Court Opinion

ID: 4551631
Source: CourtListenerOpinion
Date Created: 2020-07-28 22:00:47.492781+00
Date Added: 2024-06-11T08:40:38.801740
License: Public Domain

FILED
                                                                            JUL 28 2020
                           NOT FOR PUBLICATION
                                                                       SUSAN M. SPRAUL, CLERK
                                                                          U.S. BKCY. APP. PANEL
                                                                          OF THE NINTH CIRCUIT

          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

In re:                                               BAP No. AZ-19-1332-LBT
MARK E. STUART,
              Debtor.                                Bk. No. 2:19-bk-5481-BKM
MARK E. STUART,
              Appellant,
v.                                                   MEMORANDUM*
CITY OF SCOTTSDALE; ERIC
ANDERSON, Assistant City Attorney;
VAIL C. CLOAR; KATHERINE
ANDERSON SANCHEZ,
              Appellees.

             Appeal from the United States Bankruptcy Court
                        for the District of Arizona
          Honorable Brenda K. Martin, Bankruptcy Judge, Presiding

Before: LAFFERTY, BRAND, and TAYLOR, Bankruptcy Judges.

                                 INTRODUCTION

      Chapter 131 debtor Mark Stuart appeals the bankruptcy court’s

      *
        This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
      1
      Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, “Rule” references are to the Federal Rules of
Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil
                                                                           (continued...)
orders: (1) denying his motions for damages under § 362(k) and contempt

sanctions against appellees; and (2) denying his motion for reconsideration.

      After Mr. Stuart filed his chapter 13 case, appellee City of Scottsdale

(the “City”) filed in the Arizona Court of Appeals a notice of the

bankruptcy filing and a request to stay Mr. Stuart’s pending appeal of a

pre-petition judgment in favor of the City. The court of appeals paused2 the

appeal pending Mr. Stuart’s advising it of any bankruptcy court order

terminating the stay or dismissing the bankruptcy case.

      Mr. Stuart, through counsel, filed a status report indicating that his

bankruptcy attorney would be moving for relief from stay “shortly,” but no

such motion was filed. Instead, after taking no action for months,

Mr. Stuart demanded that the City do so. When the City did not respond,

he filed a motion in the bankruptcy court for damages under § 362(k) and a

separate motion for contempt against the City and its attorneys, arguing

that the City’s motion to pause the state court appeal violated the

automatic stay. The bankruptcy court found that the automatic stay did not

apply to the state court appeal and that the City’s action in filing the

motion to pause the appeal was not a willful stay violation because it was

      1
      (...continued)
Procedure.
      2
       Like the bankruptcy court, we will refer to the court of appeals’ proceeding as
being “paused” rather than “stayed” to avoid confusing the state court’s order with the
automatic bankruptcy stay.

                                           2
essentially a notification to the court of appeals that Mr. Stuart had filed the

bankruptcy case. The court therefore denied both motions. Mr. Stuart

moved for reconsideration, which the bankruptcy court also denied.

      We AFFIRM.

                          FACTUAL BACKGROUND3

      In January 2018, the City obtained a judgment against Mr. Stuart in

Arizona state court. He appealed the judgment to the Arizona Court of

Appeals. On May 4, 2019, while that appeal was pending, Mr. Stuart filed a

chapter 13 bankruptcy case. About a week later, the City filed in the court

of appeals a document entitled “Appellee’s Notice of Bankruptcy Filing

and Request to Stay Proceedings” (“Notice”). The Notice stated:

            City of Scottsdale (“the City”), by and through
      undersigned counsel, hereby moves this court for an order
      staying all matters in these proceedings including the oral
      argument currently set for June 11, 2019.

