State Airlines, Inc., In re
| Decision Date | 17 May 1989 |
| Docket Number | No. 88-5564,88-5564 |
| Citation | 873 F.2d 264 |
| Parties | , 19 Bankr.Ct.Dec. 595, Bankr. L. Rep. P 72,933 In re STATE AIRLINES, INC., Debtor. BRITISH AVIATION INSURANCE COMPANY, LTD., and Michael Valerie Spratt and Charles David Dalrymple Gilmore, as designated agents for and on behalf of Underwriters at Lloyds of London, Plaintiffs-Appellees, v. Susan MENUT, Paul G. Quinn, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Sharon L. Wolfe, Cooper, Wolfe & Bolotin, P.A., Miami, Fla., for defendants-appellants.
Diane H. Tutt, Fort Lauderdale, Fla., Thomas J. Whalen, Condon & Forsyth, Washington, D.C., for plaintiffs-appellees.
Appeal from the United States District Court for the Southern District of Florida.
Before KRAVITCH and HATCHETT, Circuit Judges, and MARKEY *, Chief Circuit Judge.
In this appeal we conclude that a conversion from Chapter 11 to Chapter 7 does not reimpose the automatic stay of 11 U.S.C. Sec. 362(a).
In October of 1982 appellants were injured in a plane crash. Although State Airlines did not own the aircraft involved in the crash, appellant Menut brought suit in Florida's Broward County Circuit Court against State Airlines one month after the accident, alleging that State Airlines had control of the aircraft and that it was negligent in entrusting the aircraft to the pilot, who was a State Airlines employee.
State Airlines petitioned for bankruptcy under Chapter 11 of the Bankruptcy Code on February 15, 1983. The filing of this petition triggered the automatic stay of section 362(a). The next day appellant Quinn filed suit against State Airlines in Broward County Circuit Court. 1 Quinn's suit was essentially the same as Menut's.
Appellee British Aviation Insurance Company ("BAIC") insured State Airlines. BAIC, however, concluded that its coverage of State Airlines did not include the aircraft involved in the accident that gave rise to appellants' claims. On May 19, 1983 BAIC filed its declaratory judgment action in the district court, naming State Airlines, debtor-in-possession, and appellants as defendants. Subsequently, BAIC sought and received relief from the automatic stay to pursue its declaratory judgment action. BAIC also refused to defend State Airlines against the suits brought by Menut and Quinn in Broward County Circuit Court.
In June of 1983 appellants sought and received relief from the section 362(a) automatic stay. The bankruptcy court modified the automatic stay to permit the suits against State Airlines to proceed to final judgment, but the bankruptcy court's order, with the full consent of State Airlines, specifically ruled that "[a]ny recovery resulting from a Judgment against State Airlines, Inc. shall be limited to insurance proceeds, if any." 2
In November of 1983 appellant Quinn amended his complaint in the Broward County action to add an additional count in which he sought to allege facts that would bring his claim within the scope of BAIC's insurance coverage of State Airlines. In December of 1983 appellant Menut amended her complaint in a similar fashion. BAIC was advised of the amended complaints, but reaffirmed its prior denial of liability and refusal to defend.
On April 10, 1984 the bankruptcy court entered an order converting State Airline's bankruptcy from Chapter 11 to Chapter 7. A trustee was appointed under Chapter 7. This conversion occurred before judgment had been entered in either of the Broward County actions or in BAIC's declaratory judgment action.
State Airlines defaulted in the Broward County Actions, and on May 23, 1984 the Broward County Circuit Court entered an order of default in favor of appellants. State Airline's counsel, apparently without the knowledge or consent of the trustee in bankruptcy, agreed to arbitrate the issue of damages. 3 State Airlines did not participate in the arbitration, and the arbitrators awarded Quinn and Menut $776,000 and $945,000 respectively.
Only now did BAIC take action. BAICmoved to intervene in the Broward County Circuit Court and to stay entry of final judgment. BAIC argued in part that the conversion of State Airlines's bankruptcy from Chapter 11 to Chapter 7 reimposed the automatic stay of section 362(a), thus rendering the default judgment and damage award void because the bankruptcy court had not granted any relief from the "reimposed" automatic stay.
