Court Opinion

ID: 4239669
Source: CourtListenerOpinion
Date Created: 2018-01-26 17:00:29.740264+00
Date Added: 2024-06-11T14:43:30.194286
License: Public Domain

FILED
                                                                        United States Court of Appeals
                                          PUBLISH                               Tenth Circuit

                          UNITED STATES COURT OF APPEALS                     January 26, 2018

                                                                            Elisabeth A. Shumaker
                                 FOR THE TENTH CIRCUIT                          Clerk of Court
                             _________________________________

In re: ADAM PEEPLES; JENNIFER K.
PEEPLES,

        Debtors.

------------------------------

ADRIAN J. LEE; ANGELA LYNN
NOYES LEE,

        Plaintiffs Counter Defendants -
        Appellants,

v.                                                            No. 17-4046

SCOTT J. MCCARDLE, individually and
as trustee of the Jack and Ruth McCardle
Trust,

        Defendant Counterclaimant -
        Appellee.
                       _________________________________

                         Appeal from the United States District Court
                                   for the District of Utah
                               (D.C. No. 2:16-CV-00808-JNP)
                           _________________________________

Adrian J. Lee, Holladay, Utah, pro se and for Co-Appellant.

Daniel K. Brough, Bennett Tueller Johnson & Deere, Salt Lake City, Utah (Brigman L.
Harman, Bennett Tueller Johnson & Deere, Salt Lake City, Utah, with him on the brief)
for Appellee.
                      _________________________________

Before LUCERO, BACHARACH, and MORITZ, Circuit Judges.
                        _________________________________

MORITZ, Circuit Judge.
                    _________________________________

      Plaintiffs Adrian and Angela Lee1 asked the bankruptcy court to declare that

the automatic stay in Adam and Jennifer Peeples’ bankruptcy case applies to a

separate lawsuit Adrian Lee filed in state court against defendant Scott McCardle.

The Lees also asserted that the automatic stay prevented McCardle from collecting

attorney’s fees levied against Adrian Lee in that state-court lawsuit. The Lees further

sought damages against McCardle for willfully violating the automatic stay. The

bankruptcy court found—and the district court agreed—that the automatic stay didn’t

apply to the state-court lawsuit. Thus, it granted summary judgment to McCardle.

The Lees appeal, arguing that the district court erred in ruling that the automatic stay

didn’t apply. We don’t reach this question; instead, we vacate the district court’s

judgment against Angela Lee because she lacks Article III standing to bring this

lawsuit, and we affirm summary judgment against Adrian Lee because his claims

don’t fall within the Bankruptcy Code’s zone of interests.

                                            I

      In 2012, the Lees obtained a default judgment against the Peepleses for unpaid

rent and waste. In 2013, they obtained a second default judgment against the

Peepleses for fraud. The Lees then sought to collect on those judgments by

garnishing distributions that the Jack and Ruth McCardle Trust (the Trust) allegedly

      1
        Adrian Lee is a barred attorney who is representing himself and Angela Lee,
his wife, in this matter.
                                           2
owed Adam Peeples. Trustee Scott McCardle responded that Adam Peeples was only

an inconsequential beneficiary of the trust who wasn’t owed any distributions. Adrian

Lee then sued Scott McCardle in Utah state court, both individually and in Scott

McCardle’s capacity as trustee, essentially alleging that Scott McCardle’s undue

influence over Ruth McCardle prompted her to disinherit Adam Peeples in a

memorandum amending the Trust. Thus, Lee asserted that the memorandum must be

rescinded and that the Trust owed Adam Peeples overdue distributions dating back to

Ruth McCardle’s death in 2009. Lee sought to collect these distributions as Peeples’

judgment creditor.

       The state court dismissed the lawsuit because it determined Lee didn’t have

standing and, alternatively, the claims were time-barred. The state court further

ordered Lee to pay McCardle attorney’s fees and left the case open to determine

those fees. The Peepleses filed their bankruptcy petition while the state court was

calculating fees. Lee then argued that the automatic stay triggered by the Peepleses’

bankruptcy petition covered his lawsuit against McCardle and moved to stay further

proceedings. The state court denied the motion and entered judgment assessing

$41,889 in attorney’s fees against Lee.

