by Kevin Galin, Esq.
Bendett & McHugh, P.C.
USFN Member (CT, MA, ME, NH, RI, VT)

The Connecticut Supreme Court recently visited the question of whether state courts have jurisdiction to extend the automatic stay provisions of 11 U.S.C. § 362 (a) (1) to motions by those court appointed attorneys that administer foreclosure sales (called “committees for sale” or “committees” in Connecticut foreclosure practice. The committees perform duties similar to auctioneers) to recover fees and expenses from non-debtor foreclosure plaintiffs.  In a decision stemming from a writ of error filed by the committee for sale, the Court held that an award of a committee’s fees and costs during a bankruptcy stay does not violate the applicable provisions of the Bankruptcy Code.

In U.S. Bank, N.A. as Trustee v. Jacquelyn N. Crawford et.al, 333 Conn. 183 (2019), the trial court entered a judgment of foreclosure by sale, and pursuant to Connecticut practice, appointed a committee to conduct the sale. After the sale had been conducted but prior to the sale approval, the defendant-mortgagor filed for Chapter 13 bankruptcy protection, automatically staying the proceedings. The committee nonetheless filed a motion pursuant to Connecticut General Statute § 49-25,^[1] which sought to recover fees and expenses incurred prior to the filing of the bankruptcy petition in preparing and conducting the sale.

The trial court considered itself bound by Equity One, Inc. v. Shivers, 150 Conn. App. 745 (2014), a prior Connecticut Appellate Court decision which held that such motions for award of committee’s fees were prohibited from being awarded as violative of the automatic bankruptcy stay provisions of 11 U.S.C. § 362 .  In doing so, the Appellate Court in Shivers held that even though the committee’s motion did not directly affect the defendant, since these fees and costs would be able to be sought by plaintiff at the conclusion of the case, such a motion was subject to the stay.  Relying upon Shivers, the trial court here denied the committee’s motion. The committee’s writ of error followed.

In Crawford, the Connecticut Supreme Court overrules Shivers to the extent that Shivers held that state courts have jurisdiction to extend the automatic stay provisions to proceedings against non-debtors, in particular, the committee for sale appointed in a foreclosure action. The Court first visits the issue of whether or not the denial of the committee’s motion for an award of attorney’s fees is a reviewable issue, which the Court finds that it is.^[2] The Court then acknowledges that while the writ of error was rendered moot during the pendency of the writ of error, in that the automatic stay was terminated by virtue of the defendant-mortgagor’s bankruptcy case being dismissed, the claim is reviewable under the capable of repetition, yet evading review exception to the mootness doctrine. 

In doing so, the Court describes this issue to be one that is “of some public importance” as a committee for sale functions as an arm of the court in a judicial sale and that under the Shivers holding, attorneys may be more reluctant to serve as sale committees if they run the risk of being rendered unable to recover their fees and expenses promptly, and without having to seek a judgment from the bankruptcy court, if the debtor declares bankruptcy.

Crawford reinforces the significance of the public policy served by resolving foreclosures expeditiously and further emphasizes the importance of the sale committee’s role in doing so.   It also highlights the relationship between federal bankruptcy proceedings and state court foreclosure actions, clarifies the responsibility of a mortgage servicer to pay committee of sale fees and expenses, notwithstanding a pending bankruptcy of a defendant, and now puts Connecticut state law with respect to this issue in line with most of the holdings of the Bankruptcy Courts for the District of Connecticut. Although there is a split of authority amongst Connecticut’s Bankruptcy courts on the payment of fees and costs during a bankruptcy, further challenges on this issue in Bankruptcy Courts are expected.