Stoller v. Baldwin-United Corp., Civ. A. No. C-1-82-1438.

• Decision Date: 23 May 1984
• Docket Number: Civ. A. No. C-1-82-1438.
• Citation: 41 BR 884
• Parties: Hilda STOLLER, et al., Plaintiffs, v. BALDWIN-UNITED CORPORATION, et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

41 B.R. 884 (1984)

Hilda STOLLER, et al., Plaintiffs, v. BALDWIN-UNITED CORPORATION, et al., Defendants.

Civ. A. No. C-1-82-1438.

United States District Court, S.D. Ohio, W.D.

May 23, 1984.

Gene Mesh, Cincinnati, Ohio, for plaintiffs.

Frederick J. McGavran, Gregory Meurer, Cincinnati, Ohio, John L. Strauch, Cleveland, Ohio, John W. Zeiger, Columbus, Ohio, William R. Hardy, Cincinnati, Ohio, John A. West, Lexington, Ky., Arnold Morelli, Gerald W. Simmons, Leonard A. Weakley, Cincinnati, Ohio, Karl L. Rubinstein, Dallas, Tex., John C. Elam, Columbus, Ohio, for defendants.

MEMORANDUM AND ORDER

DAVID S. PORTER, Senior District Judge:

This is a securities case involving allegations of market fraud against two Chapter 11 debtors and several other corporations, as well as a number of present and former directors of the debtors. Ripe for decision¹ are motions to stay filed by the non-debtor defendants (docs. 115, 122, 125), together with plaintiffs' responses (docs. 124, 129) and defendants' consolidated reply (doc. 132). Because we do not view the matter as susceptible to all-or-nothing resolution, as apparently sought by the parties, we have concluded that a limited stay will be imposed in the exercise of the Court's inherent power to control its docket, after which time a hearing will be scheduled if deemed necessary to determine whether the stay should continue past the period we order today. Our reasons follow.

Before addressing the parties' assertions, some background is in order. The Baldwin-United and D.H. Baldwin reorganization proceedings are, viewed together, perhaps the largest bankruptcy case in American history. The balance sheets contemplate nearly ten billion dollars, and the case involves more than 200 subsidiaries of the debtor corporations. Beyond the staggering complexity of the estates themselves, the insurance commissioners of Arkansas and Indiana have instituted independent reorganization proceedings against certain of the debtors' subsidiaries. The Arkansas proceedings involve two defendants here, National Investors Life Insurance Company (NILIC) and National Investors Pension Insurance Company (NIPIC).

In early March, 1984, the bankruptcy court, concerned that "certain parties in these proceedings are pursuing their own agendas" and that "many of the controversies presented to it have little to do with the business of reorganization," determined that all adversary proceedings before it should be stayed for 90 days. In the Matter of Baldwin-United Corporation, etc., Consolidated Case No. 1-83-02495 (Bankr.S.D.Ohio, March 2, 1984) (Newsome, J.). A paragraph from that court's order is significant here:

One thing is certain: the debtors\' assets are quickly being consumed, and may be totally expended, if a halt in the fighting is not imposed. A reasonable estimate of the interim fees requested for the period from September 26, 1983 to January 31, 1984 comes to a staggering $4 to $5 million. A large portion of these fees were incurred before the adversary proceedings in this Court were filed.

Id. at 3. Thus, attorney fees in the bankruptcy proceeding are, by our calculations, amassing at the incredible rate of $35,000 to $40,000.00 per day, including Saturdays, Sundays and holidays.

In another development in the bankruptcy court which we consider relevant, Judge Newsome declined these plaintiffs' motion for relief from the automatic stay provision imposed by 11 U.S.C. § 362(a), concluding in part, that because the bankruptcy examiner will be examining the conduct of the debtors during the period relevant herein for evidence of fraud committed by or against the debtors, all parties herein, including plaintiffs, would be best served by maintaining the stay. In the Matter of Baldwin-United Corporation, etc., Consolidated Case No. 1-83-02495 (Bankr.S.D. Ohio, April 17, 1984).² In so ruling, the bankruptcy court found as a fact that "the debtors will suffer `great prejudice' if the stay is lifted." Id. at 3. It also found that plaintiffs themselves would not benefit from lifting the stay as against the debtors (id.); his reasons for so concluding are reproduced in the margin.³

As the rulings of the bankruptcy court demonstrate, the various pieces of litigation involving the financial difficulties of the Baldwin empire have taken on a life of their own; without careful judicial stewardship and close scrutiny of the actions of the parties, these cases threaten to escalate into a battle like that of the gingham dog and calico cat, leaving nothing for anyone save lawyers and accountants.

