In re Powers, Bankruptcy No. 94-10995-WCH.
Decision Date | 12 August 1994 |
Docket Number | Bankruptcy No. 94-10995-WCH. |
Citation | 170 BR 480 |
Parties | In re Thomas J. POWERS, Debtor. |
Court | U.S. Bankruptcy Court — District of Massachusetts |
Michael B. Feinman, Andover, MA, for Thomas J. Powers.
Liam J. Vesely, Aloisi & Aloisi, Boston, MA, for Haymarket Co-op. Bank.
PRELIMINARY DECISION ON MOTION FOR RELIEF FROM STAY
Haymarket Cooperative Bank ("Haymarket") seeks relief from the automatic stay so that it may foreclose on property mortgaged to it by Debtor. At the preliminary hearing it was agreed that I would first determine the efficacy of the waiver granted by Debtor to Haymarket pre-petition, as that issue may be determinative. If it should prove to be otherwise, a further hearing will be held. Haymarket has waived the 30-day deadline of 11 U.S.C. § 362(e).
Debtor granted Haymarket a mortgage on property at 108 Dorchester Street, South Boston, Massachusetts, in 1990. He also had other indebtedness to Haymarket, secured by other properties. In 1992 the debt secured by the Dorchester Street mortgage was consolidated with the other indebtedness by means of a settlement agreement (the "Agreement") executed on or about April 29, 1992.
At the time the Agreement was executed, Debtor was the subject of a pending Chapter 11 case in this Court. In re Powers, No. 91-19764-CJK ("Powers I")
Paragraphs 1 and 8 of the Agreement, as relevant here, provide:
On May 14, 1992 Debtor moved to dismiss Powers I. Docket No. 23. There was no opposition to the motion and dismissal was allowed by an order entered June 18, 1992. Docket No. 25.
Debtor subsequently defaulted in his undertakings under the Agreement. Haymarket began foreclosure proceedings in accordance with the terms of the Agreement, which specified the order in which the various properties would be sold. One parcel was sold and thereafter Debtor brought the current proceeding. Haymarket moved for relief from the automatic stay. Debtor objects.
As an initial matter, Debtor contends that the relief from stay provision of the Agreement applied only in Powers I and not in the present case. I ruled to the contrary from the bench. One of the triggers for approval of the relief from stay provision was dismissal. The language of the Agreement must contemplate that it would be effective in any further proceedings in which the automatic stay arose.
There remains the issue of the enforceability of the waiver, which I have taken under advisement.
The pre-petition waiver
In recent years large numbers of loans have gone into default. The result of the default is often, as in the case at bar, a "workout agreement" in which the parties restructure the transactions between them.
It has been said that "practically every loan modification or business workout agreement drafted today" contains bankruptcy waiver provisions, including the type presently before me. Jeffrey W. Warren and Wendy V.E. England, Pre-Petition Waiver of the Automatic Stay is Not Per Se Enforceable, Am.Bankr.Inst.J. 22 (March 1994). The cases determining the validity of such provisions are not in complete accord.
Waiver clauses are not per se invalid
The waiver is contained in a document executed before the commencement of proceedings under the Bankruptcy Code. The initial concern is whether it is a provision which is per se unenforceable in bankruptcy. Certain other common contractual and statutory clauses have been so held. See, e.g., Summit Investment & Development Corp. v. LeRoux (In re Leroux), 167 B.R. 318, 322 (Bankr.D.Mass.1993) ( ). The Second Circuit Court of Appeals has stated that "the debtor may not waive the automatic stay", Commerzanstalt v. Telewide Systems, Inc., 790 F.2d 206, 207 (2d Cir.1986), but that case did not involve the issue before me and I believe that the case is inapplicable in the present context. The courts which have directly considered the issue with regard to pre-petition waivers have uniformly assumed that the clause remains valid.
In In re Cheeks, 167 B.R. 817 (Bankr. D.S.C.1994), Judge Bishop explained the reason that such clauses are generally enforceable against a debtor:
167 B.R. at 818 (citations omitted). See also In re Club Tower L.P., 138 B.R. 307, 311 (Bankr.N.D.Ga.1991), and cases cited.
I agree that pre-petition agreements waiving opposition to relief from the automatic stay may be enforceable in appropriate cases.
The waiver is not self-executing
Haymarket did not take literally the language of the Agreement that its approval "shall constitute relief . . . from the automatic stay pursuant to Section 362" but instead sought to obtain that relief from the Court. It is well that it did so, for I agree with Judge Markovitz that "the contention that this `waiver' is enforceable and self-executing is without merit." In re Sky Group International, Inc., 108 B.R. 86, 88 (Bankr.W.D.Pa. 1989). A motion for relief under § 362 is required for enforcement.
Validity against the third parties
A waiver by the debtor cannot bind third parties. As Judge Bishop held in Cheeks, supra:
Effect of waiver on debtor's conduct
Some courts have held that the debtor is not barred from contesting the relief from stay notwithstanding the pre-petition waiver. Farm Credit v. Polk, 160 B.R. 870 (M.D.Fla.1993), affirms a dual finding of the bankruptcy judge that (1) such agreements are not self-executing and (2) not sufficient grounds to lift the automatic stay in the absence of bad faith. Id. at 873. Since relief from stay for cause, or dismissal of the proceeding, would normally follow a finding that the filing of the original petition was in bad faith, under this view the...
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