            Undersigned has been informed that the
      Appellant/Judgment Debtor, Mark Stuart, filed a Voluntary
      Petition for Chapter 13 Bankruptcy in the United States
      Bankruptcy Court, for the District of Arizona, on May 4, 2019,
      case number 2:19-bk-05481-BKM. Among other things, the
      issues in this matter include a judgment against Mark Stuart. In
      accordance with the “automatic stay” of 11 U.S.C. § 362, the

      3
        The parties did not provide a complete record. We have therefore exercised our
discretion to examine the bankruptcy court’s docket and imaged papers. Woods &
Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).

                                           3
      City requests that all pending matters in this case, including
      any scheduled hearings, be stayed pending resolution from the
      bankruptcy proceedings.

      In response, the court of appeals issued an order to show cause

(“OSC”) ordering Mr. Stuart to show cause why the appeal should not be

paused. Mr. Stuart, through counsel, filed a response to the OSC, arguing

that the bankruptcy stay did not apply to the appeal because it was an

action brought by the debtor and that the City lacked standing to enforce

the stay in the court of appeals; he also requested sanctions against the City

under Rule 25 of the Arizona Rules of Civil Appellate Procedure for filing a

frivolous motion. On May 23, 2019, the court of appeals paused the appeal

and directed Mr. Stuart “to advise this court within 10 days of any

bankruptcy court order terminating the stay or dismissing the bankruptcy

case” or possibly face sanctions.

      About a month later, Mr. Stuart, through counsel, filed a status report

with the court of appeals in which he stated that his bankruptcy counsel

was preparing and would shortly file a motion for relief from stay. The

court of appeals entered an “Order for Status Report” in which it noted that

no motion to lift the stay had been filed in the bankruptcy court. As with

the previous order, it directed Mr. Stuart to file a status report advising the

court of appeal of any order terminating the stay or dismissing the

bankruptcy case or possibly face sanctions.

      Mr. Stuart took no further action until September 30, 2019, when he

                                       4
sent an email to the City’s counsel requesting that the City seek relief from

stay in the bankruptcy court and withdraw its “stay motion” in the appeal.

Mr. Stuart threatened to move for contempt if the City did not comply. The

City did not respond.

      On October 19, 2019, Mr. Stuart filed an “Emergency Motion to

Enforce the Bankruptcy Stay Against Creditor City of Scottsdale and For

Violation of the Automatic Stay and Request to Prove Compensatory and

Punitive Damages under 11 U.S.C. § 362(k)” (“Enforcement Motion”). He

requested the bankruptcy court enter an order: (1) finding the City in

contempt for willfully violating the automatic stay; (2) compelling the City

to purge its contempt by seeking relief from stay by October 24, 2019;

(3) providing that the City would be fined $1,000 per day for every day

after October 24 that it did not seek stay relief; (4) awarding sanctions in

the form of actual damages incurred by Mr. Stuart due to the City’s

ongoing stay violation; and (5) awarding punitive damages. The next day,

he filed an “Emergency Motion for Civil Contempt Order for Creditor City

of Scottsdale, its Agent Eric Anderson and its Counsel Katherine

Anderson-Sanchez and Vail Cloar for Ongoing Violations of the Automatic

Stay under 11 U.S.C. § 362(a)” (“Contempt Motion”), in which he sought

essentially the same relief against the City and its counsel.

      The City filed responses to both motions, denying that its actions in

filing the Notice violated the automatic stay. It acknowledged that the

                                       5
bankruptcy stay did not affect Mr. Stuart’s ability to prosecute his appeal,

but it noted that, in the appeal, the City sought affirmance of a judgment

against him as well as attorneys’ fees and costs on appeal, which

potentially implicated the stay. And because Mr. Stuart had not notified the

court of appeals of the bankruptcy filing, the City had done so.

