In re Davis
| Citation | 177 BR 907 |
| Decision Date | 02 February 1995 |
| Docket Number | BAP No. EC-93-2135-CRJ. Bankruptcy No. 92-1-4351B-13F. Adv. No. 93-1142. |
| Parties | In re Betty Jean DAVIS, Debtor. Betty Jean DAVIS, Appellant, v. C.G. COURINGTON, Mary Courington, Priscilla Cardoza, Guy Ernest Guthrie, Harriet L. McGuire, Mary E. Schmall, San Joaquin Investments, Inc., David Rose, Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Betty Jean Davis, in pro. per.
Russell D. Greer, Fresno, CA, for appellees.
Before CARLSON,1 RUSSELL and JONES, Bankruptcy Judges.
The principal question raised in this appeal is whether Appellant's action alleging willful violation of the automatic stay was rendered moot by dismissal of the underlying bankruptcy case. We conclude that the action was not rendered moot and reverse the bankruptcy court's order dismissing the action.
On June 24, 1992, Betty Jean Davis (Appellant) filed an action in Fresno County Superior Court alleging that certain secured lenders and their agents (Appellees): (1) wrongfully refused to accept loan payments from Appellant; (2) misapplied loan payments from Appellant; (3) initiated foreclosure proceedings in violation of California law; (4) defamed Appellant by falsely stating she had served time in prison and was a drug dealer; and (5) deliberately attempted to drive Appellant out of business. Appellant filed a chapter 13 petition on August 7, 1992 before the action came to trial. On August 12, 1992 and September 8, 1992, Appellees conducted non-judicial foreclosure sales on two properties claimed by Appellant to be property of the estate. Appellees did not seek relief from the automatic stay before conducting these foreclosures.2
On July 16, 1993, Appellant filed the adversary proceeding at issue. The complaint alleges six causes of action. The third cause of action alleges that the postpetition foreclosures constituted willful violation of the automatic stay under 11 U.S.C. § 362(h). The fifth and sixth causes of action allege that Appellees committed other violations of the automatic stay. The remaining three causes of action allege various state-law wrongful foreclosure theories similar to those alleged in the prior state-court action. Appellees McGuire, Guthrie, Rose, and San Joaquin Investments, Inc. are named only in the state-law causes of action.
On July 20, 1993, the bankruptcy court granted the chapter 13 trustee's motion to dismiss Appellant's chapter 13 bankruptcy case because of Appellant's failure to propose a feasible plan of reorganization. The order dismissing the case was entered on July 23, 1993.
On August 18, 1993, Appellees filed a motion to have the bankruptcy court dismiss Appellant's adversary proceeding for lack of subject-matter jurisdiction, or to have the bankruptcy court abstain from hearing the action. Appellant did not file any written opposition to the motion.
The court granted Appellees' motion to dismiss. The court reasoned that because the underlying bankruptcy case had been dismissed, the complaint for damages for violation of the automatic stay was moot.
(1) Whether a complaint under section 362(h) of the Bankruptcy Code for willful violation of the automatic stay becomes moot upon the dismissal of the underlying bankruptcy case.
(2) Whether the bankruptcy court had subject-matter jurisdiction over the dismissed action.
(3) Whether dismissal of the action was an appropriate exercise of discretionary abstention.
This panel has jurisdiction to hear appeals from final judgments, orders, and decrees entered by bankruptcy courts. 28 U.S.C. § 157(a), (b). Although the bankruptcy court dismissed the complaint without prejudice, the order was a final one, because it terminated the instant action. The bankruptcy court contemplated that Debtor could bring the action before that court again only by filing a new adversary proceeding if the dismissal of the underlying chapter 13 case was set aside on appeal.
The propriety of dismissal of a complaint on the ground that the complaint is moot or on the ground that the court lacks subject-matter jurisdiction is a question of law that is subject to de novo review. In re Omoto, 85 B.R. 98, 99-100 (9th Cir. BAP 1988). A bankruptcy court's decision to decline to exercise jurisdiction over related proceedings following dismissal of the underlying bankruptcy case is set aside only for abuse of discretion. In re Carraher, 971 F.2d 327, 328 (9th Cir.1992).
