Paine v. Sealy

• Decision Date: 20 November 1997
• Docket Number: No. 14-95-00382-CV,14-95-00382-CV
• Citation: 956 S.W.2d 803
• Parties: Stephen B. PAINE and Plexus Information Network, Inc., Appellants, v. Forrest SEALEY, Greg Copeland and Robert Gruden, Appellees. (14th Dist.)
• Court: Texas Court of Appeals

Page 803

956 S.W.2d 803

Stephen B. PAINE and Plexus Information Network, Inc., Appellants, v. Forrest SEALEY, Greg Copeland and Robert Gruden, Appellees.

No. 14-95-00382-CV.

Court of Appeals of Texas Houston (14th Dist.).

Nov. 20, 1997.

Stephen B. Paine, Geoffrey H. Bracken, James G. Munisteri, Houston, for appellants.

John Lee Arellano, Deborah Heaton McElvaney, Houston, for apellees.

Before LEE, AMIDEI and EDELMAN, JJ.

OPINION

LEE, Justice.

Plexus Information Network, Inc. [Plexus] and Stephen B. Paine [Paine] appeal an order granting summary judgment in favor of Forrest Sealey, Greg Copeland, and Robert Gruden [appellees]. Appellees sued Plexus for breach of contract and fraud, and filed suit against Paine, Plexus's president and sole shareholder, in an effort to pierce the corporate veil. The trial court granted summary judgment in favor of appellees based solely on unanswered requests for admissions. In four points of error, Plexus and Paine contend the trial court erred in granting summary judgment. We reverse and remand.

BACKGROUND

On March 26, 1994, appellees filed suit against Plexus and Paine alleging (1) Plexus had breached certain contracts and committed fraud, and (2) Paine was Plexus's alter ego. On June 7, 1994, Paine filed personal bankruptcy. On July 12, 1994, appellees sent both Paine and Plexus requests for admissions that were due by August 15, 1994. See TEX.R. CIV. P. 169. Neither Paine nor Plexus responded to the discovery requests. On October 26, 1994, the bankruptcy court dismissed Paine's bankruptcy petition. ¹ Seven days later, appellees filed a motion for summary judgment against Paine and Plexus based solely on the unanswered requests for admissions. The trial court held a December 12, 1994 hearing on the motion and granted summary judgment in appellees' favor. This appeal followed.

STANDARD OF REVIEW

The standard for reviewing summary judgments is well rehearsed. Summary judgment is proper only when the movant establishes there is no genuine issue of material fact and proves he is entitled to judgment as a matter of law. See TEX.R. CIV. P. 166a(c). In deciding whether a disputed issue of material fact exists that would preclude summary judgment, we treat evidence favorable to the non-movant as true and indulge every reasonable inference in his favor. See Science Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex.1997) (citing Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985)).

ANALYSIS

Appellants' first point of error contends the admissions that form the basis of the summary judgment are void because the requests for admissions were served upon them during the pendency of Paine's automatic bankruptcy stay. Because the requests for admissions are void, appellants argue, they cannot serve as a valid basis for summary judgment.

Summary Judgment Against Paine.

The commencement of a bankruptcy case operates as a stay to:

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.A. § 362(a)(1) (West 1993 & Supp.1995). A bankruptcy stay is automatically triggered when the bankruptcy petition is filed whether or not a party or the non-bankruptcy court learns of it prior to taking action against the debtor. The stay provides the bankrupt a period of respite so that he will have an opportunity to make appropriate plans for reorganization and remains in effect until the bankruptcy proceeding is concluded or the property at issue is no longer in the bankruptcy estate. See id. at § 362(a)(1), (c); see also Baytown State Bank v. Nimmons, 904 S.W.2d 902, 905 (Tex.App.--Houston [1st Dist.] 1995, writ denied); Lawrenson v. Global Marine, Inc., 869 S.W.2d 519, 523 (Tex.App.--Texarkana 1993, writ denied); Tracy v. Annie's Attic, Inc., 840 S.W.2d 527, 542 (Tex.App.--Tyler 1992, writ denied); Haun v. Steigleder, 830 S.W.2d 833, 834 (Tex.App.--San Antonio 1992, no writ). ²

When a party, who has not sought relief from the bankruptcy stay, attempts to commence or continue a lawsuit against the debtor, the action taken is void. See Kalb v. Feuerstein, 308 U.S. 433, 439, 60 S.Ct. 343, 346, 84 L.Ed. 370 (1940); Howell v. Thompson, 839 S.W.2d 92 (Tex.1992); Continental Casing Corp. v. Samedan Oil Corp., 751 S.W.2d 499, 501 (Tex.1988). ³ Appellees acknowledge they served the requests for admissions upon Plexus and Paine during the pendency of the bankruptcy stay, but argue service of the discovery requests is a voidable, not void act. To support their argument, appellees cite Sikes v. Global Marine, 881 F.2d 176, 178-79 (5th Cir.1989). In Sikes, the Fifth Circuit held the bankruptcy court had the authority to retroactively validate pleadings filed during the pendency of the bankruptcy stay. See id. The court reasoned that Congress, by adding section 362(d) to the Bankruptcy Code after the United States Supreme Court's decision in Kalb, intended to give bankruptcy courts the power to annul the stay and validate actions taken in violation of the stay. See id. Appellees argue this court should adopt the Fifth Circuit's "voidable" approach and apply the Sikes reasoning to the present case.

