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BAP CO-09-068 In Re Gindi, Apr. 1, 2010
NOT FOR PUBLICATION
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
UNITED STATES BANKRUPTCY APPELLATE PANEL
April 1, 2010
OF THE TENTH CIRCUIT
Barbara A. Schermerhorn
IN RE JACK GINDI, member, IPS, LLC(Mgr.), officer, director, shareholderGindi Austin II, Inc., officer, director,
shareholder Gindi Enterprises, Inc.,
partner, Auto Plasa, LLLP, officer,
director, shareholder Morton EdwardsManagement, Inc., officer, director,
shareholder Income Property Special, LLC(Mgr.), member, IPS Aquisitions, LLC(Mgr.), member, IPS Holdings, LLC(Mgr.), member, IPS Principle Fund, LLC(Mgr.), member, IPS Development, LLC(Mgr.), member, IPSMMI, LLC (Mgr.),
member, IPSMMIII, LLC (Mgr.), officer,
director, shareholder JRG. LLC (Mgr.),
officer, director, shareholder MG RealEstate, LLC (Mgr.), officer, director,
shareholder ROI Comm. Real Estate, LLC(Mgr.), officer, director, shareholderTimbers Completion Fund, LLC (Mgr.),
formerly officer, director, shareholderWRPCCC Owners ASSN. (Mgr.), partner,
1431 Pearl, LLLP (Gp), partner, AustinInvestor Interests, LLLP (Gp), partner,
Franklin Town Homes, LLLP (Gp),
officer, director, shareholder Gindi AustinI, Inc., officer, director, shareholder H& GInvestments, LLC (Mgr.), partner,
Humboldt Town Homes, LLLP (Gp),
officer, director, shareholder IPSMMII,
JACK GINDI and BANK OF THE WEST,
BAP No. CO-09-068
Bankr. No. 09-24436
* This unpublished opinion is not binding precedent, except under thedoctrines of law of the case, res judicata, and collateral estoppel. 10th Cir. BAP
Appeal from the United States Bankruptcy Courtfor the District of Colorado
Before MICHAEL, RASURE, and KARLIN, Bankruptcy Judges.
KARLIN, Bankruptcy Judge.
The parties did not request oral argument, and after examining the briefs
and appellate record, the Court has determined unanimously that oral argument
would not materially assist in the determination of this appeal. Fed. R. Bankr. P.
8012. The case is therefore ordered submitted without oral argument.
Creditor Andreas Chizzali (“Appellant”) appeals the bankruptcy court’s order that
determined (1) the automatic stay imposed by 11 U.S.C. § 3621 did not apply to
enjoin Appellee Jack Gindi, as debtor-in-possession and therefore trustee of the
bankruptcy estate (hereinafter “Debtor”), from prosecuting his appeal of a state
court judgment entered in favor of Appellant; (2) Appellant was not entitled to
relief from the automatic stay in order to permit Appellant and Bank of the West
(the “Bank”) to litigate an appeal concerning a writ of garnishment wherein both
Appellant and the Bank claimed an interest in Debtor’s bank account; and (3)
Appellant was not entitled to proceed with his appeal of a state court order
dismissing a contempt citation against Debtor under the “criminal proceedings”
exception to the automatic stay. We affirm.
All further statutory references contained herein are also to the BankruptcyCode, Title 11 of the United States Code, unless otherwise specified.
The disputes between Appellant and Debtor derive from their previous joint
ownership of Income Property Specialists, LLC and IPS Development, LLC
(hereinafter, jointly, “IPS”) and their corresponding liability for the companies’
debts, including their obligations to Summit Bank & Trust (“Summit”). In 2007,
Appellant filed a lawsuit against Debtor, IPS, and others in Colorado state court.
In September 2007, Appellant, Debtor, and Summit entered into a stipulation
(“Stipulation”) that was supposed to resolve all their differences.
One of the Stipulation’s terms was that Debtor would, within 60 days, take
action necessary to cause Summit to release its lien on Appellant’s residence.2
The Stipulation also provided that Appellant would relinquish to Debtor his
interest in IPS. The parties also agreed to submit other matters to binding
arbitration, including “what, if anything of IPS will be conveyed to [Appellant]
prior to [Debtor] receiving exclusive ownership and control of” IPS.3
In October 2007, an arbitration hearing was conducted. In January 2008,
an arbitration award was entered requiring Debtor to pay Appellant approximately
$2.16 million.4 In March 2008, the state court confirmed the arbitration award5
and in July 2008, the state court entered a money judgment in favor of Appellant
and against Debtor in the amount of the award.6 Debtor appealed the
confirmation order and judgment to the Colorado Court of Appeals (the
Order, dated January 15, 2008, effective as of January 10, 2008, at 2 in
Appellant’s Appendix (“App.”) at 63.
