Class Plaintiff's Response to Automatic Stay - equitatus

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Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 22 of 34 exchanging his stock for worthless stock stated a direct claim); Educators, 25 F.3d at 1286 (holding that “the claim that the defendants negligently misrepresented the financial status of… [the bankrupt party] to the plaintiff[s]…” involved direct injury to the plaintiffs and therefore belonged solely to them). 51. Moreover, these claims allege that the conduct harmed the members, not RE Loans. Greenberg's misrepresentations and failures to disclose the truth about the exchange agreement transaction induced the members to consent to a process that directly harmed their rights and interests as RE Loans equity owners. d) The Violation of California’s Unfair Competition Law (Cause Six) is a Direct Claim 52. Greenberg’s alleged violation of California’s unfair competition law is based on the same factual allegations of misconduct that support the aiding and abetting claims and the independent fraud-based claims (securities and common law fraud). CC 252, 253. As explained above, this alleged conduct establishes that the aiding and abetting claims and independent fraud claims are individual and belong to California Class Plaintiffs. As such, this claim – which is based on the same alleged conduct and resulting harm – is also direct and belongs to RE Loans investors, not to RE Loans itself. e) The Claims Relating to MF08 Could Not Possibly Belong to the RE Loans Bankruptcy Estate 53. Causes eight through fourteen in the Consolidated Complaint allege wrongdoing by Greenberg against those who invested in MF08. Greenberg fails to point out that these causes of action could not possibly belong to the RE Loans bankruptcy estate because they allege wrongdoing by Greenberg in connection with MF08. II. THERE IS NO LEGITIMATE BASIS FOR ENJOINING THE CALIFORNIA CLASS LITIGATION UNDER SECTIONS 362 OR 105 54. Greenberg argues that extension of the stay is appropriate because the prosecution of the California Class Litigation will impact the estate. As a general rule, however, “[s]ection 362 is rarely… a valid basis on which to stay actions against non-debtors.” Reliant Energy Servs. v. Enron 16
Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 23 of 34 Canada Corp., 349 F.3d 816, 825 (5th Cir. 2003) (citing Arnold v. Garlock, Inc., 278 F.3d 426, 436 (5th Cir. 2001)). To enjoin creditors from enforcing their claims against nondebtors in nonbankruptcy courts is an exception to the general principle that to enjoy the benefits of bankruptcy a recipient needs to suffer the burdens. In re Bora Bora Inc., 424 B.R. 17, 25 (D. Puerto Rico 2010) (citing In re Saxby’s Coffee Worldwide, LLC, No. 09-0340, 2009 WL 4730238, at *5 (Bankr. E.D. Pa,. Dec. 4, 2009)). Accordingly, extending the stay to a nondebtor is appropriate only in “unusual circumstances” that exist only when the nondebtor and the debtor enjoy such an identity of interests that suit against the nondebtor is essentially a suit against the debtor or when the third party action will have an adverse impact on the debtors’ reorganization. In re Zale, 62 F.3d 746, 761 (5th. Cir. 1995); In re Seatco, Inc., 257 B.R. 469, 476-77 (N.D. Tex. 2001) (Houser, J.). 55. Even if unusual circumstances exist, a stay is not automatically extended to nondebtors, but must proceed through an injunction under § 105. Everitt, 703 F. Supp. 2d at 638. The court in Excel Innovations explained that the lower court erred in treating the unusual circumstances doctrine and the usual preliminary injunction standard as separate and distinct bases for affirming the stay. 502 F.3d at 1096. The unusual circumstances doctrine does not negate the need to satisfy the traditional preliminary injunction standard – it invokes that standard. Id. Pursuant to § 105, the court must apply the traditional factors governing the issuance of a temporary injunction to the bankruptcy context. Seatco, 257 B.R. at 477. In doing so, courts must examine whether the debtor has a reasonable likelihood of a successful reorganization, whether the third party litigation would endanger that reorganization, the relative hardship of the parties, and any public interest concerns, if relevant. Excel Innovations, 502 F.3d at 1096 (it is error to treat the unusual circumstances doctrine and the usual preliminary injunction standard as separate and distinct bases for affirming the stay); Zale, 62 F.3d at 761. 56. Greenberg’s application of these legal requirements to the California Class Litigation fails on every possible level. Greenberg completely ignores applicable case law regarding §§ 362 and 105. 13 13 Greenberg periodically references cases discussing “related to” jurisdiction, which is not relevant at all in determining whether the court should grant a preliminary injunction of the California Class Litigation. A court must initially evaluate 17
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Class Plaintiff's Response to Automatic Stay - equitatus

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