Ingersoll-Rand Financial Corp. v. Miller Min. Co., Inc.

• Decision Date: 26 May 1987
• Docket Number: No. 86-6156,INGERSOLL-RAND,86-6156
• Citation: 817 F.2d 1424
• Parties: Bankr. L. Rep. P 71,843, 3 UCC Rep.Serv.2d 1632 FINANCIAL CORPORATION, Plaintiff-Appellee, v. MILLER MINING COMPANY, INC.; Michael Miller, Esq., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1424

817 F.2d 1424

Bankr. L. Rep. P 71,843, 3 UCC Rep.Serv.2d 1632

INGERSOLL-RAND FINANCIAL CORPORATION, Plaintiff-Appellee, v. MILLER MINING COMPANY, INC.; Michael Miller, Esq. Defendants-Appellants.

No. 86-6156.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 8, 1987.

Decided May 26, 1987.

Samuel W. Gordon, Encino, Cal., for plaintiff-appellee.

Michael Miller, Los Angeles, Cal., for defendants-appellants.

Appeal from the United States District Court for the Central District of California.

Before SNEED, BOOCHEVER and THOMPSON, Circuit Judges.

BOOCHEVER, Circuit Judge:

Miller Mining Company and Michael Miller, its guarantor, appeal a deficiency judgment entered against them by the district court. They allege that Ingersoll-Rand Financial Corporation did not conduct the resale of collateral it repossessed from Miller Mining in a commercially reasonable manner. Failure to do so, they contend, gave rise to a presumption that the proceeds of sale were equal to the claimed deficiency. We agree. We also conclude that the automatic bankruptcy stay applies to Miller Mining Company's appeal but does not apply to Michael Miller.

FACTS

On October 17, 1979, Miller Mining Company purchased a used Wagner, Model # ST-8 front-end loader (loader), for $79,000 plus tax for a total of $83,740. It paid $20,935 down and executed a security agreement in favor of Ingersoll-Rand Financial Corporation for the balance of $62,805. The security agreement provided for the payment of twenty-four equal monthly installments of $3,115 commencing on December 1, 1979. In the event of default, Ingersoll-Rand was to retain all prior payments as liquidated damages.

The then president of Miller Mining, Michael Miller, acting as an individual, signed a guaranty for the debt incurred by Miller Mining. The provisions of both the guaranty and the security agreement were to be construed and enforced in accordance with the laws of the State of New Jersey. The Uniform Commercial Code was designated in the security agreement to govern the rights, duties, and remedies of the parties.

On October 9, 1980, Ingersoll-Rand declared a default when Miller Mining failed to make its August and September payments. The future payments totaling $49,933.73 were accelerated in accordance with the security agreement. Within one month, Miller Mining delivered the loader The loader is a truck used in underground mining to carry ore to the surface. The condition of the loader upon surrender by Miller Mining is disputed. Mr. Miller testified that the vehicle was operating during the summer of 1980 and continued to be in use by the company when payments were stopped due to a cash shortage. He asserts that the equipment developed hydraulic and transmission problems while in the possession of Ingersoll-Rand. Ingersoll-Rand, on the other hand, contends that the impaired condition of the loader was created by Miller Mining. The district court found that Ingersoll-Rand did not fully examine the property upon surrender to determine its condition.

to Ingersoll-Rand's premises where it was kept in an equipment yard devoted to the sale and service of heavy equipment.

Efforts by Ingersoll-Rand to sell the loader did not generate any interest until twenty months after repossession when a Canadian company purchased the loader as scrap for $6,000. Ingersoll-Rand filed a claim seeking recovery of the principal, $55,272.88, plus interest, attorneys' fees, and costs of suit.

In a trial without a jury, the district court found that Ingersoll-Rand did not make all reasonable repairs to prepare the property for resale, and did not maintain the property under the most reasonable conditions prior to its sale. Otherwise, the court found that Ingersoll-Rand disposed of the property in a commercially reasonable manner. The court rendered judgment for Ingersoll-Rand and awarded damages in the amount of $28,000, plus interest, attorneys' fees, and costs. Several months later, Miller Mining filed a bankruptcy petition for Chapter 11 relief. Michael Miller concedes that a guarantor's liability is co-extensive with that of the party primarily liable.

