In re Virginia Hill Partners I
| Decision Date | 29 November 1989 |
| Docket Number | Bankruptcy No. A89-03490. |
| Citation | 110 BR 84 |
| Parties | In re VIRGINIA HILL PARTNERS I, Debtor. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Movant, v. VIRGINIA HILL PARTNERS I, Respondent. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
Edward L. Greenblatt, Lipshutz, Greenblatt & King, Atlanta, Ga., for debtor.
Kevin C. Gallagher, Paul, Hastings, Janofsky & Walker, Atlanta, Ga., for movant.
Before the court are debtor's motion for sanctions, filed July 21, 1989; debtor's extraordinary motion for court order, filed September 6, 1989; and Bank of America's motion for sanctions, filed September 6, 1989. This is a core proceeding pursuant to 28 U.S.C. § 157(b). After a review of the motions and the accompanying briefs and responsive briefs, the court makes the following findings of fact and conclusions of law:
FACTS
On April 3, 1989, Virginia Hill Partners I ("debtor"), developers and owners of the Virginia Hill Condominiums (the "property"), filed its petition for reorganization under Chapter 11. Bank of America National Trust and Savings Association ("Bank of America"), a secured creditor, filed a motion for relief from the automatic stay on April 7, 1989, requesting "unconditional relief from the automatic stay, so that Lender may enforce its security interests in the Collateral pursuant to the Loan Documents and applicable law." Motion for Relief from Stay at 8 (filed Apr. 7, 1989). On June 2, 1989, the court granted the motion and ordered that:
the automatic stay under 11 U.S.C. § 362 is lifted to allow Bank of America to assert its rights against Debtor\'s property under applicable law, including, without limitation, the right to foreclose upon the Debtor\'s unsold residential condominium units....
Court's Order at 1-2 (filed June 2, 1989).
On June 6, 1989, Bank of America foreclosed and sold the property under a power of sale. On June 13, 1989, the United States Trustee filed a motion to dismiss or to convert the case to chapter 7 inasmuch as the debtor's single asset had been sold and there was no business to reorganize. On June 16, 1989, debtor responded that it did not oppose dismissal of the case without prejudice.
Bank of America filed an application for confirmation of foreclosure sale in the Fulton County Superior Court on July 5, 1989. On July 21, three days before the scheduled hearing on the trustee's motion to dismiss or convert, the debtor filed a plea in abatement in the Fulton County Superior Court and a motion for sanctions in this court contending that Bank of America had willfully violated the automatic stay by filing the application for confirmation of foreclosure sale. On the same date, debtor also filed a supplemental response to the trustee's motion to dismiss or convert withdrawing its earlier assent to dismissal. Bank of America apparently has filed a motion for continuance of the confirmation hearing in Fulton County Superior Court pending the outcome of the motions now before this court. See Motion for Continuance and Brief in Support of Motion for Continuance (undated) attached to debtor's Extraordinary Motion for Court Order (filed Sept. 6, 1989). On September 6, 1989, debtor filed an extraordinary motion for court order seeking a determination that Bank of America has violated the automatic stay, but a deferral of a ruling on debtor's requests for sanctions until a later date, if necessary.
In its motion for sanctions, debtor seeks an order holding Bank of America in contempt for its willful violation of the automatic stay; directing Bank of America to cease its attempt to confirm the sale and to dismiss the state court proceeding; awarding damages to debtor, including punitive damages and attorney's fees; and fining Bank of America $500 per day for each day the state court proceedings remain pending after entry of such an order.
Debtor cites 11 U.S.C. § 362(a)(1), (3), (4), (5), and (6) as being applicable in this case. Subsections 362(a)(1) and (6) are of particular significance, providing that a petition in bankruptcy operates as a stay of:
11 U.S.C. § 362(a)(1), (6).
Debtor contends that the order lifting the stay permitted foreclosure but did not permit Bank of America to "proceed for a deficiency judgment against the Debtor, initiate and commence state court confirmation proceedings or otherwise collect or attempt to recover claims against the Debtor." Debtor's Brief at 3 (filed July 21, 1989). Debtor further maintains that the commencement of a confirmation proceeding exceeded the relief granted and was a willful violation of the stay.
