Shorr v. Kind, F013937

• Citation: 2 Cal.Rptr.2d 192,1 Cal.App.4th 249
• Decision Date: 01 November 1991
• Docket Number: No. F013937,F013937
• Court: California Court of Appeals
• Parties: Michael SHORR, Plaintiff and Appellant, v. Kenneth KIND, Defendant and Respondent.

Page 192

2 Cal.Rptr.2d 192

1 Cal.App.4th 249

Michael SHORR, Plaintiff and Appellant, v. Kenneth KIND, Defendant and Respondent.

No. F013937.

Court of Appeal, Fifth District, California.

Nov. 1, 1991.

As Modified Nov. 26, 1991.

Certified for Partial Publication ^*

[1 Cal.App.4th 251] Renee M. Bazar, Bakersfield, for plaintiff and appellant.

Kenneth W. Kind, in pro. per.

OPINION

HARRIS, Justice.

INTRODUCTION

Michael Shorr appeals from an order sustaining a demurrer to his first amended cross-complaint for malicious prosecution. The order was sustained with 10 days leave to amend. Appellant prematurely filed notice of appeal. Subsequent to the filing of the notice of appeal, a judgment of dismissal was entered on the action for plaintiff's failure to amend his action within 10 days.

FACTS AND PROCEEDINGS BELOW

We resist the temptation to make the factual statement more complex and detailed than is necessary to identify and form the issues presented in this appeal. The instant action arises out of Shorr's action for malicious prosecution against Kind and Rodriguez. In the malicious prosecution action the trial court, on April 17, 1990, sustained Kind's demurrer on the ground that the underlying action was not fully terminated. Shorr chose not to amend and appeals.

The underlying action is a cross-complaint filed by Attorney Kind on behalf of his client Rodriguez against Shorr and others. Shorr was not otherwise a party to that action. The cross-complaint fell victim to a motion for summary judgment. Because Rodriguez filed bankruptcy, the chronological sequence of events is important. On November 9, 1988, the summary judgment motion was heard and orally granted and documented by minute order.

Rodriguez filed his bankruptcy petition on December 6, 1988, but no notice thereof or stay was filed with the court. Entry of summary judgment and an order amending the judgment occurred on December 21, 1988 and January 18, 1989, respectively. The bankruptcy petition was dismissed and the stay terminated on February 6, 1990. Rodriguez filed his appeal from the summary judgment on February 13, 1990. The appeal was dismissed on March 30, 1990, pursuant to California Rules of Court, rule 10(c). On appeal Shorr contends the trial court incorrectly concluded the bankruptcy stay prevented the state court jurisdictionally from finally terminating the underlying action and thus erred in sustaining the demurrer and subsequently entering its judgment of dismissal. We agree with Shorr and will reverse.

DISCUSSION

I. ^**

APPEALABILITY

II.

EFFECT OF BANKRUPTCY ON ENTRY OF SUMMARY JUDGMENT

Respondent Kind contended in his demurrer to the first amended complaint that there was no final judgment in the underlying action involving Shorr and Rodriguez because actual entry of judgment, after the summary judgment had been granted, occurred approximately two weeks after Rodriguez filed his bankruptcy petition. Kind contends that because of the automatic bankruptcy stay, the state court was without jurisdiction to enter the summary judgment on December 21, 1988. Thus, he argues the underlying action has not become final. One of the elements of a malicious prosecution action is a final termination of the underlying action in the plaintiff's favor. The other two elements are that the action was brought without probable cause and that it was initiated with malice. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 871-872, 254 Cal.Rptr. 336, 765 P.2d 498.)

Kind argues that Rodriguez could not appeal the underlying entry of judgment on the summary judgment motion until after the bankruptcy stay was lifted. Had there been any vitality to the trial court's entry of judgment after the bankruptcy stay had been imposed, Rodriguez would have had to file his appeal from the entry of summary judgment 60 days after judgment was entered. Instead, Rodriguez filed his notice of appeal in February of 1990, which was well over a year after judgment had been entered upon the trial court's order granting summary judgment.

Kind further contends that the entry of judgment in violation of the automatic stay order cannot be the basis for calculating the time in which Rodriguez has to appeal the summary judgment order. The underlying action between Rodriguez and Shorr, therefore, has not yet become final and if not final cannot be the basis for a malicious prosecution action. This was Kind's primary contention in his demurrer. Though this argument is superficially appealing, it is defective for several reasons.

