Opinion
Case No. 01-61299-DOT
June 4, 2002
MEMORANDUM OPINION
Final hearing was held April 30, 2002, on movants' motion for relief from the automatic stay so that they may proceed in personal injury litigation against debtor. As requested by this court at hearing the parties have submitted proposed findings of fact and conclusions of law.
For reasons stated below, the motion will be granted to a limited extent.
Findings of Fact.
Debtor filed a chapter 11 petition on July 30, 2001, and continues to operate as debtor-in-possession. On March 27, 2002, debtor filed its disclosure statement and plan of liquidation.
Movants are parties in litigation styled Howard v. AMF Bowling, Inc., pending in U.S. District Court, Nevada (No. CV-S-00-1359-RHL(LRL)). This suit, which was originally filed in Nevada state court on October 13, 2000, arose from a personal injury suffered by movant Melanie Howard on November 14, 1998.
Debtor is a defendant in the litigation. Movants Stephen Gould Paper Company, Inc., and Columbia Industries, Inc., are also defendants, and they have filed cross claims against debtor.
Prior to filing this bankruptcy case, debtor had filed an answer and removed the lawsuit to the district court. The litigation has been stayed by the bankruptcy filing.
The debtor's bankruptcy schedules did not list any of the claims of the movants related to the Nevada lawsuit, and none of the movants have filed a proof of claim in debtor's bankruptcy case.
Position of Parties.
MOVANTS
Cause Exists For Relief From the Automatic Stay.
Movants make several arguments that the necessary elements for cause are present. These include 1) all parties to the personal injury lawsuit will be prejudiced if the suit cannot continue, and debtor will suffer no hardship or prejudice if the stay is lifted; 2) Nevada law controls the suit, and movants have demonstrated a probability of success on the merits; and 3) judicial economy will be served by the relief sought.
The Filing of a Claim Is Not Necessary.
Movants rely on IBM v. Fernstrom Storage Van Co. (In re Fernstrom Storage Van Co.), 938 F.2d 731 (7th Cir. 1991). In Fernstrom, the Seventh Circuit held that plaintiff IBM's failure to file a timely proof of claim in the bankruptcy case was not a bar to the bankruptcy court granting relief from the stay so that plaintiff could proceed in litigation to collect against fire insurance proceeds. The court of appeals agreed that IBM was not required to file a claim because it sought recovery only from the debtor's insurance coverage. See id. at 733.
DEBTOR
Debtor advances two arguments in opposition to the motion.
Movants Have Failed to File Claims.
The deadline for filing claims passed on December 28, 2001. Movants have neither filed claims nor sought approval to file late claims. Relief from stay would require debtor to defend the action when any judgment rendered against it would have "absolutely no value." See Benedor Corp. v. Conejo Enters., (In re Conejo Enters.), 96 F.3d 346 (9th Cir. 1996); Wright v. Placid Oil Co., 107 B.R. 104 (N.D.Tex. 1989). Relief should not be granted "without the Movants first taking the necessary action to establish their claims in the bankruptcy case." Def.'s Findings of Fact, Conclusions of Law and Order Den. Mot. for Relief from Stay, at 3.
Relief From Stay Would Divert Attention of Debtor's Management and Other Employees.
Debtor has no employees and no operations. Its subsidiary is in a separate bankruptcy case, and an employee of the subsidiary is responsible to supervise debtor's plan of liquidation. Relief from the stay would impose time demands on that employee and other employees of the subsidiary and divert their attention from their responsibilities with respect to the bankruptcy cases.
Conclusions of Law.
