Opinion
23-31595
12-06-2023
In re: SEAN KRISTIAN TARPENNING, Debtor.
Chapter 7
ORDER GRANTING MOTION FOR RELIEF FROM STAY (DOC. 54)
GUY R. HUMPHREY UNITED STATES BANKRUPTCY JUDGE.
On October 2, 2023 the Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code (doc. 1). On November 13, 2023, PS Funding, Inc. and PSF TX 1, LLC, along with its affiliated debtors (collectively, "Peer Street"), moved for relief from stay to prosecute a pending motion to enforce the automatic stay provided by 11 U.S.C. § 362(a) in the Bankruptcy Court for the District of Delaware ("Delaware Bankruptcy Court"). The court takes judicial notice that Peer Street has pending Chapter 11 cases in the Delaware Bankruptcy Court. Lead Case No. 23-10815 (LSS). The Debtor filed a response in opposition to the Motion, amended his response, and Peer Street filed a reply brief (docs. 72, 76, 82). On December 5, 2023 this court held an evidentiary hearing on Peer Street's motion for relief from the stay. Robert Berner and Matthew Schaeffer appeared for Peer Street. The Debtor requested, through a December 4, 2023 email to chambers, to appear by telephone. Consistent with the court's scheduling order, the court permitted the Debtor to appear by phone but limited the Debtor's participation to argument. See doc. 57 (ordering that if "any party files witness and exhibit lists and proposed exhibits in accordance with this order, the hearing will proceed in person . . . ."). The Debtor did not object to this limitation nor did any other party object to his limited participation. The court admitted Peer Street Exhibits PS1 through PS9 into evidence without objection. The court also admitted the declaration of Warren Green, Senior Asset Manager at Peer Street. Doc. 84, in lieu of live testimony from Mr. Green, who was present in the courtroom.
Findings of Fact
On October 2, 2020 U.S. Real Estate Equity Builder, LLC and U.S. Real Estate Equity Builder Dayton, LLC (collectively, "USREEB") filed Chapter 11 bankruptcy petitions in the Bankruptcy Court for the District of Kansas ("Kansas Bankruptcy Court"). Those cases were filed by the Debtor based on his asserted interests in USREEB. On November 23, 2020 the United States Trustee sought an appointment of a Chapter 11 Trustee and to remove the Debtor from management of USREEB. Ex. PS3. That motion was granted on December 2, 2020. See Ex. PS4 at 2 n1.
In July 2022, the Chapter 11 Trustee, over an objection of the Debtor and 1 Big Red LLC (a separate entity that was apparently controlled by the Debtor at that time), sold substantially all the assets of USREEB free and clear of all liens and encumbrances. Ex. PS5. The sale was based on a credit bid of PS Funding, Inc. Id. at 5. The sale order was not appealed. See also Ex. PS6 (Trustee's Deed).
The next significant event is that Peer Street filed Chapter 11 petitions in the Delaware Bankruptcy Court on June 26, 2023. By July 2023, PSF TX 1 LLC had an agreement to sell a certain parcel of property acquired from the sale in the Kansas Bankruptcy Court. Specifically, Peer Street was selling, in the ordinary course of business, property located at 4440 E. 63rd Street, Kansas City, Missouri (the "Property") to Freedom Equity LLC. Ex. PS7. The sale on the Property was to close on August 15, 2023. Id. However, prior to the closing, the Debtor, without seeking relief from the stay from the Delaware Bankruptcy Court, filed a lis pendens in a state court in Missouri, which created a cloud on the title of the Property. Ex. PS2. The sales contract has been amended twice, most recently providing for a closing of not later than December 31, 2023. Exs. PS8, PS9.
After failing to convince the Debtor to voluntarily remove the lis pendens, Peer Street filed a motion in the Delaware Bankruptcy Court to enforce the automatic stay in the Peer Street Chapter 11 cases and for a finding that the lis pendens was void ab initio. Ex. PS1. The hearing on that motion did not occur because the Debtor filed his Chapter 7 bankruptcy petition in this court.
