Opinion
Case No. 8:18-bk-05198-RCT
09-30-2019
In re Kristina Gaime, Debtor.
Chapter 7 ORDER DENYING , WITHOUT PREJUDICE, MOTION FOR RELIEF FROM THE AUTOMATIC STAY NUNC PRO TUNC TO APRIL 8, 2019, OR TO ANNUL THE AUTOMATIC STAY
This case is considered, after briefing and oral argument, on the Motion for Relief from the Automatic Stay nunc pro tunc to April 8, 2019, or to Annul the Automatic Stay (Doc. 46) (the "Motion"), filed by State Farm Fire and Casualty Company, State Farm Mutual Automobile Insurance Company, and State Farm Florida Insurance Company (collectively, "State Farm"); the response in opposition to the Motion (Doc. 47), filed by Dawn A. Carapella, the chapter 7 trustee ("Trustee"); State Farm's reply (Doc. 52); and the parties' post-hearing briefs (Docs. 57 & 59).
The court acknowledges State Farm's filing of various documents from the state court proceeding that resulted in the judgment against the Debtor, which underpins the Motion. Doc. 58.
For the reasons that follow, the Motion is denied, without prejudice, to any proper defense that State Farm might assert in the bad faith litigation commenced by the Trustee.
Background
The facts are largely undisputed. Rather, it is the legal import of those undisputed facts that is the basis of the parties' disagreement. Because the court assumes the parties' familiarity with the broader factual background, only the most relevant facts are detailed below.
See Doc. 32 ("Order Granting, Without Prejudice, (I) Motion for Protective Order, and (II) Motion for Protective Order, to Quash Subpoena, for Protection from Undue Expense, and Objections").
On August 19, 2016, a state court judgment was entered against Debtor and in favor of Plaintiffs the Rotells in the amount of $504,802,368 (the "Judgment"). The underlying personal injury and wrongful death action was commenced in 2001. In 2008, Debtor tendered her State Farm insurance policies for defense and indemnity. State Farm initially defended the Debtor under reservation of rights but terminated their defense after the state court entered declaratory judgments that the Debtor was not covered by the proffered policies. The Rotells stipulated to entry of the declaratory judgments.
Plaintiffs in the state court case were Debtor's son Adam, the probate estate of her son Mathew, and the boys' father, S. Stephen Rotell. The court refers to the plaintiffs, collectively, as the "Rotells."
In June 2012, the state court permitted counsel that had been retained by State Farm to defend Debtor to withdraw from the case. Pending at the time of counsel's withdrawal was a motion by Debtor to dismiss the Rotells' Fourth Amended Complaint, or, alternatively, for judgment on the pleadings. The day after approving the withdrawal of counsel, the state court entered an order denying Debtor's motion as moot and granting an ore tenus motion by the Rotells to file a further amended complaint. The Rotells were provided 20 days to file an amended complaint and Debtor provided 20 days thereafter to respond. According to State Farm, Debtor, who was then incarcerated, was not served with the order.
The story picks up again three and a half years later when, in December 2015, the Rotells had their case against Debtor set for trial in February 2016. Separately but concurrently, Debtor sent a letter from prison to the state court stating that she disputed the allegations against her and intended to defend the Rotells' lawsuit after her then-forthcoming release from prison. She also asked that she be given additional time to prepare for the trial after her release. The state court issued an order stating that if Debtor wanted the court to consider her request for an extension of time, the matter must be set for hearing. According to State Farm, Debtor was, again, not served with the state court's order.
The state court had abated the proceedings while Debtor completed her prison sentence arising from the criminal charges related to the incident underlying the Rotells' civil complaint. Doc. 7 ¶¶ 4-6.
Yet in early January 2016, Debtor sent the state court a second letter reiterating her positions and again requesting a continuance of trial. This time, she sought a telephonic hearing. In mid-February 2016, the state court continued the trial, but on the Rotells' request.
