In re Mid-City Parking, Inc.

Decision Date31 October 2005
Docket NumberNo. 04 B 45177.,04 B 45177.
Citation332 B.R. 798
PartiesIn re MID-CITY PARKING, INC., Debtor.
CourtU.S. Bankruptcy Court — Northern District of Illinois

Gregory J. Scandaglia & Therese L. Tully, Scandaglia & Ryan, Chicago, IL, for Movant.

Allen J. Guon, Shaw Gussis Fishman Glantz, Wolfson & Towbin, LLC, Chicago, IL, for Respondent/Debtor-in-Possession.

AMENDED MEMORANDUM OPINION

JACQUELINE P. COX, Bankruptcy Judge.

This matter presents the question of whether a trustee or debtor-in-possession may unilaterally waive the protections of the automatic stay to proceed with acts of estate administration that would otherwise violate 11 U.S.C. § 362(a) if performed by anyone else. Clark Polk Land, LLC ("Clark Polk") has requested an award of costs and attorneys' fees incurred as the result of an appeal that the debtor-in-possession, Mid-City Parking, Inc. ("MidCity"), allegedly filed in willful violation of the automatic stay imposed by § 362(a). The Court holds that a trustee or debtor-in-possession has such authority and furthermore denies Clark Polk's motion.

Background

Mid-City became a debtor-in-possession upon filing a petition for Chapter 11 bankruptcy relief on December 8, 2004, thereby triggering the automatic stay of 11 U.S.C. § 362(a). Prior to this filing, Clark Polk obtained a state court judgment against the debtor in the amount of $337,198.27 on August 4, 2004; the debtor's counterclaims against Clark Polk and Richard G'Sell were defeated the same day. On November 29, 2004, Clark Polk received an additional award of $90,582.08 for attorneys' fees, costs, and prejudgment interest. Subsequent to the Chapter 11 filing, on January 24, 2005, the debtor-in-possession appealed the entire $427,780.35 judgment to the Appellate Court of Illinois but did so without obtaining stay modification under § 362(d). Clark Polk brought a motion to dismiss the appeal before the Appellate Court of Illinois, arguing that the automatic stay in the Chapter 11 case prevented the debtor-in-possession from filing a notice of appeal from the state court judgment. On March 4, 2005, the Appellate Court of Illinois agreed with Clark Polk's position and dismissed Mid-City's appeal from the judgment.

In this bankruptcy case, Clark Polk has brought the instant motion for the costs and attorneys' fees incurred both to obtain dismissal of the state court appeal and to recover the costs and fees incurred in pursuing this motion. Clark Polk contends that the award is warranted under 11 U.S.C. § 105(a) because Mid-City's violation of § 362(a) was willful-that is, because MidCity was aware the stay existed when it engaged in an intentional act in violation thereof.

Jurisdiction

Initially, the Court must determine whether it has subject matter jurisdiction over this controversy, and if need be, federal courts must do so sua sponte. See Maritime Electric Co. v. United Jersey Bank, 959 F.2d 1194, 1198, 1208 (3d Cir.1991); Singleton v. Fifth Third Bank (In re Singleton), 230 B.R. 533, 536 (6th Cir. BAP 1999). Here, the Court holds that a trustee or debtor-in-possession has authority to administer the bankruptcy estate without obtaining automatic-stay relief, although the Appellate Court of Illinois has already dismissed Mid-City's appeal from Clark Polk's judgment as being in violation of the stay. The general rule of the Rooker-Feldman doctrine states that after a state court with jurisdiction over a federal question enters a final order on that question, be it a statutory or constitutional ruling, a federal court with original jurisdiction under 28 U.S.C. sections 1331, 1332, or 1334 in a subsequently filed action has no jurisdiction to review that state court ruling and all other matters "`inextricably intertwined'" with it; the federal question must be appealed to the state's highest court and then to the U.S. Supreme Court under 28 U.S.C. § 1257. Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074, 1078-79 & n. 1 (9th Cir.2000) (quoting D.C. Court of Appeals v. Feldman, 460 U.S. 462, 483-87 & n. 16, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983)); see also Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, ___-___ & n. 1, 125 S.Ct. 1517, 1521-23 & n. 1, 1527, 161 L.Ed.2d 454 (U.S.2005); Singleton, 230 B.R. at 536-38; Kathleen P. March & Jennifer Hildebrandt, The Many Ways to Win or Lose on Your Bankruptcy Issue in State Court; or, Why Bankruptcy Lawyers and Judges Who Thought State Court Was Irrelevant to Bankruptcy Practice Guessed Wrong, 25 Cal. Bankr.J. 332, 342-43 (2000); cf. Rogers v. Overstreet (In re Rogers), 164 B.R. 382, 390-91 (Bankr.N.D.Ga.1994). Federal courts have nonetheless recognized specific statutory provisions that permit federal courts with original jurisdiction to entertain a collateral attack for certain federal questions litigated in state courts, most notably where the federal courts had exclusive jurisdiction over the federal question in the first place, see Gruntz, 202 F.3d at 1079-80.

