1997 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

2-11-1997

McCartney v. Integra Natl Bank N

Precedential or Non-Precedential:

Docket 96-3023

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Recommended Citation

"McCartney v. Integra Natl Bank N" (1997). 1997 Decisions. Paper 36.

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1

 THE UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 __________ 

 No. 96-3023 

 __________ 

 LAMAR A. MCCARTNEY, 

 Appellant 

v. 

 INTEGRA NATIONAL BANK NORTH, 

 Successor to McDOWELL NATIONAL BANK; 

 GARY J. GAERTNER, U.S. TRUSTEE 

 Appellee 

 __________ 

 ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

 FOR THE WESTERN DISTRICT OF PENNSYLVANIA 

 (D.C. No. 94-cv-00984) 

 __________ 

 Argued October 24, 1996 

 BEFORE: STAPLETON and NYGAARD, CIRCUIT JUDGES AND 

 MAZZONE, District Judge* 

 (Opinion Filed February 11, 1997) 

 Donald R. Calaiaro (Argued) 

 Calaiaro, Corbett and Bower 

 1105 Grant Building 

 Pittsburgh, Pa. 15219 

 Counsel for Appellant 

 

 P. Raymond Bartholomew (Argued) 

 701 North Hermitage Road 

 Hermitage, Pa. 16148 

 Counsel for Appellee Integra 

 National Bank, Sucessor to McDowell 

 National Bank 

 William F. Pineo 

 764 Park Drive 
2

 P.O. Box 598 

 Meadville, Pa. 16335 

 Counsel for Chapter 7 Trustee 

 For McCartney 

* The Honorable A. David Mazzone, Senior District Judge for 

the District of Massachusetts sitting by designation. 

Nygaard, Circuit Judge: 

 The district court affirmed a bankruptcy court's order 

denying a motion for summary judgment on an objection debtorappellant Lamar McCartney filed to Integra National Bank's proof 

of claim. McCartney argues on appeal that the bankruptcy court 

erred by not discharging the debt he owes to Integra. We will 

affirm. 

I. 

 The facts are undisputed. On September 26, 1989, Integra 

loaned $80,000 to Lamar’s Restaurant & Lounge, Inc., which was 

guaranteed by the Small Business Administration. As security for 

the loan, Lamar’s granted Integra a first mortgage on Lamar’s 

corporate property. McCartney guaranteed the loan to Lamar’s by 

granting Integra a second mortgage lien on land owned by him 

individually. 

 In May 1992, McCartney filed a voluntary petition under 

Chapter 13 of the Bankruptcy Code. He then filed a motion to 

sell Lamar’s corporate property. At the conclusion of the sale 

hearing, McCartney's Amended Plan for Reorganization was adopted 

as an Interim Plan, pending a status report. The parties and the 

court agreed at the sale hearing that Integra, acting with the 
3

SBA, would put Lamar’s corporate property through a sheriff's 

sale to determine what deficiency, if any, McCartney, as 

guarantor of Lamar’s loan, owed to Integra. 

 Fearing that the sheriff’s sale would not occur until after 

the bar date in McCartney’s bankruptcy proceeding, Integra filed 

Proof of Claim No. 6 in the amount of $38,564.66 against 

McCartney’s individual property pledged as collateral for Lamar’s 

loan. The state court subsequently sold Lamar’s corporate 

property. Integra purchased Lamar’s corporate property at the 

sale for costs and taxes. Integra then resold the property and 

agreed to modify its proof of claim to show a deficiency of 

$29,638.14 plus interest and attorney’s fees. 

 Almost ten months later, McCartney filed an objection to 

Integra’s proof of claim, asserting that Integra’s claim on 

Lamar’s underlying debt was satisfied as a matter of law because 

Integra failed to file a petition to fix the fair market value of 

the property within six months of the sheriff’s sale as required 

under the Pennsylvania Deficiency Judgment Act, 42 Pa.C.S.A. § 

8103. Both parties filed cross-motions for summary judgment, 

which the bankruptcy court denied.1

 

 

1 On April 12, 1994, the bankruptcy court heard argument on 

the valuation of Lamar’s property sold at the sheriff’s sale. On 

May 3, 1994, the court determined that the value of the Lamar’s 

property was $20,000 and directed Integra to recalculate its 

deficiency claim based on this value. On July 20, 1994, the 

bankruptcy court converted the Debtor’s Chapter 13 case to a 

Chapter 7 case. Since then, the Chapter 7 Trustee has sold some 

of McCartney’s other property and applied the net proceeds to the 

debt owed to Integra. As a result, it appears that the balance 

due Integra has been reduced to $4,379.88 plus interest and 

additional attorney’s fees. 
4

II. 

