Tenth Circuit Opinion Can Be the Springboard for a ‘Cert’ on the Automatic Stay

Predictably, the Tenth Circuit reaffirmed a deepening circuit split yesterday by holding that the automatic stay does not prevent a statutory worker’s compensation lien from attaching automatically after bankruptcy to a recovery in a lawsuit. Yesterday’s ruling sets up an opportunity for the Supreme Court to resolve the split and decide whether the automatic stay is really automatic. Yesterday’s decision in Davis v. Tyson Prepared Foods Inc. (In re Garcia), 17-3247 (10th Cir. Oct. 17, 2018), was a foregone conclusion given WD Equipment v. Cowen (In re Cowen), 849 F.3d 943 (10th Cir. Feb. 27, 2017), where the Tenth Circuit held last year that passively holding an asset of the estate in the face of a demand for turnover does not violate the automatic stay in Section 362(a)(3) as an act to “exercise control over property of the estate.” As the Tenth Circuit said yesterday, Cowen means that an “‘act’ for the purposes of [Section] 362(a)(3) is limited to affirmative conduct.” The appeals court said that the automatic stay did not apply in Garcia because the “subrogation lien arose solely by operation of law.” In the lower court in Garcia, Bankruptcy Judge Robert E. Nugent of Wichita, Kan., reluctantly held, contrary to two prior decisions of his own, that the automatic stay did not prevent a statutory worker’s compensation lien from attaching automatically after bankruptcy to a recovery in a lawsuit. Judge Nugent certified the case for direct appeal, and the circuit accepted the invitation. The circuit court’s decision in Garcia allows the lien to attach automatically despite the policy in Section 552(a), which precludes a “security interest” from attaching to property acquired after filing, with exceptions.

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