United States Court of Appeals
For the First Circuit
____________________
No. 05-9003
IN RE: VITO LOMAGNO and MARIE MIDOLO,
Debtors.
____________________
VITO LOMAGNO; MARIE MIDOLO,
Debtors, Appellants,
v.
SALOMON BROTHERS REALTY CORP.,
Appellee.
_______________________
APPEAL FROM THE UNITED STATES BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT
____________________________
Before
Lipez and Howard, Circuit Judges,
and Restani*, Judge.
____________________________
David G. Baker, for appellants.
John C. Barker, with whom Michienzie & Sawin LLC was on
brief, for appellee.
November 14, 2005
*
Chief Judge of the United States Court of International
Trade, sitting by designation.
RESTANI, Judge. Vito Lomagno and Marie Midolo (the
“Debtors”) appeal from the bankruptcy court’s August 3, 2004 order
denying their motion for judgment on the pleadings and granting the
defendant’s cross-motion for judgment on the pleadings with respect
to their adversary complaint seeking declaratory and injunctive
relief. The bankruptcy court determined that Salomon Brothers
Realty Corp. (“Salomon”) did not violate an automatic stay by
foreclosing on the Debtors’ house while the Debtors’ Chapter 13
petition dismissal was on appeal. The bankruptcy court’s order was
sustained by the Bankruptcy Appellate Panel (“BAP”) for the First
Circuit on February 9, 2005. For the reasons set forth below, we
affirm.
BACKGROUND
The Debtors owned property on Tower Hill Street in
Lawrence, Massachusetts, with their note and mortgage on the
property assigned to Salomon. Following tenant complaints of
housing violations, the City of Lawrence began proceedings against
the Debtors, and appointed Raymond Fitzgerald as receiver (the
“Receiver”). Subsequently, the Debtors failed to make payments on
their mortgage and Salomon began foreclosure proceedings.
On January 16, 2003, the Debtors filed a petition for
relief under Chapter 13 of the Bankruptcy Code. The petition
triggered the automatic stay provision, 11 U.S.C. § 362(a) (2000),
which stayed all proceedings by creditors to levy on the Debtors’
-2-
property. The Receiver filed a motion to dismiss the petition, and
following a January 29, 2003 hearing, the bankruptcy court denied
the motion. Next, the Receiver filed an objection to the Debtors’
plan and to the Debtors’ claim to a homestead exemption. The
bankruptcy court issued a notice of hearing to be held on March 5,
2003, to consider the objections.
Following the hearing, on March 10, 2003, the bankruptcy
court dismissed the Debtors’ Chapter 13 case based on issues raised
sua sponte. The Debtors appealed to the BAP, and simultaneously
filed motions to stay the order of dismissal with the bankruptcy
court and the BAP pursuant to Federal Rule of Bankruptcy Procedure
8005. These motions were denied, and the Debtors did not appeal
the denial of stay to this court. Salomon scheduled the
foreclosure sale for May 29, 2003.
While the bankruptcy court dismissal was on appeal to the
BAP, the Receiver brought a suit against the Debtors and Salomon in
Essex Superior Court to enforce its lien. The Debtors filed a
motion for injunctive relief with the Essex Superior Court to stop
the foreclosure sale, which the court denied. At the foreclosure
auction on May 29, 2003, Salomon was the highest bidder and
purchased the property. The Debtors filed a motion for injunctive
relief with the Essex Superior Court to prevent further conveyance
of the property, which the court denied.
On March 11, 2004, the BAP issued its decision reversing
-3-
the bankruptcy court’s dismissal of the case. The BAP concluded
that the bankruptcy court erred in raising issues sua sponte and by
dismissing the case without providing appropriate notice and
opportunity for a hearing. On March 18, 2004, the Debtors filed an
adversary complaint in the bankruptcy court seeking declaratory and
injunctive relief to void the foreclosure sale and prevent further
conveyance of the property by Salomon. The Debtors argued that the
BAP’s reversal of the dismissal order reinstated the automatic stay
retroactively. The bankruptcy court denied the Debtors’ motion for
judgment on the pleadings and granted Salomon’s cross-motion for
judgment on the pleadings, concluding that when the bankruptcy
court dismissed the case, the automatic stay was immediately
terminated, and the reversal of the bankruptcy court dismissal did
not retroactively reinstate the automatic stay. The BAP affirmed.