 On appeal, McCartney asserts that the bankruptcy court erred 

by concluding that the automatic stay provision of the Bankruptcy 

Code, 11 U.S.C. § 362, precluded Integra from complying with the 

requirements of the DJA. More specifically, McCartney maintains 

that the automatic stay applies only to actions commenced against 

McCartney himself, and therefore, the stay imposed in his 

bankruptcy did not prevent Integra from seeking a deficiency 

judgment against Lamar’s within the time permitted under the DJA. 

 Since Integra failed to file a petition in state court to fix 

the fair market value of Lamar’s corporate property within six 

months of the sheriff’s sale, McCartney argues, Integra’s claim 

against Lamar’s is deemed released and satisfied as a matter of 

law. As a consequence, McCartney contends that he, as guarantor, 

is also discharged from any deficiency remaining on Integra’s 

loan to Lamar’s. Thus, McCartney concludes, Proof of Claim No. 6 

filed by Integra in his bankruptcy should be stricken. 

III. 

 Under Pennsylvania law, every judgment creditor who forces 

real estate to be sold in an execution sale must comply with the 

DJA to protect its claim to any unpaid balance remaining after 

the sale. 42 Pa.C.S.A. § 8103. Under the DJA, the judgment 

creditor has six months after the debtor’s collateral is sold in 

which to petition the court to fix the fair market value of the 

real property. 42 Pa.C.S.A. § 5522(b). Failure to file a 

petition within this time period “creates an irrebuttable 

presumption that the creditor was paid in full in kind.” Valley 
5

Trust Co. of Palmyra v. Lapitsky, 488 A.2d 608, 611 (Pa. Super. 

Ct. 1985). This presumption serves to discharge all parties 

either directly or indirectly liable to the judgment creditor for 

payment of the debt, including guarantors. 42 Pa.C.S.A. § 

8103(d); see also Commonwealth Bank and Trust Co. v. Hemsley, 577 

A.2d 627, 631 (Pa. Super. Ct.), alloc. denied, 583 A.2d 793 (Pa. 

1990). 

 Significantly, to comply with the requirements of the DJA, 

the judgment creditor must either (1) name in the petition, or 

(2) give notice to, any “debtor, obligor, guarantor, mortgagor, 

and any other person directly or indirectly liable to the 

judgment creditor for the payment of the debt.” 42 Pa.C.S.A. 

§8103(b). Default on this notice requirement discharges all 

personal liability to the judgment creditor for parties neither 

served with notice nor named in the petition. Id.

 It is undisputed that Integra has never filed a petition in 

state court to fix the fair market value of Lamar’s property sold 

at the sheriff’s sale. Under normal circumstances, failing to 

file a petition would discharge whatever remaining debt Lamar’s 

owed to Integra. Moreover, Integra’s failure to meet the 

statutory requirements of the DJA would also normally discharge 

McCartney’s guarantee of Lamar’s debt because, as a matter of 

law, there is no underlying debt owing to Integra. 

 This case, however, does not present a normal situation 

where the DJA can be applied by its literal terms. As the 

bankruptcy court rightly noted, when McCartney filed for 

bankruptcy, the automatic stay provision of 11 U.S.C. § 362(a) 
6

was triggered and effectively precluded Integra from state court 

actions of any type against McCartney. Consequently, McCartney 

cannot use Integra’s failure to comply with the DJA to avoid the 

proof of claim Integra filed against him. 

 Section 362(a) of the Code operates to stay 

... (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 

debtor that arose before the commencement of the case under 

this title . . . . 