ANALYSIS

I. Automatic Bankruptcy Stay

Before reaching the merits of this case, we must decide whether this appeal is stayed due to the filing of a bankruptcy petition by Miller Mining. Section 362 of the Bankruptcy Code provides:

(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of--

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor 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 under this title....

11 U.S.C. Sec. 362(a) (Supp. III 1985) (emphasis added). Although the instant appeal is clearly a continuation of a judicial proceeding, a question arises in the interpretation of the phrase "against the debtor." Because this appeal is brought by the debtor, it could be argued that the language of section 362 does not apply.

We agree, however, with the decisions of other circuits which have stayed appeals by the debtor when the original proceeding was brought against the debtor. The Sixth Circuit in Cathey v. Johns-Manville Sales Corp., 711 F.2d 60, 62 (6th Cir.1983), cert. denied, --- U.S. ----, 106 S.Ct. 3335, 92 L.Ed.2d 740 (1986), followed the Third Circuit's rationale stating:

In our view, section 362 should be read to stay all appeals in proceedings that were originally brought against the debtor, regardless of whether the debtor is the appellant or appellee. Thus, whether a case is subject to the automatic stay must be determined at its inception. That determination should not change depending on the particular stage of the litigation at which the filing of the petition in bankruptcy occurs.

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2. Difficulties with the "appellant-appellee" approach to section 362 would arise even if only one party appealed. We can hypothesize an appeal by a debtor from an adverse judgment rendered in an action brought against it by one of its creditors. If the appeal is permitted because it is an appeal "by" the debtor, and the debtor prevails on the appeal, we question the effect of such an interpretation if the creditor decides to bring the case to a higher court. Is this second level of appeal then stayed because the appeal is not one "against" the debtor? The unfairness of such an approach is obvious.

Id. (quoting Association of St. Croix Condominium Owners v. St. Croix Hotel, 682 F.2d 446, 449 (3d Cir.1982)).

Relief from an automatic stay is possible, however, under section 362(d). The bankruptcy court, under this section, may lift a stay upon request of a party in interest following notice and a hearing. 11 U.S.C. Sec. 362(d) (Supp. III 1985); Cathey, 711 F.2d at 62. In the instant case, the bankruptcy court has not granted relief from the stay and none of the exceptions under subsection (b) is applicable. Therefore, Miller Mining is prevented from proceeding with this appeal.

The stay of the appeal, however, does not extend to Michael Miller as guarantor. In the absence of special circumstances, stays pursuant to section 362(a) are limited to debtors and do not include non-bankrupt co-defendants. See Teachers Ins. and Annuity Ass'n of Am. v. Butler, 803 F.2d 61, 65 (2d Cir.1986). In Otoe County Nat'l Bank v. W & P Trucking, Inc., 754 F.2d 881, 883 (10th Cir.1985), the court refused to extend the automatic stay to a guarantor under section 362. The possibility of a stay, the court suggested, may exist under section 105 which provides: "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. Sec. 105(a). Due to the absence of any order from the bankruptcy court staying proceedings as to the guarantor, Michael Miller's appeal is properly before this court.

II. Standard of Review

The Uniform Commercial Code as enacted in New Jersey states that "every aspect of the disposition [of repossessed collateral] including the method, manner, time, place and terms must be commercially reasonable." N.J.Stat.Ann. Sec. 12A:9-504(3) (West 1962 & Supp.1986). A finding by the district court that the sale is commercially reasonable is a finding of fact and will be upheld by a reviewing court unless it is clearly erroneous. Fed.R.Civ.P. 52(a); see C.I.T. Corp. v. Duncan Grading and Constr., Inc., 739 F.2d 359, 362 (8th Cir.1984). A finding of fact is "clearly erroneous" and may be set aside when "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., ...