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IN RE FRANKLIN
Factual and Procedural Background
Herman J. Franklin and Mary L. Franklin filed five bankruptcy petitions over seventeen months to delay foreclosure by Beneficial Trust Deeds (Beneficial Trust), holder of a $35,000 note secured by a second deed of trust on California property. Beneficial Trust filed for relief from the automatic stay; the parties stipulated that the stay would be lifted on June 14, 1982 at 9:00 a.m., and that this relief would be "effective as against any subsequent filings" by the debtors concerning the properties. The stipulation was signed by Judge Dooley and filed June 10, 1982 and entered June 16, 1982. Beneficial foreclosed on June 14, 1982; the Franklins filed a third bankruptcy petition on June 11, 1982 and later sued in Los Angeles Superior Court to set aside the foreclosure. The Superior Court issued and later dissolved a preliminary injunction and stated it lacked jurisdiction to determine the validity of the June 14 sale. Beneficial filed an ex parte application in the bankruptcy court; Judge Lasarow held the third petition did not impose an automatic stay and that the June 14 sale was valid. The district court affirmed, and the Franklins timely appealed to this court. The Ninth Circuit affirmed.
Legal Issues Presented
- Whether a bankruptcy court retains jurisdiction to construe the effect of its prior orders (i.e., to determine the validity/effect of a stipulated lifting of the stay) after dismissal of the underlying bankruptcy proceeding.
- Whether Judge Lasarow had subject matter jurisdiction to determine that the June 14, 1982 foreclosure sale was valid despite the Franklins' subsequent bankruptcy filing.
Arguments of the Parties
Appellants' Arguments (Franklins)
- Judge Lasarow lacked jurisdiction to decide the validity of the foreclosure sale because he did not reopen the second bankruptcy proceeding.
- Judge Dooley lacked authority to enter a stipulation that would lift the automatic stay as to future filings; citing this court's decision in Armel Laminates (In re Income Property Builders, Inc.) as supporting the position that the stay cannot be reimposed or altered after dismissal.
Appellees' Arguments (Beneficial Trust)
- Beneficial Trust sought only a declaration construing the bankruptcy court's prior order (the stipulation), not new relief requiring reopening the underlying case; thus the bankruptcy court could construe its own order and determine that the stipulated relief prevented the automatic stay from affecting the June 14 sale.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) | Referenced concerning the validity of Congress' grant of jurisdiction over matters arising under title 11. | The court noted Northern Pipeline did not invalidate Congress' grant of jurisdiction to district courts over matters arising under title 11, as supported by In re Thomas. |
| In re Thomas, 765 F.2d 926, 929 (9th Cir. 1985) | Support for the proposition that the Congressional grant of jurisdiction over matters arising under title 11 remains valid despite Northern Pipeline. | Used to justify that district courts (and by delegation bankruptcy courts) retain jurisdiction over matters arising under title 11. |
| First State Bank Trust Co. v. Sand Springs State Bank, 528 F.2d 350, 353 (10th Cir. 1976) | Authority that jurisdiction under sections 1334 and 157 confers the jurisdiction needed to implement bankruptcy functions. | Quoted to support the proposition that bankruptcy courts must retain jurisdiction to construe their own orders to effectively administer the Bankruptcy Code. |
| Armel Laminates, Inc. v. Lomas Nettleton Co. (In re Income Property Builders, Inc.), 699 F.2d 963 (9th Cir. 1982) | Held that after dismissal of a bankruptcy case the court lacked power to restore the proceeding or to reimpose the automatic stay. | The court distinguished that case: in Income Properties debtors sought new relief (reimposition of stay) requiring a pending case, whereas here Beneficial sought only interpretation of a prior order. |
Court's Reasoning and Analysis
The court characterized Beneficial Trust's application as a declaratory-judgment-type action requiring the bankruptcy court to construe the effect of its prior stipulated order. The court explained that jurisdiction over "matters arising under" title 11 is vested in district courts by 28 U.S.C. § 1334(b) and delegated to bankruptcy courts by 28 U.S.C. § 157. It held that such declaratory actions to interpret prior bankruptcy orders arise under title 11 because Congress' jurisdictional grants were intended to give bankruptcy courts the authority necessary to administer the Code effectively. Citing First State Bank, the court reasoned bankruptcy courts must be able to construe their own orders to ensure those orders are executed as intended. The court identified the two issues Judge Lasarow had to decide—(1) whether the bankruptcy court had jurisdiction to enter the stipulation and (2) whether the stipulation prevented the automatic stay from affecting the June 14 sale—and found both implicated administration of the estate created by the second bankruptcy filing. The court distinguished In re Income Property Builders on the ground that Income Properties involved a debtor's attempt to obtain new relief (a new stay) after dismissal, whereas Beneficial sought only an interpretation of a prior order and no new relief requiring reopening the case. Concluding the matter arose under title 11, the court found Judge Lasarow had subject matter jurisdiction to construe the stipulation's effect.
