In re Roman Catholic Church of the Archdiocese of Santa Fe

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Although bankruptcy filings are on the decline in 2021, the expiration of the paycheck protection program and the reopening of courts nationwide could lead to an increase in bankruptcy filings, with many companies still struggling to dealing with the economic and supply chain aftermath of the pandemic and the purchasing habits of consumers. These bankruptcies, in turn, will have an inevitable ripple effect on creditors and other claimants, whose abilities to collect debts and exercise their rights are severely restricted by the automatic stay. Typically, automatic stay requires that a party seeking relief against a debtor do so in bankruptcy court, and only before, who can provide the relief sought or grant permission to pursue claims and rights in the bankruptcy court. another place. For many businesses, the automatic stay considerations end there, believing that as long as they have been deliberate enough to seek redress in bankruptcy court, they will not suffer the potentially serious consequences of violating the automatic stay. . But, a recent decision in In re Roman Catholic Church of the Archdiocese of Santa Fe serves as a final reminder that very rarely can one be overly cautious in seeking redress against a debtor, even in bankruptcy court itself.

In that decision, the United States Bankruptcy Court for the District of New Mexico joined a minority of courts that hold that automatic stay applies to proceedings seeking relief against the debtor on the basis of the state law, claims even when initiated by the bankruptcy court itself.[1] According to this minority view, creditors and other claimants may alone initiate adversarial proceedings before the bankruptcy court without first obtaining a lifting of the automatic stay if the underlying claim for redress exists only under the Bankruptcy Code (for example, an action to determine the payment of a debt,[2] a request for the conversion of a reorganization into liquidation,[3] (for example., an adversarial procedure asking for an injunction). In adopting this minority position, the court dismissed an individual creditor’s injunction because it was based on his claims of defamation in state law.

More precisely, in the Roman Catholic Church of the Archdiocese of Santa Fe case, before the debtor (a church) began its bankruptcy case, the debtor had published a list of “priests, deacons and religious [persons]Who were accused of pedophilia, which listed the creditor as one of the accused. In an effort to be removed from the list, the creditor filed a lawsuit in state court, asserting defamation claims and seeking pecuniary damages. Upon filing for bankruptcy, the automatic stay froze the creditor’s state lawsuit and the creditor filed a proof of claim for the pecuniary damages claimed in the state court case of prepetition as well as a stand-alone petition for fair relief in bankruptcy court, seeking to compel the church to remove its name from the list.[4] Avoiding the merits of the creditor’s request, the Roman Catholic Church of the Archdiocese of Santa Fe The court concluded that the initiation by the obligee of injunction proceedings violated the automatic stay and was therefore void. By setting aside the petition, however, the court left open the possibility for the creditor to seek relief from the stay to initiate adversarial proceedings or to withdraw its case in state court and amend it to add a request for equitable remedy.

Although the Roman Catholic Church of the Archdiocese of Santa Fe the court did not ultimately reject the injunction request with prejudice to the creditor, it further clarified that even if the creditor requested and obtained an exemption from the automatic stay to withdraw the state legal action, only a request for fair redress would be allowed to go ahead as adversarial proceedings; claims for damages from the creditor, that is to say, the grounds for its proof of claim, would continue to be suspended until “the point at which the administration of claims is appropriate”, since it did not make sense to rule on the inadmissible creditor’s claim.[5] Other courts that have applied the automatic stay to actions in bankruptcy court have achieved similar results, preventing creditors from using injunctive relief as a means to evade an advance ruling of their monetary claims, whether or not they may be. liquidated.[6]

Taking a step back, automatic stay usually prevents creditors and plaintiffs from initiating or continuing a dispute against the debtor or his property on the basis of a claim that arose before the debtor filed for bankruptcy (that is to say, a prior claim), the execution or finalization of a judgment or of a prior lien, the seizure of a guarantee, the termination of contracts due to a default of payment or the engagement of other actions against the property of the debtor’s bankruptcy estate.[7] Its purpose is to give the debtor a respite from the efforts to collect creditors, to ensure equal treatment of creditors in a similar situation by preventing them from rushing to court and obtaining a settlement. de facto administration of the bankruptcy estate on a first come, first served basis, and ensuring the orderly administration and distribution of the assets of the bankruptcy estate.[8]

Applied literally, the automatic stay could prohibit the initiation of proceedings against the debtor even in bankruptcy court, but a majority courts have decided otherwise, finding such a literal application would lead to absurd results. After all, having to seek redress in the bankruptcy court (of the stay) to seek redress in the bankruptcy court (of the debtor) is redundant, as having to both raise your hand to ask a question and then, when prompted, ask permission to ask the question before asking the real question. Thus, a majority of courts have instead limited the application of the automatic stay to the actions, claims or rights invoked. outside of the bankruptcy court, deeming this policy consistent with the penultimate objective of the automatic stay: to ensure orderly administration of the estate and equal treatment of creditors in the same situation.[9]

