Gonzales v. Parks

• Decision Date: 20 October 1987
• Docket Number: No. 86-5949,86-5949
• Citation: 830 F.2d 1033
• Parties: , 16 Bankr.Ct.Dec. 1138, Bankr. L. Rep. P 72,024 Richard GONZALES, Juliana Gonzales and Michael Dodge, Plaintiffs-Appellees, v. Barbara PARKS and Jerome Parks, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1033

830 F.2d 1033

56 USLW 2253, 16 Bankr.Ct.Dec. 1138,

Bankr. L. Rep. P 72,024

Richard GONZALES, Juliana Gonzales and Michael Dodge, Plaintiffs-Appellees, v. Barbara PARKS and Jerome Parks, Defendants-Appellants.

No. 86-5949.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 3, 1987.

Decided Oct. 20, 1987.

Sherman S. Weber, Los Angeles, Cal., for defendants-appellants.

Jerome Parks, Culver City, Cal., pro se.

Paul R. Kennerson, San Diego, Cal., for plaintiffs-appellees.

Appeal from the United States District Court for the Southern District of California.

Before WRIGHT and REINHARDT, Circuit Judges, and MUECKE, ^* Senior District Judge.

REINHARDT, Circuit Judge:

Barbara and Jerome Parks appeal the district court's affirmance of the bankruptcy court's grant of summary judgment to Richard and Juliana Gonzales, the debtors in bankruptcy, and to Michael Dodge, their attorney. The Parkses also appeal both courts' imposition of attorney's fees and sanctions. We affirm the grant of summary judgment but reverse the imposition of attorney's fees and sanctions.

I. Facts

Following the Gonzaleses' default on an obligation, Barbara Parks sought to foreclose a deed of trust she held on certain of their real property, apparently their house. On April 6, 1983, shortly before the scheduled trustee sale, the Gonzaleses filed a Chapter 11 bankruptcy petition. The trustee halted the sale upon notification of the filing. Parks subsequently filed a statutory tort action in California state court against the Gonzaleses and their counsel claiming that the bankruptcy filing constituted an abuse of process. ¹ The Gonzaleses did not answer the complaint, but Dodge did. The state court entered a default judgment against the Gonzaleses in the amount of $10,000.

In July 1984, the Gonzaleses and Dodge filed an adversary proceeding in the bankruptcy court against Parks and her counsel, Jerome Parks, seeking relief from the state court action. The bankruptcy court granted appellees' motion for summary judgment, declaring the state court judgment void at its inception as violative of the automatic stay provision of the Bankruptcy Act, 11 U.S.C. Sec. 362(a) (1979 & Supp.1987). ² The court then vacated that judgment and awarded attorney's fees to the Gonzaleses and Dodge. In addition, the court denied the Parkses' motion for recusal.

On appeal, the district court affirmed the bankruptcy court's judgment and fee award. It also imposed sanctions under Fed.R.Civ.P. 11 against Parks' counsel. Both Parks and her counsel filed timely appeals.

II. Discussion

A. The Abuse of Process Judgment

The Parkses contend that, because the abuse of process claim did not accrue until the Gonzaleses' petition was filed, no provision of section 362(a) barred her from commencing the state court proceeding. ³ Section 362(a) provides that the filing of a bankruptcy petition automatically stays the commencement of judicial actions against the debtor that were or could have been initiated before the "commencement of the case under this title". Parks contends that she could not have initiated her abuse of process suit before the commencement of the bankruptcy case because the act of filing the bankruptcy petition constituted the actionable tort. Thus, she concludes, the automatic stay provision did not apply.

We agree with Parks in at least a limited respect. We agree that the filing of the abuse of process claim was not contrary to any of the specific provisions of section 362(a). We also note that "Congress' intent in enacting Sec. 362(a) is clear--it wanted to stop collection efforts for all antecedent debts. Congress intended that the debtor obtain a fresh start, free from the immediate financial pressures that caused the debtor to go into bankruptcy." Matter of M. Frenville Co., Inc., 744 F.2d 332, 334 (3rd Cir.1984). Both the language of Sec. 362(a) and its legislative history indicate that the section was primarily intended to apply to claims based on prior debts and obligations. See 2 D. Cowans, Bankruptcy Law and Practice Sec. 11.3 (1986). It is also clear that the stay is not applicable to debts or obligations that accrue after the filing of the bankruptcy petition. Id.; see, e.g., In re Shenberg, 433 F.Supp. 677, 680 (N.D.Ill.1977). However, the effect the section would have on a theoretical third category of debts and obligations, those that might accrue at the moment of filing or by virtue of that filing, is far from clear--and that is the category involved in the case before us. While the question may be an interesting one, there is no reason for us to decide it here. We affirm the bankruptcy court's decision on other, related grounds. ⁴