1. Mootness. The weight of authority suggests that the dismissal of a bankruptcy case does not render moot an action for damages based on a willful violation of the automatic stay during the pendency of the bankruptcy case. See Price v. Rochford, 947 F.2d 829, 831-32 (7th Cir.1991); Martin-Trigona v. Champion Fed. Sav. & Loan Ass'n, 892 F.2d 575, 577 (7th Cir.1989); In re Fingers, 170 B.R. 419, 425 (S.D.Cal.1994); In re Nelson, 159 B.R. 924, 925 (Bankr.D.Idaho 1993).
In re Income Property Builders, Inc., 699 F.2d 963 (9th Cir.1982) is not to the contrary. In that case, the bankruptcy court granted relief from the stay to permit a creditor to foreclose. A second creditor moved to have the bankruptcy court reinstate the stay. The bankruptcy court denied the motion and the second creditor appealed. By the time the appeal was heard, however, the first creditor had completed its foreclosure sale and the bankruptcy case had been dismissed. The Ninth Circuit dismissed as moot the second creditor's appeal from the order declining to reinstate the automatic stay. The court reasoned that it would be an idle act to reinstate the stay, because there was no longer any bankruptcy case for the automatic stay to serve. Id. at 964. Income Property Builders is distinguishable from the present case because there had been no violation of the stay and because appellant was not seeking monetary damages. Although the court stated that the bankruptcy court "no longer had power to order the stay or to award damages allegedly attributable to its vacation," Id., the language referring to damages is clearly dictum because no claim for damages was at issue in the appeal.
In re Omoto, 85 B.R. 98 (9th Cir. BAP 1988), is also distinguishable from the present case, because it did not involve a claim for damages for violation of the automatic stay. In that case, a creditor foreclosed upon the debtor's residence without obtaining prior relief from the automatic stay. The bankruptcy court granted the creditor's motion for retroactive relief from the stay, validating the foreclosure sale. Debtor's chapter 13 bankruptcy case was subsequently dismissed. Debtor did not appeal the dismissal order. Debtor did appeal the order granting retroactive relief from the stay. This panel dismissed that appeal as moot on the basis that there was no legitimate purpose to set aside the foreclosure sale once the bankruptcy case had been dismissed.
When the underlying case is dismissed, the issue of whether the court should have approved the foreclosure sale is rendered moot because there is no longer an attempt to pursue a Chapter 13 plan. There is, therefore, no reason to restrain the creditor\'s right to foreclose.
Id. at 100. We did not address whether any claim for damages would have been rendered moot by the dismissal of the bankruptcy case, because appellant had not sought such relief.
Nor does section 349 of the Bankruptcy Code, which specifies the effects of dismissal of an underlying case, provide that dismissal moots an action for willful violation of the automatic stay. Section 349(b) provides that dismissal revests property of the estate in the debtor and vacates orders entered avoiding certain liens and transfers. Section 349(b) does not, however, retroactively vacate the automatic stay, vacate orders remedying violation of the stay, or vitiate any cause of action based upon violation of the stay.
We concur with the authorities holding that dismissal of the underlying bankruptcy case does not render moot an action for damages based on willful violation of the automatic stay. Willful violation of the automatic stay is an intentional tort for which compensatory and punitive damages may be awarded. 11 U.S.C. § 362(h). Imposition of damages for willful violation of the automatic stay serves an important purpose even after the underlying bankruptcy case has been dismissed; it provides compensation for and punishment of intentionally wrongful conduct. See In re Carroll, 903 F.2d 1266 (9th Cir.1990) (). Stated differently, intentionally wrongful conduct should not be excused merely because the underlying bankruptcy case has been dismissed. Thus, we conclude that "a legally cognizable interest in the outcome of the adversary proceeding survives the bankruptcy." In re Universal Farming Industries, 873 F.2d 1334, 1336 (9th Cir. 1989).
2. Subject-Matter Jurisdiction. Appellees contend that the order dismissing the adversary proceeding without prejudice should be affirmed on the basis that the bankruptcy court lacked subject-matter jurisdiction over the action. Although the bankruptcy court did not rely...
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