4 Id. at 3 in App. at 64.
5 Order, dated March 21, 2008, at 1-2, in App. at 7-8.
6 Judgment Re: Arbitration Award, in App. at 6.
“Arbitration Appeal”). The appellate court elected to stay the appeal when
Debtor filed his bankruptcy petition.
In December 2007, Appellant sold his residence. Because Debtor had not
obtained a release of Summit’s lien against Appellant’s residence as required by
the Stipulation, proceeds from the sale in the approximate amount of $328,000
were paid to Summit.7
Thereafter, both Appellant and Debtor returned to the state court claiming
that the other had breached the terms of the Stipulation. After a hearing, the state
court concluded that Debtor, and not Appellant, had breached the Stipulation. In
so concluding, the state court stated:
Having heard the evidence, the Court was not persuaded that[Appellant] materially breached the parties’ stipulation. After the
stipulation was reached, both parties --- who harbor a fair amount ofill will toward one another --- continued to try to gain strategicadvantage over each other. Put another way, both parties wereessentially playing litigation “chicken,” with (among other things)
[Appellant] trying to get out of his personal liability on the line ofcredit, and [Debtor] holding the lien release over his head.8
On January 10, 2008, in an oral decision, the state court judge ordered Debtor to
pay Appellant the amount of the sale proceeds that had been paid to Summit due
to Debtor’s failure to obtain the lien release. On January 15, 2008, the state court
entered a written order directing Debtor to pay Appellant “$328,070.30 within 30
days given that [Appellant] should have received these funds at the December 14,
2007 closing” and also requiring Appellant to transfer his interest in IPS to
Debtor within 30 days.9
7 Order, dated January 15, 2008, at 3, in App. at 64.
8 Id. at 4, in App. at 65.
9 Id. at 5, in App. at 66.
On March 21, 2008, pursuant to Debtor’s motion, the court entered an order
(the “Judgment”) deleting the sentence requiring Debtor to pay Appellant within
30 days and replacing it with the following:
Judgment is hereby entered in favor of [Appellant] and against [Debtor] in
the amount of $328,070.30. Interest shall accrue on this judgment at the
rate of 8% per annum from December 14, 2007.10
Thereafter, Appellant apparently filed a motion for citation for contempt
alleging that Debtor failed to comply with the 30-day payment requirement set
forth in the January 15, 2008, order.11 On April 30, 2008, the state court clerk
issued a contempt citation directing Debtor to appear on July 9, 2008 to show
cause why he had not complied with the January 15, 2008, order. Specifically, the
contempt citation provided that, “to vindicate the dignity of the Court, a fine or
imprisonment may be imposed upon you, and attorneys’ fees may be ordered paid
by you on behalf of [Appellant].”12
On July 9, 2008, the state court granted Debtor’s motion to dismiss the
contempt citation on the grounds that: 1) the original 30-day payment provision
that was the basis for the contempt citation had been an error that was corrected
by the Judgment and 2) the Judgment was not enforceable by Appellant through a
contempt proceeding.13 Appellant appealed the dismissal of the contempt citation
to the Colorado Court of Appeals (“Contempt Appeal”). The Contempt Appeal
10 Order, dated March 21, 2008, at 1, in App. at 7.
11 The Contempt Citation indicates that “it has been alleged in the VerifiedMotion for Contempt Citation” that Debtor violated the court’s order, but thecitation does not state who filed the verified motion. Contempt Citation at 1, in
App. at 67. The Bankruptcy Court’s order states that the contempt citation wasissued based on Appellant’s motion, but the basis for that fact is not clear fromthe appellate record. However, neither party has asserted that the statement isincorrect and, more significantly, a determination of whether or not Appellantrequested the contempt citation is not necessary to our determination of the issuesin this appeal.
12 Contempt Citation at 2, in App. at 68.
13 Minute Order, dated July 11, 2008, at 2, ¶¶ 6-7, in App. at 10.
was also pending when Debtor filed his bankruptcy petition, and was stayed by
the appellate court.
