Court Opinion

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Opinions of the United
1997 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

2-11-1997

McCartney v. Integra Natl Bank N
Precedential or Non-Precedential:

Docket 96-3023

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       THE UNITED STATES COURT OF APPEALS
             FOR THE THIRD CIRCUIT

                   __________

                  No. 96-3023
                   __________

              LAMAR A. MCCARTNEY,

                            Appellant

                       v.

          INTEGRA NATIONAL BANK NORTH,
      Successor to McDOWELL NATIONAL BANK;
         GARY J. GAERTNER, U.S. TRUSTEE

                            Appellee

                   __________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
   FOR THE WESTERN DISTRICT OF PENNSYLVANIA
             (D.C. No. 94-cv-00984)
                   __________

            Argued October 24, 1996

BEFORE: STAPLETON and NYGAARD, CIRCUIT JUDGES AND
            MAZZONE, District Judge*

       (Opinion Filed February 11, 1997)

                     Donald R. Calaiaro (Argued)
                     Calaiaro, Corbett and Bower
                     1105 Grant Building
                     Pittsburgh, Pa. 15219

                     Counsel for Appellant

                     P. Raymond Bartholomew (Argued)
                     701 North Hermitage Road
                     Hermitage, Pa. 16148

                     Counsel for Appellee Integra
                     National Bank, Sucessor to McDowell
                     National Bank

                     William F. Pineo
                     764 Park Drive

                       1
                                 P.O. Box 598
                                 Meadville, Pa.    16335

                                 Counsel for Chapter 7 Trustee
                                 For McCartney

*    The Honorable A. David Mazzone, Senior District Judge for
the District of Massachusetts sitting by designation.

Nygaard, Circuit Judge:

     The district court affirmed a bankruptcy court's order

denying a motion for summary judgment on an objection debtor-

appellant Lamar McCartney filed to Integra National Bank's proof

of claim.   McCartney argues on appeal that the bankruptcy court

erred by not discharging the debt he owes to Integra.       We will

affirm.

                                  I.

     The facts are undisputed.    On September 26, 1989, Integra

loaned $80,000 to Lamar’s Restaurant & Lounge, Inc., which was

guaranteed by the Small Business Administration.       As security for

the loan, Lamar’s granted Integra a first mortgage on Lamar’s

corporate property.   McCartney guaranteed the loan to Lamar’s by

granting Integra a second mortgage lien on land owned by him

individually.

     In May 1992, McCartney filed a voluntary petition under

Chapter 13 of the Bankruptcy Code.       He then filed a motion to

sell Lamar’s corporate property.       At the conclusion of the sale

hearing, McCartney's Amended Plan for Reorganization was adopted

as an Interim Plan, pending a status report.       The parties and the

court agreed at the sale hearing that Integra, acting with the

                                  2
SBA, would put Lamar’s corporate property through a sheriff's

sale to determine what deficiency, if any, McCartney, as

guarantor of Lamar’s loan, owed to Integra.

     Fearing that the sheriff’s sale would not occur until after

the bar date in McCartney’s bankruptcy proceeding, Integra filed

Proof of Claim No. 6 in the amount of $38,564.66 against

McCartney’s individual property pledged as collateral for Lamar’s

loan.    The state court subsequently sold Lamar’s corporate

property.    Integra purchased Lamar’s corporate property at the

sale for costs and taxes.    Integra then resold the property and

agreed to modify its proof of claim to show a deficiency of

$29,638.14 plus interest and attorney’s fees.

     Almost ten months later, McCartney filed an objection to

Integra’s proof of claim, asserting that Integra’s claim on

Lamar’s underlying debt was satisfied as a matter of law because

Integra failed to file a petition to fix the fair market value of

the property within six months of the sheriff’s sale as required

under the Pennsylvania Deficiency Judgment Act, 42 Pa.C.S.A. §

8103.    Both parties filed cross-motions for summary judgment,

which the bankruptcy court denied.1

     1
       On April 12, 1994, the bankruptcy court heard argument on
the valuation of Lamar’s property sold at the sheriff’s sale. On
May 3, 1994, the court determined that the value of the Lamar’s
property was $20,000 and directed Integra to recalculate its
deficiency claim based on this value. On July 20, 1994, the
bankruptcy court converted the Debtor’s Chapter 13 case to a
Chapter 7 case. Since then, the Chapter 7 Trustee has sold some
of McCartney’s other property and applied the net proceeds to the
debt owed to Integra. As a result, it appears that the balance
due Integra has been reduced to $4,379.88 plus interest and
additional attorney’s fees.

