Opinion
No. 1 CA-CV 12-0003
01-17-2013
BMO HARRIS BANK, N.A., as successor-by-merger to M&I MARSHALL & ILSLEY BANK aka M&I BANK, FSB, Plaintiff/Appellee, v. MORGEN THRUSTON; HOWARD THRUSTON, Defendants/Appellants.
Quarles & Brady LLP By John M. O'Neal and Krystal M. Aspey Attorneys for Plaintiff/Appellee Morgen Thruston and Howard Thruston Defendants/Appellants In Propria Persona
NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED
EXCEPT AS AUTHORIZED BY APPLICABLE RULES.
See Ariz. R. Supreme Court 111(c); ARCAP 28(c);
Ariz. R. Crim. P. 31.24
MEMORANDUM DECISION
(Not for Publication -
Rule 28, Arizona Rules of
Civil Appellate Procedure)
Appeal from the Superior Court in Maricopa County
Cause No. CV2011-011194
The Honorable Michael L. Barth, Judge Pro Tempore
VACATED
Quarles & Brady LLP
By John M. O'Neal and Krystal M. Aspey
Attorneys for Plaintiff/Appellee
Phoenix
Morgen Thruston and Howard Thruston
Defendants/Appellants In Propria Persona
Mesa
BROWN, Judge ¶1 Morgen and Howard Thruston, a married couple, appeal the superior court's judgment in favor of appellee BMO Harris Bank ("BMO") for forcible entry and detainer ("FED"). For the reasons set forth below, we vacate the judgment.
The FED complaint lists Morgen Thruston as the only named defendant, adding as fictitious defendants individuals and entities "who may be occupying the property." Although the record before the superior court and this court does not show that Howard Thruston was ever formally named as a defendant, he fits within the complaint's fictitious defendant description, appeared and participated in the superior court proceedings, signed the notice of appeal and has appeared and participated in this appeal without objection. Accordingly, for purposes of this appeal, Howard Thruston is treated as a co-appellant with Morgen Thruston. Cf. ARCAP 3.
BMO succeeded by merger Marshall & Ilsley Bank ("M & I"), which originally carried the loan with the Thrustons. For ease of reference, we refer to BMO and M & I collectively as BMO throughout.
BACKGROUND
¶2 The dispute in this case arises from a construction loan secured by the Thrustons' home ("the property") that Morgen obtained from BMO. At some point after the loan disbursements began, the Thrustons defaulted and BMO commenced foreclosure proceedings. A trustee's sale was conducted on January 7, 2010, and BMO acquired title through a trustee's deed. On June 6, 2011, Morgen filed a Chapter 13 bankruptcy petition on her own behalf. On June 29, BMO filed this FED action in superior court, alleging the Thrustons had failed to "deliver possession of the property and continue in possession of it to the damage of [BMO]." At the initial hearing on the FED on July 14, the superior court acknowledged the ongoing bankruptcy proceedings and ordered that "all collection proceedings as to [BMO]" be stayed. ¶3 The next day, BMO filed a motion for relief from the automatic stay in the bankruptcy court, arguing that Morgen no longer had any interest in the property and it was therefore not part of the bankruptcy estate. BMO specifically sought to annul the automatic stay pursuant to 11 U.S.C. section 362(d) (2012) to allow the June 29 complaint to proceed. On August 5, the bankruptcy court dismissed Morgen's petition, finding that she had failed to timely file any of the required documents. The court did not address BMO's motion for relief from the automatic stay. ¶4 On August 11, based on the dismissal of Morgen's bankruptcy petition, BMO filed a motion in superior court to set a new hearing on the FED complaint. On August 15, before the court could rule on the motion, however, Morgen filed another bankruptcy petition. The superior court ultimately granted BMO's motion on August 22, but at the August 30 hearing, per BMO's request, the court placed the case on the inactive calendar, to be dismissed on February 27, 2012, absent a stipulation for dismissal or a motion to set and certificate of readiness. On August 31, BMO filed a motion for relief from the automatic stay in the bankruptcy court. The bankruptcy court heard arguments on BMO's motion on September 7, but concluded that "the stay will remain in place until the next hearing." ¶5 Following a hearing conducted on October 20, the bankruptcy court dismissed Morgen's petition. Once again, however, the court did not address BMO's pending motion for relief from the automatic stay. BMO then filed a motion in superior court to set the FED hearing, asserting that although Morgen had filed a second bankruptcy petition, BMO had obtained "relief" from the stay. The court granted BMO's motion and set a hearing. Following oral argument, the court granted BMO's motion for judgment on the pleadings filed pursuant to Rule 9(d) of the Arizona Rules of Procedure for Eviction Actions ("RPEA"). This timely appeal followed.
