Brief in Support of Plaintiffs' Lawson Et Al'S Motion For Modification of The Automatic Stay and To Waive Ten (10) Day Waiting Period Pursuant To F.R.B.P. 4001 (A)
Brief in Support of Plaintiffs' Lawson Et Al'S Motion For Modification of The Automatic Stay and To Waive Ten (10) Day Waiting Period Pursuant To F.R.B.P. 4001 (A)
BRIEF IN SUPPORT OF PLAINTIFFS LAWSON ET ALS MOTION FOR MODIFICATION OF THE AUTOMATIC STAY AND TO WAIVE TEN (10) DAY WAITING PERIOD PURSUANT TO F.R.B.P. 4001 (a)(3) 1. JURISDICTION On May 17, 2005, (Petition Date) Collins & Aikman Corporation, et al (Debtors) filed their voluntary petition under Chapter 11 of the United States Bankruptcy Code (Code). This Court has jurisdiction over this matter which is a core proceeding under 28 U.S.C. 157(b)(2)(G).
The Debtors in the jointly administered cases include: Collins & Aikman Corporation; Amco Convertible Fabrics, Inc., Case No. 05-55949; Becker Group, LLC (d/b/a Collins & Aikman Premier Mold), Case No. 05-55977; Brut Plastics, Inc., Case No. 05-55957; Collins & Aikman (Gibraltar) Limited, Case No. 05-55989; Collins & Aikman Accessory Mats, Inc. (f/k/a the Akro Corporation), Case No. 05-55952; Collins & Aikman Asset Services, Inc., Case No. 05-55959; Collins & Aikman Automotive (Argentina), Inc. (f/k/a Textron Automotive (Argentina), Inc.), Case No. 05-55965; Collins & Aikman Automotive (Asia), Inc. (f/k/a Textron Automotive (Asia), Inc.), Case No. 05-55991; Collins & Aikman Automotive Exteriors, Inc. (f/k/a Textron Automotive Exteriors, Inc.), Case No. 05-55958; Collins & Aikman Automotive Interiors, Inc. (f/k/a Textron Automotive Interiors, Inc.), Case No. 05-55956; Collins & Aikman Automotive International, Inc., Case No. 05-55980; Collins & Aikman Automotive International Services, Inc. (f/k/a Textron Automotive International Services, Inc.), Case No. 05-55985; Collins & Aikman Automotive Mats, LLC, Case No. 05-55969; Collins & Aikman Automotive Overseas Investment, Inc. (f/k/a Textron Automotive Overseas Investment, Inc.), Case No. 05-55978; Collins & Aikman Automotive Services, LLC, Case No. 05-55981; Collins & Aikman Canada Domestic Holding Company, Case No. 05-55930; Collins & Aikman Carpet & Acoustics (MI), Inc., Case No. 05-55982; Collins & Aikman Carpet & Acoustics (TN), Inc., Case No. 05-55984; Collins & Aikman Development Company, Case No. 05-55943; Collins & Aikman Europe, Inc., Case No. 05-55971; Collins & Aikman Fabrics, Inc. (d/b/a Joan Automotive Industries, Inc.), Case No. 05-55963; Collins & Aikman Intellimold, Inc. (d/b/a M&C Advanced Processes, Inc.), Case No. 05-55976; Collins & Aikman Interiors, Inc., Case No. 05-55970; Collins & Aikman International Corporation, Case No. 05-55951; Collins & Aikman Plastics, Inc., Case No. 05-55960; Collins & Aikman Products Co., Case No. 05-55932; Collins & Aikman Properties, Inc., Case No. 05-55964; Comet Acoustics, Inc., Case No. 05-55972; CW Management Corporation, Case No. 05-55979; Dura Convertible Systems, Inc., Case No. 05-55942; Gamble Development Company, Case No. 05-55974; JPS Automotive, Inc. (d/b/a PACJ, Inc.), Case No. 05-55935; New Baltimore Holdings, LLC, Case No. 05-55992; Owosso Thermal Forming, LLC, Case No. 05-55946; Southwest Laminates, Inc. (d/b/a Southwest Fabric Laminators Inc.), Case No. 05-55948; Wickes Asset Management, Inc., Case No. 05-55962; and Wickes Manufacturing Company, Case No. 05-55968.
