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Gordon v. Whitmore (In re Merrick)

Gordon v. Whitmore (In re Merrick)

United States Bankruptcy Appellate Panel of the Ninth Circuit

May 19, 1994, Argued and Submitted at Pasadena, California ; December 8, 1994, Filed

BAP No. CC-93-2344-VJH

Opinion

 [*334]  OPINION

VOLINN, Bankruptcy Judge:

A bankruptcy trustee sought sanctions against several state court defendants for willful violation of the automatic stay of 11 U.S.C. § 362(a) when the state court, after determining that defense issues were not affected by the automatic stay, granted the defendants' motion for a summary judgment, dismissed the lawsuit, and awarded them costs. The bankruptcy court ruled to the contrary, holding that the automatic stay was applicable. Because ] a defendant need not seek relief from the automatic stay in order to defend himself against a lawsuit commenced by the debtor, we reverse.

FACTS AND PROCEEDINGS BELOW

On March 5, 1990, prior to the bankruptcy case, the debtor, Barbara Leslie Merrick, and [**2]  Joyce Marie Pentard 1 sued appellant, Errol Jay Gordon, and several other defendants for $ 1,000,000.00 in state court based on fraud relating to the sale of a business. Some of the defendants raised counterclaims and cross-claims, but Gordon did not. In January 1992, the defendants filed motions for summary judgment to dismiss the lawsuit. A hearing was set for February 26, 1992. On February 6, the plaintiffs asked for an extension of time to file a response to the motions. The state court extended the deadline for filing opposition to the motions to April 2, 1992, and rescheduled the hearing for April 16, 1992. On March 30, 1992, prior to the state court hearing, and without responding to the summary judgment motions, both plaintiffs filed chapter 7 bankruptcy petitions. The debtors each listed the lawsuit as an asset of their respective estates.

On April 1, 1992, the debtors' state court counsel [**3]  filed notice of the bankruptcies and the automatic stay in state court and moved to take the proceedings off calendar, alleging that the plaintiffs, as debtors, lacked standing to proceed pending an order of the bankruptcy court. In reliance on the automatic stay, the trustee did not respond to the summary judgment motions. The debtors' motion apparently was denied, and hearing on the summary judgment motions was held on April 16. Debtors' counsel appeared at the hearing. The trustee did not appear, nor did  [*335]  he move in bankruptcy court for a stay of the state court hearing. 2

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175 B.R. 333 *; 1994 Bankr. LEXIS 1955 **; Bankr. L. Rep. (CCH) P76,350; 26 Bankr. Ct. Dec. 434; 94 Cal. Daily Op. Service 184; 94 Daily Journal DAR 18125

In re BARBARA LESLIE MERRICK, Debtor. ERROL J. GORDON, Appellant, v. ROBERT S. WHITMORE, Chapter 7 Trustee, Appellee.

Prior History:  [**1]  Appeal from the United States Bankruptcy Court for the Central District of California. BK. No. SB92-14393 DN, Adv. No. SB92-1411 DN. Honorable David Naugle, Bankruptcy Judge, Presiding.

Disposition: Summary judgment is REVERSED; the award of sanctions VACATED.

CORE TERMS

automatic stay, state court, costs, bankruptcy court, lawsuit, property of the estate, summary judgment, summary judgment motion, willful violation, cause of action, estate's assets, defendants', proceedings, bankrupt's, prosecute, violates, vacate

Bankruptcy Law, Automatic Stay, Scope of Stay, General Overview, Civil Procedure, Entry of Judgments, Stays of Judgments, Automatic Stays, Administrative Powers, Relief From Stay, Judicial Review, Standards of Review, De Novo Standard of Review, Appeals, De Novo Review