United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

____________

99-6049MN

___________

In re: Kevin Lynn Vierkant; *

 Darlene Lisa Vierkant *

*

Debtors *

*

Dale Alan LaBarge *

* Appeal from the United States

Plaintiff - Appellee * Bankruptcy Court for the

* District of Minnesota

v. *

*

Kevin Lynn Vierkant; *

Darlene Lisa Vierkant *

*

Defendants - Appellants *

____________

Submitted: October 12, 1999

Filed: November 2, 1999

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Before KOGER, Chief Judge, WILLIAM A. HILL and SCHERMER, Bankruptcy Judges.

____________

KOGER, Chief Judge.

Background Facts

On September 9, 1998, Kevin and Darlene Vierkant filed a voluntary petition for

relief under Chapter 7 of the Bankruptcy Code. At the time the Vierkants filed their

bankruptcy petition, a lawsuit filed by Dale LaBarge alleging retaliatory discharge for filing

a workers’ compensation claim was pending against them and their corporation, KLV,
1

 The Minnesota court awarded damages for lost wages in the amount of $10,000.00;

damages for emotional distress in the amount of $10,000.00; punitive damages in the amount of

$40,283.82; and costs and attorney’s fees in the amount of $1934.00.

2

Incorporated, in Minnesota state court. The Vierkants never filed an answer to LaBarge’s

state court complaint. However, the Vierkants did personally appear at a pretrial conference

held on July 24, 1998, to inform the state court that KLV, Incorporated had filed for

bankruptcy. On August 28, 1998, a hearing was held in the state court lawsuit on LaBarge’s

motion for the entry of a default judgment. The Vierkants failed to appear at this hearing.

On September 14, 1998, after the bankruptcy petition had been filed, the Minnesota state

court entered a default judgment against the Vierkants and in favor of LaBarge. The state

court expressly concluded that the legal basis for the underlying liability was retaliatory

discharge in violation of Minn. Stat. § 176.82 Subd. 1, and awarded damages in the total

amount of $62,217.82 to LaBarge.1

LaBarge has never moved the bankruptcy court for retroactive relief from the

automatic stay in regards to the post-petition entry of the default judgment. The Vierkants

have never asserted that the post-petition entry of the default judgment violated the automatic

stay.

LaBarge filed an adversary proceeding against the Vierkants contending that the

damage award was a nondischargeable debt under 11 U.S.C. § 523(a)(6), and that the default

judgment collaterally estopped the Vierkants from contesting the willful and malicious nature

of the debt. The bankruptcy court conducted a trial on the adversary complaint during which

the state court default judgment was admitted as evidence, and witnesses testified regarding

the underlying merits of the nondischargeability action. At the conclusion of trial, the

bankruptcy court ruled that the default judgment should be given collateral estoppel effect

in the adversary proceeding, and that on the basis of the state court’s findings of fact and

conclusions of law the debt was nondischargeable under section 523(a)(6). However, the

bankruptcy court further stated that no evidence had been introduced at trial to support

nondischargeability of the debt under section 523(a)(6), and that in the absence of the default

judgment the debt would have been dischargable. The bankruptcy court explained:
3

However, if I’m wrong on [giving collateral estoppel effect to the

default judgment] . . . then I am going to give you the findings that I would

have come to had there been no prior state court judgment. I would have

without a question determined that Darlene owes no debt to the plaintiff, Mr.

LaBarge, and that if she did it would be a dischargeable debt. She – and this

would be based on findings that while she was apparently a shareholder and

the CEO of the company she had little or nothing to do with the company’s

activities. She – she was not – it’s undisputed she was not informed of what

might be going on. She hardly knew that Mr. LaBarge worked for the

company and she simply had no facts upon which to act and she did not take

any action against him.

And I would also find that the debt to – that Kevin’s debt to Mr.

LaBarge would be dischargeable because I believe his version which is much

better documented than that given here by the plaintiff is the more likely

scenario, that there was no retaliatory discharge of this debtor and no willful

and malicious injury targeted against this debtor.