On March 2, 2016, without further leave of court, the Rotells filed their Fifth Amended Complaint. When Debtor did not respond, the Rotells moved for a clerk's default. The state court clerk denied the request, prompting the Rotells to move for a court's default. The motion for court's default was set for telephonic hearing on May 3, 2016, following which the state court entered a default judgment against Debtor on the issue of liability.
A trial on damages was conducted on June 20, 2016, at which Debtor represented herself. Based upon the jury's verdict, the court entered the Judgment against Debtor on August 19, 2016.
The Rotells commenced this involuntary chapter 7 bankruptcy against the Debtor on June 22, 2018. After Debtor failed to respond to the petition, this court entered an Order for Relief on July 24, 2018. The Rotells are the only creditors in this case. And, it appears undisputed that the Trustee's third-party "bad faith" claim against State Farm, which flows from the Judgment, is the estate's only asset. Debtor has played no role in this bankruptcy proceeding.
Doc. 1.
Doc. 9.
State Farm, who identifies itself as a non-party and whose only involvement in this bankruptcy is as a target of litigation by the Trustee, seeks relief from the automatic stay to proceed with a motion to intervene in the Rotells' state court case against the Debtor and to vacate the Judgment obtained in that case (the "Proposed Motion"). State Farm argues that the Judgment is void (or voidable) and that any binding effect of the Judgment as against it is a violation of due process. State Farm further argues that relief is warranted as its claims regarding the Judgment form part of its defense in the Trustee's third-party bad faith litigation.
State Farm has, in fact, already filed the Proposed Motion. It therefore seeks nunc pro tunc relief to April 8, 2019, the filing date of the Proposed Motion, which proceeded the filing of the instant Motion by a mere 11 days.
Discussion
Section 362(d)(1) of the Bankruptcy Code authorizes the court to grant relief from the automatic stay "for cause." The Code does not define "cause," so bankruptcy courts must decide the issue on a case-by-case basis based upon the totality of the circumstances. The movant bears the burden to demonstrate that "cause" exists, and the decision to grant relief from the stay is within the sound discretion of the bankruptcy court.
11 U.S.C. §§ 101-1532 ("Bankruptcy Code" or "Code").
See, e.g., In re Anthony, No. 8:13-BK-00922-KRM, 2013 WL 3326023, at *2 (Bankr. M.D. Fla. July 1, 2013); In re Aloisi, 261 B.R. 504, 508 (Bankr. M.D. Fla. 2001); see generally Disciplinary Bd. of the Supreme Court of Penn. v. Feingold (In re Feingold), 730 F.3d 1268, 1276-77 (11th Cir. 2013) (noting there is "no set list of circumstances" for a bankruptcy court to consider in evaluating whether cause exists to lift the automatic stay).
See, e.g., Barclays-Am./Bus. Credit, Inc. v. Radio WBHP, Inc. (In re Dixie Broad., Inc.), 871 F.2d 1023, 1026 (11th Cir. 1989); In re Mack, 347 B.R. 911, 915 (Bankr. M.D. Fla. 2006).
As a preliminary matter, the court disagrees with State Farm's suggestion that its Proposed Motion does not implicate the automatic stay. The continuation of the Rotells' state court action, which is against the Debtor, is a violation of the automatic stay, § 362(a)(1), notwithstanding protestations that State Farm simply wants to help the Debtor. Similarly, the attempt to challenge the Judgment that is (a) a presumably valid claim in this case and (b) the very foundation of this involuntary chapter 7 case also implicates the automatic stay.
The court is doubtful that State Farm, as a target of litigation by the Trustee rather than a creditor of this estate, is a "party in interest" for purposes of challenging claims filed against this estate. See In re Charter Co., 68 B.R. 225, 227-28 (Bankr. M.D. Fla. 1986); cf. In re E.S. Bankest, L.C., 321 B.R. 590, 594-96 (Bankr. S.D. Fla. 2005) (discussing "party in interest" standing under § 1109).
