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 24 of 34 Most importantly, Greenberg cannot show that unusual circumstances exist. Greenberg fails to focus on the key inquiry—whether this third party litigation will impact the Debtor’s ability to reorganize. And, Greenberg never explains how the California Class Litigation will prevent the Debtor from a successful reorganization. 57. Notably, if the California Class Litigation impaired the Debtor’s reorganization efforts, presumably the Debtor itself would have participated in these Adversary Proceedings or initiated its own stay litigation, as is most typical with these kinds of proceedings. Instead, the Debtor is conspicuously absent from this dispute and has filed the Plan and Disclosure. Clearly, the Debtor is moving forward toward confirmation, unimpeded by the pendency of the California Class Litigation, belying Greenberg’s core (and essential) argument as to prejudice to the Debtor's reorganization efforts. 58. Greenberg’s feigned interest in protecting the estate's claims (against Greenberg) is obviously disingenuous and superficial. Greenberg is attempting to manipulate RE Loans’ bankruptcy status solely for its own benefit to delay or to avoid the California Class Litigation altogether. Such maneuvering by a non-debtor is not supported by the Bankruptcy Code. A. Unusual Circumstances Do Not Exist Because the California Class Litigation Does Not Harm the Debtor’s Ability To Reorganize 59. Greenberg fails to demonstrate that unusual circumstances exist here. Greenberg does not assert that there is an identity of interest between itself and the Debtor and never tries to explain how the California Class Litigation will have an adverse impact on the Debtor's ability to reorganize. Rather, Greenberg simply claims that the Debtor's estate will be impacted generally by the California Class Litigation because of the inconvenience of participating in discovery and the potential for duplication or prejudice in different proceedings. GT Memo. at 14-16. Greenberg fails to articulate whether it has subject matter jurisdiction (a much easier standard than obtaining an injunction under § 105) before it even considers whether it should extend the stay under §105. Zale, 62 F.3d at 761 (a bankruptcy court must first determine if it has jurisdiction to issue an injunction, and if so, then it must decide if it is appropriate to exercise its power under § 105). Class Plaintiffs do not dispute this Court’s limited jurisdiction to decide whether to enjoin the California Class Litigation under §§ 362 or 105 in this adversary proceeding. Class Plaintiffs do dispute whether unusual circumstances exist, and whether the factors supporting an injunction under § 105 are present. As discussed below, they also dispute this Court’s jurisdiction to hear the California Class Litigation directly, or as a basis for removal. 18
Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 25 of 34 how even a temporary delay in the California Class Litigation will resolve those issues or otherwise benefit the reorganization process. 14 60. Sooner or later, the California Class Litigation must go forward, whether it is “inconvenient” or not. There is no showing that going forward now, rather than later, is any more or less problematic for the Debtor, particularly as it is evident that it has not slowed the Debtor’s plan confirmation process. Even if injunctive relief were appropriate here, it would only be temporary, not permanent, so the California Class Litigation would proceed eventually anyway. Better that it does so now. 61. Greenberg’s primary argument is that the California Class Litigation might somehow impair the estate’s potential claims against Greenberg itself. GT Memo. at 12-13. This disingenuous position demonstrates the weakness of Greenberg’s entire justification for an injunction. Collateral estoppel of the estate’s claims against Greenberg is not a valid concern here. Because RE Loans is not a party to the California Class Litigation, doctrines of collateral estoppel and issue preclusion do not apply. See Rice v. Crow, 81 Cal. App. 4th 725, 734-35 (2000) (because collateral estoppel/issue preclusion is an aspect of res judicata, it only applies to bar relitigation of the same issues between the same parties or their privies). 62. Moreover, most courts have refused to find unusual circumstances because of the ordinary burden of discovery or collateral estoppel concerns, even when the potential impact on the debtor has been more significant than exists here. See Excel Innovations, 502 F.3d at 1086 (refusing to extend a stay to nondebtor defendants because of collateral estoppel concerns or because debtor might be compelled to spend money participating in litigation); Stanford v. Foamex, No. 07-4225, 2009 WL 1033607, at *2 n.9 (E.D. Pa. 2009) (refusing to extend stay merely because the non-bankrupt parties are in a similar legal or factual nexus with the debtor). 15 14 See Wedgeworth v. Fibreboard Corp., 706 F.2d 541, 546 (5th Cir. 1983) (“Defendants have not shown that any hardship complained of is the result of proceeding to trial now. Nor is there a showing that the difficulties inherent in the general situation, including potential judicial inefficiency, constitute a sufficient offset to the plaintiffs’ right to proceed without inordinate delay to resolution of their claims.”). 15 See also Beran v. World Telemetry, 747 F. Supp. 2d 719, 723-725 (potential application of collateral estoppel does not warrant injunction absent identity of interests of the debtor and nondebtor); Chord Assoc. LLC v. Protech 2003-D LLC, No. 07-5138, 2010 WL 1257874, at *13 (E.D.N.Y. March 25, 2010) (rejecting extension of stay based on conclusory 19
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Class Plaintiff's Response to Automatic Stay - equitatus

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