Summary
assuming without discussion that appellate court had jurisdiction to consider whether post-judgment order, appointing same person as receiver and master in chancery was void for haying been entered during automatic bankruptcy stay
Summary of this case from Sheikh v. SheikhOpinion
No. 14-02-01326-CV
Memorandum Opinion filed May 27, 2004.
On Appeal from the 113th District Court, Harris County, Texas Trial Court Cause No. 97-48548.
Vacated and Remanded.
Panel consists of Justices EDELMAN, FROST and GUZMAN.
MEMORANDUM OPINION
Appellant Andrew Lannie appeals the trial court's order appointing a receiver and asserts the order is void because the trial court lacked jurisdiction to enter it as a result of the automatic stay under the United States Bankruptcy Code. We agree, vacate the trial court's order, and remand to the trial court for further proceedings consistent with this opinion.
On March 24, 1998, the trial court rendered a final judgment against Lannie and in favor of appellees Donald Harvey and Steve Hebert (collectively referred to herein as "Judgment Creditors"). According to the Judgment Creditors' application for turnover relief and for appointment of a receiver: (1) Lannie filed a voluntary bankruptcy petition under Chapter 13 of the United States Bankruptcy Code on January 26, 2001; (2) Lannie's bankruptcy proceeding was later converted to a Chapter 7 proceeding; (3) the Judgment Creditors filed an adversary proceeding against Lannie in this Chapter 7 case seeking a determination that their March 24, 1998 judgment against Lannie is nondischargeable in bankruptcy; (4) on September 12, 2002, the bankruptcy court in this adversary proceeding entered a judgment holding this judgment to be not dischargeable under 11 U.S.C. § 523(a)(2)(A) and 523(a)(4).
On November 6, 2002, the Judgment Creditors filed an application in the trial court seeking turnover relief and the appointment of a receiver to take possession of, and sell, Lannie's assets to satisfy their judgment against Lannie. On November 18, 2002, Lannie filed a response in opposition to this application in which he presented proof, both by verified response and by affidavit, of the following: (1) as of November 18, 2002, Lannie was a debtor in a pending Chapter 7 bankruptcy proceeding; (2) while the bankruptcy court had determined that the Judgment Creditors' judgment is nondischargeable, the bankruptcy court has never lifted the bankruptcy stay to allow the Judgment Creditors to proceed with postjudgment collection efforts in state court; (3) the relief sought by the Judgment Creditors in their application would give a receiver broad powers to seize and sell Lannie's nonexempt assets; (4) these assets are part of the bankruptcy estate in Lannie's bankruptcy and are subject to pending claims by other creditors, including the Internal Revenue Service; and (5) allowing the Judgment Creditors to proceed with these postjudgment collection efforts would create a preference among Lannie's creditors and would substantially impair the pending priority claims of other creditors.
On November 19, 2002, the trial court granted the Judgment Creditors' application and signed an order appointing Henry V. Radoff as a receiver and master in chancery. On appeal, Lannie argues, among other things, that the trial court's order is void as a matter of law because the trial court signed it in violation of the automatic stay. The commencement of a bankruptcy case operates as a stay, applicable to all entities, of:
(1) the commencement or continuation . . . 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 . . .
11 U.S.C. § 362(a)(1), (2).
A bankruptcy stay is automatically triggered when the bankruptcy petition is filed whether or not a party or the non-bankruptcy court learns of it prior to taking action against the debtor. Paine v. Sealy, 956 S.W.2d 803, 805 (Tex. App.-Hous. [14 Dist.] 1997, no writ). It is undisputed that, at the time the trial court signed its order appointing a receiver, Lannie was a debtor in a pending Chapter 7 bankruptcy case. In his affidavit and sworn response, Lannie testified that the Judgment Creditors had not obtained relief from the automatic bankruptcy stay. The Judgment Creditors do not assert that they have obtained relief from the bankruptcy stay; rather, they assert that the bankruptcy court's judgment in their adversary proceeding allows them to collect their judgment. The adversary-proceeding judgment contains no language to this effect and does not grant any relief from the automatic stay. The Judgment Creditors cite no cases in support of their argument that the nondischargeability determination alone allows a state court to appoint a receiver over all of the non-exempt assets of a debtor in a pending bankruptcy case.
When a party, who has not sought relief from the bankruptcy stay, attempts to commence or continue a proceeding against the debtor, the action taken is void. Id. After carefully reviewing the unambiguous language of the relevant part of the Bankruptcy Code, we conclude that the Judgment Creditors' judgment, even if it is a nondischargeable debt, does not fall under an exception to the bankruptcy stay and that, on the facts of this case, the bankruptcy stay was still in effect as to the trial court's actions in this case when it entered the order in question. See 11 U.S.C. § 362; Paine, 956 S.W.2d at 805. Because the evidence shows the Judgment Creditors failed to obtain relief from the stay, we conclude that the trial court's order appointing a receiver is void. See 11 U.S.C. § 362; Paine, 956 S.W.2d at 805. Accordingly, we vacate the trial court's order appointing a receiver and remand for further proceedings consistent with this opinion.
The Judgment Creditors also rely on an order of the bankruptcy court that apparently declines to enjoin the proceedings in the trial court in this case. This order, however, is not in our record and was apparently signed after the trial court's receivership order in this case. For both of these reasons, we may not consider this order in our analysis. Nonetheless, we note that a bankruptcy court's failure to enjoin or stay state court proceedings is not sufficient to lift the bankruptcy stay, if it is otherwise in effect. See 11 U.S.C. § 362(c).
Because of our disposition, we need not address the other issues that Lannie raises on appeal.