W.D. Curran & Associates, Inc. v. Cheng-Shum Enterprises, Inc.

DAVIS, Judge. W.D. Curran & Associates, Inc. appeals from an order of the Circuit Court for Baltimore County that denied appellant’s ³⁷⁸ Motion to Extend Writ of Execution and granted appellee’s, Cheng-Shum Enterprises, Inc.’s, Motion to Release Levy. Three questions are presented on this appeal, the first of which is a threshold matter. We restate the issues as follows: I. Did the automatic bankruptcy stay, which arose as a result of appellee filing a petition for bankruptcy relief, preclude appellant from filing its second Motion to Extend Writ of Execution in the circuit court?

II

Did the levy automatically terminate upon the expiration of the 120-day extension period contained in the circuit court’s August 10, 1994 order extending the writ of execution?

III

If the levy did not automatically expire, did the circuit court abuse its discretion in determining that appellant failed to show good cause for extending the levy further? As we shall explain more fully below, we are compelled to reverse the judgment of the circuit court. FACTS Following a bench trial on October 19, 1993, in a breach of contract claim in the Circuit Court for Baltimore County (Kahl, J.), appellant obtained a judgment and a mechanic’s lien against appellee for $46,021.88. This Court affirmed the circuit court’s judgment in an unreported opinion filed March 16, 1995.

Cheng-Shum Enter, v. W.D. Curran & Assocs., 104 Md.App. 759 and 770 (Md.Ct.Spec.App.1995). During the pendency of that appeal, appellant began procedures to collect its judgment. Pursuant to appellant’s Request for Writ of Execution, the Sheriff of Baltimore County levied upon appellee’s personal property on December 9, 1993. The parties state that the sheriffs schedule appraised the value of this personal property at approximately $15,000.

The sale of the property was postponed pursuant to an agreement between the parties reached in late January, 1994. Under this agreement, appellee promised to pay appellant an initial sum of $10,000, followed by subsequent monthly payments of ³⁷⁹ $2,500 until the judgment was satisfied. Appellee paid the initial $10,000, but apparently failed to make any monthly payments. Much of what transpired next revolves around Maryland Rule 2—643(c)(6), which allows a judgment debtor to request the circuit court to release property from a levy where the levy has existed for 120 days without sale of the property, unless the circuit court for good cause extends the time.

On March 8, 1994, approximately ninety days after the sheriff levied on the property, in an effort to preserve the levy, appellant filed a Motion to Extend Writ of Execution (hereinafter, “first Motion to Extend”) beyond the 120-day period contained in Maryland Rule 2-643(c)(6). On March 11, 1994, however, appellee filed a bankruptcy petition for Chapter 11 relief in the United States Bankruptcy Court for the District of Maryland. Appellant then turned to the bankruptcy court for relief, filing a motion requesting relief from the automatic stay so that appellant could proceed on the Writ of Execution. The record is unclear regarding when this motion was filed.

In any event, after a hearing on July 8, 1994, the bankruptcy court (Derby, J.) ultimately issued an order on July 19, 1994, modifying the automatic stay so that appellant “may present to the Circuit Court of Maryland for Baltimore County its Motion to Extend Writ Of Execution and request the relief granted therein[.]” (hereinafter, “order modifying stay”). The bankruptcy court, however, denied appellant’s request for permission to sell the property under the Writ of Execution. Accordingly, appellant obtained an order from the circuit court (Kahl, J.) dated August 10,1994, ordering “that the Writ of Execution levied in the above captioned matter shall be extended beyond the 120 day period contained in Rule 2-643(c)., for an additional 120 days from the [ejxpiration thereof ” (Emphasis added) 1 (hereinafter, “order extending ³⁸⁰ writ of execution”). Because the date of the levy was December 9, 1993, by our calculations the 120-day period contained in Rule 2-643(c)(6) ended on April 8, 1994, and the “additional 120 days from the [e]xpiration thereof’ ended on August 6, 1994.

Thus, whether Judge Kahl realized or intended it, by the time he signed the order extending writ of execution, the additional 120~day period had already expired. 2 On November 7, 1994, in another attempt to preserve the levy, appellant filed a second Motion to Extend Writ of Execution (hereinafter, “second Motion to Extend”). The record reveals that appellant did not obtain further authorization from the bankruptcy court allowing appellant to file this motion. In response, appellee filed a motion to release the property from the levy on the ground that “[t]he original writ issued by [the circuit court] has expired by operation of law and by specific order of [the circuit court]” and that appellant “failed to have the levied property sold within 120 days and has failed to demonstrate good cause.” On February 2, 1995, another judge of the circuit court held a hearing on these motions. At the conclusion of argument from counsel, the circuit court stated the following: The Court is not satisfied that there is good cause shown or that the Rule [2-643] is that clear or for that matter Judge Kahl’s order [extending writ of execution] is specific on that issue.

