State of California Employment Development Department v. Taxel (In re Del Mission Ltd.)

This appeal presents two important issues. First, we consider whether failing to return bankruptcy estate property in a timely manner constitutes a violation of the automatic stay provision of 11 U.S.C. § 362 (a)(3). We conclude that it does. Next, we resolve whether a bankruptcy court may award fees and costs incurred in prior appellate proceedings as a contempt sanction under 11 U.S.C. § 105 (a). We conclude that it may not.

BACKGROUND

This is the second round of litigation between these parties. The first round arose when appellants California Employment Development Department and State Board of Equalization (collectively the “State”) refused to approve the sale of Chapter 7 debtor Del Mission Limited’s (“Del Mission”) liquor license until it paid all outstanding taxes and interest accrued thereon. The trustee of Del Mission, appellee Harold S. Taxel (“Taxel”), paid the' disputed taxes under protest, and then brought a proceeding in the bankruptcy court seeking repayment. The bankruptcy court found that the State’s action violated the automatic stay provision of 11 U.S.C. § 362 (a)(3), and ordered the State to pay Del Mission SlSjdlM. 1 Taxel v. California Employment Dev.…