In re McKenzie
| Decision Date | 03 October 2012 |
| Docket Number | 1:11-cv-192,1:12-cv-025,1:11-cv-274 |
| Parties | In re: STEVE A. MCKENZIE Debtor |
| Court | U.S. District Court — Eastern District of Tennessee |
MEMORANDUM
Before the Court are appeals from two orders issued by the United States Bankruptcy Court for the Eastern District of Tennessee (Rucker, J.). The appeals were consolidated because they arise from common questions of law and fact.1 The first order denied in part a motion for relief from the automatic stay and abandonment of collateral filed by Appellant Grant, Konvalinka & Harrison, P.C. ("Appellant" or "GKH") (Case No. 1:11-cv-192, Court File No. 2-2 (the "May 27, 2011 Order")). In ruling on Appellant's motion for relief, the bankruptcy court took under advisement several of the issues raised by Appellant. The second order addressed those outstanding issues (Case No. 1:12-cv-025, Court File No. 1-36 (the "December 9, 2011 Order")). The Appellees in this case are Steve A. McKenzie, the debtor in the bankruptcy action ("Mr. McKenzie" or the "debtor"), and Trustee C. Kenneth Still ("Trustee") ("Appellees"). The Court held oral arguments on April 18, 2012. Attorneys for all of the relevant parties were present and argued their positions before the Court.
After giving careful consideration to the parties' arguments, the relevant case law, and theevidentiary record, the Court AFFIRMS the bankruptcy court's orders dated May 27, 2011 and December 9, 2011, which are the subject of the appeals in Case Nos. 1:11-cv-192, 1:11-cv-274, and 1:12-cv-025. Because no further matters remain for adjudication, the Clerk of Court is directed to CLOSE these cases.
This case began as an involuntary Chapter 7 bankruptcy action filed against debtor Steve A. McKenzie on November 11, 2008, in the United States Bankruptcy Court for the Eastern District of Tennessee. The Chapter 7 bankruptcy was refiled as a voluntary Chapter 11 bankruptcy, and the two cases were later consolidated. All of the events discussed below arise from this consolidated bankruptcy matter.
On April 27, 2009, Appellant Grant, Konvalinka & Harrison, P.C. filed a proof of claim as a secured creditor of Mr. McKenzie. On February 7, 2011, Mr. McKenzie filed an objection to GKH's proof of claim because there were no attachments to the claim and because Mr. McKenzie believed the amount was too great. On February 9, 2011, GKH amended its proof of claim and attached documents showing a security interest in certain real estate and membership interests owned by Mr. McKenzie. On March 7, 2011, GKH filed a "Motion for Relief from Stay and Abandonment of Membership Interests and/or Stock Interests." The bankruptcy court set a hearing for March 17, 2011, to take up Appellant's motion.
Trustee Kenneth C. Still filed a motion to continue the hearing, which the bankruptcy courtgranted over GKH's objection. The bankruptcy court's order stated that the preliminary hearing required by statute would now be consolidated with the final hearing on GKH's motion for relief. The new hearing was set for May 4, 2011. On April 29, 2011, the bankruptcy court again entered an order continuing the final hearing until May 18, 2011. GKH's motion for relief was heard on May 18, 2011. On May 20, 2011, the bankruptcy court entered an order taking GKH's motion under advisement and, in light of "compelling circumstances," further extended the automatic stay and continued the hearing until May 24, 2011, the date on which the court stated it would deliver its opinion. On May 27, 2011, the final order was issued granting in part and denying in part GKH's motion for relief (the "May 27, 2011 Order"). The motion for relief was denied with respect to the debtor's membership interests in Cleveland Auto Mall, LLC, Spectrum Health Operations, LLC, and the "Exit 20" entities. The court also declared the automatic stay would remain in effect with respect to all of the pledged interests until further order of the court.
On June 10, 2011, GKH filed a precautionary motion for leave to appeal the bankruptcy court's May 27, 2011 Order. This Court granted GKH's motion for leave to appeal on January 12, 2012, taking into account the bankruptcy court's decision on December 9, 2011 (the "December 9, 2011 Order") that addressed several matters the court had previously taken under advisement in the May 27, 2011 Order. GKH seeks reversal of the bankruptcy court's orders denying in part GKH's motion for relief from the automatic stay and abandonment of collateral. GKH also requests that the automatic stay be terminated.