Implicit in the Parkses' appeal is the notion that state courts have subject matter jurisdiction to hear a claim that the filing of a bankruptcy petition constitutes an abuse of process. We disagree with that assumption. ⁵ Filings of bankruptcy petitions are a matter of exclusive federal jurisdiction. ⁶ State courts are not authorized to determine whether a person's claim for relief under a federal law, in a federal court, and within that court's exclusive jurisdiction, is an appropriate one. Such an exercise of authority would be inconsistent with and subvert the exclusive jurisdiction of the federal courts by allowing state courts to create their own standards as to when persons may properly seek relief in cases Congress has specifically precluded those courts from adjudicating. Cf. Siravo v. Siravo, 424 A.2d 1047, 1049-50 (R.I.1981) (because the bankruptcy courts have exclusive jurisdiction over bankruptcy, a bankruptcy court's determination that a section of the Bankruptcy Act is unconstitutional may not be challenged in a state court). The ability collaterally to attack bankruptcy petitions in the state courts would also threaten the uniformity of federal bankruptcy law, a uniformity required by the Constitution. U.S. Const. art. I, Sec. 8, cl. 4.

That Congress' grant to the federal courts of exclusive jurisdiction over bankruptcy petitions precludes collateral attacks on such petitions in state courts is supported by the fact that remedies have been made available in the federal courts to creditors who believe that a filing is frivolous. Debtors filing bankruptcy petitions are subject to a requirement of good faith In re Thirtieth Place, Inc., 30 B.R. 503, 505 (Bankr.App. 9th Cir.1983), and violations of that requirement can result in the imposition of sanctions, In re 2218 Bluebird Ltd. Partnership, 41 B.R. 540, 542-43 (Bankr.S.D.Calif.1984); see In re Villareal, 46 B.R. 284 (Bankr.C.D.Calif.1984) (sanctions awarded because debtor's filing was "an abuse of the bankruptcy process"); Bankr.R. 9011. ⁷ Cf. 11 U.S.C.A. Sec. 303(i)(2) (Supp.1987) (authorizing the imposition of sanctions on petitions for involuntary bankruptcy petitions filed in bad faith). Congress' authorization of certain sanctions for the filing of frivolous bankruptcy petitions should be read as an implicit rejection of other penalties, including the kind of substantial damage awards that might be available in state court tort suits. Even the mere possibility of being sued in tort in state court could in some instances deter persons from exercising their rights in bankruptcy. In any event, it is for Congress and the federal courts, not the state courts, to decide what incentives and penalties are appropriate for use in connection with the bankruptcy process and when those incentives or penalties shall be utilized.

A Congressional grant of exclusive jurisdiction to the federal courts includes the implied power to protect that grant. For example, in Yakus v. United States, 321 U.S. 414, 64 S.Ct. 660, 88 L.Ed. 834 (1944), the Supreme Court considered the exclusive grant of jurisdiction to the Emergency Court of Appeals to hear challenges to price control regulations. The Court held that this grant precluded litigants from challenging the validity of price control regulations in state courts even as a defense in a criminal action. Cf. Donovan v. City of Dallas, 377 U.S. 408, 84 S.Ct. 1579, 12 L.Ed.2d 409 (1964) (state courts do not have the power to enjoin proceedings in the federal courts); Terral v. Burke Construction Co., 257 U.S. 529, 42 S.Ct. 188, 66 L.Ed. 352 (1922) (despite plenary state power to condition the licensing of foreign corporations to do business within the state, states cannot revoke a corporation's license on the basis that the corporation resorted to the federal court sitting in the state).

A state court judgment entered in a case that falls within the federal courts' exclusive jurisdiction is subject to collateral attack in the federal courts. See Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370 (1940) (bankruptcy case); C. Wright, Law of Federal Courts 84-86 (4th ed. 1983); see also Consolidated Rail Corp. v. Illinois, 423 F.Supp. 941 (Regional Rail Reorg. Ct.1976), cert. denied, 429 U.S. 1095, 97 S.Ct. 1111, 51 L.Ed.2d 542 (1977) (exclusive jurisdiction in a special federal court allows collateral attack in that court on an action brought in a federal district court). Thus the bankruptcy court was correct in vacating the state court judgment against the Gonzaleses. It was also correct in holding that the Parkses' claim against the Gonzaleses and Dodge was void from the outset. Permitting state courts to award damages against bankrupts' attorneys based on the filing of a bankruptcy petition would subvert exclusive federal jurisdiction in much the same manner as allowing similar awards against the bankrupt parties.

B. Recusal of the Bankruptcy Judge

The Parkses contend that the bankruptcy judge abused his discretion by refusing to recuse himself pursuant to 28 U.S.C. Secs. 144, 455(b)(1) (1982). A judge is required to disqualify himself if his impartiality might reasonably be questioned, or if he has a personal bias or prejudice concerning a party. 28 U.S.C. Secs....