In re Borbridge

• Decision Date: 19 January 1988
• Docket Number: Bankruptcy No. 86-05939F.
• Citation: 81 BR 332
• Parties: In re Alan BORBRIDGE and Terry Borbridge, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

81 B.R. 332 (1988)

In re Alan BORBRIDGE and Terry Borbridge, Debtors.

Bankruptcy No. 86-05939F.

United States Bankruptcy Court, E.D. Pennsylvania.

January 19, 1988.

Eduardo C. Robreno, Fox, Rothschild, O'Brien & Frankel, Philadelphia, Pa., George D. Harwood, Eckell, Sparks, Levy, Auerbach, Monte & Moses, Media, Pa., for movant, Murray S. Eckell, Guardian of the Estate of Sally Borbridge, an incompetent.

Joseph B. Finlay, Jr., Philadelphia, Pa., for the debtors, Alan Borbridge and Terry Borbridge.

Leo F. Doyle, Philadelphia, Pa., trustee.

Alan Borbridge Terry Borbridge c/o Richard H. Anderson, Friedman and Anderson, Media, Pa., for the debtors.

MEMORANDUM OPINION

BRUCE I. FOX, Bankruptcy Judge:

I.

Before me for determination is a motion for relief from the automatic stay.¹ This motion is filed by Murray S. Eckell, Esquire who is the state court appointed guardian of the estate of Sally Borbridge. By order of the Court of Common Pleas of Delaware County, Orphans' Court Division, dated August 18, 1987, Ms. Borbridge was adjudged incompetent and Mr. Eckell was appointed her guardian.

The debtor, Alan Borbridge, is one of three children of Sally Borbridge. The movant believes that the debtor, Alan Borbridge, also known as Michael Borbridge, (see Exhibit D to the motion), misappropriated property belonging to his mother while he was in a fiduciary capacity to Mrs. Borbridge. Therefore, the guardian filed a proof of claim on October 9, 1987, and initiated an adversary proceeding requesting a determination that the debt owed by the debtor is nondischargeable by virtue of 11 U.S.C. § 523(a)(4). The adversary proceeding, 87-0874F, is scheduled for trial on February 11, 1988.

On October 29, 1987, the guardian filed a petition in Orphans' Court against another son of Sally Borbridge, named Donald Borbridge, alleging that Donald Borbridge also breached his fiduciary responsibility to his mother and requesting an accounting of the assets of the incompetent as well as a turnover of her assets to the guardian. No request was made for any damages to the extent that the incompetent's assets were wrongfully converted or dissipated. Because of the automatic stay, 11 U.S.C. § 362(a), Alan Borbridge is not a defendant in the state court petition. A hearing on the state court petition was scheduled for December 7, 1987, but not held for reasons that were never fully explained to this court; apparently no new hearing date has yet been scheduled, although the guardian believes that a hearing could be scheduled shortly, upon his request.

The movant seeks relief from the automatic stay, alleging that "cause" exists under 11 U.S.C. § 362(d)(1). He argues that he would like to bring a damage action against debtor Alan Borbridge similar to the action he intends to bring against Donald Borbridge, (depending upon the results of the accounting), and would like to bring these actions in one forum at the same time against both sons. Since bankruptcy court has no subject matter jurisdiction to hear an action by the guardian against Donald Borbridge, (see generally In re Malone, 74 B.R. 315, 318-320 (Bankr.E.D.Pa.1987)), the movant contends that judicial economy dictates that the entire matter be heard in state court. Otherwise, the movant fears he will be obligated to try the same matter twice, (albeit against different defendants), at considerable expense. Exactly what that expense would be was not quantified at the hearing held on this motion.

While the motion does not expressly so state, implicit in the guardian's request for relief from the stay is that I grant him permission to proceed in state court and also delay the trial on his adversary complaint set for February, 1988. He would prefer to have all factual matters tried in state court.

The debtor opposes the motion, contending that he has a right to have the dischargeability determination heard in this court. As this bankruptcy case is believed to be a "no asset" case, the chapter 7 trustee has taken no position concerning this motion.

II.

11 U.S.C. § 523(a) lists exceptions to discharge. Among those exceptions is § 523(a)(4) which states:

A discharge under section 727. . . . of this title does not discharge an individual debtor from any debt —

(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny.

Of some relevance to the matter sub judice is § 523(c):

(c) except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.

