Opinion ID: 609735
Heading Depth: 2
Heading Rank: 1

Heading: Validity of FDIC's Attachment

Text: 12 Prudential's first argument is that the district court should have declared the FDIC's attachment null and void because it was obtained in violation of the automatic stay allegedly still in effect in Serrano's bankruptcy case. See 11 U.S.C. § 362. It is Prudential's theory that Fed.R.Civ.P. 62(a), applying by force of Bankruptcy Rules 7062 and 9014, extended the automatic stay of 11 U.S.C. § 362 for ten days after the bankruptcy court had dismissed Serrano's bankruptcy petition. This argument has met with little success in other cases involving similar circumstances. See In re de Jesus Saez, 721 F.2d 848, 851-52 (1st Cir.1983); In re Weston, 101 B.R. 202, 203-06 (Bankr.E.D.Cal.1989), aff'd, 967 F.2d 596 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 973, 122 L.Ed.2d 128 (1993). Prudential's standing to challenge an alleged violation of the automatic stay is also problematic. See In re Pecan Groves of Arizona, 951 F.2d 242, 245 (9th Cir.1991) (Language from many cases indicates that, if the trustee does not seek to enforce the protections of the automatic stay, no other party may challenge acts purportedly in violation of the automatic stay.). We do not pass on these issues, however, as we are satisfied, infra, that Prudential is barred by res judicata from raising the automatic stay as a bar. 6 We add that it would be difficult to pass on the merits of the automatic stay issue from the record now before us, which does not include a full report of the bankruptcy proceedings and, in particular, omits much information relevant to the stay and to orders issued lifting the stay in respect to the district court proceeding in question. This court recently explained: 13 The doctrine of res judicata bars all parties and their privies from relitigating issues which were raised or could have been raised in a previous action, once a court has entered a final judgment on the merits in the previous action. United States v. Alky Enterprises, Inc., 969 F.2d 1309, 1314 (1st Cir.1992). The essential elements of res judicata, or claim preclusion, are (1) a final judgment on the merits in an earlier action; (2) an identity of parties or privies in the two suits; and (3) an identity of the cause of action in both the earlier and later suits. Kale v. Combined Insurance Co. of America, 924 F.2d 1161, 1165 (1st Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 69, 116 L.Ed.2d 44 (1991). 14 Aunyx Corp. v. Canon U.S.A., Inc., 978 F.2d 3, 6 (1st Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1416, 122 L.Ed.2d 786 (1993) (emphasis in original). The normal rules of res judicata and collateral estoppel apply to the decisions of the bankruptcy courts. Katchen v. Landy, 382 U.S. 323, 334, 86 S.Ct. 467, 475, 15 L.Ed.2d 391 (1966); Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 375-78, 60 S.Ct. 317, 319-20, 84 L.Ed. 329 (1940); Turshen v. Chapman, 823 F.2d 836, 839 (4th Cir.1987); see generally 1B James Wm. Moore et al., Moore's Federal Practice p 0.419 (2d ed. 1993). Orders, judgments and decrees of the bankruptcy court from which an appeal is not timely taken are final, 1 Collier on Bankruptcy p 3.03, at 3-179 (Lawrence P. King ed., 15th ed. 1993), even if erroneous. Union Joint Stock Land Bank v. Byerly, 310 U.S. 1, 7-8, 60 S.Ct. 773, 776, 84 L.Ed. 1041 (1940); Van Huffel v. Harkelrode, 284 U.S. 225, 227, 52 S.Ct. 115, 116, 76 L.Ed. 256 (1931). While actions taken in violation of the automatic stay are often characterized as void and without effect, orders of the bankruptcy court modifying the stay or finding no violation, even if erroneous, are entitled to respect and are not subject to collateral attack. See Union Joint Stock Land Bank, 310 U.S. at 7-8, 60 S.Ct. at 776 (The District Court did not lose jurisdiction by erroneously construing or applying provisions of the statute under which it administered the bankrupt estate. Its order was voidable, but not void, and was not to be disregarded or attacked collaterally....); 1B Moore's Federal Practice p 4.19[3-.2], at 635. 15 All the elements of res judicata are met here. First, by its final order on June 27, 1990, transferring Serrano's funds in compliance with the attachment, the bankruptcy court rendered a final judgment that the attachment was valid. After dismissing Serrano's bankruptcy case, the bankruptcy court had retained jurisdiction to determine whether to return the debtor's funds to him or to another, and gave all the creditors, of whom Prudential was one, eleven days to express their positions as to the disposal of these funds. Prudential's counsel appeared at the hearing in the bankruptcy court directly before issuance of the order dismissing the bankruptcy case, at which time the court indicated that that order was contemplated and said that it intended to grant the creditors ten or eleven days to let me know what I should do with these funds. In fact, on May 17, 1990, Prudential's counsel invited the attorneys for other creditors, including the FDIC's counsel, to a meeting at Prudential's offices to discuss the disposition of the funds. This meeting took