In Perryman v. Dal Poggetto (In re Perryman), ___ B.R. ___, 2021 WL 4742673 (9th Cir. BAP Oct. 8, 2021), the U.S. Bankruptcy Appellate Panel of the Ninth Circuit (the “BAP”) held that continuances of a hearing in a prepetition, nonbankruptcy action against the debtor, whether ordered by the state court, done by the clerk, or requested by a creditor, merely maintains the status quo and does not violate the automatic stay.
To read the full published decision, click here.
In 2017, Karen Dal Poggetto (“Dal Poggetto”) filed a petition for dissolution of her marriage with Jerome E. Perryman (the “Debtor”). When the Debtor failed to comply with their marital settlement agreement and the state court’s judgment entered in the dissolution proceeding, Dal Poggetto filed a “Request for Order” in the state court dissolution proceeding seeking, among other things, $3,000 in sanctions and $7,000 in legal fees.
While the hearing on the Request for Order was pending, the Debtor filed a chapter 13 bankruptcy petition. He filed a notice of stay in the dissolution proceeding.
Because of the automatic stay, the state court continued the hearing on the Request for Order multiple times over the next two years. Before one of the continued hearings, the Debtor asserted that the continued hearings were postpetition actions to collect a prepetition debt and therefore violated the automatic stay. Dal Poggetto’s counsel disagreed, and at Dal Poggetto’s request the state court continued the hearing again.
The Debtor then filed a motion in the bankruptcy court, asking the court to hold Dal Poggetto in contempt for willfully violating the automatic stay under 11 U.S.C. section 362(a)(1) and (5). The Debtor claimed damages of $1,400.00 in attorneys’ fees due to Dal Poggetto’s allegedly wrongful actions. The bankruptcy court denied the motion as “meritless” and “frivolous.” The Debtor appealed.
The filing of a bankruptcy petition creates an automatic stay under 11 U.S.C. section 362(a) which protects debtors from certain acts by creditors. Those acts include the continuation of a judicial action that was commenced before the petition date. 11 U.S.C. § 362(a)(1). They also include any act to create, perfect, or enforce any lien against property of the estate; or any act to create, perfect, or enforce against property of the debtor any lien that secures a claim that arose before the petition date. 11 U.S.C. § 362(a)(4), (5).
Dal Poggetto conceded that the relief sought in the Request for Order pending in the state court was stayed by the bankruptcy petition filing and that it did not fall under any of the statutory exceptions to the automatic stay under 11 U.S.C. section 362(b). The Debtor argued that the continuances of the hearing on the Request for Order constituted a stay violation. However, the BAP held that Dal Poggetto did not violate the automatic stay.
The BAP likened the state court’s continuance of the hearing to a postponement of a foreclosure sale. The BAP referred to Ninth Circuit decisions holding that the postponement and rescheduling of a foreclosure sale after a debtor files for bankruptcy simply maintains the status quo and does not violate the automatic stay. First Nat’l Bank of Anchorage v. Roach (In re Roach), 660 F.2d 1316, 1318-19 (9th Cir. 1981); Mason-McDuffie Mortg. Corp. v. Peters (In re Peters), 101 F.3d 618, 620 (9th Cir. 1996). Likewise, according to the BAP, “[c]ontinuances and status hearings in prepetition nonbankruptcy court matters pending further bankruptcy developments . . . do not constitute prosecution of the matter.”
The BAP stated that its decision is consistent with Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210 (9th Cir. 2002), in which a creditor filed a post-petition collection against a chapter 7 debtor and failed to timely dismiss or stay the action. In that case, the Ninth Circuit held that the Bankruptcy Code imposes an affirmative duty on a creditor to “discontinue” post-petition collection actions against a debtor in a non-bankruptcy forum. According to the BAP, “discontinu[ing]” means either dismissing or staying such actions.
In this case, the BAP observed that Dal Poggetto’s Request for Order was effectively stayed by the state court, not prosecuted. Thus, the BAP concluded that the mere continuances of the hearing did not violate the automatic stay.
The most surprising thing about the BAP’s opinion is that it needed to be published. Apparently this was an issue of first impression for the BAP, and there is no published Ninth Circuit decision directly on point. One would think that this issue would have reached the Ninth Circuit at some point during the last 40-plus years that section 362(a)(1) has been in effect.
When a lawsuit is pending against a debtor when he or she files for bankruptcy, section 362(a)(1) simply stays the prosecution of that action. Continuing status conferences and pending hearings holds those matters in abeyance until the stay expires or is terminated. Such actions do not violate the automatic stay; they actually effectuate the stay, and therefore are wholly consistent with the Bankruptcy Code.
These materials were written by former ILC co-chair John N. Tedford, IV, of Danning, Gill, Israel & Krasnoff, LLP, in Los Angeles, California (jtedford@DanningGill.com). Editorial contributions were provided by John W. Kim of Brower Law Group, APC, in Laguna Hills, California (john@BrowerLawGroup.com).
Thank you for your continued support of the Committee.
Insolvency Law Committee
Christopher D. Hughes
Reorg Research, Inc.
Kit J. Gardner
Law Offices of Kit J. Gardner
Aaron E. de Leest
Danning, Gill, Israel & Krasnoff LLP