11 U.S.C. § 362(a)(1) (1996). The automatic stay serves several 

purposes. The stay gives a debtor a breathing spell from 

creditors by stopping all collection efforts and all foreclosure 

actions. Maritime Elec. Co., Inc. v. United Jersey Bank, 959 

F.2d 1194, 1204 (3d Cir. 1991) (citation omitted). In this 

respect, the stay permits the debtor to attempt a repayment or 

reorganization plan; or it simply relieves the debtor of the 

financial pressures that drove him into bankruptcy. Id. at 1204. 

 The stay also protects creditors by preventing particular 

creditors from acting unilaterally to obtain payment from a 

debtor to the detriment of other creditors. Id. (citation 

omitted). 

 Although the scope of the automatic stay is broad, the clear 

language of section 362(a) stays actions only against a “debtor.” 

 Id. (citing Association Of St. Croix Condominium Owners v. St. 

Croix Hotel Corp., 682 F.2d 446, 448 (3d Cir. 1982)). As a 

consequence, “[i]t is universally acknowledged that an automatic 

stay of proceedings accorded by § 362 may not be invoked by 
7

entities such as sureties, guarantors, co-obligors, or others 

with a similar legal or factual nexus to the . . . debtor.” Id.

at 1205 (quoting Lynch v. Johns-Manville Sales Corp., 710 F.2d 

1194, 1196-97 (6th Cir. 1983)); see also United States v. Dos 

Cabezas Corp., 995 F.2d 1486, 1491-93 (9th Cir. 1993) (holding 

that stay does not preclude government from pursuing deficiency 

judgment against nondebtor cosignors of promissory note); Croyden 

Associates v. Alleco, Inc., 969 F.2d 675, 677 (8th Cir. 1992) 

(refusing to extend stay to claims against solvent codefendants), 

cert. denied sub nom, Harry and Jeanette Weinberg Foundation, 

Inc. v. Croyden Associates, 507 U.S. 908 (1993); Credit Alliance 

Corp. v. Williams, 851 F.2d 119, 121-22 (4th Cir. 1988) 

(enforcing a default judgment entered against a nondebtor 

guarantor of a note during the pendency of the corporate 

obligor’s bankruptcy). As one court has reasoned, a primary 

rationale for refusing to extend the automatic stay to 

nonbankrupt third parties is to insure that creditors obtain “the 

protection they sought and received when they required a third 

party to guaranty the debt.” Credit Alliance, 851 F.2d at 121; 

accord In re F.T.L., Inc., 152 B.R. 61, 63 (Bankr. E. D. Va. 

1993). 

 This prohibition, however, has been liberalized in a number 

of cases where courts have applied the automatic stay protection 

to nondebtor third parties. Relying on A.H. Robins Co., Inc. v. 

Piccinin, 788 F.2d 994, 999 (4th Cir.), cert. denied, 479 U.S. 

876 (1986), these courts have extended the automatic stay to 

nonbankrupt codefendants in “unusual circumstances.” As the case 
8

law demonstrates, courts have found “unusual circumstances” where 

“there is such identity between the debtor and the third-party 

defendant that the debtor may be said to be the real party 

defendant and that a judgment against the third-party defendant 

will in effect be a judgment or finding against the debtor.” Id.

at 999 (relying on both the automatic stay provision and the 

bankruptcy court’s equitable powers under 11 U.S.C. § 105 to 

enjoin actions against nondebtor codefendants in the Dalkon 

Shield products liability litigation because of the potential 

impact on the estate and the availability of insurance proceeds 

to satisfy the claims); see also, In re American Film 

Technologies, Inc., 175 B.R. 847, 855 (Bankr. D. Del. 1994) 

(staying prosecution of wrongful discharge claims against former 

and present directors of debtor corporation because of debtor’s 

indemnification obligations and its possible exposure to 

collateral estoppel prejudice); In re Family Health Services, 

Inc., 105 B.R. 937, 942-43 (Bankr. C. D. Cal. 1989) (staying 

collection actions against nondebtor members of debtor HMO 

because judgments against nondebtors would trigger claims for 

indemnification from the debtor HMO). 