Holding and Implications
JUDGMENT AFFIRMED.
Holding: The Ninth Circuit held that the bankruptcy court had subject matter jurisdiction to construe the effect of its prior stipulation and to determine that the June 14, 1982 foreclosure sale was valid despite the Franklins' subsequent bankruptcy filing.
Implications: The decision confirms that bankruptcy courts retain jurisdiction to construe their own orders when such actions "arise under" title 11 and are necessary to administer the Bankruptcy Code; the direct effect here is the affirmation of the lower courts' rulings validating the foreclosure sale. The opinion distinguishes situations in which a party seeks new relief (e.g., reimposition of the stay) after dismissal, which may require a pending case.
CYNTHIA HOLCOMB HALL, Circuit Judge:
This case presents the question of whether a bankruptcy court retains jurisdiction to construe its own orders when a declaratory judgment action is filed in the district court after the dismissal of the underlying bankruptcy proceeding.
I
The facts of this case provide a striking example of how, on occasion, debtors attempt to misuse the bankruptcy mechanism and to delay and stall creditors from exercising their state law rights. Appellants Herman J. Franklin and Mary L. Franklin (the Franklins) filed no less than five bankruptcy petitions in a period of seventeen months in an effort to prevent Beneficial Trust Deeds and other appellees (Beneficial Trust), holders of a $35,000 promissory note secured by a second deed of trust on certain California real property, from foreclosing on their security.
The Franklins filed the following bankruptcy petitions:
Date Filed Date Dismissed
December 30, 1981 February 10, 1982 February 22, 1982 April 28, 1982 June 11, 1982 August 10, 1982 October 15, 1982 January 11, 1983 May 27, 1983 June 13, 1983
Debtors may no longer file a bankruptcy petition within 180 days after seeking and obtaining a voluntary dismissal of another case after the filing of a request for relief from the automatic stay. See 11 U.S.C. § 109(f)(2).
On March 3, 1982, after the filing of the Franklins' second bankruptcy petition involving the subject property but before the petition's dismissal, Beneficial Trust filed a complaint seeking relief from the automatic stay, 11 U.S.C. § 362, so that it might foreclose on the property. The Franklins entered into an agreement with Beneficial Trust stipulating that the stay would be lifted on June 14, 1982 at 9:00 a.m., and that this relief from the automatic stay would be "effective as against any subsequent filings on the part of these Debtors as to the above described properties under the Bankruptcy Code to which these Debtors may have recourse in the future. . . ." The agreement was signed by Judge Dooley and filed on June 10, 1982, after the second bankruptcy petition had been dismissed, and the stipulation was later entered on June 16, 1982, two days after Beneficial foreclosed on the real property and five days after the Franklins filed their third bankruptcy petition. That third petition was dismissed as well on August 10, 1982.
On December 21, 1982, the Franklins filed a complaint in the Los Angeles Superior Court to set aside the trustee's foreclosure sale, to cancel recorded deeds resulting from the sale, to quiet title, for damages, and for declaratory and injunctive relief relating to the imminent eviction of the Franklin's tenants still residing on the property. The gravamen of the Debtor's complaint was that the filing of the third bankruptcy petition invoked the automatic stay and prevented a valid foreclosure sale on June 14. The Superior Court issued a preliminary injunction against Beneficial Trust restraining the eviction of tenants so long as the Franklins made regular payments to it and posted bond. When the Franklins failed to make the payments, the Superior Court dissolved the injunction and stated that it was without jurisdiction to determine the validity of the June 14 foreclosure sale.
