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BANKRUPTCY DISMISSAL IS NOT ALWAYS FOREVER
Normally,
when a bankruptcy is dismissed, you would think it is gone forever. However, the bankruptcy court will sometimes vacate its earlier dismissal
of a case, with the effect that it is reinstated. That happened in this case.
In re Castillo (2000 Daily Journal D.A.R. 5007, 9th Cir. 4/19/00)
involved a Chapter 13 bankruptcy in which the court appointed Curry as trustee
of the case. Curry held the first
meeting of creditors and a date for the hearing to confirm the bankruptcy plan
of the debtor was agreed on. Due to a clerical error in the bankruptcy trustee’s office, the confirmation hearing
on the debtor’s plan was set with the court about six weeks before the date
agreed on at the creditor’s meeting. Neither
the debtor nor her counsel received notice of the confirmation hearing and did
not appear at it to show that the payments required to implement the plan had
been made and that the plan should be confirmed.
Therefore, the court dismissed the bankruptcy.
Castillo’s
counsel, having finally received notice of the dismissal, successfully moved the
court to vacate the dismissal. However, Castillo’s residence was in foreclosure, the sale
was held before the dismissal was vacated and the property was sold to a third
party. In vacating its order
dismissing the case, the court refused to set aside the sale, since a third
party was the buyer. We do not know
if the foreclosing Trustee was aware of any problem with the bankruptcy but it
is likely they were not and relied on the earlier dismissal to clear the way for
the foreclosure sale.
Castillo
was then granted leave by the bankruptcy court to sue Curry and her employee in
state court for negligence in the calendaring.
She was also granted leave to sue her attorney for failing to timely move
to set aside the dismissal of the bankruptcy to prevent the foreclosure sale.
In both cases, the bankruptcy trustee had claimed immunity.
The Ninth Circuit granted leave to appeal both decisions.
Judges
and those who perform quasi-judicial functions are granted absolute
quasi-judicial immunity from the consequences and in their performance of those
functions. As to the bankruptcy
trustee’s calendaring function, that is one which the court found was
discretionary and had been delegated by the judges.
Therefore, the court classified it as quasi-judicial and the trustee was
absolutely immune as to acts performed to further this function.
However, the bankruptcy trustee’s failure to send notice of the hearing
did not involve any exercise of discretion and was a purely ministerial act
which, therefore, was not the basis for absolute quasi-judicial immunity.
In
addition, the court continued, since the bankruptcy courts have delegated the
duty of giving notice of hearings to the bankruptcy trustee, she and her staff
are not immune from suit based on their negligent actions which are violations
of those duties. Therefore, the
bankruptcy trustee can be held liable for such negligent actions and is also not
entitled to qualified quasi-judicial immunity.
When
dealing with bankruptcies (which we so often are), it is wise to remember that,
just because the proper things have been done or have occurred in a particular
bankruptcy case and it appears that you are free to proceed with your
foreclosure, there may be matters which will cause the bankruptcy court to
vacate or overturn a particular decision it has made.
When that happens, you are usually back to square one with the bankruptcy
and its effect on your foreclosure and you should definitely consult counsel
about your subsequent course of action.
Often,
there is no way of telling if such problems will arise at the time you are
processing your foreclosure. However,
you will certainly find out about them – and probably sooner rather than
later.
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