The court may grant relief from the automatic stay of Code § 362 for "cause," a term not defined in the Code. 11 U.S.C. § 362(d)(1); Stone St. Servs., Inc. v. Granati, (In re Granati), 271 B.R. 89, 93 (Bankr.E.D.Va. 2001). In the context of relief from stay to proceed with civil lititation pending in another court, the court must balance the "potential hardship that will be incurred by the party seeking relief if the automatic stay is not lifted, against the potential prejudice to the debtor and the debtor's estate." IRS v. Robinson (In re Robinson), 169 B.R. 356, 359 (E.D.Va. 1994); see also In re Granati, 271 B.R. at 93. Other factors include 1) whether the litigation involves state law issues only, 2) the promotion of judicial economy, 3) whether lifting the stay will disrupt the bankruptcy case, and 4) whether bankruptcy estate can be protected if stay lifted. In re Robinson, 169 B.R. at 359.
The court finds that any significant prejudice to debtor caused by its employees being required to oversee its counsel's handling of the litigation is minimal at best. Any prejudice to debtor is more than offset by the judicial economy of letting the personal injury litigation continue in Nevada, the prejudice to movants of the denial of their motion, and the probability of movants succeeding on the merits in the litigation.
Thus the primary issue for the court to consider is the effect of the movants' failure to file claims in the case. Of all the cases cited by the parties in support of their respective positions on this issue, the decision of the Seventh Circuit in In re Fernstrom Storage Van Co. is closest to the circumstances of this case.
Movants argue that they look to debtor's insurance coverage and do not necessarily seek recovery from the debtor's bankruptcy estate. Moreover, they argue that there is excusable neglect in their failure to file claims due to "misnomer" problems caused by debtor and its subsidiary.
From the argument, it does appear that debtor or its subsidiary may have perpetuated some confusion over which entity was the proper defendant in the litigation. On the other hand, it is not clear why the movants have not filed claims even yet and pressed the court to find excusable neglect. What is clear is that at this stage of the case and in connection with a motion for stay relief, the court cannot determine whether the movants' failure to file claims is due to excusable neglect.
It may be presumed that debtor has insurance coverage for the type of claim involved. However, in this respect the record is undeveloped. Debtor's proposed findings and conclusions do not allude to any lack of coverage or other problem with the movants' argument that recovery may be had from debtor's insurance.
Movants' motion requests the court to lift the stay and allow movants to proceed to final judgment in the Nevada district court. Because movants have failed to file claims they are not entitled to a blanket relief from stay. However, it is appropriate under the circumstances that they should have relief from stay to proceed in the district court litigation for a determination of debtor's liability, if any.
While the court recognizes the likelihood that debtor has liability insurance coverage, it would be premature for the court to authorize collection from this source at this time. Therefore, the court will not grant relief from stay to collect any liability either from the debtor's bankruptcy estate or from insurance. Any recovery issues that the parties are unable to resolve will be subject to further motion.
A separate order will be entered.
MEMORANDUM OPINION AND ORDER
Final hearing was held April 30, 2002, on movants' motion for relief from the automatic stay to allow them to proceed with personal injury litigation against debtor. The court took the matter under advisement and asked the parties to submit proposed findings of fact and conclusions of law. On June 4, 2002, the court entered a memorandum opinion and order granting the motion for relief from stay to the limited extent that movants could proceed with the district court litigation to determine debtor's liability, if any. Debtor filed a motion to reconsider the court's order on July 3, 2002 pursuant to Federal Rule of Civil Procedure 60(b)(6). Movant Stephen Gould Paper Company then filed an objection to debtor's motion to reconsider on July 18, 2002.
Motions requesting the court to reconsider its judgments to correct errors of fact or law are usually filed under Federal Rule of Civil Procedure 59(e) and Federal Rule of Bankruptcy Procedure 9023. Rule 59 motions must be filed no later than 10 days after judgment is entered. A motion under Rule 59(e) is appropriate "to correct glaring errors of fact or law" in the court's opinion. Wal-Mart Stores, Inc. v. El-Amin (In re El-Amin), 252 B.R. 652, 654 (Bankr.E.D.Va. 2000).
Motion to Alter or Amend Judgment. Any motion to alter or amend a judgment must be filed no later than 10 days after entry of the judgment. Fed.R.Civ.P. 59(e).