Neither party has provided us with relevant records from the bankruptcy proceedings. Nonetheless, we take judicial notice of such records to the extent necessary to resolve the issue before us. See Stallings v. Spring Meadows Apartment Complex Ltd. P'ship, 185 Ariz. 156, 160, 913 P.2d 496, 500 (1996) (taking judicial notice of a bankruptcy court's clarification order).
Pursuant to 11 U.S.C. section 362(a) (2012), an automatic stay goes into effect at the time a debtor files a bankruptcy petition.
DISCUSSION
As an initial matter, BMO requests that we dismiss the case for the Thrustons' failure to make appropriate references to the record in their brief as required by ARCAP 13(a)(4). We agree that the opening brief, as well as the reply brief, fail to meet the essential requirements of ARCAP 13 because there are virtually no citations to the record and most of the arguments are without legal authority. Nevertheless, we decline BMO's request to dismiss the appeal on that basis and decide the case based on our own review of the record. See Clemens v. Clark, 101 Ariz. 413, 414, 420 P.2d 284, 285 (1966).
¶6 Although inartfully stated, the Thrustons have raised an issue questioning the superior court's jurisdiction to consider the FED complaint. Specifically, the Thrustons suggest that the trial court erred in not dismissing the FED action because BMO served the complaint and summons in violation of the automatic stay of the bankruptcy court. In response, BMO argues waiver, asserting that the Thrustons "may not now claim that service of the Complaint was ineffective due to [Morgen's] pending bankruptcy." ¶7 "Subject matter jurisdiction is 'the power of a court to hear and determine a controversy.'" State v. Chacon, 221 Ariz. 523, 525, ¶ 5, 212 P.3d 861, 863 (App. 2009) (quoting Marks v. LaBerge, 146 Ariz. 12, 15, 703 P.2d 559, 562 (App. 1985)). Where a court without jurisdiction enters an order adjudicating a case, that order "is void, and not merely voidable." State v. Espinoza, 229 Ariz. 421, 428, ¶ 31, 276 P.3d 55, 62 (App. 2012). And, "[a] void judgment is a nullity and all proceedings founded on [a] void judgment are themselves regarded as invalid and ineffective for any purpose." Id. at ¶ 32 (internal quotations omitted). "[Subject matter] jurisdiction may not be waived and can be raised at any stage of the proceedings." Rojas v. Kimble, 89 Ariz. 276, 279 361 P.2d 403, 406 (1961). ¶8 In this case, whether the trial court had subject matter jurisdiction turns on the effect of the automatic stay in place at the time BMO filed its June 29, 2011, FED complaint. Pursuant to 11 U.S.C. § 362(a), the filing of a bankruptcy petition functions as an automatic stay of "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 [a bankruptcy proceeding]." In crafting the language of § 362(a), "Congress intended to give debtors 'a breathing spell' from their creditors and to stop 'all collection efforts, all harassment, and all foreclosure actions.'" Delpit v. C.I.R. , 18 F.3d 768, 771 (9th Cir. 1994) (quoting H.R. Rep. No. 95-595 at 340 (1978)). Actions taken in violation of the automatic stay "are void and of no effect." See, e.g., In re Schwartz, 954 F.2d 569, 572 (9th Cir. 1992). ¶9 The exclusive process for obtaining relief from the automatic stay is set forth in § 362(d), which provides, in pertinent part:
