Court Opinion

ID: 9685479
Source: CourtListenerOpinion
Date Created: 2023-08-24 14:42:12.118784+00
Date Added: 2024-06-11T18:18:06.830520
License: Public Domain

BOROFF, U.S. Bankruptcy Appellate Panel Judge,
concurring in part and dissenting in part.
I concur in the majority’s presentation of the fact pattern and in its well-reasoned holding that a bankruptcy debtor’s appellate filing fees may be waived where the debtor demonstrates both an inability to pay the filing fees and objective good faith. I also agree that the necessary element of good faith is absent where the appeal is frivolous. Unfortunately, however, I part company with the majority’s conclusion that the appeal here can be so characterized.
The critical elements of the fact pattern, which I draw from the majority’s recitation, are:
On March 3, 2003, after a hearing, the State Court ordered the Heghmanns to pay rental arrears of $5,700 to Mr. Haf-iani by March 15, 2003, or a writ of possession would issue as of March 17, 2003, without further hearing.
The Heghmanns neither paid the $5,700 nor appealed the judgment. Instead, on March 13, 2003, Robert Hegh-mann filed a voluntary Chapter 13 petition. Notwithstanding the filing of the bankruptcy petition, on March 17, 2003, the State Court issued a Notice of Default Judgment and a Writ of Possession in accordance with its March 3rd order ....
... [0]n May 21, 2003, the bankruptcy court dismissed Robert Heghmann’s Chapter 13 case for failure to file the required bankruptcy schedules and Chapter 13 plan. Accordingly, on May 23, 2003, the State Court ... issued a new Writ of Possession in accordance with its March 3rd order. The next day, the Heghmanns were evicted from the premises.
It is undisputed that the State Court ordered that a writ of possession would issue without further proceedings if the Heghmanns defaulted on their obligation to pay the rental arrears by March 15, 2003. We do not know, however, how the State Court discovered that the Hegh-manns had defaulted. That communication had to have come from somewhere and could only have been delivered after March 15, 2003, two (2) days after Robert Heghmann had filed his Chapter 13 petition. Acting on this information from an unknown source, and notwithstanding the automatic stay, the State Court then issued the Notice of Default and the writ of possession. The issuance and entry of both documents, as discretionary acts taken by a state court, were obvious violations of the automatic stay in Robert Hegh-mann’s bankruptcy case. They were both void ab initio as a matter of law. See Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969, 976 (1st Cir.1997).
The complicating factor, of course, is that Robert Heghmann’s bankruptcy case was subsequently dismissed. The State Court then reissued the writ of possession, pursuant to which the Heghmanns were *422evicted. Yet the facts do not reveal whether the Notice of Default was reissued.
The foregoing raises a variety of issues that are, in my view, worthy of closer examination and concern. First: if the Notice of Default was a necessary predicate to the first Writ of possession, but void as a matter of law, then how could it have been relied upon by the State Court when it issued the second writ of possession (without the State Court reissuing a second Notice of Default)? In Soares, the creditor commenced its foreclosure efforts by filing a prepetition complaint against the debtor in the Massachusetts Land Court. 107 F.3d at 972. After making the required service, the creditor filed a return of service with the Land Court and requested judgment, all prepetition. Id. The Land Court judgment, however, was issued postpetition. Id. When the debtor challenged the Land Court judgment as issued in violation of the automatic stay, the First Circuit Court of Appeals agreed. It refused to view the Land Court’s action as “ministerial,” because the issuance of the default judgment necessitated judicial discretionary review of the creditor’s return of service. Id. at 976. And the First Circuit, on policy grounds, declined to characterize the seemingly inadvertent violation as a harmless error, viewing the judgment as “void” and not “voidable.” Id. Here, it appears that the State Court issued the second writ of possession on account of a court entry (the Notice of Default) which was similarly a discretionary act taken in violation of the automatic stay. Perhaps there is a distinguishing factor; perhaps not. But raising this question is not frivolous in light of the teachings of Soares.
