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Stallings v. Spring Meadows Apartment Complex Limited Partnership6/16/1994
also held to the contrary in Flexmaster Aluminum Awning Co. v. Hirschberg, 173 Ariz. 83, 839 P.2d 1128 (App. 1992). Consequently, in these circumstances, no reason exists to blindly follow the Ninth Circuit.
Third, most courts hold that a discharge in bankruptcy does not preclude an action against a discharged debtor as the nominal defendant where he is insured against liability for negligence. See, e.g., In re Edgeworth, 993 F.2d 51 (5th Cir. 1993); First Fidelity Bank v. McAteer, 985 F.2d 114 (3rd Cir. 1993); Green v. Welsh, 956 F.2d 30, 35 (2nd Cir. 1992); In re Fernstrom Storage & Van Co., 938 F.2d 731, 733-34 (7th Cir. 1991); In re Jet Florida Sys., Inc., 883 F.2d 970, 976 (11th Cir. 1989); In re Beeney, 142 B.R. 360, 362-63 (Bankr. 9th Cir. 1992); In re Greenway, 126 B.R. 253, 255 (Bankr. E.D. Tex. 1991); In re Peterson, 118 B.R. 801, 804 (Bankr. D.N.M. 1990); In re Traylor, 94 B.R. 292, 293 (Bankr. E.D.N.Y. 1989); In re Lembke, 93 B.R. 701, 702-03 (Bankr. D.N.D. 1988); In re White, 73 B.R. 983 (Bankr. D.D.C. 1987); In re Mann, 58 B.R. 953, 958 (Bankr. W.D. Va. 1986). A discharge in bankruptcy does not extinguish the debt itself; it merely releases the debtor from personal liability for the debt. Edgeworth, 993 F.2d at 53. Section 524(e) of the Bankruptcy Code specifies that the debt still exists and can be collected from any other entity that may be liable. Edgeworth, 993 F.2d at 53. Thus, courts have held that the scope of a section 524 injunction does not prevent a proceeding against the discharged debtor to establish a claim against the debtor's liability insurer. Id. at 54.
The foundation of this reading of ยง 524(a)(2) is that it makes no sense to allow an insurer to escape coverage for injuries caused by its insured merely because the insured receives a bankruptcy discharge. "The 'fresh-start' policy is not intended to provide a method by which an insurer can escape its obligations based simply on the financial misfortunes of the insured."
Id. at 54 (quoting In re Jet Florida, 883 F.2d at 975). The same rationale should apply here.
The Conclusion that the Stallings' complaint is void because the bankruptcy court did not specifically annul the stay or grant retroactive relief is hypertechnical and unnecessary to protect the debtor or its estate. It does no violence to the Bankruptcy Code to hold that, where the debtor has liability insurance coverage, the order lifting the stay returns the parties to the status of the legal relationship that existed before the stay was entered. First Nat'l Bank of Minneapolis v. Kehn Ranch, Inc., 394 N.W.2d 709, 715 (S.D. 1986). In other words, the filing of a complaint in violation of the stay is, under these particular circumstances, voidable rather than void. To hold otherwise exalts form over substance and leads to inJustice in this case.
PHILIP E. TOCI, Judge
Page 1 2 3 4 5 6 7 Arizona Personal Injury Attorneys
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