In re Curtis, Bankruptcy No. 83A-02417.
| Decision Date | 11 June 1984 |
| Docket Number | Bankruptcy No. 83A-02417. |
| Citation | 40 BR 795 |
| Court | U.S. Bankruptcy Court — District of Utah |
| Parties | In re Gene CURTIS, fdba G & B Investment, fdba GBI Investment, dba Western Syndications, and Bonnie Curtis, fdba G & B Investment, fdba GBI Investment, Debtors. |
Robert B. Sykes, Salt Lake City, Utah, for Stewart D. Burton and Dorothy B. Burton, Paul L. Wood and Cheren Wood.
Nicholas F. McKean and R. Kimball Mosier, Mosier & McKean, Salt Lake City, Utah, for Gene Curtis and Bonnie Curtis.
This matter comes before the Court upon the motion of Stewart D. Burton, Dorothy B. Burton, Paul L. Wood and Cheren Wood (hereinafter "movants") to modify the automatic stay provided in 11 U.S.C. § 362(a) in order to join the debtors as defendants in a pending state court proceeding. A complete review of the record in this case and a weighing of all of the relevant factors indicates that relief from the stay should not be granted.
The debtors, Gene and Bonnie Curtis, filed their joint petition under Chapter 11 on September 6, 1983. On October 11, 1983, movants commenced a civil action in the Third Judicial District Court of Salt Lake County, Utah, against several persons with whom the debtors were alleged to have been associated in connection with an agreement to exchange property, which was executed in 1982. The complaint generally alleges that Gene Curtis negotiated the transaction on behalf of the defendants, and that he and the defendants made fraudulent representations and concealed material facts concerning the property exchange. On October 12, 1983, movants sought relief from the automatic stay to permit them to join the debtors as parties defendant and sue them for fraud, negligent misrepresentation and breach of contract in that proceeding.1
A hearing was held on November 7, 1983, to consider the stay motion. After considering the memoranda and arguments of counsel, the Court denied the motion. However, on January 31, 1984, this court entered an order authorizing movants to depose the debtors and call them as witnesses in the state court action.
Movants sought leave to appeal the order denying their motion for relief from the stay,2 and the district court granted leave to appeal. Briefs were submitted and oral argument was heard on March 27, 1984. On April 3, 1984, the district court entered a memorandum decision and order vacating this Court's order denying relief from the automatic stay.3 The district court found that the record did not show that this Court had weighed all of the relevant factors in denying the motion for relief from the stay.4 The district court remanded the case with instructions to consider such factors and balance the hardships to the parties.
On remand, this Court held an evidentiary hearing to reconsider movant's request for relief from the stay in light of the district court's decision. At the hearing movants were afforded an opportunity to be heard on the question of modification of the stay, to present evidence, and to argue the law. Movants presented no evidence in support of their motion, but urged the court to consider three factors in making its determination. First, it was argued that judicial economy favored modification since substantial discovery had already been completed in the state court action and a state court judgment would be res judicata in a subsequent dischargeability proceeding in the bankruptcy court. Second, it was argued that the financial hardship to the movants warranted relief. Movants considered the costs of having to litigate in two forums to be prohibitively expensive. Third, counsel expressed concern that prejudicial delay would result if the case had to be decided in a jury trial in the district court under the Emergency Rule.5 In response, the debtors contended that movants failed to meet their burden of proof. It was argued that no showing was made that a denial of relief would cause great hardship to movants, or that they would be prejudiced by an adjudication of their claims in the bankruptcy court. The debtors further argued that the state court's determination on the issue of fraud would not be res judicata in a dischargeability proceeding in the bankruptcy court, and would have to be relitigated. The debtors argued that the time and expense of litigating liability in state court and dischargeability in the bankruptcy court would cause great prejudice to the administration of the Chapter 11 case.
