Opinion
Case No. 14-58784
03-05-2015
In re: Birmingham Cosmetic Surgery, P.L.L.C., Debtor.
Chapter 11 AMENDED ORDER GRANTING DEBTORS' MOTION TO MODIFY THE AUTOMATIC STAY
I. INTRODUCTION
Katherine Pagan sued Birmingham Cosmetic Surgery, P.L.L.C. and Dr. Rouchdi Rifai ("Debtors") for medical malpractice and obtained a $1.35 million judgment. While their appeal was pending, Debtors separately filed for Chapter 11 bankruptcy relief; the judgment appeal was automatically stayed.
Debtors seek modification of the automatic stay to continue the appeal. Pagan objects. The Court heard argument on March 2, 2015. Because Debtors' insurer will pay the appeal costs, Debtors' jointly administered bankruptcy cases will not be delayed, and the appeal is in the best interests of Debtors and their unsecured creditors, the motion is GRANTED.
II. BACKGROUND
Birmingham Cosmetic performs cosmetic surgery, including breast augmentation, tummy tucks, and varicose vein treatment; Dr. Rifai is the sole shareholder. On May 12, 2014, Pagan received a $1.35 million medical malpractice judgment against Debtors in the Jackson County Circuit Court. Debtors appealed. Their Chapter 11 bankruptcy petitions were filed on December 8, 2014 - before briefs were due in the Michigan Court of Appeals.
Pagan is Debtors' largest unsecured creditor. Debtors have malpractice insurance through The Doctors Company, but Pagan's judgment is not fully covered. The Doctors Company concurs with Debtors' motion and has agreed to pay all costs and attorney fees associated with the appeal.
III. ANALYSIS
A. Debtors' Motion is Timely
Pagan first argues that Debtors' motion is untimely because the case management order provides that the deadline to file motions was February 6, 2015; this motion was not filed until February 25, 2015. The Court disagrees. Paragraph 6 of the case management order clarifies that the deadline refers to motions to value security: "if necessary to file a plan by the deadline established in this order, the debtor shall file any motions or requests to value security pursuant to L.B.R. 9014-1 by [February 6, 2015]." (Emphasis added).
Further, neither Bankruptcy Rule 4001(a) nor L.B.R. 9014-1 provides a deadline by which a motion to modify the automatic stay must be filed.
B. Debtors' Failure to Seek Concurrence is not Dispositive
Pagan next argues that the motion should be denied because Debtors did not seek concurrence in compliance with Local Rule 9014-1(g): "[i]n an adversary proceeding, or in a bankruptcy case unless it is unduly burdensome, the motion shall affirmatively state that concurrence of opposing counsel in the relief sought has been requested on a specified date and that the concurrence was denied."
Although Debtors should have sought concurrence from Pagan, "enforcement of the rule under these circumstances would result in a waste of time and judicial resources, as it is abundantly clear that [Pagan] would not have concurred in the requested relief." Kim v. City of Ionia, 2013 WL 3944267, at *3 n.6 (W.D. Mich. July 31, 2013); see also Bourne v. Arruda, 2011 WL 2357504, at *19 (D.N.H. June 10, 2011) ("The nature of defendants' objection and their failure to show any willingness to concur in the relief requested makes it clear that [plaintiff's] failure to seek concurrence had no real impact on the litigation."); Berryman v. Hofbauer, 161 F.R.D. 341, 343-44 (E.D. Mich. 1995):
Debtors argue that it would have been unduly burdensome to seek concurrence from 98 creditors, but the reality is that Pagan is the only creditor directly affected by the requested modification.
[e]ven if defendants had not sought concurrence and had violated the rule, . . . the Court would waive this requirement in this case as obviously plaintiff would not concur - and has not - in the relief requested. To deny the motion on this technical point would not serve the interests of judicial fairness and economy[;]Am. Communications Network, Inc. v. Steuben Associates, 2005 WL 1355070, at *2 (E.D. Mich. April 5, 2005) ("Dismissal of the motion based on failure to request concurrence would elevate form over substance. The motion should be addressed on its merits."); Franks v. UNUM Life Ins. Co., 2012 WL 1576985, at *1 (W.D. Mich. May 3, 2012) ("While the Court could deny the motion without prejudice based on [plaintiff's] failure [to seek concurrence], it will instead address the motion on its merits."); Indianapolis Life Ins. Co. v. Hentz, 2009 WL 36454, at *2 (M.D. Pa. Jan. 6, 2009) ("the Court finds that the failure to seek concurrence did not sufficiently prejudice the Defendants to warrant denying the motion").
