Unpublished Dispositionin Re Crabtree, 767 F.2d 919 (6th Cir. 1985)

This is an appeal from an order entered by the United States District Court for the Eastern District of Tennessee on August 9, 1984 upholding an order of the United States Bankruptcy Court for the Eastern District of Tennessee finding the appellant to be in civil contempt.

This controversy centers around appellants' effort to take a $1.7 million fund from appellees, the Butcher and Crabtree trustees-in-bankruptcy. The trustees, through their own initiative, located this fund in a Florida bank. On December 30, 1983, the trustees jointly filed a complaint in the United States Bankruptcy Court for the Eastern District of Tennessee, seeking to have the fund turned over to them. The complaint alleged that the fund constituted property of the Butcher and Crabtree bankruptcy estates. On February 10, 1984, the bankruptcy court entered a judgment ordering that the $1.7 million be turned over to the Butcher and Crabtree trustees. On the same day, the funds were transferred by wire to the trustees. Pursuant to an agreement approved by the bankruptcy court, each trustee deposited one half of the fund in his estate.

The following Monday, February 13, 1984, an entity known as Florida Investment Leasing Company, Inc. (FILCO) simultaneously filed a voluntary bankruptcy petition and a complaint claiming title to the $1.7 million fund in the United States Bankruptcy Court for the Northern District of Florida. FILCO also sought a temporary restraining order prohibiting transfer of the fund. In essence, FILCO claimed that appellee David A. Crabtree had fraudulently diverted the $1.7 million while serving as president of the company. The FILCO complaint named the Butcher and Crabtree bankruptcy trustees as defendants. Because section 362 of the Bankruptcy Code automatically enjoins actions to recover property from a trustee-in-bankruptcy, FILCO was required to obtain leave from the United States Bankruptcy Court for the Eastern District of Tennessee to file the complaint caiming title to the $1.7 million fund. FILCO was unable to obtain the requisite to file and thus could not obtain a temporary restraining order (TRO) against the trustees. FILCO obtained a TRO against the former custodians of the $1.7 million, but the custodians had already transferred the funds to the trustees in Knoxville.

On February 21, 1984, FILCO filed a motion for Ex Parte relief from the automatic stay and a motion for relief from the automatic stay in federal bankruptcy court in Tennessee. The court refused to rule on the motion ex parte, but scheduled a hearing with notice to the appellees for February 22. FILCO appeared at the February 22 hearing through its Knoxville counsel, Sharon Lee. Counsel for the Butcher and Crabtree trustees also attended.

At the February hearing, the bankruptcy court in Tennessee, denied the two motions for relief from the automatic stay and the oral request of FILCO counsel for a temporary restraining order prohibiting the trustees from disbursing the $1.7 million. The court stated, and FILCO counsel acknowledged, that the proper procedure for contesting title to the $1.7 million and for obtaining temporary injunctive relief would be to file an adversary proceeding against the trustees in the United States District Court for the Eastern District of Tennessee. Immediately after the hearing concluded in Knoxville, Ms. Lee phoned appellant Charles Liberis, who was acting as FILCO's principal counsel, with the result. The bankruptcy court entered a written order implementing its rulings the following day, February 23.

In the evening of February 22, 1984, hours after learning that the federal bankruptcy court in Tennessee had denied the request for relief from the stay and interim injunctive relief, appellants Charles S. Liberis and David L. Fleming appeared before the United States Bankruptcy Court for the Northern District of Florida seeking the same relief. The federal bankruptcy court in Florida entered an order to lift the stay and, at 10:00 p.m., entered TRO against appellees and their respective counsel. The court also scheduled a hearing on FILCO's motion for a preliminary injunction on March 2, in Tallahassee, Florida.

On February 29, upon the joint motion of the Butcher and Crabtree trustees, the federal bankruptcy court in Tennessee issued an order to show cause why appellees should not be held in contempt and set a hearing for March 2 in Knoxville. On the same day, appellant Liberis filed a motion with the federal bankruptcy court in Florida to enjoin the trustees from proceeding on the order to show cause on March 2, 1984.

On March 2, 1984, Liberis filed a motion for continuance in the Florida federal bankruptcy court. The basis for the motion was that Liberis had to be in Knoxville. FILCO was represented at the Florida hearing by an attorney who purported to have no knowledge about the case, and who was unprepared to introduce evidence to support a preliminary injunction. That same morning Liberis appeared in Tennessee and filed a motion for a continuance in the bankruptcy court there. The trustees, represented by counsel, appeared at both the Tennessee and Florida hearings.

The federal bankruptcy court in Tennessee found Liberis in contempt for violating both the order denying relief from the stay and the stay itself. The court ordered Liberis to dissolve the injunction against the trustees, to dismiss the adversary proceeding against the trustees in Florida, and to pay the trustees' attorneys' fees and costs.

Upon Liberis' appeal, the district court conducted a de novo review of the record. Finding no material facts to be in dispute, the district court ruled that 'Appellants clearly violated an order of the Tennessee bankruptcy court.' The district court accordingly entered an order affirming the bankruptcy court's finding of civil contempt. For the reasons stated below, we affirm the ruling of the United States District Court for the Eastern District of Tennessee.

Appellants argue that the Tennessee court should have denied only the ex parte motion for relief without denying the motion for relief. In our view this argument misses the point. Liberis committed contempt by seeking from the same relief in the Florida court that had been expressly denied in Tennessee earlier in the day. The proper course to take when denied relief by a federal bankruptcy court is an appeal to the appropriate federal district court. A party is not free to bring the same request for another court of equal rank. Maness v. Meyers, 419 U.S. 449 (1975). That the appellants did this by oral motion and without notice to the trustees only increases the unacceptability of their conduct.

Appellants also contend that they were free to seek relief in the Florida court because the Tennessee court did not expressly prohibit FILCO from seeking the same relief in another court. This argument lacks merit. The collateral review of court rulings is so clearly inappropriate that courts do not routinely include such prohibitions in their orders. But the prohibition is surely there by implication. Widespread collateral review of court decisions would render the federal legal system a shambles. Where conduct effectively undercuts the processes and authority of a court, the court can find contempt. A specific written prohibition is not necessary. See McComb v. Jacksonville Paper Co., 336 U.S. 187, 191-93 (1949).

Apart from violating the order denying relief from the stay, Liberis violated the stay itself. There is no question that violation of the automatic stay is a civil contempt of court. See e.g., In Re Lohnes, 26 B.R. 593 (Bkrtcy. D. Conn. 1983); In Re Demp, 23 B.R. 239 (Bkrtcy. E.D., Pa. 1982); In Re Reed, 11 B.R. 258 (Bkrtcy. D. Utah 1981). Section 362(a) of the Bankruptcy Code is clear. It automatically stays, with respect to 'all entities, the commencement . . . of a judicial, administrative, or other proceeding against the debtor. . . . 11 U.S.C. § 362(a) (1). In addition it stays 'any act to obtain possession of property of the estate or property from the estate. . . .' 11 U.S.C. § 362(a) (3) (emphasis added). Obtaining an injunction prohibiting a trustee from using property in his possession is a clear violation of section 362 and thus an act of contempt. In Re Johns-Manville Corp., 31 B.R. 965, 968-70 (S.D.N.Y. 1983).

The order of the fedral bankruptcy court in Florida purporting to lift the stay is a nullity. First, settled principles of res judicata and collateral estoppel barred FILCO from obtaining relief from the stay when the precise issue had been decided against it in Tennessee. See Harrison v. Bloomfield Building Industries, Inc., 435 F.2d 1192 (6th Cir. 1970). More importantly, the Florida court lacked subject matter jurisdiction over