Opinion
Case No. 01-61299-DOT
May 15, 2002
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER DENYING MOTION FOR RELIEF FROM STAY
Currently before the Court is the motion (the "Motion") of Stephen Gould Paper Company, Inc. ("Gould"), pursuant to 11 U.S.C. § 362 and Rule 4001 of the Federal Rules of Bankruptcy Procedure, for relief from the automatic stay to allow the continuation of a personal injury lawsuit pending in the U.S. District Court for the District of Nevada that was commenced against AMF Bowling, Inc. (the "Debtor"), Columbia Industries ("Columbia") and Gould by Melody Howard ("Howard") and Matthew Yarborough ("Yarborough"). Columbia, Gould, Howard and Yarborough are referred to herein, collectively, as the "Movants." On April 30, 2002, the Court heard arguments from the Debtor and Gould as well as testimony from Todd L. Mooney, counsel for Howard and Yarborough, Larry Wolfe, project manager for Gould, and Gary Moten, Associate General Counsel of the Debtor's subsidiary, AMF Bowling Worldwide, Inc. (the "Subsidiary"). At the hearing, the Court also admitted thirteen exhibits submitted by the Movants. Based on the pleadings filed by the parties, the oral arguments in support thereof and the testimony of Messers Moody, Wolfe and Moten, the Court hereby makes the following findings of fact and conclusions of law:
FINDINGS OF FACT
I. Background
1. On July 30, 2001 (the "Petition Date"), the Debtor filed a voluntary petition initiating its chapter 11 case. The Debtor continues in possession of its assets and control of its affairs pursuant to Sections 1107 and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in this case. Prior to the Petition Date, on July 2, 2001, the Subsidiary filed a companion chapter 11 case in this Court.
2. Prior to the Petition Date, Howard and Yarborough commenced a personal injury lawsuit against the Debtor, Gould and Columbia in state court in Clark County, Nevada (the "PI Action"). The Debtor, Gould and Columbia filed cross-claims against each other for contribution and indemnification. The PI Action was removed to the U.S. District Court for the District of Nevada and is styled as Melody Howard and Matthew Yarborough v. AMF Bowling. Inc., Stephen Gould Paper Company. Inc., and Columbia Industries. Inc., case number CV-S-00-1359-RHL(LRL).
3. Howard and Yarborough initiated the PI Action to recover damages from the Debtor, Gould and/or Columbia for injuries sustained in Las Vegas Nevada on November 14, 1998.
4 The automatic stay of Section 362(a) of the Bankruptcy Code has stayed the PI Action as it pertains to the Debtor.
5. On January 18, 2002, Gould filed the Motion, in which the other Movants joined, in order to continue the PI Action against the Debtor.
II. No Claim in Bankruptcy Case
6. The deadline for filing proofs of claim in the Debtor's bankruptcy case was December 28. 2001. None of the Movants were scheduled as creditors in the Schedules and Statement of Financial Affairs filed by the Debtor. Although both Mr. Moody and Mr. Wolfe testified that they were aware of the Debtor's bankruptcy filing, none of the Movants have filed a proof of claim, in the Debtor's bankruptcy case nor have they moved for relief to file a late proof of claim. Transcript pp. 20, 33, 44. The Movants have insisted that the Court grant them relief from the automatic stay without the Movants first taking the necessary action to establish their claims in the bankruptcy case.
III. Time Constraints on Management
7. The Debtor has no employees and no operations. Mr. Moten, an employee of the Subsidiary, testified that he is the only person responsible for the for the Debtor's bankruptcy case and is currently supervising the Debtor's amendments to its Plan of Liquidation and Disclosure Statement. Transcript at 56-58. Mr. Moten testified that the supervision of any continuation of the PI Action would be his responsibility as well. If the Motion is granted, Mr. Moten will be forced to divert his attention from the liquidation of the Debtor to focus instead on the numerous document demands, subpoenas, deposition notices and other forms of discovery that will certainly accompany a continuation of the PI Action.. In addition, participation in the PI Action would also impose significant time demands on the employees and agents of the Subsidiary because the Debtor and the Subsidiary share the same directors, and many of the same officers (including the companies' Presidents and Chief Executive Officers, and Executive Vice Presidents and Chief Financial Officers) and key personnel (including the companies' General Counsels).
