LBM Financial, LLC v. Shamus Holdings LLC

Filing

OPINION issued by Jeffrey R. Howard, Appellate Judge; Bruce M. Selya, Appellate Judge and Rogeriee Thompson, Appellate Judge. Published. [10-2216]

Case: 10-2216

Document: 00116218785

Page: 1

Date Filed: 06/09/2011

Entry ID: 5556709

United States Court of Appeals
For the First Circuit
No. 10-2216
IN RE SHAMUS HOLDINGS, LLC,
Debtor.
__________________
SHAMUS HOLDINGS, LLC,
Appellant,
v.
LBM FINANCIAL, LLC,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor IV, U.S. District Judge]
Before
Howard, Selya and Thompson,
Circuit Judges.
Charles A. Dale III, with whom Mackenzie L. Shea and K&L Gates
LLP were on brief, for appellant.
Philip F. Coppinger for appellee.

June 9, 2011

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SELYA, Circuit Judge.

Date Filed: 06/09/2011

Entry ID: 5556709

This bankruptcy appeal stands at

the intersection of state and federal law.

The issue presented

concerns the interplay between a state statute placing temporal
limitations on the enforcement of stale mortgages and the automatic
stay provisions of the Bankruptcy Code. The bankruptcy court ruled
that the mortgagee's unqualified right to extend the limitations
period by performing an essentially ministerial act (recording of
an extension) rendered the tolling provision associated with the
automatic stay inapposite and the mortgage obsolete.

Shamus

Holdings, LLC v. LBM Fin., LLC (In re Shamus Holdings, LLC), 409
B.R. 598, 606 (Bankr. D. Mass. 2009).

At the first level of

appellate

saw

review,

the

district

court

the

matter

quite

differently; it ruled that the mortgage remained in force for the
duration of the automatic stay.

LBM Fin. LLC v. Shamus Holdings,

Inc., No. 1:09-cv-11668, 2010 WL 4181137, at *2 (D. Mass. Sept. 28,
2010). After careful consideration, we affirm the district court's
decision.
The

relevant

facts

are

not

now

in

dispute.

The

encumbered property is a condominium unit in Boston, Massachusetts.
On May 9, 2003, the owner, Foundry Realty, LLC, executed and
delivered a second mortgage to the appellee, LBM Financial, LLC.
The mortgage, which secured the due performance of a guaranty, had
a stated term of four months.

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Foundry subsequently granted a separate mortgage on the
property to Pine Banks Nominee Trust (PBNT).

Matters did not go

well, and Foundry foundered; it defaulted on the obligations
underlying

this

separate

mortgage.

PBNT

foreclosed,

took

possession of the mortgaged property, and transferred it to Steven
Ross, as trustee of Beach Street Realty Trust.

The transfer was,

of course, subject to LBM's senior mortgage.
In 2007, LBM — the guaranty underlying its mortgage still
unsatisfied — noticed a public foreclosure sale of the property.
A few days before the date of the scheduled sale, Ross incorporated
the appellant, Shamus Holdings, LLC, and conveyed the property to
Shamus for nominal consideration.

Shamus wasted no time in filing

a voluntary Chapter 11 petition, see 11 U.S.C. § 301, on July 25,
2007.

This filing triggered the Bankruptcy Code's automatic stay,

11 U.S.C. § 362(a), and halted the anticipated foreclosure sale.
This brings us to the Obsolete Mortgages Statute, Mass.
Gen. Laws ch. 260, § 33.

The statute requires the holder of a

mortgage, on pain of forfeiture, to take action to enforce it
within five years after the end of the mortgage's stated term.
Here, the statute required LBM to take action to enforce its
mortgage by September 9, 2008.

This deadline had not arrived when

Shamus instituted the bankruptcy proceeding.
Under ordinary circumstances, the Bankruptcy Code tolls
the running of the limitations period from the filing date until

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the automatic stay is either lifted or dissolved.
108(c).
alters

Entry ID: 5556709

See 11 U.S.C. §

In Shamus's view, however, the Obsolete Mortgages Statute
this

calculus

by

allowing

a

mortgagee

to

extend

the

limitations period through the simple expedient of recording a
notice of extension.

