Court Opinion

ID: 216802
Source: CourtListenerOpinion
Date Created: 2011-05-17 00:00:38+00
Date Added: 2024-06-11T17:28:29.954156
License: Public Domain

10-733-bk
In re: Heating Oil Partners, LP

                                  UNITED STATES COURT OF APPEALS
                                     FOR THE SECOND CIRCUIT

                                     SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after
January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court’s
Local Rule 32.1.1. When citing a summary order in a document filed with this court, a party must cite either
the Federal Appendix or an electronic database (with the notation “summary order”). A party citing a
summary order must serve a copy of it on any party not represented by counsel.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York,
on the 16th day of May, two thousand eleven.

PRESENT:
            JON O. NEWMAN,
            GUIDO CALABRESI,
            PETER W. HALL,
                        Circuit Judges.
_______________________________________________

IN RE: HEATING OIL PARTNERS, LP,
                              Debtor.
_______________________________________________

CHURCH MUTUAL INSURANCE CO.,
                        Appellant,

v.                                                        10-733-bk

AMERICAN HOME ASSURANCE COMPANY,
                              Appellee.
______________________________________________

FOR APPELLANT:                                   JAMES M. NUGENT, (James R. Winkel, on the brief),
                                                 Harlow, Adams & Friedman, P.C., Milford,
                                                 Connecticut.

FOR APPELLEE:                                    EDWARD M. KAY, (Don R. Sampen, on the brief),
                                                 Clausen Miller, P.C., New York, New York.
         Appeal from a judgment of the United States District Court for the District of

Connecticut (Haight, J.) affirming the order of the United States Bankruptcy Court for the

District of Connecticut (Shiff, J.). UPON DUE CONSIDERATION, IT IS HEREBY

ORDERED, ADJUDGED, AND DECREED, that the judgment of the district court is

AFFIRMED.

         Appellant Church Mutual Insurance Co. (“Church”) appeals from a judgment of the

district court affirming the bankruptcy court’s order declaring Church’s default judgment entered

in New Jersey Superior Court against Beacon Oil Company (“Beacon”) and Beacon’s successor

in interest, debtor Heating Oil Partners, LP (“HOP”), void ab initio. We assume the parties’

familiarity with the facts, procedural history, and issues on appeal.

         “On an appeal from the district court’s affirmance of a bankruptcy court’s order, we

review the decision of the bankruptcy court independently, assessing its conclusions of law de

novo and its factual findings for clear error.” In re Dana Corp., 574 F.3d 129, 144-45 (2d Cir.

2009).

         A brief discussion of the proceedings below is warranted. The debtor’s insurer, appellee

American Home Assurance Co. (“AHA”), moved in bankruptcy court for an order declaring the

New Jersey default judgment against Beacon and HOP void because it was entered in violation

of the automatic stay triggered by the filing of HOP’s Chapter 11 bankruptcy petition under 11

U.S.C. § 362, the confirmation order, and the discharge injunction under 11 U.S.C. § 524(a).

The bankruptcy court declared that the default judgment was void ab initio because it was

entered in violation of the section 524(a) discharge injunction and the confirmation order. On

appeal, the district court affirmed, holding that the state court action and entry of the subsequent

default judgment were in violation of the section 362 automatic stay and, therefore, were void ab

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initio. According to the district court, AHA had standing to move for a declaration that the

default judgment against the debtor was void because it was a “party in interest” to the

bankruptcy proceeding as the debtor’s liability insurer.

       On appeal to this court, Church contests AHA’s standing to bring a motion in the

bankruptcy court seeking an order declaring the default judgment void. Church argues that AHA

is a third-party and lacks standing to invoke the protections of the discharge injunction or the

automatic stay provision.

       The district court’s holding with respect to standing is sound. 11 U.S.C. § 1109(b) states

that “[a] party in interest . . . may raise and may appear and be heard on any issue in a case under

[Chapter 11].” Even so, section 1109(b) does not abrogate constitutional standing

requirements―a party in interest must still demonstrate that it meets the general requirements of

the standing doctrine, including whether it has alleged a personal stake in the outcome of the

proceedings and whether it is asserting its own legal rights and remedies. Etuk v. Slattery, 936

F.2d 1433, 1440 (2d Cir. 1991) (citing Warth v. Seldin, 422 U.S. 490, 498-99 (1975)); see also In

re Quigley Co., 391 B.R. 695, 702-03 (Bankr. S.D.N.Y. 2008).