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T. J. Lawson and Tammy Lawson, James M. Reid and Renee F. Reid, Bennie Skates and Cathy Skates, Robert A. Price, and David Swofford and Karen Swofford, individually and on behalf of a class of persons similarly situated (the Class Action Plaintiffs), are Plaintiffs in a class action proceeding, pending in the State Court of South Carolina. Prior to the Petition Date, claims against the Debtors arose for Class Action Plaintiffs. Class Action Plaintiffs filed a class action against, inter alia, the Debtors, seeking money damages for, among others, personal injuries and injuries to property suffered by Class Action Plaintiffs due to the Debtors negligence, recklessness, violation of the Pollution Control Act, intentional acts, trespass and nuisance. The class action was filed before the Court of Common Pleas in the State of South Carolina, and is captioned as T. J. Lawson and Tammy Lawson, James M. Reid and Renee F. Reid, Bennie Skates and Cathy Skates, Robert A. Price, and David Swofford and Karen Swofford, Individually and on Behalf of a Class of persons Similarly Situated vs. Healthtex, Inc., f/k/a Health-Tex, Inc., f/k/a HT Contracting Corporation; Collins & Aikman Corporation, f/k/a C & A Fashion Knits, Inc., and Collins & Aikman Products Co.; Spartanburg County Industries, Inc.; Chesebrough-Ponds, Inc.; VF Corporation; VD Playwear Inc.; Harold Waddell; Ed Justice; and Ronnie Coggins, Case No. 2003-CP-42-4231 (the Class Action). The Class Action is currently stayed due to the Debtors bankruptcy. In 2003, the Class Action Plaintiffs brought an action, against among others, the Debtors, as a class action under Rule 23 of the South Carolina Rules of Civil Procedures.
The class of Class Action Plaintiffs is all persons or other entities which own in whole or in part any estate in real property in the City of Cowpens, South Carolina, and which properties are situated in the vicinity of a plant site known as the Healthtex plant, and which are specifically located in the impacted area, which area has been determined to be directly impacted by groundwater contamination. The named Class Action Plaintiffs in this case are all citizens and residents of the County of Spartanburg, State of South Carolina, and all own real property in the impacted area, and which is located in Spartanburg County, South Carolina. B. Lawson Plaintiffs
T. J. Lawson, Tammy Lawson, individually, and Tammy Lawson as Guardian ad Litem for Brandon Lawson, Amber Lawson and Joshua Lawson (Lawsons collectively with the Class Action Plaintiffs, the Plaintiffs), are plaintiffs in a State Court Action. Prior to the Petition Date, claims against the Debtors arose for the Lawsons. The Lawsons filed a State Court action against, inter alia, the Debtors seeking money damages for, among other things, personal injuries suffered by the Lawsons due to the Debtors negligence, recklessness, violation of the Pollution Control Act, intentional acts, trespass and nuisance. The Lawsons Civil Action was filed before the Court of Common Pleas in the State of South Carolina and is captioned as T.J. Lawson, Tammy Lawson; individually and Tammy Lawson as Guardian ad Litem for Brandon Lawson, Amber Lawson and Joshua Lawson vs. Healthtex Inc., f/k/a Health-tex, Inc., f/k/a HT Contracting Corporation; Collins & Aikman Corporation, f/k/a C&A Fashion Knits, Inc., and Collins & Aikman Products Company, VF Corporation, VF Playwear, Inc., Ed Justice and Ronnie Coggins, Case No. 2004-CP-42-3810 (the Lawsons Civil Action)
(collectively with the Class Action, the State Court Lawsuits). The Lawsons Civil Action is currently stayed due to the Debtors bankruptcy. Lawsons are citizens and residents of the County of Spartanburg, State of South Carolina, and reside in the vicinity of a former plant site known as the Healthtex plant. Further, Tammy Lawson is the mother and Guardian ad Litem for the minors, Brandon Lawson, Amber Lawson and Joshua Lawson. C. Defendants
Defendant Collins & Aikman Corporation, C&A Fashion Knits, Inc., and Collins & Aikman Products Co., are corporations authorized and existing under the laws of one of the states of the United States, and which, at times relevant hereto, have or had a significant business operation and place of business in Spartanburg County, South Carolina. Further, upon information and belief, Defendant Collins & Aikman Corporation is a successor by merger with C&A Fashion Knits, Inc., and was formerly known as such. Also, upon information and belief, Collins & Aikman Products Co. is a successor corporation of Collins & Aikman Corporation, and was formerly known as such. Also, upon information and belief, all of said corporations, at times relevant hereto, owned, operated, and/or managed the plant site in Spartanburg County, South Carolina which is the subject of this matter.