      The Lees initiated this adversarial proceeding against McCardle in the

Peepleses’ bankruptcy case a week before the state court entered final judgment. The

Lees sought (1) a declaratory judgment to confirm that the automatic stay applied to

the state-court lawsuit and (2) damages from McCardle for willfully violating the

automatic stay. The Lees moved for partial summary judgment on the declaratory

                                           3
judgment and the issue of McCardle’s liability for violating the automatic stay. But

they reserved the issue of damages for trial. McCardle filed a cross-motion for full

summary judgment. The bankruptcy court held that the automatic stay didn’t apply to

the state-court lawsuit because Lee had asserted claims against McCardle, not Adam

Peeples. Thus, the bankruptcy court denied the Lees’ motion and granted

McCardle’s.2 The Lees appealed to the district court, which affirmed for substantially

the same reasons the bankruptcy court provided in its order.

                                           II

      When hearing an appeal from a district court’s review of a bankruptcy-court

order, “we independently review the bankruptcy court’s decision, applying the same

standard as the . . . district court.” Jubber v. SMC Elec. Prods., Inc. (In re C.W. Min.

Co.), 798 F.3d 983, 986 (10th Cir. 2015). We review bankruptcy-court orders

granting summary judgment in adversarial proceedings de novo, id., and affirm if

“there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Fed. R. Bankr. P. 7056

(applying Rule 56 to adversarial proceedings). The scope of the automatic stay is a

question of law that we review de novo regardless of the case’s posture. Johnson v.

Smith (In re Johnson), 575 F.3d 1079, 1082 (10th Cir. 2009). We also review

      2
        Only the order granting McCardle’s motion—not the order denying the Lees’
motion—is properly before us. See Poolaw v. Marcantel, 565 F.3d 721, 728 (10th
Cir. 2009) (“Orders . . . denying summary judgment are generally not final
appealable orders . . . .”).
                                            4
jurisdictional questions de novo. In re Special Grand Jury 89-2, 450 F.3d 1159, 1170

(10th Cir. 2006).

                                            A

      Initially, we must address whether Angela Lee has Article III standing to bring

this appeal. Article III standing is jurisdictional; thus, “where the record reveals a

colorable standing issue, we have a ‘duty to undertake an independent examination’

(sua sponte if necessary) of that issue.” United States v. Ramos, 695 F.3d 1035, 1046

(10th Cir. 2012) (quoting Morgan v. McCotter, 365 F.3d 882, 887 (10th Cir. 2004)).

Article III standing requires that a “plaintiff must have (1) suffered an injury in fact,

(2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is

likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 136 S.

Ct. 1540, 1547 (2016). The plaintiff bears the burden of “demonstrat[ing] that these

requirements are met” and must do so “before a federal court can review the merits of

a case.” Petrella v. Brownback, 697 F.3d 1285, 1293 (10th Cir. 2012).

      We discern no plausible basis for Angela Lee to assert Article III standing

here. The Lees’ alleged injury is the attorney’s fees the state court assessed against

Adrian Lee. But Adrian Lee was the sole plaintiff in the state-court lawsuit, and the

state court entered judgment for attorney’s fees against Adrian Lee alone. McCardle

alluded to this issue in his response brief on appeal, but the Lees made no attempt in

their reply brief to explain what injury in fact Angela Lee could have suffered. Nor

did they address Angela Lee’s standing at oral argument. Because the Lees fail to

demonstrate Angela Lee’s standing to bring this case, we vacate the judgment against

                                            5
her below and remand to the district court with directions to dismiss her claims. See

Colo. Outfitters Ass’n v. Hickenlooper, 823 F.3d 537, 544 (10th Cir. 2016) (declining

to consider arguments in favor of standing that the plaintiff failed to “adequately

brief[]”); id. at 554–55 (vacating order granting summary judgment and remanding

with directions to dismiss for lack of jurisdiction where plaintiffs failed to establish

Article III standing to bring claims).

                                            B

       Next, we address McCardle’s assertion that Adrian Lee’s claims fall outside

the zone of interests protected by the automatic stay.3 Although traditionally viewed

as a prudential- or statutory-standing requirement, the zone-of-interests doctrine isn’t

actually a matter of standing at all; instead, it merely asks whether a particular

federal cause of action “encompasses a particular plaintiff’s claim.” Lexmark Int’l v.

