In re Quade
MEMORANDUM DECISION
This matter comes before the court on the Motion for Stay Pending Appeal (the “Motion”) [Docket No. 99] of Entertainment Events, Inc. (“EEI”) regarding the Merrill Lynch retirement accounts (the “Merrill Lynch Accounts ”) of Victoria C. Quade (the “Debtor”). For the reasons set forth below, pursuant to the bankruptcy court’s authority to tailor relief for the benefit of all parties in interest pursuant to Rule 8005 of the Federal Rules of Bankruptcy Procedure (“Rule 8005 ”), the court will conditionally impose a stay pending appeal as to the Merrill Lynch Accounts, subject to modification upon an application from the Debtor to this court, with notice to EEI, to lift said stay for a specific use of the funds contаined in the Merrill Lynch Accounts.
JURISDICTION
The federal district courts have “original and exclusive jurisdiction” of all cases under title 11 of the United States Code (the “Bankruptcy Code ”). 28 U.S.C. § 1334(a). The federal district courts also have “original but not exclusive jurisdiction” of all civil proceedings arising under title 11 of the United States Code, or arising in or related to cases under title 11. 28 U.S.C. § 1334(b). District courts may, however, refer these eases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).
A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under title 11. 28 U.S.C. § 157(b)(1). A motion for stay pending appeal arises
Accordingly, final judgment is within the scope of the court’s authority.
PROCEDURAL HISTORY
In considering the Motion, the court has evaluated the arguments of the parties at the July 24, 2013 hearing on the Motion (the “Hearing”), and has reviewed and considered the Motion itself, in addition to:
(1) Debtor’s Memorandum in Opposition to Motion for Stay Pending Appeal [Docket No. Ill];
(2) EEI’s Reply in Support of Motion for Stay Pending Appeal (the “Reply ”) [Docket No. 115]; and
(3) Debtor’s Memorandum Regarding Her Proposed Chapter 11 Plan [Docket No. 173],
The court has also taken into consideration all exhibits submitted in conjunction with the foregoing documents, as well as the orders underlying the appeal (the “Original Orders ”). Though thesе items together do not constitute an exhaustive list of the filings in the above-captioned bankruptcy case, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi, No. 93-C-188,
BACKGROUND
From consideration of the foregoing, the court finds as undisputed the following facts:
(1) On July 3, 2012, the Debtor commenced the above-captioned proceedings by filing a chapter 7 bankruptcy petition.
(2) On October 10, 2012, the court issued its Memorandum Decision (the “Original Memorandum Decision”) [Docket No. 58] regarding the Debt- or’s Motion to Avoid Judicial Lien on Exempt Property and Recover Exempt Property (the “Motion to Avoid Judicial Lien ”) [Docket No. 21] and EEI’s Motion for Relief from the Automatic Stay (the “Stay Relief Motion ”) [Docket No. 18], in which the court entered an order granting the Debtor’s Motion to Avoid Judicial Lien and granted in part EEI’s Stay Relief Motion as to those assets over which the Debtor did not claim an exemption, and in which EEI asserted a judicial lien as well as the value of assets exceeding the exemptions claimed by the Debtor. On that same day the court entered the Original Orders implementing the relief set forth in the Original Memorandum Decision.
(3) As a result of the Debtor’s Motion to Avoid Judicial Lien being granted, the Debtor avoided EEI’s lien against the Merrill Lynch Accounts, containing a value of approximately $199,000.
(4) EEI filed its Motion to Alter or Amend Judgment (the “Motion to Amend ”) [Docket No. 68] on October 24, 2012, asking this court to amend its judgment in the Original Memorandum Decision and rule that EEI’s lien against the Merrill Lynch Accounts was not avoided because the property was not part of the bankruptcy estate.
(5) On November 13, 2012, the court entered an order granting and denying in рart EEI’s Motion to Amend,leaving unaltered the exempt status of the Merrill Lynch Accounts.
(6) EEI filed a Notice of Appeal [Docket No. 86] on November 26, 2012, followed by its Designation of Record on Appeal and Statement of Issues on Appeal, which set forth as follows:
(A) Whether the turnover order entered in state court as to the Debt- or’s interest in certain Merrill Lynch Accounts, which was thereafter served on Merrill Lynch, effectively terminated Debtor’s legal interest in those accounts.
(B) Whether the Debtor had a legal or equitable interest in the Merrill Lynch Accounts when her bankruptcy petition was filed such that the Debtor could avoid a judicial lien on the Merrill Lynch Accounts.
(C) Whether the bankruptcy court erred in entering an order avoiding EEI’s judicial lien on Debtor’s Merrill Lynch Accounts pursuant to section 522(f)(1) of the Bankruptcy Code.
