Stallings v. Spring Meadows Apartment Complex Ltd. Partnership
| Decision Date | 16 June 1994 |
| Docket Number | CA-CV,No. 1,1 |
| Citation | 180 Ariz. 617,886 P.2d 1373 |
| Parties | David L. STALLINGS and Barbara J. Stallings, husband and wife, Plaintiffs-Appellants, v. The SPRING MEADOWS APARTMENT COMPLEX LIMITED PARTNERSHIP, an Arizona Limited Partnership, Defendant-Appellee. 92-0117. |
| Court | Arizona Court of Appeals |
David L. Stallings and Barbara J. Stallings ("Stallings") appeal the superior court's dismissal of their personal injury lawsuit in response to defendant's argument that the complaint, filed after defendant's filing of a Chapter 11 bankruptcy petition, violated the automatic stay provision of the bankruptcy statutes. We find that the filing of the complaint was a void, rather than voidable act; that a subsequent bankruptcy court order lifting the automatic stay did not annul the stay and retroactively validate the complaint; and that the superior court did not abuse its discretion in denying the Stallings' request for leave to amend its complaint in an attempt to relate it back to the original filing. Therefore, we affirm the judgment of the superior court in favor of defendant Spring Meadows Apartment Complex Limited Partnership ("Spring Meadows").
On January 4, 1991, Spring Meadows, the limited partnership that owned the Spring Meadows apartments, filed a petition for Chapter 11 bankruptcy. By operation of law, 1 the automatic stay of the Bankruptcy Code went into effect the moment Spring Meadows filed its petition. Miller v. National Franchise Services, 167 Ariz. 403, 406, 807 P.2d 1139, 1142 (App.1991).
The Stallings, unaware of Spring Meadows' bankruptcy, filed a personal injury complaint against Spring Meadows on January 14, 1991. The complaint sought damages for personal injuries that David L. Stallings had sustained on May 13, 1989 while descending a stairway at the Spring Meadows apartment. 2 The Stallings amended their complaint twice and ultimately served it on Spring Meadows on February 26, 1991.
Upon service of the complaint, the Stallings learned of the bankruptcy and realized that the automatic stay had been in effect when they filed their personal injury action. They then filed a proof of claim and a motion to lift the stay with the United States Bankruptcy Court. In their motion, the Stallings cited in support of their request for relief from the stay a single legal authority: Local Rule of Bankruptcy Procedure 4001. 3 They did not ask for relief under 11 U.S.C. section 362(d) nor ask that the bankruptcy stay be annulled.
Spring Meadows did not oppose the Stallings' motion for relief from the automatic stay, and on June 25, 1991, the bankruptcy court granted the Stallings' motion and lifted the stay. The bankruptcy court entered an order prepared by the Stallings' counsel which stated in pertinent part:
NOW, THEREFORE, It is hereby ordered as follows:
1. The automatic stay in this matter is lifted for the Stallings so that the Stallings may proceed in their personal injury claims against the Debtor;
2. The stay is lifted only so that the Stallings may proceed to secure their judgment, and then collect any judgment they may secure based on their personal injury claims from the insurance carrier or carriers for the Debtor only;
3. To the extent any such judgment is not collectible from the liability insurance policy or policies, the Stallings shall remain subject to the automatic stay and the further orders of this Court with respect to it, and shall remain a creditor of the Debtor to the extent of the balance of any such judgment remaining.
The order does not state that it "annuls" the stay or that it provides retroactive relief to the Stallings.
The Stallings notified Spring Meadows of the bankruptcy court's order and asked Spring Meadows to answer their complaint. Instead, Spring Meadows filed a motion to dismiss the personal injury action in the superior court pursuant to Rules 12(b)(1), (3), (4), (5) and (6) of the Arizona Rules of Civil Procedure. Spring Meadows argued that the bankruptcy court had original, exclusive jurisdiction and thus that the superior court lacked subject matter jurisdiction over the case. In addition, Spring Meadows contended that the filing of the complaint was a void act because it was in violation of the automatic stay issued by the bankruptcy court. The Stallings opposed the motion, arguing that the automatic stay did not deprive the superior court of jurisdiction; the complaint was voidable, not void; and the bankruptcy court had lifted the stay pursuant to Local Rule of Bankruptcy Procedure 4001, allowing the personal injury claim to proceed in state court. The superior court treated the motion to dismiss as a motion for summary judgment and granted summary judgment in favor of Spring Meadows. 4 The Stallings filed a motion for reconsideration and for leave to amend their complaint. The superior court denied both motions and entered judgment in favor of Spring Meadows. The Stallings timely appealed.