First, there is authority that as to state court proceedings wherein the bankruptcy "debtor" is plaintiff or cross-complainant, the state court does not lose jurisdiction, time periods are not tolled, and the automatic stay provision of 11 United States Code sections 362(a)(1) and (2) are inapplicable. Second, there is authority that violation of an automatic stay order by a state court is not necessarily a void act per se but is merely voidable. Third, where, as here, all parties to a proceeding have concluded all activity and the court prepetition makes its oral ruling, postpetition entry of decision is not an action stayed under title 11 of the United States Code, section 362. Fourth, attorney Kind does not have standing to challenge a violation of the automatic stay order. Only Rodriguez as debtor has standing to challenge a violation of the stay order.

A. The effect of the automatic stay on proceedings wherein the debtor is plaintiff or cross-complainant.

In the underlying case the bankruptcy debtor Rodriguez was the initiating cross-complainant. Does the fact that the action was his affirmative proceeding rather than one wherein he was defendant or cross-defendant make a difference with respect to the application of the stay? Title 11 of the United States Code sections 362(a)(1) and (2) provide that the filing of a petition in bankruptcy operates as a stay of:

"(1) 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;

"(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title; ..." (Emphasis added.)

Appellant contends that since in the underlying action Rodriguez was pursuing a claim against Shorr, the automatic stay provision was inapplicable as the action or proceeding was not against the debtor. Both state and federal authority supports appellant's position.

In Lauriton v. Carnation Co. (1989) 215 Cal.App.3d 161, 263 Cal.Rptr. 476, appellant debtor contended the automatic stay applied to his state court cause of action, suspended the superior court's jurisdiction over the case and tolled time under the five-year mandatory dismissal statute. (Code Civ.Proc., § 583.310.) This court held to the contrary. "[The] action was not stayed during the bankruptcy. 'The Bankruptcy Act provides that the commencement or continuation of any legal proceeding against the debtor is automatically stayed by the filing of a petition in bankruptcy, until adjudication or dismissal of the petition.' (Danielson v. ITT Industrial Credit Co. (1988), 199 Cal.App.3d 645, 652, 245 Cal.Rptr. 126.) However, a debtor's cause of action is not tolled by the filing of a bankruptcy petition. (Ibid.) As noted above, the trustee may prosecute actions on behalf of the debtor." (215 Cal.App.3d at p. 164, 263 Cal.Rptr. 476.)

Federal authorities hold that the automatic stay does not apply to actions brought by the debtor. Title 11, United States Code, section 362, has been held not to apply to a debtor's counterclaim. In re Regal Const. Co., Inc. (Bkrtcy.D.C.Md.1983) 28 B.R. 413 is representative. In Regal, after having filed a counterclaim in a District of Columbia proceeding, debtor filed a petition under chapter 11. The court, indicating the litigation was not stayed as to the counterclaim, concluded, "The automatic stay of 11 U.S.C. § 362 did not preclude [debtor] from proceeding on its counterclaim in the District of Columbia. 'Section 362 by its terms stays proceedings against the debtor. The statute does not address actions brought by the debtor which would inure to the benefit of the bankruptcy estate.' Assoc. of St. Croix Condo. Owners v. St. Croix Hotel, 682 F.2d 446, 448 (3d Cir.1982)." (Regal at p. 416.)

B. Violation of the stay order is voidable not void.

Assuming arguendo that the automatic stay was applicable to the underlying cross-complaint, there is further basis for concluding that the trial court wrongly concluded the judgment therein was not final. If the trial court's entry of judgment in the underlying action is void as a result of the automatic stay order, there is merit to attorney Kind's contention. If the underlying entry of judgment was void as a matter of law, then in a technical sense there has been no final judgment in the underlying action until a valid entry of judgment is made. If, on the other hand, the trial court's entry of judgment is merely voidable, then the defect is not jurisdictional and the trial court's order is valid until the bankruptcy court nullifies it.

The general rule followed by the Ninth Circuit Court of Appeals is that an order made in violation of the automatic bankruptcy stay is void. As noted by the Ninth Circuit, however, the general rule is applied to transfers of property and the like. Where an action was improperly filed in federal court in violation of the automatic stay, the Ninth Circuit has referred to the district court action as an amendment of an informal proof of a creditor's claim against the debtor even though the district court action was technically void by operation of the automatic stay order....