 Courts have also extended the stay to nondebtor third 

parties where stay protection is essential to the debtor’s 

efforts of reorganization. See, e.g., In re Lazarus Burman 

Associates, 161 B.R. 891, 899-900 (Bankr. E. D. N.Y. 1993) 

(enjoining guaranty actions against nondebtor principals of 

debtor partnerships because principals were the only persons who 

could effectively formulate, fund, and carry out debtors’ plans 
9

of reorganization); In re Steven P. Nelson, 140 B.R. 814, 816-17 

(Bankr. M. D. Fla. 1992) (enjoining actions against nondebtor 

guarantor of debtor corporation’s obligations where guarantor was 

president of debtor and president's services, expertise and 

attention were essential to the reorganization of the debtor); 

see also, Paul H. Deutch, Expanding The Automatic Stay: 

Protecting Nondebtors In Single Asset Bankruptcies, 2 Am. Bankr. 

Inst. L. Rev. 453 (1994). 

 Here, McCartney argues that the automatic stay only applied 

to him in his individual capacity, not to Lamar’s. As such, he 

maintains that Integra was not stayed from pursuing a deficiency 

judgment in state court against Lamar’s, as required under the 

DJA. In response, Integra concedes that under normal 

circumstances the automatic stay does not preclude creditors from 

pursuing their right to payment from nondebtor third parties. 

Indeed, Integra notes that, acting in compliance with this 

general rule, it pursued Lamar’s to foreclosure and sheriff’s 

sale. However, Integra asserts that it could not have proceeded 

any further against Lamar’s to obtain a deficiency judgment 

because it would have been required under the terms of the DJA to 

name McCartney as a respondent in the petition and thereby 

violate the automatic stay protecting him. The bankruptcy court 

found Integra’s argument to be persuasive and reasoned that 

permitting Integra to name McCartney in a deficiency judgment 

action in state court at the same time that his bankruptcy case 

was pending would defeat the purpose of § 362 to centralize all 

prebankruptcy civil claims against a debtor in the bankruptcy 
10

court. In re McCartney, 165 B.R. 18, 21 (Bankr. W. D. Pa. 1994). 

 We agree. It is undisputed that, had Integra sought a 

deficiency judgment against Lamar’s, it would have been required 

under the DJA to name McCartney as a respondent in its petition 

or risk discharging him as loan guarantor. It is also undisputed 

that, had Integra named McCartney as a respondent in a deficiency 

action against Lamar’s, it would have clearly violated the 

automatic stay in place in his bankruptcy. Moreover, it is clear 

that following the sheriff’s sale, Lamar’s, as a corporate 

entity, no longer had any assets. Consequently, McCartney, as 

guarantor, would have been liable for satisfying any deficiency 

judgment claim asserted by Integra. Simply stated, there was no 

way for Integra to pursue a deficiency judgment action against 

Lamar’s and to protect its right to satisfaction of Lamar’s debt 

without involving McCartney in the process. 

 Given McCartney’s necessary participation in any deficiency 

judgment action initiated by Integra against Lamar’s in state 

court, we find that the bankruptcy court properly concluded that 

the automatic stay extended to enjoin Integra from complying with 

the requirements of the DJA. This case falls squarely under the 

“unusual circumstances” exception as developed in A.H. Robins and 

its progeny: any deficiency judgment recovery from Lamar’s would 

have necessarily impacted upon McCartney’s estate. Indeed, 

because McCartney, as guarantor, was secondarily liable for any 

deficiency entered against Lamar’s, and Lamar’s, following the 

foreclosure and sheriff’s sale, had no assets, McCartney would 

have been the real party defendant in a deficiency judgment 
11

action by Integra against Lamar’s. Any deficiency judgment 

entered against Lamar’s would have operated as a judgment or 

finding against him; an outcome clearly in tension with the 

purposes of the automatic stay. Accordingly, Integra was stayed 

from pursuing a deficiency judgment action against the nondebtor 

third party Lamar’s because McCartney was, in essence, the real 

party in interest. 

IV. 

 Assuming, arguendo, that the automatic stay precluded 

Integra from pursuing a deficiency judgment action in state 

court, McCartney asserts that Integra should have sought relief 

from the automatic stay to allow it to name both Lamar’s and 

McCartney in a deficiency judgment petition. This same argument 

was considered and rejected in In re Wilkins, 150 B.R. 127 

(Bankr. M. D. Pa. 1992), an opinion we find instructive. 

