In re Sanjel (Usa) Inc.

• Decision Date: 28 July 2016
• Docket Number: CASE NO. 16-50778-CAG
• Parties: IN RE: SANJEL (USA) INC., et al., Debtors in a foreign proceeding.
• Court: U.S. Bankruptcy Court — Western District of Texas

IN RE: SANJEL (USA) INC., et al., Debtorsin a foreign proceeding.

CASE NO. 16-50778-CAG

UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION

July 28, 2016

IT IS HEREBY ADJUDGED and DECREED that the below described is SO ORDERED.

CHAPTER 15

ORDER GRANTING, IN PART, DARELL DAVIS'S AND CHRISTOPHER KELLER'S MOTION FOR RELIEF FROM STAY(ECF No. 280) AND MODIFYING RECOGNITION ORDER (ECF No. 185)

Came on to be considered the above-numbered bankruptcy case, and, in particular, Darell Davis's and Christopher Kelly's Motion for Relief from Automatic Stay(ECF No. 280)¹(the "Motion"), and Debtors' Response thereto (ECF No. 373).²This Court held a hearing on the Motion on July 11, 2016, and took the matter under advisement the same day.³For the reasons stated below, the Court finds that the Motion should be GRANTED, IN PART, and the Court's Recognition Order shall be modified.

This Court has jurisdiction over this proceeding under 28 U.S.C. §§ 157and1334.Venue isproper under 28 U.S.C. §§ 1410and1408.This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(P)(recognition of foreign proceedings and other matters under Chapter 15 of title 11), in which this Court may enter a final order.As such, this Court makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052, made applicable to this proceeding pursuant to Fed. R. Bankr. P. 9014.

BACKGROUND AND PARTIES' CONTENTIONS

Debtors in this case are Sanjel (USA) Inc. and related entities.⁴Movants seeking relief from stay are Darell Davis and Christopher Keller, the named plaintiffs in two collective actions alleging violations of the Fair Labor Standards Actpending in the United States District Court for the District of Colorado.⁵

On April 4, 2016, the Court of Queen's Bench of Alberta ("Canadian Court") granted an order pursuant to the Companies' Creditor Arrangement Act ("CCAA"), which extended relief to Debtors during the bankruptcy proceedings ("Initial Order").The Initial Order also extended broad stay protection to Debtors' directors and officers stating, "During the Stay Period . . . no Proceeding may be commenced or continued against any of the former, current or future directors or officers of any of the Applicants . . ."(hereinafter the "D&O Stay")(ECF No. 1, Exhibit A¶ 20).Further, the Initial Order gave specific stay protections to Paul Crilly, Debtors' CRO, stating, "No action or other proceeding shall be commenced against or in respect of the CRO, except with the written consent of the CRO or with leave of this Court on notice to the CRO, the Monitor, and the Applicants."(hereinafter, the "CRO Stay")(ECF No. 1, Exhibit A¶14).

Following entry of the Initial Order, on April 4, 2016, Debtors filed a Petition for Recognition of Foreign Proceedings("Petition") with this Court(ECF No. 1).In their Petition, Debtors requested that the proceedings in Canada be recognized as foreign main proceedings and included a copy of the Initial Order.On the same day, the Monitor filed an "Emergency Application" requesting immediate reliefunder 11 U.S.C. §§ 105(A),1519, and1521⁶ and also filed an Expedited Petition for Recognition under §§ 1515and1517(ECF Nos. 6, 9).Initially, on April 6, 2016, this Court granted temporary relief to the Debtors under § 1519(ECF No. 43).On April 29, 2016, this Court granted recognition of the Canadian proceedings under § 1517 and extended discretionary relief under § 1521 by entry of the Recognition Order (ECF No. 185).

The Recognition Order gave force to the Initial Order in a number of areas, including with respect to the Initial Order's stay provisions.Specifically, the Recognition Order states:

Except with respect to the provisions of the Initial Order relating to the Interim Financing and Interim Financing Charge, the terms of the Initial Order are given full force and effect in the United States.

(ECF No. 185, ¶ 2).

. . .

The Monitor and the Chapter 15 Debtors are granted all relief afforded under Section 1520 of the Bankruptcy Code except for those powers set forth in Section 1520(a)(3), which shall remain with the Chapter 15 Debtors, including the following: (a).Sections 361,362and365 of the Bankruptcy Code apply with respect to the Chapter 15 Debtors and the property of the Chapter 15 Debtors that is within the territorial jurisdiction of the United States; provided, however, that nothing herein shall limit the right of any party-in-interest to seek relief to modify the stay under 11 U.S.C. § 362(and the right of any party, including the Monitor and the Chapter 15 Debtors, to contest any such relief), including, without limitation, the right of the Bond Trustee to seek to modify the stay to permit it to file an involuntary petition pursuant to 11 U.S.C. § 303.

