In re Wade
| Decision Date | 18 June 1990 |
| Docket Number | BAP No. AZ-89-1298-PVR,Bankruptcy No. B-87-6184 PHX RGM.,BAP No. AZ-88-1870-PVR |
| Citation | 115 BR 222 |
| Parties | In re E. Gene and Joyzelle I. WADE, Debtors. E. Gene and Joyzelle I. WADE, Appellants, v. STATE BAR OF ARIZONA, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
E. Gene and Joyzelle I. Wade, Mesa, Ariz., in pro per.
Margaret D. White, Phoenix, Ariz., for the appellee, State Bar of Arizona.
Before PERRIS, VOLINN, and RUSSELL, Bankruptcy Judges.
These appeals arise out of orders relating to the effect of the automatic stay on a disciplinary proceeding brought by the appellee, the Arizona State Bar ("the Bar" or "the Arizona Bar") against the debtor, E. Gene Wade ("the debtor").1 The bankruptcy court determined that the stay did not apply to the disciplinary proceeding under 11 U.S.C. § 362(b)(4)2 and entered an order lifting the stay. Along with a motion for a new trial on the relief from the stay issue, the debtors filed a counterclaim seeking damages for the Bar's willful violation of the stay. The bankruptcy court dismissed the counterclaim on procedural grounds. The debtors appealed from the orders lifting the stay and dismissing the counterclaim. We AFFIRM the bankruptcy court's determination that the stay did not apply to the Bar's disciplinary proceedings and we AFFIRM the dismissal of the counterclaim. We REMAND BAP No. AZ-88-1870 for the narrow purpose of reforming the bankruptcy court's order in a manner consistent with this opinion.
At all relevant times, the debtor was an attorney and a member of the Bar. On October 1, 1987, the debtors filed a Chapter 11 petition. On October 2, 1987, the Bar initiated formal disciplinary proceedings against the debtor.3 The debtor had notified the Bar of the filing of the bankruptcy petition.
On June 9, 1988, the Bar moved for relief from the automatic stay for the purpose of allowing the continuation of the pending disciplinary proceeding. The Bar contended that the stay was inapplicable under section 362(b)(4) and alternatively that even if the stay were applicable, relief should be granted for cause under section 362(d)(1). The Bar served the motion on the debtor by mail on June 15, 1988. Under local rule a response was not due until July 5, 1988, four days after the scheduled hearing on the motion. On June 30, 1988, the debtors filed a notice of appearance and intent to file a response by July 5, 1988.
At the hearing on July 1, 1988, Judge Mooreman, after hearing that the debtor intended to oppose the motion, indicated that he did not think the automatic stay applied to disciplinary actions and that he would so rule. On the same day, the bankruptcy court entered an "Order re Motion for Relief from Automatic Stay", which ruled that disciplinary proceedings brought by the Bar are excepted from the automatic stay under section 362(b)(4). The order further stated that it was not the final order, but that the Bar should submit a consistent order which, when signed by the court, would be deemed the final order. On July 7, 1988, the bankruptcy court entered an order stating that the automatic stay was lifted as to the Bar for the purpose of allowing it to prosecute disciplinary matters against the debtor.
Along with a timely motion for a new trial and for amendment of the judgment, findings and conclusions, the debtors filed a response to the motion for relief from the stay and a counterclaim against the Bar. The counterclaim sought damages for the Bar's willful violation of the stay and for the Bar's violation of its confidentiality rules in filing the motion for relief from the stay. The Bar moved to dismiss the counterclaim.
After providing the parties a full opportunity to brief and argue their positions, the bankruptcy court, on September 6, 1988, entered an order denying the debtors' motions and ratifying and affirming the Opinion and Order of July 1, 1988 and the Order of July 7, 1988. The debtors filed a timely notice of appeal from the July 7 and September 6 orders (AZ-88-1870).
Subsequently, the debtors moved to stay, during the pendency of their appeal, further proceedings in "Adversary `E'," the proceeding concerning the relief from the stay matters and the debtors' counterclaim. On February 13, 1989, the bankruptcy court denied the debtors' motion to stay further proceedings and granted, on procedural grounds, the Bar's motion to dismiss the debtors' counterclaim. In the minute order reflecting its ruling on this issue, the bankruptcy court stated that "it is not necessary for the Court to pass on any issue of substantive law involving the origin of the State Bar of Arizona, it occurring to the Court that this is not an appropriate forum for that type of action." Excerpt of Record ("E.R."), Item 41. Following the denial of the debtors' motion to amend the February 13 Order, the debtors appealed (AZ-89-1298). The Panel consolidated the two appeals for purposes of briefing and oral argument.
1. Whether the actions of the Bar in commencing and continuing the disciplinary proceeding against the debtor were subject to the automatic stay of section 362.
2. Whether the Orders of July 1 and July 7 violated the debtors' due process rights.
3. Whether the bankruptcy court erred in dismissing the debtors' counterclaim seeking damages for willful violation of the stay.
A bankruptcy court's findings of fact will not be reversed unless clearly erroneous. E.g., In re Lewis, 79 B.R. 893, 895 (9th Cir.1987). Conclusions of law are subject to de novo review. Id. Although an order on a motion for relief from the stay is generally reviewed for an abuse of discretion, see, e.g., In re Can-Alta Properties, Ltd., 87 B.R. 89, 91 (9th Cir. BAP 1988), the primary issues on this appeal — whether and to what extent the Bar's disciplinary proceedings are subject to the automatic stay — involve questions of law that we review de novo.4
As relevant to the substantive issues on appeal, section 362 provides as follows:
The application of these provisions raises two issues: (1) whether the Bar's disciplinary proceeding is excepted from the stay as a proceeding by a governmental unit to enforce its police or regulatory power and (2) whether the proceeding seeks to obtain property of the estate or enforce a money judgment so that the stay nevertheless applies.
The bankruptcy court determined that the Bar's disciplinary proceedings are excepted from the automatic stay under section 362(b)(4), implicitly finding that the Bar was a "governmental unit" enforcing its "police or regulatory power."6 The debtors contend that the Bar is not a "governmental unit" for purposes of section 362(b)(4).
Section 101(26) provides, in relevant part as follows:
"governmental unit" means United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States, . . ., a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.
The legislative history to section 101(26) indicates that this subsection defines "governmental unit" in the broadest sense and further explains the meaning of the term:
"Department, agency, or instrumentality" does not include entities that owe their existence to state action such as the granting of a charter or a license but that have no other connection with a State or local government or the Federal Government. The relationship must be an active one in which the department, agency or instrumentality is actually carrying out some governmental function.
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 311 (1977), U.S.Code Cong. & Admin.News 1978, p. 6268.
Although there is a paucity of cases expressly addressing what is a "governmental unit" for purposes of section 362(b)(4), this legislative history suggests that courts apply a functional approach by examining whether the entity at issue is carrying out a governmental function. The limited case law suggests that courts should also...
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