Static Control Components, Inc., 134 S. Ct. 1377, 1387 (2014); see also United

States v. Wells, 873 F.3d 1241, 1261 (10th Cir. 2017) (“[T]he question that courts

have misguidedly used the term ‘standing’ to describe . . . is really whether a

particular litigant is a member of a class that Congress has authorized to sue . . . .”).

To answer this question, “we presume that a statute ordinarily provides a cause of

action ‘only to plaintiffs whose interests fall within the zone of interests protected by

the law invoked.’” Bank of Am. Corp. v. City of Miami, 137 S. Ct. 1296, 1302 (2017)

       3
        Neither the bankruptcy court nor the district court addressed this preliminary
issue. But McCardle raised this issue to both courts below and does so again on
appeal, so we choose to address it. See Richison v. Ernest Grp., Inc., 634 F.3d 1123,
1130 (10th Cir. 2011) (explaining that “we may affirm on any basis supported by the
record, even if it requires ruling on arguments not reached by the district court”).
                                            6
(quoting Lexmark, 134 S. Ct. at 1388); see also Lexmark, 134 S. Ct. at 1388

(“Congress is presumed to ‘legislat[e] against the background of’ the zone-of-

interests limitation, ‘which applies unless it is expressly negated.’” (quoting Bennett

v. Spear, 520 U.S. 154, 163 (1997))).

       There’s no single test to determine whether a cause of action falls within a

statute’s zone of interests; rather “the breadth of the zone of interests varies

according to the provisions of law at issue.” Bennett, 520 U.S. at 163. Thus, in the

context of the Administrative Procedures Act (APA), under which zone-of-interests

issues often arise, the Supreme Court has “said that the test ‘forecloses suit only

when a plaintiff’s “interests are so marginally related to or inconsistent with the

purposes implicit in the statute that it cannot reasonably be assumed that”’ Congress

authorized that plaintiff to sue.” Lexmark, 134 S. Ct. at 1389 (quoting Match-E-Be-

Nash-She-Wish Band of Pottawatomi Indians v. Patchak, 567 U.S. 209, 225 (2012)).

But “what comes within the zone of interests of a statute for purposes of obtaining

judicial review of administrative action under the ‘generous review provisions’ of the

APA may not do so for other purposes.” Id. (quoting Bennett, 520 U.S. at 163). We

must therefore “us[e] traditional tools of statutory interpretation” to decide whether a

claim falls within a particular statute’s zone of interests. Id. at 1387.

       With this understanding of the zone-of-interests doctrine, we analyze whether

Lee’s claims fall within the Bankruptcy Code’s zone of interests. Lee asserts two

distinct claims: (1) a claim for a declaratory judgment pronouncing that 11 U.S.C.

§ 362(a) automatically stayed the state-court lawsuit and (2) a claim for damages

                                             7
under 11 U.S.C. § 362(k) for McCardle’s willful violation of that automatic stay. We

analyze these claims separately because these two subsections of § 362 don’t

necessarily share the same zone of interests.

                                              1

       Section 362(a) imposes an automatic stay when a debtor files a bankruptcy

petition. In relevant part, this stay prevents “the commencement or

continuation . . . of a judicial . . . action or proceeding against the debtor . . . or to

recover a claim against the debtor that arose before the commencement of the case

under [the Bankruptcy Code].” § 362(a)(1). Lee argues that the state-court lawsuit

was an action “to recover a claim against” Adam Peeples that was thus barred by the

automatic stay, and he seeks a declaratory judgment to that effect. But the only injury

Lee alleges is the judgment for attorney’s fees assessed against him. Before we reach

the merits of Lee’s argument, we address whether this injury is the type of injury that

falls within § 362(a)’s zone of interests.

       We impose a “stringent” zone-of-interests requirement (although we’ve

previously referred to it simply as a “standing requirement” instead) for appeals from

bankruptcy-court orders. Nintendo Co., Ltd. v. Alpex Comput. Corp. (In re Alpex

Comput. Corp.), 71 F.3d 353, 357 n.6 (10th Cir. 1995). Generally, appellants must

show that “the order [appealed from] diminishes their property, increases their

burdens, or impairs their rights.” Lopez v. Behles (In re Am. Ready Mix, Inc.), 14
F.3d 1497, 1500 (10th Cir. 1994) (alteration in original) (quoting GMAC v. Dykes (In

re Dykes), 10 F.3d 184, 187 (3d Cir. 1993)). Although Lee arguably meets this

                                              8
general standard, our case law holds that the automatic stay’s zone of interests is

even more limited.