On May 21, 2008, Appellant sought to enforce the Judgment by serving on
Bank of the West (“Bank”) a writ of garnishment of Debtor’s accounts. At that
time, Debtor’s account at the Bank contained approximately $264,000. On May
22, 2008, the Bank set off the entire account against a debt owed by Debtor to the
Bank. On June 2, 2008, the Bank mailed its answer to the garnishment writ to the
court, but the answer was not docketed until June 9, 2008, apparently because it
did not contain sufficient case-identifying information.14 After the answer was
mailed, but before it was docketed by the court, Appellant filed a motion for
default against the Bank, and the clerk issued an entry of default. The Bank then
filed a motion to set aside the entry of default.
On August 15, 2008, the state court granted the motion to set aside the
entry of default on the grounds that “the neglect [by the Bank] was excusable, the
defense of set-off vis-a-vis [Debtor] was meritorious, and the relief was consistent
with equitable considerations.”15 Appellant appealed the order setting aside the
clerk’s entry of default to the Colorado Court of Appeals (“Garnishment
Appeal”). The issues in the Garnishment Appeal were consolidated with the
Contempt Appeal, and both appeals were argued before the Colorado Court of
Appeals on June 1, 2009.
On July 20, 2009, before any of the three appeals were decided, Debtor
filed a voluntary Chapter 11 petition, and the appeals were stayed either by the
14 Minute Order, dated August 15, 2008, at 2, ¶ 3(e), in App. at 20. The
Bank’s Answer to the garnishment writ was due either on Monday, June 2, 2008,
or on Thursday, June 5, 2008, depending on whether the state court’s 3-daymailing rule was applicable. Id. ¶ 3(c). The state court did not resolve this issue,
as it was not necessary to do so in order to decide the Bank’s motion to set asideits default.
15 Id. ¶ 3(f).
automatic stay and/or by an order of the appellate court. Shortly thereafter,
Appellant filed a motion in the Bankruptcy Court seeking: 1) a declaration that
the Contempt Appeal (and any subsequent proceeding, if the dismissal of the
contempt citation is reversed) is a criminal proceeding excepted from the
automatic stay pursuant to § 362(b)(1), and 2) relief from the automatic stay to
pursue the Garnishment Appeal (and any subsequent action) against the Bank in
order to recover funds that were in Debtor’s account at the Bank when the
garnishment writ was served.
Debtor filed his own motion in the Bankruptcy Court seeking a declaration
that the automatic stay was inapplicable to him, as debtor in possession, as it
related to his prosecution of the Arbitration Appeal. Debtor’s motion was
granted. The Bankruptcy Court’s order denying Appellant’s motion and granting
Debtor’s motion is the subject of this appeal.
II. APPELLATE JURISDICTION
The order denying Appellant’s motion and granting Debtor’s motion was
entered on November 3, 2009 (the “Order”), and Appellant filed a timely Notice
of Appeal on November 5, 2009. Along with the Notice of Appeal, Appellant
filed a motion in the Bankruptcy Court: 1) for leave to appeal the Order as an
interlocutory order and 2) seeking a stay of the Order pending appeal. On
November 18, 2009, the Bankruptcy Court denied the motion for stay pending
appeal and ordered the Clerk of Court to transmit the motion for leave to appeal
to this Court for determination pursuant to Rule 8003 of the Federal Rules of
This Court issued an order on December 2, 2009, concluding that the Order
was a final order so leave to appeal under Rule 8003 was unnecessary.16 Because
the appeal was timely taken from a final order, and neither party elected to have
Appellant did not request a stay pending appeal from this Court.
the matter heard by the district court, this Court has appellate jurisdiction over
Appellant argues three issues in this appeal. First, he contends that the
Bankruptcy Court erred in denying his request for a declaration that the contempt
proceeding was criminal in nature and therefore not precluded by the automatic
stay. Second, he contends that the money in Debtor’s account at Bank belongs
either to Appellant or to Bank, and not to Debtor, and therefore, the garnishment
proceeding does not involve estate property and is not subject to the automatic
stay. Finally, Appellant contends, contrary to Tenth Circuit precedent, that
Debtor should be precluded from pursuing his own appeal of the Arbitration
Order because that appeal is from a lawsuit that was filed against him by a
creditor. No evidentiary hearing was held in the Bankruptcy Court, so all of these
issues involve only legal questions. Legal issues are reviewed on appeal de
novo.18 However, a Bankruptcy Court’s ultimate decision whether to grant or
deny relief from the § 362 stay is reviewed for abuse of discretion.19
A. Criminal Contempt
Appellant asserts that the § 362 automatic stay is inapplicable to the
contempt proceedings because the issuance of a contempt citation constituted “the
commencement or continuation of a criminal action or proceeding against the
debtor.”20 He contends that the contempt proceedings in state court were criminal
in nature, rather than civil, and that the Colorado Court of Appeals is therefore
17 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002.