Section 523(c) thus represents a congressional determination that bankruptcy courts possess exclusive authority to adjudicate some dischargeability issues, (i.e. those raised by subsection (a)(2), (4) and (6)), and concurrent jurisdiction with nonbankruptcy courts to decide other nondischargeability matters:

Thus it is clear that the bankruptcy court has exclusive jurisdiction to determine the dischargeability of debts that fall within paragraphs (2) (4), or (6), because under section 523(c) the creditor must request the bankruptcy court for a determination of the dischargeability of debts within those categories. Failure to request determination of debts within paragraphs (2), (4) or (6) will result in the discharge of such debts. This represents no change from the provisions of the Bankruptcy Act. The procedure for the determination of dischargeability of a particular debt is prescribed by Bankruptcy Rule 4007. As to debts excepted from discharge other than those falling within the ambit of section 523(2), (4), and (6) the bankruptcy court has original but not exclusive jurisdiction; its jurisdiction is concurrent with the appropriate local court.

3 Collier on Bankruptcy, ¶ 523.06, at 523-36 (15th ed. 1987). Accord, In re Lagrotteria, 42 B.R. 864, 866 (Bankr.N.D.Ill.1984).

Since bankruptcy courts have exclusive jurisdiction over determinations under § 523(a)(4), the movant recognizes that I cannot grant him permission to bring his nondischargeability complaint in state court. Instead, he wishes to bring some sort of fraud or breach of fiduciary responsibility action in state court and then, if that matter is resolved successfully, to obtain a determination of his adversary proceeding in this court. He believes that the doctrine of collateral estoppel will enable him to prevail on the nondischargeability issue if he prevails against the debtor in a state court fraud action. See In re McCall, 76 B.R. 490 (Bankr.E.D.Pa.1987).

III.

I appreciate that the lack of adequate protection is not the only basis for granting a creditor relief from the automatic stay under 11 U.S.C. § 362(d)(1). In re Philadelphia Athletic Club, Inc., 9 B.R. 280, 282 (Bankr.E.D.Pa.1981). Indeed, the subsection states that relief can be granted "for cause, including the lack of adequate protection. . . ." Thus, some courts have permitted unsecured creditors to proceed against the debtor in state court "for cause" pursuant to the broad discretion accorded bankruptcy courts under § 362. See e.g., In re Castlerock Properties, 781 F.2d 159, 163 (9th Cir.1986); Matter of Holtkamp, 669 F.2d 505 (7th Cir.1982); In re Cherry, 78 B.R. 65 (Bankr.E.D.Pa.1987); In re Philadelphia Athletic Club. The easiest ground for determining that "cause" exists in favor of an unsecured creditor is when the creditor seeks to recover from nonestate property, such as under an insurance or indemnity agreement. See Matter of McGraw, 18 B.R. 140 (Bankr.W. D.Wisc.1982); 2 Collier on Bankruptcy, ¶ 362.073, at 362-62 (15th ed. 1987). However, this is not the only ground by which an unsecured creditor has obtained relief from the automatic stay. In some instances, relief has been granted because the matter in dispute would be resolved more economically, conveniently, and quickly in a nonbankruptcy forum. See In re Westwood Broadcasting, Inc., 35 B.R. 47 (Bankr.D.Hawaii 1983); In re Philadelphia Athletic Club; 2 Collier on Bankruptcy, ¶ 362.073.

A few courts, in an attempt to provide a framework within which a bankruptcy court may decide whether an unsecured creditor has met its burden of demonstrating the existence of "cause", see In re CLC of America, Inc., 68 B.R. 512, 513 (Bankr. E.D.Mo.1986), have enumerated a list of factors to be considered when deciding such a motion for relief. In re Pro Football Weekly, Inc., 60 B.R. 824 (N.D.Ill. 1986) (3 factors should be considered in deciding whether to permit an unsecured creditor to continue with a pending lawsuit); In re CLC of America, Inc., (12 factors are discussed). Similarly, Judge Scholl of this court has set forth a test for determining when cause exists which requires a balancing of the equities on a given motion for relief. In re Ziets, 79 B.R. 222 (Bankr.E.D.Pa.1987) appeal pending; In re Cherry; In re Ronald Perlstein Enterprises, Inc., 70 B.R. 1005 (Bankr.E.D. Pa.1987).

These cases recognize that the bankruptcy court's exercise of discretion in resolving motions for relief for "cause" must appropriately consider the policies underlying the Bankruptcy Code as well as the competing interests of the creditor, debtor, and other parties in interest. Each request for relief for "cause" under § 362(d)(1) must be considered on its own facts. In re Mac Donald, 755 F.2d 715 (9th Cir.1985).

IV.

In analyzing the contested matter at bench, I conclude that the guardian's motion for relief should be denied. The asserted rationale supporting relief from the stay presented by the movant does not justify a determination that this matter be heard in state court rather than here. On balance, the movant has not demonstrated that his asserted concern about having to...