3. FACTS The Class Action has been pending since 2003 and was scheduled for trial in December 2005. Plaintiffs have taken approximately forty (40) depositions and been involved in extensive discovery. The total amount at issue in the State Court Lawsuits is approximately $13,500,000.00. The impacted area, as referenced herein, is an area of land located in the City of Cowpens, County of Spartanburg, South Carolina in the vicinity of a former plant site known as the Healthtex plant. Said area is situated primarily to the south, southwest, southeast, and to some extent, to the west and east of said former plant site. Said area includes properties lying on portions of Foster Road, Seagle Road, Crestview Drive, Crystal Drive, W. Brookwood Lane, E. Brookwood Lane, Church Street, Western Creek, and/or Eastern Creek, in Cowpens, South Carolina. Upon information and belief, the plant site in question in Cowpens, South Carolina includes a tract of approximately seventy (70) acres that contains a former industrial facility used in the textile facility. In 1969, C&S Fashion Knits, Inc. purchased the property and engaged in industrial operations. C&A Fashion Knits, Inc. merged with Collins & Aikman Corporation in 1970 and continued operations. Approximately in 1981, Spartanburg County Industries, Inc. purchased the facility, and in 1982, began a dyeing and finishing operation, operating as Healthtex, Inc. Healthtex, Inc. discontinued operations at the site approximately in 1990, and abandoned said site, leaving behind extensive environmental contamination at the facility and in Plaintiffs community. Further, continuing contamination occurred at all times referenced herein above, at said facility and in Plaintiffs community, as a result of said industrial operations, and as a result of the acts and delicts of said Debtor. 4. SUBSTANTIVE ALLEGATIONS OF THE STATE COURT LAWSUITS
From 1970 to 1981, Debtors directly or indirectly owned, operated and/or managed the plant site, or was responsible for such ownership, operation and/or management of the plant site, which is located at 275 Foster Street, Cowpens, South Carolina, now commonly referred to as the Healthtex site. Said plant site consists of approximately seventy (70) acres, and is adjacent to Plaintiffs residential community, being the impacted area, as defined herein above. During the operation of said plant site, from 1970 to 1981, said site operated as a textile manufacturing and industrial facility, including dyeing and finishing operations related to the textile industry. At all times during said time period, numerous and extensive amounts of hazardous substances, pollutants and contaminants were used and handled at said plant site by the Debtors and were handled and used in their industrial processes. The aforesaid hazardous substances, pollutants and contaminants used and handled at said plant site by Debtors included tetrachloroethylene and other chlorinated solvents and industrial chemicals, including a variety of volatile organic compounds and other hazardous and toxic substances. The Debtors, during the aforesaid periods of operation of the plant site, on numerous, frequent, and continuous occasions, released and discharged massive quantities of said hazardous substances, pollutants and contaminants into the environment, including the soil, groundwater, and surface water onsite at said plant site, and also into the creeks, groundwater, surface water, throughout Plaintiffs community, and specifically onto Plaintiffs properties in the impacted area. The hazardous substances, pollutants, and contaminants released and discharged by Debtors are classified by the United States Environmental Protection Agency (EPA) and by the South Carolina Department of Health and Environmental Control (DHEC) as toxic chemicals which can cause severe illness, including cancer and other medical problems, and death, in humans and
animals. Many of said hazardous substances, pollutants and contaminants can cause numerous adverse health effects. State and federal laws and regulations require that such contamination be remediated. To date no remediation has occurred on Plaintiffs properties. The aforesaid releases and discharges by Debtors proximately resulted in the contamination and pollution of Plaintiffs properties in the impacted area, including the groundwater on all of Plaintiffs properties in the impacted area, and in the soil on many of Plaintiffs properties, and also proximately resulting in the migration of toxic and hazardous vapor gases from the groundwater through the solid and surface soil on Plaintiffs properties, including such vapor gases entering homes of many of the Plaintiffs in the area. The releases and discharges by Debtors were due to negligent, reckless, careless, grossly negligent, wanton and willful behavior by Debtors and their agents and servants; however, in many instances, such releases and discharges were done intentionally. Many of said releases and discharges by Debtors and their agents and servants occurred by intentional pouring of liquid hazardous and toxic substances into pits and pools on the plant site, by burying of hazardous and toxic substances in the soil on the plant site, and by discharges and releases into surface water, including the creeks of said community. Additionally, Debtors constructed drain lines and discharge pipes which led from drains and discharge areas at the plant site to the creeks of the impacted area, into which hazardous and toxic substances were illegally and inappropriately poured, released and discharged, and further, said drain lines and discharge pipes leaked, allowing and causing more of hazardous and toxic substances to be released and discharged onto Plaintiffs properties in the impacted area, and to be further released into the groundwater, soil, and environment in the