DISCUSSION
At issue in this case is whether a foreclosure sale is
valid when the foreclosure takes place after the dismissal of a
Chapter 13 bankruptcy petition, but before reversal of the
dismissal. Filing a petition under Chapter 13 of the Bankruptcy
Code triggers an automatic stay of creditor proceedings against a
debtor’s property. 11 U.S.C. § 362(a). While the stay is in
effect, the creditor cannot proceed with foreclosure. Section
362(c) provides that the stay of such proceedings “continues until
such property is no longer property of the estate.” 11 U.S.C. §
-4-
362(c)(1). Thus, when the petition giving rise to the stay is
dismissed, the stay terminates immediately, and creditors may
proceed with foreclosure. In re de Jesus Saez, 721 F.2d 848, 851
(B.A.P 1st Cir. 1983). The Federal Rules of Bankruptcy Procedure
provide that a debtor may seek a stay pending appeal. See Fed. R.
Bankr. P. 8005.
In the instant case, the Debtors argue that the reversal
of the bankruptcy court’s dismissal retroactively restored the
automatic stay. Even though they acknowledge that the stay
terminated upon dismissal, the Debtors argue that because the
dismissal resulted from a violation of their due process rights,
equity requires that the violation be remedied by retroactive
application of the stay. See Great Pac. Money Mkts., Inc. v.
Krueger (In re Krueger), 88 B.R. 238 (B.A.P. 9th Cir. 1988). We
conclude that this remedy is not available here.
In Krueger, the Ninth Circuit BAP recognized a due
process exception to stay termination upon dismissal, and it voided
a foreclosure sale that occurred after a Chapter 13 bankruptcy
petition was dismissed, but before reversal of the dismissal. The
Ninth Circuit BAP stated that the failure to provide notice
violated due process, and that “[a]n order is void if it is issued
by a court in a manner inconsistent with the due process clause of
the Fifth Amendment.” Krueger, 88 B.R. at 241. Moreover, the
court concluded that “because the order dismissing the case was
-5-
void, the stay was continuously in effect from the date the
petition was filed.” Id. Therefore, the court determined that the
foreclosure sale was held in violation of the stay, even though the
stay normally terminates with dismissal of the petition. Id.
We have not recognized the due process exception set
forth in Krueger, and we do not need to reach this issue here. In
Krueger, the trustee did not notify the debtors that it would
object to the debtors’ confirmation plan amendments and the debtors
were not present at the confirmation hearing. Id. at 240. The
court continued the hearing and instructed the creditor to notify
the debtors of the continuance. Id. The creditor failed to notify
the debtors and the case was dismissed for lack of prosecution.
Id. The debtors were not provided with notice of the dismissal or
notice of the scheduled foreclosure sale. Id. Under those facts,
the debtors’ failure to seek a stay pending appeal was explained by
their lack of notice of the dismissal and the creditor’s bad
faith.1
Here, in contrast, the Debtors were not provided with
advance notice that the court was considering dismissal, but were
1
In Krueger, the creditor caused the due process violation by
failing to provide the debtors with notice of the dismissal
hearing, notice of dismissal, or notice of the scheduled
foreclosure. The creditor was aware or should have been aware that
the foreclosure sale was scheduled to take place in violation of
the debtors’ due process rights. The instant case is distinct
because the creditor proceeded in good faith upon the termination
of automatic stay and the Debtors did not explain their failure to
fully pursue a stay pending appeal.
-6-
present and thus immediately alerted to both the dismissal and the
scheduled foreclosure sale. The Debtors had the opportunity to
pursue a stay pending appeal, and did to a certain point. After
their motions before the bankruptcy court and the BAP were denied,
however, the Debtors could have sought a writ of mandamus or
appealed to this court, but chose not to do so. See Rochman v. Ne.
Utils. Serv. Group (In re Pub. Serv. Co. of N.E.), 963 F.2d 469,
472 (1st Cir. 1992). The Debtors provide no explanation for their
failure to diligently pursue a stay pending appeal.
In sum, even if the court were to recognize the Ninth
Circuit BAP’s exception for due process violations in cases such as
Krueger, facts such as these at hand, including the Debtors’
unexplained failure to diligently pursue a stay pending appeal, do
not warrant the drastic remedy of voidance of the stay termination.
CONCLUSION
For the foregoing reasons, the bankruptcy court did not
err by concluding that the automatic stay was not retroactively
reinstated by reversal of the dismissal. The bankruptcy court’s
determination is AFFIRMED.
-7-