But having read [Joshi v. Kaplan, Freeland, Schwartz & Bloomberg, P.C., 72 Md.App. 694 , 532 A.2d 712 (1987) ], and heard argument of Counsel on this issue, the Court will deny [appellant’s] Motion to Extend the Writ of Execution, ... and will grant [appellee’s] Motion to Release the Levy ... ³⁸¹ On the following day, the circuit court issued a written order to the same effect. From this order, appellant appeals to this Court. LEGAL ANALYSIS I As a threshold matter, appellee argues that appellant was not authorized to file a second Motion to Extend. 3 The thrust of appellee’s argument seems to be that while appellant was authorized to file the first Motion to Extend by virtue of the bankruptcy court’s order modifying stay, appellant was not authorized to file the second Motion to Extend because appellant failed to obtain further authorization from the bankruptcy court. In other words, the order modifying the automatic stay was not continuing in nature such that appellant could repeatedly file motions to extend the writ of execution, but rather allowed appellant to file one motion one time.

To determine whether appellant was authorized to file the second Motion to Extend, it is first necessary to understand the nature of an “automatic stay.” An automatic stay arises upon the filing of a bankruptcy petition under the U.S. Bankruptcy Code. 11 U.S.C. § 362 (1995). “The effect of the automatic stay on a pending suit in another court is to suspend that suit; it does not cause that suit to be dismissed.” Nnoli v. Nnoli, 101 Md.App. 243, 250 , 646 A.2d 1021 (1994). The stay, however, does not suspend every aspect of a pending suit. Id. A stay halts other judicial proceedings involving the bankrupt, but does not divest the court wherein those proceedings are pending of jurisdiction.

Fraidin v. Stutz, 68 Md.App. 693, 698 , 515 A.2d 775 (1986). Thus, in most cases, an order from the bankruptcy court is necessary before a creditor may take post-bankruptcy petition action against a ³⁸² debtor in a non-bankruptcy judicial proceeding. Section § 362(d) empowers bankruptcy courts to issue such orders as follows: “On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay ... such as by terminating, annulling, modifying, or conditioning such stay ...” With these principles in mind, we next address whether the existence of the automatic stay and the fact that appellant never obtained further authorization from the bankruptcy court to file the second Motion to Extend precluded appellant from filing that motion. In view of what appellant was attempting to accomplish by its second Motion to Extend, we hold that the automatic stay did not preclude appellant from filing that motion, and that appellant did not require further authorization from the bankruptcy court to do so. 4 Appellant’s purpose for filing the motions to extend was unmistakably clear—appellant did not want to jeopardize the levy on the property, but rather desired to preserve its position as a lien creditor with respect to the property.

This is evidenced by the statements contained in appellant’s motions to extend. In the first Motion to Extend, appellant explained that the sheriff levied upon the personal property of appellee, and that seizure of the property was about to occur. Appellant then stated that it agreed to halt efforts to execute upon the levy because of the agreement reached between the parties. According to appellant, had appellee not promised to make the agreed upon monthly payments, appellant would have fully executed upon the levy and seized the assets.

Appellant then explains that the writ “would normally expire 120 days after the levy but because of [appellee’s] actions, [appellant] has not pursued execution on the levy” and “wishes to reseize the levied assets which, for good cause, have not previously been seized.” ³⁸³ In the second Motion to Extend, appellant explained that appellee “has filed for bankruptcy thereby preventing [appellant] from causing the property to be sold under the levy.” Appellant further stated that “[b]ecause [appellee] has filed for bankruptcy generally postponing the entirety of this case, and [appellee] has appealed this case to the Court of Special Appeals, and tne appeal will not be resolved until the summer of 1995 at the earliest, [appellant] suggests that good cause has been shown to extend the levy generally” beyond the 120-day period contained in Maryland Rule 2-643(c). We have no doubt that appellant sought only to preserve its position as a lien creditor. In this regard, appellant proceeded much the same way as a judgment creditor would under Maryland Rule 2-625 (1995) to renew a judgment before it expires after the twelve-year period contained in that rule. Ignoring for the moment whether the levy would have naturally expired after 120 days had appellant not filed the motions to extend 5 (as would a money judgment after twelve years without being renewed by the judgment holder), it is clear that appellant intended merely to prolong the life of the levy.

Such steps, in our opinion, were not taken in violation of the automatic stay. Nor was appellant required to obtain further authorization from the bankruptcy court to modify the automatic stay to allow the filing of the second Motion to Extend. Although we have found no Maryland appellate court cases addressing this issue, courts in other jurisdictions support this view. In Barber v. Emporium Partnership, 800 P.2d 795, 797 (Utah 1990), the Supreme Court of Utah addressed whether an automatic bankruptcy stay precludes a judgment creditor from renewing its judgment before the judgment lapses under state law.