Shamus theorizes that LBM's failure to avail

itself of this procedure within the five-year period removes this
case from the mine run and converts the automatic stay into a dead
letter.
Marching under this banner, Shamus initiated an adversary
proceeding in the bankruptcy court, seeking to discharge the
mortgage as time-barred.

The bankruptcy court bought into the

theory and held that LBM's failure to record an extension and its
attendant delay in enforcing its rights rendered the mortgage null
and void.

In re Shamus Holdings, 409 B.R. at 606.

LBM appealed to

the district court, see 28 U.S.C. § 158(a)(1), which rejected
Shamus's theory and reversed the bankruptcy court's decision.
Fin., 2010 WL 4181137, at *1.

LBM

The court reasoned that, regardless

of LBM's ability to extend the duration of the mortgage enforcement
period, the automatic stay preserved its rights.

Id. at *4.

This

further appeal ensued.
The standard of review is familiar.

"We cede no special

deference to the district court's initial review of the bankruptcy
court's decision," focusing instead on the bankruptcy court's
decision.

HSBC Bank USA v. Branch (In re Bank of New Engl. Corp.),

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364 F.3d 355, 361 (1st Cir. 2004).

Date Filed: 06/09/2011

Entry ID: 5556709

We review its findings of fact

for clear error and its conclusions of law de novo.

Brandt v.

Repco Printers & Lithog., Inc. (In re Healthco Int'l, Inc.), 132
F.3d 104, 107 (1st Cir. 1997).

This case turns on a question of

law: whether the Bankruptcy Code's automatic stay provision, 11
U.S.C.

§

362(a),

and

its

concomitant

tolling

provision,

id.

§ 108(c), combine to preserve LBM's right to enforce the mortgage
notwithstanding LBM's eschewal of a readily available extension
provided

by

the

Obsolete

Mortgages

Statute.

Answering

this

question requires an understanding of the interplay between various
state and federal statutes.
The principles that guide this inquiry are well settled.
Statutory interpretation starts — and often ends — with the text of
the statute.

Ruiz v. Bally Total Fitness Holding Corp., 496 F.3d

1, 8 (1st Cir. 2007); Sullivan v. Town of Brookline, 758 N.E.2d
110, 115 (Mass. 2001). Unless specially defined, the legislature's
words are generally deemed to carry their plain and ordinary
meaning.

Boivin v. Black, 225 F.3d 36, 40 (1st Cir. 2000); Cohen

v. Comm'r of Div. of Med. Assist., 668 N.E.2d 769, 774 (Mass.
1996).

When that meaning produces a plausible result, the inquiry

typically ends.

Plumley v. S. Container, Inc., 303 F.3d 364, 369

(1st Cir. 2002); Cohen, 668 N.E.2d at 774.

Even so, plain meaning

is not invariably the be all and end all of statutory construction.
If a plain-meaning interpretation produces outcomes "that are

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either absurd or antithetical to [the legislature's] discernible
intent," an inquiring court must continue its search.

Stornawaye

Fin. Corp. v. Hill (In re Hill), 562 F.3d 29, 32 (1st Cir. 2009);
accord Sullivan, 758 N.E.2d at 115.
Against this backdrop, we turn to the Obsolete Mortgages
Statute.

It provides in pertinent part:
A power of sale in any mortgage of real estate
shall not be exercised and an entry shall not
be made nor possession taken nor proceeding
begun for foreclosure of any such mortgage
after the expiration of . . . , in the case of
a mortgage in which the term or maturity date
of the mortgage is stated, 5 years from the
expiration of the term or from the maturity
date, unless an extension of the mortgage, or
an acknowledgment or affidavit that the
mortgage is not satisfied, is recorded before
the expiration of such period.

Mass. Gen. Laws ch. 260, § 33.

The Massachusetts legislature

designed this law to streamline conveyancing and make it easier to
clear titles blemished by outdated mortgages. See Town of Pembroke
v. Gummerus, No. 311622, 2008 WL 2726524, at *9 (Mass. Land Ct.
July 15, 2008).
Here, however, the Obsolete Mortgages Statute does not
operate in a vacuum.

Shamus's bankruptcy petition triggered the

automatic stay, 11 U.S.C. § 362(a), which "gives debtors breathing
room by stopping collection efforts in their tracks and permitting
their resumption only when the stay is lifted by the bankruptcy
court or dissolved by operation of law."