Analysis
Peer Street seeks relief from the stay under § 362(d)(1) for "cause." Doc. 54. The Debtor has the ultimate burden of proof, except as to any issue as to the Debtor's equity in property. 11 U.S.C. § 362(g). However, the initial burden lies with the movant to show cause for granting relief from the stay by establishing a prima facie case. In re Spencer, 568 B.R. 278, 279-80 (Bankr. W.D. Mich. 2017).
The Debtor argues that the burden lies with Peer Street to prove by "clear and convincing evidence" that stay relief is warranted. The court carefully reviewed the case cited by the Debtor and it does not stand for that proposition. Miller v. Deutsche Bank National Trust Co. (In re Miller), 666 F.3d 1255 (10th Cir. 2012). The Debtor's original objection referred to another citation, In re Brown, 746 F.3d 619, 623 (5th Cir. 2014), but the court could not locate this citation and according to the reply brief of Peer Street, it could not find the citation either. The Debtor subsequently amended his objection and deleted the Brown citation, and instead cited Brown v. Chestnut (In re Brown), 422 F.3d 298, 301 (5th Cir. 2005). That case is also cited for this clear and convincing evidence standard, but that decision does not state that legal principle either.
In considering cause, the Sixth Circuit has not provided a single test for cause to allow a party to pursue litigation in another court. Junk v. CitiMortgage, Inc. (In re Junk), 512 B.R. 584, 607 (Bankr. S.D. Ohio 2014). The Sixth Circuit has suggested various factors, including "judicial economy, trial readiness, the resolution of preliminary bankruptcy issues, the creditor's chance for success on the merits, the cost of defense or other potential burden to the bankruptcy estate, and the impact of the litigation on other creditors." Grazoni v. K-Mart Corp. (In re Grazoni), 35 Fed.Appx. 179, 181 (6th Cir. 2002).
The court finds more than sufficient cause in these circumstances to grant relief from the stay. This court does not see any prejudice to the Debtor or this bankruptcy estate. The Debtor will have an opportunity in the Delaware Bankruptcy Court to defend the motion alleging he violated Peer Street's automatic stay and that the lis pendens he filed of record is void ab initio. The Debtor's allegation that there are unresolved issues concerning Peer Street's right to sell the Property can be raised in the Delaware Bankruptcy Court as well. The Debtor asserts that this will harm his rights in this Chapter 7 bankruptcy, but he does not explain how this is so. Any pre-petition property interest of the Debtor is controlled by the Chapter 7 Trustee. See generally 11 U.S.C. § 541 (defining property of the estate). However, no evidence was even presented to this court that this bankruptcy estate has any interest in the Property. The Kansas Chapter 7 Trustees (which include USREEB and a third case, 1 Big Red LLC), who are separately pursuing a transfer of this case, have expressed no opposition to the relief from stay motion. Nor has any other creditor or party in interest objected to the motion for relief from the stay, except the Debtor. Most significantly, the Chapter 7 trustee in this case, Eileen Field, has not objected to the relief from stay.
By contrast, a denial of the relief from stay has potentially negative consequences for Peer Street. Any further delay could lead to the loss of the buyer on the Property and Peer Street still must litigate its motion in the Delaware Bankruptcy Court. Further, the free and clear sale order from the Kansas Bankruptcy Court suggests that Peer Street is likely to succeed on the merits in removing any cloud on the title to the Property so that the sale may proceed without a cloud on the title. Further, the motion in Delaware has been ready for hearing.
Conclusion
For all these reasons, the court finds that Peer Street has shown cause to grant its motion for relief from stay pursuant to § 362(d)(1). The motion is granted to allow Peer Street to pursue its motion in the Delaware Bankruptcy Court seeking to enforce the automatic stay relating to the lis pendens issue and for any other in rem relief related to the Property. At the hearing counsel for Peer Street acknowledged that the motion in the Delaware Bankruptcy Court does not seek compensatory or other monetary damages against the Debtor and, therefore, this court is not addressing that issue except to note that the automatic stay shall remain in place as to any in personam relief for damages against the Debtor, without prejudice to such relief being sought through a separate motion.
IT IS SO ORDERED.