Class Plaintiff's Response to Automatic Stay - equitatus

More documents

Recommendations

Info

Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 14 of 34 LEGAL ARGUMENT 28. Greenberg argues that the California Class Litigation should be stayed under § 362(a)(3) because the claims belong to the estate. In addition, Greenberg argues that the California Class Litigation should be stayed under § 362 because the litigation will harm the debtor’s estate and for judicial economy purposes. Alternatively, Greenberg argues that an injunction under § 105 is appropriate because the estate will be adversely affected by the California Class Litigation. 29. Throughout all of its arguments, Greenberg attempts to blur the distinction between the automatic stay of § 362 and the discretionary extension of the stay through § 105, in the apparent hope that the confusion will accomplish an outcome that is not envisioned by statute. But as discussed below, the two remedies are as different as night and day, and neither applies here. 30. The automatic stay of § 362 applies only to causes of action that are owned by the Debtor's estate, or that are directed at the Debtor’s assets, and while its application requires no weighing of factors, it is narrow in its scope. Because none of the claims asserted in the California Class Litigation are owned by the Debtor’s estate, and no claim is made against the Debtors themselves or their assets, § 362(a)(3) is inapplicable here. 31. The injunctive relief available under § 105, on the other hand, is not automatic and may be granted only in unusual circumstances, after a traditional analysis of the merits of injunctive relief. A stay of third party litigation under § 362 requires application of § 105 and the traditional factors governing the issuance of an injunction. In re Excel Innovations, Inc., 502 F.3d 1086 (9th Cir. 2007) (§§ 362 and 105 do not provide separate and distinct bases for extending the stay to nondebtor); Everitt v. Pneumo Abex, LLC, 703 F. Supp. 2d 630 (S.D. Miss. 2009) (the extension of § 362 to nondebtor does not occur automatically but must proceed through § 105.). Applying those factors here precludes any injunctive relief affecting the California Class Litigation. I. SECTION 362 DOES NOT APPLY BECAUSE THE CLAIMS ALLEGED AGAINST GREENBERG IN THE CALIFORNIA CLASS COMPLAINT BELONG TO CALIFORNIA CLASS PLAINTIFFS, NOT TO THE ESTATE A. Legal Standard 8
Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 15 of 34 32. A claim belongs to the bankruptcy estate only if the pre-petition debtor owned it under applicable state law and could have brought it as of the bankruptcy’s commencement. In re Educators Group Health Trust, 25 F.3d 1281, 1284 (5th Cir. 1994). Thus, if the claims against Greenberg in the Consolidated Complaint belonged to RE Loans under applicable state law, they belong to the estate now. 3 The inquiry looks at the nature of the injury for which relief is sought. 4 33. The bankruptcy court applies state law to determine whether claims would have belonged to the pre-petition debtor. Educators, 25 F.3d at 1284. In determining which state's law to use, the court applies the choice of law rules of the forum in which it sits. 5 The Texas Business Organizations Code supplies Texas' choice of law rule. Under this code, "actions involving the internal affairs of a foreign corporation are governed by the law of the state of incorporation." Skyport Global, 2011 WL 111427, at *15 ("[t]he evaluation of whether a claim is direct or derivative falls into this category of actions involving the internal affairs of a corporation.") (quoting Tex. Bus. Org. Code 1.102). Therefore, because the Debtors are California limited liability companies, California law governs the resolution of that issue. B. California Class Plaintiffs Own the Claims in the Consolidated Complaint Under California Law 34. Jones v. H.F. Ahmanson & Co., 81 Cal. Rptr. 592, 598 (1969), provides California's test for determining whether a cause of action is direct or derivative. Under Jones, a claim belongs to the corporation “if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock or property …, or if it seeks to recover assets for the corporation or to prevent the dissipation of its assets.” Id. By contrast, a personal claim seeks “to enforce a right against the corporation which the stockholder possesses as an individual.” Id. The Jones standard has remained the 3 See In re Enron Corp. Sec. Derivative & “ERISA” Litig., No. MDL–1446, Nos. H-01-3624, G-02-0299, 2007 WL 789141, at *4 (Mar. 12, 2007) (“Where the corporation is in bankruptcy, a derivative claim is the property of the debtor’s estate, rather than of the individual plaintiff, and the individual lacks standing to assert the claim.”). 4 In re E.F. Hutton Southwest Prop. II, Ltd., 103 B.R. 808, 812 (Bankr. N.D. Tex. 1989) (noting that the trustee has no standing to bring personal claims of creditors). In making the determination, the court considers the factual allegations in the plaintiff’s complaint. Don Hanvey Oil Trust, Inc. v. Unit Texas Drilling, LLC, No. C-10-202, 2011 WL 606264, at *5 (S.D. Tex. Feb. 16, 2011). 5 In re Soporex, Inc., No. 08-34174, Adversary No. 11-3305, 2011 WL 5911674 (Bankr. N.D. Tex. Nov. 28, 2011); In re Skyport Global Comm., Inc., Bankruptcy No. 08-36737, Adv. No. 0-03150, 2011 WL 111427, at *14-15 (Bankr. S.D. Tex. Jan. 13, 2011). 9
Page 1 and 2: Case 11-03620-bjh Doc 40 Filed 02/2
Page 13: Case 11-03620-bjh Doc 40 Filed 02/2

Class Plaintiff's Response to Automatic Stay - equitatus

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?