IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA

The debtor, Dennis Torrey, has filed the instant adversary proceeding seeking a declaration that the order entered by this court on December 19, 1989, in Chuitt v. Torrey (Case No. A85-628     2 ABR 46 
Civil) was void in that it violated the automatic stay provisions of the bankruptcy code. Named as defendants are Mr. Torrey's former wife, Alice Bismark, Patrick Chuitt, and the United States of America for the Bureau of Indian Affairs.

Mr. Torrey has moved for summary judgment and Ms. Bismark and the United States have each filed cross-motions for summary judgment. This court subsequently withdrew reference of the adversary proceeding and now has the motions pending before it. The motions have been more than adequately briefed, and there has been no request for oral argument.

The instant dispute, which has wound its way through three separate courts, centers on a 5-acre portion of a 160-acre Native allotment owned by Patrick Chuitt, an Alaska Native. Mr. Torrey, a non-Native, had entered into a contract with Mr. Chuitt whereby Mr. Chuitt would convey a 5-acre portion his allotment to Alice Bismark (then Alice Torrey), who is an Alaska Native, in return for which Mr. Torrey would construct a cabin for Mr. Chuitt. At the urging of the Bureau of Indian Affairs (BIA), the agreement was reduced to writing. The document was transmitted to the BIA in May of 1983 along with a request to begin the process of issuing a gift deed in accordance with the contract.

The 5-acre parcel was staked out and Mr. Torrey commenced construction of Mr. Chuitt's cabin. While building the cabin, the Torreys had their own cabin moved onto the 5-acre parcel. The     2 ABR 47  Torreys also began making improvements to the 5-acre parcel, apparently for the purpose of running a hunting and fishing lodge. In September of 1983, however, Mr. Chuitt contacted the BIA and requested that they stop processing the gift deed application. In July of 1984, the BIA formally informed the Torreys that Mr. Chuitt had revoked his permission for them to use his allotment and that they were therefore trespassing.

To further complicate matters, in October of 1985 the Torreys filed for divorce, which was granted in October of 1986.

In November of 1985, Mr. Chuitt filed an ejectment and trespass action against the Torreys.  ¹  Due to their pending divorce, the Torreys answered separately. Ms. Bismark counterclaimed, seeking specific performance of the contract "to seek transfer of title to defendants." Mr. Torrey also counterclaimed, seeking specific performance and for the court to "[d]eclare that the Torreys [have] the legal ownership interest in the 5 acres Plaintiff agreed to convey."

Ms. Bismark filed a third-party claim against the United States which was subsequently dismissed for lack of subject matter jurisdiction.

In August of 1989, Ms. Bismark filed a motion for summary judgment seeking a declaration that "Mrs. Torrey is entitled to
    2 ABR 48  specific performance of the contract" or, in the alternative, restitution. Mr. Torrey joined in Ms. Bismark's motion.

On December 19, 1989, this court granted Alice Torrey's motion and ordered Mr. Chuitt to prepare and execute all necessary documents to apply for a gift deed in favor of Alice Torrey.

Subsequently, while Mr. Torrey was preparing for a trial on the property division in the as-yet-unresolved state divorce proceeding, he discovered that the gift deed the BIA was preparing would transfer a restricted title to Alice Torrey that would prohibit the land from being owned by a non-Native. Since Dennis Torrey was not a Native, and since the state court has no jurisdiction to determine rights to a Native allotment, he feared that such a restricted deed would cut off any interest he might have in the property. Mr. Torrey then filed a Rule 60(b) motion for the court to reconsider the portion of its ruling that required the gift deed to be in the name of Alice Torrey. That motion is still pending because of circumstances discussed below.

The state court stayed any further proceedings in the divorce action, in part because of the Rule 60(b) motion in this court.

On August 30, 1989,  ²   Mr. Torrey filed for a chapter 7 bankruptcy (later converted to a chapter 11 proceeding) wherein he listed the 5-acre parcel as an asset. No notice of the bankruptcy     2 ABR 49  was provided to this court until long after judgment had been entered in No. A85-628 Civil. The question thus arose whether this court could proceed on Mr. Torrey's Rule 60(b) motion. This court suggested that the parties return to the bankruptcy court to seek to have the stay lifted as to the federal proceeding. Instead, on September 20, 1990, Mr. Torrey filed the instant adversarial proceeding.