That being said, however, because of the findings I make and then I

would not obviously be required to go into what the damages might be because

I would have determined that whatever the amount of the debt was it was in

fact dischargeable. That being said I am going to enter judgment in favor of

the plaintiff and against the defendant[s] based on the findings that I have just

read into the record which will hold that the debt in the amount awarded in the

state court is excepted from discharge under 523(a)(6) because of a collateral

estoppel effect of the state court judgment.

Appellants’ Appendix, Transcript of Trial at pages 48-49.

The Vierkants timely appeal from the bankruptcy court’s order.

Discussion

The bankruptcy court’s decision to apply collateral estoppel is subject to de novo

review by the BAP. See Fischer v. Scarborough (In re Scarborough), 171 F.3d 638, 641 (8th

Cir. 1999), cert. denied, ___ S. Ct. ___, 1999 WL 700016 (Oct. 12, 1999). Further, the

applicability of the automatic stay to a pending matter is an issue of law within the

competence of an appellate court. See National Labor Relations Bd. v. Edward Cooper

Painting, Inc., 804 F.2d 934, 938 (6th Cir. 1986). Here, we determine that because the default

judgment was entered in violation of the automatic stay and, therefore, is void, the
4

bankruptcy court erred as a matter of law by giving the default judgment collateral estoppel

effect in LaBarge’s adversary proceeding.

 In In re Ahlers, 794 F.2d 388, 394 n.3 (8th Cir. 1986)(citation omitted), the Eighth

Circuit opined:

The automatic stay is one of the fundamental debtor protections provided by

the bankruptcy laws. It gives the debtor a breathing spell from his [or her]

creditors. It stops all collection efforts, all harassment, and all foreclosure

actions. It permits the debtor to attempt a repayment or reorganization plan,

or simply to be relieved of the financial pressures that drove him into

bankruptcy.

The Court continued:

The automatic stay also provides creditor protection. Without it, certain

creditors would be able to pursue their own remedies against the debtor’s

property. Those who acted first would obtain payment of the claims in

preference to and to the detriment of other creditors. Bankruptcy is designed

to provide an orderly liquidation procedure under which all creditors are

treated equally. A race of diligence by creditors for the debtor’s assets

prevents that.

Id. at 394 n.4 (citation omitted).

“The automatic stay is among the most basic of debtor protections under bankruptcy

law.” Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969, 975 (1st Cir. 1997). “It

is designed to protect debtors from all collection efforts while they attempt to regain their

financial footing.” Schwartz v. United States (In re Schwartz), 954 F.2d 569, 571 (9th Cir.

1992). “The stay springs into being immediately upon the filing of a bankruptcy petition:

‘[b]ecause the automatic stay is exactly what the name implies – “automatic” – it operates

without the necessity for judicial intervention.’” Soares, 107 F.3d at 975 (citation omitted).

The automatic stay “is triggered upon the filing of a bankruptcy petition regardless of

whether the other parties to the stayed proceeding are aware that a petition has been filed.”

Constitution Bank v. Tubbs, 68 F.3d 685, 691 (3d Cir. 1995). “The automatic stay cannot

be waived. Relief from the stay can be granted only by the bankruptcy court having
2

 The post-petition entry of the default judgment was not a ministerial act exempted from the

application of the automatic stay. See Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969,

973-75 (1st Cir. 1997)(The First Circuit stated that “it is readily apparent that the state court’s actions

in ordering a default and directing the entry of a judgment [post-petition] possess[ed] a distinctly

judicial, rather than a ministerial, character,” and, consequently, such action violated the automatic

stay.). Compare Heikkila v. Carver (In re Carver), 828 F.2d 463, 464 (8th Cir. 1987)(The Eighth

Circuit held that the post-petition “ministerial” and “routine” entry of a certification of noncompliance

by the court clerk after the expiration of a judicially decreed redemption period in a strict foreclosure

action brought against the debtor who had defaulted on a contract for deed did not violate the

automatic stay.).