CONCLUSIONS OF LAW
8. Pursuant to Section 362(d)(1) of the Bankruptcy Code, a bankruptcy court may grant relief from the automatic stay for "cause." The statute does not define what constitutes cause, and the decision whether to grant relief from the stay is within the discretion of the bankruptcy court. In re El-Amin, 126 B.R. 855 (Bankr. E.D. Va. 1991), citing In re Dixie Broadcasting. Inc., 871 F.2d 1023, 1026, (11th Cir. 1989).
9. In determining whether cause exists, the court must balance the potential hardship that will be incurred by the Movants if the Motion is not granted against the potential prejudice to the Debtor and the bankruptcy estate. See In re Robinson, 169 B.R. 356 (E.D.Va. 1994).
10. In this case, the Movants have not filed proofs of claim. In addition, none of the Movants are listed as creditors in the Debtor's Schedules and Statement of Financial Affairs. The Court cannot grant the Motion because to do so would cause the Debtor to expend time, energy, and money to defend the PI Action against the Movants' claims when such claims have absolutely no value against the Debtor or its bankruptcy estate. See In re Conejo Enters., Inc., 96 F.3d 346, 353 (9th Cir. 1996) (holding that because the movant failed to file a proof of claim, "[i]t would be absurd to allow the state action to go ahead and require the estate to spend money litigating a debt that might ultimately be uncollectable.").
11. Judicial economy and efficiency are factors considered by the Court when considering whether to lift the automatic stay. See In re Robbins, 946 F.2d 342, 345 (4th Cir. 1992); In re Johnson, 115 B.R. 634 (Bankr. D. Minn. 1989); In re Curtis, 40 B.R. 795 (Bankr. D. Utah 1984). By refusing to grant the Motion in the case at hand, the Court will be promoting judicial economy by prohibiting the unnecessary litigation of an uncollectable claim against the bankruptcy estate. See In re Conejo Enters., Inc., 96 F.3d at 353; see also In re United Imports. Inc., 203 B.R. 162, 167 (Bankr. D. Neb. 1996) (when the movant has not filed a proof of claim, "[i]t therefore does not stand to reason that the debtor should be forced to defend a lawsuit in which the monetary judgment obtained in the suit could not be enforced against assets of the estate"); Wright v. Placid Oil Co., 107 B.R. 104, 108 (N.D. Tex. 1989) (motion for relief from stay denied when no proof of claim was filed by bar date because "it would serve no purpose in allowing the state court litigation to go forward since no proof of claim can be filed in the bankruptcy court"); In re Branded Products. Inc., 154 B.R. 936, 952 (Bankr. W.D. Tex. 1993) (relief from stay denied where movant failed to file a proof of claim in the bankruptcy case).
12. In addition, continuation of the PI Action would distract the Debtor from the time consuming liquidation-related tasks at hand. As Mr. Moten testified and as counsel articulated at the hearing, discovery activities in the PI Action would require Mr. Moten to turn his attention to the PI Action precisely when his time, energy and commitment to the Debtor's liquidation companies' reorganization affairs are most critical. In such a situation the stay must not be lifted. See Oberg v. Aetna Cas. Sur. Co., 828 F.2d 1023, 1025-26 (4th Cir. 1987) (affirming stay of actions against debtor's insurer, even where plaintiffs in those actions "sought recovery solely from [the insurer's] own assets and solely for [the insurer's] own actions, "on the singular ground that the debtor's officers, directors and employees would inevitably be forced to participate in the litigation, and would therefore be distracted from the debtor's reorganization).
WHEREFORE, having reviewed the pleadings filed by the parties, the oral arguments in support thereof and the testimony of Messers Moody, Wolfe and Moten at the hearing on the Motion on April 30, 2002, it is hereby,
ORDERED, that the Debtor's Objection is SUSTAINED and the Movants' Motion is DENIED; and it is further
ORDERED, that the PI Action (including all motion practice and discovery therein) is stayed as to the Debtor pursuant to Section 362 of the Bankruptcy Code.