The district court has appellate jurisdiction to hear appeals from final judgments and ordersof the bankruptcy court pursuant to 28 U.S.C. § 158(a)(1). The bankruptcy court's factual findings are reviewed for clear error and its conclusions of law are reviewed de novo. In re Behlke, 358 F.3d 429, 433 (6th Cir. 2004). A finding of fact is considered clearly erroneous if "the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Heights Cmty. Cong. v. Hilltop Realty, Inc., 774 F.2d 135, 140 (6th Cir. 1985).
The denial of a motion for relief from the automatic stay is reviewed for an abuse of discretion because it is an equitable determination. AmeriCredit Fin. Servs., Inc. v. Nichols (In re Nichols), 440 F.3d 850, 856 (6th Cir. 2006). A decision on the application of equitable tolling is reviewed de novo when the facts that underlie the equitable tolling are undisputed and is reviewed under the abuse of discretion standard when the facts are in dispute. Chavez v. Carranza, 559 F.3d 486, 493 (6th Cir. 2009) (citing Cook v. Comm'r of Soc. Sec., 480 F.3d 432, 435 (6th Cir. 2007)).
GKH's first argument on appeal is that the bankruptcy court improperly extended the automatic stay in contravention of 11 U.S.C. § 362(e). GKH claims the bankruptcy court failed to hold a preliminary hearing as required by 11 U.S.C. § 362(e)(1) and lacked sufficient grounds to extend the stay beyond the sixty-day time limit provided by 11 U.S.C. § 362(e)(2). The Trustee, however, disputes GKH's argument because he claims GKH is relying upon the wrong Code provision when discussing the preliminary hearing requirement. The Trustee also contends the bankruptcy court had good cause for extending the stay.
Title 11, Section 362 of the United States Code outlines the procedures a bankruptcy courtshould follow when deciding whether to grant or deny relief from the automatic stay. Section 362(e) reads as follows:
(e)(1) Thirty days after a request . . . for relief from the stay . . ., such stay is terminated with respect to the party in interest making such request, unless the court, after notice and a hearing, orders such stay continued in effect pending the conclusion of, or as a result of, a final hearing and determination under subsection (d) of this section. A hearing under this subsection may be a preliminary hearing, or may be consolidated with the final hearing under subsection (d) of this section. The court shall order such stay continued . . . pending the conclusion of the final hearing . . . if there is a reasonable likelihood that the party opposing relief from such stay will prevail . . . .
11 U.S.C. § 362(e).
As a preliminary matter, 11 U.S.C. § 362(e)(2) is the proper provision to apply based on the facts of the case. Mr. McKenzie is an individual and his case was filed as a consolidated Chapter 7 and Chapter 11 bankruptcy action. Because 11 U.S.C. § 362(e)(2) was the correct provision for the court to apply, GKH's arguments that the bankruptcy court failed to hold a preliminary hearing and make findings regarding the need to consolidate the preliminary and final hearings are without merit. Section 362(e)(2) imposes no such requirement on the court.
GKH's second argument is that, even under 11 U.S.C. § 362(e)(2), the bankruptcy court lacked good cause or compelling circumstances to extend the hearing date beyond the sixty-day timeperiod allowed by statute. On April 29, 2011, the court issued an order stating it would need to continue the hearing beyond the 60-day time limit until May 18, 2011, due to "compelling circumstances." The bankruptcy court provided a detailed explanation for why there was good cause to delay the proceeding. Among other reasons, the Trustee needed to resolve issues pertaining to the employment of counsel before the bankruptcy court proceeded to the merits of GKH's motion and held a hearing. Although GKH contends these issues should have been addressed in a more timely manner, the Trustee avers GKH played a role in the timing. According to the Trustee, these issues arose because he was forced to seek new counsel approximately two weeks before GKH's motion for relief was filed. The Trustee claims he had to do so because GKH sued his former counsel for malicious prosecution and abuse of process. As an aside, the Trustee notes that the actual delay in the proceedings only lasted approximately twelve days.
Based on the evidence in the record, the bankruptcy court had good cause to delay its final decision and extend the automatic stay. This decision was within the...
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