Del Mission Ltd., In re
Decision Date | 23 October 1996 |
Docket Number | No. 95-55658,95-55658 |
Citation | 98 F.3d 1147 |
Parties | , 36 Collier Bankr.Cas.2d 1658, 36 Fed.R.Serv.3d 512, 29 Bankr.Ct.Dec. 1155, Bankr. L. Rep. P 77,176, 96 Cal. Daily Op. Serv. 7789, 96 Daily Journal D.A.R. 12,877 In re DEL MISSION LIMITED, Debtor. STATE OF CALIFORNIA EMPLOYMENT DEVELOPMENT DEPARTMENT; State of California State Board of Equalization, Appellants, v. Harold S. TAXEL, Trustee for Del Mission Limited, Appellee. |
Court | U.S. Court of Appeals — Ninth Circuit |
Richard W. Bakke, Deputy Attorney General, Los Angeles, CA, for appellants.
Jeffry A. Davis, Gray, Cary, Ware & Freidenrich, San Diego, CA, for appellee.
Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Jones, Hagan and. BAP No. SC-94-1191-JhR.
Before: FLETCHER and TASHIMA, Circuit Judges, and RESTANI, Court of International Trade Judge. *
This appeal presents two important issues. First, we consider whether failing to return bankruptcy estate property in a timely manner constitutes a violation of the automatic stay provision of 11 U.S.C. § 362(a)(3). We conclude that it does. Next, we resolve whether a bankruptcy court may award fees and costs incurred in prior appellate proceedings as a contempt sanction under 11 U.S.C. § 105(a). We conclude that it may not.
This is the second round of litigation between these parties. The first round arose when appellants California Employment Development Department and State Board of Equalization (collectively the "State") refused to approve the sale of Chapter 7 debtor Del Mission Limited's ("Del Mission") liquor license until it paid all outstanding taxes and interest accrued thereon. The trustee of Del Mission, appellee Harold S. Taxel ("Taxel"), paid the disputed taxes under protest, and then brought a proceeding in the bankruptcy court seeking repayment. The bankruptcy court found that the State's action violated the automatic stay provision of 11 U.S.C. § 362(a)(3), and ordered the State to pay Del Mission $15,604. 1 Taxel v. California Employment Dev. Dep't (In re Del Mission Ltd.), 116 B.R. 734 (Bankr.S.D.Cal.1990) ("Del Mission I "), aff'd, 130 B.R. 362, 1991 WL 169078 (9th Cir. BAP 1991) The failure of the State to repay the disputed taxes in a timely manner is the subject of this second round of litigation. In spite of the bankruptcy court's order, the State did not repay the disputed taxes while the underlying case was being appealed. Following our decision in Del Mission III, Taxel filed a motion with the bankruptcy court seeking to hold the State in civil contempt of the automatic stay for failing to repay the disputed taxes in a timely manner. 2 As sanctions, Taxel requested attorney's fees and costs incurred in enforcing the automatic stay on appeal in Del Mission II and Del Mission III. The bankruptcy court denied the motion, concluding that the automatic stay violation merged into the previously awarded money judgment. As an alternative ground for its decision, the court also concluded that it had no legal authority to award fees incurred on prior appeals. The bankruptcy appellate panel ("BAP") reversed on both issues, and awarded Taxel the fees and costs he incurred in Del Mission II and Del Mission III, on the prior appeals. 3
(TABLE in Westlaw) ("Del Mission II "), aff'd, 998 F.2d 756 (9th Cir.1993) ("Del Mission III ").
We have jurisdiction of this appeal under 28 U.S.C. § 158(d), and we affirm in part and reverse in part.
The first issue we must decide is whether the State's failure to repay Del Mission in a timely manner constituted a continuing violation of 11 U.S.C. § 362(a)(3). "Because we are in as good a position as the BAP to examine the decision of the bankruptcy court, we independently review the bankruptcy court's ruling." Havelock v. Taxel (In re Pace), 67 F.3d 187, 191 (9th Cir.1995) (citation omitted). We review de novo whether the automatic stay provision of § 362(a) has been violated. Chugach Timber Corp. v. Northern Stevedoring & Handling Corp. (In re Chugach Forest Prod., Inc.), 23 F.3d 241, 244 (9th Cir.1994). We conclude that the State's retention of the disputed taxes did violate the automatic stay.