229 Main St. Ltd. P'ship

v. Mass. Dep't of Envtl. Prot. (In re 229 Main St. Ltd. P'ship),
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262 F.3d 1, 3 (1st Cir. 2001).

Date Filed: 06/09/2011

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The automatic stay prevents "the

commencement or continuation . . . of a judicial, administrative,
or other action or proceeding against the debtor."

11 U.S.C. §

362(a)(1).
Another statute within the Bankruptcy Code is implicated
here.

That statute, 11 U.S.C. § 108(c), is a tolling provision; it

extends state statutes of limitations for creditors who are barred
by the automatic stay from taking timely action against the debtor.
See Young v. United States (In re Young), 233 F.3d 56, 59 n.3 (1st
Cir. 2000).

It provides in pertinent part:

[I]f applicable nonbankruptcy law . . . fixes
a period for commencing or continuing a civil
action in a court other than a bankruptcy
court on a claim against the debtor, . . . and
such period has not expired before the date of
the filing of the petition, then such period
does not expire until the later of —
(1) the end of such period, including any
suspension of such period occurring on or
after the commencement of the case; or
(2) 30 days after notice of the termination or
expiration of the stay under section 362 . . .
of this title . . . with respect to such
claim.
11 U.S.C. § 108(c).
Our task is to synthesize this mix of state and federal
laws in order to determine whether, on the facts at hand, LBM's
mortgage remains in force despite LBM's failure to record the
extension permitted under the Obsolete Mortgages Statute.
We begin with the obvious: the Obsolete Mortgages Statute
is nonbankruptcy law that applies to LBM's mortgage. It is equally
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as obvious that LBM neither commenced a judicial enforcement action
nor recorded an extension of the mortgage by the fifth anniversary
of the expiration of the mortgage term (September 9, 2008).

Based

on these facts, Shamus strives to convince us that section 108(c)
is

inapposite

because,

in

light

of

the

availability

of

an

extension, it cannot be said that the Obsolete Mortgages Statute
"fixes a period for commencing or continuing a civil action" by a
creditor against a debtor.
Shamus's

thesis

We are not persuaded.
overlooks

that,

under

Massachusetts

mortgage law, a mortgagee has a choice of remedies.

When the

mortgagor defaults, Massachusetts law gives the mortgagee two
general options: it may either enforce the mortgage within the
period provided by law or extend the duration of the enforcement
period by recording an extension.

This choice is the mortgagee's

— and the mortgagee's alone.
Where, as here, the mortgagee chooses the former option,
that

option

may

nonjudicial means.

be

administered

through

either

judicial

See Mass. Gen. Laws ch. 244, §§ 1-14.

or

Once

again, the choice is the mortgagee's — and the mortgagee's alone.
Here, the bankruptcy occurred before the expiration of
the limitations period and, at that time, LBM had the right to
pursue judicial foreclosure.

Id. § 1.

Its ability to exercise

that right was frustrated by the automatic stay.

That stay

prevented LBM, then and thereafter, from exercising its right to

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foreclose by commencement of a court action within the limitations
period fixed by the Obsolete Mortgages Statute. See Perry v. Blum,
629 F.3d 1, 6 (1st Cir. 2010) (explaining that the automatic stay
must be lifted to allow foreclosure to proceed).
The bottom line is that this case falls squarely within
the maw of 11 U.S.C. § 108(c).

That tolling provision preserves

LBM's option to commence a judicial foreclosure action until after
the lifting of the automatic stay.

See Spirtos v. Moreno (In re

Spirtos), 221 F.3d 1079, 1080-81 (9th Cir. 2000); Morton v. Nat'l
Bank of N.Y.C. (In re Morton), 866 F.2d 561, 565-66 (2d Cir. 1989);
LBM Fin., LLC v. 201 Forest St., LLC (In re 201 Forest St., LLC),
422 B.R. 888, 895 (B.A.P. 1st Cir. 2010).
In an effort to blunt the force of this reasoning, Shamus
insists that, because both the Bankruptcy Code and state law
permitted LBM to file an extension of the limitations period as of
right,

it

cannot

invoke

the

automatic

stay.

