In re Farwell
| Decision Date | 22 December 2015 |
| Docket Number | Case No. 14-10126 |
| Parties | IN RE: LINDA E. FARWELL, Debtor |
| Court | U.S. Bankruptcy Court — District of Maryland |
Not for publication in West's Bankruptcy Reporter.
The debtor has moved for a stay pending the appeal of this court's Order Terminating Automatic Stay (Real Property at 15712 Jones Lane, Gaithersburg, Maryland 20878) (Dkt. No. 141), entered in favor of MTGLQ Investors, LP, Movant (Rushmore Loan Management Services, LLC, Servicer) ("MTGLQ"). That order granted relief from the automatic stay of 11 U.S.C. § 362(a) to permit MTGLQ to proceed to foreclose upon the debtor's real property on Jones Lane, property that the debtor concedes lacks equity. The motion for a stay pending appeal must be denied.
Granting a stay pending appeal is "always an extraordinary remedy," Bhd. of Railway & Steamship Clerks v. Nat'l Mediation Bd., 374 F.2d 269, 275 (D.C. Cir. 1966), and the moving party carries a heavy burden to demonstrate that the stay is warranted, Cuomo v. U.S. Nuclear Regulatory Comm'n, 772 F.2d 972, 974 (D.C. Cir. 1985). This follows because, as stated in Nken v. Holder, 556 U.S. 418, 427 (2009):
A stay is an "intrusion into the ordinary processes of administration and judicial review," Virginia Petroleum Jobbers Assn. v. Federal Power Comm'n, 259 F.2d 921, 925 (C.A.D.C.1958) (per curiam ), and accordingly "is not a matter of right, even if irreparable injury might otherwise result to the appellant," Virginian R. Co. v. United States, 272 U.S. 658, 672, 47 S.Ct. 222, 71 L.Ed. 463 (1926). The parties and the public, while entitled to both careful review and a meaningful decision, are also generally entitled to the prompt execution of orders that the legislature has made final.
I next address the standard for a stay pending appeal.
In exercising its discretion in deciding whether to grant a stay pending appeal, a court considers:
four factors: "(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies."
Nken, 556 U.S. at 434 (2009) (quoting Hilton v. Braunskill, 481 U.S. 770, 776 (1987)). "The party requesting a stay bears the burden of showing that the circumstances justify an exercise of that discretion." Nken, 556 U.S. at 433-34. The first two of these factors "are the most critical," and "[i]t is not enoughthat the chance of success on the merits be 'better than negligible.'" Nken, 556 U.S. at 434 (quoting Sofinet v. INS, 188 F.3d 703, 707 (7th Cir. 1999)). More than a mere "possibililty" of relief is required. Id. At a minimum, the appellant must show that there is a substantial case for relief on the merits. Lair v. Bullock, 697 F.3d 1200, 1204 (9th Cir. 2012). Similarly, more than a mere "possibility" of irreparable harm to the movant must be shown. Nken, 556 U.S. at 434-35.
MTGLQ contends that Winter v. Natural Res. Defense Council, Inc., 555 U.S. 7, 22 (2008), sets forth the applicable standard for a stay pending appeal in this case. I need not decide whether Winter applies.
Winter addressed the standards for granting a preliminary injunction, not a stay pending appeal. For the following reasons, arguably what is at stake here is an injunction pending appeal. The automatic stay of 11 U.S.C. § 362(a) merely preserved the status quo until the bankruptcy court could decide whether the stay should be terminated under 11 U.S.C. § 362(d). The bankruptcy court granted relief from the automatic stay under 11 U.S.C. § 362(d)(2) because the debtor failed to demonstrate, as was her burden under 11 U.S.C. § 362(g), that the property (in which the debtor concedes there is no equity) was necessary for an effective reorganization. In other words, the debtor failed to demonstrate that MTGLQ should remain enjoined from conductinga foreclosure sale. Granting the motion for a stay would enjoin MTGLQ from conducting a foreclosure sale by undoing the termination of the automatic stay that the debtor was required to show should remain in place.
However, it does not matter whether Winter or Nken applies. First, MTGLQ does not need to rely on Winter if, arguendo, the Winter test for obtaining a preliminary injunction could be viewed as more difficult to meet than the Nken test for obtaining a stay pending appeal: under the standards set forth in Nken, the requested stay pending appeal must be denied.