Turning to the question at hand, the court finds that the balance of prejudice to the parties favors the Trustee. State Farm argues that it will be prejudiced if it is not allowed to intervene in the underlying wrongful death action, but that is not entirely clear. State Farm, under reservation of rights, provided a defense to Debtor from December 2008 until June 2012. It terminated that defense after having obtained declaratory judgments that the Rotells' injuries were not covered under their policies. State Farm believed those judgments, which were based upon stipulation with the Rotells, were good enough to get out of the case. Now, it is apparently not so sure.
On the other hand, the Trustee is not a party to the underlying wrongful death action where the Judgment was entered. Thus, the Trustee will be prejudiced and impeded in her administration of this estate if the stay is lifted to permit State Farm to proceed with the Proposed Motion. The court finds that State Farm, having made the decision to walk away in 2012, should not be permitted a second bite at the apple that will increase the administrative expenses of the Trustee.
State Farm suggests that is seeks only to follow the "accepted procedure" in the Florida courts where an insurer faces a bad faith suit and the insurer believes the judgment upon which that suit is based is void or invalid. But the cases cited for that proposition do not speak of any such "accepted procedure," much less on these facts. Rather, those cases hold that an insurer may intervene in the underlying case to show that a default judgment is void for lack of proper jurisdiction of the person of the insured-defendant due to improper service of process.
See Great Am. Ins. Co. v. Bevis, 652 So. 2d 382, 384 (Fla. Dist. Ct. App. 1995) (insurer had standing to intervene following default judgment against its insured when its challenge to the judgment was lack of valid service on the insured); U.S. Fire Ins. Co. v. Ted Satter Enters., Inc., 447 So. 2d 1032, 1032 (Fla. Dist. Ct. App. 1984) (same).
State Farm also suggests that without stay relief from this court to intervene in the underlying wrongful death case, it will be without a forum to litigate its challenges to the Judgment that underpins and is an essential element of the Trustee's third-party bad faith claim. But State Farm acknowledges that its challenges to the validity of the Judgment are part of its defense in the Trustee's suit against it and provides no explanation why that court cannot properly and timely adjudicate its challenges within the context of the Trustee's suit. For that matter, the court is puzzled why State Farm seeks to attack the Judgment when it appears it has stipulated declaratory judgments that its policies did not cover Debtor for the Rotells' injuries.
See Cabrera v. MGA Ins. Co., No. 2:13-CV-666-FTM-38DNF, 2014 WL 868991, at *3 (M.D. Fla. Mar. 5, 2014) ("[T]here can be no liability for bad faith settlement of a claim if coverage did not exist in the first place.") (listing cases); Maryland Cas. Co. v. Alicia Diagnostic, Inc., 961 So. 2d 1091, 1092 (Fla. Dist. Ct. App. 2007) ("[I]f there is no insurance coverage, nor any loss or injury for which the insurer is contractually obligated to indemnify, the insurer cannot have acted in bad faith in refusing to settle the claim. Similarly, if there is no coverage, then the insured would suffer no damages resulting from its insurer's unfair settlement practices."). --------
In the end, the court concludes that State Farm has not shown sufficient cause to lift the automatic stay. Permitting State Farm to proceed with the Proposed Motion would prejudice the Trustee and the creditors in this bankruptcy case. This decision, however, does not purport to impact or adjudicate any proper defense that State Farm might assert in the bad faith litigation.
For these reasons, it is ORDERED that the Motion (Doc. 46) is DENIED, without prejudice, to any proper defense that State Farm might assert in the bad faith litigation commenced by the Trustee.
ORDERED.
Dated: September 30, 2019
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Attorney Camille J. Iurillo is directed to serve a copy of the Order on interested parties that are not registered CM/ECF users and to file proof of service within 3 days of its entry.