(ECF No. 185, ¶ 3).

. . .

The following additional relief is granted pursuant to Section 1521 of the Bankruptcy Code: (a.)The commencement or continuation of any action or proceeding concerning the assets, rights, obligations or liabilities of the Chapter 15 Debtors, including any action or proceeding against PwC in its capacity as Monitor of the Chapter 15 Debtors, to the extent not stayed under Section 1520(a) of the Bankruptcy Code, is hereby stayed.

(ECF No. 185, ¶ 6).

. . .

(c.)Subject to further order of the Court, the administration or realization of all or part of the assets of the Chapter 15 Debtors within the territorial jurisdiction of the United Statesis hereby entrusted to the Chapter 15 Debtors.The terms of the Initial Order shall apply to the Chapter 15 Debtors, its creditors, the monitor, and any other parties-in-interest.

(ECF No. 185, ¶ 6).

On May 27, 2016, about one month after this Court granted the Recognition Order, Movants filed their Motion seeking to lift or modify the stay to allow Movants to pursue their Fair Labor Standards Act("FLSA"), claims pursuant to 29 U.S.C. § 216 against Debtors' directors and officers (ECF No. 280).⁷Movants contend that, although this Court's orders do not specifically bar claims against directors and officers, this Court gave full force and effect to those provisions in the Initial Order which insulate directors and officers.Movants argue that, under the FLSA, employees have a statutory cause of action against corporate officers and directors, and the statute of limitations on former employees' claims continues to run during the pendency of the Chapter 15 case, possibly extinguishing employee claims if the D&O Stay remains in effect in the United States.Movants provided a proposed form of order that asks this Court to lift or modify the automatic stay provisions of § 362.⁸

In response, Debtors contend that U.S. courts have "universally upheld" director and officer stays issued by Canadian courts pursuant to the CCAA, that Movants have not established that this Court should modify relief, and that Movants incorrectly requested this Court lift the § 362 stay—which does not apply to directors and officers.Debtors argue that Movants are not prejudiced by imposition of the D&O Stay because Movants have had the opportunity—and will continue to have opportunities—to bring their claims for relief from the D&O and CRO stays in the Initial Order before the Canadian court.Further, Debtors argue Movants' requested relief will result in prejudice to Debtors because continuation of Movants' litigation would occupy their limited personnel with onerous discovery and damage Debtors'ability to efficiently conclude the remaining restructuring tasks in the Chapter 15 case and CCAA proceeding.

ANALYSIS

As an initial matter, the Court notes that the relief requested in Movants' Motion is simply relief from the stay so that Movants may pursue their FLSA claims against the Debtors' directors and officers in United States District Court.The method by which Movants propose to accomplish the goal of this relief is less than clear.Movants offer arguments related to lifting the § 362 stay but also allude to modification of the Recognition Order in the United States to except Movants from the D&O Stay imposed by the Initial Order in Canada.As a result, this Court must first examine the statutory framework of Chapter 15 and the language of the orders entered by the Court in this Chapter 15 case.Thereafter, the Court must determine whether the Movants' requested relief may be granted based on their Motion and whether the Court may act notwithstanding Movants' Motion.Finally, if the Court determines that it may act to grant relief, the Court must determine whether it should act and to what extent relief from the stay is appropriate.Further, the Court must make these determinations with only a handful of cases constituting non-binding precedent to help guide the Court to its conclusion.

In engaging in the above analysis, the Court first finds that the § 362 automatic stay does not apply to Debtors' directors and officers and is therefore, insufficient to provide Movants with the relief from the D&O Stay which they seek.Second, the Court finds that § 1522(c) authorizes this Court to modify the Recognition Order, notwithstanding any deficiencies in Movants' Motion.Finally, after balancing the hardships and ensuring that interested parties are sufficiently protected, the Court finds that limited modifications to previously granted relief in the Recognition Order is appropriate under § 1522(a).

I.Lifting the § 362 Stay is Insufficient to Allow Movants to Proceed in U.S. District Court Against Debtors' Directors and Officers.

In their Motion, Movants offer arguments requesting relief from the § 362 stay in order to pursue their claims against Debtors' directors and officers.The Court finds, however, that providing relief from the § 362 automatic stay is insufficient to accomplish Movants' goal of opening a path to recover against Debtors' directors and officers.Further, lifting the § 362 stay has no bearing on the D&O Stay fromwhich Movants seek relief and...