Starfish Condominium Ass'n v. Yorkridge Service Corp., Inc.

• Decision Date: 27 January 1982
• Docket Number: No. 29,29
• Citation: 440 A.2d 373,292 Md. 557
• Parties: STARFISH CONDOMINIUM ASSOCIATION et al. v. YORKRIDGE SERVICE CORPORATION, INC. et al.
• Court: Maryland Court of Appeals

Page 557

292 Md. 557

440 A.2d 373

STARFISH CONDOMINIUM ASSOCIATION et al. v. YORKRIDGE SERVICE CORPORATION, INC. et al.

No. 29.

Court of Appeals of Maryland.

Jan. 27, 1982.

Sidney Kaplan (Paul Bloomberg and Kaplan & Kaplan, Baltimore, on the brief), Baltimore, for appellants & cross-appellees.

Glenn E. Bushel (Gerard P. Martin and Melnicove, Kaufman & Weiner, P. A., Baltimore on the brief), Baltimore, for appellees & cross-appellants.

Argued before MURPHY, C. J., and SMITH, DIGGES, ^* ELDRIDGE, COLE, DAVIDSON and RODOWSKY, JJ.

RODOWSKY, Judge.

Cross petitions for certiorari were granted in this multiple party litigation, prior to consideration of the appeals by the Court of Special Appeals. The principal questions raised concern warranties in sales of real property under Md.Code (1974, 1981 Repl.Vol.), §§ 10-201 through 10-205 of the Real Property Article, and the standing of the council of unit owners of a condominium to sue for alleged breach of such warranties as to common elements. However, we find that there is no final judgment and the appeals must be dismissed. The appealability issue in this case revolves around the claim asserted against one of the defendants below who was said to be "in bankruptcy."

The litigation generally involves Starfish Condominium, located in Ocean City, Worcester County, Maryland. A condominium regime was imposed upon the property by Yorkridge-Graham Joint Venture No. II (the Venture) which consists of Yorkridge Service Corporation, Inc., a Maryland corporation (Service Co.), and R. Walter Graham, III (Graham). Service Co. is a subsidiary of Yorkridge Federal Savings and Loan Association of Baltimore County ¹ (the S&L). Melvin Berger (Berger) and John J. Davis (Davis) are president and a vice president, respectively, of the S&L and of Service Co. Starfish Condominium Association (the Council) is the council of unit owners of Starfish Condominium.

On May 11, 1976 the Council and certain owners of units in Starfish Condominium filed a bill of complaint in the Circuit Court for Baltimore County in equity against the Venture, Service Co., Graham, the S&L, Berger and Davis alleging, inter alia, breaches of warranty. ² On July 2, 1976 a second bill of complaint against the same defendants was filed in the same court by additional unit owners who also alleged breaches of warranty. All of the defendants were represented in both cases by the same counsel. The cases were consolidated. Trial commenced July 30, 1979. When the plaintiffs rested, the defendants moved to dismiss. After a period of briefing and an oral argument, the trial court denied the motion to dismiss and the defendants proceeded to introduce evidence. Closing arguments were held off the record. Judgment was entered against the Council, which noted an appeal. Money judgments were entered in favor of the unit owners ³ against the Venture, Service Co. and the S&L. Service Co. and the S&L noted appeals. Judgment was in favor of Berger and Davis. The decree makes no disposition of the claims asserted by the unit owners against Graham. In its opinion filed with the decree, the trial court states that "(t)he other Co-Partner (of the Venture), R. Walter Graham, is in bankruptcy so this proceeding is stayed as to him and no adjudication can be made as to his liability."

There is no express determination that there is no just reason for delay and no express direction that the decree be entered as a final judgment, pursuant to Md.Rule 605 a. ⁴ The parties have not enlightened us, either in briefs or oral arguments, as to the factual basis for the trial court's conclusion that no adjudication could be made as to Graham's liability. Nothing in the record extract, and no testimony or exhibits which we can find, bear on any bankruptcy of Graham. The sole reference in the record to a Graham bankruptcy occurred at a conference with the court before the start of trial on July 30, 1979. Counsel for the defendants orally moved to stay the case against Graham on the ground that Graham had filed in bankruptcy, as counsel understood it, in January of 1979 and that, under the federal bankruptcy statutes and rules, that filing automatically stayed any litigation against the bankrupt. The court took the position that it could not act without having some knowledge of the bankruptcy and that the best form of communicating that knowledge would be by documents. Defendants' counsel, while maintaining that proceedings against Graham were stayed in any event, said that "we will try to get you the documentation to keep the record straight" and that "I will have the docket checked at the Bankruptcy Court ... and find out the status of that." Counsel for the plaintiffs then addressed the subject:

I have the complete bankruptcy file. And I would so stipulate ... in the pre-trial conference, that Mr. R. Walter Graham on January the 16th, 1979, filed for bankruptcy in the United States District Court, Bankruptcy No. 79-0074K. And further, that he was duly discharged on June 12th, 1979 by that court. And further, that among the list of creditors which he filed in that proceeding, there does not appear the name of any plaintiff in this case.