impacted area. All of such aforesaid activity have resulted in the migration of hazardous and toxic substances onto Plaintiffs properties including groundwater, in the impacted area. In addition to the aforesaid intentional and/or negligent, reckless, careless, grossly negligent, wanton and willful behavior which occurred by Debtors (and their agents and servants) during the respective time periods that each Debtor owned, operated and/or managed said plant site, Debtors have continued, from said time to the present, to engage in further negligent, reckless, careless, grossly negligent, wanton and willful behavior by failing to remove or remediate the contamination and pollution, by allowing said contaminants and pollutants to continue to migrate throughout the impacted area, by abandoning the contaminated and polluted plant site, and by failing to warn persons such as the Plaintiffs of such contaminants and pollutants. The levels of many of the hazardous substances, contaminants and pollutants present in the groundwater on Plaintiffs properties in the impacted area exceed the maximum contaminant levels as established by the EPA and by the South Carolina Primary Drinking Water Regulations. Debtors knew or should have known that said discharges and releases would likely migrate and contaminate the groundwater, surface water, creeks, and soils of Plaintiffs properties. In spite of such knowledge, Debtors caused, allowed, and failed to prevent contamination of Plaintiffs properties. Debtors actions and inactions regarding said discharges and releases are in reckless and/or willful disregard of Plaintiffs, their rights, and their properties. As a result of Debtors activities the Plaintiffs have suffered and will in the future suffer damage to their properties, including financial loss, loss of the value of their properties, loss of the use and enjoyment of their properties an increased risk of exposure to hazardous and toxic substances, as well as a continued interference
with use and enjoyment of their properties. Further, the migration of hazardous and toxic substances from Debtors plant site to Plaintiffs properties is continuing. It is unlikely that all property contaminated by such substances can be returned to its precontamination condition. As a result of the presence of hazardous chemicals in the soil and groundwater of the property, the Plaintiffs are unable to mortgage, sell, lease, use or enjoy their property, and furthermore those who must reside or work or have water supplies near the property have been exposed to an increased risk of cancer and other illness. Further, Plaintiffs properties have been significantly if not totally devalued. The presence of hazardous chemicals in the soil and groundwater is the responsibility of Debtors, and has resulted from Debtors negligence, recklessness and intentional acts. The Plaintiffs were injured by these unlawful and inappropriate acts, as well as Debtors failure to warn the Plaintiffs of the dangers involved with such substances, and by Defendants failure to accurately represent the potential risk of harm involved with such substances. That Debtors have further damaged the Plaintiffs by failing to remove or remediate the contamination and pollution, both on the plant site and in the impacted area, and by abandoning the plant site. That Plaintiffs first learned of the contamination and pollution in their groundwater and on their properties when informed by DHEC in 2002. Finally, the Lawsons were actually drinking the contaminated well water until recently, and have medical problems which resulted therefrom.
5. LEGAL STANDARD
This brief is filed pursuant to 11 U.S.C. 362(d)(1), which states, ...the Court shall grant relief from the stay...(1) for cause... This Court has ruled on whether a plaintiff creditor may pursue pre-petition litigation in state court after a debtor files for Bankruptcy. See, In re Moralez, 128 B.R. 526 (E.D. Mich. 1991 Judge Rhodes). In Moralez, the debtors former spouse, Debra A. Moralez, filed a motion to lift the stay so that she could file a nondischargeability action against her former spouse debtor under 11 U.S.C. 523(a)(5) in state court. The parties divorce judgment required the debtor to assume certain joint marital debts, and Mrs. Moralez preferred to litigate the dischargeability of the obligation in the state court that entered the judgment. Moralez, at 526. The debtor, Mark Moralez, opposed the motion, contending that the bankruptcy court was in the best position to interpret and apply 11 U.S.C. 523(a)(5). This Court granted the creditors motion based on the factors noted below. Moralez, at 526. This Court has held that the issue of whether to lift the stay to allow a plaintiff creditor to pursue litigation against the debtor has been addressed in numerous decisions and that several themes or factors have developed from those decisions: A. The decision whether to lift the automatic stay is within the discretion of the Bankruptcy Court. In re Moralez at, at 527 citing, In re Kemble, 776 F.2d 802 (9th Cir. 1985); In re Mac Donald, 755 F.2d 715 (9th Cir. 1985); Pursifull v. Eakin, 814 F.2d 1501 (10th Cir. 1987); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 814 F.2d 844 (1st Cir. 1987); In re Sambos Restaurants, Inc., 38 Bankr. 764 (9th Cir. BAP 1984) In re Dixie Broadcasting Inc. 871 F.2d 1023 (11th Cir. 1989), (cert. denied), 107 L. Ed. 2d 112, 110 S. Ct. 154 (1989); In re White, 851 F.2d 170 (6th Cir. 1988); In re Castlerock Properties, 781 F.2d 159 (9th Cir. 1986).