A motion to reconsider a judgment may also be brought under Rule 60(b) (applicable to bankruptcy proceedings through Federal Rule of Bankruptcy Procedure 9024) for the following reasons:
1) mistake . . . or excusable neglect; 2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59 (b); 3) fraud. . . . misrepresentation or other misconduct of an adverse party; 4) the judgment is void; 5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated . . .; or 6) any other reason justifying relief from operation of this judgment. The motion shall be made
within a reasonable time. . . .
Relief granted under Rule 60(b) is an "extraordinary remedy" and not a substitute for direct appeal of a judgment. Design Classics, Inc. v. Westphal (In re Design Classics, Inc.), 788 F.2d 1384, 1386 (8th Cir. 1986). The decision to grant a Rule 60 motion is within the discretion of the court and is "may be reviewed only for abuse of discretion." Id.
Debtor is seeking relief under Rule 60(b)(6), the "catch-all" provision of Rule 60. To obtain relief under this provision debtor must show that its motion is "based on a reason other than those enumerated in subclauses (1)-(5)" and that this reason justifies granting of relief. Drake v. Dennis (In re Dennis), 209 B.R. 20, 27 (Bankr.S.D.Ga. 1996). Relief under the catch-all provision "is only to be granted in exceptional or extraordinary circumstances." Id.; see also Pioneer Inv. Servs. Co. v. Brunswick Assocs., L.P., 507 U.S. 380, 393 (1993) (stating that a party must show "extraordinary circumstances" suggesting that the movant is faultless in the delay). Trial courts have "broad authority" in determining whether extraordinary circumstances exist. Valley Citizens for Safe Env't v. Aldridge, 969 F.2d 1315, 1317 (1st Cir. 1992). This court has previously ruled that 60(b) "is to be applied sparingly" due to its "wide expanse of remedies." In re Babcock, 258 B.R. 646, 649 (Bankr.E.D.Va. 2001). Furthermore, this court has articulated examples of cases that warranted relief under rule 60(b)(6). Relief "has largely been confined to cases where orders were entered with no notice to movant, undiscovered fraud of a third party, or when movant's health or incarceration prevented participation." Id. at 650.
In the instant case debtor's motion centers around an insurance policy that allegedly contains a $500,000.00 self-insured retention provision. Debtor states that the policy will apply only once damages are awarded in excess of $500,000.00 and will not cover or reimburse debtor for litigation expenses in defending claims. The court's original ruling included a presumption by the court that the debtor "has insurance coverage for the type of claim involved" while acknowledging that the record as to debtor's insurance was "undeveloped." Mem. Op. pp. 5-6. The court limited its ruling accordingly by granting relief from stay for movants to proceed in the district court litigation to determine the extent of debtor's liability, but the ruling did not allow collection from any insurance coverage that debtor may have. Outside of alerting the court to the existence of this insurance coverage the debtor's motion does not demonstrate any extraordinary circumstances that would justify relief under 60(b)(6).
Further, it is worth noting that debtor objected to the introduction into evidence of this same insurance policy by counsel for Stephen Gould during cross examination of Gary W. Moten, Associate General Counsel of AMF Bowling Worldwide, Inc. The court sustained the objection for counsel's failure to lay a proper foundation for the document. Debtor is now asking the court to admit the insurance policy into evidence though debtor failed to do so at hearing or in response to the motion for relief from stay. Such conduct may be covered by the "mistake" or "excusable neglect" provisions of Rule 60(b)(1) and would, therefore, not be appropriate for a Rule 60(b)(6) motion.
Debtor's failure to show "extraordinary circumstances" and the applicability of Rule 60(b)(1) to debtor's motion justify denial of debtor's motion to reconsider. Accordingly,
IT IS ORDERED, that debtor's motion to reconsider the court's June 4, 2002, order granting relief from stay to parties in the litigation styled Howard v. AMF Bowling, Inc., in the District Court of Nevada, pursuant to Federal Rule of Bankruptcy Procedure 9024 and Federal Rule of Civil Procedure 60(b)(6) is DENIED.