In re Gathering Restaurant, Inc.

• Decision Date: 16 September 1986
• Docket Number: Adv. No. 86-6101.,Bankruptcy No. 86-60483
• Citation: 79 BR 992
• Parties: In re GATHERING RESTAURANT, INC., Debtor. GATHERING RESTAURANT, INC., Plaintiff, v. FIRST NATIONAL BANK OF VALPARAISO, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

79 B.R. 992 (1986)

In re GATHERING RESTAURANT, INC., Debtor.

GATHERING RESTAURANT, INC., Plaintiff, v. FIRST NATIONAL BANK OF VALPARAISO, Defendant.

Bankruptcy No. 86-60483, Adv. No. 86-6101.

United States Bankruptcy Court, N.D. Indiana, Hammond Division.

September 16, 1986.

Daniel Freeland, Highland, Ind., for debtor.

Brian J. Hurley, Valparaiso, Ind., for First Nat. Bank.

MEMORANDUM OPINION & ORDER¹

KENT LINDQUIST, Chief Judge.

I Statement of Proceedings

On July 24, 1986, the Debtor, the Gathering Restaurant Inc., (hereinafter: "Plaintiff") filed its Verified Complaint for a Permanent Injunction and Motion for Temporary Restraining Order versus First National Bank of Valparaiso (hereinafter: "Defendant") praying that Defendant be restrained and enjoined from pursuing a certain lawsuit versus Michael Rosenow (hereinafter: "guarantor"), a guarantor of the Plaintiff's indebtedness to the Defendant presently pending in the Porter Superior Court under Cause No. 86 PSC 695-B, entitled, "First National Bank of Valparaiso v. the Gathering Restaurant, Inc.", and Michael Rosenow guarantor on the grounds that the attempt by the Defendant to collect said guaranty disrupts, inhibits and impairs the ability of the Plaintiff to reorganize by virtue of the fact that the only assets available to the Plaintiff are the assets of the guarantor, and that the Defendant has attempted to collect from the guarantor because the Defendant failed to properly perfect financing statements to secure assets of Plaintiff which prohibits Defendant from receiving adequate protection payments from the Plaintiff.

On July 24, 1986, the Court entered a temporary restraining order versus the Defendant, after due notice to Defendant and set this matter down for a hearing on whether a preliminary injunction should issue on August 5, 1986.

On August 5, 1986, said hearing was held and evidence submitted and arguments heard, the Court taking the matter under advisement.

II Findings of Fact

The Plaintiff is a retail restaurant and bar operation which filed its petition for relief on March 28, 1986.

The Court takes judicial notice of the Debtor's schedule A-2 in which the Plaintiff has scheduled the Defendant as a secured creditor in the sum of $233,235.13 and which is the subject of the state suit versus the guarantor.

The Plaintiff's initial witness was John Rosenow (hereinafter: "Rosenow").

He testified that he was chief executive officer of the Plaintiff, effective August 1, 1986, and that the guarantor, who had been president of the Plaintiff resigned August 1, 1986, pursuant to a letter dated July 1, 1986 to Plaintiff's counsel (Movant's Exhibit No. 1).

Rosenow related that prior to August 1, 1986, he had been director of operations for the Plaintiff and three affiliated corporate entities who were also in the restaurant business. Those duties entailed purchasing, personnel and payroll.

Rosenow related that on August 4, 1986, the guarantor personally loaned $5,131.47 to the Plaintiff and its Merrillville, Indiana, affiliate to pay a bill from Sysco Foods for foodstuffs needed to operate those two restaurants. Rosenow did not have the exact breakdown as to the amount of the bill allocated to the Plaintiff, but surmised it was a greater portion of the bill based on the relative volume of the two operations. Admitted into evidence as Movant's Exhibit No. 1 was a cashiers check with the guarantor as remittor payable to Sysco Foods in the sum of $5,131.47 dated August 4, 1986.

Rosenow further stated that Sysco, who is the main purveyor of the Plaintiff's groceries for such items as meats, poultry, and dairy products, is selling to Plaintiff strictly on a C.O.D. basis approximately twice a week, and that if the Plaintiff suffers any cash shortfall which could not be met through emergency loans from the guarantor, the Plaintiff would not be able to effect delivery of the foodstuffs needed to be open for business.

Rosenow also related that from time to time, pre-petition, the guarantor had advanced monies to pay purveyors and that prior to the Plaintiff's petition, the Internal Revenue Service had seized the Plaintiff's liquor license and the guarantor personally advanced $20,000.00 to the Plaintiff for payment to the IRS to redeem the license. Rosenow added that the guarantor also advanced $15,000.00 of his own funds to pay Plaintiff's counsel the necessary retainer to handle this bankruptcy proceeding.

