In re Fowler, 00-42400-S.

• Decision Date: 05 March 2001
• Docket Number: No. 00-42400-S.,00-42400-S.
• Citation: 259 BR 856
• Parties: In re Michael R. FOWLER and Darla J. Black Ingle, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Texas

259 B.R. 856 (2001)

In re Michael R. FOWLER and Darla J. Black Ingle, Debtors.

No. 00-42400-S.

United States Bankruptcy Court, E.D. Texas, Sherman Division.

March 5, 2001.

Jesse Saunders Freels, Jr., Sherman, TX, for Debtors.

Quentin Brogdon, Heygood, Orr, Reyes & Brogdon, Dallas, TX, for Movants.

OPINION

DONALD R. SHARP, Chief Judge.

Now before the Court for consideration is the Motion For Relief From the Automatic Stay (the "Motion") filed by Jose and Diana Betancourt, Individually, and as Next Friends of John Betancourt, Desaray Melendez, And Rebecca Sanchez, Individually, and as Representative of the Estate of Rolando Melendez, Deceased (the "Movants") and the Amended Response to same filed by the Debtor. The Motion came before the Court pursuant to regular setting and the Court has considered the pleadings filed, the argument of counsel, the record in this case and the evidence adduced in hearing. This opinion constitutes the Court's findings of fact and conclusions of law required by Fed.R.Bankr. Proc. 7052 and disposes of all issues before the Court.

FACTUAL AND PROCEDURAL HISTORY

The Debtor filed a voluntary petition under Chapter 13 of Title 11 on August 9, 2000. Included in Debtors' Schedule F— list of Unsecured Creditors and in Debtors' Statement of Financial Affairs is the suit styled Jose and Diana Betancourt, Individually, and as Next Friends of John Betancourt, Desaray Melendez, And Rebecca Sanchez, Individually, and as Representative of the Estate of Rolando Melendez, Deceased v. Fowler Enterprises, Inc., Michael Fowler and Darla Ingle and J. Guadalupe Mancera Valencia, CA 219-1025-98, pending in the 219th Judicial District Court of Collin County Texas (the "Lawsuit"). The Lawsuit was set for trial in August, 2000.

Movants filed the Motion seeking this Court's order lifting the automatic stay in this case "to liquidate Movant's damages claims in their pending personal injury suit in Collin County, Texas." Movants aver that liquidation of their claims is "necessary to determine tort liability and the value of the claims against the estate of the debtors." The Motion came on for preliminary hearing and was converted to a final hearing.

DISCUSSION

The automatic stay of § 362 prohibits Movants from proceeding against Debtor in the Collin County Court without first obtaining relief from the automatic stay. The filing of a petition under Chapter 13 of the Code operates pursuant to § 362(a) as an automatic stay of: (1) the commencement or continuation including the issuance or employment of process, of a judicial, administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; and . . . (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title. 11 U.S.C. § 362.

This section is deemed "one of the fundamental debtor protections provided by the bankruptcy laws." H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1977), reprinted in U.S.Code Cong. & Admin.News 5963, 6296; S.Rep. No. 989, 95th Cong., 2d Sess. 54, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5840. In Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47 (2d Cir.1976), cert. denied, 429 U.S. 1093, 97 S.Ct. 1107, 51 L.Ed.2d 540, reh'g denied, 430 U.S. 976, 97 S.Ct. 1670, 52 L.Ed.2d 372 (1977), the Second Circuit stated that the stay is designed to prevent a chaotic and uncontrolled scramble for the debtor's assets in a variety of uncoordinated proceedings in different courts. The stay insures that the debtor's affairs will be centralized, initially in a single forum in order to prevent conflicting judgments from different courts and in order to harmonize all of the creditors' interests with one another. Ibid. at 55.

