In re: Liberty Asset Management Corporation
CC-16-1273-FCTa
| 9th Cir. BAP | Mar 21, 2017Background
- In 2012 Maxwell (and related entities/individuals) loaned Liberty $5.4 million; disputes arose over misuse, repayment, and conveyance/sale of real property; a remaining dispute exceeded $400,000.
- Liberty sued Maxwell in California state court; before Maxwell answered, Liberty filed chapter 11 and removed the state action to bankruptcy court.
- The bankruptcy court issued an OSC on remand; Maxwell filed (1) a motion for relief from the automatic stay to pursue counterclaims in state court, (2) an answer and proposed counterclaim, and (3) a motion to remand.
- After the court denied remand, Maxwell sought stay relief at hearing to litigate its counterclaims in the bankruptcy adversary proceeding (or, alternatively, in state court).
- The bankruptcy court held that stay relief was unnecessary because parties may file claims and counterclaims against the debtor in the pending bankruptcy court without lifting the automatic stay; it denied the motion for relief.
- Maxwell appealed; the BAP affirmed, holding the automatic stay does not bar initiating proceedings against the debtor in the debtor’s home bankruptcy court, so there was no cause to lift the stay.
Issues
| Issue | Maxwell's Argument | Liberty's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court erred by denying relief from the automatic stay so Maxwell could prosecute counterclaims (in state court or in the bankruptcy adversary) | Maxwell argued it needed stay relief to pursue its counterclaims (preferably in state court) and to consolidate all claims so the court could see the full transaction | Liberty argued the stay relief request was unnecessary (the state action had been removed), the claims are core proceedings, and there was no cause to lift the stay | Court held stay relief was unnecessary because parties may file proceedings against the debtor in the pending bankruptcy court; denial of relief was not an abuse of discretion |
Key Cases Cited
- In re North Coast Village, Ltd., 135 B.R. 641 (9th Cir. BAP 1992) (holding the automatic stay does not bar proceedings against the debtor in the debtor’s home bankruptcy court)
- In re Kronemyer, 405 B.R. 915 (9th Cir. BAP 2009) (standard of review for stay relief is abuse of discretion)
- United States v. Hinkson, 585 F.3d 1247 (9th Cir. 2009) (two-part test for abuse of discretion review: legal standard de novo; factual findings for clear error)
- MacDonald v. MacDonald (In re MacDonald), 755 F.2d 715 (9th Cir. 1985) (no fixed definition of "cause" under § 362(d)(1); stay-relief is determined case-by-case)