5

jurisdiction over a debtor’s case.” Id. “In order to secure the[] important protections [of the

stay], courts must display a certain rigor in reacting to violations of the automatic stay.”

Soares, 107 F.3d at 975-76.

In Constitution Bank v. Tubbs, the Third Circuit opined:

The automatic stay is of broad scope, directing that “[a]ll judicial

actions against a debtor seeking recovery on a claim that were or could have

been brought before commencement of a bankruptcy case, are automatically

stayed.” . . . thus, “[o]nce triggered by a debtor’s bankruptcy petition, the

automatic stay suspends any non-bankruptcy court’s authority to continue

judicial proceedings then pending against the debtor.” . . . Unless relief from

the stay is granted, the stay continues until the bankruptcy case is dismissed

or closed, or discharge is granted or denied. . . . Once a stay is in effect,

without relief from the bankruptcy court, “the parties themselves [can]not

validly undertake any judicial action material to the . . . claim against” the

debtor.

Constitution Bank v. Tubbs, 68 F.3d at 691-92 (citations omitted).

 Section 362(a)(1) provides in relevant part that a bankruptcy petition “operates as a

stay, applicable to all entities, of the commencement or continuation . . . of a judicial . . .

action or proceeding against the debtor.” 11 U.S.C. § 362(a)(1). Here, the post-petition

entry of the default judgment was a continuation of a judicial proceeding within the meaning

of section 362(a)(1),2 and constituted a violation of the automatic stay.
6

The courts are split on whether actions taken in derogation of the automatic stay are

void ab initio or merely voidable. See, e.g., Carpio v. Smith (In re Carpio), 213 B.R. 744,

748, 749 (Bankr. W.D. Mo. 1997)(collecting bankruptcy court and district court cases within

the Eighth Circuit that have addressed this issue, along with circuit court cases and one

United States Supreme Court case).

In Kalb v. Feuerstein, 308 U.S. 433, 60 S. Ct. 343, 84 L. Ed. 370 (1940), the United

States Supreme Court, in the context of the Bankruptcy Act of 1898, held that actions taken

in violation of the automatic stay are void. The Supreme Court opined:

It is generally true that a judgment by a court of competent jurisdiction

bears a presumption of regularity and is not thereafter subject to collateral

attack. But Congress, because its power over the subject of bankruptcy is

plenary, may by specific bankruptcy legislation create an exception to that

principle and render judicial acts taken with respect to the person or property

of a debtor whom the bankruptcy law protects nullities and vulnerable

collaterally. Although the Walworth County Court had general jurisdiction

over foreclosures under the law of Wisconsin, a peremptory prohibition by

Congress in the exercise of its supreme power over bankruptcy that no State

court have jurisdiction over a petitioning farmer-debtor or his property, would

have rendered the confirmation of sale and its enforcement beyond the County

Court’s power and nullities subject to collateral attack. The States cannot, in

the exercise of control over local laws and practice, vest State courts with

power to violate the supreme law of the land. The Constitution grants

Congress exclusive power to regulate bankruptcy and under this power

Congress can limit that jurisdiction which courts, State or Federal, can

exercise over the person and property of a debtor who duly invokes the

bankruptcy law. If Congress has vested in the bankruptcy courts exclusive

jurisdiction over farmer-debtors and their property, and has by its Act

withdrawn from all other courts all power under any circumstances to maintain

and enforce foreclosure proceedings against them, its Act is the supreme law

of the land which all courts – State and Federal – must observe. The wisdom

and desirability of an automatic statutory ouster of jurisdiction of all except

bankruptcy courts over farmer-debtors and their property were considerations

for Congress alone.

We think the language and broad policy of the Frazier-Lemke Act

conclusively demonstrate that Congress intended to, and did deprive the

Wisconsin County Court of the power and jurisdiction to continue or maintain
7

in any manner the foreclosure proceedings against appellants without consent

after hearing of the bankruptcy court in which the farmer’s petition was then

pending.

. . . .

