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National Community Bank of New Jersey v. Valor Foods

February 23, 2009


On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. W-026113-89.

Per curiam.


Submitted January 7, 2009

Before Judges Axelrad, Parrillo and Lihotz.

We review whether Rule 4:50-2 precludes a request to vacate a seventeen-year old judgment originally entered following defendant's request for bankruptcy relief. We conclude the judgment was entered in violation of the automatic stay making it void ab initio and, therefore, it must be vacated. The trial court's order denying defendant's request for relief is reversed.

On May 22, 1987, plaintiff National Community Bank of New Jersey (NCB) loaned $500,000 to defendants J.V.L. Realty Co., Inc. (JVL) and Valor Foods, Inc. (Valor), pursuant to the terms of a promissory note. Pannullo, the president of both JVL and Valor, executed the note on behalf of the corporate entities. Additionally, Pannullo individually executed an agreement guaranteeing the payment of a loan extended to JVL.

On February 24, 1989, Pannullo filed a voluntary petition for reorganization, pursuant to Chapter 11 of the United States Bankruptcy Code. Pannullo listed NCB as an unsecured creditor with a $125,000 debt on Schedule A, which was filed along with his petition. The bankruptcy Scheduling Order and Notice to Creditors, informing NCB of Pannullo's bankruptcy filing, was sent to NCB. Pannullo's case was converted to a liquidation, pursuant to Chapter 7 of the Bankruptcy Code. U.S.C.A. § 1112. On November 27, 1992, the Bankruptcy Court issued an order of discharge. 11 U.S.C.A. § 727. On April 18, 1996, Pannullo's bankruptcy case was completed and closed.

The corporate entities defaulted on payment of the obligation due to NCB. On September 21, 1989, NCB filed a complaint naming Valor, JVL and Pannullo as defendants. Presumably, as a result of his bankruptcy, Pannullo did not respond. JVL and Valor filed a joint answer, which mentioned Pannullo's bankruptcy filing. On August 3, 1990, an order of final judgment by default was entered in the amount of $583,537.17 in favor of NCB.*fn1

While running an individual judgment search, Pannullo discovered the August 3, 1990 judgment was entered against him, personally. Pannullo filed a motion to vacate, arguing the judgment was willfully entered in violation of the automatic stay, and the debt created by the judgment was discharged in bankruptcy. NCB maintained Pannullo's motion, presented seventeen years after entry of the judgment, was untimely. The motion judge, citing Rule 4:50-2, determined Pannullo did not oppose NCB's request to enter judgment and his motion to vacate was "too late." Pannullo filed for reconsideration, which was also denied. On appeal, Pannullo argues the court's reliance on Rule 4:50-2 was misplaced because the judgment was void when entered and is unenforceable.

The filing of a petition initiates a bankruptcy action and acts as an Order for Relief granting the debtor the protections of the Bankruptcy Code. 11 U.S.C.A. § 301(a) and (b). The most fundamental protection triggered by a bankruptcy filing is the imposition of an automatic stay, which prevents all efforts against the debtor to collect pre-petition obligations. 11 U.S.C.A. § 362(a)(1); Celotex Corp. v. Edwards, 514 U.S. 300, 314, 115 S.Ct. 1493, 1502, 131 L.Ed. 2d 403, 405 (1995); In re Mollo, 196 Fed. Appx. 102, 104 (3rd Cir. 2006).

The automatic stay becomes effective immediately upon the filing of the petition and the broad language of the Code section is designed to prevent a creditor's coercion of a debtor. We emphasize the fact that "the automatic stay is a central concept in bankruptcy law." Borman v. Raymark Indus., Inc., 946 F.2d 1031, 1032 (3d Cir. 1991). The stay is designed to give debtors "a breathing spell" from creditors, "stop[] all collection efforts, all harassment" and allow a debtor "to be relieved of the financial pressures that drove him into bankruptcy" in the first instance. See H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 340 (1977).

Under section 362(a)(1), Pannullo's bankruptcy filing operated to stay 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[.]

It is without question NCB filed its Law Division complaint to collect a pre-petition unsecured debt following Pannullo's initiation of his Chapter 11 proceeding. The mere filing of the complaint against Pannullo was prohibited by the stay. Further, all evidence supports a finding that NCB had actual notice of Pannullo's bankruptcy action. NCB was listed on the schedules and notified to attend the first meeting of creditors, as required by 11 U.S.C.A. § 341(a). In addition, NCB was informed of Pannullo's bankruptcy filing in the responsive pleading of the corporate defendants. This constructive notice alone was more than adequate to invoke the stay's protective affects and stop NCB's collection action from proceeding against Pannullo. Maritime Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1204 (3rd Cir. 1991).

NCB asks this court not to disturb the motion judge's finding that because Pannullo knew of the litigation and the entry of the judgment, but took no action, he therefore, remains bound by its terms. We soundly reject NCB's argument, upon which the motion ...

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