 In Wilkins, the creditor sought relief from an automatic 

stay to commence a deficiency judgment action under the DJA 

against both the debtor and nondebtor obligors. The court denied 

the creditor’s motion for two primary reasons. First, the court 

held that 11 U.S.C. § 108(c) specifically extends the six-month 

limitation period for deficiency judgment actions under 42 

Pa.C.S.A. § 5522(b).2 Id. at 128. Thus, contrary to the 

 

 

2 Section 108(c) of the Bankruptcy Code reads, in pertinent 

part: 

[I]f applicable nonbankruptcy law . . . 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-- 
12

creditor’s argument, the Wilkins court found no urgency that the 

debtor’s obligation to the creditor would be discharged unless 

the creditor received relief from stay and filed a deficiency 

petition within the six month limitation period. Second, the 

court noted that the deficiency issues were likely to be settled 

in the bankruptcy court and consequently, there was no reason for 

the debtor to defend litigation in state court that could be 

settled in the bankruptcy forum. Id. at 128-29. In this 

respect, the court expressed its concern that the debtor not be 

“burdened by litigation and resulting legal fees if unnecessary 

at this time.” Id. at 129.3

 We agree with the Wilkins court that debtors should not be 

burdened by state court litigation when deficiency judgment 

actions impacting upon the debtor’s estate can be settled in the 

bankruptcy forum. Indeed, to permit state court deficiency 

judgment actions involving the debtor to proceed when they can be 

 

(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 . . . with respect to such 

claim. 

 

3 The court also held that the creditor must commence a 

deficiency judgment action against the nondebtor obligors within 

the six-month limitation period permitted by state law. Wilkins, 

150 B.R. at 128. Significantly, however, the court expressly 

noted that permitting the creditor to proceed against the 

nondebtor obligors would have no impact upon the debtor’s 

deficiency liability, and that the assets of the nondebtors could 

be collected without risk of discharging the debtor pursuant to 

the DJA. Id. Thus, unlike the present case, the Wilkins court 

found no “unusual circumstances” that would warrant extending the 

automatic stay to the nondebtor obligors. 
13

adjudicated in the bankruptcy court is to do violence to the 

purposes of the automatic stay. As discussed earlier, by 

centralizing all prebankruptcy civil claims against a debtor in 

the bankruptcy court, the debtor is granted a “breathing spell” 

during which he is relieved of the financial pressures that drove 

him to bankruptcy. Maritime, 959 F.2d at 1204. The 

centralization of all claims in the bankruptcy court also permits 

the assets of the debtor’s estate to be marshaled for 

distribution to creditors in an orderly and equitable fashion. 

Id. (citation omitted). These benefits of the automatic stay 

could not be achieved if creditors are permitted relief from stay 

to pursue state court deficiency judgment actions impacting on 

the estate of the debtor. Debtors would be forced to expend 

valuable time, energy and resources defending against state court 

litigation that could be settled directly in the bankruptcy 

court.4

 Moreover, we fail to see how McCartney was harmed by 

Integra’s failure to seek relief from the automatic stay. As the 

record clearly demonstrates, the bankruptcy court held a 

valuation hearing and heard argument concerning the fair market 

value of Lamar’s property sold at the sheriff’s sale. The court 

subsequently entered an order finding the value of Lamar’s 

 

 

4 We note also that considerations of judicial economy weigh 

against granting creditors relief from stay to pursue state court 

deficiency judgment actions that impact upon the estate of the 

debtor and could be settled in the bankruptcy court. Indeed, the 

time, energy and resources of the courts are no less valuable 

commodities to preserve when it is possible to litigate a claim 

in one forum instead of two. 
14

property to be $20,000 and directing Integra to recalculate its 

deficiency claim based on that value. Thus, the bankruptcy court 

afforded McCartney an opportunity to present evidence and 

testimony at a hearing specifically convened to determine the 

fair market value of the property sold at the sheriff’s sale. 

This is precisely the same opportunity to be heard that McCartney 

would have been granted in a state court deficiency judgment 

action commenced under the DJA. See 42 Pa.C.S.A. § 8103(c)(4). 