There followed an exchange of comments in which defendants' counsel took the position that any remedies should be sought in the federal court while plaintiffs' counsel asserted that the bankruptcy case was closed and that, if Graham had failed to list the plaintiffs as creditors, he remained a debtor and was liable for any judgment which might be entered against him. The discussion ended with the following colloquy:

THE COURT: Well, if a party has filed for bankruptcy, that is a basis for a stay of any action.

(DEFENDANTS' COUNSEL): Yes.

THE COURT: The motion is that he had filed for bankruptcy in January. But the plaintiff says that he's been discharged, and that that case is, therefore, terminated.

(DEFENDANTS' COUNSEL): Very possible.

THE COURT: The question then as if you have a new motion that he has done more than filed, that he is-

(DEFENDANTS' COUNSEL): I have no reason to disbelieve (plaintiffs' counsel). I am sure he is correct.

THE COURT: Then I would have some basis to act on the matter. But right now, I can't see how I can.

(DEFENDANTS' COUNSEL): Will I stipulate ...? I knew there was a hearing coming up, but I didn't know when. If he has the record of discharge.

THE COURT: I will defer ruling on that motion, too, then.

The parties proceeded to trial on the merits as to all parties. No documentation with respect to the bankruptcy proceedings of Graham, if any, was furnished. In the defendants' memorandum in support of their motion to dismiss at the end of the plaintiffs' case, argument was advanced as to why Graham should not be found liable on the merits.

Our threshold concern is whether the appeals noted in this case are allowed by law. It is an issue which this Court raises sua sponte. Eastgate Associates v. Apper, 276 Md. 698, 701, 350 A.2d 661, 663, (1976); Diener Enterprises, Inc. v. Miller, 266 Md. 551, 555, 295 A.2d 470, 473 (1972); Picking v. State Finance Corp., 257 Md. 554, 556, 263 A.2d 572, 573 (1970); Md.Rule 835 a 1.

It appears to have been conceded by all parties and accepted by the court below that, at a minimum, Graham had petitioned for bankruptcy during the pendency of this litigation. Inasmuch as Graham's counsel referred only to an automatic stay, we shall limit our analysis of the problem to automatic stays and injunctions under the Bankruptcy Act and Rules, as opposed to possible special injunctions. Further, because all parties represented that Graham had filed for bankruptcy in January 1979, the Bankruptcy Act, 11 U.S.C. (1976), as opposed to the later-enacted Bankruptcy Code, governs the bankruptcy aspects of the issues at hand. ⁵ Under the Bankruptcy Act (the Act) and the Bankruptcy Rules, there are basically two types of stays or injunctions by operation of law which are suggested by the representations of counsel in this case. One is designed to protect the debtor in the period between the commencement of the bankruptcy proceeding and its determination. The second operates as a consequence of discharge.

If in the instant matter, as suggested by Graham's counsel at the beginning of trial, an automatic stay were in effect which prevented the plaintiffs from proceeding against Graham so long as it remained in effect, such a stay does not obviate the necessity of obtaining a Rule 605 a order making the partial adjudication as to the remainder of the parties a final judgment. On the other hand, if the facts were as additionally represented by plaintiffs counsel, i.e., that Graham had been discharged prior to the start of trial, and that the plaintiffs were unscheduled creditors who were seeking judgment in the court below against Graham notwithstanding his discharge, a Rule 605 a certification would also be required because nondischargeability for failure to schedule the plaintiffs' claims could have been determined in the trial court.

(i)

Bankruptcy Rule 401(a), with certain exceptions not relevant here, provides that the "filing of a petition (in bankruptcy) shall operate as a stay of the commencement or continuation of any action against the bankrupt, or the enforcement of any judgment against him, if the action or judgment is founded on an unsecured provable debt ...." ⁶ The stay under this rule is automatic. Included in such a stay is the continuation of any action on a debt which is not dischargeable under § 17(a)(3) of the Act, relating to unscheduled debts. See Advisory Committee's Note to Bankruptcy Rule 401, Subdivision (a). But a stay under Bankruptcy Rule 401(a) of a suit pending in a nonbankruptcy court against the bankrupt "is not a dismissal of the suit nor does it deprive the court of jurisdiction over the matter; it merely suspends the proceedings." David v. Hooker, Ltd., 560 F.2d 412, 418 (9th Cir. 1977). See 1A Collier on Bankruptcy P...