Rosenow added that he was unaware of any other source of financing purchases of foodstuffs and that in the event the Plaintiff incurred another cash shortfall and was unable to meet the C.O.D. requirements of its primary vendors, who are a requisite to the Debtor's day-to-day operations, the Debtors would in all probability be compelled to close their doors, thereby running a substantial risk that the total value of the Debtor as a going concern would be lost which might result in a successful plan not being confirmed.

Rosenow stated that since he just took over as chief executive officer of the Debtors, he did not know when a plan could be filed or what the terms thereof would be, but that the general goal of the Debtors is to keep operating and sell the businesses as an on-going concern, and that a broker had been retained for that purpose.

Rosenow admitted he did not personally know if the suit by the Defendant versus the guarantor or a judgment against the guarantor thereon, would impair the ability of the guarantor to borrow monies to in turn be lent to the Debtor or to lend monies to the Plaintiff out of present assets, nor whether the time and expense, if any, that might be devoted by the guarantor to the defense of the lawsuit would impair the guarantor's ability to lend monies to the Debtor Plaintiff when needed.

Rosenow also admitted since he just took over the operations of the Plaintiff that he did not personally know whether all other sources of post-petition financing had been exhausted by the Debtor, and had not been personally involved in the financial aspects of the Plaintiff or in attempting to negotiate any loans.

Rosenow admitted he was not familiar with the Plaintiff's monthly operating reports filed with the Court and did not know at that time what the Plaintiff's exact cash flow position was or where monies had been expended; but based on his past experience with the daily gross receipts less known payroll and daily inventory requirements, the cash flow, if positive, was very thin.

Attorney Gordon Gouveia, an attorney for a major unsecured creditor of the Plaintiff, Gordon Food Services, Inc., who is chairman of the creditors' committee, stated he had reviewed the UCC financing statements of the Defendant filed versus the Plaintiff, and since they were filed within 90 days of the Plaintiff's petition, Gordon Food Services, Inc., has objected to any adequate protection payments being made by the Plaintiff to the Defendant as an alleged secured creditor.

The Court takes judicial notice of the Plaintiff's last two monthly operating statements filed with the Court.

The monthly operating statement beginning May 1, 1986 and ending May 31, 1986, reflected a beginning cash balance of $4,960.00 and an ending cash balance of $28,195.87 with $50,252.44 expended for inventory and $33,366.88 for payroll and payroll taxes for a total of $83,619.32.

The monthly operating statement beginning June 1, 1986 and ending June 30, 1986, reflected a beginning cash balance of $10,076.20 and ending cash balance of $6,311.20 with $37,727.39 in inventory purchases and $31,108.06 for payroll and payroll taxes for a total of $68,835.45.

III Conclusions of Law and Discussion

No objections were made by the parties to the jurisdiction of this Court and the Court finds this is a core proceeding pursuant to 28 U.S.C. § 157.

The initial issue in this case is whether the Court has the jurisdiction to issue an injunction against a creditor of a non-debtor.

11 U.S.C. § 105 states as follows:

§ 105. Power of court.

(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.

The legislative history to 11 U.S.C. § 105 indicates that the limits on the powers of a Bankruptcy Judge were intended by Congress to be removed by the 1978 Code, and be consistent with the increased powers and jurisdiction of the new Court. The relevant congressional history to 11 U.S.C. § 105 is as follows:

Section 105 is derived from section 2a(15) of present law, with two changes. First, the limitations on the power of a bankruptcy judge (powers that were reserved to the district judge) are removed as inconsistent with the separation of the two courts and the increased powers and jurisdiction of the new court. But see H.R. 8200 § 405(a)(1) for limitations during the transition period. . . .

Section 105 is similar in effect to the All Writs Statute, 28 U.S.C. § 1651 . . . The section is repeated here for the sake of continuity from current law and ease of reference, and to cover any powers traditionally exercised by a bankruptcy court that are not encompassed by the All Writs Statute.

This section is also an authorization, as required under 28 U.S.C. § 2283, for a court of the United States to stay the action of a state court. As such, Toucey v. New York Life Insurance Company, 314 U.S. 118 62 S.Ct. 139, 86 L.Ed. 100 (1941), is overruled. House Report No. 95-595, 95th Cong., 1st Sess. 316 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787.

Reprinted in 4 Norton Bankruptcy Law and Practice, Annotated Legislative History, § 105 (Callaghan & Co., 1983).

The case of In re Otero Mills, Inc. 21 B.R. 777 (Bankr.N.M.1982), aff'd 25 B.R. 1018 (D.N.M.1982) generally supports the position of the Plaintiffs. That case held that under certain circumstances a Bankruptcy Court, pursuant to 11 U.S.C. § 105, has jurisdiction to issue an injunction prohibiting a creditor from proceeding in a state court...