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262 F.3d 295, 38
Bankr.Ct.Dec. 75 United States Court of
Appeals, Fourth Circuit. Margaret GILCHRIST;
John Brown; Gloria Renew; Martha Griffin; Estrella D. Ard; Grant L. Cobb;
Manuel House; Clifford Griffin; Mary E. Moore; Marshall Kitchens; Daniel A. Beard;
Linda Fishburn; Lillie M. Samuels; Delores A. Williams; Coral L. Hyde; Patricia
Grubbs; Brenda Beal; Annette E. Irby; Ruby H. McCullough; Brenda Bush; Josie M.
Hearst; Tuyet T. Parham; Corine P. Robbin; Ada S. Spivey; Nguyen Thu Young;
Thomasenia J. Weaver; Carrie Thurmond; Dorothy M. Franklin; Ernestine Estes;
Warren Carter; John Diggs; Donnie Spires; Robert E. Cooper; Cora K. James;
Barbara Roye; Mia Farrow; Willie E. Spivey; Shirley A. Donaldson; Thomas
Henley; Star-Delta Electric Company; Motion Ind; Silver Sheet Metal,
Incorporated; Clair Turner; Thu Kim Vo; My Van Vo; Edward L. Slot, Sr.; Ricky
Jackson; Wanessa Gilmore; Patrick Thurmond; Dennies L. Scott; Larry W. White;
Francis A. Greiner; Mary E. Clark; Richardean P. Clark; Cht R. Beitlich Corporation,
Petitioning creditors in an involuntary bankruptcy in the United States
bankruptcy Court for the Southern District of Georgia, Appellants, v. GENERAL ELECTRIC
CAPITAL CORPORATION, Plaintiff-Appellee, and Spartan International,
Incorporated, Cleveland Mills Company; Home Furnishings, Incorporated,
Defendants-Appellees, and Peter L. Tourtellot, Receiver, Appellee, and Avondale
Mills, Incorporated, Movant. No. 01-1823. Argued Aug. 2, 2001. Decided Aug. 16, 2001. SUBSEQUENT HISTORY: Disagreement Recognized by: S.E.C. v.
Heartland Group, Inc.*, 2003 WL
21000363 (N.D.Ill. May 2, 2003) (No. 01 C 1984) Related Reference: General Electric Capital Corp. v.
Renew, 122 Fed.Appx. 604 (4th Cir.(S.C.) Dec. 9, 2004) (No. 03-2344) [*297] COUNSEL: ARGUED: John Bush Long, Tucker, Everitt, Long,
Brewton & Lanier, P.A., Augusta, GA; Louis Saul, Saul & Mitchell, P.C.,
Augusta, GA, for Appellants. James A. Pardo, Jr., King & Spalding, Atlanta,
GA; Robert L. Widener, McNair Law Firm, P.A., Columbia, SC, for Appellees. ON
BRIEF: Joseph B. Mitchell, III, Saul & Mitchell, P.C., Augusta, GA; James
Thomas Wilson, Jr., James T. Wilson, Jr., P.C., Augusta, GA, for Appellants.
Sarah Robinson Borders, Mark M. Maloney, Brian C. Walsh, King & Spalding,
Atlanta, GA; Michael M. Beal, McNair Law Firm, P.A., Columbia, SC; Paul R.
