In re Simpson, Case # 17-10442
| Decision Date | 23 April 2018 |
| Docket Number | Case # 17-10442 |
| Court | U.S. Bankruptcy Court — District of Vermont |
| Parties | In re: Robert and Tay Simpson, Debtors. |
Formatted for Electronic Distribution
Not for Publication
Rutland, Vermont
Bernard Lambek, Esq.
Montpelier, Vermont
For Vermont Agricultural Credit Corp.
Elizabeth Glynn, Esq.
Rutland, Vermont
For People's United Bank, N.A.
Gary Franklin, Esq.
Burlington, Vermont
Jan M. Sensenich, Esq.
Norwich, Vermont
Melissa Ranaldo, Esq.
U.S. Attorney's Office
Burlington, Vermont
Before the Court is the Debtors' motion, pursuant to Bankruptcy Rule 8007, for a stay pending appeal (doc. # 59) of this Court's order finding a prepetition waiver to be enforceable (doc. # 41), order granting relief from stay to Wells Fargo Financial Leasing, Inc. ("Wells Fargo") (doc. # 42), and order granting relief from stay to Vermont Agricultural Credit Corporation ("VACC") (doc. # 43). The Debtors argue they are entitled to a stay because they have a substantial possibility of success on appeal and will suffer irreparable harm if the Court denies them a stay (doc. # 59). Additionally, the Debtors assert the granting of a stay will not substantially harm either Wells Fargo or VACC, and the balance of public interest concerns weighs in favor of the imposition of a stay (doc. # 59).
Wells Fargo opposes the Motion, arguing the Debtors are unlikely to succeed in their appeal, will not suffer any irreparable injury without a stay, and have failed to show the granting of a stay is consistent with public interests (doc. # 63). Wells Fargo also contends the granting of a stay will cause it to suffer significant and continuing loss, through further erosion of its secured status.
Based upon the record in this case, the arguments presented at the March 2, 2018 hearing, and for the reasons set forth below, the Court finds the Debtors have failed to establish they are entitled to a stay pending appeal.
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 157 and 1334, and the Amended Order of Reference entered on June 22, 2012. The Court declares the Debtor's motion for a stay pending appeal, and Wells Fargo's objection to the motion, create a core proceeding for purposes of 28 U.S.C. § 157(b)(2)(A), over which this Court has constitutional authority to enter a final judgment.
This is the second chapter 12 case the Debtors have filed in 6 years. They filed the earlier case on June 27, 2012; it was dismissed, on the Debtors' motion, just a couple of months later, on August 30, 2012. The Debtors sought dismissal of that case ten days after this Court entered an order determining that Wells Fargo, rather than the Debtors, owned certain buildings and equipment that were subject to a lease (case # 12-10564, doc. # 58).
The record indicates that, following dismissal of the first chapter 12 case, the Debtors and Wells Fargo were involved in a protracted and aggressively litigated foreclosure action in state court, then participated in a multi-day mediation session, and ultimately entered into a settlement agreement with an effective date of November 1, 2016 (the "Settlement Agreement"), see doc. # 11, Ex. G. Among other things, and most germane to the instant dispute, the Settlement Agreement included the following terms: (1) the Debtors owed $1,500,000 to Wells Fargo; (2) if the Debtors paid Wells Fargo within 18 months, they could satisfy the debt in full for a deeply discounted amount (with the discount reducing incrementally over that 18-month period); (3) if the Debtors complied with the Settlement Agreement, Wells Fargo would dismiss the foreclosure action; (4) if the Debtors did not comply with the Settlement Agreement, they consented to Wells Fargo entering a judgment in its favor in the amount of $1,500,000 and a decree for foreclosure; and (5) if the Debtors filed a bankruptcy case prior to satisfying the Wells Fargo debt, "they [would] not contest a motion filed by Wells Fargo requesting relief from the automatic stay, as set forth in 11 U.S.C. § 362(d), to allow Wells Fargo to enforce its rights hereunder and pursuant to the Judgement." Settlement Agreement, doc. # 11, Ex. G at ¶ 5(B). The Debtors and Wells Fargo alsoexecuted mutual general releases that they would exchange upon full performance of the Settlement Agreement. The Debtors did not pay Wells Fargo within 18 months. Instead, the Debtors defaulted on their obligations under the Settlement Agreement. The senior mortgagee, VACC, issued a notice of sale by foreclosure and obtained an order scheduling a foreclosure sale of the Debtors' property on October 13, 2017 (doc. # 11).
