Summary:
Deluxe Cleaners originally filed Chapter 11 in the Eastern District of North Carolina, but venue was shortly thereafter transferred to the Middle District of North Carolina. A related bankruptcy, filed by the Parks (who owned Deluxe Cleaners) was filed in the Eastern District of North Carolina. Thus began a cross-district tangle.
Prior to the filing of either bankruptcy, Deluxe Cleaners and the Parks obtained a judgment against Forrest Investment Group. As part of the Deluxe Cleaners bankruptcy, assets were sold to Forrest Investment and this judgment was cancelled. The Trustee in the Deluxe Cleaners bankruptcy sought and obtained a determination by the MDNC court that all of the proceeds of this sale related to the judgment would be assigned to the estate of Deluxe Cleaners. The Trustee in the Park’s bankruptcy sought a stay of such holding pending appeal.
In order to be granted a stay under Bankruptcy Rule 8005, the moving party must prove, by a preponderance of the evidence:
The likelihood of irreparable harm to the Movant without a stay, that is actual and imminent, rather than merely speculative or remote;
That the harm to the moving party if the stay is not granted is greater than the injury to the opposing party if the stay is granted;
That the public interest would not be adversely affected by granting the stay; and
The Movant’s likelihood of success on the merits.
Based on these criteria, the Court found that the Trustee for the Park’s bankruptcy presented no evidence of irreparable harm, particularly as many of the creditors overlapped between the two cases. Accordingly, the stay was denied. (Ultimately, the Trustee in the Park’s bankruptcy dismissed his appeal with prejudice.)
Commentary:
The conclusion for Trustees to draw from this case would seem to be that in cases competing for the same assets, whichever acts most quickly is likely to gain and retain control over those assets. It also seems that at least part of the motivation in this contest was over which Trustee would get the commissions for the liquidation of the assets. This sort of contest between Trustees and bankruptcy estates does little to benefit any party and all involved would likely have benefitted from moving both cases to a single district under 28 U.S.C. § 1412, which allows transfer of a case "in the interest of justice or for the convenience of the parties."
Deluxe Cleaners-Stay Pending Appeal.PDF
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