Hibbard, Johnson, Smith, Hibbard & Wildman, L.L.P., Spartanburg, SC, for
Appellees. JUDGES: Before NIEMEYER, KING, and GREGORY, Circuit Judges. Reversed and remanded by published opinion. Judge NIEMEYER wrote
the opinion, in which Judge KING and Judge GREGORY joined. OPINION BY: NIEMEYER, Circuit Judge: When Spartan International, Incorporated, and its subsidiaries
(collectively “Spartan”) closed their doors for business,
their major creditor commenced this debt-collection action in the District of
South Carolina under State law. To facilitate the foreclosure of the
creditor’s lien interest in Spartan’s assets, the district
court appointed a receiver for all of Spartan’s assets. It also issued
an injunction directed to “all persons,” commanding them not
to file any action that “affects” Spartan’s assets. A week later, over 50 creditors in the Southern District of
Georgia (the “Georgia creditors”) filed a petition against
Spartan for involuntary bankruptcy. The district court in South Carolina
declined to recognize the automatic stay of all judicial proceedings imposed by
11 U.S.C. § 362(a) with the filing of the bankruptcy petition and found
the Georgia creditors in contempt of court, but allowed them to purge their
contempt by withdrawing their bankruptcy petition. On this interlocutory appeal taken by the Georgia creditors, we
conclude, in the circumstances of this case, that the district court erred in
failing to recognize the stay imposed by 11 U.S.C. § 362(a), and
therefore we reverse and remand for proceedings consistent with this opinion. I On or about May 3, 2001, Spartan closed its doors and turned over
its assets to General Electric Capital Corporation (“GE”),
which had extended Spartan a line of credit of $65 million, secured by
substantially all of Spartan’s assets. At the time, Spartan owed GE
approximately $35 million. Spartan had been engaged in the manufacture of textiles for over
100 years, and its headquarters were located in Spartanburg, South Carolina. It
operated textile mills in six different locations, four in South Carolina and
two in Georgia. Spartan closed its business because it was unable to meet its
obligations to GE, largely as a result of the generally deteriorating business
conditions faced by the domestic textile industry. Invoking the district court’s diversity jurisdiction, GE
promptly filed a verified complaint commencing this action against Spartan for
collection of the indebtedness and for the appointment of a receiver to take
custody of Spartan’s assets, dispose of them, and pay GE the amounts
owed. Spartan did not object to the receivership, [*298] and, on May 22,
2001, on GE’s motion and without notice to creditors of Spartan, the
district court appointed a receiver and required him to file a $500,000 bond.
Paragraph 5 of the district court’s May 22 order provides in relevant
part: The Defendants [Spartan], as well as their
agents, servants, employees, attorneys and any persons acting for or on behalf
of the Receiver Estates, and any persons receiving notice of this order, by
personal service or otherwise, having possession or control of any of the
property, business, books, records, accounts, or assets of the Defendants or
the Receiver Estates are hereby directed to deliver the same to the Receiver,
and all persons are enjoined from in any way commencing or prosecuting any
action, suit or proceeding that affects the Receiver Estates or the Defendants. (Emphasis added). The order required that the receiver serve a
copy of the May 22 order on “all persons identifiable from the books
and records of the Defendants as either employees as of May 3, 2001 or persons
listed in the Defendants’ accounts payable registers as soon as
reasonably practicable by first-class mail.” The receiver duly filed a copy of this order in each district
where Spartan had assets, including the Southern District of Georgia where one
of its mills was located. The receiver also promptly commenced the liquidation
of Spartan’s assets, selling the mill in the Southern District of
Georgia on May 31, 2001, for $4.2 million. This sale was also made without
notice to creditors. The receiver formally notified creditors and employees of
the receivership in early June 2001. Acting with actual notice of the May 22 order but before receiving
formal notice, over 50 former employees of Spartan’s Georgia mill who
had claims against Spartan for wages, health care benefits, and amounts alleged
to be due under the WARN Act, 29 U.S.C. § 2101 et seq., filed an
involuntary-bankruptcy petition against Spartan in the Southern District of
Georgia, where these petitioning employees had worked for Spartan. These
Georgia creditors also filed, with their petition, a motion for the appointment
of an interim trustee. GE objected to the appointment of an interim trustee and
filed a motion to dismiss the bankruptcy petition or to transfer it to the
District of South Carolina. Similarly, the receiver, on behalf of Spartan,
filed a motion to dismiss the bankruptcy proceeding or to transfer the case to
South Carolina based on improper venue. Following a hearing on June 6 and 7,
2001, the bankruptcy court overruled the objections of GE and the receiver,
denied their motion to dismiss or transfer, and appointed an interim trustee. While that hearing in Georgia was in progress, the receiver
obtained a temporary restraining order from the District of South Carolina
dated June 7, 2001, which specifically enjoined 38 listed Georgia creditors
from “undertaking any action in furtherance of the involuntary
petition filed against Spartan International in the Southern District of
Georgia.” This order was brought to the attention of the bankruptcy
judge during the course of the hearing, and in response, the bankruptcy judge
stated: The TRO did not enjoin this Court from acting.