In reviewing the superior court's grant of summary judgment in favor of Spring Meadows, we must resolve:
(1) whether the Stallings' complaint was void because it was filed after issuance of the automatic stay;
(2) if the complaint was void, whether the bankruptcy court order lifting the stay annulled the stay and thereby validated the complaint; and
(3) whether the superior court erred in denying leave to the Stallings to file an amended complaint.
The parties do not dispute the facts; therefore, because this case presents a question of law requiring application of the federal bankruptcy statutes, our review of the superior court's grant of summary judgment is de novo. Libra Group, Inc. v. State, 167 Ariz. 176, 179, 805 P.2d 409, 412 (App.1991), review denied 168 Ariz. 337, 813 P.2d 318 (1991). We must determine if Spring Meadows is entitled to judgment as a matter of law. Orme School v. Reeves, 166 Ariz. 301, 305, 802 P.2d 1000, 1004 (1990). In doing so, we are bound by the decisions of the federal courts interpreting federal statutes. First Nat. Bank of Arizona v. Carruth, 116 Ariz. 482, 483, 569 P.2d 1380, 1381 (App.1977).
We review the superior court's denial of leave to amend the Stallings' complaint for a clear abuse of discretion. Bishop v. State, Dept. of Corrections, 172 Ariz. 472, 474, 837 P.2d 1207, 1209 (App.1992).
The Stallings argue that the filing of their complaint in violation of an automatic stay was merely a voidable act. 5 They rely on Sikes v. Global Marine, Inc., 881 F.2d 176 (5th Cir.1989), rehearing denied by 888 F.2d 1388 (5th Cir.1989), in which the Fifth Circuit found that the filing of a complaint in violation of the stay was voidable but not void. Id. at 178-79. The court reasoned that provisions of the Bankruptcy Code such as section 362(d), by giving courts the power to grant retroactive relief from a stay, indicated Congressional intent that acts in violation of a stay be simply voidable. 6 id.
Spring Meadows, however, urges us to adopt the rule of the Ninth Circuit that any act committed in violation of an automatic stay is void. Hillis Motors, Inc. v. Hawaii Auto. Dealers Ass'n, 997 F.2d 581, 586 (9th Cir.1993); In re Schwartz, 954 F.2d 569, 571-72 (9th Cir.1992) (). 7 The circuit court found such acts void even when the violation of the stay was an innocent and unknowing one. Id. at 573; see also Miller, 167 Ariz. at 407, 807 P.2d at 1143 ().
We find the interpretation adopted by the Ninth Circuit in Schwartz, 954 F.2d at 571-72, the better reasoned rule and binding on us. In concluding that acts taken in violation of the stay are void, the court acknowledged that Congress had recognized the vital role of the automatic stay in granting the debtor respite from creditors and any collection efforts, harassment, or foreclosure actions in order to prepare a plan of repayment or reorganization. Id. at 571. If violations of the stay were merely voidable, debtors would have to Id.
The Ninth Circuit's view is consistent with the weight of authority. "The majority of courts have long stated that violations of the automatic stay are void and of no effect." Id. at 572, citing Kalb v. Feuerstein, 308 U.S. 433, 438, 60 S.Ct. 343, 345-46, 84 L.Ed. 370 (1940); Ellis v. Consolidated Diesel Elec. Corp., 894 F.2d 371, 372-73 (10th Cir.1990); In re 48th St. Steakhouse, 835 F.2d 427, 431 (2d Cir.1987), cert. denied, 485 U.S. 1035, 108 S.Ct. 1596, 99 L.Ed.2d 910 (1988); Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1308 (11th Cir.1982). In fact, our supreme court has previously so held. See Great Southwest Fire Ins. v. Triple "I" Ins. Serv., Inc., 151 Ariz. 283, 286, 727 P.2d 336, 339 (1986) ().
Therefore, the filing of the Stallings' complaint was a void act without legal significance. We turn next to the effect of the court's order lifting the automatic stay.
Section 362(d) of the Bankruptcy Code gives the bankruptcy court the power to grant creditors relief from an automatic stay. Schwartz, 954 F.2d at 572. This section provides in pertinent part:
On request of a party in interest and after notice and...
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