Charles M. Brewer Limited Restated Pension Plan et al v. Reish Luftman McDaniel & Reicher PC et al

Filing 29

ORDER: IT IS ORDERED DENYING Charles M. Brewer's Motion for Relief from Judgment 17 . (See attached PDF for details). Signed by Senior Judge Frederick J Martone on 10/3/13.(JAMA)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Charles M. Brewer Limited Restated)
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Pension Plan, et al.,
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Plaintiffs,
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vs.
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Reish Luftman McDaniel & Reicher PC, et)
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al.,
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Defendants.
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No. CV-11-02363-PHX-FJM
ORDER

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The court has before it plaintiff Charles M. Brewer’s motion for relief from judgment
(doc. 17), defendants’ response (doc. 20), and Brewer’s reply (doc. 28).

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This case involves a dispute between plaintiffs and a California law firm plaintiffs

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hired to defend them against pension benefit claims. Plaintiffs originally filed this action in

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state court, asserting claims of professional negligence and fraud. Defendants removed the

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action and filed a motion to dismiss without prejudice and to compel arbitration. Plaintiffs

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did not respond to the motion. On January 17, 2012, we entered an order granting the motion

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to dismiss and compelling arbitration (doc. 14) (“Order”).

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Plaintiff Brewer now seeks relief from the Order pursuant to Rule 60(b)(4), Fed. R.

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Civ. P., which provides that a party may seek relief from judgment if “the judgment is void.”

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Brewer argues that the judgment entered in this case is void because it violated the automatic

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stay provisions of 11 U.S.C. § 362(a)(1) and (3).1

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Brewer waited over a year and a half to file his request for relief from judgment.

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Although the Federal Rules of Civil Procedure do not prescribe a specific time limit for filing

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a motion under Rule 60(b)(4), the motion must be made “within a reasonable time.” Fed. R.

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Civ. P. 60(c)(1). Brewer was, or should have been, fully aware of the possible effect of his

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bankruptcy filing at the time defendants filed their motion to dismiss, but he failed to raise

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it as a defense to the motion. In fact, he did not respond to the motion at all. If Brewer

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thought the stay applied, he could have filed a notice of filing bankruptcy and suggestion of

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stay before we acted. But no notice was given. Instead, he waited over a year and a half

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after final judgment was entered to assert his argument that defendants’ motion to dismiss

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and the January 17, 2012 Order violated the automatic stay. Brewer gives no explanation for

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the delay. We conclude that the motion for relief from judgment was not made within a

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reasonable time as required by Rule 60(c)(1), and the motion is denied on this basis. We also

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deny the motion on its merits.

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11 U.S.C. § 362(a)(1) provides that upon the filing of a petition for bankruptcy, an

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automatic stay applies to “the commencement or continuation . . . of a judicial,

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administrative, or other action or proceeding against the debtor.” Plaintiff argues that

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notwithstanding that he initiated this action against the defendants, the motion to dismiss was

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an “action against the debtor” under 11 U.S.C. § 362(a)(1), and was an act to “exercise

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control over property of the estate” under § 362(a)(3). We disagree on both counts.

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This legal malpractice action initiated by Brewer against the defendants is clearly not

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an “action or proceeding against the debtor.” Id. § 362(a)(1). “[W]hether a case is subject

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to the automatic stay must be determined at its inception. That determination should not

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change depending on the particular stage of the litigation at which the filing of the petitioner

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in bankruptcy occurs.” Ingersoll-Rand Fin. Corp. v. Miller Mining Co., 817 F.2d 1424, 1426

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Charles Brewer filed this motion individually because only he has filed for
bankruptcy. Therefore, our Order dismissing the case and compelling arbitration is final with
respect to the other plaintiffs.
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(9th Cir. 1987) (quoting Ass’n of St. Croix Condo. Owners v. St. Croix Hotel Corp., 682

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F.2d 446, 449 (3d Cir. 1982)).

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proceedings,” “who filed the complaint is not dispositive of whether the case involves an

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action or proceeding against the debtor.” Parker v. Bain, 68 F.3d 1131, 1137 (9th Cir. 1995)

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(emphasis in original). Instead, multiple claim or multiple party “litigation must be

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disaggregated so that particular claims, counterclaims, crossclaims and third-party claims are

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treated independently when determining which of their respective proceedings are subject

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to the bankruptcy stay.” Maritime Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1204-05

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(3rd Cir. 1991). For example, where a counterclaim “at its inception” is a claim against a

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debtor, it is stayed. Parker, 68 F.3d at 1137. But we have no counterclaim, cross-claim or

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third party claim in this case. Therefore, this case “at its inception” is an action by the

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debtor.

Where a single case includes several “actions or

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Defendants’ motion to dismiss and to compel arbitration is conduct in defense of the

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litigation initiated by Brewer. While the debtor’s cause of action may be an asset of the

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estate, the defendant is not, by opposing the action, seeking to take possession of estate

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assets. Instead, it is “a continuation of the pre-petition judicial proceeding by the debtor and

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was not itself an “action against the debtor.” Martin-Trigona v. Champion Fed. Sav. & Loan

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Ass’n, 892 F.2d 575, 577 (7th Cir. 1989) (holding that a defendant’s motion to dismiss a

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claim brought by a debtor is not subject to the automatic stay).

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Brewer has cited to no case, nor have we found one, where a motion to dismiss or to

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compel arbitration filed in defense of a pre-petition action by the debtor constitutes an act to

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obtain possession or control over bankruptcy estate property. The only case cited by Brewer

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in support of his claim is In re General Assoc. Investors Ltd., 159 B.R. 551 (Bankr. D. Ariz.

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1993), where the bankruptcy court held that the Taxing Authorities’ motion to dismiss

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debtor’s appeal of a tax assessment was subject to the automatic stay under 11 U.S.C. §

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362(a)(1). The Taxing Authorities had “commenced the original proceeding” by virtue of

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the tax assessment against the debtor. The debtor’s appeal was in response to that

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assessment. Therefore, the Taxing Authorities’ motion to dismiss debtor’s appeal was a
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continuation of an “action against the debtor.” In contrast to General Assoc., it is undisputed

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that Brewer commenced this action.

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We reject Brewer’s attempt to characterize defendants’ motion to dismiss as “an overt

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attempt to ‘exercise control over property of the [bankruptcy] estate.’” Reply at 2 (citing 11

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U.S.C. § 362(a)(3)). “While it is true that a successful defense to a lawsuit eliminates its

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alleged value, this results in no loss to the estate . . . . There can be no loss of what does not

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exist.” In re Merrick, 175 B.R. 333, 338 (BAP 9th Cir. 1994). Here, defendants’ efforts to

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enforce the parties’ arbitration agreement was a defensive strategy filed in response to

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plaintiffs’ lawsuit. It was not an action or proceeding against a debtor, or an act to obtain

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possession of or control over property of the estate. It would defy equitable principles to

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allow the plaintiff/debtor to prosecute his action against defendants and at the same time

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deny defendants the opportunity to assert defensive motions.

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bankruptcy did not afford him the unfettered right to choose the forum in which to litigate

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his claim or to avoid an otherwise valid arbitration agreement. We conclude that neither the

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motion to dismiss nor the Order granting the motion was a violation of the automatic stay.

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IT IS ORDERED DENYING Brewer’s motion for relief from judgment (doc. 17).

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DATED this 3rd day of October, 2013.

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Brewer’s petition for