I received a copy of the TRO after all parties had completed their presentation
on June 7, 2001 on the issues now determined but prior to my ruling from the
bench. An interim trustee now appointed is not covered under the scope of the
TRO. Additionally, the act of petitioning Judge Seymour [district judge in the
District of South Carolina] for the TRO by Mr. Beal, attorney on behalf of Mr.
Tourtellot, the receiver appointed [*299] by Judge Seymour, violated the
provisions of 11 U.S.C. § 362(a)(1) and (3). Any act taken in
violation of the automatic stay of § 362 is void. The bankruptcy court also directed the interim trustee to show
cause on June 9, 2001, “why he or she should not be immediately
directed to pay benefits from the assets recovered by the interim trustee to
the petitioning creditors and all other similarly situated former employees
under [the WARN Act].” A few days later, on June 11, 2001, the district court in South
Carolina held a hearing, at which the receiver, the interim trustee, and the
lawyer for the Georgia creditors presented their positions and following which
the court issued an order, dated June 11, 2001, finding the Georgia creditors
in contempt of the district court’s May 22 order. But the court added,
“The [Georgia] Creditors may purge themselves of contempt by withdrawing
the involuntary petition in bankruptcy within five days of the date of this
order.” The district court also directed that “any persons
desiring to proceed in bankruptcy court or otherwise evade the restrictions of
paragraph 5 of [the May 22 order] appointing receiver may do so only upon prior
application to this court for permission.” In response to the interim
trustee’s argument that the district court was bound by the automatic
stay imposed by 11 U.S.C. § 362(a), the district court stated that it
had “ ‘jurisdiction to determine not only its own
jurisdiction but also the more precise question whether the proceeding pending
before it is subject to the automatic stay,’ ” quoting In
re: Baldwin-United Corp. Litigation, 765 F.2d 343, 347 (2d Cir.1985). Exercising
this power, the district court concluded that it was not subject to the stay
imposed by § 362(a). Rather, relying on the All Writs Act, 28 U.S.C.
§ 1651, the court declared that it had authority to issue writs
necessary to aid in protecting its jurisdiction. It explained that because it
had properly entered the receivership order, its injunction of May 22, 2001 was
authorized under the All Writs Act: The court finds and concludes that issuance of
an injunction pursuant to the [All Writs] Act is a necessary means of allowing
the Court to discharge its duties and to prevent creditors of Defendants from
collaterally attacking the court’s order appointing receiver [the May
22 order]. The court finds use of the [All Writs] Act to be justified under the
facts presented, wherein the [Georgia] Creditors have made no showing that they
will obtain relief in bankruptcy court for their unsecured claims, or that
their claims may be paid over and above those claims of secured creditors and
those of other unsecured creditors. After entry of the district court’s June 11 order, the
Georgia creditors, in an effort to purge their contempt, filed a petition in
the bankruptcy court to withdraw their involuntary petition in bankruptcy. The
bankruptcy court, however, denied the petition, concluding that the statutory
requirements for dismissal of an involuntary-bankruptcy petition had not been
met. It did, however, stay further proceedings in the bankruptcy case pending
our review of the South Carolina district court’s orders. The Georgia creditors filed this appeal to review the district
court’s May 22, June 7, and June 11 orders, and they filed a motion to
expedite the appeal. By order dated July 6, 2001, we granted the petition to
expedite the appeal and heard oral argument from the parties on August 2, 2001. II At the outset, we must resolve GE’s challenge to our
jurisdiction, made on the ground that the Georgia creditors did not have standing
to appeal because they were [*300] not parties to the action below, having
never intervened there to challenge the district court’s injunctions.