       Turning to section 1109(b), we note that “‘party in interest’ is not defined in the

[Bankruptcy] Code”; when interpreting the meaning of that phrase “we are governed by the

Code’s purposes.” In re Comcoach Corp., 698 F.2d 571, 573 (2d Cir. 1983); see also In re

Quigley, 391 B.R. at 702; In re Johns-Manville Corp., 36 B.R. 743, 747 (Bankr. S.D.N.Y. 1984)

. Whether a party qualifies as a “party in interest” is determined on a case-by-case basis, taking

into consideration whether that party has a “sufficient stake” in the outcome of that proceeding,

which can include having a pecuniary interest directly affected by the bankruptcy proceeding.

In re Stone Barn Manhattan, LLC, 405 B.R. 68, 74 (Bankr. S.D.N.Y. 2009); see also In re

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Standard Insulations, Inc., 138 B.R. 947, 950 (Bankr. W.D. Mo. 1992) (concluding insurers

exposed to claims against the debtor were “parties in interest” under section 1109(b)).

       AHA’s pecuniary interest here is the default judgment against Beacon and HOP, for

which it will indemnify HOP in full or in part. Church does not dispute that its sole interest is to

satisfy its claims against Beacon and HOP with the insurance coverage provided by AHA.

AHA’s motion has a direct impact on the enforceability of a $856,874.40 default judgment

against the debtor, for which AHA will be held responsible to satisfy in whole or in part

(depending on whether the $250,000 self-insured retention clause applies). Without a doubt,

AHA, which has a personal stake in whether the default judgment is void, is a party in interest

pursuant to section 1109(b).

       The next issue on appeal is whether the default judgment violated the automatic stay

provision that went into effect upon the filing of HOP’s Chapter 11 petition. Notwithstanding

the fact that the district court affirmed the bankruptcy court’s order declaring the default

judgment void ab initio on the ground that the New Jersey action proceeded in violation of the

automatic stay provision, Church disputes whether this case involves a violation of the automatic

stay provision at all and instead maintains that the default judgment is an undischarged claim

because Church never received notice of the bar date for claims.

       We disagree. 11 U.S.C. § 362(a) provides that the filing of a bankruptcy petition creates

an automatic stay against “the commencement or continuation . . . 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.” The automatic stay provision is considered “‘one

of the fundamental debtor protections provided by the bankruptcy laws.’” Eastern Refractories

Co. v. Forty Eight Insulations Inc., 157 F.3d 169, 172 (2d Cir. 1998) (quoting H.R. Rep. No. 95-

                                                  4
595, at 340 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6296-97). “The stay is effective

immediately upon the filing of the petition, and any proceedings or actions described in section

362(a)(1) are void and without vitality if they occur after the automatic stay takes effect.”

Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir. 1994) (citations omitted). The

stay takes effect automatically and without the requirement of notice to affected parties; “[b]y its

very terms, no action by any court is necessary for the stay to take effect.” In re Colonial Realty

Co., 980 F.2d 125, 137 (2d Cir. 1992); see also In re Marine Pollution Serv., Inc., 99 B.R. 210,

217 (Bankr. S.D.N.Y. 1989) (“[A]ctions taken in violation of the stay are void even where there

is no actual notice of the existence of the stay.”). The automatic stay remains in effect until the

granting of a discharge injunction pursuant to 11 U.S.C. § 524(a). See 11 U.S.C. § 362(c)(2); In

re James, 285 B.R. 114, 116 (Bankr. W.D.N.Y. 2002). Here, the discharge injunction did not

take effect until the plan’s effective date of August 6, 2006.

       We conclude, first, that because HOP listed “Beacon Oil” as a name under which it was

conducting business in its Chapter 11 petition, Beacon is a common entity with HOP so that the

automatic stay applied to all actions against Beacon as well. Thus, Church’s initial suit against

Beacon violated that stay when the suit proceeded after the September 25, 2005 petition filing

date. We further conclude, that when Church filed its amended complaint on June 29, 2006 to

add HOP as a defendant (noting that HOP was a successor in interest to Beacon), that filing

violated the automatic stay, rendering that proceeding and all subsequent actions, including the

default judgment, in that case void and without vitality.

       On appeal, Church has not confronted the issue of the automatic stay in any meaningful

way, skipping right to its argument that its claim (the default judgment) was never discharged by

the discharge injunction because it never received notice of the bankruptcy. That argument

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presupposes, however, that Church has a claim. The effect of the automatic stay provision is to

render that default judgment void ab initio because the suit commenced and/or continued while

that stay was in effect. Church having no viable claim in hand, it is not necessary for us to reach

the issues raised by Church with respect to the section 524 discharge injunction.

       We have considered all of Church’s remaining contentions on this appeal and have found

them to be without merit. The judgment of the district court is AFFIRMED.

                                                     FOR THE COURT:

                                                     Catherine O’Hagan Wolfe, Clerk

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