Page 6 - Jan Feb March 2019

state court has the power to hold a foreclosure suit “open to allow deficiency-judgment proceedings after
the bankruptcy end[s].”

The parties disputed the meaning of the bankruptcy judge’s lift-stay order – the debtor emphasizing
the “full and complete” language while the bank focused on the “with respect to the property” clause – but
Easterbrook said it was “unnecessary to determine the meaning” of that order.
“Allowing the state judiciary to enter a deficiency judgment in a foreclosure proceeding does not
undermine any function of bankruptcy law,” he stated. He said interpreting the lift-stay order as the bank
argued would “compel the sort of claim splitting forbidden by state law.”
Anderson can be criticized on the ground that its views on Illinois law on claim-
splitting are unreliably documented. Two key sentences – one noted above, the
second being summarized in the immediately preceding paragraph – cite no cases at
all, and a longer discussion elsewhere is based solely on Illinois Appellate Court
cases. The Illinois Supreme Court has said Appellate Court opinions are not binding
on other appellate panels. O’Casek v. Children’s Home & Aid Soc., 892 N.E.2d 994,
1006-07 (Ill. 2008).
Moreover, Anderson can be criticized as pursuing the Seventh Circuit’s interest
in claim preclusion at the expense of respect for bankruptcy courts. “[B]ankruptcy
judges lack the salary and tenure protections of Article III [of the U.S. Constitution],
which means that they cannot exercise the same powers as district judges over disputes arising under
state law,” the court wrote in what seemed to be an unnecessary swipe. It does not
follow that their limited authority – and their decisions – are not to be respected.
Anderson is a case in which the creditor appears to have given the bankruptcy court
more respect than the Court of Appeals does.
Nonetheless, Anderson’s result is not necessarily wrong. Bankruptcy courts
often give relief for state-court proceedings to determine not only the fact of liability
but also the extent of damages. Arguably that is the result here. But ordinarily in
those situations the lift-stay order is examined to determine what the state court is
permitted to do. It was just such an order in Anderson that the court says is immaterial.

Ordinarily when a panel of the Seventh Circuit issues such a dubious opinion we would say that one
should look for a petition for rehearing by the full court. However, because of questions about appellate
jurisdiction that are not germane to this article, Anderson states that it already has been circulated to the
full court and no judges favored a hearing by the full court. So, unless review is sought and granted by
the U.S. Supreme Court, Anderson looks to be the law governing these matters in this circuit.
That means that creditors’ rights attorneys need to familiarize themselves with the decision pronto.
Effective immediately, in cases where the bankrupt has assets or income that may be available for
unsecured creditors, creditors’ counsel need to convince both bankruptcy and foreclosure courts that
Anderson means that the foreclosure courts can and should enter deficiency judgments against
bankrupts. And it likely means that, where possible, counsel should go back before foreclosure courts to
have deficiencies entered in cases where that relief was not sought under the belief that it could not be.
Brenda/SharpThinking/#165.pdf
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