In re Mathson Industries, Inc.

• Decision Date: 26 January 2010
• Docket Number: Civil Action No. 09-42894.,Adversary No. 09-04639-tjt.,No. 09-13148.,Civil Action No. 09-13149.,09-13148.
• Parties: In re MATHSON INDUSTRIES, INC., Debtor. Wendy Turner Lewis, Trustee of the Chapter 7 Bankruptcy Estate of Mathson Industries, Inc., Plaintiff/Appellee, v. Negri Bossi USA, Inc., Defendant/Appellant.
• Court: U.S. District Court — Eastern District of Michigan

423 B.R. 643

In re MATHSON INDUSTRIES, INC., Debtor.

Wendy Turner Lewis, Trustee of the Chapter 7 Bankruptcy Estate of Mathson Industries, Inc., Plaintiff/Appellee, v. Negri Bossi USA, Inc., Defendant/Appellant.

No. 09-13148.

Civil Action No. 09-13149.

Civil Action No. 09-42894.

Adversary No. 09-04639-tjt.

United States District Court, E.D. Michigan, Southern Division.

January 26, 2010.

COPYRIGHT MATERIAL OMITTED

OPINION AND ORDER

PATRICK J. DUGGAN, District Judge.

Wendy Turner Lewis ("Plaintiff"), Trustee of the Chapter 7 bankruptcy estate of Mathson Industries, Inc. ("Mathson"), filed an adversary proceeding against Negri Bossi USA, Inc. ("Defendant"), in the United States Bankruptcy Court for the Eastern District of Michigan on April 17, 2009. In that action, both parties filed motions for summary judgment. On July 30, 2009, United States Bankruptcy Judge Thomas J. Tucker issued a bench opinion granting, in part, Plaintiff's motion and denying Defendant's motion. Judge Tucker also entered an injunction against Defendant. On August 11, 2009, Defendant filed an appeal as of right from the injunction and a motion for leave to appeal the decisions on the motions for summary judgment. On September 30, 2009, this Court granted the motion for leave to appeal and ordered that the appeals be consolidated. The issues on appeal have now been fully briefed and the Court held oral argument on January 14, 2010.

I. Facts and Procedural Background

As part of the underlying bankruptcy case, Mathson's estate included a number injection molding machines sold to Mathson by Defendant. Mathson never paid for those machines but Defendant failed to perfect its security interest in eight machines being maintained outside of the state of Michigan. Originally valued at over $3,000,000, the eight machines were the most valuable part of Mathson's estate and Plaintiff desired to sell them at auction pursuant to 11 U.S.C. § 363.

In the underlying adversary action, Plaintiff alleges that Defendant attempted to control bidding on the machines by telling potential purchasers that it would not provide necessary services and parts—referred to in this case as "servicing capabilities"—for machines purchased from Plaintiff. By its actions, Defendant intended to suppress bidding on the machines so that it could purchase the machines at a low price from the estate and then resell them to the potential purchasers at or near full-price. (See Bankr.Ct. Bench Op. at 21-40 (summarizing record evidence).) In this way, Defendant would basically be able to recover all of its unsecured claim against Mathson.

As a result of Defendant's actions, one previously identified potential purchaser of the two largest and most expensive machines, Draexlmaier Automotive Group of America, LLC ("Draexlmaier"), informed Plaintiff that it would not be able to submit a bid for the machines. (Pl.'s Mot. for Summ. J. Ex. 12.) This left Plaintiff with only Defendant's bid for the eight machines in the amount of $100,000 plus waiver of its unsecured claim in the bankruptcy. Based on these events, Plaintiff sought relief in a two-count complaint alleging (1) violation of 11 U.S.C. § 363(n), and (2) violation of 11 U.S.C. § 362(a)(3) and (a)(6). In both counts, Plaintiff requested that the bankruptcy court exercise its power as set forth in 11 U.S.C. § 105(a) and grant injunctive relief as a remedy to the alleged violations. Plaintiff specifically requested that the bankruptcy court order Defendant to provide servicing capabilities to purchasers of the machines at a cost equivalent to what Defendant charges other customers in its ordinary course of business. At some point during these events, Draexlmaier submitted a bid for the two larger machines of $1,512,000 contingent upon assurances that Defendant would provide servicing capabilities either voluntarily or upon court order. (See Bankr.Ct. Bench Op. at 54-55.)

