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 26 of 34 63. The court in Stanford explained that collateral estoppel issues arise only in cases where a debtor’s indemnification obligations are absolute. 2009 WL 1033607, at *3 n.10. The court cited Queenie, Ltd. v. Nygard Int’l, 321 F.3d 282, 287 (2d Cir. 2003), where the Second Circuit explained that if the possibility of a “later use against the debtor…of an adverse decision” “could support application of the stay, there would be vast and unwarranted interference with creditors’ enforcement of their rights against non-debtor co-defendants,” and noted that it had found no decisions applying a stay to a non-debtor solely on collateral estoppel grounds. 64. In the limited number of cases where courts have enjoined non-debtor litigation, the circumstances have been radically different. 16 Typically, the stayed third party litigation has named the debtor’s management as defendants, where liability against an employee could be automatically imputed to the debtor, and/or the burden of discovery would be overwhelming to management, distracting it from its focus on reorganization. 17 65. In this case, liability of Greenberg cannot be imputed to the Debtor. Nor can a finding in Greenberg’s favor in the California Class Litigation be used against the Debtor. The burden imposed on the Debtor's indirectly participating in a few cases in California state court is a far cry from mass tort context or suits against management of the debtor. Greenberg is not involved in the reorganization and the current management of RE Loans are not defendants in the litigation. Nor will they likely be significantly involved in the litigation. While the former management will certainly be witnesses in the California Class Litigation, those individuals are no longer involved in the Debtor’s management, and are not at all involved in the Debtor’s confirmation process. statements regarding evidentiary prejudice); Forcine Concrete & Constr. Co. v. Manning Equip. Sales & Serv., 426 B.R. 520, 525 (E.D. Pa 2010) (unusual circumstances do not exist even assuming arguendo that debtor could be collaterally estopped from relitigating any issue decided in prior proceedings). 16 See, e.g., In re Johns-Manville Corp., 33 B.R. 254 (Bankr. S.D.N.Y. 1983) and 40 B.R. 219 (Bankr. S.D.N.Y. 1984) (mass tort, involving a “litigation explosion” of thousands of asbestos personal injury claims, could overwhelm the debtor’s management's ability to focus on the reorganization efforts). 17 Greenberg relies on these types of cases. See, e.g., In re American Film Tech., Inc., 175 B.R. 847, 855 (Bankr. D. Del. 1994) (liability of employees could be imputed to the employer debtor as a result of litigation); In re Ionosphere Clubs, Inc., 111 B.R. 423, 435 (Bankr. S.D.N.Y. 1991) (enjoining action against the chairman of the board of debtor whose liability would be imputed to the corporation). 20
Case 11-03620-bjh Doc 40 Filed 02/21/12 Entered 02/21/12 23:34:41 Desc Main Document Page 27 of 34 B. An Injunction is Unwarranted Under Section 105 as it Would Cause Significant Harm to The California Class Litigation and Provide No Benefit to the Debtor’s Reorganization Efforts 66. In applying the traditional factors governing the issuance of temporary injunctions to the bankruptcy context, courts must look at whether the debtor has a reasonable likelihood of a successful reorganization, whether the litigation would endanger the debtor’s possibility of reorganization, the relative hardship of the parties, and any public interest concerns, if relevant. Zale, 62 F.3d at 761. Moreover, the injury cannot be speculative. Excel Innovations, 502 F.3d at 1097. Greenberg does not meet these requirements. 1. The California Class Litigation Will Not Cause Any Harm to The Debtor’s Reorganization Efforts. 67. Greenberg must demonstrate that the California Class Litigation has a substantial likelihood of irreparably harming the Debtor’s ability to successfully reorganize by a clear and convincing standard. Even assuming that a successful reorganization by the Debtor is likely, 18 Greenberg cannot explain how the California Class Litigation will prevent the Debtor from proceeding with its reorganization or how a delay in the California Class Litigation will benefit the reorganization process. Greenberg, nevertheless, summarily concludes that the estate’s claims and the California Class Plaintiffs' claims are so intertwined that the reorganization cannot proceed. GT Memo. at 17- 18 & 22 n.5. This makes no sense on a legal or factual basis. 68. The estate can easily prosecute its claims separately from the California Class Litigation, if it decides to do so. 19 Greenberg fails to offer anything other than mere speculation that the California Class Litigation may cause the debtor to incur some additional time and costs. Excel Innovations, 502 F.3d at 1097 (refusing to extend a stay to nondebtor defendants due to collateral estoppel concerns or because debtor may be compelled to spend money participating in litigation). 69. Greenberg asserts that it may have a potential contribution claim against the estate, but never 18 Greenberg provides no evidence in support of this factor. Excel Innovations, 502 F.3d at 1097 (“Although it is not a high burden to show a reasonable likelihood of success in reorganization, the BAP’s conclusion that [the debtor] had so amounted to an abuse of discretion because ‘the record contains no evidence on which the BAP rationally could have based that decision.”). 19 Greenberg has no evidence that the estate is even going to pursue claims or that any claims will be filed in this court. 21
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Class Plaintiff's Response to Automatic Stay - equitatus

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