In re Advanced Ribbons and Office Products, Inc.
| Citation | 125 BR 259 |
| Decision Date | 29 March 1991 |
| Docket Number | BAP No. CC-90-1931-PVO,Bankruptcy No. LA90-22381 JD. |
| Parties | In re ADVANCED RIBBONS AND OFFICE PRODUCTS, INC., Debtor. ADVANCED RIBBONS AND OFFICE PRODUCTS, INC., Appellant, v. U.S. INTERSTATE DISTRIBUTING, INC., Russel Leventhal and Frank Montelione, Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Hugh I. Biele, Los Angeles, Cal., for appellant.
Joel B. Weinberg, Honigman Miller Schwartz and Cohn, Sherman Oaks, Cal., for appellees.
Before PERRIS, VOLINN, and OLLASON, Bankruptcy Judges.
After the debtor defaulted on certain obligations to the appellees and filed bankruptcy, the appellees caused a post-petition foreclosure sale of stock in the debtor held by the debtor's sole shareholder, Anthony Teuber, which stock was pledged to secure the performance of the debtor's obligation. The debtor moved to void the foreclosure sale as being in violation of the automatic stay and to recover damages arising from the sale. This appeal arises from the bankruptcy court's order denying the debtor's motions. We AFFIRM.
The debtor, Advanced Ribbons and Office Products, Inc., ("the debtor" or "Advanced") was formed in August of 1989 by its sole shareholder, Anthony Teuber, for the purpose of purchasing the assets of appellee, U.S. Interstate Distributing, Inc., ("USID") in a leveraged buy-out transaction in August of 1989. As consideration for the purchase of the USID assets, Advanced executed a promissory note in the principal sum of $600,000 ("the asset note").1 In addition, Advanced executed a note in the principal amount of $1,800,000 ("the non-compete note") as consideration for a non-competition agreement, under which, appellees Russel Leventhal and Frank Montelione, the principals of USID,2 agreed not to compete with the debtor. Advanced's obligation under the asset note was secured by accounts receivable, equipment, inventory and other assets of Advanced. The parties also entered a Pledge Agreement under which Teuber pledged all of his stock in Advanced as additional security for its obligations under the asset note, the noncompete note and the non-Competition Agreement. The non-competition agreement provided, inter alia, that Leventhal and Montelione "shall never have any claim or recourse under this Agreement or on the Notes executed pursuant hereto, against Teuber or COMPURITE RIBBON CORPORATION."3
By the summer of 1990, disputes had arisen between the parties. Teuber and Advanced contended that USID principals induced the asset purchase through fraudulent misrepresentations as to the value of USID assets and the volume of USID sales. USID and its principals contended that Advanced was taking actions that eroded the value of their security by transferring assets to Compu-Rite and effectively causing a merger between Advanced and Compu-Rite. On August 1, 1990, Advanced defaulted on its obligations under the noncompete note and asset note. The next day USID notified Teuber of the default and accelerated the obligations under the notes. On August 13, 1990, Advanced gave notice of the rescission of all agreements executed in connection with the purchase.
On August 14, 1990, USID, Leventhal and Montelione filed an action in state court against Advanced and Teuber alleging that Advanced breached its obligations under the notes and agreements executed in connection with the purchase. On August 31, 1990, USID, Leventhal and Montelione provided notice that, pursuant to the Pledge Agreement, Teuber's stock in the debtor would be sold at a public foreclosure sale on September 7, 1990 at 9:00 a.m.
The debtor filed its Chapter 11 petition at approximately 8:40 a.m. on September 7, 1990. At the same time Advanced filed an emergency motion for an order restraining the sale of Teuber's stock in Advanced. A hearing could not, however, be held on the emergency motion until 12:15 p.m. The debtor immediately notified counsel for USID and its principals of the petition. The foreclosure sale nevertheless occurred at 9:00 a.m. on September 7 and Leventhal and Montelione purchased the stock with a credit bid of $100,000. Following the sale, Leventhal and Montelione held a shareholders meeting to elect themselves directors of the debtor and a directors meeting to elect themselves officers of the debtor. Subsequently, Leventhal and Montelione went to the debtor's offices to take possession of the debtor and its assets. Teuber refused to relinquish possession and alleges that Leventhal and Montelione used force and violence to obtain the assets. Because of the contentiousness of the dispute as to who was entitled to possession of the debtor and its assets, the police were called to maintain order.
