In re First Alliance Mortg. Co.
| Citation | 263 BR 99 |
| Decision Date | 09 May 2001 |
| Docket Number | BAP No. CC-00-1541-MaMoP. Bankruptcy No. SA 00-12370 LR. |
| Parties | In re FIRST ALLIANCE MORTGAGE COMPANY, Debtor. Commonwealth of Massachusetts, Appellant, v. First Alliance Mortgage Company; Creditors' Committee; Borrowers' Committee; United States Trustee, Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Patrick J. Evans, Rein, Evans & Sestanovich, LLP, Los Angeles, CA, Karen R. Cordry, National Association of Attorneys General, Washington, DC, for Appellant.
William N. Lobel, Irell & Manella, LLP, Newport Beach, CA, for Appellees.
Before MARLAR, MONTALI, and PERRIS, Bankruptcy Judges.
The bankruptcy court ruled that monetary claims asserted in a state court consumer protection action against the debtor were not exempt from the automatic stay, under the exception for an action to enforce a governmental unit's police or regulatory power. The Commonwealth of Massachusetts ("Commonwealth") appealed, and we REVERSE that portion of the order.1
First Alliance Mortgage Co. ("FAMCO" or "debtor") is a financial services company and one of the affiliate debtors in jointly administered chapter 112 cases. FAMCO did business in several states, including Massachusetts.
Prepetition, the Commonwealth obtained a preliminary injunction against FAMCO, which prohibited it from engaging in the loan origination business.3 The preliminary injunction ensued from the Commonwealth's lawsuit, filed under the Massachusetts Consumer Protection Act, on October 30, 1998. The Commonwealth asserted claims for injunctive relief, civil penalties, attorneys' fees and costs, and restitution on behalf of 299 Massachusetts consumers who had borrowed money from FAMCO. Litigation was pending in that action when FAMCO filed for bankruptcy protection on March 23, 2000.
On May 9, 2000, the Commonwealth filed a motion entitled "Commonwealth's Motion for Determination that the Automatic Stay Provision of the Bankruptcy Code Does Not Prevent the Commonwealth from Continuing its Superior Court Enforcement Action." It sought to continue to prosecute the state court action to a money judgment, but not to enforce such judgment. The Commonwealth alleged that the complaint was filed pursuant to the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A § 4, which authorizes the Attorney General to commence an enforcement action against any person who is alleged to be engaging in unfair or deceptive acts or practices in violation of § 2(a) of the Act. The Commonwealth argued that the action was exempt from the automatic stay, under § 362(b)(4), which provides an exception to the automatic stay for "the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit's . . . police and regulatory power. . . ." In the alternative, the Commonwealth sought relief from the automatic stay.
The motion was not accompanied by a declaration or a copy of the complaint. Nevertheless, the motion contained a detailed summary of the state court action and the allegations concerning FAMCO's business practices which gave rise to the consumer protection action. The Commonwealth alleged in its motion that the debtor had been charging excessive points for mortgage loans, and had engaged in deceptive sales and training techniques designed to conceal and mislead borrowers regarding the true measure of points charged by FAMCO.
FAMCO filed its opposition, and the attached declaration of its executive vice president and CEO Jeffrey W. Smith. Smith averred that the state court action was not meritorious, and defended FAMCO's business practices. In paragraph 10, Smith acknowledged the pending state court action, and stated: "I am informed and therefore believe that the Commonwealth . . . is seeking restitution and damages for 299 of its citizens that were among the over 35,000 borrowers on loans issued by Debtor nationwide." FAMCO also acknowledged, in its opposition, that the Commonwealth was seeking, in the state court action, the remedies of permanent injunction, restitution, civil penalties, and attorneys' fees and costs. Believing the injunctive relief to be moot because its operations had ceased, FAMCO also argued, in its brief, that the Commonwealth had "conceded that the State Court Action was commenced `to enjoin the Debtor from charging excessive points in its mortgage loans to Massachusetts borrowers . . . and from otherwise engaging in conduct that is unfair or deceptive.'" FAMCO also contended that the Commonwealth failed to present evidence in order to establish a prima facie case.
