McCartney v. Integra Nat. Bank North

• Decision Date: 11 February 1997
• Docket Number: No. 96-3023,96-3023
• Citation: 106 F.3d 506
• Parties: 37 Collier Bankr.Cas.2d 713, Bankr. L. Rep. P 77,290 Lamar A. McCARTNEY, Appellant, v. INTEGRA NATIONAL BANK NORTH, Successor to McDowell National Bank; Gary J. Gaertner, U.S. Trustee, Appellees.
• Court: U.S. Court of Appeals — Third Circuit

Page 506

106 F.3d 506

37 Collier Bankr.Cas.2d 713, Bankr. L. Rep. P 77,290

Lamar A. McCARTNEY, Appellant, v. INTEGRA NATIONAL BANK NORTH, Successor to McDowell National

Bank; Gary J. Gaertner, U.S. Trustee, Appellees.

No. 96-3023.

United States Court of Appeals, Third Circuit.

Argued Oct. 24, 1996.

Decided Feb. 11, 1997.

Donald R. Calaiaro (argued), Calaiaro, Corbett and Bower, Pittsburgh, PA, for Appellant.

P. Raymond Bartholomew (argued), Hermitage, PA, for Appellee Integra National Bank, Successor to McDowell National Bank.

William F. Pineo, Meadville, PA, for Chapter 7 Trustee for McCartney.

Before: STAPLETON and NYGAARD, Circuit Judges and MAZZONE, District Judge. ^*

OPINION OF THE COURT

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 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

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 Trust Co. of Palmyra v. Lapitsky, 339 Pa.Super. 177, 488 A.2d 608, 611 (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, 395 Pa.Super. 447, 577 A.2d 627, 631, alloc. denied, 525 Pa. 664, 583 A.2d 793 (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) 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 Assoc. 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 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, 113 S.Ct. 1251, 122 L.Ed.2d 650 (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, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986), these courts have extended the automatic stay to nonbankrupt codefendants in "unusual circumstances." As the case 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...