Movants' request for relief from the automatic stay is governed by Section 362(d)(1) of the Bankruptcy Code, which provides:
The automatic stay is, of course, one of the fundamental debtor protections under the Bankruptcy Code. H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 340 (1977), 1978 U.S.Code Cong. & Admin.News, 5787, p. 6296. See 2 COLLIER ON BANKRUPTCY ¶ 362.04 (15th ed. 1984); 1 W. Norton, BANKRUPTCY LAW AND PRACTICE § 20.04 (1981); R. Aaron, BANKRUPTCY LAW FUNDAMENTALS § 5.01 (1984); Kennedy, "Automatic Stays Under the New Bankruptcy Law," 12 U.Mich.J.L.Ref. 1, 10-24 (1978). Its primary purpose is to protect the debtor and its estate from creditors. S.Rep. No. 95-989, 95th Cong., 2d Sess. 52 (1978), 1978 U.S.Code Cong. & Admin.News, p. 5838.
The automatic stay is intended Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47, 55 (2nd Cir.1976), cert. denied 429 U.S. 1093, 97 S.Ct. 1107, 51 L.Ed.2d 540 (1977). The automatic stay implements two goals. First, it prevents the diminution or dissipation of the assets of the debtor's estate during the pendency of the bankruptcy case. Second, it enables the debtor to avoid the multiplicity of claims against the estate arising in different forums. In re Larkham, 31 B.R. 273, 276, 10 B.C.D. 1093 (Bkrtcy.D.Vt.1983). Stated differently, the policy underlying the automatic stay is to protect the debtor's estate from "the chaos and wasteful depletion resulting from multifold, uncoordinated and possibly conflicting litigation." In re Frigitemp. Corp., 8 B.R. 284, 289 (S.D.N.Y.1981).
Congress recognized that in some circumstances it would be appropriate to modify the automatic stay "for cause" to permit an action to proceed before another tribunal. The term "cause" is not defined in the Bankruptcy Code. In re Curlew Valley Associates, No. 80-00876 () (Bkrtcy.D.Utah April 3, 1981).6 The decision is necessarily one involving an exercise of the court's discretion. See In re Olmstead, 608 F.2d 1365, 1367 (10th Cir.1979) (). The bankruptcy court exercises the power to modify or vacate the stay "according to the particular circumstances of the case and is to be guided by considerations that under the law make for the ascertainment of what is just to the claimants, the debtor and the estate." Foust v. Munson Steamship Lines, 299 U.S. 77, 83, 57 Ct. 90, 93, 81 L.Ed. 49 (1936).
The House Report accompanying H.R. 8200 illustrates several situations in which it might be appropriate to modify the stay to permit litigation in another forum:
The lack of adequate protection of an interest in property of the party requesting relief from the stay is one cause for relief, but is not the only cause. As noted above, a desire to permit an action to proceed to completion in another tribunal may provide another cause. Other causes might include the lack of any connection with or interference with the pending bankruptcy case. For example, a divorce or child custody proceeding involving the debtor may bear no relation to the bankruptcy case. In that case, it should not be stayed. A probate proceeding in which the debtor is the executor or administrator of another\'s estate usually will not be related to the bankruptcy case, and should not be stayed. Generally, proceedings in which the debtor is a fiduciary, or involving postpetition activities of the debtor, need not be stayed because they bear no relationship to the purpose of the automatic stay, which is debtor protection from his creditors. The facts of each request will determine whether relief is appropriate under the circumstances.
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 343-44 (1977), 1978 U.S.Code Cong. & Admin.News, p. 6300. See also S.Rep. No. 95-989, 95th Cong., 2d Sess. 52 (1978), 1978 U.S.Code Cong. & Admin.News, p. 5838. The legislative history of Section 362(d)(1) thus suggests that Congress intended to limit relief from the stay to a fairly narrow category of circumstances bearing little relationship to the bankruptcy case or to the purpose of the stay.
Although Section 362 does not attempt to define the parameters of the term "for cause," case law under the Code has recognized certain relevant factors which may be considered in making a determination of whether or not to modify the stay to permit litigation against the debtor to proceed in another forum:
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...set of factors for analyzing whether cause exists." In re Gindi, 642 F.3d at 872. Courts often turn to 12 non-exclusive factors identified in Curtis to assist in the analysis. See, e.g., re Busch, 294 B.R. 137, 141 (10th Cir. BAP 2003) ("Twelve factors were identified in [Curtis] as some of......