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Kelly v. Schlossberg

United States District Court, D. Maryland

June 27, 2018

BARBARA ANN KELLY, Appellant,
v.
ROGER SCHLOSSBERG, Appellee. GREGORY B. MYERS, Appellant,
v.
ROGER SCHLOSSBERG, Appellee. GREGORY B. MYERS, et al Appellant,
v.
ROGER SCHLOSSBERG, et al Appellee.

          MEMORANDUM OPINION AND ORDER

          PAULA XINIS UNITED STATES DISTRICT JUDGE

         Pending before the Court in the three above-captioned bankruptcy appeals is the motion of Appellee Roger Schlossberg, Chapter 7 Trustee in the underlying bankruptcy case (“the Trustee”), for relief from the automatic stay provision of 11 U.S.C. § 362(a) and for dismissal of these appeals as moot. (ECF No. 19.[1]) The matter is fully briefed, and no hearing is necessary. See D. Md. Loc. R. 105.6. Upon consideration, the Court denies the Trustee's motion to lift the stay, but grants the Trustee's motion to dismiss the appeals as moot.[2]

         I. Background

         The appeals all arise from an adversarial proceeding in the bankruptcy case of Gregory B. Myers, who, along with his wife Barbara Ann Kelly, are the appellants in these cases (collectively, “Appellants”). Myers initiated an adversary proceeding in his capacity as a Chapter 11 debtor-in-possession against Offit Kurman, a law firm previously employed by Myers and Kelly. See Myers v. Offit Kurman, P.A., Adversary Proceeding No. 16-00474, ECF No. 59 at 3 (Bankr. D. Md. Dec. 18, 2017). Offit Kurman had filed proofs of claim in Myers' bankruptcy proceeding; the adversarial complaint followed in response. Id. at 3-4. After the conversion of Myers' underlying bankruptcy proceeding to one under Chapter 7 of the Bankruptcy Code, which vested the Trustee with standing to pursue or to settle the claims, the Trustee chose not to pursue the adversary proceeding because he found it unlikely to succeed and because Appellants-whose testimony would be crucial to prosecuting the adversarial complaint-were, in the Trustee's view, unreliable witnesses. Id. at 8-9. Instead, the Trustee moved for approval of a Compromise and Settlement, which the Bankruptcy Court granted over Appellants' objections. See generally id.

         At the heart of the adversarial proceeding was who possessed the right to the proceeds from the sale of Lot 6, real property in Seaside, Florida, that was jointly owned by Myers and Kelly. That property had been pledged by Appellants as security for the payment of legal fees owed to Offit Kurman. The settlement between the Trustee and Offit Kurman gave the law firm an allowed secured joint claim in the amount of $550, 000.00 to be paid from the balance of the Lot 6 sale proceeds that had been held in escrow by the Trustee, along with an allowed unsecured joint claim of $185, 116.27. The Trustee and Offit Kurman also agreed that upon approval of the settlement, $525, 000.00 would be disbursed from the escrowed funds, while the Trustee would retain $210, 116.27 to help defray the estate's administrative expenses. The settlement was consummated prior to January 10, 2018. Those amounts were disbursed according to the settlement terms. See Myers v. Offit Kurman, P.A., Adversary Proceeding No. 16-00474, ECF No. 80 at 3 (Bankr. D. Md. Jan. 10, 2018); Myers v. Offit Kurman, P.A., Adversary Proceeding No. 16-00474, ECF No. 83 at 1-2 (Bankr. D. Md. Jan 18, 2018).

         Appellants thereafter filed separate, parallel appeals of the Bankruptcy Court's order approving the settlement docketed as PX-17-3846 and PX-17-3847. Appellants also moved for a stay in the Bankruptcy Court pending appeal, which the Bankruptcy Court denied, finding that such a stay was moot because the approved settlement already had been consummated. See Myers v. Offit Kurman, P.A., Adversary Proceeding No. 16-00474, ECF No. 83 at 1-2 (Bankr. D. Md. Jan. 18, 2018). Appellants jointly appeal the Bankruptcy Court's denial of the stay in PX-18-0336. All three appeals are the subject of this Opinion.

         While the three appeals pending, Kelly alerted this Court on March 22 that on March 13, 2018, she had filed a voluntary petition for bankruptcy under Chapter 13 of the Bankruptcy Code. Kelly further asserted that the new bankruptcy petition operated to stay automatically the appeals pursuant to11 U.S.C. § 362(a) (the automatic stay provision). See ECF No. 12. On the new Chapter 13 petition, Kelly lists the “Lot 6 Sale Proceeds in Escrow” as a purported asset of her estate.[3] The Court directed the Trustee to advise the Court on his position as to whether Kelly's Chapter 13 bankruptcy operated to stay these appeals, and whether the appeals were moot. See ECF No. 13. The Court subsequently directed the Trustee to file additional briefing on the issue of whether relief from the stay should be granted. See ECF No. 18. The Trustee formally moved for relief from stay and for dismissal, which Appellants timely opposed.[4] See ECF Nos. 19, 21. The Trustee replied, and the matter now is ripe for consideration. See ECF No. 23.

