Matter of US Abatement Corp.
| Decision Date | 05 February 1993 |
| Docket Number | Bankruptcy No. 92-11123-JAB. |
| Citation | 150 BR 381 |
| Parties | In the Matter of UNITED STATES ABATEMENT CORPORATION, a/k/a USA Corporation, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Louisiana |
Richard W. Martinez, Tranchina & Martinez, New Orleans, LA, for debtor/plaintiff.
S. Gene Fendler, Phillip K. Jones, James D. McMichael, Liskow & Lewis, New Orleans, LA, for Mobil Exploration and Producing, Inc.
This matter comes before the Court upon the motion for sanctions for willful violation of the automatic stay filed by United States Abatement Corporation ("USA" or "debtor"). USA requests sanctions against Mobil Exploration & Producing U.S., Inc. ("Mobil"), and its attorneys of record, James McMichael and the law firm of Liskow & Lewis, for willfully violating the provisions of 11 U.S.C. § 362. USA seeks sanctions under 11 U.S.C. § 362(h), and/or Bankruptcy Rule 9020, and pursuant to the Court's inherent power to impose sanctions under 11 U.S.C. § 105.
Oral argument on the motion was held on October 29, 1992. The matter has been fully briefed by both parties. Considering the evidence submitted, the arguments and briefs of counsel, the pleadings, and the applicable law, the motion for sanctions, attorneys' fees, and costs is GRANTED.1
On November 28, 1990, Mobil filed a complaint for interpleader, declaratory relief, indemnity, injunction and damages in the action entitled Mobil Exploration & Producing U.S. Inc., etc., et al. v. United States Abatement Corp., et al., No. 90-4678, in the United States District Court for the Eastern District of Louisiana (the "District Court case"). That suit stemmed from Mobil's termination of two contracts between itself and the debtor for the sandblasting and painting of twelve offshore platforms. Mobil named as defendants over two dozen of USA's subcontractors and materialmen who had not been paid by USA and who had actual or potential lien claims against Mobil's platforms as a result.
On March 13, 1992, the debtor filed a Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code. Because of this filing, the District Court case was administratively closed for statistical purposes on March 16, 1992. (Pl. 254). On March 31, 1992, Stan-Blast Abrasives, a defendant in the District Court case, filed a motion to reinstate the cause of action in the District Court. (Pl. 258). In response to a request for briefing by the District Court, USA filed a Memorandum in Support of Reinstatement of the Case. (Pl. 269, 270). USA's memorandum urged that the case could be reinstated, and should proceed without USA, and indicated that USA would not object to "unrelated third-party actions from continuing". (Pl. 270, p. 6). The memorandum specifically asserted that any actions against USA would violate Section 362(a)(1).
Meanwhile, on March 17, 1992, Mobil filed in this Court a motion for modification of the automatic stay and motion for expedited hearing, requesting that the automatic stay be lifted to allow Mobil to proceed against USA in the District Court case. This Court denied Mobil's motion by memorandum opinion entered on April 22, 1992.
On May 26, 1992, in the District Court case, Mobil filed a "motion to reinstate USA's counterclaim against Mobil and for summary judgment dismissing USA's counterclaim against Mobil", (Pl. 271) ("motion to reinstate"), and motion for expedited hearing. (Pl. 272). USA filed several pleadings in response to Mobil's motion to reinstate, including a motion to enforce the automatic stay. (See Pl. 275, 276).
The District Court denied Mobil's motion to reinstate, and granted USA's motion to enforce the automatic stay in written reasons entered on July 15, 1992.
The debtor argues that the filing of the motion to reinstate by Mobil was a violation of the automatic stay imposed by Section 362. USA contends the violation is particularly egregious because Mobil had actual knowledge of USA's Chapter 11 proceedings, and had previously been denied permission by this Court to lift the stay to proceed against USA in the Order of April 22, 1992.
When a bankruptcy petition is filed, a stay goes into effect automatically, preventing creditors from taking any action against a debtor. 11 U.S.C. § 362. Section 362 provides in pertinent part as follows:
The scope of the stay is extremely broad and imposes a moratorium on all actions against the debtor or its property or assets. In re S.I. Acquisition, Inc., 817 F.2d 1142 (5th Cir.1987). The stay prevents the "dissipation or diminution of the bankrupt's assets while rehabilitative efforts are undertaken and prohibits the proliferation of numerous claims in different forums against the debtor". Id. at 1146.