Debtors, however, are cautioned that failure to comply with the local rules in the future may result in sanctions.
C. Cause Exists to Modify the Automatic Stay
The automatic stay provision of 11 U.S.C. § 362(a) took immediate effect once Debtors filed their bankruptcy petitions in December 2014. The purpose of the automatic stay is to provide Debtors a breathing spell from their creditors and time to organize their affairs. Teachers Ins. & Annuity Ass'n of Am. v. Butler, 803 F.2d 61, 64-65 (2d Cir. 1986). Debtors seek to appeal Pagan's judgment. Pagan argues that Debtors have not demonstrated "cause" to modify the automatic stay. The Court disagrees.
11 U.S.C. § 362(d)(1) allows the Court to modify the automatic stay "for cause." The Bankruptcy Code does not define "cause." Instead, courts must determine whether relief is appropriate on a case by case basis. Chrysler LLC v. Plastech Engineered Products, Inc. (In re Plastech Engineered Products, Inc.), 382 B.R. 90, 106 (Bankr. E.D. Mich. 2008) (citing Laguna Assoc. Ltd. P'ship v. Aetna Cas. & Sur. Co. (In re Laguna Assoc. Ltd. P'ship), 30 F.3d 734, 737 (6th Cir. 1994)).
There are a number of factors that may be relevant to the Court's determination of whether to modify the automatic stay. Garzoni v. K-Mart Corp. (In re Garzoni), 35 F. App'x 179, 181 (6th Cir. 2002); Sonnax Indus., Inc. v. Tri Component Prods. Corp. (In re Sonnax Industries, Inc.), 907 F.2d 1280 (2d Cir. 1990). Application of the Sonnax factors is a matter within the bankruptcy court's discretion; not all of the factors are applicable in every case, nor are they entitled to equal weight. Laguna, 30 F.3d at 737; In re Lyondell Chem. Co., 402 B.R. 596, 609 (Bankr. S.D.N.Y. 2009) (citing Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139, 143 (2d Cir. 1999); In re Enron Corp., 306 B.R. 465, 475-76 (Bankr. S.D.N.Y. 2004)).
The Court finds the following factors particularly relevant to the determination of whether to modify the automatic stay - where Debtors are the appellants in the state court proceedings: (1) whether relief would result in a partial or complete resolution of the issues; (2) lack of any connection with or interference with the bankruptcy case; (3) whether a specialized tribunal with the necessary expertise has been established to hear the cause of action; (4) whether Debtors' insurer has assumed full responsibility for defending them; (5) whether litigation in another forum would prejudice the interests of other creditors; (6) the interests of judicial economy and the expeditious and economical resolution of litigation; and (7) the impact of the stay on the parties and the balance of harms.
The remaining Sonnax factors are: (1) whether the other proceeding involves Debtors as fiduciaries; (2) whether the action primarily involves third parties; (3) whether the judgment claim arising from the other action is subject to equitable subordination; (4) whether Debtors' success in the other proceeding would result in a judicial lien avoidable by Debtors; and (5) whether the parties are ready for trial in the other proceeding. Sonnax Indus., Inc. v. Tri Component Prods. Corp. (In re Sonnax Indus., Inc.), 907 F.2d 1280, 1286 (2d Cir. 1990).
First, allowing Debtors to proceed with the appeal will result in a final determination of Pagan's claim.
Subject to any application for leave to appeal to the Michigan Supreme Court.
Second, the appeal will not delay the bankruptcy cases and promotes judicial efficiency: Debtors' jointly administered cases will proceed concurrently with the appeal.
Third, the Michigan Court of Appeals is a tribunal experienced in the resolution of medical malpractice actions.
Fourth, Debtors' insurer will pay the appeal costs.
Finally, Debtors' unsecured creditors will not be harmed: if a plan is confirmed and Debtors propose periodic payments to unsecured creditors, they will receive their plan payments while the appeal is pending, and the Court may order Pagan's payments placed in escrow pending final adjudication of the appeal.
For voting purposes, the value of Pagan's claim will be the judgment amount.
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IV. CONCLUSION
The relevant Sonnax factors support modification of the automatic stay to allow Debtors' appeal to continue. Therefore, the motion is GRANTED.
IT IS ORDERED. Signed on March 05 , 2015
/s/ Mark A. Randon
Mark A. Randon
United States Bankruptcy Judge