What does all of this mean for bankrupt businesses or those making claims against them? At first, it means “Does the automatic stay apply? ” is an important question. To answer this, parties need to know who is presiding over a case and not just which district it is in, as bankruptcy judges in the same district have taken different views on the application of the automatic stay.[10] And for creditors or other claimants, Roman Catholic Church of the Archdiocese of Santa Fe the court’s decision is another stark reminder to proceed with utmost caution when seeking redress against a bankrupt debtor, lest you run into automatic stay and face penalties or even total loss of money. your claim.

For debtors, this means an occasional layer of extra protection if they find themselves in a court that has adopted the minority view, and all the potential benefits that come with extending the automatic stay, including, potentially, the obtaining sanctions against haste and aggressive creditors and perhaps even rejecting a claim without having to examine the merits. In addition, if it is a bankruptcy court that has not yet decided the issue, the invocation of automatic stay becomes a valuable tool for debtors to pursue their reorganization or liquidation plan.

To sum it all up in one, Pierre-Pipery Award: Even in bankruptcy court, creditors may need to seek redress to seek redress, and when they do not seek the redress they needed to seek redress, a debtor may seek redress for the redress sought by the creditor.


FOOTNOTES

[1] In re Roman Catholic Church of the Archdiocese of Santa Fe, Case n ° 18-13027-t11, Doc. n ° 696 (DNM May 13, 2021) (citing Bridges v. Continental AFA Dispensing Co. (In re Continental AFA Dispensing Co.), 403 BR 653, 659 (Bankr. ED Mo. 2009); Healy / Mellon-Stuart Co. v. Coastal Group, Inc. (In re Coastal Group, Inc.), 100 BR 177, 178 (Bankr. D. Del. 1989); In re Hodges, 83 BR 25, 26 (Bankr. ND Cal. 1988); In the case of Penney, 76 BR 160, 161 (Bankr. ND Cal. 1987)); but see Prewitt v. North Coast Village, Ltd., 135 BR 641, 644 (BAP 9th Cir. 1992) (explaining In penney did not retain the automatic suspension applied to the opponent’s complaint, but rather, the opponent’s complaint was simply so unfounded that it deserved rejection and sanctions).

[2] See for example, In re Deerman, 482 BR 344, 354-55 (Bankr. DNM 2012); In re Hodges, 83 BR 25, 26 (Bankr. ND Cal. 1988).

[3] See for example, United States v Inslaw, Inc., 932 F.2d 1467, 1474 (DC Cir. 1991).

[4] In re Roman Catholic Church of the Archdiocese of Santa Fe, Case n ° 18-13027-t11, Doc. N ° 696 (DNM May 13, 2021), at 1-3.

[5] Identifier., at 9 o’clock.

[6] See for example, Healy / Mellon-Stuart Co. v. Coastal Group, Inc. (In re Coastal Group, Inc.), 100 BR 177, 178 (Bankr. D. Del. 1989) (considering that the filing of an adversarial proceeding by a creditor violated the automatic stay because the claims were “based on the same transactions and sub- allegations underlying his complaint ”).

[7] 11 USC § 362.

[8] Cowin Affair, 864 F.3d 344, 352 (5th Cir. 2017) (citations omitted).

[9] See, for example, With regard to North Coast Village, Ltd., 135 BR 641, 643 (9th Cir. BAP 1992); In re Transcolor Corp., 296 BR 343, 358 (Bankr. D. Md. 2003); In re Uni-Marts, LLC, 404 BR 767, 783 (Bankr. D. Del. 2009) (business collection); see also In re Miller, 397 F.3d 726, 730 (9th Cir. 2005); In the case of Cashco, 599 BR 138, 146 (Bankr. DNM 2019); In re Bird, 229 BR 90, 95 (SDNY 1999)).

[10] Compare, for example, In re Roman Catholic Church of the Archdiocese of Santa Fe, Case n ° 18-13027-t11, Doc. N ° 696 (DNM May 13, 2021) with In re Cashco, 599 BR 138, (DNM 2019) (the maintenance of the “automatic stay does not apply to the opening of adversarial proceedings before the bankruptcy court”, considering that “a literal and too broad application of the automatic stay to the issues raised in the bankruptcy case itself would not serve the objectives underlying the automatic stay, be illogical and impractical, hamper the orderly administration of the bankruptcy case and lead to clearly contradictory results with the intentions of the editors ”).

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.Revue nationale de droit, volume XI, number 179


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