Roseman v. Roseman, 93-5099

• Decision Date: 09 December 1993
• Docket Number: No. 93-5099,93-5099
• Citation: 14 F.3d 602
• Parties: NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. Garry R. ROSEMAN, Plaintiff-Appellee, v. Carolyn ROSEMAN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 602

14 F.3d 602

NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.

Garry R. ROSEMAN, Plaintiff-Appellee, v. Carolyn ROSEMAN, Defendant-Appellant.

No. 93-5099.

United States Court of Appeals, Sixth Circuit.

Dec. 9, 1993.

Before GUY and RYAN, Circuit Judges, and WELLFORD, Senior Circuit Judge.

WELLFORD, Senior Circuit Judge.

The plaintiff, Garry Roseman, appeals, pro se, ¹ the district court's dismissal of his complaint against Carolyn Roseman (defendant), his ex-wife and creditor of his bankruptcy estate. The plaintiff alleges that the defendant violated the automatic stay provisions of 11 U.S.C. Sec. 362 by seeking and obtaining an absolute divorce, child support and alimony from him in a Maryland state court after he filed bankruptcy proceedings in Tennessee. The district court affirmed the bankruptcy court's dismissal of the plaintiff's claim finding an equitable exception to the enforcement of the bankruptcy stay. On appeal, plaintiff argues that there should be no equitable exception to the automatic stay under the circumstances of this case.

I.

The following facts are not in dispute. The plaintiff instituted divorce proceedings against the defendant in a Maryland state court in May, 1989. ² The Rosemans thereafter agreed to a custody arrangement and placed the proceeds from the sale of their home and the proceeds from the plaintiff's profit sharing plan in an escrow account. The plaintiff also agreed to pay the defendant child support. On December 4, 1990, the plaintiff filed for bankruptcy under Chapter 7 of the Bankruptcy Code in Memphis and notified the defendant and her counsel.

In January, 1991, the defendant instituted a contempt action against the plaintiff in the Maryland court for non-payment of child support in which the plaintiff filed a motion to quash the show cause order. The plaintiff stated that "his rights to due process have been violated" and that the past-due child support "has been continuously available to the [defendant] from jointly held escrow funds controlled by [the defendant's] counsel." The plaintiff, however, never mentioned his pending bankruptcy action. Following a contempt hearing, the Maryland court authorized the plaintiff to remove $7,590.00 from the escrow account to satisfy his child support arrearage, also permitting the defendant to withdraw $7,590.00 from the same account to ensure that no portion of her half of the marital property was used to satisfy the plaintiff's child support obligations. The plaintiff remained silent about his pending bankruptcy proceeding in Tennessee during the entire course of the divorce and custody proceedings.

Between April and August of 1991, the plaintiff actively pursued his divorce action by filing numerous motions and pleadings. On August 9, 1991, the Maryland court, in a judgment of absolute divorce, awarded $20,691.00 of the escrow fund to the plaintiff and the same amount to the defendant. In addition, the court ordered the plaintiff to pay increased child support, alimony of $400.00 per month and $12,000.00 in attorney's fees. The plaintiff filed a "Notice of Objection" in which he stated for the first time that the portion of the escrow fund that was determined to be his equitable share, approximately $41,382.00, had been placed under the jurisdiction of the bankruptcy court on December 4, 1990.

On November 21, 1991 the bankruptcy court sua sponte, ordered the plaintiff to show cause why he should not be held in contempt for violation of the automatic stay for prosecuting his complaint for divorce pending in Baltimore County, Maryland. The plaintiff responded and filed a motion in the bankruptcy court to declare the Maryland divorce judgment void. ³ The plaintiff also filed a complaint against the defendant for declaratory, injunctive, and monetary relief from actions taken against him as debtor in violation of 11 U.S.C. Sec. 362. The plaintiff argued that the Maryland court judgments dated February 4 and August 9, 1991, should be set aside because they were issued in violation of the Sec. 362 automatic stay provision. After a hearing, the bankruptcy court concluded that although actions of this general nature taken in violation of Sec. 362 are usually void, it would be inequitable to void the judgment of the Maryland court because the plaintiff actively litigated the divorce "through and beyond the entry of the decree in August, 1991." The district court affirmed the bankruptcy court's finding of an equitable exception to the automatic stay under the circumstances. For the reasons stated below, we affirm.

II.