         II. Legal Standard

         a. The § 362(a) Stay

         Section 362(a) of the Bankruptcy Code, the automatic stay provision, applies to (1) the “commencement or continuation” of a “judicial, administrative or other action or proceeding against the debtor that was or could have been commenced” before the bankruptcy proceeding; (2) the enforcement of a judgment against the debtor or against property of the estate of a judgment obtained before the commencement of the bankruptcy proceeding; or (3) any act to obtain possession of property of the estate; and in certain other enumerated circumstances not directly at issue here. 11 U.S.C. § 362(a). The purpose of this automatic stay is to prevent “disruption of the debtor's business and a disorderly scramble for the debtor's remaining assets” while the bankruptcy action proceeds. Advanced Comput. Servs. of Mich., Inc. v. MAI Sys. Corp., 161 B.R. 771, 774 (E.D. Va. 1993); see also In re Dubois, 834 F.3d 522, 528 (4th Cir. 2016) (“The automatic stay helps channel debt collection activity into the bankruptcy process.”); In re McCrimmon, 536 B.R. 374, 380 (Bankr. D. Md. 2015) (a chief purpose of the automatic stay is to allow for a systematic liquidation proceeding and avoid a variety of uncoordinated proceedings in different courts).

         Notwithstanding a § 362(a) stay, the Court retains jurisdiction to determine the applicability of that stay in the action pending before it, and to enter orders not inconsistent with the stay. Adv. Comput. Servs., 161 B.R. at 775 n.4 (“[I]t is sensibly settled that both the bankruptcy court and the court in which the action against the debtor is pending may decide the applicability of the § 362(a) stay.”); Sawyer v. Jackson, 224 F.Supp.3d 461, 462 n.3 (E.D. Va. 2016) (citing Arnold v. Garlock Inc., 288 F.3d 234, 236 (5th Cir. 2002)). Importantly, the automatic stay imposed by § 362(a) is inapplicable to “dismissing . . . [a] case on jurisdictional grounds.” MTGLQ Inv'rs, L.P. v. Guire, 286 F.Supp.2d 561, 563 (D. Md. 2003); id. at 564 n.3 (citing with approval a case in which a court ruled on a motion to dismiss for lack of venue during the period of the applicable § 362(a) stay); cf. Sanders v. Farina, 67 F.Supp.3d 727, 729 (E.D. Va. 2014) (remand is permissible in the face of a stay because it “is simply a finding that the court lacks power to hear the case and that the case belongs in another court” (citing MTGLQ Inv'rs, 286 F.Supp.2d at 563)); Ward v. Reinheimer, Civil Action No. WMN-13-3174, 2014 WL 346646, at *1 (D. Md. Jan. 28, 2014) (if a Court's action “expresses no opinion regarding the merits” of a claim, and the action addresses a procedural issue, it “does not continue the case in any significant manner” (discussing remand)).

         This is so because the purpose of the § 362(a) stay is to maintain the priority of claims against a debtor's estate. If consideration of the issues raised in the otherwise stayed proceeding will not affect either the debtor's assets or the creditors' standing in the bankruptcy action, the Court is free to address those issues. See ComUnity Collectors LLC v. Mortg. Elec. Registration Servs., Inc., Nos. C-11-4777 EMC, C-12-0771 EMC, 2012 WL 3249509, at *5 (N.D. Cal. Aug. 7, 2012) (“while some of Defendants' motions to dismiss would likely run afoul of the automatic stay, here [the motion] demonstrates that the Court lacks subject matter jurisdiction over this action. . . . Because considering this motion does not implicate the underlying issues or merits of this action, the automatic stay does not apply.”); Schaffer v. Atl. Broadcasting, Civil No. 10-5449 (RBK/KMW), 2011 WL 1884734, at *4 (D.N.J. May 17, 2011) (remand would not further the collection efforts of debtor's creditors, or otherwise encourage creditors to harass debtor during the pendency of the bankruptcy proceedings); Cook v. Mellon Stuart Co., 812 F.Supp. 793, 798 n.3 (N.D. Ill. 1992) (“the present inquiry respects this court's subject matter jurisdiction . . . . The subsequent bankruptcy filing and resulting stay under section 362 of the Bankruptcy Code . . . do not prevent this court from remanding an improperly removed action.”).

         b. Mootness

         The Court has jurisdiction only to hear actual cases and controversies. See U.S. Const. art. III, § 2. Accordingly, if a case is moot, the Court lacks jurisdiction to consider it. See Simmons v. United Mortg. & Loan Inv., LLC, 634 F.3d 754, 763 (4th Cir. 2011) (mootness constitutes part of the limit on federal court jurisdiction); Int'l Brotherhood of Teamsters, Local Union No. 639 v. Airgas, Inc., 885 F.3d 230, 235-36 (4th Cir. 2018) (quoting United States v. Hardy, 545 F.3d 280, 283 (4th Cir. 2008)). “[A]n appeal is moot when an affirmance would ostensibly require something to be done which had already taken place, and a reversal would ostensibly avoid an event which had passed beyond recall.” In re Carr, 321 B.R. 702, 706 (E.D. Va. 2005) (internal quotation marks omitted) (quoting Brownlow v. Schwartz, 261 U.S. 216, 217-18 (1923)). “If intervening factual or legal events effectively dispel the case or controversy during pendency of the suit, the federal courts are powerless to decide the questions presented.” Simmons, 634 F.3d at 763 (quoting Ross v. Reed, 719 F.2d 689, 693-94 (4th Cir. 1983)). If a case is moot, and the Court cannot possibly provide effective relief, then the Court lacks ...


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