Boatmen's Nat'l Bank v. Moss

BOATMAN'S NATIONAL BANK of Northwest Arkansas
(Successor-in-Interest to Worthen National
Bank of Northwest Arkansas) v. Shirley A.
MOSS, Sharon J. Hale and City of Springdale

97-127                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered October 30, 1997


1.   Bankruptcy -- automatic stay -- entry of order to dismiss
     actions violates stay. --  Federal appellate courts have held
     that a district court's dismissal of a lawsuit against a party
     in bankruptcy violated the 11 U.S.C.  362(a) automatic stay
     in effect when bankruptcy was filed and that a Title VII
     action against an employer must remain on the district court's
     docket until final disposition of the employer's bankruptcy
     proceedings or some relief is granted from the  362(a) stay. 

2.   Bankruptcy -- operation of stay -- dismissal of action
     constitutes continuation of judicial proceedings. -- The stay
     in bankruptcy, by its statutory words, operates against "the
     commencement or continuation" of judicial proceedings;
     although not specifically mentioned, the stay must be
     construed to apply to dismissal as well; if either of the
     parties takes any step to obtain dismissal, there is clearly
     a continuation of the judicial proceeding; in the more
     technical sense, just the entry of an order of dismissal, even
     if entered sua sponte, constitutes a judicial act toward the
     disposition of the case and hence may be construed as a
     "continuation" of a judicial proceeding; dismissal of a case
     places the party dismissed in the position of being stayed "to
     continue the judicial proceeding," thus effectively blocking
     his right to appeal. 

3.   Bankruptcy -- protective stay -- party debtors and creditors
     protected against early dismissals of pending court actions. -
     - Party debtors and creditors should be protected against
     early dismissals of those pending court actions when
     bankruptcy proceedings and stay orders are filed; even though
     such protective stays under  362(a) automatically go into
     effect upon the filing of a bankruptcy action, a party in
     interest is provided an opportunity to seek relief from the
     stay for good cause under 11 U.S.C.  362(d) (Supp. 1994);
     meanwhile, the stay provides debtors with protection against
     hungry creditors, and assures creditors are not racing to
     various courthouses to pursue independent remedies to drain
     the debtor's assets; Ark. R. Civ. P. 41(b) prevents a want-of-
     prosecution dismissal of a pending state court action after a
      362(a) is in effect, thereby eliminating a plaintiff from
     refiling the action in the future, this interpretation serves
     judicial economy and avoids possible statute of limitation and
     priority claim problems; the chancery judge's dismissal of
     appellant's suit against a debtor in bankruptcy for want of
     prosecution under Ark. R. Civ. P. 41 (b) was reversed and
     remanded with directions to reinstate appellant's case.

     Appeal from Washington Chancery Court; John Lineburger,
Chencellor; reversed and remanded.
     Stockland & Trantham, P.A., by:  Charles S. Trantham, for
appellant.
     No brief filed for appellee.