      After hearing argument on both motions, the bankruptcy court found

that the automatic stay did not apply to the state court appeal because that

appeal was brought by Mr. Stuart, but, if the City prevailed on appeal, it

could not enforce the judgment without first obtaining stay relief. Shortly

thereafter, the bankruptcy court entered an order finding that the City’s

action in filing the Notice was not an action to control an estate asset and

thus there was no stay violation. Accordingly, it granted the motions in

part and denied them in part. Specifically, it found: (1) the bankruptcy stay

did not prevent Mr. Stuart from proceeding with his state court appeal;

(2) the bankruptcy stay would prohibit the City from attempting to collect

on its state court judgment; (3) the City and its agents did not violate the

bankruptcy stay by filing the Notice or by failing to file a motion for relief

in the bankruptcy court; and (4) there had been no contempt, and no

damages would be awarded.

      Mr. Stuart filed a timely notice of appeal. Two days later, he moved

for reconsideration under Civil Rule 59, applicable via Rule 9023, which the

bankruptcy court denied. Mr. Stuart amended his notice of appeal to

                                       6
include the order denying reconsideration.

                               JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

                                      ISSUES

      Whether the bankruptcy court erred in denying in part the

Enforcement Motion and Contempt Motion.

      Whether the bankruptcy court abused its discretion in denying the

motion for reconsideration.

                         STANDARDS OF REVIEW

      Whether the automatic stay has been violated is a question of law

reviewed de novo. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1213 (9th

Cir. 2002). Whether a creditor willfully violated the stay is a question of fact

that we review for clear error. Id.

      A finding of fact is clearly erroneous if it is illogical, implausible, or

without support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189,

1196 (9th Cir. 2010). “Where there are two permissible views of the

evidence, the factfinder’s choice between them cannot be clearly

erroneous.” Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).

      We review the denial of a motion for reconsideration under Civil

Rule 59 for abuse of discretion. See Clinton v. Deutsche Bank Nat’l Trust Co.

(In re Clinton), 449 B.R. 79, 82 (9th Cir. BAP 2011) (citing Ta Chong Bank Ltd.

                                        7
v. Hitachi High Techs. Am., Inc., 610 F.3d 1063, 1066 (9th Cir. 2010)). Under

the abuse of discretion standard, we first “determine de novo whether the

[bankruptcy] court identified the correct legal rule to apply to the relief

requested.” United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en

banc). If the bankruptcy court identified the correct legal rule, we then

determine under the clearly erroneous standard whether its factual

findings and its application of the facts to the relevant law were:

“(1) illogical, (2) implausible, or (3) without support in inferences that may

be drawn from the facts in the record.” Id. (internal quotation marks

omitted).

                                 DISCUSSION

      The filing of a bankruptcy petition operates as a stay of, among other

things, “any act to obtain possession of property of the estate or of property

from the estate or to exercise control over property of the estate[.]” 11

U.S.C. § 362(a)(3). And § 362(k) provides that “an individual injured by any

willful violation of a stay provided by this section shall recover actual

damages, including costs and attorneys’ fees, and, in appropriate

circumstances, may recover punitive damages.” § 362(k)(1). A willful

violation occurs if a party knew of the automatic stay, and its actions in

violation of the stay were intentional. Eskanos & Adler, P.C. v. Leetien, 309
F.3d 1210, 1215 (9th Cir. 2002) (citing Pinkstaff v. United States (In re

Pinkstaff), 974 F.2d 113, 115 (9th Cir. 1992)).

                                         8
      Mr. Stuart assigns error to the bankruptcy court’s conclusion that

neither the City nor its counsel willfully violated the automatic stay by

filing the Notice with the Arizona Court of Appeals and by failing to move

for relief from stay. His arguments are based upon the following

assumptions: (1) the appeal was property of the estate; (2) appeals brought

by debtors are not subject to the automatic stay; (3) any creditor action that

has an adverse effect on an estate asset is prohibited by the automatic stay;

and (4) pausing the appeal damaged the estate by delaying resolution of

the appeal and increasing legal fees and costs.