Second: does a co-debtor protected under § 1301(a) have the right to seek damages for a stay violation? I see nothing that precludes such a right for co-debtors, in light of the availability of § 105(a) and the same reasoning which the First Circuit Court of Appeals has employed to protect corporate debtors. Spookyworld, Inc. v. Town of Berlin (In re Spookyworld), 346 F.3d 1, 8 (1st Cir.2003) (ruling that, although a corporation as a “non-individual” has no cause of action under § 362(h) for automatic stay violations, bankruptcy courts “may award damages for automatic stay violations pursuant to their [11 U.S.C.] section 105(a) power.”).
Third: does a remedy for a § 1301(a) stay violation survive the dismissal of a case? Several courts have answered in the affirmative with respect to § 362(a) stay violations. See Price v. Rochford, 947 F.2d 829, 830-31 (7th Cir.1991); see also Menk v. LaPaglia (In re Menk), 241 B.R. 896, 906 (9th Cir. BAP 1999); Javens v. City of Hazel Park (In re Javens), 107 F.3d 359, 364 n. 2 (6th Cir.1997) (citing Price in dicta). “Since dismissal of an underlying bankruptcy case does not automatically strip a federal court of residual jurisdiction to dispose of matters after the underlying bankruptcy case has been dismissed, exercise of such jurisdiction is left to the sound discretion of the trial court.” Javens, 107 F.3d at 364 n. 2 (citing Lawson v. Tilem (In re Lawson), 156 B.R. 43, 45 (9th Cir. BAP 1993)); see also Carraher v. Morgan Elec. Inc. (In re Carraher), 971 F.2d 327, 328 (9th Cir.1992); Fidelity & Deposit Co. of Maryland v. Morris (In re Morris), 950 F.2d 1531, 1534 (11th Cir.1992); Smith v. Commercial Banking Corp. (In re Smith), 866 F.2d 576, 580 (3d Cir.1989). This point has also been recognized in several unpublished opinions by the Bankruptcy Appellate Panel (the “BAP”) for the Tenth Circuit. See, e.g., Moore v. DA (In re Moore), Nos. EO-02-078, 302 B.R. 112, 2003 Bankr.LEXIS 221, at *6 & n. 2, 2003 WL 1389066, at *1 & n. 2 (10th Cir. BAP 2003); Flores v. U.S. Trustee (In re Flores), Nos. NM-00-69, 271 B.R. 213, *4232001 Bankr.LEXIS 521, at *11, 2001 WL 543677, at *4 (10th Cir. BAP 2001) (where the underlying case has been dismissed, a bankruptcy court retains discretionary subject matter jurisdiction over a complaint alleging a § 362(h) willful violation of the stay). Perhaps there is good reason for a distinction — to decide that violation of § 1301(a) rights, as distinguished from § 362(a) rights, ought not to survive the dismissal of a case. Perhaps not. But raising a legal issue of first impression in the absence of statutory guidance or applicable case law is hardly frivolous.
Fourth, and perhaps most important, does a debtor have standing in her bankruptcy case, to seek damages for violation of her § 1301 rights in her husband’s dismissed bankruptcy case? This appears to be another question of first impression. The bankruptcy judge cited no case law in support of his determination that the debt- or had no such standing. The previous Panel’s decision affirming that ruling also cited no case law in support of that proposition. See Heghmann v. Indorf (In re Heghmann), 316 B.R. 395, 402 (1st Cir. BAP 2004). Accordingly, raising this issue on appeal does not appear frivolous.
In fairness, the majority does not directly address the question of standing. Rather, the majority relies on res judicata and the Rooker-Feldman doctrines to deem the debtor’s contentions asked and answered several times by the bankruptcy court and the United States District Court, and therefore, frivolous when raised again by the debtor here. I do not reach the same conclusion.