                                 3
                                II.

       On appeal, McCartney asserts that the bankruptcy court erred

by concluding that the automatic stay provision of the Bankruptcy

Code, 11 U.S.C. § 362, precluded Integra from complying with the

requirements of the DJA.    More specifically, McCartney maintains

that the automatic stay applies only to actions commenced against

McCartney himself, and therefore, the stay imposed in his

bankruptcy did not prevent Integra from seeking a deficiency

judgment against Lamar’s within the time permitted under the DJA.

 Since Integra failed to file a petition in state court to fix

the fair market value of Lamar’s corporate property within six

months of the sheriff’s sale, McCartney argues, Integra’s claim

against Lamar’s is deemed released and satisfied as a matter of

law.    As a consequence, McCartney contends that he, as guarantor,

is also discharged from any deficiency remaining on Integra’s

loan to Lamar’s.    Thus, McCartney concludes, Proof of Claim No. 6

filed by Integra in his bankruptcy should be stricken.

                                III.

       Under Pennsylvania law, every judgment creditor who forces

real estate to be sold in an execution sale must comply with the

DJA to protect its claim to any unpaid balance remaining after

the sale.    42 Pa.C.S.A. § 8103.       Under the DJA, the judgment

creditor has six months after the debtor’s collateral is sold in

which to petition the court to fix the fair market value of the

real property.    42 Pa.C.S.A. § 5522(b).       Failure to file a

petition within this time period “creates an irrebuttable

presumption that the creditor was paid in full in kind.”            Valley

                                    4
Trust Co. of Palmyra v. Lapitsky, 488 A.2d 608, 611 (Pa. Super.

Ct. 1985).   This presumption serves to discharge all parties

either directly or indirectly liable to the judgment creditor for

payment of the debt, including guarantors.   42 Pa.C.S.A. §

8103(d); see also Commonwealth Bank and Trust Co. v. Hemsley, 577
A.2d 627, 631 (Pa. Super. Ct.), alloc. denied, 583 A.2d 793 (Pa.

1990).

     Significantly, to comply with the requirements of the DJA,

the judgment creditor must either (1) name in the petition, or

(2) give notice to, any “debtor, obligor, guarantor, mortgagor,

and any other person directly or indirectly liable to the

judgment creditor for the payment of the debt.”    42 Pa.C.S.A.

§8103(b).    Default on this notice requirement discharges all

personal liability to the judgment creditor for parties neither

served with notice nor named in the petition.   Id.

     It is undisputed that Integra has never filed a petition in

state court to fix the fair market value of Lamar’s property sold

at the sheriff’s sale.    Under normal circumstances, failing to

file a petition would discharge whatever remaining debt Lamar’s

owed to Integra.    Moreover, Integra’s failure to meet the

statutory requirements of the DJA would also normally discharge

McCartney’s guarantee of Lamar’s debt because, as a matter of

law, there is no underlying debt owing to Integra.

     This case, however, does not present a normal situation

where the DJA can be applied by its literal terms.    As the

bankruptcy court rightly noted, when McCartney filed for

bankruptcy, the automatic stay provision of 11 U.S.C. § 362(a)

                                 5
was triggered and effectively precluded Integra from state court

actions of any type against McCartney.    Consequently, McCartney

cannot use Integra’s failure to comply with the DJA to avoid the

proof of claim Integra filed against him.

     Section 362(a) of the Code operates to stay
... (1) the commencement or continuation, including the issuance
     or employment of process, of a judicial, administrative, or
     other action or proceeding against the debtor that was or
     could have been commenced before the commencement of the
     case under this title, or to recover a claim against the
     debtor that arose before the commencement of the case under
     this title . . . .