       Specifically, in Lopez, we held that an unsecured creditor couldn’t appeal an

order lifting the automatic stay to allow a secured creditor to foreclose on the

debtor’s real property because the harms the creditor alleged didn’t fall within

§ 362(a)’s zone of interests.4 Id. at 1501. We explained that the creditor couldn’t

appeal the order because he didn’t have a direct interest in the property at issue, even

though he may have been harmed by any loss of value to the estate that could

ultimately affect his payout. We expounded that “the automatic stay is for the sole

benefit of the debtors’ estate . . . [and] it could subvert the [bankruptcy] trustee’s

powers to allow a creditor to appeal if the trustee chooses not to.” Id.; see also Tilley

v. Vucurevich (In re Pecan Groves of Ariz.), 951 F.2d 242, 244 (9th Cir. 1991) (“[I]f

the [bankruptcy] 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.”).

       The facts of this case present an even more compelling basis than did the facts

of Lopez for concluding that the party challenging the automatic stay hasn’t asserted

a harm within § 362(a)’s zone of interests. Although Lee is a creditor, he hasn’t

alleged that he’s been harmed in his capacity as a creditor. Clearly, McCardle’s

alleged automatic-stay violation doesn’t impair any of Lee’s claims against the

       4
        In Lopez we incorrectly characterized this as a standing issue. See Lopez, 14
F.3d at 1501; Lexmark, 134 S. Ct. at 1387.
                                             9
Peepleses’ bankruptcy estate. When the Peepleses’ bankruptcy case concludes and

their assets are divided among their creditors, Lee will receive the exact same payout

that he would have had the state-court lawsuit been stayed. Instead, Lee seeks to

protect himself from having to pay attorney’s fees assessed against him in a state-

court lawsuit. Lee’s goal thus falls outside the stay’s zone of interests. Cf. Magnoni v.

Globe Inv. & Loan Co., Inc. (In re Globe Inv. & Loan Co., Inc.), 867 F.2d 556, 560

(9th Cir. 1989) (holding that automatic stay’s zone of interests didn’t extend to

creditors whose injuries stemmed from their status as “aggrieved property owners,”

not creditors).

       Moreover, Lee doesn’t suggest that remedying his injury will benefit the

bankruptcy estate. Instead, he responds that his declaratory-judgment claim must fall

within the automatic stay’s zone of interests because otherwise he has no redress for

his injury (i.e. the state-court judgment). But this isn’t the case: Lee’s injury is the

state court’s assessment of attorney’s fees against him and he may appeal that order

in state court. In any event, Lee’s ability to redress his injury is irrelevant to the

zone-of-interests analysis. The very point of the zone-of-interests doctrine is that not

every injury traceable to the violation of a federal statute is remediable in the federal

courts. See Clarke v. Sec. Indus. Ass’n, 479 U.S. 388, 395–96 (1987) (describing

zone-of-interests doctrine as limiting causes of action where Congress didn’t

“intend[] to allow suit by every person suffering injury in fact” from statutory

violation). An injury in fact that is traceable to the defendant’s actions is already a

necessary condition for Article III standing. See Spokeo, 136 S. Ct. at 1547. If we

                                            10
accept Lee’s argument, then there could never be a case in which a plaintiff meets

Article III’s standing requirements but fails the zone-of-interests test; the test for

Article III standing would swallow the zone-of-interests doctrine. Cf. Thompson v. N.

Am. Stainless, LP, 562 U.S. 170, 177 (2011) (construing Title VII’s zone of interests

“more narrowly than the outer boundaries of Article III”).

       At oral argument, Lee further argued that he must necessarily have the power

to enforce the automatic stay because otherwise no one could. This isn’t true either;

the bankruptcy trustee could have enforced the automatic stay if doing so were in the

estate’s interest. And the bankruptcy trustee’s decision not to enforce the automatic

stay precisely illustrates the zone-of-interests doctrine’s application here: to the

extent that the bankruptcy trustee concludes that enforcing the automatic stay

wouldn’t benefit the estate, doing so would further no congressional purpose. Lee

certainly doesn’t suggest that Congress created the automatic stay to allow creditors

to avoid judgments for attorney’s fees they incurred while attempting to collect their

debts. Cf. Magnoni, 867 F.2d at 560 (“The appellants’ cause of action under section

362 is a disingenuous attempt to use the Bankruptcy Code to their advantage.”). We

therefore conclude that § 362(a)’s zone of interests doesn’t extend to Lee’s attempt to

avoid the attorney’s fees the state court assessed against him. Accordingly, we agree

that Lee’s declaratory judgment claim must be dismissed.