Robert Heghmann first brought his stay violation claims to the United States District Court for the District of New Hampshire amid multiple claims against multiple parties. See Heghmann v. Hafiani, No. 03-219-JD (D.N.H. May 28, 2003), discussed in Heghmann v. Town of Rye, 2004 D.N.H. 157, 2004 U.S. Dist. LEXIS 22790, at *5-6, 2004 WL 2526417, at *2. Although the District Court found most of his assertions frivolous indeed, it did not make that determination with respect to his claims under § 362(a). See id. Rather, the court determined that the bankruptcy court had exclusive jurisdiction over such claims, and dismissed for lack of subject matter jurisdiction, not on the merits. See id.
As instructed, Robert Heghmann raised the automatic stay violation in his bankruptcy case by way of a motion for contempt. See Heghmann, 316 B.R. at 398-99. That motion was denied, but again not on the merits. The bankruptcy court had already dismissed his bankruptcy case on other grounds and denied his “contempt” motion as moot. Id. at 99.
Robert Heghmann then returned to the District Court and filed another action, again asserting his stay violation claims amid multiple claims against multiple parties. See Heghmann v. Town of Rye, 326 F.Supp.2d 227 (D.N.H.2004) (report and recommendation of Magistrate Judge), adopted by Heghmann v. Town of Rye, Civil No. 04-100-SM, 2004 D.N.H. 157, 2004 U.S. Dist. LEXIS 22790, 2004 WL 2526417. The result was the same. With respect to those claims under the automatic stay, the action was dismissed for lack of subject matter jurisdiction. See 2004 WL 2526417, *3-4, 2004 U.S. Dist. LEXIS 22790, *10-11. And in a subsequent decision, the District Court awarded costs and sanctions against Robert Heghmann for repetitively asserting claims with respect to which the District Court had already ruled it had no subject matter jurisdiction. Heghmann v. Town of Rye, Civil No. 04-100-SM, 2005 D.N.H. 045, 2004 U.S. Dist. LEXIS 4255, 2005 WL 637928.
The upshot of all of this is that, even assuming that the debtor’s rights were in privity with those of her husband, neither the bankruptcy court nor the District *424Court ever reached the merits of Robert Heghmann’s automatic stay violation claim. A ruling not on the merits is not subject to res judicata claim or issue preclusion. See Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 30-31 (1st Cir.1994) (citing Aunyx Corp. v. Canon U.S.A., Inc., 978 F.2d 3, 6 (1st Cir.1992), cert. denied, 507 U.S. 973, 113 S.Ct. 1416, 122 L.Ed.2d 786 (1993)).
Finally, the previous Panel and the majority here note that application of the automatic stay to the State Court’s judgment is precluded by the Rooker-Feldman doctrine. At least some of the case law would suggest otherwise. See Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1082-83, 1082 n. 6 (9th Cir. 2000) (“Because ... judicial proceedings in violation of the stay are void ab initio, the bankruptcy court is not obligated to extend full faith and credit to such judgments.”) (citing Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370 (1940)); In re Benalcazar, 283 B.R. 514, 525-26 (Bankr.N.D.Ill.2002) (“state court judgments entered in violation of an automatic stay in bankruptcy are void ab initio and subject to collateral attack.”).
It is not my role, nor that of the majority, to decide whether the bankruptcy court below erred in its August 19, 2003 order. It is not my role, nor that of the majority, to decide whether the previous Panel erred in affirming the bankruptcy court’s order. It is the role of this Panel to determine whether the debtor can proceed to the First Circuit Court of Appeals in forma pauperis, and I agree with the majority that a necessary predicate of such a finding is a determination that the debtor’s appeal is not frivolous. The majority say that this appeal is frivolous. Because I believe that the automatic stay issues described above present genuine issues of law, and no court has yet had the opportunity to properly address them, I do not agree that this appeal is frivolous and I respectfully dissent from the majority’s order denying in forma pauperis relief to the debtor.