     Tom Glaze, Justice.
     On February 23, 1996, appellant Boatmen's National Bank of
Northwest Arkansas filed a foreclosure suit against Shirley and
Sharon Moss when they defaulted on a loan.  Boatmen's subsequently
added the City of Springdale as a defendant because the city
claimed an interest in the mortgaged property.  In March 1996,
Shirley Moss filed a pro se response to Boatmen's complaint, and
the city filed its answer, reserving the right to file a
counterclaim or cross claim.  Sharon filed nothing.  
     On March 29, 1996, Shirley filed a notice in the foreclosure
suit, reflecting she had filed a petition for Chapter 13 bankruptcy
on March 14, 1996, and an automatic stay went into effect pursuant
to 11 U.S.C.  362(a) (Supp. 1994).  No further pleadings were
filed or actions taken in Boatmen's suit until December 5, 1996,
when the chancery judge dismissed the case for want of prosecution
under Rule 41(b) of the Arkansas Rules of Civil Procedure.  Rule 41
(b), in pertinent part, provides that, in any case in which there
has been no action shown on the record for the past twelve months,
the court shall cause notice to be mailed to the attorneys of
record, and to any party not represented by an attorney, that the
case will be dismissed for want of prosecution unless on a stated
day application is made, upon a showing of good cause, to continue
the case on the court's docket.  
     On December 18, 1996, Boatmen's filed a motion to set aside
the court's dismissal order, stating Shirley was currently in
bankruptcy and Boatmen's foreclosure suit against Shirley had been
automatically stayed.  Boatmen's requested its foreclosure action
be reinstated, otherwise, it would be forced to refile its lawsuit
in the future.  After the chancery judge denied Boatmen's motion,
Boatmen's filed this appeal.
     We initially mention the obvious fact that the twelve-month
period under Rule 41(b) had not elapsed at the time Boatmen's case
was dismissed.  In this respect, the City of Springdale filed its
answer on March 27, 1996, and Shirley filed notice of her
bankruptcy on March 29, 1996, but the chancellor dismissed
Boatmen's suit on December 5, 1996.  The chancellor's dismissal was
about four months premature.  For this reason, alone, Boatmen's
request for reinstatement of its case would appear to have merit,
based on the failure of the court to comply with the terms of Rule
41(b).  However, because this court will not reverse a case based
on an argument not raised below, we will decide the question that
Boatmen's raised below and now argues on appeal -- Did the trial
court err in dismissing Boatmen's suit for want of prosecution when
a bankruptcy stay order was in effect at the time?
     This court has not addressed the question posed here, but
courts in other jurisdictions have.  For example, a Florida
appellate court considered a lower court's dismissal of a
plaintiff's nonsuit under a rule almost identical to Arkansas's
Rule 41(b) when a bankruptcy stay order was in effect.  The
appellate court reversed, stating the following:
          [I]f an action is stayed as to one or more of the
     parties either by court order or by an automatic stay
     invoked because of the federal bankruptcy act, it will
     not be dismissed for failure to prosecute.  To hold
     otherwise would frustrate the purpose of the rule which
     is to expedite and simplify litigation, not to cause
     additional litigation through no fault of the one moved
     against.
Bowman v. Peele, 413 So. 2d 90 (1982); see also Bowman v. Dickey,
505 So. 2d 581 (1987); Cf. Hughes v. Robo Bay Cities, Inc., 184 Cal. Rptr. 926 (1982).  In addition to and consistent with the Florida
decisions on the issue, the Texas Supreme Court held its court of
appeals erred in issuing an opinion after a party to the appeal had
filed bankruptcy and a stay order was in effect under 11 U.S.C. 
362(a).  
     Although no want-of-prosecution rule like Arkansas's Rule
41(b) was at issue, a number of federal cases dealing with
dismissal of actions when bankruptcy stay orders were in effect are
particularly insightful and essentially reach the same outcomes as
the ones reached by the Florida and Texas courts.  In Dean v. Trans
World Airlines, Inc., 72 F.3d 754 (9th Cir. 1995), for example, the
court of appeals held the district court's dismissal of Dean's
lawsuit against Trans World Airlines violated the  362(a)
automatic stay in effect when TWA filed for bankruptcy.  The court
of appeals explained its decision as follows:
          Section 362(a) has two broad purposes.  First, it
     provides debtors with protection against hungry
     creditors:
     It gives the debtor a breathing spell from its creditors. 
     It stops all collection efforts, all harassment, and all
     foreclosure actions.  It permits the debtor to attempt a
     repayment or reorganization plan, or simply to be
     relieved of the financial pressures that drove him into
     bankruptcy.
     H.R.Rep. No. 595, 95th Cong., 1st Sess., at 340 (1977),
     reprinted in 1978 U.S.C.C.A.N. 5963, 6296-97.  Second,
     the stay assures creditors that the debtor's other
     creditors are not racing to various courthouses to pursue
     independent remedies to drain the debtor's assets:
          The automatic stay also provides creditor
     protection.  Without it, certain creditors would be able
     to pursue their own remedies against the debtor's
     property.  Those who acted first would obtain payment of
     the claims in preference to and to the detriment of other
     creditors.  
See also Pope v. Manville Forest Products Corporation, 778 F.2d 238
(5th Cir. 1985).
     The Pope case is particularly helpful.  There, the Fifth
Circuit Court of Appeals held that Pope's Title VII action against
her employer Manville Forest Products must remain on the district
court's docket until final disposition of Manville's bankruptcy
proceedings or some relief is granted from the  362(a) stay.  The
court in Pope set out the following rationale in support of its
decision:
          We recognize that the stay, by its statutory words,
     operates against "the commencement or continuation" of
     judicial proceedings.  No specific reference is made to
     "dismissal" of judicial proceedings.  Nevertheless, it
     seems to us that ordinarily the stay must be construed to
     apply to dismissal as well.  First, if either of the
     parties takes any step to obtain dismissal, such as
     motion to dismiss or motion for summary judgment, there
     is clearly a continuation of the judicial proceeding. 
     Second, in the more technical sense, just the entry of an
     order of dismissal, even if entered sua sponte,
     constitutes a judicial act toward the disposition of the
     case and hence may be construed as a "continuation" of a
     judicial proceeding.  Third, dismissal of a case places
     the party dismissed in the position of being stayed "to
     continue the judicial proceeding," thus effectively
     blocking his right to appeal.  Thus, absent the
     bankruptcy court's lift of the stay, or perhaps a
     stipulation of dismissal, a case such as the one before
     us must, as a general rule, simply languish on the
     court's docket until final disposition of the bankruptcy
     proceeding.
     We believe the foregoing cases, particularly the federal ones,
set out compelling reasons why party debtors and creditors should
be protected against early dismissals of those pending court
actions when bankruptcy proceedings and stay orders are filed. 
Even though such protective stays under  362(a) automatically go
into effect upon the filing of a bankruptcy action, a party in
interest is provided an opportunity to seek relief from the stay
for good cause under 11 U.S.C.  362(d) (Supp. 1994).  Meanwhile,
the stay provides debtors with protection against hungry creditors,
and assures creditors are not racing to various courthouses to
pursue independent remedies to drain the debtor's assets.  Dean, 72 F.3d  at 755, 756.  Also, this court's interpretation of its Rule
41(b) to prevent a want-of-prosecution dismissal of a pending state
court action after a  362(a) is in effect, eliminates a plaintiff
from refiling the action in the future, serves judicial economy and
avoids possible statute of limitation and priority claim problems.
     For the reasons stated above, we reverse and remand with
directions to reinstate Boatmen's case.