(7) On January 8, 2013, the court entered an order [Docket No. 107] for a temporary stay on the Merrill Lynch Accounts to maintain the status quo. That order has, by agreement of the parties, been extended from time to time thereafter up to the presеnt.
(8) On May 7, 2013, the Debtor filed a Motion to Convert to Chapter 11 Case (the “Motion to Convert ”) [Docket No. 128] upon which the court has not yet ruled.
(9) EEI now seeks a stay of the court’s October 10, 2012 and November 13, 2012 orders to preserve the status quo during the pendency of the appeal, as pursuant to Rule 8005, a discretionary motion for stay pending appeal must be presented to the bankruptcy judge in the first instance.
DISCUSSION
Prior to the commencement of the bankruptcy case, EEI successfully sued the Debtor in the Circuit Court of Cook County, Illinois. The matter before the court is the present-day iteration of a disputе between the parties that dates back several years. On September 29, 2011, EEI registered a state court judgment against the Debtor in the amount of $884,056.55. Thereafter EEI took various steps to attempt to perfect interests in the Debtor’s assets securing its judgment, and the Debtor commenced these proceedings. The essence of the dispute is the effect of EEI’s various turnover motions against the Debtor and citations served on Merrill Lynch prior to the Debtor’s chapter 7 bankruptcy filing on July 3, 2012. In these proceedings, the Debtor sought to avoid EEI’s interests and the court, in the Original Memorandum Decision and Original Orders, sustained in part those efforts. EEI thereafter appealed, and now seeks a stay of the Original Orders pending that appeal. The Debtor opposes, claiming among other things an immediate need to access the funds which the court ruled were exempt.
The issue before the court is governed by Rule 8005 of the Federal Rules of Bankruptcy Procedure, which sets the standards for stays pending appeal. Rule 8005 provides, in pertinent part, that:
A motion for a stay of the judgment, order, ór decree of a bankruptcy judge, for approval of a supersedeas bond, or for other relief pending appeal must ordinarily be presented to the bankruptcy judge in the first instance. Notwithstanding Rule 7062 but subject to the power of the district court and the bankruptcy appellate panel reserved hereinafter, the bankruptcy judge may suspend or order the continuation of theother proceedings in the case under the Code or make any other appropriate order during the pendency of the appeal on such terms as will protect the rights of all parties in interest.
Fed. R. Bankr.P. 8005.
A motion for a stay pending appeal is an exceptional form of relief and requires a considerable showing from the movant. In re Beswick,
A. The Rule 8005 Four Factor Analysis
Four factors are used in deciding whether a discretionary stay pending appeal is appropriate. In re Forty-Eight Insulations, Inp.,
(1) Likelihood of Success on the Merits
As a threshold matter, the applicant for a stay pending appeal must first show some likelihood of success on the merits. Forty-Eight Insulations,
Here, EEI claims that there is no authority for the precise question on appeal — mainly, the effect of a turnover order on investment accounts where the turnover order was served prior to a bankruptcy filing. That quite simply is not the case. Judge Wedoff of this court has already ruled on substantially similar issues in In re Alanis, No. 12 B 07465,
In its Reply, EEI attempts to address this shortcoming by asserting that the only Illinois case on point supports its position on appeal. However, the court already evaluated this argument in issuing the Original Memorandum Decision, as follows:
EEI relies on the case of Busey Bank v. Salyards,304 Ill.App.3d 214 ,238 Ill. Dec. 197 ,711 N.E.2d 10 (4th Dist.1999), for the proposition that a turnover order is a transfer divesting the debtor of аny interest in the property. The Busey Bank case does indeed discuss this issue, but in a roundabout way. While the state court appears to adopt a position that “when the turnover order was entered ..., the [debtor] no longer had an interest in the [property],” its discussion is in fact based on bankruptcy law, not on Illinois state law.... Thus Busey Bank does not constitute good law on this issue, as the precedent upon which it relies is neither on point nor based on Illinois law.
In re Quade,
The law in regard to the point of time in which a turnover order effects a change in ownership of property is in fact more established than EEI has asserted. In the Original Memorandum Decision, the court found Judge Wedoff s reasoning in Alanis compelling in part bеcause it relied on a Supreme Court case, United States v. Whiting Pools, Inc.,
The court has noted in the past when there is a degree of uncertainty in certain matters when issuing a decision — that is not the case here. Because EEI does not raise any substantial issues or persuasive reasoning showing that it has a heightened chance of success on appeal, the court finds that the first factor is not met.
(2) Irreparable Injury Absent a Stay
The second factor in the movant meeting its threshold burden under Rule 8005 is a showing of irreparable injury absent a stay. Forty-Eight Insulations,
Not only must the harm alleged rise above being speculative in nature, but to be considered irreparable, economic injury alone is ordinarily not enough. As the D.C. Circuit has posited:
The key word in this consideration is irreparable. Mere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of a stay, are not enough. The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm.
