de Jesus Saez, In re

• Decision Date: 01 August 1983
• Docket Number: No. 83-1191,83-1191
• Citation: 721 F.2d 848
• Parties: 9 Collier Bankr.Cas.2d 893, 11 Bankr.Ct.Dec. 785, Bankr. L. Rep. P 69,509 In re Ana J. DE JESUS SAEZ, Debtor. Luis R. MARTIR LUGO, Plaintiff, Appellee, v. Ana J. DE JESUS SAEZ, et al., Defendants, Appellees. George Rieckehoff, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 848

721 F.2d 848

9 Collier Bankr.Cas.2d 893, 11 Bankr.Ct.Dec. 785,

Bankr. L. Rep. P 69,509

In re Ana J. DE JESUS SAEZ, Debtor Luis R. MARTIR LUGO, Plaintiff, Appellee, v. Ana J. DE JESUS SAEZ, et al., Defendants, Appellees George Rieckehoff, Defendant, Appellant.

No. 83-1191.

United States Court of Appeals First Circuit.

Heard Aug. 1, 1983.

Decided Nov. 22, 1983.

Ciro A. Betancourt, with whom Eduardo A. Betancourt, Santurce, P.R., was on brief, for defendant, appellant.

Rodrigo Otero Bigles, with whom Otero Suro & Otero Suro, Hato Rey, P.R., was on brief, for defendants, appellees.

Before CAMPBELL, Chief Judge, BOWNES, Circuit Judge, and PEREZ-GIMENEZ, ^* District Judge.

LEVIN H. CAMPBELL, Chief Judge.

This is an appeal from a bankruptcy court's award of damages to a debtor, Ana de Jesus Saez ("de Jesus"), based upon the harm she suffered when a secured creditor, George Rieckehoff, sold her house in purported violation of the automatic stay provisions of the Bankruptcy Act of 1978, 11 U.S.C. Sec. 362. The bankruptcy court's order awarding damages was sustained on appeal by the United States District Court for the District of Puerto Rico. We reverse.

I.

De Jesus and her husband purchased a house in 1976. The house became hers in 1979 after their divorce. In February 1980 she borrowed $5,500 from Rieckehoff, giving a junior mortgage on her house as security. By June 1980, de Jesus, who says she is disabled and unemployed, had fallen behind on her loan payments, and Rieckehoff began foreclosure proceedings in a local Puerto Rico court. In December 1980, Rieckehoff obtained a default judgment against her.

On January 30, 1981, de Jesus, represented by counsel, petitioned the bankruptcy court for relief in accordance with chapter 13. This petition triggered the provisions of 11 U.S.C. Sec. 362, staying automatically any proceedings by creditors such as Rieckehoff to levy on security in the hands of the debtor. Rieckehoff's attorney, however, apparently did not learn of the bankruptcy proceeding until sometime on April 1, 1981. ¹ Earlier that day, pursuant to permission received from a local Puerto Rico court, Rieckehoff allowed a public auction of de Jesus's house to be held. No sale occurred only because no one offered the minimum bid.

A few days later Rieckehoff petitioned the bankruptcy court for relief from the automatic stay so as to allow him to hold a second auction of the house on May 2, a date later rescheduled by the sheriff to May 14. The bankruptcy court denied Rieckehoff's request for relief from the stay on April 30, 1981, but set a further hearing on the same request for May 28, 1981.

De Jesus was less than diligent in pursuing her chapter 13 proceeding. Neither de Jesus nor her attorney appeared at creditors' meetings scheduled for April 2 and, again, on April 30. Consequently, the creditors present recommended that her petition be dismissed. 11 U.S.C. Sec. 1307(c). On May 6, 1981 the bankruptcy court announced that it would dismiss de Jesus's bankruptcy petition for failure to prosecute. Notice of this action was sent out on May 7. The actual order of dismissal was entered on May 11, 1981. Two days later, on May 13, de Jesus filed a motion for reconsideration of the dismissal. ² According to Rieckehoff, the motion was never served upon him, and he did not hear of the motion until early in June. No proof of service or the like has been called to our attention to show that service was, in fact, ever made either on Rieckehoff or other parties. ³ On May 14, the scheduled auction of de Jesus's house took place. The house was sold to Carlos Martir Santiago. On June 1, 1981 de Jesus filed a further motion in which she informed the court that the May 14 auction had been held without notice to her. A copy of this motion was received by Rieckehoff's attorney on June 7 or 8. Shortly thereafter, on June 15, Carlos Martir Santiago resold the house to his nephew, Luis Martir Lugo.