The mortgagees who sought to enforce the mortgage after the petition

was duly filed in the bankruptcy court, the Walworth County Court that

attempted to grant the mortgagees relief, and the sheriff who enforced the

court’s judgment, were all acting in violation of the controlling Act of

Congress. Because that State court had been deprived of all jurisdiction or

power to proceed with the foreclosure, the confirmation of the sale, the

execution of the sherif’s deed, the writ of assistance, and the ejection of

appellants from their property – to the extent based upon the court’s actions

– were all without authority of law.

Kalb v. Feuerstein, 308 U.S. at 438-40, 443, 60 S. Ct. at 346, 348 (footnotes omitted).

In Potts v. Potts (In re Potts), 142 F.2d 883 (6th Cir. 1944), cert. denied, 324 U.S. 868,

65 S. Ct. 910, 89 L. Ed. 1423 (1945), also a Bankruptcy Act case, the Sixth Circuit, relying

on Kalb v. Feuerstein, held that actions in violation of the automatic stay are void. The Sixth

Circuit stated:

Upon filing a petition under Chapter XII, all of the property of the

debtor is brought within the jurisdiction of the Bankruptcy Court which

jurisdiction is paramount and exclusive and thereafter no action taken in any

other court can affect the proceedings in the Bankruptcy Court. Since the

judgment of the state court of July 26, 1943, is the sole foundation for

claimant Potts’ second claim, the judgment being void, the claim is void, and

likewise, the whole decree of the state court.

Potts, 142 F.2d at 888 (citing Kalb v. Feuerstein, 308 U.S. 433, 443, 60 S. Ct. 343, 84 L. Ed.

370 (1940)).

The circuit courts that have addressed the issue of void ab initio versus merely

voidable in the context of the Bankruptcy Code are split. The Fifth Circuit and the Federal

Circuit have taken the minority position that an act in violation of the automatic stay is

merely voidable. See Bronson v. United States, 46 F.3d 1573 (Fed. Cir. 1995)(2 to 1

decision); Picco v. Global Marine Drilling Co., 900 F.2d 846 (5th Cir. 1990).
8

The overwhelming majority of the circuits hold that an action in violation of the

automatic stay is void ab initio. See Soares v. Brockton Credit Union (In re Soares), 107

F.3d 969 (1st Cir. 1997); Constitution Bank v. Tubbs, 68 F.3d 685 (3d Cir. 1995); Parker v.

Bain, 68 F.3d 1131 (9th Cir. 1995); Franklin Sav. Ass’n v. Office of Thrift Supervision, 31

F.3d 1020 (10th Cir. 1994); Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522 (2d Cir.

1994); Albany Partners, Ltd. v. Westbrook (In re Albany Partners, Ltd.), 749 F.2d 670 (11th

Cir. 1984); Matthews v. Rosene, 739 F.2d 249 (7th Cir. 1984).

In the Sixth Circuit two panels have held that actions in violation of the automatic stay

are void, Smith v. First America Bank, N.A. (In re Smith), 876 F.2d 524 (6th Cir. 1989);

National Labor Relations Bd. v. Edward Cooper Painting, Inc., 804 F.2d 934 (6th Cir. 1986);

while one panel has held that acts violating the automatic stay are invalid and voidable,

Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir. 1993).

The Eighth Circuit has not addressed this issue, and in a 1997 opinion expressly

declined to do so. See Riley v. United States, 118 F.3d 1220, 1222 n.1 (8th Cir. 1997), cert.

denied, 118 S. Ct. 1299, 140 L. Ed. 2d 466 (1998).

The Ninth Circuit Court of Appeals enunciated the following rationale to support its

holding that violations of the automatic stay are void:

In light of the automatic stay’s purpose, the issue before us requires

some analysis of the relevant policy considerations. Either the debtor must

affirmatively challenge creditor violations of the stay, or the violations are

void without the need for direct challenge. If violations of the stay are merely

voidable, debtors must spend a considerable amount of time and money

policing and litigating creditor actions. If violations are void, however,

debtors are afforded better protection and can focus their attention on

reorganization [or relief].