A.    The bankruptcy court did not err in denying the Enforcement and
      Contempt Motions.

      Mr. Stuart begins from the premise that the Notice was, in essence, a

request for an injunction. In support, he cites Smith v. Arizona Citizens Clean

Elections Comm’n, 132 P.3d 1187, 1190 (Ariz. 2006). But Smith has no bearing

on the issue before us. That case involved a request for a stay pending

appeal, and the Arizona Supreme Court simply noted that a party seeking

such a stay must satisfy the same criteria as it would for the issuance of a

preliminary injunction. Although a stay can have a similar impact as an

injunction, a stay and an injunction differ in critical ways. An injunction

“directs the conduct of a party, and does so with the backing of its full

coercive powers.” Nken v. Holder, 556 U.S. 418, 428 (2009) (citation omitted).

In contrast, “a stay operates upon the judicial proceeding itself. It does so

                                       9
either by halting or postponing some portion of the proceeding, or by

temporarily divesting an order of enforceability.” Id. See also Gulfstream

Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 279 (1988) (“An order by a

federal court that relates only to the conduct or progress of litigation before

that court ordinarily is not considered an injunction and therefore is not

appealable under § 1292(a)(1).”).

      The City simply requested that the court of appeals pause the

proceedings. Its request was not for the court of appeals to order Mr. Stuart

to do or not do something. The court of appeals’ order requiring Mr. Stuart

to advise it when something occurred in the bankruptcy court to resolve

the issue was issued sua sponte; it was not done at the City’s request.

Accordingly, we reject (as did the bankruptcy court) Mr. Stuart’s

interpretation of the Notice as a request for an injunction. As such, the

cases he cites holding that a request for an injunction is a stay violation

–National Tax Credit Partners, L.P. v. Havlik, 20 F.3d 705 (7th Cir. 1994), In re

Mahurkar Double Lumen Hemodialysis Catheter Patent Litigation, 140 B.R. 969,

977 (N.D. Ill. 1992), and Adelphia Communications Corp. v. America Channel,

LLC (In re Adelphia Communications Corp.), 345 B.R. 69,76 (Bankr. S.D.N.Y.

2006)–are inapposite.

      Next, Mr. Stuart argues that the Notice constituted an act to exercise

control over property of the estate, which is expressly prohibited under

§ 362(a)(3). Mr. Stuart cites Sternberg v. Johnston, 582 F.3d 1114 (9th Cir.

                                        10
2009), opinion amended and superseded on denial of rehearing, 595 F.3d 937 (9th

Cir. 2010). In that case, the Ninth Circuit Court of Appeals held that a

debtor’s ex-spouse’s counsel had violated the automatic stay by (1) urging

a state court to rule on a motion for contempt for non-payment of spousal

support because he did not think it would violate the stay, and

(2) continuing to urge on an appeal from the contempt order that it was not

void. Noting that a party has an affirmative duty to remedy a stay violation

once known, the court held that “[a]t a minimum, he had an obligation to

alert the state appellate court to the conflicts between the order and the

automatic stay.” Id. at 1121.

      We agree with the bankruptcy court that Sternberg is distinguishable.

The City did not ask the court of appeals to take any action in violation of

the stay. In fact, the Notice sought to prevent a stay violation by

maintaining the status quo, based on the City’s concern that it sought

affirmance of a judgment against Mr. Stuart and fees and costs on appeal,

which could implicate the stay. See Gordon v. Whitmore (In re Merrick), 175
B.R. 333, 337-38 (9th Cir. BAP 1994) (noting that the prosecution of

counterclaims against a debtor requires stay relief, but appellant/defendant

had waived his right to costs, “thus eliminating any arguably affirmative

aspect to the relief he obtained in state court.”).The bankruptcy court

correctly found that there was no legal basis for concluding that notifying a

state court that a bankruptcy stay is in place constitutes an act of control,

                                       11
even if that assertion is incorrect. And implicit in the bankruptcy court’s

reasoning is the understanding that while the stay did not bar the

continuation of a proceeding commenced by the debtor, the City’s caution

was understandable in light of the fact that, as part of the appeal, the City

sought to affirm an award of attorneys’ fees against the debtor, and its

request to pause the proceedings was consistent with its duty affirmatively

to cease any activities that would violate the stay.