Second, Winter's standards for a preliminary injunction are practically identical to those for a stay pending appeal. Under Winter, 555 U.S. at 20:
A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.
(Citations omitted.) Many courts view a stay pending appeal and an injunction pending appeal as governed by the same standard. See, e.g., McCammon v. United States, 584 F. Supp. 2d 193, 196 (D.D.C. 2008) (). Indeed, Nken adopted as applicable to a motion for a stay pending appeal Winter's view that more than a mere "possibililty" of relief is required to obtain a preliminaryinjunction.1
Considering the factors set forth in Nken, the debtor is clearly not entitled to a stay pending appeal.
As to the first factor of whether there is a likelihood of success pending appeal, the debtor has no possibility of prevailing on appeal. The appeal is frivolous.
Under 11 U.S.C. § 362(d)(2), the bankruptcy court was required to grant relief from the automatic stay:
The bankruptcy court correctly determined that it was required to grant relief from the automatic stay pursuant to that provision.
A party seeking to lift the stay "has the burden of proof onthe issue of the debtor's equity in the property." 11 U.S.C. § 362(g)(1); however, the debtor has "the burden of proof on all other issues." 11 U.S.C. § 362(g)(2). Here, there was no dispute that the debtor does not have any equity in the property at issue within the meaning of § 362(d)(2)(A). At the hearing, MTGLQ's claim stood at $997,521.33, close to a million dollars, and far in excess of the value of the property as evidenced by the debtor's attempt to have the court value the property as worth $285,000.00. Accordingly, relief from the stay was necessary unless the debtor showed under § 362(d)(2)(B) that the property is necessary for an effective reorganization, as the burden in that regard is on the debtor. United Sav. Ass'n v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 376 (1988).
Under the standard set by the Supreme Court in Timbers, to establish that the property is necessary for an effective reorganization under § 362(d)(2)(B), a debtor is required to show that 484 U.S. at 376 (citations and internal quotations omitted). Here, there is no possibility of a confirmed plan when MTGLQ desires to proceed with a foreclosure sale instead of dealing with the debtor via a reorganization plan. As discussed below, if MTGLQ, as it has made clear, will vote its unsecured claim in favor of rejection of any plan, itwill be impossible for the debtor to obtain a confirmed plan because the debtor will be unable to comply with the absolute priority rule embodied in 11 U.S.C. § 1129(b)(2)(B)(ii).
The debtor plainly is unable to pay the entire $997,521.33 owed to MTGLQ. For that reason, she has sought under 11 U.S.C. § 506(a) to bifurcate MTGLQ's claim into a secured claim for the alleged $285,000 value of its collateral and an unsecured claim for the balance of the $921,2039.50 amount owed on the claim as of the petition date. That unsecured claim will doom any plan. Whatever the value of the collateral may be (ranging from the value the debtor asserts to the value MTGLQ asserts), the debtor cannot attain a confirmed plan in the face of MTGLQ's obvious opposition to a plan being confirmed. For this reason, the debtor's complaint regarding the delay in obtaining a hearing to value the collateral is meaningless.
Unless MTGLQ made an election under 11 U.S.C. § 1111(b) (), MTGLQ would be entitled to cast a vote on the plan with respect to the unsecured portion of its claim. Under 11 U.S.C. § 1126(c), with an exception of no relevance here, a plan is not accepted by a class when the plan is rejected by creditors "that hold at least two-thirds in amount . . . of the allowed claims of such class held by creditors . . . that have accepted or rejected such plan." The unsecured claims in the case, other than MTGLQ's unsecured claim, total$13,396.37.2 Even if MTGLQ's unsecured claim were placed in the same class as those claims, the plan would be rejected by the class under § 1126(c) if MTGLQ voted its unsecured claim against confirmation because the amount of its unsecured claim dwarfs the aggregate $13,396.37 amount of those other unsecured claims.3
Because the class containing MTGLQ's unsecured claim would be a rejecting class, a plan could not be confirmed. This is because of the so-called absolute priority rule under which a plan that allows a debtor to retain...
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