The

extension

procedure, Shamus says, fits into the exception to the automatic
stay

for

acts

"to

perfect,

or

to

maintain

perfection of, an interest in property."

or

continue

the

11 U.S.C. § 362(b)(3).

We need not dwell upon the applicability vel non of this
exception; whether or not it covers the filing of an extension is
beside the point.1

The choice of which route to take to protect

1

For the sake of completeness, we note that it is unclear
whether section 362(b)(3) does, in fact, apply.
See In re 201
Forest St., 422 B.R. at 893 & n.7. Given our conclusion that the
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its rights was, as we have said, up to the mortgagee (LBM).
Neither the case law nor the language of section 362(b)(3) itself
suggests that the action it contemplates is mandatory rather than
permissive.

It clearly is not.

See Toranto v. Dzikowski, 380 B.R.

96, 100 (S.D. Fla. 2007).
Lacking any relevant authority for the proposition that
the ready availability of an extension trumps the automatic stay,
Shamus falls back on the Obsolete Mortgages Statute itself. Shamus
argues that the statute requires a mortgagee to record an extension
even

when

the

mortgagee

has

commenced

a

timely

enforcement

proceeding but has not concluded it within the five-year period.
This is sheer persiflage.

The statute identifies the commencement

of foreclosure proceedings, not their completion, as the action
that

must

be

taken

within

nullification of the mortgage.

the

limitations

period

to

avoid

See Mass. Gen. Laws ch. 260, § 33

("A power of sale in any mortgage of real estate shall not be
exercised . . . nor possession taken nor proceeding begun for
foreclosure . . . .").
To recapitulate, LBM was not under any legal compulsion
to choose the option of obtaining an extension but, rather, was
free to choose the option of judicial foreclosure.

See Mass. Gen.

Laws ch. 244, § 1; see also In re Morton, 866 F.2d at 567.

The

statute is permissive, see text infra, we need not probe this point
more deeply.
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exercise of the latter option was temporarily blocked by the
operation of the automatic stay.

That LBM may have been able to

extend the limitations period by the performance of a ministerial
act unhindered by the automatic stay is immaterial.
Spirtos, 221 F.3d at 1081.

See In re

Thus, as the district court correctly

held, section 108(c) extends the time within which LBM could act to
enforce the mortgage.
There
Obsolete

is

one

Mortgages

loose

Statute

end.
must

Shamus
control,

contends
regardless

that

the

of

the

automatic stay, because rights in real property devolve from, and
are defined by, state law.

This contention misconceives the role

of state law in federal bankruptcy proceedings.
"Creditors' entitlements in bankruptcy arise in the first
instance from the underlying substantive law creating the debtor's
obligation, subject to any qualifying or contrary provisions of the
Bankruptcy Code."
(2000).

Raleigh v. Ill. Dep't of Rev., 530 U.S. 15, 20

Consequently, when federal bankruptcy law supplies a rule

that speaks directly to the right at issue, that rule controls.
See Jafari v. Wynn Las Vegas, LLC (In re Jafari), 569 F.3d 644, 648
(7th Cir. 2009).

So it is here: while Massachusetts law defines

the parties' rights and obligations under the mortgage (including
the duration of the limitations period), section 108(c) of the
Bankruptcy

Code

speaks

directly

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to

the

enlargement

of

state

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limitations periods.
461 & n.1 (2003).

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See Jinks v. Richland Cnty., 538 U.S. 456,

Accordingly, section 108(c) controls here.

We need go no further.

We hold that 11 U.S.C. § 108(c)

tolls the limitations period set by the Massachusetts Obsolete
Mortgages Statute, thereby enlarging the time within which LBM can
bring a judicial foreclosure action until after the termination or
expiration of the automatic stay.2

It follows inexorably that the

district court did not err in ruling that LBM's mortgage remains in
force.

Affirmed.

2

We take no view as to how long LBM will have, after the
lifting of the automatic stay, to commence a judicial enforcement
action. Compare 11 U.S.C. § 108(c) (extending creditor's right to
enforce until "30 days after notice" of expiration of automatic
stay unless limitations period itself is longer), with In re
Morton, 866 F.2d at 566 (holding that section 108(c) also extends
time within which creditor may renew limitations period).
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