Bank of America contends first that the confirmation proceeding is not subject to the automatic stay. It cites Jonesboro Inv. Trust Ass'n v. Donnelly, 141 Ga.App. 780, 234 S.E.2d 349 (1977), which held:
The confirmation of the sale here ... was neither the assertion of a lien against the bankrupt or the bankrupt\'s property and was not a "proceeding" against the bankrupt as it was not a party to the "proceeding" at the time of the confirmation of the sale. The confirmation of the sale in no way violated the automatic stay....
Id. at 787, 234 S.E.2d at 353.
The Georgia Court of Appeals in Jonesboro and other state court decisions1 have characterized a Georgia confirmation proceeding as summary in nature and not a civil suit. The federal courts, however, are not bound by such characterizations. Weems v. McCloud, 619 F.2d 1081, 1087 (5th Cir.1980).2 The Fifth Circuit in Weems, while noting the Jonesboro and other state court decisions, held that when a state establishes a judicially enforceable substantive right and remedy, a federal court can adjudicate controversies involving such rights if the federal court otherwise has jurisdiction under the Constitution and federal laws. Id. at 1087 (citing Markham v. City of Newport News, 292 F.2d 711, 716 (4th Cir.1961)). That court concluded further that a Georgia confirmation proceeding was such a substantive right and that it was a "`suit of a civil nature at common law or in equity'" sufficient to invoke federal jurisdiction. Id. at 1090.
The section 362(a) stay is very broad in scope and applies to almost any type of formal or informal action against the debtor or the debtor's property except for the limited exceptions of section 362(b). 2 Collier on Bankruptcy ¶ 362.04 (15th ed. 1989). "The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws." H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 340 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5963, 6296-97 (quoted in Association of St. Croix Condo. Owners v. St. Croix Hotel Corp., 682 F.2d 446, 448 (3d Cir.1982)). The automatic stay is intended to prevent creditors from gaining a preference; to forestall depleting the debtor's assets; and to avoid interfering with or disrupting the administration of the estate in the orderly liquidation or rehabilitation of the debtor. Association of St. Croix Condo. Owners v. St. Croix Hotel Corp., 682 F.2d at 448. Courts should be "especially hesitant to validate acts committed during the pendency of the stay." Albany Partners, LTD. v. Westbrook (In re Albany Partners, LTD.), 749 F.2d 670, 675 (11th Cir.1984). Based on the breadth of the section 362(a) stay, its underlying congressional policies, and the reasoning of Weems, this court concludes that a Georgia confirmation proceeding is an action in the nature of a "civil suit" such that the section 362(a) automatic stay applies.
Bank of America also contends that the stay does not apply because the confirmation hearing occurred postpetition. The court does not agree. Section 362(a)(1) applies to an action that "was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case...." 11 U.S.C. § 362(a)(1). Because Bank of America's claim and contract rights arose before the filing of the petition, the court finds and concludes that this is an action to which the section 362(a)(1) automatic stay applies.
Bank of America contends further, that even if the confirmation proceeding is subject to the automatic stay, the order granting relief from the stay authorized such action as necessarily incident to, and the final act of, foreclosure under a power of sale. The cases interpreting the Georgia confirmation proceedings do not support this contention.
Georgia law provides that when a nonjudicial foreclosure sale brings less than the amount of the secured debt, the foreclosing secured creditor must obtain a judicial confirmation of the sale as a condition precedent to obtaining a deficiency judgment. O.C.G.A. § 44-14-161. Failure to obtain the confirmation precludes a later deficiency judgment. Walton Motor Sales, Inc. v. Ross, 736 F.2d 1449, 1455 (11th Cir.1984); First Fed. Sav. & Loan Ass'n v. Fisher, 422 F.Supp. 1, 3 (N.D.Ga.1976). The court may set the sale aside if it is shown that the sale did not bring its true market value. See O.C.G.A. § 44-14-161; G. Pindar, 2 Georgia Real Estate Law and Procedure § 21-86 (3d ed. 1986). In its discretion, the court may order a resale of the property. Resale is not required. It is merely a further remedy under Georgia law where confirmation has been denied. United States v. Golf Club Co., 435 F.2d 9, 10 (5th Cir.1970); Weems v. McCloud, 619 F.2d at 1087. Failure to...
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