The court held that an “action to renew a judgment ³⁸⁴ does not violate the automatic stay provisions of the bankruptcy code.” The court explained: A renewal is not an attempt to enforce, collect, or expand the original judgment. When the [judgment creditors] sought to renew their judgment against the [judgment debtor], they were only trying to maintain the status quo by preventing the judgment’s lapse under the statute of limitations. The original judgment against the [judgment debtor] was final before the [judgment debtor] went into bankruptcy. Renewing the judgment did not affect the [judgment debtor’s] assets or its ability to fairly deal with all its creditors and therefore was not automatically stayed.

Id. The Utah supreme court cited cases from other courts supporting this interpretation of the automatic stay provisions. See, e.g., Barnett v. Lewis, 170 Cal.App.3d 1079 , 1088 n. 11, 217 Cal.Rptr. 80 (1985) (automatic stay inapplicable to actions to renew judgments because by such actions there is not a direct attempt to collect a debt); Marine Midland Bank v. Herriott, 10 Mass.App.Ct. 748 , 412 N.E.2d 908, 910 (1980) (where the focus of the non-bankruptcy suit is relief other than actual collection of the debt, the non-bankruptcy proceeding is not stayed because the order of that court will not interfere with the bankruptcy proceedings). Emporium Partnership relied heavily on In re Morton, 866 F.2d 561, 564 (2d Cir.1989).

In In re Morton the United States Court of Appeals for the Second Circuit held that the automatic stay provisions do not “prohibit acts to extend, continue, or renew otherwise valid statutory liens, nor is there any indication from the legislative history that congress intended such a result.” Id. The federal appeals court explained that a lienholder’s action to extend its lien under New York statute to avoid expiration of the lien does not result in an enlargement of the lien, nor does it threaten property of the estate which would otherwise be available to general creditors. To the contrary, extension ... simply allows the holder, of a valid lien to maintain the status quo—a policy not adverse to bankruptcy law, but rather in' complete harmony with it. ³⁸⁵ Id. The court therefore concluded that the judgment holder’s attempt to extend the lien did not violate the automatic stay.

Significantly, In re Morton observed that if New York law provided that the only way to preserve the lien was to execute upon it within a certain time period, or if by extending the lien the amount of the lien could be enlarged or the priority of the lien could be enhanced, then a conflict with the automatic stay provisions of the bankruptcy code might arise. Id. The court further noted that extending the lien had no adverse effect on any party or property involved in the bankruptcy proceeding. Id.

We find the reasoning of these decisions to be both persuasive and applicable to the facts of the instant case. As we explained above, by its second Motion to Extend, appellant intended to do no more than prevent a lien from lapsing. Indeed, as in the cases outlined above, appellant was not attempting to enlarge the lien or threaten the property of the estate which would otherwise be available to general creditors. Rather, appellant desired to maintain the status quo.

Appellant’s action, therefore, was not violative of the automatic stay and did not require prior bankruptcy court approval. We hold, therefore, that appellant was authorized to file the second Motion to Extend, and that the circuit court properly entertained that motion. II Appellant’s position below and on this appeal is that passage of the 120-day period contained in Rule 2—643(c)(6) and passage of the 120-day additional period granted by Judge Kahl’s order extending writ of execution did not cause the levy to expire automatically and the property to be released automatically. On the other hand, appellee argues that the levy “died a natural death” upon the expiration of the 120-day time period contained in the order extending writ of execution.

In other words, appellee contends that by the terms of that order, when appellant filed the second Motion to ³⁸⁶ Extend there was nothing for the circuit court to extend. We do not agree with appellee. The only Maryland appellate case thoroughly discussing the operation of Maryland Rule 2—643(c)(6) is Joshi v. Kaplan, Freeland, Schwartz & Bloomberg, P.C., 72 Md.App. 694 , 532 A.2d 712 (1987). There, this Court held that, upon the passing of 120 days without sale of the property subject to the levy, a judgment debtor has the right to have the property released from the levy, unless the judgment creditor can demonstrate good cause for extending the levy.

Joshi, 72 Md.App. at 699-700 , 532 A.2d 712 (1987). Upon a determination that there is not good cause for extending the 120 period for sale of the attached property, it is mandatory for the trial judge to release the property from the levy. Id. at 699 , 532 A.2d 712 . It was in that context that we stated that a judgment creditor has a duty to sell property that is subject to a levy within 120 days.

Id. at 697 , 532 A.2d 712 . This, of course, is consistent with the purpose of Rule 2—643(c)(6), which is to prevent undue delay by creditors’ attorneys. Id. at 700 , 532 A.2d 712 . In light of the plain language of Rule 2-643(c)(6), and Joshi’s construction of the rule, it is clear that upon the expiration of the 120-day period the levy does not automatically lapse or expire.

Nothing in Joshi indicates that on the 121st day the levy “self-destructs.” Rather, the passing of 120 days without the property being sold merely gives the judgment debtor the right to request the circuit court to terminate the levy. Similarly, the levy does not automatically extinguish upon the expiration of an