In addition, the bankruptcy court’s determination of the fair 

market value of the Lamar’s property resulted in a decrease in 

the deficiency claim owing to Integra, further demonstrating that 

McCartney was not harmed by Integra’s failure to seek relief from 

the stay. Insofar as McCartney would have us find that he was 

prejudiced by his inability fully to escape liability for his 

guaranty, as may have been possible under the DJA, we decline to 

do so. We will not transmogrify the DJA into a means for 

guarantors to escape liability from their guaranties.5 

 

 

5 See Fidelity Bank, N.A. v. Bourger, 663 A.2d 213, 214 (Pa. 

Super. Ct. 1995), alloc. denied, 670 A.2d 142 (Pa. 1996), holding 

that the purpose of the Deficiency Judgment Act is 

to relieve a debtor of further personal liability to the 

creditor, if the real property taken by the creditor on 

an execution has a “fair market value”, [sic] as of the 

date of the execution sale, sufficient so that the 

creditor may dispose of the property to others (or 

even, sometimes, use it himself) without a net loss to 

the creditor[.] 

(citations and internal quotations omitted) (emphasis added). 
15

Accordingly, we conclude that none of McCartney’s substantive 

rights were prejudiced by Integra’s failure to seek relief from 

the automatic stay. 

V. 

 In his final argument, McCartney asserts that the bankruptcy 

court erred by holding that 11 U.S.C. § 108(c) operated to 

suspend the limitations period for initiating a deficiency 

judgment action in state court pursuant to the DJA. Because we 

have already determined that Integra was stayed from pursuing a 

deficiency judgment action in state court against either Lamar’s 

or McCartney, we need not decide this issue. Nonetheless, we 

note parenthetically that the Pennsylvania Superior Court has 

unequivocally held that, under 11 U.S.C. § 108(c)(2), the six 

month limitation period for the filing of a deficiency petition 

pursuant to the DJA does not expire until thirty days after 

notice of the termination of the automatic stay. Citizens 

National Bank of Evans City v. Gold, 653 A.2d 1245, 1247-48 (Pa. 

Super. Ct. 1995) (citing Wilkins); accord In re C.K. Smith, 192 

B.R. 397, 399-400 (Bankr. W. D. Pa. 1996). 

VI. 

 In summary, we are satisfied that Integra took all the steps 

legally possible to protect its rights to a deficiency claim 

against McCartney as guarantor of Lamar’s debt. Integra filed a 

proof of claim in McCartney’s bankruptcy proceeding and pursued 

Lamar’s to foreclosure and sheriff’s sale. Since any other 

action to collect on the deficiency would have necessarily 

involved McCartney, Integra could not proceed further without 
16

either violating the automatic stay or sacrificing its deficiency 

claim against McCartney as guarantor of Lamar’s debt. We 

conclude that Integra was stayed from initiating a deficiency 

judgment action against Lamar’s and McCartney in state court. 

Accordingly, we will affirm the order of the district court. 

 

MCCARTNEY V. INTEGRA NATIONAL BANK NORTH, ETC. - NO. 96-3023

STAPLETON, J., concurring. 

 McCartney argues that the DJA released his guaranty 

obligation to Integra when the bank failed to institute a 

deficiency proceeding naming him as a guarantor within six months 

of its purchase of the property at the execution sale. This is 

an untenable position. The automatic stay provision of the 

Bankruptcy Code, 11 U.S.C. § 362, clearly would be undermined by 

the enforcement in this situation of that portion of the DJA 

releasing a guarantor who is not so named. 42 Pa. C.S.A. 

§ 8103(b). If the court were willing to rest its decision on 

this ground, I would join without comment. The court says a 

great deal more, however, and I am, accordingly, unable to join 

in its opinion. 

 It is unnecessary for the court to address the issue of 

whether the DJA in this situation has the effect of releasing 

Lamar's Restaurant & Lounge's obligation to Integra. 