At 12:15 p.m. on September 7, 1990, the bankruptcy court held a hearing on the debtor's emergency motion for an order restraining the sale of stock and ordered, notwithstanding the earlier stock sale, that Teuber should remain in control and operate the debtor until further order of the court. The court further ordered the debtor to file its adversary complaint arising out of these events, any request for temporary injunctive relief and its motion to set aside the stock sale within the next week and that a hearing on such motions would be held on September 14, 1990.
The debtor, on September 11, 1990, filed its motion for an order determining that the stock sale was void and for an order that USID is in contempt for violating the automatic stay of 11 U.S.C. § 362 by conducting the stock sale and attempting to maintain possession of the stock ("the Stock Sale motion"). The next day, the debtor filed an adversary proceeding complaint alleging that the leveraged buy-out transaction was a fraudulent transfer and alleging numerous other causes of action arising from the foreclosure sale of the stock and the appellees' subsequent attempts to gain control of the debtor and its assets. The debtor also filed a motion for an order granting actual and punitive damages on account of the conduct of USID and its principals in purportedly violating the automatic stay by conducting the stock foreclosure sale and attempting to obtain control of the debtor and its assets ("the Damages Motion").
At the September 14, 1990 hearing on these motions, the bankruptcy court determined that the stock is not property of the estate and that the automatic stay did not apply to prevent the stock foreclosure sale. The court, therefore, denied the stock sale motion with prejudice. The court denied the damages motion without prejudice, determining that the damages issues should be decided after a properly noticed evidentiary hearing. The debtor filed this timely appeal from the court's order.4
1. Whether the debtor had standing to assert that the sale of Teuber's stock in the debtor violated the automatic stay.
2. Whether the sale of Teuber's stock in the debtor pursuant to the pledge agreement violated the automatic stay when the stock was pledged to secure a debt of the debtor and Teuber had no personal liability on the debt.
3. Whether the bankruptcy court committed reversible error in denying the debtor's request for an order that the appellees were in contempt for violating the automatic stay and in denying without prejudice the debtor's request for actual and punitive damages.
The primary issue on appeal involves the scope of the automatic stay under 11 U.S.C. § 362(a)(6). This is a legal issue which we review de novo. See In re Wade, 115 B.R. 222, 225 (9th Cir. BAP 1990). The debtor's standing to assert a violation of the automatic stay is also a legal issue subject to de novo review. See In re Brooks, 871 F.2d 89, 90 (9th Cir. 1989).
1. Whether the debtor had standing to assert that the sale of Teuber's stock in the debtor violated the automatic stay.
The appellees contend that the debtor lacked standing to assert that the sale of stock violated the automatic stay because the stock was not property of the estate and because a debtor in possession or a trustee has standing to assert that a transfer violates the automatic stay only when that transfer involves property of the estate. The parties do not seriously dispute that Teuber's stock in the debtor is not property of the estate.6 Nevertheless, we determine that the appellees' contention is without merit.
Neither of the cases cited by the appellees support the proposition that a debtor in possession lacks standing when the purported violation of the stay does not involve property of the estate. In re Contractors Equipment Supply Co., 861 F.2d 241 (9th Cir.1988), does not address the issue of standing to assert a violation of the automatic stay; rather it determined whether the estate retained a property interest in the account receivable that was the subject of dispute between non-debtor parties. In re Curry and Sorensen, Inc., 57 B.R. 824 (9th Cir. BAP 1986) determined that standing to assert a fraudulent conveyance under 11 U.S.C. § 544 is limited to a trustee or debtor in possession. Neither of these cases determine that a debtor in possession lacks standing to assert a violation of the automatic stay arising from a post-petition collection action, purportedly against the debtor, that did not involve property of the estate. Those persons whom Congress has designated as beneficiaries of the stay have standing to assert its violation. See In re Brooks, 871 F.2d 89, 90 (9th Cir.1989). Section 362(a)(6) protects a debtor from post-petition acts of collection. It follows that the debtor in this case has standing to assert a violation of section 362(a)(6).
2. Whether the sale of Teuber's stock in the debtor pursuant to the pledge agreement violated the automatic stay when the stock was pledged to secure a debt of the debtor and Teuber had no personal liability on the debt.
Under 11 U.S.C. § 362(a)(6), the filing of a...
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