Mobil argues the automatic stay was not violated because the motion to reinstate was not a proceeding against the debtor, as required by Section 362(a)(1). Mobil contends the case of First Wisconsin National Bank v. Grandlich Development Corp., 565 F.2d 879 (5th Cir.1978), is controlling. In First Wisconsin, the district court stayed foreclosure proceedings filed against the defendants/debtors following their filing for bankruptcy protection. Later, sua sponte, the court dismissed the entire action, including a counterclaim filed by the defendants/debtors, due to the failure of the remaining parties to follow pretrial requirements. The defendants initially took no action, even though the dismissal effectively dismissed their counterclaim. Subsequently, the defendants moved for relief under Fed.R.Civ.P. 60(b) from the district court's order, arguing the district court did not have jurisdiction to dismiss the counterclaim because of the automatic stay provisions. The Fifth Circuit upheld the district court's right to dismiss the counterclaim because the counterclaim was not a proceeding against the debtors.
Mobil's reliance upon First Wisconsin is misplaced. First Wisconsin arose in the context of a Rule 60(b) motion filed by the debtors some time after they had failed to pursue their counterclaim. Indeed, the entire case had been dismissed due to the failure of the parties to follow pretrial requirements. Implicit in the Fifth Circuit's holding are the stringent standards imposed by Rule 60(b) against granting relief from judgments unless extraordinary circumstances such as mistake, inadvertence, etc., are shown. The case does not address the situation in which either the plaintiffs or the defendants/debtors attempted to pursue the counterclaim after the stay order was entered. Thus, contrary to Mobil's argument, First Wisconsin does not permit or authorize a creditor to pursue and reinstate a debtor's pending counterclaim after the bankruptcy petition has been filed. Finally, no amplification of First Wisconsin authorizes a creditor to actively pursue a cause of action against a debtor, as Mobil did by filing its own motion for summary judgment.
That Mobil violated Section 362(a)(1) is also shown by reference to the case of Pope v. Manville Forest Products Corp., 778 F.2d 238 (5th Cir.1985). In Pope, a Title VII case pending in the district court was stayed when the defendant filed for bankruptcy. The plaintiff then filed a claim in the bankruptcy court which was allowed by the bankruptcy court in the amount of $0. Subsequently, the district court dismissed the Title VII case sua sponte, on the grounds of res judicata. The Fifth Circuit reversed, holding that a stay granted in an action pending in the district court continues until the bankruptcy case is closed, dismissed, discharge is granted or denied, or until the bankruptcy court grants relief from the stay. The Fifth Circuit specifically limited its holding to the fact situation presented, stating:
Thus, absent the bankruptcy court\'s lift of the stay, or perhaps a stipulation of dismissal, a case such as the one before us must, as a general rule, simply languish on the court\'s docket until final disposition of the bankruptcy proceeding. In making these observations, we expressly do not decide any case except the one before us; we do not wish unnecessarily, or with technicality, to impede the district court in maintaining a current docket.
778 F.2d at 239. Emphasis added.
Mobil contends the case is not applicable because Pope involved a case against the debtor, while Mobil's motion for reinstatement involved a claim made by the debtor. (Mobil's Memorandum in Opposition to Motion for Sanctions, filed Oct. 23, 1992, p. 9). This line of distinction is too finely drawn by Mobil. The obvious concern of the Pope Court, and reason for the limitation of the decision to the facts presented, was to avoid interference with district court dockets resulting from bankrupt defendants causing cases to be stayed. The import of the decision was that no action could be taken in a case involving a bankrupt defendant until the stay was lifted or final disposition of the bankruptcy case occurred. Any distinction between claims made against debtors versus claims made by debtors was not at issue. The Court concludes that Mobil's actions were in violation of Section 362(a)(1).
Mobil also asserts it did not violate Section 362(a)(3), citing the case of Martin-Trigona v. Champion Federal Savings and Loan Assoc., 892 F.2d 575 (7th...
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