Accordingly, I would not address that issue. Were it necessary 
17

for the court to address it, however, I would find no 

justification for concluding, as does the court, that the 

automatic stay provision deprives a primary obligor not in 

bankruptcy of the benefit that the DJA intended it to have. There 

are simply no "unusual circumstances" warranting an exception 

from the general rule that § 362 applies only to a debtor in 

bankruptcy. The court's conclusion to the contrary, while it 

makes no difference here, is likely to lead to mischief in the 

context of other cases. 

 As the court persuasively demonstrates, there can be no 

question that giving full effect to the DJA would undercut the 

objective of the automatic stay of § 362. There is thus a 

conflict here between state law and bankruptcy law that must be 

resolved. Under the Supremacy Clause, in cases of irreconcilable 

conflict, state law must give way. This does not, however, give 

a court an unlimited license to decline enforcement of state 

rules of decision. The court must look for the accommodation 

which will secure the objective of the bankruptcy law and, at the 

same time, intrude least on the objective or objectives 

underlying the state law rule. 

 The accommodation that this approach counsels here requires 

the following conclusions: 

 (a) The objective of § 362 can be secured by holding 

unenforceable that portion of the DJA which requires 

the creditor to join the bankrupt guarantor in the DJA 

proceeding upon pain of losing his claim against the 

bankrupt guarantor. It would necessarily follow that 

the bankrupt guarantor would not be bound by the 

deficiency determination unless he chose, with court 

approval, to participate. It also follows that the 

bankrupt guarantor can be pursued in bankruptcy court 

during the period specified in § 108(c) of the 
18

Bankruptcy Code, even though the creditor may not be 

successful if the claim has been discharged for some 

reason other than this portion of the DJA. 

 (b) There is nothing inconsistent between § 362 and 

that portion of the DJA that requires an executing 

creditor to file a deficiency proceeding against the 

primary debtor in order to preserve his claim against 

the primary debtor. Giving effect to this portion of 

the DJA would be consistent with the rationale of 

Maritime Electric Co. v. U.S. Jersey Bank, 959 F.2d 

1194 (3d Cir. 1991). Moreover, as I have noted, I find 

nothing in the Code that would justify depriving the 

primary debtor of the protection of the DJA. 

 The difference between these conclusions and those reached 

by the court is not material here because McCartney argues only 

that he was released under the terms of the DJA. He does not

argue that he was released by the effect which Pennsylvania law 

accords an instrument having the terms of his note.6 The 

difference between my conclusions and those of the court would be 

important, however, if it appeared that Pennsylvania follows the 

generally accepted rules regarding the effect on a guarantor of 

releasing the primary debtor and if the plaintiff were relying on 

that law. 

 We have no occasion here to comment on Pennsylvania's rule, 

but the generally accepted rule is that a "party who holds a 

contract of guaranty may by his act release the guarantor, even 

though he may not intend to do so. A guarantor [, for example,] 

is discharged by operation of law from further liability by any 

act which extinguishes the principal obligation . . . ." 38A 

 

6 The appendix does not contain what McCartney refers to as his 

note of guaranty, and he cites no Pennsylvania case law on 

whether and under what circumstances release of the primary 

obligor releases a guarantor or surety, etc. 
19

C.J.S. Guaranty § 83 at 642 (1996). I perceive no inconsistency 

between the Bankruptcy Code and a state law rule which permits 

parties to bargain for an arrangement such that the guarantor 

will be liable only if the primary debtor is not released by the 

creditor. It necessarily follows that there is nothing 

inconsistent between the bankruptcy law and enforcement of this 

generally accepted state law rule. It would thus be permissible 

to hold in an appropriate case that a creditor in a state with 

such a rule releases his claim against a guarantor in bankruptcy 

if it allows its rights against the primary debtor to lapse by 

failing to pursue a DJA type proceeding within six months. 

 I realize that such a holding would mean that a creditor in 

such a state would have to pursue the primary debtor in a 

deficiency proceeding even where it has little or no hope of 

being able to collect from the primary debtor. But that is a 

policy choice made in statutes like the DJA, and we have no 

justification for rejecting that policy choice and no basis for 

drawing a line between cases where the primary debtor has no 

assets, a few assets, or many assets but perhaps not enough to 

cover the judgment. 

 The statutory provisions relied on by McCartney are 

preempted by federal bankruptcy law. I would affirm the judgment 

of the district court for that reason.