In a July 30, 2009, bench opinion, the bankruptcy court agreed that Defendant's conduct violated 11 U.S.C. § 362(a)(6) and granted Plaintiff summary judgment as to that claim only. Because Plaintiff sought the same relief in each of her claims, the bankruptcy court did not address the alleged violations of 11 U.S.C. §§ 362(a)(3) and 363(n). (Id. at 41, 61.) Furthermore, to the extent the bankruptcy court granted summary judgment to Plaintiff, the bankruptcy court also denied Defendant's motion for summary judgment. (Id. at 61.) To remedy the violation of 11 U.S.C. § 362(a)(6), the bankruptcy court entered the following injunctive order:

From the entry of this Order through September 1, 2012, Negri Bossi, and all agents and other persons acting in concert with Negri Bossi, are permanently enjoined from:

(a) communicating to potential purchasers of the Machines that Negri Bossi will not provide Servicing Capabilities to them if they purchase one or more of the Machines from Trustee; and

(b) refusing to provide Servicing Capabilities to the purchaser(s) of one or more of the Machines at the same cost that it charges its other customers in the ordinary course of its business for such Servicing Capabilities. In its discretion, Negri Bossi may require payment in advance in cash equivalent prior to providing any such Servicing Capabilities.

(Bankr.Ct. Perm. Inj. Order ¶ 2.) The bankruptcy court left for another day the issue of whether Defendant could be held liable for monetary damages relating to its violation. (Id.) After the issuance of the injunctive order, Draexlmaier completed its purchase of the two larger machines for $1,512,000 and Plaintiff sold the remaining six machines at public auction to Defendant for $499,730.

The primary issues on appeal include whether Defendant violated the automatic stay in a manner prohibited by 11 U.S.C § 362(a)(6) and, if so, whether the injunction entered by the bankruptcy court is an appropriate remedy for such a violation. In the event Defendant succeeds in obtaining reversal of the bankruptcy court on those issues, Defendant also seeks an order from this Court denying Plaintiff's motion for summary judgment in its entirety, granting Defendant's motion for summary judgment as to all claims, and dismissing the case.

II. Standard of Review

The bankruptcy court's findings of fact are reviewed under the clearly erroneous standard. Booher Enter. v. Eastown Auto Co. (In re Eastown Auto Co.), 215 B.R. 960, 963 (6th Cir. BAP 1998). The bankruptcy court's conclusions of law are reviewed de novo. Id. at 964. This means that the reviewing court must decide legal issues as if the issues had not been decided before. Id. Because "[t]he grant of summary judgment presents a pure question of law," the Court reviews the bankruptcy court's ruling in this case de novo. Superior Bank, FSB v. Boyd (In re Lewis), 398 F.3d 735, 746 (6th Cir.2005).

Summary judgment is appropriate only when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). The movant has an initial burden of showing "the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Once the movant meets this burden, the non-movant must come forward with specific facts showing that there is a genuine issue for trial. See Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). The court must accept as true the non-movant's evidence and draw "all justifiable inferences" in the non-movant's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). The central inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id., 477 U.S. at 251-52, 106 S.Ct. at 2512.

III. The Automatic Stay and 11 U.S.C. § 362(a)(6)

The foundation of Plaintiff's success in the bankruptcy court is Defendant's alleged violation of 11 U.S.C. § 362(a)(6). Specifically, the bankruptcy court concluded that Defendant's refusal to provide servicing capabilities to the trustee or potential purchasers and attempt to obtain the machines for far less than their actual value amounted to an "act to collect, assess, or recover a claim against the debtor that arose before the commencement" of Mathson's bankruptcy case in violation of the automatic stay. 11 U.S.C. § 362(a)(6). Defendant argues that the bankruptcy court erred, as a matter of law, in concluding that such conduct violates the automatic stay.

Before jumping to the specifics of § 362(a)(6), the Court pauses to consider the importance and purpose of the automatic stay to bankruptcy proceedings. The oft quoted legislative history of § 362 explains the intended scope and purpose of the automatic stay:

It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.

The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor's property. Those who acted first would obtain payment of their claims in preference and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure in which all creditors are treated equally.

H.R.Rep. No. 95-595, at 340 (1977), as reprinted in 1978 U.S.C.C.A.N. 5787, 6296-97; S.Rep. No. 95-989, at 49, 54-55 (1978), as reprinted in 1978 U.S.C.C.A.N. 5787, 5835, 5840-41. Although cases involving stay violations typically evoke concerns for the debtor, the unique circumstances of this case implicate the second purpose of the automatic stay. Defendant's refusal to provide services for and attempt to...