Under 11 U.S.C. § 362(d)(1), the court may grant relief from the automatic stay "for cause". While the Bankruptcy Code does not specify what constitutes "cause" to grant relief from the stay other than "lack of adequate protection," the legislative history to the provision provides some guidance:

Subsection (d) requires the court, on request of a party in interest, to grant relief from the stay, such as by terminating, annulling, modifying, or conditioning the stay, for cause. 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. . . . A 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) (emphasis added). When relief from the automatic stay is sought, the party seeking the relief has an initial burden to demonstrate cause for relief. In re RCM Global Long Term Capital Appreciation Fund. Ltd., 200 B.R. 514, 526 (Bankr.S.D.N.Y.1996); In re Stranahan Gear Company, Inc., 67 B.R. 834, 836-37 (Bankr.E.D.Pa.1986).

In re Bruce, 2000 WL 968777 at *8.

Ultimately, the granting of relief from the automatic stay is left to the discretion of the Bankruptcy Court and decided on a case by case basis. Some factors commonly considered by Bankruptcy Courts in determining that "cause" exists for such relief include whether the bankruptcy case was filed, as in this instance, on the eve of trial, whether there is a lack of connection with or interference with the bankruptcy case (e.g., a child custody action), whether prejudice to the bankruptcy estate results and whether the unsecured creditor seeking relief intends to recover from non-estate property. In re Borbidge, 81 B.R. 332 (Bkrtcy.E.D.Pa.1988).¹ In regard to the latter fact scenario, the Borbidge Court specifically referred to creditors seeking recovery from insurance proceeds. (See also In re Honosky, 6 B.R. 667 (Bkrtcy.S.D.W.Va.1980) for a discussion that includes cases so decided under the Bankruptcy Act.) At the hearing Movants argued that the Collin County litigation was necessary because the insurance proceeds would not cover the medical bills incurred. Although there was no evidence on the adequacy of the insurance policy limits or on the extent of the medical expenses, the Court must conclude that, in this case, Movants do not seek to limit their recovery to insurance proceeds.

Defendants argue that liquidation of their claims is necessary "to determine tort liability and the value of the claims against the Debtors' estate."² Courts frequently consider the issue of determining liability and valuing claims. In the case Matter of McGraw, 18 B.R. 140 (Bkrtcy. W.D.Wis.1982), creditors sought to terminate the automatic stay to proceed with litigation of a personal injury case arising from an automobile accident. The Court's threshold question was whether the debtor's presence as a defendant in the creditors' civil suit was required for an adjudication of debtor's employer's vicarious liability under the doctrine of respondent superior and the apportionment of negligence between the parties. The Court determined that:

"The more difficult question arises in determining whether the protection afforded a debtor in bankruptcy should be modified and reduced to permit and require McGraw to participate in the trial as a party defendant. Both the U.S. Congress and federal bankruptcy courts have recognized that relief from the 11 U.S.C. § 362 stay is permissible in some limited circumstances. Courts have allowed tailoring of the 11 U.S.C. § 362 stay to permit the continuance of a civil suit with a debtor where two conditions were met." cites omitted here These conditions are that:

(a) No "great prejudice" to either the bankruptcy estate or the debtor must result from the continuance of the civil action, and

(b) the hardship to the plaintiff caused by the continuance of the stay considerably outweighs the hardship caused to the debtor by modification of the stay.

Some elements of "great prejudice" have been identified. "Great prejudice" results if the debtor/bankrupt is held personally liable, for purposes of collection, for a civil damage award.

Matter of McGraw, Ibid at 143 citing to In re Terry, 12 B.R. 578, 581 (Bkrtcy. E.D.Wis.1981).

The facts of this case, as sketchily developed at the hearing, are that Defendants filed a civil suit to recover damages sustained in a pre-petition automobile collision. Although it is not stated in the pleadings and was not revealed until well into the hearing on the Motion, neither of the Debtors were involved in the collision. Rather, it appears that Mr. Fowler is the employer of the truck driver of one of the vehicles involved in the collision; such employee is alleged to have caused the accident that resulted in the Defendants' medical expenses and the death of a minor. Movants have not informed this Court at the hearing or in pleading of the specific bases of its claims against Mr. Fowler, but it is presumably a claim under respondent superior. Respondent asserted and Movant did not deny that the limits of the Debtors' applicable insurance policy have been offered to Movants or,...