11 U.S.C. § 362(a)(1) (1996).    The automatic stay serves several

purposes.    The stay gives a debtor a breathing spell from

creditors by stopping all collection efforts and all foreclosure

actions.    Maritime Elec. Co., Inc. v. United Jersey Bank, 959
F.2d 1194, 1204 (3d Cir. 1991) (citation omitted).    In this

respect, the stay permits the debtor to attempt a repayment or

reorganization plan; or it simply relieves the debtor of the

financial pressures that drove him into bankruptcy.     Id. at 1204.

 The stay also protects creditors by preventing particular

creditors from acting unilaterally to obtain payment from a

debtor to the detriment of other creditors.    Id. (citation
omitted).

     Although the scope of the automatic stay is broad, the clear

language of section 362(a) stays actions only against a “debtor.”

Id. (citing Association Of St. Croix Condominium Owners v. St.

Croix Hotel Corp., 682 F.2d 446, 448 (3d Cir. 1982)).    As a

consequence, “[i]t is universally acknowledged that an automatic

stay of proceedings accorded by § 362 may not be invoked by

                                 6
entities such as sureties, guarantors, co-obligors, or others

with a similar legal or factual nexus to the . . . debtor.”     Id.

at 1205 (quoting Lynch v. Johns-Manville Sales Corp., 710 F.2d
1194, 1196-97 (6th Cir. 1983)); see also United States v. Dos

Cabezas Corp., 995 F.2d 1486, 1491-93 (9th Cir. 1993) (holding

that stay does not preclude government from pursuing deficiency

judgment against nondebtor cosignors of promissory note); Croyden

Associates v. Alleco, Inc., 969 F.2d 675, 677 (8th Cir. 1992)

(refusing to extend stay to claims against solvent codefendants),

cert. denied sub nom, Harry and Jeanette Weinberg Foundation,

Inc. v. Croyden Associates, 507 U.S. 908 (1993); Credit Alliance

Corp. v. Williams, 851 F.2d 119, 121-22 (4th Cir. 1988)

(enforcing a default judgment entered against a nondebtor

guarantor of a note during the pendency of the corporate

obligor’s bankruptcy).   As one court has reasoned, a primary

rationale for refusing to extend the automatic stay to

nonbankrupt third parties is to insure that creditors obtain “the

protection they sought and received when they required a third

party to guaranty the debt.”    Credit Alliance, 851 F.2d at 121;

accord In re F.T.L., Inc., 152 B.R. 61, 63 (Bankr. E. D. Va.
1993).

     This prohibition, however, has been liberalized in a number

of cases where courts have applied the automatic stay protection

to nondebtor third parties.    Relying on A.H. Robins Co., Inc. v.

Piccinin, 788 F.2d 994, 999 (4th Cir.), cert. denied, 479 U.S.
876 (1986), these courts have extended the automatic stay to

nonbankrupt codefendants in “unusual circumstances.”   As the case

                                 7
law demonstrates, courts have found “unusual circumstances” where

“there is such identity between the debtor and the third-party

defendant that the debtor may be said to be the real party

defendant and that a judgment against the third-party defendant

will in effect be a judgment or finding against the debtor.”     Id.

at 999 (relying on both the automatic stay provision and the

bankruptcy court’s equitable powers under 11 U.S.C. § 105 to

enjoin actions against nondebtor codefendants in the Dalkon

Shield products liability litigation because of the potential

impact on the estate and the availability of insurance proceeds

to satisfy the claims); see also, In re American Film

Technologies, Inc., 175 B.R. 847, 855 (Bankr. D. Del. 1994)

(staying prosecution of wrongful discharge claims against former

and present directors of debtor corporation because of debtor’s

indemnification obligations and its possible exposure to

collateral estoppel prejudice); In re Family Health Services,

Inc., 105 B.R. 937, 942-43 (Bankr. C. D. Cal. 1989) (staying

collection actions against nondebtor members of debtor HMO

because judgments against nondebtors would trigger claims for

indemnification from the debtor HMO).