The sole question presented by the instant motions is whether or not the automatic stay provisions of 11 U.S.C. § 362(a) should serve to void the judgment entered by this court in Chuitt v. Torrey. Such being purely a question of law, it is properly determinable on a summary judgment motion. Asuncion v. District Director of U.S. Immigration and Naturalization Service, 427 F.2d 523 (9th Cir. 1970); Fair Broadcasting Corp. v. Powers, 733 F. Supp. 179, 184 (S.D.N.Y. 1990).

The automatic stay is set out at 11 U.S.C. § 362(a), which provides in relevant part:

Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title . . . . operates as a stay, applicable to all entities, of--

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

    2 ABR 50 
. . . .

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate[.]

In order for the judgment at issue to be in violation of the stay, it must have been entered either in a proceeding "against the debtor" or in one seeking title or possession of "property of the estate".

While subsection 362(a) (1) bars the prosecution of actions against the debtor, it does not generally stay actions or claims brought by the debtor. Ass'n of St. Croix Condominium Owners v. St. Croix Hotel Corp., 446 F.2d 446, 449 (3d Cir. 1982). It has been consistently held that the stay does not apply to claims asserted by a debtor even though the claims are asserted in an action to which the debtor is nominally a defendant. First Wisconsin National Bank of Milwaukee v. Grandich Development, 565 F.2d 879, 880 (5th Cir. 1978) (automatic stay not applicable to counterclaims asserted by the debtor even though the debtor is the defendant in the main action); Boone v. Beacon Bldg. Corp., 613 F. Supp. 1151, 1155 (D.N.J. 1985) (stay not applicable to cross-claim for indemnity); Jefferson Ward Stores v. Doodev Co., 48 Bankr. 276, 278 (E.D. Pa. 1983) (stay not applicable to third-party complaint, citing Cathey v. Johns-Mansville Sales Corp., 682 F.2d 60, 61 (6th Cir. 1983)).

The reasoning in Boone is instructive. There the court stated:

As we understand the automatic stay provision of the Bankruptcy Act, it only operates in actions where the petitioner is in a defensive posture. As regards to her cross-claim [debtor] is in an offensive posture, albeit her offensive posture is closely tied to her defense in the main action here. We do not believe Township's motion is stayed.

Here, although the judgment at issue was entered on Ms. Bismark's motion for summary judgment on her counterclaim, it is clear to the court that Mr. Torrey stood in an offensive posture with regards to the motion. The relief prayed for in Ms. Bismark's counterclaim against Mr. Chuitt was identical to that sought by Mr. Torrey; namely, specific performance of the contract entered into between Mr. Chuitt and Mr. Torrey. Since the two counterclaims of Torrey and Bismark were essentially co-extensive, and since Mr. Torrey had joined in the motion, the ruling on the summary judgment motion was, for all practical purposes, a ruling on Mr. Torrey's counterclaim as well. That is, a judgment in favor of or against Ms. Bismark would necessarily have the same effect on Mr. Torreys counterclaim.

Clearly then, Mr. Torrey stood in an offensive posture with regards to the motion. By joining therein, he was seeking a judgment in his favor on his claim. Therefore, the judgment was not barred by subsection 362(a) (1).

If the action is one to gain title to or possession of property of a debtor's bankruptcy estate, then the action is stayed by subsection 362(a) (3) regardless of whether or not the debtor is in an offensive or defensive position. The essential question in this case is whether or not the 5-acre parcel, which is the subject matter of the underlying litigation, is "property of the estate". It is not.

For purposes of this case, "property of the estate" is defined by 11 U.S.C. § 541(a) (1) as "all legal or equitable interests of the debtor in property as of the commencement of the case." Hence the relevant inquiry is whether Mr. Torrey retained any interest in the parcel at the time he filed his bankruptcy petition.

The parcel at issue was part of a Native allotment issued to Mr. Chuitt. Thus, title thereto is determined by reference to federal Indian law.