On June 16, 1981, after a hearing, the bankruptcy court allowed de Jesus's motion to reconsider the dismissal of her bankruptcy petition. On August 14 the court issued a memorandum opinion and order voiding the May 14 sale of de Jesus's house, which is reported as In re Saez, 13 B.R. 605 (Bkrtcy.D.P.R.1981). This order precipitated the action now before this court. On September 25 Martir Lugo initiated an adversary proceeding in the bankruptcy court to quiet title to de Jesus's house or, in the alternative, to obtain damages from Rieckehoff for breach of warranty. Rieckehoff cross-claimed against de Jesus, in essence, for indemnity. De Jesus crossclaimed against Rieckehoff, charging that he had "maliciously persecuted" her, causing her mental anguish. On March 31, 1982, after a one-day trial, the bankruptcy court dismissed Martir Lugo's claim for lack of ripeness and Rieckehoff's on the merits. It awarded damages and attorneys' fees to de Jesus to compensate her for injuries arising from Rieckehoff's "intentional acts." It is from the latter award that Rieckehoff appeals.

II.

At the June 16, 1981 hearing and thereafter, Rieckehoff strenuously challenged the bankruptcy court's right to entertain de Jesus's motion to reconsider its dismissal of her chapter 13 petition. Rieckehoff argued that de Jesus's failure to serve the motion to reconsider within ten days after entry of the judgment of dismissal, as required under Bankr.R. 923, 11 U.S.C., caused the motion to fail, with the result that the court lacked jurisdiction over both the bankruptcy case and all ensuing adversary proceedings (viz., from Martir Lugo's quiet title action to de Jesus's present damages crossclaim).

The bankruptcy court disagreed. Because, in its view, Bankr.R. 762, 11 U.S.C., extended the automatic stay for ten days after the dismissal, ⁴ the sale of de Jesus's house on May 14, three days after the dismissal, was held to be in flagrant violation of the stay. The court saw its authority to restore the status quo and afford redress to de Jesus as stemming from its power to enforce the stay. In its March 31, 1982 opinion the court concluded that any failure by de Jesus to serve her motion for reconsideration

has no relevancy at all. What is really important is that [Rieckehoff] took affirmative actions in the foreclosure case even though there was a pending bankruptcy case .... Even if he was not notified, (and we have serious doubts as to whether he had to be under the circumstances of this case), he should have waited the 10 days.

On appeal to the district court Rieckehoff again unavailingly argued that de Jesus's failure to serve the motion to reconsider had deprived the court of jurisdiction. The district court concluded, "[T]he consequences of failure to serve depend on the nature of the pleading in question. Wright & Miller, 4 Federal Practice and Procedure: Civil Sec. 1143 (1969). Under no circumstance[s] does failure to serve a motion for reconsideration deny the Court jurisdiction." Following Rieckehoff's motion to reconsider, the district court reiterated, "Unquestionably, although it would have been better to serve the motion here in question, considering the totality of the circumstances and the fact that the Bankruptcy Court still had jurisdiction because the stay remained in effect for 10 days after the dismissal, the lack of service is not fatal."

III.

While we understand the bankruptcy court's wish to discourage conduct which it thought ran contrary to the automatic stay, we believe that it erred in its major premise, i.e., that Bankr.R. 762, 11 U.S.C., caused the automatic stay to continue in effect for ten days after the May 11 dismissal of de Jesus's chapter 13 petition. For this and other reasons discussed below, we reverse the award of damages to de Jesus.

We begin by noting that, unless extended by Rule 762 or in some other manner, an automatic stay must plainly terminate upon dismissal of the petition giving rise to it. Section 362(c) provides that the stay continue as to creditor conduct not directed against property of the estate, only until dismissal, and as to conduct directed against such property, only so long as it remains in the estate. It seems self evident that there is no "estate" and hence no "property of the estate" unless there is an existing petition. Dismissal of the petition, therefore, would ordinarily terminate the stay as well. Such immediate termination of the stay, moreover, coincides with the thrust of section 349(b), governing the effect of dismissals. That section provides that, unless otherwise ordered, dismissal of a case

(3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title.

As the Senate Report explains, "the basic purpose" of dismissals is "to undo the bankruptcy case as far as practicable ...." S.Rep. No. 989, 95th Cong., 2d Sess. 49, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5835. Insofar as continuation of the stay prevents a secured creditor from exercising his security interest, it plainly impairs the property interests he had before the filing of the debtor's petition. Cf. 12 Collier on Bankruptcy p 401.4 (14th ed. 1978).

Bankruptcy Rule 762 does not alter the effect of section 362(c) in the present circumstances. Rule 762 merely states that Fed.R.Civ.P. 62, containing provision for a 10-day stay, "applies in adversary proceedings." But de Jesus's chapter 13 petition was not an adversary proceeding. That term of art encompasses a distinct subset of bankruptcy litigation, including

any proceeding instituted by a party before a bankruptcy judge to (1) recover money or property, other than a proceeding under Rule 220 or Rule 604, (2) determine the validity, priority, or extent of a lien or other interest in property, (3) sell property free of a lien or other interest for which the holder can be compelled to take a money satisfaction, (4) object to or revoke a discharge, (5)...