The Ninth Circuit's Bankruptcy Appellate Panel Holds That a Creditor Does Not Violate Automatic Stay By Maintaining Contempt Proceeding Against the Debtor

The Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") recently issued the opinion, Yellow Express LLC v. Dingley (In re Dingley), BAP No. NV-13-1261-KiJuTa (9th Cir. BAP Aug. 6, 2014), which held that a creditor does not violate the automatic stay by maintaining a state court contempt proceeding against the debtor because the state court contempt proceedings related to court-ordered sanctions for the debtor's discovery violations. In 2009, the appellants had filed a state court action against the debtor and two LLCs he owned and controlled. One year prior to the bankruptcy filing, the state court ordered the debtor and his two LLCs to pay sanctions to appellants for their willful failure to appear for depositions. The debtor and the two LLCs did not pay the sanctions. On April 2, 2013, the state court judge issued an order to show cause ("OSC") why the debtor and the LLCs should not be held in contempt for nonpayment. The debtor filed a Chapter 7 proceeding on April 8, 2013.

The debtor provided the appellants with notice of his bankruptcy filing, but the appellants declined to request the state court vacate the OSC because: (1) the LLCs had not filed bankruptcy and did not receive the benefit of the automatic stay; and (2) Ninth Circuit authority excepted a state court proceeding from the automatic stay. Accordingly, the appellants timely filed their state court brief in response to the OSC. The debtor filed a motion to enforce the stay and the bankruptcy court held that the appellants could not proceed against the debtor and found the appellant's counsel in contempt of court for his willful violation of the automatic stay. The BAP reversed the findings of the bankruptcy court. Specifically, the BAP found that the precedent of the Ninth Circuit is set in David v. Hooker, Ltd., 560 F.2d 412 (9th Cir. 1977) and Dumas v. Atwood (In re Dumas), 19 B.R. 676 (9th Cir. 1982): a contempt action for nonpayment of court-ordered sanctions is exempted from the automatic stay unless the proceeding turns on the determination or collection of the underlying judgment.

Judge Jury, while concurring with the BAP's decision, wrote separately as she believed that Hooker's judicially-created rule is not consistent with the modern breadth of the automatic stay adopted in Ninth Circuit case law and is at odds with the plan language of 11 U.S.C. ยง 362(b). To see the full opinion, please click here.

No Comments

Leave a comment
Comment Information
  • NBLSC Board Certified Lawyer Rated By Super Lawyers | Ryan P. Durham Rated By Super Lawyers | Ben Boston
  • Tennessee Association For Justice | Member 2015-2016 American Association For Premier DUI Attorneys The National Trial Lawyers | Top 100 Trial Lawyers
  • American Institute of Family Law Attorneys | 10 best 2015 American Institute of Personal Injury attorneys | 10 best 2016 AV preeminent |  Jeffery Broker

Schedule a Consultation Today

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Shulman Bastian LLP | Full Service. Business. Lawyers.

Irvine
100 Spectrum Center Drive
Suite 600
Irvine, CA 92618

Map & Directions

Riverside
3550 Vine Street
Suite 210
Riverside, CA 92507

Map & Directions