As GE states its position, “Because the appellants have elected not to
intervene or to otherwise become parties to this action, they lack standing to
appeal.” GE also argues that because the Georgia employees purged
their contempt by filing a motion to withdraw their petition in bankruptcy,
their appeal is moot. Appearing informally before the district court during the June 11
hearing, two of the Georgia creditors, who worked and now live in the Southern
District of Georgia, contended that they were not subject to the district
court’s May 22 order and therefore could not have violated it when
they filed their petition in bankruptcy. First, they argued that the language
of the order did not prohibit the filing of a petition in bankruptcy. Second,
they suggested that the district court did not have power to enjoin them
because they were not in the district of South Carolina and, to be effective,
all creditors had to be made parties. As counsel for these Georgia creditors
argued, “I think your Honor would have to make all the people parties
to the lawsuit as opposed to a bankruptcy in order to [address the WARN Act
claims]. In other words, you would have to make 1200 employees party to this
particular lawsuit.” Finally, counsel for these Georgia creditors
argued that the district court’s receivership order, directing the
receiver to pay GE on its secured claim, violated South Carolina Code
§ 29-11-10, which gives manufacturing employees a lien in the products
on which they worked superior to that of secured creditors, as does similar
Georgia law, and that therefore the May 22 order was illegal in directing a
violation of that priority. Although GE is correct in pointing out the general rule that only
parties may appeal an adverse judgment, it must also recognize that in limited
circumstances courts have held that nonparties have a right to challenge on
appeal an order directed against them in a proceeding to which they were not a
party. See generally S.E.C. v. Lincoln Thrift Ass’n, 577 F.2d 600,
602-03 (9th Cir.1978); see also Zenith Radio Corp. v. Hazeltine Research,
Inc.,
395 U.S. 100, 110-12,
89 S.Ct. 1562, 23 L.Ed.2d 129 (1969) (noting that a parent company was entitled
to appeal judgments and an injunction entered against it, when its subsidiary,
but not it, was the named party to the action below). In R.M.S. Titanic,
Inc. v. Haver, 171 F.3d 943 (4th Cir.1999), we faced a circumstance similar to
that presented here. The district court entered a preliminary injunction
against a person who had never been served process and probably would not have
been subject to service of process. Even though the persons against whom the
order was directed had notice of the district court’s order, we
concluded that “[d]ue process dictates and principles of fairness
counsel that [appellant] be given an opportunity to challenge the district
court’s assertion of jurisdiction over it, particularly when the court
specifically entered an injunction against [appellant].” Id. at 955.
We also noted in Titanic that the plaintiff’s position in seeking an
injunction against the nonparty in the district court was inconsistent with its
position that the persons covered by the injunction did not have standing to
challenge the injunction on appeal. See id. In the case before us, the district court clearly had personal
jurisdiction over the parties-GE, Spartan, and the receiver—as well as
in rem jurisdiction over the assets of Spartan. And while a district
court’s in rem jurisdiction ordinarily extends only to property within
its jurisdiction, [*301] in the case of a federal receivership, Congress has
conditionally extended the scope of a court’s jurisdiction. See 28
U.S.C. §§ 754, 959. Section 754 provides that a receiver may
be appointed for property situated “in different districts,”
who thereby becomes vested with jurisdiction and control over such property
subject to the condition that the receiver file a copy of the complaint and
order of appointment in the district where the subject property is located,
within ten days. It also provides that the receiver may sue and be sued in any
district where such property is located without leave of the appointing court.
See 28 U.S.C. § 754. But such in rem jurisdiction over property in
other districts does not give a district court personal jurisdiction over
persons in such other districts absent an express congressional grant of
personal jurisdiction. While the court has power to protect the res before the
court, any injunction entered against individuals is an in personam action that
may be enforced against individuals only over whom the court has personal
jurisdiction. See Titanic, 171 F.3d at 957-58. Thus, unless the
district court had personal jurisdiction over the Georgia creditors and they
were served with process, the district court could be without power to enforce
an injunction against them, unless, of course, they could be shown to have been
“in active concert or participation with” parties over whom
the court had jurisdiction. See Fed.R.Civ.P. 65(d). While an absence of personal jurisdiction has not yet been
explicitly asserted nor been addressed by the district court, the Georgia
creditors had several nonfrivolous reasons on which to question the district
court’s authority to issue an injunction directed against them
personally, which would reasonably justify their reluctance to intervene below.