     Courts have also extended the stay to nondebtor third

parties where stay protection is essential to the debtor’s

efforts of reorganization.   See, e.g., In re Lazarus Burman
Associates, 161 B.R. 891, 899-900 (Bankr. E. D. N.Y. 1993)

(enjoining guaranty actions against nondebtor principals of

debtor partnerships because principals were the only persons who

could effectively formulate, fund, and carry out debtors’ plans

                                8
of reorganization); In re Steven P. Nelson, 140 B.R. 814, 816-17

(Bankr. M. D. Fla. 1992) (enjoining actions against nondebtor

guarantor of debtor corporation’s obligations where guarantor was

president of debtor and president's services, expertise and

attention were essential to the reorganization of the debtor);

see also, Paul H. Deutch, Expanding The Automatic Stay:

Protecting Nondebtors In Single Asset Bankruptcies, 2 Am. Bankr.

Inst. L. Rev. 453 (1994).

       Here, McCartney argues that the automatic stay only applied

to him in his individual capacity, not to Lamar’s.   As such, he

maintains that Integra was not stayed from pursuing a deficiency

judgment in state court against Lamar’s, as required under the

DJA.    In response, Integra concedes that under normal

circumstances the automatic stay does not preclude creditors from

pursuing their right to payment from nondebtor third parties.

Indeed, Integra notes that, acting in compliance with this

general rule, it pursued Lamar’s to foreclosure and sheriff’s

sale.    However, Integra asserts that it could not have proceeded

any further against Lamar’s to obtain a deficiency judgment

because it would have been required under the terms of the DJA to

name McCartney as a respondent in the petition and thereby

violate the automatic stay protecting him.   The bankruptcy court

found Integra’s argument to be persuasive and reasoned that

permitting Integra to name McCartney in a deficiency judgment

action in state court at the same time that his bankruptcy case

was pending would defeat the purpose of § 362 to centralize all

prebankruptcy civil claims against a debtor in the bankruptcy

                                 9
court.   In re McCartney, 165 B.R. 18, 21 (Bankr. W. D. Pa. 1994).

     We agree.   It is undisputed that, had Integra sought a

deficiency judgment against Lamar’s, it would have been required

under the DJA to name McCartney as a respondent in its petition

or risk discharging him as loan guarantor.    It is also undisputed

that, had Integra named McCartney as a respondent in a deficiency

action against Lamar’s, it would have clearly violated the

automatic stay in place in his bankruptcy.    Moreover, it is clear

that following the sheriff’s sale, Lamar’s, as a corporate

entity, no longer had any assets.    Consequently, McCartney, as

guarantor, would have been liable for satisfying any deficiency

judgment claim asserted by Integra.    Simply stated, there was no

way for Integra to pursue a deficiency judgment action against

Lamar’s and to protect its right to satisfaction of Lamar’s debt

without involving McCartney in the process.

     Given McCartney’s necessary participation in any deficiency

judgment action initiated by Integra against Lamar’s in state

court, we find that the bankruptcy court properly concluded that

the automatic stay extended to enjoin Integra from complying with

the requirements of the DJA.   This case falls squarely under the

“unusual circumstances” exception as developed in A.H. Robins and

its progeny: any deficiency judgment recovery from Lamar’s would

have necessarily impacted upon McCartney’s estate.    Indeed,

because McCartney, as guarantor, was secondarily liable for any

deficiency entered against Lamar’s, and Lamar’s, following the

foreclosure and sheriff’s sale, had no assets, McCartney would

have been the real party defendant in a deficiency judgment

                                10
action by Integra against Lamar’s.        Any deficiency judgment

entered against Lamar’s would have operated as a judgment or

finding against him; an outcome clearly in tension with the

purposes of the automatic stay.       Accordingly, Integra was stayed

from pursuing a deficiency judgment action against the nondebtor

third party Lamar’s because McCartney was, in essence, the real

party in interest.

                                    IV.

        Assuming, arguendo, that the automatic stay precluded

Integra from pursuing a deficiency judgment action in state

court, McCartney asserts that Integra should have sought relief

from the automatic stay to allow it to name both Lamar’s and

McCartney in a deficiency judgment petition.        This same argument

was considered and rejected in In re Wilkins, 150 B.R. 127

(Bankr. M. D. Pa. 1992), an opinion we find instructive.