Beneficial Trust then filed an ex parte application in the bankruptcy court to determine the validity of the June 14 sale in light of the filing of the third bankruptcy petition on June 11 and to quiet title. Judge Lasarow concluded that the third bankruptcy petition did not impose the automatic stay on Beneficial Trust and that the June 14 foreclosure sale was valid as provided in the stipulated agreement. The Franklins appealed on the grounds that Judge Dooley did not have jurisdiction to lift the automatic stay in future filings by means of the stipulated agreement. The district court affirmed the bankruptcy court stating that Judge Dooley did have jurisdiction to enter the stipulation and that the stipulation removed the property from any automatic stay imposed through future filings.
On appeal to this court, the Debtors contend that Judge Lasarow did not have jurisdiction to decide that the foreclosure sale was valid and that the automatic stay arising from the third filing did not prevent the sale. We have jurisdiction over the Franklins' timely appeal, 28 U.S.C. § 1291. We affirm.
II
Beneficial Trust's ex parte application to determine the validity of the June 14 foreclosure sale was basically in the nature of a declaratory judgment action requiring the bankruptcy court to construe the validity and effect of its prior order. The application required Judge Lasarow to decide whether Judge Dooley's order of the court entering the stipulation of the parties had the effect of preventing the automatic stay imposed by the filing of the Debtors third bankruptcy petition from interfering with the June 14 sale. In this appeal, the Franklins contend in essence that the bankruptcy court did not have jurisdiction to determine whether its prior entry of the stipulated agreement validated the foreclosure sale.
Title 28 U.S.C. § 1334(b) vests jurisdiction over bankruptcy matters in the district court by conferring jurisdiction over "all civil proceedings arising under title 11. . . ." Cases arising under section 1334(b) are in turn delegated to the bankruptcy courts through 28 U.S.C. § 157. Thus, Judge Lasarow had jurisdiction over the declaratory judgment action if such an action requiring a bankruptcy judge to determine the effect of a prior order of the bankruptcy court arises under title 11.
The Congressional grant of jurisdiction over matters arising under title 11 to the district court was not invalidated by the Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). See In re Thomas, 765 F.2d 926, 929 (9th Cir. 1985).
We believe that Beneficial Trust's action before Judge Lasarow was one "arising under" title 11. Congress' grants of jurisdiction under sections 1334 and 157 conferred upon bankruptcy courts that jurisdiction needed to implement effectively its function of administering the Bankruptcy Code. See First State Bank Trust Co. v. Sand Springs State Bank, 528 F.2d 350, 353 (10th Cir. 1976). Simply put, bankruptcy courts must retain jurisdiction to construe their own orders if they are to be capable of monitoring whether those orders are ultimately executed in the intended manner. Requests for bankruptcy courts to construe their own orders must be considered to arise under title 11 if the policies underlying the Code are to be effectively implemented.
The action before Judge Lasarow required him to determine first whether the bankruptcy court had jurisdiction to enter the stipulation and second whether the stipulation, if valid, gave Beneficial Trust relief from the third proceeding's automatic stay. Both of these issues fundamentally implicate the bankruptcy court's ability to administer the estate created by the Franklin's second bankruptcy filing.
The Franklins contend that our decision in Armel Laminates, Inc. v. Lomas Nettleton Co. (In re Income Property Builders, Inc.), 699 F.2d 963 (9th Cir. 1982) requires a different result. In Income Properties we dismissed an appeal as moot where the debtor sought to reimpose the automatic stay after the dismissal of the underlying bankruptcy case. We held that the stay arises by operation of bankruptcy law and that after the dismissal of the underlying case we no longer had the power to restore the proceeding or to reimpose the stay. Id. at 964.
The Franklins argue that because Judge Lasarow did not reopen the second bankruptcy proceeding, he did not have jurisdiction to enter rulings arising from it. This argument misunderstands our decision in Income Properties. In Income Properties, the debtors did not seek an interpretation of a prior order of the bankruptcy court but instead sought new relief from the bankruptcy court independent of its prior rulings, relief in the nature of a new stay that could only be granted while a bankruptcy case was pending. There was no underlying bankruptcy case in Income Properties so there could be no new relief. In this case, Beneficial Trust seeks no new relief that requires the reopening of the underlying bankruptcy proceeding. It seeks only an interpretation of the bankruptcy court's prior order. The second bankruptcy proceeding need not be reopened for the bankruptcy court to declare Beneficial Trust's rights after the second bankruptcy petition's dismissal.
Because we find that Beneficial Trust's application to determine the validity of the June 14 foreclosure arises under title 11, we hold that Judge Lasarow had subject matter jurisdiction to construe the effect of the stipulation. Consequently, the judgment of the district court is
AFFIRMED.
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