Opinion ID: 3064522
Heading Depth: 2
Heading Rank: 2

Heading: Orders Granting Relief From the Automatic Stay

Text: are Strictly Construed The BAP decision is consistent with Ninth Circuit case law that orders granting relief from the automatic stay are to be strictly construed. See Noli, 860 F.2d at 1525. The BAP decision also discourages creditors from misrepresenting the actual or potential scope of the cause of action pending before a state court and thereby tends to ensure that the bankruptcy court is fully informed as to the potential effect of any order granting relief from the automatic stay. In this way, it furthers the purpose of the automatic stay. Griffin’s pursuit of her fraudulent misrepresentation claim in the Nevada court was outside of the scope of the bankruptcy court’s order. As the BAP noted, Griffin’s motion for relief from the automatic stay expressly stated that lifting the stay was necessary so that she could recover against Wardrobe’s bonding companies and that “[t]he stay relief will only allow her to go to state court and proceed against [the bonding IN THE MATTER OF WARDROBE 3397 companies].” In light of this statement in Griffin’s motion for relief from stay, the BAP relied on Thornburg and held that “[t]he bankruptcy court could not, in the Relief from Stay Order, grant relief greater than what Griffin requested in the Relief from Stay Motion.” Thornburg, however, is not a perfect fit. Unlike the instant case, Thornburg involved the interpretation of an agreed order that the parties submitted to the bankruptcy court in response to a creditor’s motion for relief from the automatic stay. Thornburg, 277 B.R. at 726. The motion for relief specifically requested the stay to be lifted to allow the creditor “to have a hearing in state court on her Motion for Enforcement.” Id. The order granting relief “recite[d] simply that ‘the automatic stay is lifted accordingly.’ ” Id. The bankruptcy court held that because “[a]n Agreed Order is a contract and its interpretation is governed by basic rules of contract construction . . . . [t]his court must find that the order on the motion for relief from the automatic stay granted the relief requested in the motion, no more no less . . . .” Id. at 726-27. Furthermore, the BAP’s holding may be potentially in tension with 11 U.S.C. § 105(a) (“The court may issue any order . . . that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.”). At least one bankruptcy court in this circuit has held that § 105(a), “when applied to section 362(d), compels the conclusion that a bankruptcy court can lift the automatic stay sua sponte.” Swift v. Bellucci (In re Bellucci), 119 B.R. 763, 779 (Bankr. E.D. Cal. 1990). Thus, Thornburg arguably does not fully support the BAP’s holding that the bankruptcy court is limited to granting only the relief requested in the motion. However, while a bankruptcy court has equitable judicial 3398 IN THE MATTER OF WARDROBE power, its power is confined by ordinary standards of notice and opportunity to be heard. This court has employed in a limited relief from stay setting, an unpublished, but appropriate, rationale in Nugent v. Am. Broad. Sys., 1 Fed. Appx. 633 (9th Cir. 2001). In Nugent, the creditors obtained a stay modification order that allowed their “district court litigation to ‘proceed to final liquidation.’ ” Nugent, 1 Fed. Appx. at 635. When the bankruptcy court issued the order, the creditors’ complaint pending in the district court sought only damages and an accounting of stock. Id. After the bankruptcy court granted the order, the creditors amended the complaint to include a constructive trust claim. Id. The court upheld “the bankruptcy court’s conclusion that the automatic stay was modified only as to the claims that were actually pending in the district court litigation as of the date of the order modifying the stay.” Id. The court noted that the creditors had “fail[ed] to explain how the bankruptcy court could lift the automatic stay as to the constructive trust claim when, at the time of its order, the bankruptcy court had no idea that the claim existed.” Id. at 635-36. The rationale is substantially the same as the BAP’s in our case, but does not purport to limit the discretion that 11 U.S.C. § 105(a) gives to the bankruptcy court to issue orders sua sponte. [5] Adopting Nugent’s rationale here furthers the purpose underlying the automatic stay while providing sufficient protection to creditors. As noted, the stay protects both a debtor and his or her creditors by protecting the debtor’s assets from collection efforts so that a repayment or reorganization plan can be developed. See MacDonald, 755 F.2d at 717. Allowing one creditor to amend a pending complaint after a relief from stay order has been issued undermines this protection and could threaten the debtor’s reorganization or repayment plan. Limiting the relief available to a creditor to that which was currently alleged in a pending complaint or specifically requested in the motion for relief forces creditors to disclose the causes of action they intend to pursue and ensures that the IN THE MATTER OF WARDROBE 3399 bankruptcy court is fully apprised of the nature of the lawsuit so that the court can determine whether cause exists to grant relief from the stay. See 11 U.S.C. § 362(d)(1) (providing that “the court shall grant relief from the stay . . . for cause”). This protects the debtor, and other creditors, from unforseen causes of action that could result in non-dischargeable judgments and furthers the purpose of the automatic stay. Furthermore, in the event that a previously unforeseen cause of action becomes apparent during a trial proceeding pursuant to an order granting relief from the automatic stay, numerous avenues of relief are available to a creditor to ensure that any resulting judgment does not violate the scope of the order. A creditor could petition the bankruptcy court for relief that is broad enough to encompass the cause of action; could seek an order from the bankruptcy court clarifying the relief from stay order, see Alonso v. Summerville (In re Summerville), 361 B.R. 133, 144 (9th Cir. B.A.P. 2007) (stating “[t]he bankruptcy court had jurisdiction to clarify its [relief from stay] order”); or, if a judgment has been entered on a cause of action that was not pending at the time the relief was granted, could seek retroactive relief from the stay that is broad enough to encompass the judgment, see, e.g., Mataya v. Kissinger (In re Kissinger), 72 F.3d 107, 109 (9th Cir. 1995); Schwartz v. United States (In re Schwartz), 954 F.2d 569, 572 (9th Cir. 1992) (stating “section 362 gives the bankruptcy court wide latitude in crafting relief from the automatic stay, including the power to grant retroactive relief from the stay” (citation omitted)). [6] Thus, because the reasoning of Nugent both furthers the purpose of the automatic stay and leaves creditors with sufficient procedural safeguards to ensure that any judgment that is rendered is either within the intended scope of the order granting relief from the stay or ratified by an order granting retroactive relief, we adopt it and hold that an order granting limited relief from an automatic stay to allow a creditor to proceed to judgment in a pending state court action is effec3400 IN THE MATTER OF WARDROBE tive only as to those claims actually pending in the state court at the time the order modifying the stay issues, or that were expressly brought to the attention of the bankruptcy court during the relief from stay proceedings.