18 In re Kirkland, 86 F.3d 172, 174 (10th Cir. 1996).
19 Pursifull v. Eakin, 814 F.2d 1501, 1504 (10th Cir.1987).
20 § 362(b)(1).
not stayed from issuing a ruling in the Contempt Appeal. He also argues that
once such ruling is issued, he is not stayed from pursuing his claims.
Pursuant to Colorado law, whether indirect contempt 21 is considered to be
criminal or civil depends “on the purpose and character of the sanctions sought to
be imposed in the citation.”22 The difference between these two types of indirect
contempt is that:
Unlike remedial [civil] contempt, which the contemnor may purge by
complying with the court order in question, punitive [criminal]
contempt cannot be so purged. Rather, the punishment imposed must
be served by the contemnor because he or she has been convicted of
a willful violation of a court order.23
Criminal contempt is imposed to punish “conduct that is found to be offensive to
the authority and dignity of the court,” whereas civil contempt is primarily
intended “to enforce obedience to a trial court’s order.”24 The standard is the
same in the Tenth Circuit, which considers a contempt citation to be civil if it is
“for the benefit of the complainant,” and to be criminal if it is imposed to
vindicate the authority of the court itself.25
Appellant contends that the contempt proceedings against Debtor were
criminal because, once the January 15, 2008 Order was superceded by the
Judgment, there was no order from which Debtor could purge himself.26
However, the contempt citation at issue specifically identified the contempt as
Indirect contempt occurs outside of the presence of the judge. A party’sfailure to make payment in accordance with a court’s order, if contemptuous, is anindirect contempt.
Group, LLC), 365 F.3d 874, 876 (10th Cir. 2004).
22 Groves v. District Court, 806 P.2d 947, 948 (Colo. 1991).
23 In re Marriage of Nussbeck, 974 P.2d 493, 498 (Colo. 1999).
24 Id. at 498-99. See also Colo. R. Civ. P. 107(a)(4).
25 Lucre Mgmt. Group, LLC v. Schempp Real Estate, LLC (In re Lucre Mgmt.
Opening Brief of Appellant at 11.
Debtor’s “neglect and refusal to comply with the Court Order heretofore entered
herein on September 11, 2008 and January 15, 2008, nunc pro tunc, January 10,
2008.” The only directive in that order that could have resulted in a finding of
contempt against Debtor was Debtor’s failure to pay Appellant within 30 days.
But that directive was eliminated by the Judgment prior to issuance of the
contempt citation. Therefore, no contempt could be established. Regardless of
the “stock” language contained in the contempt citation regarding the “dignity of
the Court,” the citation was solely intended to obtain compliance with the 30 day
payment provision of the January 15, 2008 Order. Therefore, the citation was
remedial, rather than punitive, in nature.
Where “contempt is invoked as a sanction for failure to pay a judgment for
money . . . the proceedings are not exempt from the automatic stay.”27 Moreover,
criminal contempt proceedings are instigated and pursued by courts rather than by
litigants, whose motivation for pursuing a contempt citation is presumably
monetary. Where, as here, a court dismisses its own contempt citation, it is
effectively declining to pursue it further. If a litigant continues to pursue the
contempt proceedings, despite the dismissal, such a proceeding is clearly civil in
nature. Accordingly, any appeal of the dismissal is subject to the automatic
B. Garnishment Proceedings
Appellant contends that his dispute with the Bank over funds in Debtor’s
account at the Bank does not involve property of the estate and therefore the
Garnishment Appeal is not subject to the § 362 stay. Appellant argues that when
27 In re Marriage of Lytle, 435 N.E.2d 522, 525 (Ill. App. Ct. 1982).
28 Id. See also, In re Wiley, 315 B.R. 682, 687 (Bankr. E.D. La. 2004)
(actions for civil contempt are subject to stay); In re Kearns, 168 B.R. 423, 426
(D. Kan. 1994) (contempt proceedings intended to coerce payment of monetaryobligations are within the protection of the automatic stay).
the garnishment writ was served, a lien arose in Debtor’s account in favor of
Appellant; the Bank contends that it had a right of setoff against Debtor’s account
that was prior to any rights arising in favor of Appellant on account of the
garnishment writ. Thus Appellant asserts that Debtor had no interest in the funds
as of the petition date.