Contrary to appellees' argument, we are not bound by Sikes. We are instead "obligated to follow only higher Texas courts and the United States Supreme Court." Penrod Drilling Corp. v. Williams, 868 S.W.2d 294, 296 (Tex.1993). Howell, the most recent Texas Supreme Court decision concerning the validity of actions taken during the pendency of an automatic stay, was decided after Sikes. See Howell, 839 S.W.2d at 92. If the supreme court were inclined to adopt the Fifth Circuit's approach, it would have done so at that time. We decline to adopt Sikes and instead hold that any action taken against a debtor in violation of an automatic bankruptcy stay is void, not merely voidable. See Howell, 839 S.W.2d at 92; Continental, 751 S.W.2d at 501. ⁴

Even if we were to adopt the "voidable" approach taken in Sikes, appellees would not be entitled to summary judgment. After adopting the "voidable" standard, the Fifth Circuit held that "voidable" did not mean that the disputed action was valid unless invalidated, but rather the action was void unless subsequently validated by an order of the bankruptcy court. Sikes, 881 F.2d at 178-79. Appellees do not argue, nor is there any evidence in the record, that the bankruptcy court ever lifted the automatic stay or retroactively validated the unanswered requests for admissions.

Appellees' post-submission brief directs our attention to a recent First Court of Appeals opinion that considers whether filing an appeal bond during the pendency of a bankruptcy stay is a void act. See Chunn v. Chunn, 929 S.W.2d 490, 493-94 (Tex.App.--Houston [1st Dist.] 1996, no writ). The Chunn court refused to invalidate the filing of an appeal bond because "no public policy is served by prohibiting parties from prematurely filing documents necessary to perfect their appeal." Id. at 493. The court emphasized Rule 41(c) of the Texas Rules of Appellate Procedure specifically provides that "no appeal bond shall be ineffective because it is prematurely filed." See id. The court also noted the underlying policy of the appellate rules is to promote the perfection of appeals and holding the filing void would not only conflict with the express language of Rule 41, but also deprive a party its right to appeal. See id. at 494. The court concluded that "the public policy that courts should settle disputes on their merits favors treating [appeal bonds] as prematurely filed until the stay is lifted or otherwise terminated." Id. (emphasis added).

We agree with our sister court that disputes should be resolved on their merits. The purpose of summary judgment is not to deprive a litigant his right to trial by jury but to eliminate patently unmeritorious claims and untenable defenses. See City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 n. 5 (Tex.1979) (emphasis added); Hernandez v. Lukefahr, 879 S.W.2d 137, 140 (Tex.App.--Houston [14th Dist.] 1994, no writ). This appeal arises from a summary judgment based on unanswered requests for admissions served during the pendency of the debtor's automatic bankruptcy stay. The summary judgment rendered against Paine was based solely on these requests for admissions. When the underlying suit against the debtor is commenced prior to his filing for bankruptcy, the case, including all discovery efforts, is automatically stayed by the provisions of section 362 of the Bankruptcy Code. ⁵ See Kalb, 308 U.S. at 439, 60 S.Ct. at 346; Howell, 839 S.W.2d at 92; Continental, 751 S.W.2d at 501. Paine filed his petition for bankruptcy on June 7, 1994, automatically triggering the bankruptcy stay. On July 12, 1994, appellees, without the bankruptcy court's approval, served Paine with discovery requests. Discovery is the process that propels litigation toward trial and is clearly the "continuation" of a case within the meaning of the Bankruptcy Code. See 11 U.S.C.A. § 362(a)(1). Because these discovery requests were served in violation of the stay, they are void and without legal consequence. Paine had no duty to respond to the discovery requests, and his failure to timely answer cannot operate to deem the admissions against him. Accordingly, we find Paine was improperly denied his right to a trial on the merits, and the trial court erred in entering summary judgment against him.

Summary Judgment Against Plexus.

Generally, the automatic stay provision of section 362 of the Bankruptcy Code does not extend to actions against parties other than the debtor. See Beutel v. Dallas Cty. Flood Control, 916 S.W.2d 685, 692 (Tex.App.--Waco 1996, writ...