But when they were faced with a contempt finding, made in the June 11 order,
they obviously had a legitimate reason to want to challenge the order on
appeal. GE argues that even if the Georgia creditors have that right,
their appeal is moot because the Georgia creditors purged the contempt finding
by filing a motion to withdraw their petition in bankruptcy. The Georgia
creditors note, however, that they filed their motion to withdraw only because
the district court took a position that it had effectively ordered them to do
so when it found them in contempt and declared that this finding could be
purged only upon compliance with the court’s order to withdraw the
petition. But they continue to disagree with and challenge the district
court’s authority both to enter the injunction against them and to
find them in contempt. Moreover, while the Georgia creditors did file a motion to
withdraw their bankruptcy petition, they could not withdraw the petition
because their motion was denied by the bankruptcy court. Therefore their
efforts may not in fact have been sufficient to purge themselves of contempt.
The district court’s order authorized relief from contempt only
“by withdrawing the involuntary petition in bankruptcy.” More importantly, however, the injunctive orders directed against
these Georgia creditors have not been withdrawn and remain in effect. GE did
not hesitate, in oral argument, to take the position that if the Georgia
creditors were again to violate the July 11 order, they could again be found in
contempt. Accordingly, we conclude that both the contempt finding, as well
as the continuing effect of the injunctions, provide a sufficient threat to the
Georgia creditors to give them standing to appeal. In doing so, we do not rule
on the question whether the district court has personal jurisdiction over
[*302] the Georgia
creditors. That issue has been addressed neither by the parties nor by the
district court. III We come now to the question of whether the district court erred in
concluding that its receivership proceeding was not subject to the automatic
stay provisions of 11 U.S.C. § 362(a) and that therefore the
receivership should be given preference as the first-filed case. The district
court concluded that it did have preference because when the receivership was
commenced, it took legal custody of Spartan’s assets and was therefore
entitled to employ the All Writs Act to protect its exclusive jurisdiction over
those assets. But even though the district court in South Carolina was the
court that first took custody over the assets, it made no assessment of whether
the assets could be, as a matter of equitable administration, better collected,
managed, and disposed of in a bankruptcy proceeding. And it never relied on any
exception to § 362(a) to avoid that provision’s mandate. We begin our analysis by recognizing that the district court has
within its equity power the authority to appoint receivers and to administer
receiverships. See Fed.R.Civ.P. 66. And when receivers are appointed by a
federal court, they may sue and be sued as provided by federal law. See 28
U.S.C. §§ 754, 959. Moreover, receivers appointed by a
federal court are directed to “manage and operate” the
receivership estate “according to the requirements of the valid laws
of the State in which such property is situated, in the same manner that the
owner or possessor thereof would be bound to do if in possession
thereof.” 28 U.S.C. § 959(b). We also confirm that the district court has within its equity
power the authority to protect its jurisdiction over a receivership estate through
the All Writs Act, 28 U.S.C. § 1651, and through its injunctive
powers, consistent with Federal Rule of Civil Procedure 65. Of course, the
exercise of this authority is always subject to other limitations, statutory
and constitutional, which limit the jurisdiction of federal courts. Thus, in appointing the receiver in this case for the assets of
Spartan, the district court acted within the scope of its equity power. In
reaching that conclusion, however, we do not review the terms of the order appointing
the receiver, particularly paragraph 5. Moreover, when it appointed the
receiver, the district court created a receivership estate over which it had in
rem
jurisdiction, even though the property might be located in other districts. See
28 U.S.C. § 754 (“A receiver appointed in any civil action
… involving property … situated in different districts shall
… be vested with complete jurisdiction and control of all such
property”). But its jurisdiction over assets in other districts is
dependent upon the receiver’s filing a copy of the complaint and
appointment in that district, a condition that the receiver fulfilled in this
case. See id. Because assets and personal jurisdiction may lie beyond the
jurisdictional reach of the appointing court, 28 U.S.C. §§
754 and 959 authorize the receiver to sue and be sued in connection with the
receivership estate in any district court without an ancillary appointment.
Thus, the statutory provisions for receiverships anticipate that when a
receivership involves assets in different districts, there may be multiple
litigations initiated by or against the receiver in those districts. After the district court appointed a receiver and asserted in rem
jurisdiction over assets of Spartan, more than 50 creditors in the Southern
District of Georgia filed a petition against Spartan for involuntary bankruptcy
under 11 U.S.C. § 303, [*303] thus commencing a bankruptcy proceeding
there, and the bankruptcy court appointed an interim trustee in that
proceeding. By virtue of the jurisdictional provisions of the United States
Code, and the commencement of a bankruptcy case against Spartan, the bankruptcy
court obtained “exclusive jurisdiction of all of the property, wherever
located, of [Spartan] as of the commencement of such case, and of property of
the estate.” 28 U.S.C. § 1334(e) (emphasis added). In
addition, the filing of the petition in bankruptcy “operates as a
stay, applicable to all entities, of the … continuation … of
a judicial, administrative, or other action or proceeding against the debtor
that was commenced before” the bankruptcy petition. 11 U.S.C.