Va. Petroleum Jobbers Ass’n v. Fed. Power Comm’n,
In this case, EEI has alleged that, without the funds in the Merrill Lynch Accounts, insufficient assets exist for it to recover the EEI Judgment and that if the Debtor spends the funds while the appeal is pending, irreparable injury to EEI will result. EEI argues that, given the state of the Debtor’s finances, money so spent may never be replacеd.
EEI is assisted in this argument by the Debtor herself. The Debtor has provided a rough sketch of what the Debtor’s chapter 11 plan might reflect if the pending Motion to Convert were granted. The Debtor indicates that approximately $96,000 of the roughly $199,000 in the Merrill Lynch Accounts would be contributed to the bankruptcy estate for the payment of administrative expenses and argues that of this $96,000, her attorneys should be given $50,000 as a deposit for work to be performed in the chapter 11 case. There is therefore a likelihood that a large portion of the money in the Merrill Lynch Accounts may be extinguished.
The Debtor’s current financial situation, as presented in the parties’ motions and at the Hearing, is unclear. It is unclear whether, as alleged by EEI, sufficient assets exist to fully satisfy the EEI Judgment absent the funds in the Merrill Lynch Accounts. After evaluating EEI’s and the Debtor’s arguments at the Hearing, the only logical conclusion is that the EEI Judgment may not be fully satisfied should no stay be implemented. As a result, EEI has shown sufficiently that it would likely receive less than the full value of the secured EEI Judgment should the court not impose a stay. While money is fungible, it may also in certain instances be irreplaceable as a matter of fact.
In sum, the court finds that the Debtor’s ability to pay the EEI Judgment with assets outside of the exempt Merrill Lynch Accounts is questionable. A portion of the
For these reasons, the court finds that the harm rises above the level of a speculative or merely economic injury to one that is concrete and unable to be remedied, thereby causing irreparable injury to EEI. EEI has therefore met both the threshold test and the overall burden with respect to irreparable injury.
(3) The Third, and Fourth Factors— Harm to Other Parties and Whether a Stay Is in the Public Interest
As noted above, the Seventh Circuit has indicated that a court’s analysis should stop if the movant has not met the first two threshold factors. Forty-Eight Insulations,
The third factor is the possibility of harm to other parties. Id. at 1300. In this case, this harm may be viewed in two parts: harm to the Debtor and harm to other creditors. EEI claims the potential harm of a stay to the Debtor is minimal given that the Merrill Lynch Accounts have not previously been accessed by the Debtor. Pаst need does not, of course, automatically dictate future need. The Debtor has demonstrated a potentially fatal harm to her bankruptcy as she claims her pending desire to reorganize under chapter 11 will be thwarted if EEI’s Motion is granted. The Debtor in her schedules and at the Hearing has shown that she has few other sources of funds. Without access to her frozen funds, the Debt- or’s chance of a reorganization is severely diminished.
The potential harm to a debtor’s reorganization prospects by a stay pending apрeal is something that has already been considered by Judge Wedoff of this court. In 203 N. LaSalle, the district court affirmed Judge Wedoffs finding that a financing package that the debtor’s chapter 11 plan relied on would be jeopardized by the issuance of a stay, thus harming the debtor, as the debtor’s partners and investors would likely withdraw their money from the package in favor of other opportunities. Id. at 598. While harm to a debtor in the context of causing a confirmed chapter 11 plan to fail is not directly on point, the court finds the reasoning compelling. Here, the Debtor’s potential chapter 11 conversion could be jeopardized should it grant the stay. Thus, the court finds that substantial harm to the Debtor could indeed occur should the stay be issued.
Harm to other parties in interest, namely other creditors, is also considered. The court in Doctors Hospital addressed harm to other creditors, stating, “[defendant essentially argues that the status quo is prolonged litigation, but that history does not mean that creditors of the estate have not been and will not be harmed by further delay.” Doctors Hosp. of Hyde Park, Inc.,
Last is whether a stay is in the public interest. Doctors Hospital addresses the policy behind this factor, indicating that “[t]he public policy behind bankruptcy is the equality of distribution to creditors within the priorities established by the Code within a reasonable time.... [F]ur-ther delay is contrary to that public policy, and therefore would not be in the public interest.” Id.; see Begier v. I.R.S.,
As indicated by EEI at the Hearing, the appeal to which the Motion relates is presently voluntarily stayed, and needs to be reopened by EEI with the district court. It appears likely that the appeal will therefore not be resolved for another eight to twelve months at a minimum. In line with Judge Schmetterer’s reasoning in Doctors Hospital that further delay during an appeal may negatively impact the public interest by extending litigation pаst a reasonable time, so too would the public interest be harmed here should EEI’s Motion be unconditionally granted.