      Mr. Stuart also argues that the City violated the stay by not obtaining

an order from the bankruptcy court regarding the stay either before or after

it filed the Notice. He cites Hillis Motors v. Hawaii Automobile Dealers’ Ass’n,

997 F.2d 581, 585 (9th Cir. 1993), and Achterberg v. Creditors Trade Ass’n, Inc.

(In re Achterberg), 573 B.R. 819, 830 (Bankr. E.D. Cal. 2017), both of which

hold that a creditor has the burden to determine the extent of the automatic

stay and seek relief if appropriate before taking any action to exercise

control over estate property. But he cites no authority that the City was

required to seek stay relief (or confirmation that the stay was inapplicable)

before filing the Notice, which simply requested that the court of appeals

pause the appeal to maintain the status quo–which is exactly what the stay

requires. In re Achterberg, 573 B.R. at 830. And he cites no authority that the

City was required to seek an order regarding the stay after the court of

appeals paused the proceedings. Although it could have done so,

Mr. Stuart had the burden to prosecute his appeal, which arguably put the

                                       12
onus on him to seek a clarifying order from the bankruptcy court. We note

that this argument is particularly inapt in light of the status report filed in

the court of appeals indicating that Mr. Stuart’s bankruptcy counsel

intended to file a motion for relief from stay.

       Mr. Stuart also contends that the City lacked standing to enforce the

automatic stay, citing, among other cases, Tilley v. Vucurevich (In re Pecan

Groves of Arizona), 951 F.2d 242, 244 (9th Cir. 1991), which holds that only

the debtor and trustee have standing to challenge acts that violate the

automatic stay.4 But the Notice was not an attempt by the City to enforce

the automatic stay, and, as a party to the appeal, it had standing (and

possibly even an obligation) to notify the court of appeals of the

bankruptcy case.

       Finally, Mr. Stuart argues that the bankruptcy court permitted a

“wrong without a remedy.” This argument is meritless. It hinges on his

assertion that “[t]he Estate incurred increased legal fees, increased legal

costs and emotional injuries, solely as a result of [the City’s] actions.” But

even if the bankruptcy court had found a willful stay violation, it is not

clear what Mr. Stuart’s damages would have been. He made no attempt to

       4
         Although Mr. Stuart made this argument to the court of appeals, he did not raise
it in his motions before the bankruptcy court and mentioned it only in passing at oral
argument, and not sufficiently for the bankruptcy court to rule on it. But because
standing is a jurisdictional issue that can be raised at any time, we do not consider it
waived. See Ctr. for Biological Diversity v. Kempthorne, 588 F.3d 701, 707 (9th Cir. 2009).

                                            13
quantify or otherwise detail his damages (keeping in mind that he was not

represented by counsel during most of the relevant time period), and he

did not address the fact that he failed to mitigate any damages by not

following through with his stated intent to move for relief from stay. And,

as noted by the bankruptcy court, he could have advised the court of

appeals that the City was not seeking relief in the bankruptcy court and

requested that the appeal proceed with or without the City’s participation.

He did none of those things.

B.    Mr. Stuart has waived any argument that the bankruptcy court
      abused its discretion in denying reconsideration.

      Given our conclusion that the bankruptcy court did not err in

denying in part Mr. Stuart’s motions, we cannot conclude that the

bankruptcy court abused its discretion in denying Mr. Stuart’s motion for

reconsideration. In any event, he did not address the bankruptcy court’s

denial of reconsideration in his briefing and has thus waived any argument

that it was an abuse of discretion.

                               CONCLUSION

      For the reasons explained above, Mr. Stuart has not shown that the

bankruptcy court’s rulings were erroneous. We therefore AFFIRM.

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