Opinion ID: 782057
Heading Depth: 2
Heading Rank: 2

Heading: Stay Exception

Text: 7 Section 362(a) of the Bankruptcy Code provides that the filing of a bankruptcy petition creates an automatic stay, applicable to all entities, of, inter alia, any act to create, perfect, or enforce any lien against property of the estate. 11 U.S.C. § 362(a). Transfers in violation of the automatic stay are void. Schwartz v. United States (In re Schwartz), 954 F.2d 569, 575 (9th Cir.1992). When WSC filed its bankruptcy petition, the automatic stay took effect, with the result that the Riverside County tax sale, conducted to enforce the tax lien on the property, was void. Unless an exception to section 362(a) applies, therefore, Lusardi's purchase of the property at the tax sale was without effect. 8 Eighteen exceptions to section 362(a) are listed in section 362(b). 11 U.S.C. § 362(b) (listing circumstances in which the filing of a petition ... does not operate as a stay). The text of section 362(a) makes reference to the exceptions listed in section 362(b), 11 U.S.C. § 362(a) (providing that the stay applies [e]xcept as provided in subsection (b) of this section), but not to any other exceptions. The language of section 362, thus, suggests that the 18 listed exceptions are the only exceptions to the automatic stay. 9 Lusardi does not argue that any of the 18 exceptions of section 362(b) applies to his purchase. Rather, he asserts that section 549(c) of the Code provides a further exception to the automatic stay provision. This assertion is plausible primarily because a number of courts, including ours on some occasions, have assumed it to be correct, as we discuss below. The district court in the present case relied on such assumptions and held that section 549(c) does create an exception to the automatic stay provision. Lusardi, No. 90-1472-R, unpublished order at 9-12 (S.D.Cal. filed Jan. 19, 1999). However, we have never before addressed the question directly. Recently the Bankruptcy Appellate Panel of the Ninth Circuit did so and concluded in an opinion we find persuasive that section 549(c) does not create an exception to section 362(a). Value T Sales, Inc. v. Mitchell (In re Mitchell), 279 B.R. 839, 841-44 (9th Cir.BAP 2002). We reach the same conclusion as the Bankruptcy Appellate Panel. 2 10 Section 549 concerns the ability of a bankruptcy trustee to avoid postpetition transfers of the property of the estate, and subsection (c) protects bona fide purchasers who did not know of the petition and who meet certain other requirements. Section 549 provides in full as follows: 11 § 549. Postpetition transaction 12 (a) Except as provided in subsection (b) or (c) of this section, the trustee may avoid a transfer of property of the estate — 13 (1) that occurs after the commencement of the case; and (2) (A) that is authorized only under section 303(f) or 542(c) or that is authorized only under section 303(f) or 542(c) of this title; or 14 (B) that is not authorized under this title or by the court. 15 (b) In an involuntary case, the trustee may not avoid under subsection (a) of this section a transfer made after the commencement of such case but before the order for relief to the extent any value, including services, but not including satisfaction or securing of a debt that arose before the commencement of the case, is given after the commencement of the case in exchange for such transfer, notwithstanding any notice or knowledge of the case that the transferee has. 16 (c) The trustee may not avoid under sub-section (a) of this section a transfer of real property to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value unless a copy or notice of the petition was filed, where a transfer of such real property may be recorded to perfect such transfer, before such transfer is so perfected that a bona fide purchaser of such property, against whom applicable law permits such transfer to be perfected, could not acquire an interest that is superior to the interest of such good faith purchaser. A good faith purchaser without knowledge of the commencement of the case and for less than present fair equivalent value has a lien on the property transferred to the extent of any present value given, unless a copy or notice of the petition was so filed before such transfer was so perfected. 17 (d) An action or proceeding under this section may not be commenced after the earlier of — 18 (1) two years after the date of the transfer sought to be avoided; or 19 (2) the time the case is closed or dismissed. 20 11 U.S.C. § 549. 21 As subsection (a) and (d) make clear, section 549 concerns avoidance actions by the trustee, not transfers that are already void under the automatic stay. Subsection (c), which Lusardi invokes, prevents such avoidance actions from succeeding against certain bona fide purchasers. By its terms, subsection (c) creates an exception only to subsection (a). 11 U.S.C. § 549(c) (describing transfers that trustee may not avoid under subsection (a) of this section). Thus, as the Mitchell court noted, the language and the structure of both section 362 and section 549 support the view that section 549(c) does not create an exception to the automatic stay provision. 22 This interpretation is also consistent with the purposes of the two sections. The purpose of the automatic stay is to protect debtors from their creditors while bankruptcy proceedings are underway. Schwartz, 954 F.2d at 571 ([The stay] is designed to protect debtors from all collection efforts while they attempt to regain their financial footing.); see H.R. Rep. No. 595, 95th Cong., 1st Sess. 340 (1978) (The automatic stay is one of the fundamental debtor protections....). The purpose of section 549, in contrast, is to provide a just resolution when the debtor himself initiates an unauthorized postpetition transfer. The general rule in such situations is that the trustee is authorized to avoid the transfer in order to protect the creditors. See 11 U.S.C. § 549(a); Schwartz, 954 F.2d at 574 (Section 549 exists as a protection for creditors against unauthorized debtor transfers of estate property.). Section 549(c) creates an exception to that rule to protect innocent purchasers whom the debtor has defrauded. 