The doctrine of merger is a subset of res judicata and precludes a plaintiff from maintaining an action on the original claim after a final judgment has been entered. Restatement (Second) of Judgments § 18 (1980). The bankruptcy court reasoned that under this doctrine, the State's violation of the automatic stay ended with a final judgment in Taxel's favor. When judgment was entered, the violation of the stay ceased to exist and all remaining rights between the parties merged into the money judgment. It therefore rejected Taxel's motion for contempt, concluding that the State's retention of the disputed taxes could not, under the doctrine of merger, be a continuing violation of the automatic stay. We decline the State's invitation to adopt the reasoning of the bankruptcy court.
The bankruptcy court's analysis stretches the doctrine of merger beyond its intended limits. The doctrine of merger does not extinguish "advantages to which the plaintiff was entitled with respect to the original claim...." Id. at § 18, cmt. g. For example, "if a creditor has a lien upon property of the debtor and obtains a judgment against him, the creditor does not thereby lose the benefit of the lien." Id.
In the case at bench, the automatic stay, "an advantage[ ] to which the plaintiff was entitled with respect to the original claim," id., remains effective until the bankruptcy estate terminates. See 11 U.S.C. § 362(c). Accordingly, until such time as the Del Mission estate terminates, the State is obligated to abide by the automatic stay. Thus, the doctrine of merger does not immunize the State from future violations of the stay, even though it has been found liable for past violations of the stay. Cf., Harkins Amusement Enter. Inc. v. Harry Nace Co., 890 F.2d 181 (9th Cir.1989) (holding in an antitrust suit that res judicata did not bar second lawsuit because the alleged violations occurred
during a different time period). The bankruptcy court therefore erred in concluding that, under the doctrine of merger, the State's retention of the disputed taxes could not be in violation of the stay.
Given the continuing viability of the automatic stay, we must next consider whether the State did, in fact, violate the automatic stay by retaining the disputed taxes. 11 U.S.C. § 362(a)(3) specifically enjoins "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate...." In Del Mission III, we concluded that the State's efforts to collect the disputed taxes in the first instance did constitute a violation of the stay under subsection (3). 998 F.2d at 758. 4 Now, we take the analysis one step further, and determine whether the State's continued retention of the disputed taxes was an "act ... to exercise control over the property of the estate," in continuing violation of the automatic stay. 11 U.S.C. § 362(a)(3).
The "exercise control" clause of § 362(a)(3) was added by the Bankruptcy Amendments and Federal Judgeship Act of 1984. Pub.L. No. 98-353, 1984 U.S.C.C.A.N. (98 Stat.) 371. Congress did not provide an explanation of that amendment. In re Young, 193 B.R. 620, 623 (Bankr.D.C.1996). The Ninth Circuit BAP has interpreted this amendment as broadening the scope of § 362(a)(3) to proscribe the mere knowing retention of estate property. Abrams v. Southwest Leasing & Rental Inc. (In re Abrams), 127 B.R. 239, 241-43 (9th Cir. BAP 1991) ( ). In dicta, this circuit has accepted that interpretation. Chugach, 23 F.3d at 246. We now adopt the reasoning of Abrams and Chugach, and hold that the knowing retention of estate property violates the automatic stay of § 362(a)(3).
11 U.S.C. § 542(a) provides that an entity in possession of estate property "shall" deliver such property to the trustee. This is a mandatory duty arising upon the filing of the bankruptcy petition. Knaus v. Concordia Lumber Co. (In re Knaus), 889 F.2d 773, 775 (8th Cir.1989). Thus, "[w]ithout doubt, 'a creditor's knowing retention of property of the estate constitutes a violation of' § 362(a)(3)." Chugach 23 F.3d at 246 (quoting Abrams, 127 B.R. at 242); accord Knaus, 889 F.2d at 775 (); Carlsen v. IRS (In re Carlsen), 63 B.R. 706, 711 (Bankr.C.D.Cal.1986) ( ).
These cases emphasize the underlying purpose of the automatic stay, which is to alleviate the financial strains on the debtor. See, e.g., Knaus, 889 F.2d at 775; see also Utah State Credit Union v. Skinner (In re Skinner), 90 B.R. 470 (D.Utah 1988), aff'd, 917 F.2d 444 (10th Cir.1990). To effectuate the purpose of the automatic stay, the onus to return estate property is placed upon the possessor; it does not fall on the debtor to pursue the possessor. Abrams, 127 B.R. at 243.
[I]f persons who could make no substantial adverse claim to a debtor's property in their possession could, without cost to themselves, compel the debtor or his trustee to bring suit as a prerequisite to returning the property, the powers of a bankruptcy court and its officers to collect the estate for the benefit of creditors would be vastly reduced.
Knaus, 889 F.2d at 775. Moreover, "the case law and the legislative history of § 362 indicate that Congress did not...
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