Key Points

  • The North Carolina Supreme Court held that the Bankruptcy Code's automatic stay, 11 U.S.C. § 362(a), is a "statutory prohibition" under N.C.G.S. § 1-23, so it tolls state statutes of limitations for claims subject to the stay.
  • The 711-day stay in Baxley's Chapter 7 case extended East Bay's 10-year deadline under N.C.G.S. § 1-47(1) to renew its $507,294.09 judgment until at least July 11, 2022, making its June 10, 2022, filing timely.
  • The court read 11 U.S.C. § 108(c) to give a creditor the later of the state deadline, including any state-law tolling, or 30 days after notice that the stay has ended, agreeing with the Seventh Circuit and the New York Court of Appeals.
  • The court distinguished the Court of Appeals' decisions in Fisher v. Anderson and K&;S Resources v. Gilmore and found that the Second Circuit's Aslanidis decision recognizes longer state tolling periods.
  • The court reversed the Court of Appeals and remanded for further remand to Wake County Superior Court.

The North Carolina Supreme Court held Friday that a federal bankruptcy stay pauses the state's 10-year deadline for renewing a civil judgment, reviving a creditor's lawsuit to keep alive a $507,294 judgment against a debtor whose bankruptcy had barred the creditor from suing for nearly two years.

Writing for the court, Justice Allen reversed a unanimous Court of Appeals decision that had found East Bay Company Ltd.'s renewal action time-barred. The court concluded that the Bankruptcy Code's automatic stay, which halts creditors' collection efforts once a debtor files a bankruptcy petition, is a "statutory prohibition" under a North Carolina tolling statute. The 711 days the stay was in force therefore did not count against East Bay.

The decision means that a North Carolina creditor blocked by a bankruptcy stay gets the full length of the stay added to the state limitations period. The Court of Appeals had read federal law to give such a creditor only a 30-day grace period after the stay ends. The Supreme Court instead adopted the reading of the Seventh Circuit and the New York Court of Appeals, which treat the federal provision as a minimum that states may lengthen.

"Obtaining civil judgments against defendants is one thing; collecting on them is something else," Justice Allen wrote in the opinion's first line. North Carolina law lets a judgment holder file a new lawsuit to renew the judgment, but under N.C.G.S. § 1-47(1) that action must be brought within 10 years of the original judgment's entry and only once.

East Bay won its judgment against Brandon Scott Baxley in Wake County Superior Court on July 30, 2010, for $507,294.09 plus interest and reasonable attorneys' fees. On July 8, 2018, Baxley filed a Chapter 7 petition in the U.S. Bankruptcy Court for the Eastern District of North Carolina. The filing triggered the automatic stay under 11 U.S.C. § 362(a). The stay ended on June 19, 2020, when the bankruptcy court denied Baxley a discharge, the order that relieves a debtor of personal liability for debts owed before the petition.

East Bay filed its renewal action on June 10, 2022. Its complaint conceded that July 29, 2020, was the "original deadline" but alleged that the stay had extended the deadline by the number of days it was in effect, to July 11, 2022, by East Bay's count. Baxley moved to dismiss for failure to state a claim. Superior Court Judge Keith O. Gregory granted the motion in an order entered Feb. 8, 2023, concluding the action "must be dismissed as a matter of law because . . . [p]laintiff . . . missed its deadline to bring the action."

The Court of Appeals affirmed in 2024. It relied on Aslanidis v. U.S. Lines, a 1993 Second Circuit decision, to read 11 U.S.C. § 108(c), the provision that sets creditors' filing deadlines after a bankruptcy, as one that "does not provide for the tolling of any externally-imposed statute of limitations[ ] but only calls for applicable time deadlines to be extended for 30 days after termination of the bankruptcy stay." Because 40 days remained on East Bay's 10-year clock when the stay ended, the appeals court held that § 108(c) did not help the creditor. Citing its 2022 decision in K&S Resources LLC v. Gilmore, it also held that North Carolina's tolling statute, N.C.G.S. § 1-23, did not apply.

The Supreme Court started with the text of § 1-23, which provides that "[w]hen the commencement of an action is stayed by injunction or statutory prohibition, the time of the continuance of the injunction or prohibition is not part of the time limited for the commencement of the action." Section 362(a), in turn, automatically stays the commencement of judicial proceedings against the debtor. Justice Allen wrote that Section 362(a) "obviously constitutes a 'statutory prohibition' against the commencement of legal actions against debtors protected by the automatic stay." The opinion noted that New York's highest court reached the same conclusion under that state's tolling law in 2019.

Section 1-23 therefore extended East Bay's deadline "until at least 11 July 2022," the court held. East Bay filed before that date, so the court concluded that both the trial court and the Court of Appeals erred in finding the action time-barred.

Baxley had relied on two Court of Appeals decisions, Fisher v. Anderson from 2008 and Gilmore. "Of course, as decisions of the Court of Appeals, those cases do not bind this Court. In any event, neither case seems to be directly on point," Justice Allen wrote. Fisher did not involve § 1-23, and that decision rested partly on the plaintiff's failure to allege any restraint on enforcing the judgment. In Gilmore, the record was "devoid of any reference to a stay or injunction on commencement" of a renewal action. East Bay's complaint, by contrast, expressly alleged that the bankruptcy stay had blocked its suit.

The court also rejected Baxley's reading of § 108(c). The justices agreed with Baxley that the provision guarantees creditors at least 30 days after notice that the stay has ended. But Baxley argued that "[u]nder section 108(c)(1), the suspension of any statute of limitations period is included in the calculated time, not added to the statute of limitations period." The court read that argument to mean that state tolling cannot push a deadline past the 30-day minimum, and it disagreed.

The opinion quoted the Seventh Circuit's 1991 decision in Pettibone Corp. v. Easley, which said § 108(c) "assure[s] [creditors] 30 days in which to pick up the baton[,] [but] if states want to give [creditors] additional time, that is their business." It also quoted the New York court's statement that "if another statute tolls the action longer than 30 days[,] section 108(c) applies the longer toll, rather than the 30-day grace period." "In our view, the Seventh Circuit and the New York Court of Appeals have accurately construed the text of 11 U.S.C. § 108(c)," Justice Allen wrote. Aslanidis, the Second Circuit case on which Baxley relied heavily, "does not support defendant's position," the court held, because "Aslanidis expressly recognizes that other federal or state statutes can provide for longer tolling periods."

East Bay was represented by Matthew W. Buckmiller of Buckmiller & Frost PLLC. Baxley was represented by William H. Kroll of Gaskins Hancock Tuttle Hash LLP.

The Supreme Court reversed the Court of Appeals and sent the case back to that court for further remand to Wake County Superior Court "for additional proceedings not inconsistent with this opinion."