We cannot help but be impressed by the concerns expressed in the rulings of the bankruptcy judge. He has lived with the reorganization proceeding since its inception, and there appears to be substantial agreement with our perception that he is doing a masterful job with an all but impossible task. This case, however, is not directly involved with the reorganization, and, as will be developed later in this memorandum, there are strong equitable concerns operating in both directions. We now turn to an examination of principles relevant to our disposition of the motions before us.

A. Standard; Burden of Proof

The power of a federal court to stay proceedings before it was set out by Justice Cardozo in Landis v. North American Co., 299 U.S. 248, 57 S.Ct. 163, 81 L.Ed. 153 (1936). The Court noted that

the power to stay proceedings is incidental to the power inherent in any court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance.

Id. at 254, 57 S.Ct. at 165 (citations omitted). Even as it provides the authority to stay cases, however, Landis counsels careful, if not reluctant, use of the power:

Only in rare circumstances will a litigant in one cause be compelled to stand aside while a litigant in another settles the rule of law that will define the rights of both. . . .

We must be on our guard against depriving the processes of justice of their suppleness of adaptation to varying conditions. . . . Even so, the burden of making out the justice and wisdom of a departure from the beaten track lay heavily on the petitioners, suppliants for relief, and discretion was abused if the stay was not kept within the bounds of moderation.

Id. at 256, 57 S.Ct. at 166. In Landis, the Court concluded that stays imposed pending determination of a dispositive suit then pending before it were "drastic and unusual." Id. at 257, 57 S.Ct. at 167.

The moderation directed by Landis led the court in Wedgeworth v. Fibreboard Corp., 706 F.2d 541 (5th Cir.1983) to conclude that stays in favor of solvent codefendants who were joint tortfeasors pending resolution of the Manville bankruptcy proceeding were unjustified. See also McKnight v. Blanchard, 667 F.2d 477, 479 (5th Cir.1982) ("stay orders will be reversed when they are found to be immoderate or of an indefinite duration"); CTI-Container Leasing Corp. v. Uiterwyk Corp., 685 F.2d 1284, 1288-90 (11th Cir.1982) (district court abused discretion in staying principal case where third-party claims were stayed by operation of Executive Order; In re Related Asbestos Cases, 23 B.R. 523, 531-32 (N.D.Cal.1982).

We conclude, then, that defendants carry the burden of "making out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which they pray will work damage to someone else." Landis, 299 U.S. at 255, 57 S.Ct. at 166. We do have the discretion⁴ to order a stay if a "clear case" is demonstrated. The discretion is far from unfettered, however, particularly where injustice may result to plaintiffs or where the stay sought will be of effectively indefinite duration. Wedgeworth, 706 F.2d at 545.

B. Lynch v. Johns-Manville

Less than a year ago, the Court of Appeals for the Sixth Circuit affirmed this Court's refusal to stay an action against joint tortfeasors of a Chapter 11 debtor. Lynch v. Johns-Manville Sales Corporation, 710 F.2d 1194 (6th Cir.1983), aff'g Lynch v. Johns-Manville Sales Corporation, 23 B.R. 750 (S.D.Ohio 1983) (Spiegel, J.). Defendants here dismiss Lynch in a footnote, see doc. 122 at 10; doc. 115 at 9). However, the case is not so susceptible to narrow interpretation as defendants suggest, as it includes thoughtful analysis of Congress's intent in passing the automatic stay provision as well as a description of analytical factors relevant here. We therefore examine it in some detail.

Lynch is an asbestos case. Plaintiff in the principal case had contracted asbestos-related cancer. As filed, the complaint named two defendants—Johns-Manville and Unarco—who later initiated Chapter 11 proceedings. Naturally, the several thousand asbestos cases pending nationally were stayed as to John-Manville and Unarco, two of the major asbestos manufacturers, by operation of § 362.

Other asbestos manufacturers, concerned by the prospect of joint and several liability in cases where the probable major offenders would not be involved, sought to have the actions stayed as against them as well. In affirming Judge Spiegel's denial of the motions to stay, the Court of Appeals noted that

it is universally acknowledged that an automatic stay of proceeding accorded by § 362 may not be invoked by entities such as sureties, guarantors, co-obligors, or others with a similar legal or factual nexus to the Chapter 11 debtor.

Id., 710 F.2d at 1196. Proceeding to read the Chapter 11 stay provision in pari materia with the stay provision in Chapter 13, 11 U.S.C. § 1301 (which automatically stays proceedings against co-debtors of the bankrupt), the court concluded that "Congress did not envision or intend the § 362 stay to be utilized in a manner other than for the purpose of protecting the debtor and its estate." Id. at 1198.

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