In 1956, the Alaska Native Allotment Act was amended to allow Native allotees to alienate their allotment, but only if such were approved by the Secretary of the Interior. 70 Stat. 954 (codified at 43 U.S.C. § 270-1) (repealed 1971). Without such an approval, there can be no effective transfer of either an equitable or legal interest in the land. United States v. Gilbertson, 111 F.2d 978, 980 (7th Cir. 1940) (holding that normal equities in     2 ABR 53  favor of a bona fide purchaser for value do not apply to lands held by the United States in trust for Indians).

While Mr. Torrey, at the time he filed his petition, may very well have been entitled to specific performance of the contract, it is absolutely clear that the Secretary of the Interior (through the Bureau of Indian Affairs) had not approved a transfer of any interest whatsoever to Mr. Torrey. Absent such, Mr. Torrey had no interest, equitable or otherwise, to the land. Therefore, the parcel is not property of the estate.

At least one bankruptcy court has addressed this same issue and agrees. In In re Sharp, 25 Bankr. 356 (Bankr. D. Mont. 1982), the debtor had entered into a lease/option agreement with an Indian allottee for allotment lands. Creditors sought to have the land included in the debtor's bankruptcy estate. The bankruptcy court refused to do so, holding that the alleged transfer was invalid because there had been no BIA approval. Id. at 357.

This court therefore finds that the parcel is not property of the estate and subsection 362(a)(3) is therefore not applicable. It is immaterial that the debtor may some day be entitled to an interest in the property. See, Amco Pipeline Co. v. Admiral Crude Oil Corp., 490 F.2d. 114, 116 (10th Cir. 1974).

Therefore, this court rules that the automatic stay of 11 U.S.C. § 362(a) did not bar this court's ruling on Ms. Bismark's motion for summary judgment.

Alternatively, this court further finds that cause exists to annul the stay.

Under 11 U.S.C. § 362(d) a court may, on request of a party in interest, grant relief from the stay either by terminating, modifying, or annulling the stay "for cause". Cause may be found where the violation of the stay was unintentional and merely technical, and not to annul the stay would involve a needless reopening of the case. In re Superior Manufacturing Co., 98 Bankr. 417, 419 (Bankr. N.D. Ill. 1989).

The underlying dispute is a "non-core" proceeding. If the stay were found to apply and not be annulled, then these same parties could come before this same court, litigating the same issues. Such would be waste of time and money; it would be far more expedient to go straight to the merits of Mr. Torrey's Rule 60(b) motion which is currently pending. Moreover, if there were a violation of the stay, it was clearly unintentional. No notice of the bankruptcy was filed by the debtor or the debtor's trustee until well after Ms. Bismark's motion had been decided.

Moreover, Mr. Torrey participated fully and voluntarily in the proceeding. Presumably Mr. Torrey was aware of his own pending bankruptcy but chose to litigate his counterclaim. Accordingly, an annulment would be proper in this case.

Lastly, it must be noted that, notwithstanding any of the above, the United States must be dismissed from this adversary proceeding because the court lacks subject matter jurisdiction over it. The Government is not a party to the underlying Chuitt v. Torrey litigation and is thus not part of the proceeding Mr. Torrey seeks to enjoin. More fundamentally, there has been no waiver of the United States' sovereign immunity. Without such, it is axiomatic that this court lacks jurisdiction. Therefore, The United States must be dismissed from this case.

For the reasons set out above, the entry of summary judgment in this court in favor of Ms. Bismark in Chuitt v. Torrey did not violate the automatic stay provision of the Bankruptcy Act; alternatively, if it did so violate the stay, cause exists to annul the stay. Furthermore, the United States is entitled to be dismissed for lack of subject matter jurisdiction.

Mr. Torrey's motion is denied; and Ms. Bismark's and the United States' cross-motions are granted. The adversary complaint is dismissed.

DATED at Anchorage, Alaska, this 19th day of June , 1991.

M Russell Holland
United States District Judge

N O T E S:

    2 ABR 47    1. Chuitt v. Torrey [et al.], No. A85-628 Civil, in this court.

    2 ABR 48     2. Before this court ruled on the Torrey motion for summary judgment.