Opinion
No. CV-F-93-5893-OWW
November 8, 1994
Opinion
I. BACKGROUND
The issue presented by this bankruptcy appeal is whether an order of the Bankruptcy Court denying a motion for violation of 11 U.S.C. § 362 (automatic stay) is a final order for purposes of appeal to the District Court under 28 U.S.C. § 158(a).
The United States ("U.S.") brings this motion to dismiss an appeal by Universal Life Church, Inc., ("ULC") from an order of the Bankruptcy Court. The U.S. contends that the district court does not have jurisdiction over this appeal because the Bankruptcy Court's order was not final. ULC argues that the Bankruptcy Court's order was final and therefore appealable as a matter of right.
ULC filed a Chapter 11 petition on November 29, 1989. On January 12, 1990, it filed an ancillary Adversary Proceeding in the Bankruptcy Court to determine its federal and state tax liabilities for the fiscal years ending 1978 through 1990. On January 8, 1991, the Internal Revenue Service issued a letter to ULC which revoked its tax-exempt status for the fiscal years ending 1982 through 1985. ULC filed a motion seeking a determination that the letter was void as a violation of Bankruptcy Code § 362, the automatic stay provision. ULC also moved for damages resulting from the alleged violation. This motion was filed July 20, 1993. The Bankruptcy Court denied the motion from the bench on August 30, 1993. On November 19, 1993, it filed a "First Amended Order" that again denied ULC's motion. ULC filed its notice of appeal on November 22, 1993.
II. STANDARD OF REVIEW
The Court reviews de novo the question of whether it has jurisdiction to hear this appeal. Jurisdiction exists, if at all, under 28 U.S.C. § 158(a), which grants district courts the power to hear appeals from final judgments entered in bankruptcy cases and proceedings.
III. DISCUSSION A. An Order Granting Relief from § 362 Is a Final Order.
In the Ninth Circuit, an order granting or denying relief from § 362 of the Bankruptcy Code is a final order. In re Cimarron Investors, 848 F.2d 974, 975 (9th Cir. 1988) ("This court's jurisdiction flows from 28 U.S.C. § 158(d) because a grant or denial of a motion for relief from an automatic stay is considered a final order."). Cimarron involved an appeal from a bankruptcy court order modifying the automatic stay.Id. The Court of Appeals had no difficulty concluding that this was a final order. In re American Mariner Indus. Inc., 734 F.2d 426 (9th Cir. 1984) expresses the rationale for this rule. The issue in American Mariner was "whether a decision of the appellate panel affirming an order that denies relief from automatic stay is final for purposes of this court's jurisdiction." Id. at 429. The Court acknowledged that the finality requirement for appeals is not to be treated lightly. Nevertheless, certain exceptions have been made for bankruptcy appeals, particularly those involving the automatic stay provision. According to the Court, "Congress intended the courts to conclusively and expeditiously adjudicate, apart from the bankruptcy proceedings as a whole, complaints for relief from automatic stay." Id.
The Court of Appeals had jurisdiction based upon 28 U.S.C. § 158(d), which provides jurisdiction over "all final decisions, judgments, orders, and decrees entered under subsections (a) and (b) of this section." Cimarron did not explicitly interpret finality for the purposes of § 158(a), the source of the Court's jurisdiction in this case. Nevertheless, Bankruptcy Court orders that are final for the purposes of review by the Court of Appeals are also final for the purposes of District Court review under § 158(a). Cf. In re Allen, 896 F.2d 416, 418 (9th Cir. 1990) ("Section 158 has been interpreted to grant jurisdiction to a court of appeals only when both the district and bankruptcy court's orders are `final.'").
Cimarron and American Mariner involved appeals from motions for relief from the automatic stay under § 362(d). ULC's motion in the Bankruptcy Court was slightly different, because it sought to find the U.S. in violation of § 362 for failing to seek relief from the automatic stay before issuing the letter revoking ULC's tax exempt status. ULC moved the Bankruptcy Court to void the letter and award ULC damages under §§ 362(a) and (h). Subsection (h) provides that an individual harmed by a willful violation of a stay shall recover damages.
The Bankruptcy Court's order denying this motion is a final order. Technically ULC is not appealing the decision of a § 362(d) motion. Nevertheless, the order denying ULC's motion to void the IRS letter as a violation of § 362(a) should be treated as a final order for two reasons.
First, the motion was in substance identical to a § 362(d) motion for relief from stay. The only difference between ULC's motion and a typical 362(d) motion is that it was brought by the debtor rather than a creditor. It addresses the same issues as are litigated in a relief from stay motion: whether § 362(a) prohibits the proposed action and if so whether any of the exceptions to the stay apply. The amended order denying ULC's motion stated "the Debtor's Motion is denied on the grounds that the revocation of the Debtor's tax exempt status . . . is not a violation of the automatic stay of 362(a) and, moreover, if it were it falls within the exception to the provisions of the automatic stay under Section 362(b)(4)." This order adjudicated the same issues as are presented in a motion for relief from stay. Therefore, it is accorded the same finality as an order granting or denying relief from stay.