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—Although a party may obtain retroactive relief from the stay pursuant to § 362(d), "congressional policy behind the automatic stay demands that courts be especially hesitant to validate acts committed during the pendency of the stay." In re Albany Partners, Ltd. , 749 F.2d 670, 675 (11th Cir. 1984). Furthermore, 11 U.S.C. § 349, "which specifies the effects of dismissal of an underlying case . . . provides that dismissal revests property of the estate in the debtor and vacates orders entered avoiding certain liens and transfers. Section 349(b) does not, however, retroactively vacate the automatic stay, vacate orders remedying violation of the stay, or vitiate any cause of action based upon violation of the stay." In re Davis, 177 B.R. 907, 911 (B.A.P. 9th Cir. 1995). ¶10 In Arizona, FED actions are governed by statute, Hinton v. Hotchkiss, 65 Ariz. 110, 114, 174 P.2d 749, 753 (1946), and subject to the applicable rules under the RPEA. The relevant statute, Arizona Revised Statutes ("A.R.S.") section 12-1175 (2012), sets forth the specific requirements for initiating an FED action in superior court, including the requirement that "a party aggrieved files a complaint." Similarly, RPEA 5 provides that an FED action may be initiated only by a summons and complaint that meets the requirements of the rule. Based on that language, the only permissible avenue for initiating an FED proceeding is to file a valid complaint. See A.R.S. § 12-1175(A); RPEA 5. ¶11 In this case, BMO filed requests for retroactive relief pursuant to 11 U.S.C. § 362(d) in both bankruptcy cases Morgen had filed. It is equally clear, however, that the bankruptcy court never ruled on BMO's motions and instead simply dismissed the petitions. Because BMO never obtained relief from the stays imposed by the filing of the two petitions, and because the dismissal of Morgen's bankruptcy petitions did not retroactively vacate the automatic stays, BMO's June 29 complaint was void and of no effect. See Schwartz, 954 F.2d at 572; Davis, 177 B.R. at 907. Thus, under A.R.S. § 12-1175(A) and RPEA 5, BMO never initiated a valid FED action against the Thrustons. And, although no Arizona case has addressed this precise factual scenario, we have previously held that where a party fails to comply with the requirements for initiating a dispute under the Arizona Rules of Civil Procedure, the "failure to file a complaint left [the superior court] without jurisdiction over a cause of action." Bryant v. Bloch Companies, 166 Ariz. 46, 48, 800 P.2d 33, 35 (App. 1990). ¶12 Based on the plain language of the bankruptcy code, state statutes governing FED actions, the facts of this case, and the relevant case law, the superior court lacked jurisdiction over BMO's complaint in this case. See 11 U.S.C. § 362; A.R.S § 12-1175; RPEA 5; Bryant, 166 Ariz. at 48, 800 P.2d at 35. Thus, the superior court had no power to adjudicate BMO's claim and any orders it entered in doing so are void. Espinoza, 229 Ariz. at 428-29, ¶¶ 31-32, 276 P.3d at 62-63.
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest;
(2) with respect to a stay of an act against property under subsection (a) of this section, if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization[.]
Absent material revision after the relevant date, we cite a statute's current version.
BMO does not argue on appeal that Morgen and Howard should be treated differently from each other. Moreover, given that Howard apparently was not formally joined as a party, it is unclear what relief BMO sought from him (as opposed to both of them). Accordingly, we need not address what impact the automatic stay may have had as to any claim by BMO against Howard alone.
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CONCLUSION
¶13 For the forgoing reasons, we conclude that the FED judgment is void because the summons and complaint were served in violation of the bankruptcy court's automatic stay. We therefore vacate the judgment.
_______________
MICHAEL J. BROWN, Judge
CONCURRING: _______________
SAMUEL A. THUMMA, Presiding Judge
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DIANE M. JOHNSEN, Judge