§ 362(a)(1). To give effect to its jurisdiction, the bankruptcy court
is given broad equitable powers, see 11 U.S.C. § 105, with nationwide
service of process, see Bankr.R. 7004(d). Under the plain meaning of these statutory provisions, proceedings
in the District of South Carolina were stayed as of May 31, 2001, when the
petition in bankruptcy was filed. When the interim trustee appointed by the
bankruptcy court appeared before the district court on June 11 to urge that the
district court recognize the operation of the stay, the court properly
concluded that it had authority to determine its own jurisdiction, see Texas
& P. Ry. v. Gulf, Colo. & Santa Fe Ry. Co., 270 U.S. 266, 274, 46
S.Ct. 263, 70 L.Ed. 578 (1926); McGowen v. Harris, 666 F.2d 60, 66 (4th
Cir.1981), and more particularly that it had jurisdiction to determine whether
the proceeding before it was subject to the statutory stay, see U.S.
Dep’t of Hous. and Urban Dev. v. Cost Control Mktg. & Sales
Mgmt. of Va., Inc., 64 F.3d 920, 927 n. 11 (4th Cir.1995); Baldwin-United, 765 F.2d
at 347. In exercising its authority to determine its own jurisdiction, however,
the district court concluded that because it already had jurisdiction over the
receivership estate, it should protect that jurisdiction through the All Writs
Act, 28 U.S.C. § 1651, and that it need not recognize the effect of 11
U.S.C. § 362(a). The court provided no explanation of why, as a matter
of equity, the bankruptcy process was not superior to a receivership in the
liquidation of a large business, with assets in several jurisdictions and with
thousands of creditors, some of whom were claiming liens superior to the lien
relied upon by GE when it initiated the receivership proceeding. More
importantly, it provided no explanation of why the terms of § 362(a)
were not applicable. Similarly, in their briefs and arguments presented to us, counsel
for GE and the receiver advanced no exception to § 362(a) that would
be applicable. Instead, they argued for a “first-filed”
principle, urging that the court which first takes custody of assets for
liquidation should be given priority. We cannot agree. Our examination of the Bankruptcy Code reveals
that Congress intended that the bankruptcy process be favored in circumstances
such as these. Section 1334(e) of title 28 is unequivocal in its grant of
exclusive jurisdiction to the bankruptcy court, and § 362(a) imposes
an automatic stay on all proceedings merely upon the filing of a bankruptcy
petition. If we were to frustrate these express provisions to further a
first-filed policy, we would have to deny bankruptcy jurisdiction to every
bankruptcy court in which foreclosure proceedings had already commenced against
the debtor’s property, on the grounds that the in rem nature of the
foreclosure proceeding precludes the bankruptcy court from taking custody of
the res. Such a jurisdictional limitation on bankruptcy proceedings would
severely limit the efficacy of bankruptcy. In the absence of express language
suggesting [*304] that Congress intended for bankruptcy jurisdiction to be so
limited, we believe it would frustrate Congressional intent to imply such a
limitation based solely on consideration of a first-filed policy. Even if general equitable principles could modify the application
of statutory jurisdictional grants, we do not believe that the equities favor
the common-law receivership process over the highly developed and specific
bankruptcy process. The procedural requirements for liquidating a large
corporation with thousands of creditors, many of whom might challenge the
priority of liens and the adequacy of asset sales, present a task that would
push the receivership process to its limits. See Baldwin-United, 765 F.2d at 348
(“[T]o whatever extent a conflict may arise between the authority of
the Bankruptcy Court to administer this complex reorganization and the
authority of the District Court to administer consolidated pretrial
proceedings, the equities favor maintenance of the unfettered authority of the
Bankruptcy Court”). In this case it can be seen, even from the initial
transactions in the receivership, that the customized receivership mechanisms
are wanting in comparison with established bankruptcy process. For example,
when the receiver in this case sold a mill in Georgia for $4.2 million, the
creditors had no advance notice of the transaction, and some have challenged
the adequacy of compensation, proffering evidence that the mill was worth over
$20 million. More important to the Georgia creditors in this case, the district
court did not have in place a mechanism to adjudicate the relative priority of
liens. GE claims a first lien by reason of its perfected security interest in
most of the assets of Spartan and proffered an order by which the proceeds of liquidation
would be paid to it as the superior lien holder. But Spartan’s
employees claim a prior statutory lien in assets produced by them at the
manufacturing plants at which they worked, as created by state law. While they
surely could file claims in the receivership, the process for making and
adjudicating such claims was not spelled out. To resolve the claims involving a large corporation with multiple
places of business in different districts and thousands of creditors, a
bankruptcy court has judicial tools better suited and more specifically
tailored to the task, and those tools include nationwide service of process.