Given the important and fundamental purpose of the automatic stay and

the broad debtor protections of the Bankruptcy Code, we find that Congress

intended violations of the automatic stay to be void rather than voidable.

Nothing in the Code or the legislative history suggests that Congress intended

to burden a bankruptcy debtor with an obligation to fight off unlawful claims.
9

The position championed by the IRS in this case would impose severe

hardships on debtors trying to regain their financial footing.

The district court in In re Garcia, 109 B.R. 335 (N.D. Ill. 1989),

explained that if violations of the automatic stay were merely voidable,

creditors would be encouraged to violate the stay:

[T]he fundamental importance of the automatic stay to the

purposes sought to be accomplished by the Bankruptcy Code

requires that acts in violation of the automatic stay be void,

rather than voidable. Concluding that acts in violation of the

automatic stay were merely voidable would have the effect of

encouraging disrespect for the stay by increasing the possibility

that violators of the automatic stay may profit from their

disregard for the law, provided it goes undiscovered for a

sufficient period of time. This may be an acceptable risk to

some creditors when measured against a delayed prorata

distribution.

Id. at 340 (footnote omitted). Like the court in Garcia, we will not reward

those who violate the automatic stay. The Bankruptcy Code does not burden

the debtor with a duty to take additional steps to secure the benefit of the

automatic stay. Those taking post-petition collection actions have the burden

of obtaining relief from the automatic stay. See In re Williams, 124 B.R.

[311,] 317-18 [(Bankr. C.D. Cal. 1991)].

Schwartz v. United States, 954 F.2d 569, 571-72 (9th Cir. 1992). The Schwartz court

continued:

The courts which have found the automatic stay voidable rather than

void have relied primarily on sections 362(d) and 549 of the Bankruptcy Code

to support their conclusion. . . . These courts have reasoned that (1) the court’s

power under section 362(d) to annul an automatic stay and (2) the trustee’s

duty under section 549 to bring an action to void an unauthorized transfer are

inconsistent with violations of the stay being void and thus demonstrate that

violations of the automatic stay are merely voidable. We find this reasoning

erroneous.

. . . .

[S]ection 362[(d)] gives the bankruptcy court wide latitude in crafting relief

from the automatic stay, including the power to grant retroactive relief from

the stay. 2 Collier on Bankruptcy § 362.07 (15th ed. 1984). . . .

[S]ection 362(d) is not inconsistent with the conclusion that any action in

violation of the automatic stay is void and of no effect. Section 362(d)
10

outlines the bankruptcy court’s authority to make exceptions to the general

operation of the stay. If a creditor obtains retroactive relief under section

362(d), there is no violation of the automatic stay, and whether violations of

the stay are void or voidable is not at issue.

. . . .

The power to grant relief, even retroactively, simply does not mean that

violations of the stay must be merely voidable rather than void. As was

explained by the court in In re Garcia, 109 B.R. at 339, “that Congress saw fit

to include specific exceptions to the automatic stay does not require the

conclusion that actions in violation of the automatic stay are merely voidable.”

It is entirely consistent to reason that, absent affirmative relief from the

bankruptcy court, violations of the stay are void.

Statements from leading authorities on bankruptcy generally support

this conclusion: “The use of the word ‘annulling’ [in § 362(d)] permits the

[court’s] order to operate retroactively, thus validating actions taken by a party

at a time when he was unaware of the stay. Such actions would otherwise be

void.” 2 Collier on Bankruptcy § 362.07 (emphasis added). With that

understanding, section 362(d) gives the court the power to ratify retroactively

any violation of the automatic stay which would otherwise be void. Simply

put, there is nothing remarkable or inconsistent about the normal operation of

the automatic stay being subject to a specific statutory exception such as that

found in section 362(d). . . .

. . . .

The supposed conflict between section 549 and section 362 can be

explained by the following reasoning. First, the expansive definition of

“transfer” means that sections 362 and 549, at times, cover the same

transactions. Second, section 549 implies that some of these overlapping

transactions will be valid unless affirmatively challenged by the trustee.

