgro Leasing,
. In
Butler,
the debtor-in-possession filed a postpetition notice of appeal without stay modification but then motioned the Second Circuit to recognize the stay of such appeal pursuant to § 362(a), which request the court obliged.
See Butler,
. The Capgro Leasing line relies on authority contending as follows:
Because it is the bankruptcy judge who is the most knowledgeable about the debtor's affairs, and about the effect that any judicial proceeding would have on the debtor’s reorganization, it is essential that he make the determination as to whether an action against the debtor may proceed or whether the stay against such actions should remain in effect. Assoc. of St. Croix Cond. Owners v. St. Croix Hotel Corp.,682 F.2d 446 , 448 (3d Cir.1982) (emphasis ours).
Capgro Leasing,
. Of course, these acts are generally authorized under other sections of the Code, see 11 U.S.C. §§ 363(c), 1107(a), 1108, but they are not authorized as specific exceptions to § 362(a)(3), see 11 U.S.C. § 362(b). Capgro Leasing makes the distinction that other bankruptcy provisions determine whether the trustee may engage in a particular activity, while § 362(a) and (d) lay in the bankruptcy court's hands the timing of such activity’s occurrence. If Capgro Leasing is correct, § 363(c) and § 1108 should not be implicit automatic stay exceptions any more than § 323, § 704(5), and Bankruptcy Rule 6009, which, as mentioned earlier, facially appears to authorize trustees and debtors-in-possession to proceed with estate litigation in nonbankrupt-cy forums without obtaining any type of bankruptcy court approval.
.
See Aiello v. Providian Financial Corp.,
. Duties of trustee
The trustee shall—
(1) collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest;
(2) be accountable for all property received;
(5) if a purpose would be served, examine proofs of claims and object to the allowance of any claim that is improper;
(6) if advisable, oppose the discharge of the debtor....
11 U.S.C. § 704.
. The Seventh Circuit has recognized unenu-merated, implicit exceptions to § 362(a) in order to give effect to other Code provisions, including "[t]he right to seek reaffirmation.”
Aiello v. Providian Fin. Corp.,
. The Court notes, but need not reach, the issue of whether a Chapter 13 debtor-in-possession has such authority in addition to a Chapter 13 standing trustee. See also supra notes 9 & 14.