2008 Chapter 11 Open Forum: Year In Review

pre-petition. The arbitration was automatically stayed when both the debtor and the former CEO each filed bankruptcy petitions. The CEO's individual case was soon dismissed, and the arbitration petitioner sought to proceed with the arbitration, at least to the extent that the proceedings did not resolve the claims against the debtor. The debtor then filed an adversary proceeding to enjoin the arbitrator and all non-debtor parties from continuing the arbitration. The bankruptcy court granted the injunction, and the B.A.P. affirmed. On appeal, the Ninth Circuit reversed and laid out the appropriate standard, which both lower courts failed to apply. Said the Ninth Circuit, the court must consider the debtor's likelihood of a successful reorganization, the relative hardship of the parties, and any relevant public interest concerns. The court noted that speculative injury was irrelevant, and that the record must demonstrate how the absence of an injunction will somehow hamper the debtor's ability to reorganize, undermine the creditors' rights, or otherwise undermine the purposes of the Bankruptcy Code.

• McDow v. Mayton, 379 B.R. 601 (E.D. Va. Dec. 2007) (Doumar, J.) Court cracks down on a fraudulent bankruptcy preparer. The U.S. Trustee filed an adversary complaint against an individual holding himself out (through internet advertising) to be a licensed attorney. The court found that the defendant was not actually a licensed attorney and had engaged in reprehensible conduct which lead to as many as 29 violations of section 110 of the Bankruptcy Code for a potential liability of $43,500. Part of the conduct included the defendant taking information from the debtor, preparing documents for filing with the court, and sending the documents to the debtor to file with the court (rather than filing the documents himself on behalf of the debtor). The bankruptcy court awarded the debtor actual and statutory damages, fined the defendant, enjoined the defendant from filing documents with courts in the same district, and further enjoined the defendant from continuing to advertise his unauthorized services on the internet.
• In re First Assured Warranty Corp., 383 B.R. 502 (Bankr. D. Colo. Mar. 2008) (Romero, J.)

Vehicle Service Contract (VSC) vendor was not a "domestic insurance company," and its bankruptcy case did not impair on going liquidation proceedings under Hawaiian insurance law. The debtor sold VSCs. To assist in that regard, the debtor's parent company created a sister insurance company (registered in Hawaii). The insurance company was created to insure the VSCs sold by the debtor. The Hawaiian insurance commissioner soon discovered that this sister company was underfunded and thus subject to Hawaiian insurance liquidation proceedings. Once the commissioner commenced the liquidation proceedings against the insurance company, it unilaterally seized the debtor's assets and shut down its business as well. Having halted the debtor's business, the commissioner moved for the Hawaiian court to join the debtor in the insurance liquidation proceedings. The day before the Hawaiian court rule on the commissioner's motion, however, the debtor filed a chapter 11 petition in Colorado (the debtor's state of incorporation). The Hawaiian insurance commissioner appeared in the bankruptcy court and asked the court to dismiss the case, to abstain from the case entirely, or to grant relief from stay to allow the insurance liquidation proceedings to go forward.

The bankruptcy court denied virtually all relief requested by the commissioner. First,