Interaction Between Nebraska Statutes Defining When a Judgment is Entered and Bankruptcy Law

Under federal law, filing a petition in bankruptcy implements an automatic stay regarding judicial actions against the debtor. The Nebraska Supreme Court has clarified whether a judgment violates the automatic stay when the judgment is announced verbally prior to a bankruptcy filing, but signed and file stamped after the filing.

In Doe v. Fireman’s Fund Insurance Co., Jane Doe filed suit in Lancaster County District Court against Red Willow Dairy, Jim Huffman and Ann Huffman. 287 Neb. 486 (2014). Jim and Ann Huffman owned Red Willow Dairy, and Doe alleged the company failed to investigate and supervise an employee that assaulted Doe. Doe filed a motion for default judgment on December 14, 2009, after all defendants failed to answer her complaint. On December 18, 2009, the court sustained the motion for default judgment and directed Doe’s attorney to submit a proposed order within seven days. On December 21, 2009, Red Willow Dairy and the Huffmans filed for bankruptcy.  On December 22, 2009, the judge signed an order for the default judgment, and the Lancaster County District Court Clerk file stamped the order.

As part of a bankruptcy settlement, Doe received rights the Huffmans and Red Willow Dairy might have against Fireman’s Fund Insurance Company for its actions relating to the original lawsuit. Doe filed a complaint against the company, alleging it breached its duty to defend Red Willow Dairy and the Huffmans. In return, Fireman’s filed a motion for partial summary judgment, arguing that the entry of the default judgment violated the automatic stay even though the court announced the judgment three days prior. The district court agreed and granted the motion for partial summary judgment.

Doe appealed the district court’s decision, arguing that signing the order previously announced and file stamping were only clerical in nature and Nebraska should adopt the ministerial exception referred to by United State Court of Appeals for the First Circuit. The “ministerial exception” reasons that when a judicial decree is so clear and unambiguous, the judicial action is complete. Any subsequent announcements that provide a court with no discretion do not violate the automatic stay rule.

The Nebraska Supreme Court declined to adopt this exception, noting that the exception contradicts Nebraska Statute §25-1301. The Nebraska law resolves any uncertainty regarding the commencement of the time to appeal a judgment by defining “judgment” as a decision that is rendered and entered. The court reasoned that the rendition in this case occurred when the default judgment was announced on December 18, 2009. The entry of the default judgment did not occur until December 22, one day after the Huffmans and Red Willow Dairy filed for bankruptcy. Because the district court did not sign and file stamp the judgment until December 22, it did not become a “judgment” until that day. The court reasoned that because the judgment was not finalized until December 22, it violated the automatic stay rule regarding the bankruptcy petition filed on December 21, 2009.

The Nebraska Supreme Court’s decision ensured that the definition of “judgment” stays clear and consistent in Nebraska. Although creditors in other jurisdictions do not violate the automatic stay rule when future proceedings involve only clerical matters, Nebraska creditors must be cautious when it comes to such proceedings.  If you have questions regarding application of the automatic stay rule with regard to collection actions, please contact one of the Erickson|Sederstrom attorneys working in the creditors rights area.