Bankruptcy Courts Still Have Power to Retroactively Annul Stay, Regardless of Recent Supreme Court Ruling in Acevedo

In Merriman v. Fattorini (In re Merriman), BAP No. CC-19-1245-LTaF (July 13, 2020), the Ninth Circuit Bankruptcy Appellate Panel ("BAP") held the United States Supreme Court's recent decision in Roman Catholic Archdiocese of San Juan v. Acevedo Feliciano, No. 18-921, 2020 WL 871715 (U.S. Feb. 24, 2020), did not prevent the bankruptcy court from retroactively lifting the automatic stay and affirmed the decision of the bankruptcy court. In general, 11 U.S.C. § 362(d) grants broad authority to the bankruptcy court to terminate, annul, modify, or condition the automatic stay for cause. In assessing whether retroactive annulment of the stay should be granted, the courts have focused on two main factors: "(1) whether the creditor was aware of the bankruptcy petition; and (2) whether the debtor engaged in unreasonable or inequitable conduct, or prejudice would result to the creditor."

In Merriman, Ferdinand and Deann Fattorini filed a post-petition state court action against debtor Shawne Merriman. The Fattorninis were unaware of the debtor's bankruptcy case at the time they filed their state court action. After learning of the bankruptcy case, the Fattorinis filed their motion for relief from stay requesting the court annul the stay and allow them to continue litigating the state court action. The bankruptcy court found cause to retroactively lift the stay and granted the motion.

The BAP discussed the possible implications of the recent Acevedo opinion. The panel held that Acevedo does not preclude retroactive relief from stay, as found by at least one other bankruptcy court. In general, Acevedo stands for the proposition that nunc pro tunc orders may not retroactively confer jurisdiction where none existed. This finding is based on the language of the removal statute that explicitly prohibits the state court from exercising jurisdiction over the removed action. In contrast, the BAP distinguished Merriman and its application of § 362(d), which "does not purport to deprive the bankruptcy court of jurisdiction; rather, it explicitly grants the court the power to modify the stay to permit another court or entity to exercise control over an asset or claim."

For the full opinion, please click here.

If you have any questions, please contact Sarah St. John or any of the other attorneys at Shulman Bastian Friedman & Bui LLP at 949-340-3400.

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