Section 362(a)(1) of the Bankruptcy Code provides that a bankruptcy petition "operates as a stay, applicable to all entities, of the commencement or continuation ... of a judicial .. action or proceeding against the debtor that was or could have been commenced" before the debtor filed for protection under the bankruptcy laws. 11 U.S.C. Sec. 362(a)(1). There appears to be some division among the circuits whether actions in violation of an automatic stay are void or voidable. Most of the circuits decisions have held that actions taken in violation of the automatic stay are void. Raymark Industries, Inc. v. Lai, 973 F.2d 1125, 1132 (3d Cir.1992); In re Schwartz, 954 F.2d 569, 574 (9th Cir.1992); In re 48th Street Steakhouse, Inc., 835 F.2d 427, 431 (2d Cir.1987), cert. denied, 485 U.S. 1035 (1988); Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1308 (11th Cir.1982); see also In re Potts, 142 F.2d 883, 888, 890 (6th Cir.1944), cert. denied, 324 U.S. 868 (1945). The Fifth Circuit, however, has held that judicial actions taken during the pendency of the stay are voidable. Sikes v. Global Marine, 881 F.2d 176, 178 (5th Cir.1989).

In Easley v. Pettibone Michigan Corporation, 990 F.2d 905 (6th Cir.1993), we followed the Sikes rationale, characterizing violations of the automatic stay as voidable. One of the reasons given for this change was the recognition that several circuits which hold that violations of the stay are void, nevertheless have recognized an exception to the stay on equitable grounds. Id. at 910; see In re Calder, 907 F.2d 953 (10th Cir.1990); In re Smith, 876 F.2d 524 (6th Cir.1989); Matthews v. Rosene, 739 F.2d 249 (7th Cir.1984) (on laches principles); In re Smith Corset Shops, 696 F.2d 971, 976 (1st Cir.1982). The Easley court reasoned that if the court has jurisdiction to annul a stay on equitable grounds, "such actions can only be described as invalid and voidable, since void actions are incapable of later cure or validation." Easley, 990 F.2d at 909.

In Calder, Matthews, and Smith Corset Shops the bankruptcy court acted within its equitable jurisdiction to lift the stay while the bankruptcy proceedings were taking place. In Smith Corset Shops, the First Circuit, affirmed the bankruptcy court's holding that an equitable exception to the automatic stay arises when the plaintiff intentionally remains "stealthily silent" while a creditor obtains a default judgment and execution from a state court and makes no effort to inform the defendant or the court of his impending bankruptcy. 696 F.2d at 977. The court also stated that it did not "think Congress envisioned any such misuse of the automatic stay." Id.

Calder affirmed the finding of an equitable exception when the debtor "actively litigated the state court action and did not provide notice of the pending Chapter 13 proceeding until just before the state court was to enter a final judgment." In re Calder, 907 F.2d at 956. The court reasoned that the debtor "must bear some responsibility for his unreasonable delay in asserting his rights under section 362(a)" Id. The Calder court further noted that "[t]o hold otherwise and permit the automatic stay provision to be used as a trump card played after an unfavorable result was reached in the state court, would be inconsistent with the underlying purpose of the automatic stay which is to give the debtor a breathing spell from his creditors." Id. at 956-57.

Matthews, affirmed the bankruptcy court's finding that a debtor, who initiated a state court proceeding to determine his interest in certain land while in Chapter 13 proceedings, and who "unreasonably and inexcusably delayed asserting his claim," was guilty of laches. Matthews, 739 F.2d at 251. As a result, the court refused to nullify a three-year-old state order in favor of the creditor.

We discussed the "equitable exception" first in In re Smith, 876 F.2d 524 (6th Cir.1989), and later in Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir.1993). In both cases, this Court cautioned that "any equitable exception to the stay must be applied sparingly." Easley, 990 F.2d at 910; Smith, 876 F.2d at 527. We stated that a bankruptcy court may not set aside the automatic stay unless the debtor has (1) attempted to exploit the stay to gain an unfair advantage or (2) fraudulently or willfully delayed asserting the stay as a defense. Smith, 876 F.2d at 526.

In Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir.1993), we again recognized but again rejected, under the facts, the application of an equitable exception to the automatic stay. In Easley, the debtor filed for protection under Chapter 11 in the bankruptcy court for the Northern District of Illinois before the plaintiffs filed their state court claim. The plaintiffs were unaware, however, of the debtor's pending bankruptcy reorganization. The bankruptcy court granted the plaintiffs' leave to file a late claim against the debtor, but denied their request for a modification of the stay. After the reorganization was complete, the debtor filed a notice of removal of the state court action to the district court. The debtor also filed an adversary complaint in bankruptcy court...