In re SK Foods, L.P.

Full title: IN RE: SK FOODS, L.P., a California Limited Partnership, Debtor. v…

Court: United States District Court, Ninth Circuit, California, E.D. California

Date published: Jul 10, 2012

Civ S-12-1292 LKK (E.D. Cal. Jul. 10, 2012)

Opinion

IN RE: SK FOODS, L.P., a California Limited Partnership, Debtor. SCOTT SALYER, individually and as trustee of the Scott Salyer Revocable Trust, et al., Appellants, v. BRADLEY D. SHARP, CHAPTER 11 TRUSTEE, Appellee. Civ No. S-12-1292 LKK United States District Court, E.D. California. July 10, 2012

          ORDER

          LAWRENCE K. KARLTON, District Judge.

         Movants seek a stay pending appeal of the Bankruptcy Court's recent "modification" of a preliminary injunction ("PI") which it originally entered on March 20, 2010.¹ On this motion, the court principally looks to the movants' likelihood of success on the merits, and the irreparable harm they say they will suffer if the stay is not granted.

1 The appeal is from Sharp v. SSC Farms I (In re SK Foods, L.P.), Bankr. Dkt. No. 816, Bankr. Adv. No. 9-2692 (May 10, 2012) ("Order Granting Motion to Amend Preliminary Injunction and Order Appointing Receiver"). The movants are SSC Farms I, LLC, SSC Farms II, LLC and SSC Farming, LLC, the defendants below, in 9-2692.

         The motion will be denied.²

2 The Trustee requests that the appeal itself be dismissed. However, he has not filed a noticed motion to this effect, so the request will not be further considered.

         I. ENJOINED ASSETS

         The predicate for movants' argument is that the modification "expands" the assets enjoined by the PI in impermissible ways. For purposes of this stay motion however, movants have not shown that they are likely to prevail on their assertion that the Bankruptcy Court made any substantive changes to the assets subject to the PI.

         The original PI and the adversary complaints (to which the original PI refers), appear to indicate that everything "held" by the movants was transferred to them, directly or indirectly, by or through SK Foods. Therefore, it appears (at this stage) that the new orders's references to assets "held" by movants, is likely referring to the same assets that the original PI described as being "transferred" to movants by SK Foods or as otherwise alleged in the adversary complaints.

         In any event, movants have made no showing of irreparable harm they will suffer from issuance of the Bankruptcy Court's order, even if the new description of enjoined assets did effect a change.

         II. THE AUSTRALIAN ASSET

         It does appear however, that the appealed-from order may have effected a substantial change from the original PI when it granted the Receiver all rights exercisable by non-appellant SS Farms, LLC, ³ arising from its ownership of stock in non-party SS Farms Australia Pty, Ltd. ("SSFA"). The order appears to empower the Receiver "to appoint or remove the officers or directors of SS Farms Australia Pty, Ltd." - to the degree the Receiver is authorized to do so as the receiver of SS Farms, LLC, which is in turn, a shareholder of SSFA. Movants challenge the authority of the Bankruptcy Court to issue such an order, reaching as it seems to, into the affairs of an Australian company that has not appeared in these proceedings (either in the Bankruptcy Court or in this court), and does not appear to have had the opportunity to be heard on the matter. This presents a serious issue and tends to support movants' claim that they will prevail on this issue on appeal.⁴ Indeed, the seriousness of the issue tends to overshadow movants' failure, once again, to show irreparable harm to themselves if the stay is not granted.

3 SS Farms, LLC, is a defendant in Sharp v. Salyer as Trustee (In re SK Foods, L.P.), Bankr. Adv. No. 10-2014. The PI entered in that case has not been appealed. Accordingly, the defendants in 10-2014 (including SS Farms, LLC), are not movants or appellants in this appeal. The court notes that the PI entered in 10-2014 is the same PI that was also entered in 9-2692.

4 The court acknowledges that there appear to be serious issues regarding the standing of these movants to challenge this portion of the order however, inasmuch as it appears to affect principally SS Farms, LLC, and SSFA, neither of which are appellants or movants here. The court expects that the parties will brief these issues fully when the appeal itself is before the court.

         The Trustee defends the order on appeal in part by arguing that it is necessary to prevent the Salyer entities from transferring the $10 million held by SSFA into overseas accounts that they control, without giving the Trustee notice or an opportunity to be heard. However, at oral argument, the Trustee agreed with movants that no such transfer would occur without prior notice to the Trustee from the SSFA liquidator.

         Accordingly:

         (1) Movants' motion to stay the order on appeal is DENIED, conditioned upon the Trustee's agreement to take no action to change SSFA's Board of Directors until after this appeal is resolved;⁵ and

5 If the Trustee has already taken such action, he shall immediately notify the court.

         (2) The Trustee shall, within one week of the date of this order, submit a proposed order embodying this order. The proposed order may provide for the Trustee to be heard in this court on an expedited basis if he learns that SSFA funds are at risk.

         IT IS SO ORDERED.