By Benjamin J. McDonnell
Merceri v. Deutsche Bank AG, 2 Wn. App.2d 143, 408 P.3d 1140 (2018)
Division I of the Washington State Court of Appeals recently addressed whether the automatic stay imposed by applicable bankruptcy law is a “statutory prohibition” under RCW 4.16.230 that tolled the statue of limitations on a secured creditor’s counterclaim for judicial foreclosure. In Merceri v. Deutsche Bank AG, Division I of the Washington Court of Appeals concluded that, “[u]nder the plain language of RCW 4.16.230, the statute of limitations is tolled during the bankruptcy stay.” Thus, the appeals court reversed the trial court’s ruling that a secured creditor was time barred from foreclosing on a debtor’s home because the six-year statute of limitations applicable to the creditor’s foreclosure claim was tolled for about two years while the bankruptcy stay was in place.
The question presented to the court of appeals involved the interplay between applicable bankruptcy and Washington state law. Subject to certain exceptions, filing a bankruptcy petition gives rise to an automatic stay under 11 U.S.C. § 362 that generally prohibits creditors from taking certain actions. The automatic stay is broad. It gives debtors a “breathing spell” from creditors and prevents a “race to the courthouse” by creditors that would occur absent the stay.
While the stay may suspend or impact creditors’ ability to pursue state law remedies, 11 U.S.C. § 108(c), provides creditors with a thirty-day window to commence an action, as follows: “if applicable nonbankruptcy law . . . fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, . . . and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of - . . . (2) 30 days after notice of the termination or expiration of the stay . . . .” This statute may, therefore, allow a thirty-day window to commence an action that would otherwise be time barred. The appeals court noted, however, that Washington has joined those jurisdictions that have held that, while 11 U.S.C. § 108(c) may provide a 30 day window to commence an action, ultimately, nonbankruptcy law governs applicable statutes of limitation and tolling. The particular tolling provision at issue in this case was RCW 4.16.230, which provides: “[w]hen commencement of an action is stayed by . . . a statutory prohibition, the time of the continuance of the . . . prohibition shall not be a part of the time limited for the commencement of the action.” Applying the plain language of this statute, the appeals court concluded the bankruptcy stay is a statutory prohibition and, consequently, “the statute of limitation is tolled during the bankruptcy stay.” Therefore, the secured creditor’s counterclaim for judicial foreclosure was tolled and, ultimately, timely.
If you have questions concerning how the automatic stay may impact any right you may have, call the lawyers at Piskel Yahne Kovarik, PLLC.