In re Mitchell, 546 B.R. 339

Debtor Mario A. Mitchell and movants Henry Lazcano and Guaray “Mike” Gupta formed an LLC under a "Home Investing Partnership Agreement" to buy, renovate, and sell real property; disputes arose after one Virginia property sale.
Movants sued Mitchell in Virginia state court for breach of the Partnership Agreement seeking at least $150,000; they initially sought a Recovery Act finding but amended to assert only breach of contract.
Mitchell testified (and Movants did not appear at hearings); he wired $35,000 post-sale and maintained he acted in part as an LLC principal; state real estate boards disciplined Mitchell after Movants’ complaint.
Mitchell filed Chapter 7 on October 23, 2015, which triggered the § 362 automatic stay of the Virginia action; Movants moved for relief from stay to continue the breach suit and, if successful, submit any judgment to Virginia’s Real Estate Transaction Recovery Fund.
The bankruptcy court evaluated whether movants showed cause under § 362(d)(1), focusing on whether movants have a colorable claim eligible for Recovery Fund payment and whether lifting the stay would promote judicial economy.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether to lift stay to continue breach-of-contract suit in Virginia	Allow Virginia suit to go forward to establish prepetition debt	Stay should remain because movants cannot show cause or a colorable claim warranting lifting	Denied — movants failed to show cause to lift the stay to continue the Virginia suit
Whether movants can seek Recovery Fund payment (i.e., whether they are eligible claimants)	If judgment obtained, movants may submit claim to Recovery Fund for payment	Movants are likely ineligible: they were commercial partners, not consumers; misconduct alleged is contractual, not "improper and dishonest conduct" under the Act; Mitchell acted as principal	Denied as premature — movants failed to show a plausible Recovery Fund claim; lifting the stay to pursue the underlying suit is futile
Whether forum/ judicial-economy factors favor lifting the stay (Robbins factors)	State court litigation should proceed; movants would be prejudiced by continued stay	Bankruptcy court can adjudicate the debt efficiently; no forum-specific expertise necessary	Denied — Robbins factors do not favor lifting the stay; bankruptcy court can and should resolve the claim if pursued here

Fernstrom Storage & Van Co. v. Int’l Bus. Machs. Corp., 938 F.2d 731 (7th Cir. 1991) (adopts three-part balancing test for lifting automatic stay to continue litigation)
Robbins v. Robbins (In re Robbins), 964 F.2d 342 (4th Cir. 1992) (stay-lift analysis requires balancing prejudice to estate against hardship to movant)
Gindi v. Smith (In re Gindi), 642 F.3d 865 (10th Cir. 2011) (likelihood of prevailing on merits is potentially dispositive in stay-lift motions)
Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26 (1st Cir. 1994) (movant must show a colorable claim to obtain relief from the stay)
In re Jefferson Cnty., Ala., 484 B.R. 427 (Bankr. N.D. Ala. 2012) (creditor must show probability of prevailing to lift stay for litigation continuation)