5 COLLIER ON BANKRUPTCY, § 549.06 (15th ed. rev. 2002). As sections 362 and 549 are designed to protect different parties, it is not surprising that an exception to one would not apply to the other. Congress evidently saw fit, as Mitchell discerned, to afford greater protection to [bona fide purchasers] who purchase from debtors than to those purchasing at sales violating the automatic stay. Mitchell, 279 B.R. at 843. 23 As noted above, some of our prior decisions imply, contrary to our present holding, that section 549(c) does create an exception to the automatic stay provision. Most recently, in Schwartz, we stated at one point in the opinion that 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). Schwartz, 954 F.2d at 574. This statement, although the district court in Lusardi believed it was binding, was a mere assumption that did not contribute to our resolution of any matter at issue in the case. The sole issue in Schwartz was whether transfers in violation of the automatic stay were void or merely voidable. Id. at 570-71. We held that they were void and addressed section 549(c) only to refute the argument that section 549(c), because it is an exception to section 362(a), demonstrates that violations of the stay are not void. 3 Our assumption that section 549(c) does create such an exception was, in this sense, actually in tension with our holding. Furthermore, in subsequent portions of the opinion, Schwartz appears to assume precisely the opposite of its initial assumption: It appears to state quite clearly that section 549(c) does not create an exception to the automatic stay. See, e.g., id. at 574 (The law in this circuit is that violations of the automatic stay are void and that section 549 applies to transfers of property which are not voided by the stay.). We therefore draw no conclusion from Schwartz as to the relationship between sections 362(a) and 549(c). In another case, we assumed that section 549(c) creates an exception to the automatic stay but held that the requirements of section 549(c) were not met. Walker v. California Mortgage Serv. (In re Walker), 861 F.2d 597, 600 (9th Cir.1988) (perfection requirement not met). Similarly, we made the same assumption but decided the issue on a different basis in Thompson v. Margen (In re McConville), 110 F.3d 47, 49 (9th Cir.1997) (applying section 364(c)(2)). Finally, to confuse matters even further, in Phoenix Bond & Indemnity Co. v. Shamblin (In re Shamblin), 890 F.2d 123, 127 n. 5 (9th Cir.1989), we expressly declined to resolve[the] difficult question whether the section 549 exception applies when an automatic stay is in effect. 24 We also acknowledge that our holding today conflicts with the view expressed in two bankruptcy treatises, see 3 COLLIER ON BANKRUPTCY § 362.11[1] (15th ed. rev. 2002) (Section 549(c) contains an important limitation of the principle that actions taken in violation of the stay are void, or at least voidable.); NORTON BANKRUPTCY LAW AND PRACTICE 2D § 59:5 (Supp. Nov. 2002) (stating that Schwartz correctly regarded section 549(c) as an exception to section 362(a)). We also note that in Tsafaroff v. Taylor (In re Taylor), 884 F.2d 478 (9th Cir.1989), we assumed Collier to be correct, without considering the question, and affirmed a decision of the Bankruptcy Appellate Panel holding that the lack-of-notice requirement of 549(c) was met. Id. at 483-84. We did so only shortly before we announced, in the final amended opinion in Shamblin, that the question was an open one. 25 We also note that the Third and Fifth Circuits and, in a pre Mitchell decision, the Bankruptcy Appellate Panel of the Ninth Circuit, have stated in dictum, and a number of Bankruptcy Courts have held, assumed, or opined, contrary to our holding today, that section 549(c) does create an exception to section 362(a). See, e.g., In re Siciliano, 13 F.3d 748, 751 n. 2 (3d. Cir. 1994); Sikes v. Global Marine, Inc., 881 F.2d 176, 179 (5th Cir.1989); Shaw v. County of San Bernardino (In re Shaw), 157 B.R. 151 (9th Cir.BAP 1993); Jones v. Wingo (In re Wingo), 89 B.R. 54, 58 (9th Cir.BAP 1988); In re Shah, 2001 Bankr.LEXIS 380, -, 2001 WL 423024 (Bankr.E.D.Pa.2001); Carpio v. Smith (In re Carpio), 213 B.R. 744, 750-51 (Bankr.W.D.Mo.1997); Groupe v. Hill (In re Hill), 156 B.R. 998, 1007 (Bankr.N.D.Ill. 1993); Little v. Bago (In re Bago), 149 B.R. 610, 612 (Bankr.C.D.Cal.1993); In re King, 35 B.R. 530, 531 (Bankr.N.D.Ga. 1983). 26 None of these decisions, however, considered the textual, structural, and policy arguments we address above. Most were arrived at without any analysis at all. While numbers are on the side of finding section 549(c) to create an exception, the clear weight of judicial reasoning strongly supports the contrary view. Specifically, so far as we are aware, every court that has considered the governing legal factors has reached the conclusion we have, that section 549(c) does not create an exception to the automatic stay provision. See Mitchell, 279 B.R. at 841-44; Glendenning v. Third Fed. Sav. (In re Glendenning), 243 B.R. 629, 633-34 (Bankr.E.D.Pa.2000); Smith v. London (In re Smith), 224 B.R. 44, 46-48 (Bankr.E.D.Mich.1998); New Orleans Airport Motel Assocs. v. Lee (In re Servico, Inc.), 144 B.R. 933, 934-37 (Bankr.S.D.Fla.1992). 27 Because we hold that section 549(c) does not create an exception to section 362(a), we do not reach the issue whether Lusardi's purchase at the Riverside County tax foreclosure sale met the requirements of section 549(c).