Therefore, some argue that section 362 cannot be interpreted to void these

overlapping transactions, for doing so would render section 549 moot. . . .

[A] straightforward analysis of section 549 reveals that it is not intended to

cover the same type of actions prohibited by the automatic stay nor rendered

moot by section 362's voiding of all automatic stay violations. Section 549

applies to unauthorized transfers of estate property which are not otherwise

prohibited by the Code. . . . In most circumstances, section 549 applies to

transfers in which the debtor is a willing participant. . . . For example, in a

transfer unrelated to any antecedent debt, the debtor may sell a portion of the

estate’s property to a third person. The trustee has the power to avoid such a

transfer under section 549.

Section 362's automatic stay does not apply to sales or transfers of

property initiated by the debtor. Thus, section 549 has a purpose in
11

bankruptcy beyond the potential overlap with section 362. In other words, the

automatic stay can void any violation and still leave section 549 with a valid

and important role in bankruptcy. Section 549 exists as a protection for

creditors against unauthorized debtor transfers of estate property. Although

there are circumstances where section 362 overlaps section 549 and renders

it unnecessary, this overlap falls far short of rendering section 549

meaningless.

Similarly, subsection 549(c)’s protection of good faith purchasers

carves out an extremely specific and narrow exception to the automatic stay

when section 362 overlaps subsection 549(c). There is no reason to infer from

this narrow exception that violations of the automatic stay are not void. . . . It

is disingenuous to argue that the general rule must be invalid simply because

there is a narrow exception to the rule. If violations of the automatic stay are

not void because there is a narrow exception under subsection 549(c), then by

the same reasoning the rest of section 549 would be invalid because subsection

549(c) creates an exception to the trustee’s power to avoid postpetition

transfers.

Indeed, subsection 549(c) sheds no light on the void/voidable

distinction. Subsection 549(c) is an exception to section 362 regardless of

whether violations of the automatic stay are void or merely voidable.

Congress did not draft subsection 549(c) to demonstrate that violations of the

automatic stay are merely voidable; Congress drafted subsection 549(c) to

protect good faith purchasers where the sale would otherwise be subject to

avoidance under section 549 or void under section 362.

Schwartz, 954 F.2d at 572-74 (some citations omitted).

In Soares v. Brockton Credit Union (In re Soares), the First Circuit explained:

[T]he characterization of an infringing action as “void” or “voidable”

influences the burden of going forward. Treating an action taken in

contravention of the automatic stay as void places the burden of validating the

action after the fact squarely on the shoulders of the offending creditor. In

contrast, treating an action taken in contravention of the automatic stay as

voidable places the burden of challenging the action on the offended debtor.

We think that the former paradigm, rather than the latter, best harmonizes with

the nature of the automatic stay and the important purposes that it serves.
12

Soares, 107 F.3d at 976. The First Circuit further opined that in an appropriate case, a

bankruptcy court may grant retroactive relief from the automatic stay under section 362(d).

Id. at 976-77. However, retroactive relief should be granted “only sparingly and in

compelling circumstances.” Id. at 978.

We are persuaded by the rationales offered by the Schwartz and Soares courts, and

align ourselves with the majority position. We hold that an action taken in violation of the

automatic stay is void ab initio.

Here, LaBarge never sought retroactive relief from the automatic stay in the

bankruptcy court in an effort to validate the void default judgment. We rule that as a matter

of law, a void default judgment cannot be given collateral estoppel effect in an adversary

proceeding seeking the nondischargeability of a debt based upon that default judgment.

Accordingly, the bankruptcy court erred by giving the void default judgment collateral

estoppel effect in this section 523(a)(6) adversary proceeding.

 We reverse and remand to the bankruptcy court for the entry of an order discharging

the debt based upon the bankruptcy court’s express findings on the record that but for the

collateral estoppel effect of the default judgment the debt would be dischargeable.

A true copy.

Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL, EIGHTH

CIRCUIT