Opinion
Bankruptcy Case No. 02 00191
July 31, 2002
ORDER
On July 29, 2002, the debtor, in the above captioned case, filed its Ex Parte Motion for Clarification of the Court's July 24, 2002 Order or Authorization to Use Cash Collateral to Pay Insurance (the "Debtor's Motion"). Specifically, the Debtor's Motion requests that the Court "clarify its July 24, 2002 Order as authorizing Debtor to use its cash collateral to pay for its insurance premiums as shown in the attached Exhibit A or, in the alternative, that the Court enter a new order authorizing such proposed use of cash collateral." Debtor's Motion at 4. Thus, the asserted "alternative" reliefs which the debtor is seeking amount to the same end — authority to use the cash collateral to pay its insurance premiums — by means of either an amended Court Order or a new Court Order. For the reasons stated herein, the Court DENIES the Debtor's Motion.
As an initial matter, the Bankruptcy Rules prohibit ex parte communications with the Court "concerning matters affecting a particular case or proceeding" by "any party in interest, and any attorney . . . of a party in interest." Bankruptcy Rule 9003(a). Thus, the Court would have to make an exception to the general prohibition against ex parte filings in bankruptcy cases in order to recognize the Debtor's Motion.
Where courts do recognize an ex parte motion as proper, such as where a party is seeking a Temporary Restraining Order, the movant is required to show specific facts that make it clear that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition. See Fed.R.Civ.P. 65(b). Such a movant must also show that proper notice has either been served or that proper notice should not be required. See id.
Here, the debtor states that the changed circumstance which has made available to it sufficient cash collateral to pay its insurance premiums occurred on July 19, 2002 and that the deadline to pay the insurance premiums is July 31, 2002. See Debtor's Motion at 3. However, rather than move for permission at the earliest possible time in the proper format and with possibly sufficient, albeit significantly shortened time for other parties to respond and be heard, the debtor has inexplicably delayed its motion until a mere two days prior to the payment deadline. While the Debtor's Motion asserts that "the insurance is necessary to protect and preserve the Debtor's assets," the debtor has not explained what, if any, immediate and irreparable harm will be suffered should the Debtor's Motion be denied and the debtor be required to seek its relief through the appropriate bankruptcy procedures.
Debtor's Motion at 1. The Court also notes that, despite this assertion, well over one-third ($36,576) of the "Total Cost of Coverage" ($103,794) which the debtor is seeking authorization to pay, is for the personal health insurance of the Chairperson, Agnes A. Sgro, President, Anthony P. Srgo and their respective families.
The debtor has also failed to provide proper notice of its motion. Although the debtor submitted a Declaration informing the Court that it had served via facsimile a copy of the Debtor's Motion upon three of the parties in interest and the United States Trustee, a motion for the use of cash of collateral pursuant to 11 U.S.C. § 363 (c)(2) must also be given to "the creditors included on the list filed pursuant to Rule 1007(d)." Finally, in the absence of proper notice, the debtor has also failed to provided any reason why proper notice should not have been required in this case.
The Debtor's Motion cites 11 U.S.C. § 363 (d)(4) as authority. See Debtor's Motion at 1. There is no such Section in the Bankruptcy Code. However, the Court construes the Debtor's Motion to be pursuant to 11 U.S.C. § 363 (c)(2).
Thus, even if the Court were to make an exception to the general prohibition against the filing of ex parte motions in a bankruptcy case, the debtor has failed to meet the generally accepted requirements of such a motion: (1) a showing of immediate and irreparable harm should the motion be denied and; (2) either that proper notice of the motion was served or the provision of adequate reason why such notice should not be required in this case. Therefore, the Court finds that the ex parte form of the Debtor's Motion is improper.