Second, a holding that this order is not final would seriously undermine the Ninth Circuit's policy of providing immediate review of decisions granting or denying relief from stay. Creditors who wished to take action against the debtor would have an incentive not to file for relief from stay under 362(d). Rather, they could simply act against the debtor and then defend against a motion for violation of § 362(a). If they were successful then the debtor would be prevented from filing an immediate appeal.
ULC also relies upon In re Gustafson, 934 F.2d 216, 217 (9th Cir. 1991). In this case the debtor moved to hold a creditor in contempt for violating the automatic stay. The Bankruptcy Court granted the motion and sanctioned the creditor. The creditor appealed to the Bankruptcy Appellate Panel, which affirmed, and then appealed to the Ninth Circuit. Although the Ninth Circuit found that there was jurisdiction to hear the appeal, it is not clear that the Court actually faced the issue presented here because the opinion does not provide the complete procedural history of the case. It is possible that the creditor's appeal was taken after a final judgment was entered in the debtor's case.
The U.S. does not cite Cimarron or American Mariner in its brief. It argues that the order is not final by relying upon a line of cases discussing finality in the context of general bankruptcy appeals. None of the Ninth Circuit cases cited by the government involved appeals from orders determining the applicability of the automatic stay. See In re Frontier Properties, Inc., 979 F.2d 1358 (9th Cir. 1992) (trustee's assumption of contract); In re Allen, 896 F.2d 416 (9th Cir. 1990) (motion to dismiss involuntary bankruptcy petition); In re Landmark Hotel Casino, Inc., 872 F.2d 857 (9th Cir. 1989) (appeal from interim denial of motion to reject contract). In re Martinez, 721 F.2d 262 (9th Cir. 1983) involved an appeal from the BAP to the Court of Appeals. The BAP had affirmed an order granting relief from the automatic stay but remanded for determination of other factual issues. The Ninth Circuit declined to review the BAP's remand. The BAP's affirmance of the order for relief from the stay was not at issue in Martinez.
The U.S. argues that the order denying ULC's motion is not final because the Bankruptcy Court has not yet decided whether ULC is entitled to tax exempt status for the fiscal years ending 1982 through 1985. This argument confuses the finality of the Bankruptcy Court's determination of ULC's tax exempt status with the finality of the order in question. Whether or not the Bankruptcy Court has determined ULC's tax status is completely irrelevant to the issue of whether the Court has jurisdiction over this appeal. Orders granting or denying relief from stay rarely resolve all of the issues in a bankruptcy case. Nevertheless, the Ninth Circuit has held that they are final appealable orders. That ULC's tax exempt status has not yet been fully adjudicated is unexceptional and inconsequential to this motion.
The U.S. asserts that "it is unconscionable for ULC to act as if an order denying its motion to set aside the revocation of its tax-exempt status for its 1982-1985 fiscal years is the equivalent of a determination by the Bankruptcy Court, on the merits, that it is not entitled to tax-exempt status for its 1982-1985 fiscal years." Brief for U.S. at 12, 25-28. To the contrary, ULC does not represent that the Bankruptcy Court's order is a final determination of its tax status or liability. ULC asserts, quite simply, that the order was a final determination of its rights under § 362(a).
This appeal is not a disguised attempt by ULC to have this Court rule on ULC's tax status before the Bankruptcy Court has decided the issue. A careful review of the record in this case shows that ULC's July 20, 1993 motion only challenged the validity of revocation letter. The issues raised in this appeal only relate to whether the action of issuing the revocation letter violated the automatic stay and, if so, whether ULC is entitled to damages under § 362(h). (See Appellant's Statement of Issues on Appeal, filed Jan. 3, 1994.) ULC's opening brief does not address the issue of its tax exempt status. (See Appellant's Opening Brief at i-iv, 2-4, filed March 15, 1994.)
Indeed, the Bankruptcy Court was careful to point this out when it announced its ruling at the hearing on the motion. The Court stated:
I think it's important for everyone present to understand what is being decided at this time.
The Court is not deciding whether or not the revocation of the — or attempted revocation of the tax exempt status of the Universal Life Church is or is not valid. That is a matter that will be determined at some time in the future.
At oral argument counsel for the U.S. stated that ULC's motion should not be treated as a § 362(d) motion for the purpose of determining finality because it was filed in the adversary proceeding and not in the ULC's Chapter 11 case. Counsel for ULC stated that this was simply a clerical error. It would seem that ULC's motion would have been more appropriately brought in the Chapter 11 case. However, the U.S. has not cited, nor is the Court aware of, any authority that would make ULC's motion invalid because it was filed in the adversary proceeding.
Counsel for the government suggested that ULC's notion was brought in the adversary proceeding because it was essentially a motion for summary judgment on the issue of ULC's tax exempt status. However, the government has refuted its own argument by requesting the Court take judicial notice of ULC's memorandum supporting its motion to invalidate she revocation letter. (See Ex. 3 attached to Declaration of Robert D. Metcalfe.) The memorandum did not address the issue of ULC's tax exempt status. The government's argument mischaracterizes the record and the issues presented in this appeal.
IV. CONCLUSION
For the foregoing reasons, the United States' motion to dismiss is DENIED.
SO ORDERED.