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In re Wedgewood Realty Group

argued: May 22, 1989.

IN RE: WEDGEWOOD REALTY GROUP, LTD.; WEDGEWOOD INVESTMENT FUND, LTD., APPELLANT
v.
WEDGEWOOD REALTY GROUP, LTD



Appeal from the United States District Court for the District of New Jersey, D.C. Civil No. 88-5179

Author: Rosenn

ROSENN, Circuit Judge

Appellant, a secured creditor, claims that an automatic stay under the Bankruptcy Code terminated by operation of law as a result of the bankruptcy court's failure to issue an order continuing the stay within the requisite time periods specified in 11 U.S.C. § 362(e) (1979 & Supp. 1989) and Bankruptcy Rule 4001(a)(2). The United States District Court to which the appellant initially appealed rejected this claim. Appellant then appealed to this court pursuant to 28 U.S.C.A. §§ 157, 158(d) (West Supp. 1989). We reverse.

I.

Appellant, Wedgewood Investment Fund (WIF), holds two purchase money notes against the debtor, Wedgewood Realty Group, Ltd., in excess of $1,365,000, secured by purchase money second mortgages and security agreements on two parcels of land located in Hillsborough County, Florida (the Property). This Property constitutes the total assets of debtor. Subsequent to debtor's default on the two mortgages, WIF filed a foreclosure action in the Circuit Court of the 13th Judicial Circuit, Hillsborough County, Florida on June 3, 1988. On June 30, 1988, one day prior to the scheduled hearing on the foreclosure action, debtor filed a voluntary petition for relief under Chapter 11 of the Code, 11 U.S.C.A. § 1101, et seq. (West 1979), in the United States Bankruptcy Court for the District of New Jersey. Pursuant to 11 U.S.C.A. § 362(a), the filing of the Chapter 11 petition automatically stayed the state foreclosure action.

WIF subsequently filed a motion under 11 U.S.C.A. § 362(d) on July 20, 1988, seeking, inter alia, an order modifying the automatic stay to permit it to pursue its state foreclosure action against debtor. The hearing, originally set for August 15, 1988, was adjourned on several occasions at the request of both parties and, on one occasion, sua sponte by the court.

Eventually, the bankruptcy court conducted the hearing on September 27, 1988. At its conclusion, the court asked the parties whether they wanted to submit proposed findings of fact and conclusions of law, an offer which both parties declined. Specifically, counsel for WIF advised the court that she was "ready to shoot dice. If you would like me to sign off, I would be happy to. I know that your Honor is . . . cognizant of our position. I sense that you know where we are coming from." Notwithstanding this statement, WIF agreed to submit the exhibits presented at the hearing to the court the following day.

The day following the hearing, WIF submitted a set of exhibits, which had been admitted into evidence, as requested. Accompanying the exhibits, counsel also submitted a letter which directed the court to specific portions of an enclosed transcript which presumably supported WIF's position.

On October 3, 1988, without solicitation from or leave of the court, WIF hand-delivered a second letter, purporting to bring a recent case to the attention of the court. In the three page letter, counsel not only argued that the new case was on point with the facts at hand, but also commented on the relevance of an earlier case and provided cites of several other cases in support of its position that the Chapter 11 bankruptcy stay should be dismissed as requested.

In response, debtor requested in a letter dated October 6, 1988, addressed to the court and copied to WIF, that the court grant it leave to prepare and submit a supplemental memorandum to address the arguments raised by WIF in its two letters. WIF concededly raised no objection to this request. The court apparently orally granted debtor's request, requiring a response on or before October 26, 1988. WIF claims that it was not apprised of the court's action in this respect until November 18, 1988.*fn1 Debtor filed its supplemental memorandum with the court on October 26, 1988, and forwarded a copy of its response to WIF.

On November 14, 1988, WIF notified the court that it considered the automatic stay to have terminated by operation of law because the court had failed to render any decision or to enter an order with respect to that stay within 30 days of the hearing as 11 U.S.C.A. § 362(e) and Bankruptcy Rule 4001(a)(2) require. The judge's law clerk responded by letter dated November 18, 1988, stating that, because of WIF's supplemental submissions, the court had granted debtor leave to file a response by October 26, 1988. The law clerk further stated that, by virtue of WIF's own actions, WIF had "effectively carried the hearing date until October 26, 1988, since the Court was without final submissions from all parties upon which to render a decision."

On November 23, 1988, the court denied WIF's motion for modification of the automatic stay. The court specifically stated that "having considered the moving papers, the testimony at the preliminary hearing commenced on September 27, 1988, the submissions dated September 28, 1988 and October 3, 1988 from the movant and October 26, 1988 from the debtor," it ordered that "the Automatic Stay provisions set forth in 11 U.S.C. Section 362(a) are continued in effect until further Order of this Court." On November 29, 1988, the court issued a memorandum in support of the order which addressed the merits of the denial of the stay.

The district court, on appeal by WIF, affirmed the bankruptcy court's decision. Specifically, the district court rejected WIF's contention that the automatic stay had expired by operation of law for failure to render any decision without 30 days of the hearing on September 27, 1988. The court found that the post-hearing submissions by WIF amounted to substantive comment to which debtor had a right to respond as a matter of due process of law and equity. The court further found that WIF was on notice of the continuance of the hearing by virtue of debtor's written request and WIF's failure to raise any objection until after the debtor had filed a response. Finally, the court decided, and WIF apparently agreed, that the thirty-day period did not begin to run until the hearing had concluded. Because the district court determined, over WIF's objections, that the hearing was necessarily continued by virtue of WIF's own submissions until October 26, 1988, it concluded that the bankruptcy court's order of November 23, 1988, was within the thirty-day period. The court, therefore, declined to hold that the stay had terminated by operation of law, and affirmed the bankruptcy court's denial of WIF's motion to modify the stay.

II.

This case raises two related issues. First, whether the bankruptcy court order continuing the stay was issued within the time constraints set forth in 11 U.S.C.A. § 362(e) and Bankruptcy Rule 4001(a)(2). Second, assuming that the order was invalid, whether the bankruptcy court reimposed the stay as an ...


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