place on May 18, 1990, at which time the FDIC's counsel showed to Prudential a copy of the attachment order it had just obtained in the district court. Notwithstanding the foregoing, Prudential never advised the bankruptcy court of its present contention that the FDIC's attachment was invalid, being in supposed violation of the automatic stay, nor did it urge the bankruptcy court to refuse to honor the attachment. Prudential's inaction is in notable contrast to that of another creditor, Shearson Lehman, which, on June 5, 1990, moved the bankruptcy court to declare the attachment null and void in violation of the automatic stay--the very same contention Prudential belatedly raises now. Shearson Lehman's contention was expressly denied by the bankruptcy court on June 27, 1990, in its final order. In that same order, the bankruptcy court disposed of the balance of the funds in express compliance with the attachment, after first ordering the payment of certain fees, expenses and other items. The bankruptcy court's June 27 order constituted an appealable final judgment. In re Parque Forestal, Inc., 949 F.2d 504, 508-09 (1st Cir.1991). However, Prudential took no appeal. 16 Second, Prudential does not deny that, as one of Serrano's creditors, it was a party to the bankruptcy proceedings, nor that it was fully cognizant on May 16-18, 1990, of the bankruptcy court's dismissal of Serrano's case, of its retention of jurisdiction, and of the FDIC's attachment. Nor can Prudential deny that it knew of the bankruptcy court's invitation to all creditors to express their positions as to the future disposition of the funds. 17 Despite this, Prudential complains that since it received no formal notice from the district court of the FDIC's attachment, it was not a party to the dispute over the attachment. We cannot see, for purposes of any action Prudential might have taken in the bankruptcy court, that the absence of notice from the district court was material. Prudential was fully cognizant that the bankruptcy court intended to take action in June on the question of disposal of Serrano's assets, including the effect of the attachment. Yet Prudential took no steps to pursue the matter before the bankruptcy judge, including--in particular--to raise the bankruptcy-related issue of the effect of the automatic stay on the validity of the attachment. We are satisfied that Prudential was a party to the proceedings in the bankruptcy court over the ultimate disposition of Serrano's assets--proceedings that ended with the bankruptcy court's recognition of the FDIC's district court attachment and its direction to turn over the assets in compliance therewith. 18 Finally, Prudential's current challenge to the attachment based on the automatic stay implicates the very same underlying issue resolved by the bankruptcy court when it gave effect to the attachment. The bankruptcy court's final order of June 27, 1990 necessarily required it to have determined whether or not the FDIC's attachment was valid so as to be entitled to effect. The bankruptcy court clearly had jurisdiction to make that determination and, in particular, had jurisdiction to adjudicate any claim of invalidity based on purported violation of the automatic stay. See 11 U.S.C. § 105(a) (authorizing bankruptcy court to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.); 11 U.S.C. § 362(d), (f) (authorizing court to grant relief from stay); 1 Collier on Bankruptcy p 362.01, at 362-9 ([T]he bankruptcy court, as a court of equity exercising in rem jurisdiction over assets in its custody and control, can protect its jurisdiction by injunction, whether or not such power is expressly set forth....); see generally In re Continental Air Lines, 61 B.R. 758 (S.D.Tex.1986) (discussing jurisdiction of bankruptcy court over enforcement of automatic stay). 19 As already noted, another creditor, Shearson Lehman, moved in the bankruptcy court to have the attachment declared null and void for precisely the same reasons Prudential now advances, viz., that the FDIC had allegedly violated the automatic stay when it sought and received an order from the district court attaching bankruptcy assets within one day after the bankruptcy court had dismissed Serrano's petition. 7 The bankruptcy court included in its June 27, 1990 order a specific denial of Shearson Lehman's motion, indicating by that ruling its absence of doubt concerning the existence of jurisdiction to adjudicate the claimed bar of the automatic stay. 20 Prudential never made a similar motion nor in any way challenged the attachment in the bankruptcy court, nor did it appeal from the bankruptcy court's order recognizing the FDIC's attachment. Instead, after the bankruptcy court had acted and the attachment had been fully executed, Prudential petitioned to intervene in the attaching district court for the purpose of arguing, post hoc, that the bankruptcy automatic stay had invalidated the attachment. 8 By the time of its petition, a final judgment giving effect to the attachment was in effect in the bankruptcy court. As res judicata now bars a collateral attack on the bankruptcy court's judgment, we treat the FDIC's attachment as valid.