The Creditors' Committee joined in the opposition, and based its objection on the litigation costs to the estate, which could deplete the assets needed for the debtor's liquidation plan.
At the hearing, the bankruptcy court stated that the Commonwealth had not supported its motion with proper evidence.4 The court then discussed the merits of the stay exception as applied to the Commonwealth's claims. The court discussed the existence of about 35,000 potential claims against the debtor, all of which were similar to the 299 monetary claims asserted by the Commonwealth, and stated that all such claims should be liquidated in the bankruptcy case in order to treat similarly situated creditors fairly, and not deplete the liquidating estate.
The court then gave two oral rulings. First, the court denied the Commonwealth's motion for lack of evidence. Second, the court accepted the undisputed facts, and determined that only the injunctive relief was exempt from the automatic stay. The court stated:
The court's order was entered on June 26, 2000. It stated, in relevant part: "The Motions are denied in their entirety due to lack of evidence, except that the Commonwealth may proceed in State Court with respect to its claim for injunctive relief."
On July 6, 2000, the Commonwealth filed a motion entitled "Motion of Commonwealth of Massachusetts for Reconsideration of Its Motion for a Determination Concerning the Nonapplicability of the Automatic Stay."5 Attached to the motion was a declaration of the Assistant Attorney General for the Commonwealth purportedly authenticating 549 attached pages of documentary evidence, including a copy of the subject complaint. The Commonwealth stated that the purpose of the motion was to provide the evidence that the bankruptcy court "believed was lacking," and, in addition, it reargued the merits of its original motion.
Both the debtor and the Creditors' Committee opposed the motion. The Commonwealth then replied that the motion, alternatively, was a Motion to Amend Findings, pursuant to Fed.R.Bankr.P. 7052/ Fed.R.Civ.P. 52(b), based on the court's failure to delete the portion of the form of order which stated that the motion was being denied in its entirety for lack of evidence, when the court had also ruled on the merits.
After hearing argument, on August 17, 2000, the court made the following determinations on the record: (1) the stay relief order was in the alternative, and thus it correctly held that there was a lack of evidence, as well as ruled on the merits of the § 362(b)(4) exception; (2) stay relief as to the monetary claims was denied because the Commonwealth did not present evidence to prove that those claims fell under the § 362(b)(4) exception; (3) alternatively, the claims were denied because they "were in essence pecuniary actions and actions seeking the adjudication of private rights"; (4) the declaration that was submitted with the reconsideration motion was defective and constituted inadmissible evidence; (5) the motion pursuant to Fed. R.Bankr.P. 9023/Fed.R.Civ.P. 59 was denied because it failed to present any evidence that could not have been presented earlier and because the court had not erred in its earlier ruling; and (6) the motion pursuant to Fed.R.Bankr.P. 7052/ Fed.R.Civ.P. 52(b) was denied because it had been untimely raised in the reply and the stay relief order did not require amendment.6
The order denying the motion for reconsideration was entered on September 6, 2000. The Commonwealth timely appealed both the June 26th and the September 6th orders.7
The sole issue is whether the Commonwealth's consumer protection action for civil penalties, attorneys' fees, and restitution for borrowers is exempt from the automatic stay under § 362(b)(4).8
The determination whether a particular action is exempt from the automatic stay is a question of law that we review de novo. In re Berg, 198 B.R. 557, 560 (9th Cir. BAP 1996), aff'd, 230 F.3d 1165 (9th Cir.2000).
The filing of a bankruptcy petition operates as a stay, applicable to all entities, of "the commencement or continuation . . . of a judicial, administrative, or other action or proceeding against the debtor. . . ." § 362(a)(1). The general policy behind the automatic stay is to grant complete and immediate, albeit temporary, relief to the debtor from...
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