Easley v. Pettibone Michigan Corp.

Decision Date08 April 1993
Docket NumberNo. 92-1382,92-1382
Parties, 28 Collier Bankr.Cas.2d 1002 Carl EASLEY, Jr., and Mary Easley, Plaintiffs-Appellees, v. PETTIBONE MICHIGAN CORPORATION, Industrial and Construction Machine, its Parent Corporation and its Subsidiary and Sister Corporations, Defendants-Appellants.
CourtU.S. Court of Appeals — Sixth Circuit

R. Duncan MacDonald (argued and briefed), MacDonald, Fitzgerald, MacDonald & Simon, Flint, MI, for plaintiffs-appellees.

Donald Payton (argued and briefed), Kaufman & Payton, Farmington Hills, MI, Robert D. Kolar, Eric G. Patt, Robert D. Kolar & Associates, Ltd., Chicago, IL, for defendants-appellants.

Before KENNEDY and BATCHELDER, Circuit Judges, and ENGEL, Senior Circuit Judge.

KENNEDY, Circuit Judge.

We certified this interlocutory appeal under 28 U.S.C. § 1292 to determine whether plaintiffs' filing of their products liability suit against defendants during the pendency of an automatic bankruptcy stay was sufficient commencement of the action for purposes of complying with the applicable statute of limitations. We reverse the District Court's order and remand the case for dismissal for the reasons set forth below.


This case has a long procedural history. In July 1985, Carl Easley, Jr., a General Motors employee, was injured while operating a forklift that he alleges was designed and manufactured by defendants. Mr. Easley and his wife Mary Easley ("plaintiffs") filed this products liability action in Genessee County, Michigan in July 1988. Plaintiffs filed the claim five days before the three-year Michigan statute of limitations for products liability actions ran under Mich.Comp.Laws Ann. § 600.5805.

In January 1986, however, Pettibone Corporation, an Illinois corporation, and its United States subsidiaries, including Pettibone Michigan Corporation ("defendant"), 1 filed for bankruptcy under Chapter XI in the United States Bankruptcy Court for the Northern District of Illinois. Pursuant to 11 U.S.C. § 362(a), an automatic stay arises to protect the debtor from actions affecting its estate during the pendency of the bankruptcy proceeding, unless modified by court order. The stay was in effect when plaintiffs filed their Michigan state court claim. Upon service of the complaint, plaintiffs were informed that the Pettibone corporations were in the midst of a reorganization and that the automatic stay prohibited any person from commencing litigation against it.

On September 15, 1988, plaintiffs filed an application in the bankruptcy court for an order authorizing them to file a late claim in the bankruptcy proceeding and for an order modifying the automatic stay to permit them to proceed with their lawsuit. On November 25, 1988, the bankruptcy court granted plaintiffs' leave to file a late claim against the debtors, but denied their request for a modification of the stay. On December 9, 1988, the bankruptcy court approved the reorganization plan, which merged Pettibone Corporation and all of its subsidiaries into a reorganized Pettibone, a Delaware corporation, with its principal place of business in Illinois. On December 28, 1988, the plan went into effect and the stay was dissolved. This permitted products liability claimants who had pending actions to prosecute their claims.

On January 27, 1989, Pettibone Michigan filed a notice of removal of the state action to the federal district court for the Eastern District of Michigan under 28 U.S.C. § 1332 based on diversity of citizenship. Pettibone Michigan also filed its answer to the complaint. About the same time, Pettibone Corporation, Pettibone Michigan and several other Pettibone subsidiaries filed an adversary complaint in the bankruptcy court in Illinois seeking declaratory and injunctive relief that plaintiffs' state claim was null and void because its filing violated the automatic stay and it was otherwise barred by the statute of limitations, which had run in 1988. In February 1990, the bankruptcy court annulled the stay retroactively under 11 U.S.C. § 362(d), to allow the state action to proceed. The District Court for the Northern District of Illinois affirmed. The Seventh Circuit, however, vacated the order holding that the bankruptcy court was without jurisdiction to annul the stay retroactively. Pettibone v. Easley, 935 F.2d 120 (7th Cir.1991).

Thereafter, defendant moved to dismiss plaintiffs' action in the District Court for the Eastern District of Michigan; the motion was denied. The court based the denial on its interpretation of an unpublished opinion of this Court, In re White Motor Corporation, 863 F.2d 50 (1988), 2 which treated an action filed in violation of the stay as voidable. We granted the parties' motion for interlocutory appeal to determine whether an action filed in violation of an automatic stay imposed pursuant to 11 U.S.C. § 362(a) is void or voidable.