See Bankr.R. 7004(d). While it is true that the district court has broad equity
power, any attempt to use that power to supervise a complex corporate
liquidation, in the absence of special circumstances, would ultimately be more
clumsy and expensive than long-established bankruptcy procedures. At bottom, we
are persuaded that in the circumstances of this case, the district court should
have recognized the stay provisions of § 362(a). Unable to direct us to an exception to § 362(a), GE
argues that the entire bankruptcy proceeding is void ab initio because it was
filed in violation of the district court’s May 22 order. But even if
plaintiffs were effectively subject to the court’s order not to file a
lawsuit or to commence an action in Georgia, this impediment could not
undermine the bankruptcy court’s jurisdiction to entertain the matter.
While it might provide a basis for that court’s dismissing the action,
its power to exercise jurisdiction is determined by Congress, not by a
competing court order. In this case, the petition in bankruptcy was regulated
by 28 U.S.C. § 1334 and the Bankruptcy Code. If those provisions are
not complied with, GE’s remedy would be to present its objection to
the bankruptcy court. But having such an objection does not render the
proceeding void ab initio. [*305] To reach that conclusion would make the
injunction of one court determinative of the jurisdiction of another, setting
courts in different districts against one another. This would completely
frustrate the scheme of courts created by Congress. In short, until the
bankruptcy case is dismissed or otherwise closed, it is viable and must be
recognized by other courts. IV In reviewing the district court’s orders in the
receivership proceeding, we do not pass on the legitimacy of the bankruptcy
proceeding or on any defense that has been or that may be presented in it.
Those are matters that must be addressed to the bankruptcy court in the
Southern District of Georgia. On this appeal, we only determine that, in the
present circumstances, the stay provided by 11 U.S.C. § 362(a) must be
recognized until further order in the bankruptcy proceeding. Accordingly, we reverse the district court’s ruling on
the stay and remand for proceedings appropriate to determine the applicability
of that stay to the district court’s orders and the receivership
proceeding and to enter such order as is appropriate. REVERSED AND REMANDED. Appellate Briefs • Reply Brief of
Appellants (Jul. 31, 2001) • Joint Brief of
Plaintiff - Appellee General Electric Capital Corporation and Appellee Peter L.
Tourtellot, Receiver (Jul. 26, 2001) • Brief of Appellants
(Jul. 16, 2001) * S.E.C. v. Heartland Group, Inc., HEADNOTE: Plaintiff, the
Securities and Exchange Commission (“SEC”), filed this action
on March 21, 2001 seeking appointment of a receiver for the benefit of
investors to marshal, conserve, protect, hold, sell or otherwise dispose of,
all assets of defendant Heartland Group, Inc.’s High-Yield Municipal
Bond Fund, Short Duration High-Yield Municipal Fund and Taxable Short Duration
Municipal Fund (collectively the “Funds”). The court
appointed Phillip L. Stem (“Receiver”) as receiver over any
such assets. Before the court is the Receiver’s motion to compel the
Bank of New York (“BNY”) to release all funds it is
maintaining or intends to maintain in a reserve created to pay the expenses,
including attorney’s fees and costs, of U.S. Trust Company of Texas,
N.A. (“U.S. Trust”). For the reasons set forth below, the
court denies the motion. |