The United States Supreme Court has held in United States v. Whiting
Pools, Inc.,29 however, that by virtue of §§ 541 and 542(a), even property that is
subject to a pre-petition lien and is not in the possession of the debtor nonetheless
constitutes property of the estate. Based on Whiting Pools, the Colorado
Bankruptcy Court has previously held that the decisive factor in determining
whether garnished funds are property of the estate is the point in time when
ownership of seized property transfers from the debtor to the creditor.30 Thus,
unless Debtor’s interest in the account was “irrevocably severed” prior to the
filing of his bankruptcy petition, the estate retains an interest in the account that is
protected by the § 362 stay from a third-party’s further efforts to obtain it.31
Pursuant to Colorado law, objections and claims of exemptions to garnishments
are heard prior to entry of an order or judgment of garnishment.32 As such, until
all defenses to a garnishment have been heard and resolved, and a garnishment
judgment entered, neither the garnishor’s nor the debtor’s rights to the funds have
462 U.S. 198, 209 (1983). See also In re Yeary, 55 F.3d 504, 508-09 (10thCir. 1995) (estate includes property subject to a creditor’s security interest).
rights in the garnishment of non-wage personal property); Colo. Rev. Stat. § 13
30 In re Seay, 97 B.R. 41, 43 (Bankr. D. Colo. 1989).
31 Id. at 44.
32 See, e.g., Colo. Rev. Stat. § 13-54.5-106 and -108 (specifying debtor’s
54.5-109 (specifying the procedure for objections and claims of exemption). It is
not clear from the appellate record whether or not Debtor filed any objection tothe garnishment, nor whether he was properly notified of it.
been established. Thus, prior to entry of a garnishment judgment, the debtor’s
interest has not been irrevocably severed under Colorado law.33
As no garnishment judgment had been entered prior to Debtor’s initiation of
bankruptcy proceedings, Debtor still retained an interest in the bank account as of
the date of filing. Any post-petition effort by Appellant to obtain the funds is,
therefore, precluded by the automatic stay. Since we have rejected Appellant’s
legal argument that the Bankruptcy Court erred in concluding that the automatic
stay applies to the Garnishment Appeal, we affirm the denial of Appellant’s
motion, and find that the Bankruptcy Court’s denial was not an abuse of
C. Applicability of the Automatic Stay to Debtor’s Own Appeal
Appellant urges this Court to follow the lead of some other jurisdictions
that have held that the automatic stay precludes a debtor from proceeding with an
appeal that he took from an adverse judgment entered against him. However, this
position was specifically rejected by the Tenth Circuit Court of Appeals in
Chaussee v. Lyngholm (In re Lyngholm), which holds, pursuant to both § 362 and
Rule 6009 of the Federal Rules of Bankruptcy Procedure, that “the automatic stay
does not apply to the continued prosecution of actions by the trustee or debtor in
possession. Those entities may continue to pursue litigation without leave of
court (or release of stay under section 362).”35 Neither this Court nor the
Bankruptcy Court is free to disregard this precedent.
33 In re Seay, 97 B.R. at 45 (“as of the moment the state court completes itsstatutory hearing, determines the correlative rights of parties to garnisheed funds,
and orders turnover of funds to the respective parties, then the debtor’s ownershiprights to the funds are fixed with finality”).
34 Appellant did not argue on appeal that the Bankruptcy Court abused itsdiscretion by denying the motion, asserting only that it erred in determining thatthe automatic stay was applicable.
35 24 F.3d 89, 91-92 (10th Cir. 1994).
Because Appellant has not established that the Bankruptcy Court erred in
denying his motion seeking a declaration that the Contempt Appeal was excepted
from the automatic stay and seeking relief from the stay to pursue the
Garnishment Appeal, or in granting Debtor’s motion seeking a declaration that he
was not barred from prosecuting the Arbitration Appeal, we affirm.