The Broward County Circuit Court suggested that the parties seek a clarification from the bankruptcy court as to the effect of the conversion from Chapter 11 to Chapter 7. Before the bankruptcy court could rule, however, the district courtruled on February 13, 1985 that the conversion from Chapter 11 to Chapter 7 had triggered the automatic stay of section 362(a). The district court concluded that the automatic stay triggered by the conversion had stayed BAIC's declaratory judgment action, and that BAIC must seek relief from the stay in the bankruptcy court. Menut and Quinn attempted to appeal this ruling, but because they did not appeal from the proper order we dismissed their appeal for lack of jurisdiction. 822 F.2d 1029 (1987).
In the meantime the bankruptcy court, in what is perhaps the most troubling episode in this byzantine tale, ruled on March 29, 1985 that the conversion from Chapter 11 to Chapter 7 did not trigger the section 362(a) automatic stay, despite the district court's express prior ruling to the contrary. BAIC appealed this ruling to the district court on April 10, 1985. While BAIC's appeal from the bankruptcy court's order was pending the Broward County Circuit Court denied BAIC's motion to intervene and entered judgment in favor of Menut and Quinn. BAIC and the trustee also appealed the Broward County Circuit Court's denial of the motion to intervene and the entry of the default judgment. The District Court of Appeal of Florida dismissed the trustee's appeal of the denial of its motion to stay, State Airlines v. Menut, 511 So.2d 421 (Fla.Dist.Ct.App.1987), reversed the district court's denial of BAIC's motion to intervene, British Aviation Insurance Co. v. Menut, 511 So.2d 425 (Fla.Dist.Ct.App.1987), but affirmed the entry of default judgment, id.
On May 9, 1988, 85 B.R. 884, the district court now faced the problem of deciding BAIC's appeal from the bankruptcy court's ruling that a conversion from Chapter 11 to Chapter 7 did not trigger section 362(a) and its automatic stay. The district court concluded, as it had earlier, that the conversion did indeed reimpose the section 362(a) automatic stay. The district court then held that actions taken after the conversion and reimposition of the automatic stay, including the entry of default judgments in the Broward County actions were void. 4 Menut and Quinn now appeal the district court's order ruling that the judgments rendered in the Broward County actions are void.
The sole issue in this appeal is whether a conversion from Chapter 11 to Chapter 7 triggers the automatic stay of section 362(a). 5 This is a question of law, and our review is plenary.
We begin with the statute itself. Section 362 provides in relevant part:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, 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; ...
11 U.S.C.A. Sec. 362 (West Supp.1988). Under section 362(a) the "petition filed under section 301, 302, or 303" operates as the stay.
The district court essentially concluded that, for the purposes of section 362, a conversion from Chapter 11 to Chapter 7 is the same thing as "a petition filed under section 301, 302, or 303." The district court reasoned as follows. Section 301 states that the filing of a petition commences the case, and that the commencement of a case in turn "constitutes an order for relief." 6 Similarly, section 348 declares that a conversion from one chapter to another "constitutes an order for relief under the chapter to which the case is converted." 7 Therefore, a conversion, which is an "order for relief," has the same affect under section 362 as the filing of a petition, because that too is an "order for relief."
Although we acknowledge that the district court's reasoning has a certain symmetry, we believe that it does violence to the language of the relevant Code provisions. We recognize that the reimposition of the automatic stay upon the conversion of a case from Chapter 11 to Chapter 7 may give the trustee an undisturbed opportunity to evaluate the condition of the debtor; nevertheless, we conclude that the Bankruptcy Code does not authorize such a ruling.
If Congress had intended for a conversion to trigger the automatic stay of section 362 it could very easily have said so explicitly. Had section 362 been framed in terms of an order for relief, then we would have our answer. Similarly, we might reasonably have expected Congress to indicate in section 348 ("Effect of conversion") that a conversion would have such a significant impact as reimposing the section 362(a) automatic stay. Instead, appellees ask that we perform lexigraphic gymnastics and effectively rewrite section 362. Congress considered the automatic stay provision one of the most important in the Bankruptcy Code. 8 Absent any indication of Congressional intent, we will not assume that Congress meant anything other than what it said. 9 The filing of a petition under section 301, 302, or 303 operates as a stay under section 362. A conversion under section 348 does not.
The Bankruptcy Code consistently...
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