The following is an update analyzing a recent case of interest
In a ruling contrary to Ninth Circuit law, a California Court of Appeal recently held that the automatic stay in a bankruptcy proceeding did not prevent a judgment creditor from renewing a judgment while the case was pending, but Bankruptcy Code section 108(c) extended the time to renew until 30 days after the stay was terminated. Rubin v Ross, 2021 WL 2283771 (Cal. Court of Appeal, 6/4/21). To view the opinion, click here.
In 2007 plaintiffs Jason Rubin and Cira Ross (“judgment creditors”) obtained a civil judgment against debtor David Ross. In early 2009 debtor filed a chapter 7; his right to a discharge was challenged and after a trial, an order denying his discharge was entered in April 2019. Judgment creditors promptly thereafter filed a renewal of their judgment. Debtor moved to vacate the judgment on the ground that the ten-year period within which to renew set by Code of Civil Procedure section 683.130 had expired prior to the renewal. The trial court denied the motion, concluding that the renewal was timely because Bankruptcy Code section 108(c) provided for an extension of time to renew until 30 days after the automatic stay terminated or expired as a matter of law.
Debtor appealed and the Court of Appeal (the Court) affirmed, ruling that although the automatic stay did not prevent judgment creditors from renewing the judgment, section 108(c) nevertheless extended their time to renew.
Applying de novo review to the undisputed facts, the Court was presented with two issues for decision: (1) whether the automatic stay of Bankruptcy Code section 362 precludes a party from seeking a statutory renewal of a judgment and (2) whether section 108(c) extends the time within which a party must seek renewal of a judgment.
It answered the first question “no.” First, it determined that neither express nor field preemption applied because the bankruptcy law was created to interact and co-exist with state law unless there was a direct conflict. Finding no such conflict, preemption did not decide the issue. Then it concluded that since renewal of the judgment was merely an administrative act which did not even require service on the debtor, no provision of section 362(a) was violated by the renewal. In reaching this determination, the Court rejected a bankruptcy court decision, In re Lobherr, 282 B.R. 912 (Bankr. C.D. Cal 2002) where on similar facts the court ruled that the automatic stay prevented timely renewal but the creditor was nonetheless saved by the tolling provisions of section 108(c). The Court said such decision was not precedent in the state court and found its reasoning flawed by doing its own parsing of the wording in section 362(a).
The Court then addressed the tolling provision of section 108(c). It concluded that under the words of the statute, its tolling provisions were applicable even if the pertinent act was not forbidden by the automatic stay. Nothing in the statute made its application contingent on the creditor being prevented from acting while the stay was in effect. Therefore, the judgment creditors had up to 30 days from stay termination to renew and the renewal was timely.
I am troubled by this California Court of Appeal decision for several reasons (the least of which is because I was the author of Lobherr), although I agree with the ultimate conclusion that the renewal was timely. The Ninth Circuit held in In re Gruntz, 202 F. 3d 1074, 1080 (9th Cir. 2000) that “Congress has expressed its intent that bankruptcy matters be handled exclusively in a federal forum.” Gruntz was a case interpreting the extent of the automatic stay; nothing could be more core to bankruptcy proceedings than the interpretation of that stay. Prior to Gruntz, case law had implied that jurisdiction to determine the scope of the stay was concurrent with the state court, but the Ninth Circuit put that to rest by holding that the jurisdiction was exclusive to the bankruptcy courts. Therefore, only the bankruptcy court here had the power to decide whether renewal of the judgment violated the automatic stay.
Not only does jurisdiction to make this decision lie exclusively in the federal courts, the Ninth Circuit has in fact ruled on this very issue. In In re Swintek, 906 F. 3d 1100, 1104, (9th Circuit 2018) the Circuit concluded that the automatic stay prevented a judgment creditor from renewing its ORAP lien (a lien against all personal property of the debtor which arises automatically when an order for a judgment debtor exam is served and which is effective for a year subject to renewal) and that section 108(c) operated to allow the lien to be extended after stay termination. Swintek, in turn, relied on another Ninth Circuit case, In re Spirtos, 221 F. 3d 1079, 1080 (9th Cir. 1999), where the court applied the tolling aspect of section 108(c) in the context of renewal of a judgment because the automatic stay of section 362(a) precluded the judgment creditor from renewing the judgment. The state court had full right to reject Lobherr, but it cannot ignore Ninth Circuit precedent.
How could this anomaly have been avoided? Any of the judgment creditor, the debtor, or the state court itself could have invoked the jurisdiction of the bankruptcy court to determine the extent of the stay by filing a motion on this core issue in that forum (or, in the case of the Court, directing the parties to do so). But it is too late in this case for that referral. Luckily, the bankruptcy court outcome would presumably have been the same, because it would have followed Swintek and Spirtos, applying the 108(c) extension to find the renewal timely. Whether the Court of Appeal decision itself can be challenged in federal court now may depend on whether its ruling is void or merely voidable. Any challenge seems unlikely, since the renewal was found timely. But that leaves us with a state court decision on the books which runs contrary to the existing exclusive federal authority. I suggest attorneys advise their clients to move to modify the stay before renewing any judgment.
The Commercial Finance Newsletter is written by an ad hoc group of the California Lawyers Association (CLA) Business Law Section. This article was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. Cal., ret.), a member of the ad hoc group with editorial contributions from Monique D. Jewett-Brewster, a shareholder with Hopkins & Carley, ALC, a member of the ad hoc group and past chair of the Business Law Section. The opinions expressed here are solely those of the author. Thomson Reuters holds the copyright to these materials and has permitted the Commercial Transactions Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.