In summary, EEI has sufficiently crossed the threshold on the first two factors such that deeper inquiry into those factors, as well as consideration of the remaining two factors, is warranted. Upon such deeper review, the court concludes that the second factor swings most strongly in EEI’s favor, while the third and fourth factors favor the Debtor. The first factor, while providing a minimum showing sufficient to meet the preliminary threshold test in Forty-Eight Insulations, does not on further inquiry favor either party.
The court is therefore faced with a conundrum. This can be solved, however, by exercise of the remaining authority in Rule 8005, which affords the court express authority to tailor equitable relief.
B. The Court’s Ability to Tailor Relief
In this case, EEI has failed to meet the substantial showing required for the first factor but has met its burden in the second factor. The third and fourth factors favоr the Debtor. Pursuant to the court’s authority under Rule 8005 to tailor relief to protect the rights of all parties in interest, the court may, however, nonetheless provide a form of relief.
Rule 8005 provides that “the bankruptcy judge may suspend or order the continuation of the other proceedings in the case under the Code or make any
... Rule 8005 provide[s] the Court with discretionary power when determining whether to grant a stay upon appeal ... with its more flexible language authorizing a court to uniquely tailor relief to the circumstances of the case. Further, Rule 8005 provides a court with substantiаlly broader discretion than that afforded by Rule 7062.
In re Westwood Plaza Apts., Ltd.,
Until such time as the court’s Original Orders become final, the Merrill Lynch Accounts remain property of the bankruptcy estate and subject to EEPs claim of lien. In order to best balance the intеrests of all parties, it is more appropriate for the court to fashion an equitable remedy than make a binary decision on the Motion. To do otherwise would likely result in harm to the unsuccessful party.
As a result, the court finds it appropriate to impose a conditional stay as to the Merrill Lynch Accounts. Such stay shall remain in effect until the earlier of the Original Orders becoming final or the court ordering otherwise. So as to balance the interests of the Debtor in funds that the court has determined to be exempt, the cоurt will entertain, on a case-by-case basis, requests of the Debtor to utilize the funds contained in the Merrill Lynch Accounts in the same manner as it would entertain a motion to use property of the estate outside the ordinary course of business under section 363(b)(1) of the Bankruptcy Code. The Order accompanying this Memorandum Decision will implement said stay.
CONCLUSION
For the foregoing reasons, the court concludes that EEI’s Motion should be granted in part, and denied in part, in the manner described above.
An order will be issued concurrent with this Memorandum Decision.
This matter comes before the court on the Motion for Stay Pending Appeal (the “Motion”) [Docket No. 99] of Entertainment Events, Inc. [“EEI ”]; the court having jurisdiction over the subject matter and all necessary parties appearing at the hearing conducted on July 24, 2013 (the “Hearing”)', the court having considered the testimony and the evidence presented by all parties and the arguments of all parties in their filings and in the Hearing; and in accordance with the Memorandum Decision of the court in this matter issued on August 8, 2013, wherein the court found that sufficient grounds exist for conditionally granting in part and denying in part the relief requested in the Motion under Rule 8005 of the Federal Rules of Bankruptcy Procedure;
NOW, THEREFORE, IT IS HEREBY ORDERED:
(1) That the Motion for Stay Pending Appeal is GRANTED in part and DENIED in part, as set forth herein.
(2) Access to the Debtor’s Merrill Lynch retirement accounts (the “Merrill Lynch Accounts ”) by all parties is stayed pending further order of the court.
(3) Such stay shall remain in effect until such time as the orders underlying the appeal (the “Original Orders”) become final, or the court orders otherwise.
(4) The court will entertain, on a case-by-case basis, requests of Victoria C. Quade (the “Debtor”) to utilize the funds contained in the Merrill Lynch Accounts in the same manner аs it would entertain a motion under section 363(b)(1).
Notes
. The Debtor has also asserted that EEI should be required to post a supersedeas bond as a precondition to a stay under Rule 8005. This argument is not well taken under Rule 8005. See Gleasman v. Jones, Day, Reavis, & Pogue (In re Gleasman),
. The court notes that the Debtor has, in opposing the Motion, noted proposed use of $96,000 for a chapter 11 case, consisting of a $50,000 retainer for her counsel in seeking conversion and the remainder for funding of the Debtor’s forthcomings — should conversion be granted — plan of reorganization. Such proposed use is not a request upon which the court can rule in this context. Nonetheless, the court notes that the proposed retainer is excessive and poorly documented as to need, and would not, without further record, meet the standards the court anticipates for such requests. The court anticipates that the Debt- or will hold herself to a higher standard on any request for such use; if and when made.