We are required to note any jurisdictional defects whether or not raised by the parties. "[E]very federal appellate court has a special obligation to satisfy itself not only of its own jurisdiction, but also that of the lower courts in a cause under review." Greater Detroit Resource Recovery Authority v. United States Environmental Protection Agency, 916 F.2d 317, 319 (6th Cir.1990) (citations omitted). We have jurisdiction under 28 U.S.C. § 1441(b) (West 1979) only if the petition for removal was filed within 30 days of service of the complaint and if there was diversity of citizenship at the critical time. Under section 1441(b), diversity of citizenship must exist as to a party both at the time the state action is commenced and at the time the defendant files the petition for removal. Kinney v. Columbia Savings & Loan Association, 191 U.S. 78, 81, 24 S.Ct. 30, 31, 48 L.Ed. 103 (1903); Kanzelberger v. Kanzelberger, 782 F.2d 774, 776 (7th Cir.1986) (citing 14A Wright, Miller & Cooper, Federal Practice and Procedure § 3723, at pp. 312-14 (2d ed. 1985)). State law determines when an action is commenced for removal purposes. Coman v. International Playtex, Inc., 713 F.Supp. 1324, 1328 (N.D.Cal.1989). In Michigan, a "civil action is commenced by filing a complaint with a court." Michigan Court Rules, MCR 2.101(B). Thus, under most circumstances, we would determine whether diversity of citizenship existed between the parties when the state court received the complaint and considered it filed. In this case, however, plaintiffs filed their state complaint while defendant was in bankruptcy, and thus, their action was in violation of the automatic stay. Section 362(a)(1) provides that a bankruptcy petition "operates as a stay, applicable to all entities, of the commencement or continuation ... of a judicial ... action or proceeding against the debtor that was or could have been commenced" before the debtor filed for protection under the bankruptcy laws. 11 U.S.C. § 362(a)(1) (emphasis added). We conclude that by operation of the automatic stay, the commencement of plaintiffs' action, whether void or voidable, did not take place until the stay was lifted.

The Bankruptcy Rules governing removal are not inconsistent with this conclusion. Bankruptcy Rule 9027(a)(3) provides for removal of actions filed post-petition only if such actions are not stayed by the code or by court order. See Advisory Committee note. When an action against the debtor is filed pre-petition, and the action has been stayed by section 362(a), the debtor cannot file a petition for removal to the bankruptcy court until the stay is lifted. Bankr.R. 9027(a)(2)(B). It follows that when an action is filed post-petition, in violation of the stay, the debtor must wait until the stay is lifted before filing a petition to remove (in both cases, the debtor must file the petition within 30 days after the stay is lifted). At least one bankruptcy court has held that actions filed in violation of the stay are void, and therefore incapable of being removed. In re Columbus Broadway Marble Corp., 84 B.R. 322 (Bankr.E.D.N.Y.1988).

We also conclude that regardless of whether actions filed in violation of the automatic stay are void or voidable, a defendant may invoke the removal jurisdiction of the federal courts to seek dismissal of the action. A defendant cannot ignore the reality of a complaint, whether or not it contains a valid claim or whether properly or improperly filed, and must respond to it. Where, for example, the federal courts have exclusive jurisdiction of a claim so that a state court lacks jurisdiction, a defendant may remove. Similarly, where a party lacks standing, the claim may be invalid. In both instances, the defendant cannot ignore the complaint and leave it sitting on a court docket; it must respond with a motion to dismiss, which will dispose of the claim. We hold that actions filed in violation of the automatic stay are removable once the stay is lifted, if only to have a federal court declare that the action is void.

For the aforementioned reasons, we hold that when a debtor seeks to remove a state cause of action filed in violation of the automatic stay to federal court based on diversity jurisdiction, that action is commenced and thus diversity must first exist at the time the stay is lifted. Further, the debtor must file its petition for removal within 30 days after the termination of the stay.

In this case, the stay was lifted on December 28, 1988. As of that day, Pettibone Michigan Corporation no longer existed, having been merged into a reorganized Pettibone, along with all of the other Pettibone subsidiaries. Reorganized Pettibone is a Delaware corporation with its principal place of business in Illinois. Therefore, diversity of citizenship between plaintiffs, Michigan residents, and reorganized Pettibone existed upon the commencement of the plaintiffs' state action and at the time of removal, January 27, 1989, which was within 30 days of the lifting of the stay. Fed.R.Civ.P. 6 (when computing...

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