A. Musto Co. v. Pioneer Cooperative Bank

A few days after the appellant Kipp brought the underlying complaint in the Superior Court on behalf of his client, A. Musto Co., Inc. (Musto), seeking, inter alia, to enjoin foreclosure sales of Musto’s real estate by certain mortgagees, the trial judge issued an order enjoining Kipp and Musto from filing "any ... form of legal action concerning or comprehending the subject matter of this action and against these defendants in any forum” without prior approval of the judge. Seven days later Kipp, in behalf of Musto, filed a petition under Chapter XI of the Bankruptcy Act, 11 U.S.C. § 701 et seq. (1976), in the United States District Court for the District of Massachusetts. The filing of the petition automatically stayed imminent foreclosure sales of Musto’s real estate by the defendant mortgagees (Fed. R Bankruptcy 11-44). The mortgagees brought the present complaint for contempt against Kipp and his client asserting violation of the order of the trial judge in the filing of the Chapter XI petition. The complaint for contempt as against Musto was dismissed by consent, but after a hearing before the judge, Kipp was adjudged to be in civil contempt for violation of the judge’s order. The record lends no support to Kipp’s contention that the judge should have disqualified himself from adjudicating the complaint for contempt on the grounds of personal bias and prejudice. However, we conclude that he exceeded his authority in finding as contemptuous Kipp’s conduct in bringing the petition under Chapter XI in the Federal District Court. Generally, a State court may not enjoin parties from pursuing remedies in a Federal court, though an exception to this rule may exist in cases where the State court has first acquired jurisdiction in an action in rem or quasi in rem and needs to maintain control of the property in order to effectuate its judgment. Princess Lida of Thurn & Taxis v. Thompson, 305 U.S. 456, 465-468 (1939). Donovan v. Dallas, 377 U.S. 408, 412 (1964). Nevertheless, this exception does not apply to enjoin a party under threat of citation for contempt from filing a petition in bankruptcy. See Bean v. American Trust & Sav. Bank, 271 S.W. 1111, 1113 (Tex. Civ. App. 1925). See generally In re Drake Motor & Tire Mfg. Corp., 16 F.2d 142, 145 (D. Tenn. 1923); Morgan v. State, 154 Ark. 273, 280-281 (1922); In re Kepecs, 123 N.Y.S. 872, 873-874 (Sup. Ct. 1910). Even though the Bankruptcy Court in a Chapter XI proceeding wohld have no power ultimately to affect the claim of a secured creditor, it does have jurisdiction over the property to determine whether enforcement of such a claim would threaten the legitimate interests of both unsecured creditors and the debtor. In re Freed & Co., 534 F.2d 1235, 1237-1238 (6th Cir. 1976). Bean v. American Trust & Sav. Bank, supra. Once a bankruptcy petition is filed, enforcement proceedings in other courts are automatically stayed under the explicit command of rule 11-44 so that the Bankruptcy Court may determine whether to continue the stay of [927] enforcement of secured creditors’ claims.1 See In re Decker, 465 F.2d 294, 296-297 (3d Cir. 1972); Advisory Committee Notes to Fed. R. Bankruptcy 11-44, 11 U.S.C.A. Rules of Bankruptcy Procedure at 340 (West 1977); 8 Collier, Bankruptcy par. 3.22[1], at 261 (14th ed. 1978). See also Heritage Family Pub, Inc. v. First Fed. Sav. & Loan Assn., 315 So. 2d 558, 559 (Fla. App. 1975). The automatic stay precludes State court action even when a bankruptcy petition is filed after judgment in a foreclosure proceeding but before a foreclosure sale. In re Decker, supra at 297. See Collier, supra par. 3.20[3.2], at 237. In the circumstances, we think it was reasonable for Kipp to assume that the prohibition imposed by the judge’s order did not operate as a bar to Kipp’s resorting, in his client’s behalf, to a procedure which was within the exclusive jurisdiction of the Federal court. The order adjudging Kipp in contempt is reversed and the complaint for contempt is dismissed. Roy Frank Kipp, pro se. So ordered. Footnotes [1] This is not to say that the Federal court, after ascertaining the validity of the foreclosure proceedings to protect the interests of both unsecured creditors and the debtor, should not dismiss the bankruptcy petition as it did in the present case. See Smith v. Hill, 317 F.2d 539, 542 n.5 (9th Cir. 1963); In re Decker, 465 F.2d 294, 297 (3d Cir. 1972).