On October 9, 2017, four days before the scheduled foreclosure sale, the Debtors filed the instant chapter 12 case. The Debtors asserted then, and continue to assert, they intend to sell some of the equipment and land securing the debts of VACC and Wells Fargo, and through these private sales, the Debtors will satisfy both mortgage debts in full - and sooner than if the creditors pursued an auction of the Debtors' property through the pending foreclosure action.
On November 3, 2017, Wells Fargo filed a motion for relief from stay (doc. # 11) which propounded three grounds for relief: (i) waiver, based upon the Settlement Agreement; (ii) lack of adequate protection, based upon the Debtors' failure to make any payments since January 2012; and (iii) lack of equity in property and the Debtors' inability to show the property is necessary to their effective reorganization. In response, the Debtors filed an abbreviated, one-page objection (doc. # 21) to Wells Fargo's motion asserting there was equity in the property and the property was necessary for their effective reorganization. The objection also stated the Debtors had two written contracts for the sale of portions of their real estate, which would result in proceeds of $625,000, there was another party interested in purchasing 200 acres of cropland for $750,000-$800,000, and they anticipated selling certain milking and farming equipment to generate additional funds to pay their secured debt. They concluded by declaring they had sufficient assets, and the ability, to pay off the secured debts and pay a dividend to their unsecured creditors through their chapter 12 case. On November 7, 2017, VACC filed a motion for relief from stay to pursue its rights against the Debtors' real and personal property (doc. # 14). The Debtors filed an objection to that motion (doc. # 22), reciting the same sales contracts information and conclusion set forth in their objection to the Wells Fargo motion. The Debtors subsequently filed a more detailed supplemental objection (doc. # 39) to the two relief from stay motions, and the parties filed a joint notice of evidentiary hearing (doc. # 37).
The Court set an evidentiary hearing on the two motions for relief from stay and the Debtors' objections for January 19, 2018.1 All interested parties presented legal arguments and introducedtestimony and documentary evidence. At the conclusion of the hearing, the Court took the matter under advisement.
On January 25, 2018, the Court entered three orders: an order declaring the prepetition waiver of the Settlement Agreement to be enforceable (doc. # 41), an order granting Wells Fargo's motion for relief from stay (doc. # 42), and an order granting VACC's motion for relief from stay (# 43). On February 8, 2018, the Debtors filed three notices of appeal, appealing each of those orders (doc. ## 49, 50, 51).
On February 13, 2018, the Debtors filed an emergency motion for a stay pending appeal (doc. # 59) (the "Stay Motion"), and Wells Fargo filed an objection to that motion (doc. # 63). On March 2, 2018, the Court held a hearing on the Stay Motion, at which the chapter 12 trustee (the "Trustee"), as well as the Debtors, Wells Fargo, VACC, People's United Bank ("People's"), and the Internal Revenue Service (the "IRS") presented their positions. The Debtors and Trustee argued in support of the Stay Motion; Wells Fargo, VACC, and People's argued in opposition to the Stay Motion. The IRS took no position on the Stay Motion. The Court took the matter under advisement, subject only to the Debtors' and Wells Fargo's right to file post-hearing memoranda of law on the issue of whether the Debtors must post a bond if the Court grants the stay pending appeal. The parties filed their memoranda regarding the bond (doc. ## 78, 81) and the Court deemed the matter fully submitted as of March 15, 2018.
The Bankruptcy Code provides that the filing of an appeal "does not stay any proceeding of the bankruptcy court . . . from which the appeal is taken, unless the respective bankruptcy court . . . in which the appeal is pending [] issues a stay of such proceeding pending the appeal." In re DuCharme, 2008 Bankr. LEXIS 764, *4 (Bankr. D. Vt. 2008) (quoting 28 U.S.C. § 158(d)(2)(D)). The movant must file a motion seeking a stay under Federal Bankruptcy Rule 8007, which provides, in pertinent part, as follows:
The decision of whether to grant a stay of an order pending appeal "lies within the sound discretion of the court." In re Sabine Oil & Gas Corp., 548 B.R. 674, 681 (...
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