        In Wilkins, the creditor sought relief from an automatic

stay to commence a deficiency judgment action under the DJA

against both the debtor and nondebtor obligors.        The court denied

the creditor’s motion for two primary reasons.        First, the court

held that 11 U.S.C. § 108(c) specifically extends the six-month

limitation period for deficiency judgment actions under 42

Pa.C.S.A. § 5522(b).2      Id. at 128.    Thus, contrary to the
        2
            Section 108(c) of the Bankruptcy Code reads, in pertinent
part:

[I]f applicable nonbankruptcy law . . . fixes a period
for commencing or continuing a civil action in a court other than
a bankruptcy court on a claim against the debtor, . . . and such
period has not expired before the date of the filing of the
petition, then such period does not expire until the later of--

                                    11
creditor’s argument, the Wilkins court found no urgency that the

debtor’s obligation to the creditor would be discharged unless

the creditor received relief from stay and filed a deficiency

petition within the six month limitation period.      Second, the

court noted that the deficiency issues were likely to be settled

in the bankruptcy court and consequently, there was no reason for

the debtor to defend litigation in state court that could be

settled in the bankruptcy forum.     Id. at 128-29.   In this

respect, the court expressed its concern that the debtor not be

“burdened by litigation and resulting legal fees if unnecessary

at this time.”   Id. at 129.3

     We agree with the Wilkins court that debtors should not be

burdened by state court litigation when deficiency judgment

actions impacting upon the debtor’s estate can be settled in the

bankruptcy forum.   Indeed, to permit state court deficiency

judgment actions involving the debtor to proceed when they can be

(1) the end of such period, including any suspension of such
          period occurring on or after the commencement of the
          case; or

(2) 30 days after notice of the termination or expiration of the
          stay under section 362 . . . with respect to such
          claim.

     3
       The court also held that the creditor must commence a
deficiency judgment action against the nondebtor obligors within
the six-month limitation period permitted by state law. Wilkins,
150 B.R. at 128. Significantly, however, the court expressly
noted that permitting the creditor to proceed against the
nondebtor obligors would have no impact upon the debtor’s
deficiency liability, and that the assets of the nondebtors could
be collected without risk of discharging the debtor pursuant to
the DJA. Id. Thus, unlike the present case, the Wilkins court
found no “unusual circumstances” that would warrant extending the
automatic stay to the nondebtor obligors.

                                12
adjudicated in the bankruptcy court is to do violence to the

purposes of the automatic stay.    As discussed earlier, by

centralizing all prebankruptcy civil claims against a debtor in

the bankruptcy court, the debtor is granted a “breathing spell”

during which he is relieved of the financial pressures that drove

him to bankruptcy.   Maritime, 959 F.2d at 1204.    The

centralization of all claims in the bankruptcy court also permits

the assets of the debtor’s estate to be marshaled for

distribution to creditors in an orderly and equitable fashion.

Id. (citation omitted).     These benefits of the automatic stay

could not be achieved if creditors are permitted relief from stay

to pursue state court deficiency judgment actions impacting on

the estate of the debtor.    Debtors would be forced to expend

valuable time, energy and resources defending against state court

litigation that could be settled directly in the bankruptcy

court.4

     Moreover, we fail to see how McCartney was harmed by

Integra’s failure to seek relief from the automatic stay.     As the

record clearly demonstrates, the bankruptcy court held a

valuation hearing and heard argument concerning the fair market

value of Lamar’s property sold at the sheriff’s sale.     The court

subsequently entered an order finding the value of Lamar’s

     4
       We note also that considerations of judicial economy weigh
against granting creditors relief from stay to pursue state court
deficiency judgment actions that impact upon the estate of the
debtor and could be settled in the bankruptcy court. Indeed, the
time, energy and resources of the courts are no less valuable
commodities to preserve when it is possible to litigate a claim
in one forum instead of two.

                                  13
property to be $20,000 and directing Integra to recalculate its

deficiency claim based on that value.   Thus, the bankruptcy court

afforded McCartney an opportunity to present evidence and

testimony at a hearing specifically convened to determine the

fair market value of the property sold at the sheriff’s sale.

