To a business litigator, the bankruptcy debtor’s most effective weapon is often the automatic stay, which is commonly used – or abused, depending on the perspective – to, inter alia, stay all pending litigation against the debtor and keep him in sole control of an asset, despite seeming abuses of that control.
A recent decision from the Sixth Circuit may change all that. In Dominic’s Restaurant of Dayton, Inc. v. Mantia, et al. (6th Cir. Case Nos. 10-3376, 3377), the Sixth Circuit held that the automatic stay does not prevent a court from acting to enforce its orders, even if the orders relate to property of the debtor.
The district court in Mantia had issued several contempt orders relating to a defendant’s repeated tradename and service mark infringements in conjunction with the operation of his restaurant. The district court continued the contempt proceedings after the defendant filed personal bankruptcy, on the basis that the automatic stay does not protect a debtor’s tortious use of his property. The defendant appealed the district court’s exercise of jurisdiction to the Sixth Circuit.
The Sixth Circuit affirmed the district court’s holding that the automatic stay did not preclude the district court’s actions to enforce its contempt orders. The Sixth Circuit acknowledged that, “[a]s a general rule, the filing of a bankruptcy petition operates to stay, among other things, the continuation of a judicial proceeding against the debtor that was commenced before the petition.” But the Court recognized that, whether a particular proceeding is subject to the automatic stay is a matter for the court (in which the judicial proceeding is pending) to decide.
Rejecting the appellant’s argument that the district court overreached in continuing the civil contempt proceedings, the Court focused on the necessity that a court be able to enforce its own orders, even after the filing of bankruptcy. Further, the Court admonished that the automatic stay protects the debtor’s interests in a debtor’s property, but not the tortious use of that property. Since the appellant had used his restaurant to commit a tort, namely trademark and service mark infringement, the automatic stay could not shield him from the district court’s contempt proceedings.