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address a risk to public health, safety or welfare, and where the risk no longer exists" did not qualify under the State's police and regulatory powers as an exception to the automatic stay. The court thus denied the motion to dismiss, entered a declaratory judgment in favor of the debtor, and further entered a preliminary injunction against the State enjoining its lawsuit.
* Chrysler LLC v. Plastech Eng. Prods., Inc. (In re Plastech Eng. Prods., Inc.),
382 B.R. 90 (Bankr. E.D. Mich. Feb. 2008) (Shefferly, J.) No equity in collateral? Little hope for reorganization? No problem. Under the terms of several pre-petition agreements between the automobile parts-supplying debtor and its major customers (e.g., Ford, GM, Chrysler, and others), the debtor agreed to give its customers immediate possession of all pre-paid tooling equipment upon the debtor's default and the customer's demand. When the debtor failed to obtain additional financial accommodations from its major customers, and the secured lenders declined to grant the debtor a temporary forbearance, Chrysler terminated its relationship with the debtor and commenced a state court action to obtain possession of some $167 million worth of pre-paid tooling. That same day, the debtor commenced this case. Chrysler immediately moved for relief from the automatic stay, commenced an adversary proceeding to obtain a preliminary injunction, and moved for expedited hearings on both matters. Within 12 days of the commencement of the case, the court heard Chrysler's motions.
Balancing the harms that each side would suffer, the court concluded that Chrysler had not shown sufficient cause for relief under section 362(d)(1). As for relief under section 362(d)(2), the court agreed with Chrysler that the debtor had no equity in its inventory. Nevertheless, said the court, the case was at too early a stage to conclude that the debtor had no hope for reorganization, and so the stay could not be terminated under section 362(d)(2) either. As for Chrysler's preliminary injunction, the court found no likelihood of Chrysler's success on the merits. The court recognized Chrysler's conflicting positions -- it sought to terminate its relationship with the debtor (including all pre-petition contracts and agreements), yet Chrysler also sought to enforce rights under the terms of these same ostensibly terminated agreements. The court found Chrysler's harm to be likely, though not irreparable, and certainly not as substantial as the harm to the debtor and other interested parties. Finally, the court found that the public policy of enforcing bargained-for agreements did not outweigh the bankruptcy policy behind the automatic stay. Chrysler's relief was thus denied. So, what should Chrysler have done? Waited more time to move for relief from stay?
* E3 Biofuels-Mead, LLC v. QA3 Financial Corp., 384 B.R. 580 (D. Kan. Feb. 2008)
(Vratil, J.) Multi-party litigation and the effect of the stay on the debtor's own actions. While the automatic stay does not bar actions by the debtor against other parties, counterclaims and thirdparty claims against the debtor are stayed by section 362(a), said the district court. In this case, the debtor commenced an action in the district court seeking a declaratory judgment that the defendant had, among other things, breached a contract with the debtor and committed civil fraud. The defendants and the third-party defendants responded with their own claims against the debtor. The automatic stay, construed literally, only stopped the claims against the debtor.
