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i. In re Living Hope Southeast, LLC, 505 B.R. 237 (Bankr. E.D. Ark. 2014).
Issue: Creditor that was engaged in pending litigation against Chapter 11 debtor and other parties in Mississippi state court moved for relief from stay in order to allow state court action to proceed.
Holding: Factors that courts consider in balancing the hardships in order to decide whether "cause" exists to lift stay to allow litigation to proceed in another forum are: (1) judicial economy, (2) trial readiness, (3) resolution of preliminary bankruptcy issues, (4) moving creditor's chance of success on merits, and (5) cost of defense or other potential burden to bankruptcy estate and the impact of litigation on other creditors; however, not all factors need to be present in order for the stay to be lifted, and equal weight need not be given to each factor. Bankruptcy court would not exercise its discretion in order to lift stay to allow litigation against Chapter 11 debtor to proceed in state court forum. Debtor was one of multiple defendants in state court action, most of whom were not subject to personal jurisdiction of bankruptcy court, and though denial of stay relief would force moving creditor to litigate its claims twice, against other defendants in state court and against debtor in bankruptcy court, there would still be need for continued claims litigation in bankruptcy court. Moreover, the debtor had not yet filed answer in state court action and there was need for additional discovery and creditor failed to demonstrate strong likelihood of success in state court action given complexity of its triangular and reverse veil-piercing claims. Prejudice to creditor of requiring it to engage in duplicative litigation in state and bankruptcy forum did not outweigh prejudice to debtor and other creditors of requiring them to participate in litigation in remote forum or the distracting impact of such litigation on efforts to sell debtor's assets.
ii. In re American Medical Utilization Management Corporation, 494 B.R. 626 (Bankr. E.D.N.Y. 2013)
Issue: Whether an attorney can be held individually liable for actual damages from his inaction that resulted in an automatic stay violation.
Holding: The bankruptcy court held that attorneys can be individually liable for actual damages from inaction that results in a stay violation. Even after receiving actual notice of the debtor's bankruptcy, an attorney and his firm failed to remove a restraining notice served upon the debtor and the state department of health. The bankruptcy trustee had to seek an emergency lifting of the restraint to obtain the funds to make debtor's payroll and sought damages from the attorney and firm.
©2014 William L. Norton III
