The Tenth Circuit Court of Appeals issued its opinion in TW Telecom Holdings Inc. v. Carolina Internet Ltd. on Tuesday, November 15, 2011.
The Tenth Circuit stayed the appeal. Petitioner appeals from the entry of default judgment against it and in favor of Respondent for more than three million dollars. During the pendency of this appeal, Petitioner filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of North Carolina. “By its terms, § 362 of the Bankruptcy Code automatically stays the commencement or continuation of a judicial proceeding against the debtor that was or could have been initiated before the filing of a bankruptcy petition. . . . [The Court] recently reiterated [the Tenth] Circuit’s interpretation of § 362(a)(1), explaining that ‘the automatic stay does not prevent a Chapter 11 debtor in possession,’ like [Petitioner], ‘from pursuing an appeal even if it is an appeal from a creditor’s judgment against the debtor.’”
However, at least nine other circuit courts of appeals disagree with that interpretation of § 362(a)(1) and have held “that a bankruptcy filing automatically stays appellate proceedings where the debtor has filed an appeal from a judgment entered in a suit against the debtor.” Further, Collier on Bankruptcy has explicitly rejected the Court’s past reliance on it to support their minority position.
Accordingly, The Court overruled their “prior interpretation of § 362(a)(1), as stated in In re Gindi, 642 F.3d at 870, 875-76; Morganroth & Morganroth, 213 F.3d at 1310; Mason, 115 F.3d at 1450; In re Lyngholm, 24 F.3d at 91-92; and Autoskill Inc., 994 F.2d at 1485-86.” From now on, the Tenth Circuit will read:
section 362 . . . to stay all appeals in proceedings that were originally brought against the debtor, regardless of whether the debtor is the appellant or appellee. Thus, whether a case is subject to the automatic stay must be determined at its inception. That determination should not change depending on the particular stage of the litigation at which the filing of the petition in bankruptcy occurs.
Under this analysis, Petitioner’s appeal must be stayed until such time as it may proceed in a manner consistent with the Bankruptcy Code.
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