This is precisely the same opportunity to be heard that McCartney

would have been granted in a state court deficiency judgment

action commenced under the DJA.    See 42 Pa.C.S.A. § 8103(c)(4).

In addition, the bankruptcy court’s determination of the fair

market value of the Lamar’s property resulted in a decrease in

the deficiency claim owing to Integra, further demonstrating that

McCartney was not harmed by Integra’s failure to seek relief from

the stay.   Insofar as McCartney would have us find that he was

prejudiced by his inability fully to escape liability for his

guaranty, as may have been possible under the DJA, we decline to

do so.   We will not transmogrify the DJA into a means for

guarantors to escape liability from their guaranties.5

     5
       See Fidelity Bank, N.A. v. Bourger, 663 A.2d 213, 214 (Pa.
Super. Ct. 1995), alloc. denied, 670 A.2d 142 (Pa. 1996), holding
that the purpose of the Deficiency Judgment Act is

to relieve a debtor of further personal liability to the
          creditor, if the real property taken by the creditor on
          an execution has a “fair market value”, [sic] as of the
          date of the execution sale, sufficient so that the
          creditor may dispose of the property to others (or
          even, sometimes, use it himself) without a net loss to
          the creditor[.]

(citations and internal quotations omitted) (emphasis added).

                                  14
Accordingly, we conclude that none of McCartney’s substantive

rights were prejudiced by Integra’s failure to seek relief from

the automatic stay.

                               V.

     In his final argument, McCartney asserts that the bankruptcy

court erred by holding that 11 U.S.C. § 108(c) operated to

suspend the limitations period for initiating a deficiency

judgment action in state court pursuant to the DJA.    Because we

have already determined that Integra was stayed from pursuing a

deficiency judgment action in state court against either Lamar’s

or McCartney, we need not decide this issue.   Nonetheless, we

note parenthetically that the Pennsylvania Superior Court has

unequivocally held that, under 11 U.S.C. § 108(c)(2), the six

month limitation period for the filing of a deficiency petition

pursuant to the DJA does not expire until thirty days after

notice of the termination of the automatic stay.    Citizens

National Bank of Evans City v. Gold, 653 A.2d 1245, 1247-48 (Pa.

Super. Ct. 1995) (citing Wilkins); accord In re C.K. Smith, 192
B.R. 397, 399-400 (Bankr. W. D. Pa. 1996).

                              VI.

     In summary, we are satisfied that Integra took all the steps

legally possible to protect its rights to a deficiency claim

against McCartney as guarantor of Lamar’s debt.    Integra filed a

proof of claim in McCartney’s bankruptcy proceeding and pursued

Lamar’s to foreclosure and sheriff’s sale.   Since any other

action to collect on the deficiency would have necessarily

involved McCartney, Integra could not proceed further without

                               15
either violating the automatic stay or sacrificing its deficiency

claim against McCartney as guarantor of Lamar’s debt.    We

conclude that Integra was stayed from initiating a deficiency

judgment action against Lamar’s and McCartney in state court.

Accordingly, we will affirm the order of the district court.

MCCARTNEY V. INTEGRA NATIONAL BANK NORTH, ETC. - NO. 96-3023

STAPLETON, J., concurring.

     McCartney argues that the DJA released his guaranty

obligation to Integra when the bank failed to institute a

deficiency proceeding naming him as a guarantor within six months

of its purchase of the property at the execution sale.    This is

an untenable position.   The automatic stay provision of the

Bankruptcy Code, 11 U.S.C. § 362, clearly would be undermined by

the enforcement in this situation of that portion of the DJA

releasing a guarantor who is not so named.   42 Pa. C.S.A.

§ 8103(b).   If the court were willing to rest its decision on

this ground, I would join without comment.   The court says a

great deal more, however, and I am, accordingly, unable to join

in its opinion.

     It is unnecessary for the court to address the issue of

whether the DJA in this situation has the effect of releasing

Lamar's Restaurant & Lounge's obligation to Integra.