                                             2

       Whether Lee’s claim for damages falls within § 362(k)’s zone of interests is a

slightly different question. The language of § 362(k) suggests a broader reach than

                                            11
§ 362(a): it provides that “an individual injured by any willful violation of a stay

provided by this section shall recover actual damages.” § 362(k) (emphasis added).

Because the zone-of-interests doctrine presumes congressional intent to limit causes

of action, Congress can expand a statute’s zone of interests with language indicating

that a cause of action extends to a broader range of claims. See Lexmark, 134 S. Ct.

at 1388. But broad language doesn’t necessarily expand a statute’s zone of interests

to Article III’s limits. For example, the Supreme Court interpreted the language

“person aggrieved” in Title VII as incorporating the APA’s zone-of-interests test

instead of expanding upon it. Thompson, 562 U.S. at 178. So even though anyone

with Article III standing could conceivably be a “person aggrieved,” the Court

refused to assume that Congress intended Title VII’s zone of interests to extend to

those who are marginally harmed by workplace discrimination. See id. at 176–77.

       We read “individual” in § 362(k) similarly. “[T]he nature of bankruptcy

litigation . . . almost always implicates the interests of persons who are not formally

parties to the litigation.” Tilley, 951 F.2d at 245. Congress couldn’t possibly have

intended for anyone who is marginally injured by an automatic-stay violation to sue

for damages under § 362(k). Such claims are limited to those whose interests

Congress intended to protect with the automatic stay. See St. Paul Fire & Marine Ins.

Co v. Labuzan, 579 F.3d 533, 540 (5th Cir. 2009) (“If Congress intended to abrogate

the prudential standing requirement by enacting § 362(k), that intent is not expressed

clearly.”).

                                           12
       As we explained above, the automatic stay is for the benefit of the estate. But

the term “individual” at least suggests that § 362(k) is meant for some party or parties

other than the bankruptcy trustee.5 The most logical conclusion is that § 362(k)

creates a cause of action for debtors and creditors. As the Fifth Circuit explained, the

automatic stay’s specific purposes are to protect the debtor from collection efforts

and to protect creditors from inequitable treatment. See St. Paul Marine & Fire Ins.,
579 F.3d at 540. So § 362(k)’s zone of interests extends to debtors and creditors

when they allege those types of harms. But when a creditor alleges an injury in some

capacity other than as a creditor, the automatic stay’s goal of ensuring equal creditor

treatment isn’t implicated. See id. at 545 (“[T]he Labuzans, as pre-petition creditors

of CTL, have standing to assert a claim against St. Paul . . . [but] to the extent the

Labuzans’ claims are based on their status as owners/equity holders of CTL, § 362(k)

cannot be invoked.”); In re Ampal-Am. Isr. Corp., 502 B.R. 361, 371 (Bankr.

S.D.N.Y. 2013) (“In other words, the fact that someone is a pre-petition creditor is

not a foot in the door that allows the creditor to recover damages for injuries suffered

to its non-creditor interests.”).

       As explained above, Lee may be the Peepleses’ creditor, but McCardle’s

alleged automatic-stay violation didn’t harm him in that capacity. Lee’s claim for

damages therefore falls outside of § 362(k)’s zone of interests. Accordingly, we agree

that Lee’s § 362(k) claim must be dismissed.

       5
           The Bankruptcy Code doesn’t define “individual.” See 11 U.S.C. § 101.
                                            13
                                     *         *   *

      The interests that led Congress to create the automatic stay simply aren’t

harmed when a state court assesses attorney’s fees against a creditor. Because

devoting further attention to Adrian Lee’s claims wouldn’t further congressional

policy, those claims aren’t within the automatic stay’s zone of interests and therefore

he may not assert them. We thus affirm the district court’s judgment against Adrian

Lee. But because Angela Lee hasn’t established that she has Article III standing, we

vacate the district court’s judgment against her and remand with instructions to

dismiss her claims for lack of jurisdiction.

                                           14