The debtor has also stated that "[a]t the July 19, 2002 hearing, duly noticed, no party objected to the use of cash collateral to purchase insurance. Accordingly, Debtor interprets the statements made by the Court and by all parties present at the July 19, 2002 hearing as satisfying the requirements of 11 U.S.C. § 363 (c)(2)." Debtor's Motion at 3. Pursuant to 11 U.S.C. § 363 (c)(2)(A);(B), the "trustee may not use, sell, or lease cash collateral . . . unless — each entity that has an interest in such collateral consents, or the court, after notice and hearing, authorizes such use." Thus, the debtor's interpretation of the statements of the July 19, 2002 Hearing is unavailing.
First, 11 U.S.C. § 363 (c)(2)(A) requires "consent" and the Court is not aware of any controlling bankruptcy law that would equate mere silence with consent. Thus, the Court does not find that any party in interest has yet consented to any use of cash collateral by the debtor for any purpose.
In fact and once again, contrary to the debtor's assertion, on July 24, 2002, secured creditor, First Hawaiian Bank moved for Adequate Protection or Prohibition from Using Cash Collateral which is scheduled to be heard on August 8, 2002.
Furthermore, despite the debtor's assertion to the contrary, not only was the July 19, 2002 Hearing not "duly noticed," but the Court found it necessary to remind debtor's counsel that "all future motions or filings with this Court are to be served upon all appropriate parties. Counsel for First Hawaiian Bank indicated he only became aware of the debtor's motion because he reviewed the Court's files. The United States Trustee also stated that his office had not been properly served. The Trustee and creditors should not have to become aware of the debtor's actions by happenstance." July 24, 2002 Order at 3-4. Moreover, as the July 24, 2002 Order makes clear, the July 19, 2002 Hearing concerned the debtor's Emergency Motion for Authorization to Incur Debt with Priority Over Other Administrative Expenses Pursuant to 11 U.S.C. § 364 (c)(1), not authority to use cash collateral. Thus, there has been no notice and hearing on the issue of the debtor's request to use cash collateral. Therefore, neither the requirement of 11 U.S.C. § 363 (c)(2)(A) nor the requirements of 11 U.S.C. § 363 (c)(2)(B) have been satisfied.
Finally, the debtor also states that "[n]onetheless, in order to avoid uncertainty, Debtor is requesting that the Court clarify its July 24, 2002 order such that it expressly grants Debtor permission under 11 U.S.C. § 363 (c)(2)(B) to use cash collateral to pay its insurance premiums as outlined in Exhibit A." As stated above, the July 24, 2002 Order did not address the issue of the debtor's use of cash collateral. Neither does the Court believe that any reasonable interpretation of the July 24, 2002 Order could be construed to permit such use. Thus, the "clarification" of the July 24, 2002 Order which the debtor seeks would be tantamount to either an amended order or a new order authorizing the debtor to use cash collateral in the absence of appropriate service and hearing and prior to a currently scheduled and properly noticed hearing on the very same issue. Therefore, the Court finds that the "clarification" the debtor requests would be wholly inappropriate.
Accordingly, the Court HEREBY DENIES the Debtor's Motion and, because the Court finds that the ex parte form of the Debtor's Motion is improper, the Court HEREBY ORDERS the Debtor's Motion and its accompanying filings STRICKEN from the record.
Furthermore, because the Court's July 24, 2002 Order specifically instructed and ordered debtor's counsel to serve all future motions and filings on all appropriate parties, the debtor's counsel is HEREBY ORDERED TO APPEAR before the Court on Thursday, August 8, 2002 at 9:30 a.m. and to show cause why sanctions should not be imposed for failing to obey the Court's July 24, 2002 Order.
Finally, because the July 24, 2002 Order specifically and clearly articulated the fact that the debtor's counsel had failed to duly notice the appropriate parties, debtor's counsel is HEREBY ORDERED TO APPEAR before the Court on Thursday, August 8, 2002 at 9:30 a.m. and to show cause why sanctions should not also be imposed, pursuant to Federal Rule of Civil Procedure 11(b)(1);(3):(c)(1)(b):(c)(2), for making improper and factually unsubstantiated representations to the Court.