Bankruptcy is a particularly difficult area of law in which to determine whether a state court decision is subject to collateral attack in spite of the Rooker-Feldman doctrine. The federal district courts — and by reference, the bankruptcy courts — have "original and exclusive jurisdiction of all cases under title 11" while also having "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334. A problem results from the fact that any type of civil proceeding concerning the automatic stay of 11 U.S.C. § 362 could rationally be deemed a "civil proceeding[ ] arising under title 11, or arising in ... cases under title 11," § 1334(b), and could furthermore be deemed a proceeding over which state courts have concurrent jurisdiction. If a state court enters a final order for a federal question over which it has concurrent jurisdiction, the Rooker-Feldman doctrine will normally prevent a collateral attack in a federal district or bankruptcy court. If a state court enters an order for an issue that is within the exclusive province of federal courts, the order is subject to collateral attack in federal courts with original jurisdiction. See Gruntz, 202 F.3d at 1079-80; In re Benalcazar, 283 B.R. 514, 526-27 (Bankr.N.D.Ill.2002). The automatic stay carries with it a variety of issues, including whether it applies to a given action at the inception of the bankruptcy case, § 362(a)-(b), whether it eventually dissolves by operation of law, § 362(c), whether grounds for modification or termination by separate judicial order exist, § 362(d), and whether a willful stay violation caused an "individual" to suffer actual damages, § 362(h). Section 1334(a)-(b) of Title 28 does not set forth which issues are so closely tied to the bankruptcy "case" that the bankruptcy court has exclusive jurisdiction and which ones are "civil proceedings" over which state courts have concurrent jurisdiction. See, e.g., Halas v. Platek, 239 B.R. 784, 790-93 & n. 6 (N.D.Ill.1999) (describing two different interpretations before holding that state courts have no subject matter jurisdiction to impose § 362(h) sanctions for willful stay violations while noting they might have jurisdiction to determine whether it applies as an initial matter).

While the federal statute provides little guidance on these questions, case law has established a sort of ad hoc, hybrid system for dealing with the various stay issues listed above. E.g., Halas, 239 B.R. at 792-93; Singleton v. Fifth Third Bank (In re Singleton), 230 B.R. 533, 538-39 (6th Cir. BAP 1999) (only bankruptcy courts may grant stay relief under § 362(d)); see also Cathey v. Johns-Manville Sales Corp., 711 F.2d 60, 62 (6th Cir.1983) (same); In re Conference of African Union First Colored Methodist Protestant Church, 184 B.R. 207, 215 (Bankr.D.Del.1995) (same); In re Bona, 124 B.R. 11, 16 (S.D.N.Y.1991) (same); Klass v. Klass, 377 Md. 13, 831 A.2d 1067, 1071 (2003) (same). The initial effect and scope of the stay has been the subject of at least three different approaches. The best system and its rationale are as follows. Nonbankruptcy forums in both the state and federal systems have jurisdiction to at least initially determine whether pending litigation is stayed pursuant to § 362. See In re Baldwin-United Corp. Litigation, 765 F.2d 343, 347 (2d Cir.1985) (federal district court in another district); Chao v Hosp. Staffing Servs., 270 F.3d 374, 384 (6th Cir.2001) (same); Singleton, 230 B.R. at 538-39; In re Benalcazar, 283 B.R. 514, 528-29 (Bankr.N.D.Ill.2002); Jeffries v. Bar J. Forest Prods. (In re Jeffries), 191 B.R. 861, 863 (Bankr.D.Or.1995); In re Montana, 185 B.R. 650, 652 (Bankr.S.D.Fla.1995); Conference of African Union, 184 B.R. at 215-17; Rogers v. Overstreet (In re Rogers), 164 B.R. 382, 391 (Bankr.N.D.Ga.1994); Bona, 124 B.R. at 15; In re Mann, 88 B.R. 427, 429-30 (Bankr.S.D.Fla.1988); In re Glass, 240 B.R. 782, 786-87 (Bankr.M.D.Fla.1999); In re 1736 18th Street, N.W., Ltd. Partnership, 97 B.R. 121, 123 (Bankr.D.D.C.1989); e.g., Klass, 831 A.2d at 1071; Westlund v. Dept. of Licensing, 55 Wash.App. 82, 778 P.2d 40, 41 (1989).

But see infra note 3. This concept appears to be consistent with the idea of inherent jurisdiction to determine jurisdiction. See Lockyer v. Mirant Corp., 398 F.3d 1098, 1105-07 (9th Cir.2005); Baldwin-United, 765 F.2d at 347; Conference of African Union, 184 B.R. at 216. The bankruptcy court from which the automatic stay originated nonetheless has the final say. See Baldwin-United, 765 F.2d at 346, 348-49; Conference of African Union, 184 B.R. at 216; In re Hunt, 93 B.R. 484, 488-89 (Bankr.N.D.Tex.1988). Contra Singleton, 230 B.R. at 538-39; Overstreet, 164 B.R. at 390-91. The automatic stay, which is "an injunction issuing from the authority of the bankruptcy court," is "central" to the bankruptcy "case" over which ...

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