Accordingly, I would not address that issue.   Were it necessary

                                16
for the court to address it, however, I would find no

justification for concluding, as does the court, that the

automatic stay provision deprives a primary obligor not in

bankruptcy of the benefit that the DJA intended it to have. There

are simply no "unusual circumstances" warranting an exception

from the general rule that § 362 applies only to a debtor in

bankruptcy.   The court's conclusion to the contrary, while it

makes no difference here, is likely to lead to mischief in the

context of other cases.

     As the court persuasively demonstrates, there can be no

question that giving full effect to the DJA would undercut the

objective of the automatic stay of § 362.    There is thus a

conflict here between state law and bankruptcy law that must be

resolved.   Under the Supremacy Clause, in cases of irreconcilable

conflict, state law must give way.    This does not, however, give

a court an unlimited license to decline enforcement of state

rules of decision.   The court must look for the accommodation

which will secure the objective of the bankruptcy law and, at the

same time, intrude least on the objective or objectives

underlying the state law rule.

     The accommodation that this approach counsels here requires

the following conclusions:
     (a) The objective of § 362 can be secured by holding
     unenforceable that portion of the DJA which requires
     the creditor to join the bankrupt guarantor in the DJA
     proceeding upon pain of losing his claim against the
     bankrupt guarantor. It would necessarily follow that
     the bankrupt guarantor would not be bound by the
     deficiency determination unless he chose, with court
     approval, to participate. It also follows that the
     bankrupt guarantor can be pursued in bankruptcy court
     during the period specified in § 108(c) of the

                                 17
     Bankruptcy Code, even though the creditor may not be
     successful if the claim has been discharged for some
     reason other than this portion of the DJA.

     (b) There is nothing inconsistent between § 362 and
     that portion of the DJA that requires an executing
     creditor to file a deficiency proceeding against the
     primary debtor in order to preserve his claim against
     the primary debtor. Giving effect to this portion of
     the DJA would be consistent with the rationale of
     Maritime Electric Co. v. U.S. Jersey Bank, 959 F.2d
1194 (3d Cir. 1991). Moreover, as I have noted, I find
     nothing in the Code that would justify depriving the
     primary debtor of the protection of the DJA.

     The difference between these conclusions and those reached

by the court is not material here because McCartney argues only

that he was released under the terms of the DJA.   He does not

argue that he was released by the effect which Pennsylvania law

accords an instrument having the terms of his note.6   The

difference between my conclusions and those of the court would be

important, however, if it appeared that Pennsylvania follows the

generally accepted rules regarding the effect on a guarantor of

releasing the primary debtor and if the plaintiff were relying on

that law.

     We have no occasion here to comment on Pennsylvania's rule,

but the generally accepted rule is that a "party who holds a

contract of guaranty may by his act release the guarantor, even

though he may not intend to do so.   A guarantor [, for example,]

is discharged by operation of law from further liability by any

act which extinguishes the principal obligation . . . ."     38A

6 The appendix does not contain what McCartney refers to as his
note of guaranty, and he cites no Pennsylvania case law on
whether and under what circumstances release of the primary
obligor releases a guarantor or surety, etc.

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C.J.S. Guaranty § 83 at 642 (1996).    I perceive no inconsistency

between the Bankruptcy Code and a state law rule which permits

parties to bargain for an arrangement such that the guarantor

will be liable only if the primary debtor is not released by the

creditor.   It necessarily follows that there is nothing

inconsistent between the bankruptcy law and enforcement of this

generally accepted state law rule.    It would thus be permissible

to hold in an appropriate case that a creditor in a state with

such a rule releases his claim against a guarantor in bankruptcy

if it allows its rights against the primary debtor to lapse by

failing to pursue a DJA type proceeding within six months.

     I realize that such a holding would mean that a creditor in

such a state would have to pursue the primary debtor in a

deficiency proceeding even where it has little or no hope of

being able to collect from the primary debtor.   But that is a

policy choice made in statutes like the DJA, and we have no

justification for rejecting that policy choice and no basis for

drawing a line between cases where the primary debtor has no

assets, a few assets, or many assets but perhaps not enough to

cover the judgment.

     The statutory provisions relied on by McCartney are

preempted by federal bankruptcy law.   I would affirm the judgment

of the district court for that reason.

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