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B. The decision whether to lift the stay should be made on a case by case basis. In re Moralez, at 527, citing, In re Kelly, 125 Bankr. 301 (Bankr. D. Kan. 1991); In re Mac Donald, 755 F.2d 715 (9th Cir. 1985); In re Johnson, 115 Bankr. 634 (Bankr. D. Minn. 1989); In re Tucson Estates, Inc., 912 F.2d 1162 (9th Cir. 1990). C. In deciding whether to lift the stay, the Bankruptcy Court should balance the harm to the parties. In re Moralez, at 527, citing, In re Opelika Mfg. Corp. 66 Bankr. 444 (Bankr. N.D. Ill. 1986); In re Turner, 55 Bankr. 498 (Bankr N.D. Ohio 1985); In re Gatke Corp., 117 Bankr. 406 (Bankr. N.D. Ind. 1989); In re Salisbury, 123 Bankr. 913 (S.D. Ala. 1990); In re Parkinson, 102 Bankr. 141 (Bankr. C.D. Ill. 1988); In re Todd Shipyards Corp., 92 Bankr. 600 (Bankr. D.N.J. 1988); In re Bible, 110 Bankr. 1002 (Bankr. S.D. Ga. 1990); In re Johnson, 115 Bankr. 634 (Bankr. D. Minn. 1989). D. The Bankruptcy Court should consider the effect of lifting the stay on the administration of the bankruptcy estate. In re Moralez, at 528, citing, In re Towner Petroleum Co., 48 Bankr. 182 (Bankr. W.D. Okla. 1985); In re Curtis, 40 Bankr. 795 (Bankr. D. Utah 1904); In re Tucson Estates, Inc., 912 F.2d 1162 (9th Cir. 1990); In re Bible, 110 Bankr. 1002 (Bankr. S.D. Ga 1990); In re Johnson, 115 Bankr. 634 (Bankr. D. Minn. 1989). E. The Bankruptcy Court should consider whether the tribunal where the creditor proposes
to litigate has special expertise in dealing with the issues, In re Moralez, at 528, citing, In re Lahman Mfg. Co., 31 Bankr. 195 (Bankr. D.S.D. 1983). Pursifull v. Eakin, 814 F.2d 1501 (10th Cir. 1987), especially when domestic relations issues are involved, In re White, 851 F.2d 170 (6th Cir. 1988), In re Baker, 75 Bankr. 120 (Bankr. D. Del. 1987); In re Pacana, 125 Bankr. 19 (9th Cir. BAP 1991); In re Kelly, 125 Bankr. 301 (Bankr. D. Kan. 1991); In re Bible, 110 Bankr. 1002 (Bankr. S.D. Ga.
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1990); In re Mac Donald, 755 F.2d 715 (9th Cir. 1985), or when the intent of a state court order is an issue. In re Kincaid, 55 Bankr. 652 (Bankr. W.D. Ky. 1985). The Court should find that there is cause to modify the stay to allow the Plaintiffs to litigate their State Court Lawsuits in state court. A. The Court has the discretion to modify the automatic stay. At issue in the State Court Lawsuits is essentially state court tort claims. There is nothing about the State Court Lawsuits which involve interpretation of the Code, or require special assistance from this bankruptcy court. The Class Action was filed in 2003 and after extensive discovery, is set for trial in December 2005. The state court is in a better position to interpret South Carolina tort law than this Court. Further, it is in the discretion of this Court to modify the stay to allow the State Court to assess the liability and damages of the State Court Lawsuits. In Moralez, the court held that the state court was in the best position to: (I) address its own intent (ii) pursue the fact finding, and (iii) determine whether the assumption obligation was reasonable under state concepts. Moralez, at 528. Similarly, these same factors apply to the instant matter. The state court can address its own intent with respect to the pending litigation, has already been involved in extensive discovery and fact finding and can determine whether the ultimate results of the State Court Lawsuits are reasonable based on state concepts of compensation in state tort lawsuits. B. The Court should determine whether the stay should be lifted on a case by case basis. Moralez, at 527. In Moralez, this Court lifted the stay for the plaintiff former spouse, even though it involved a nondischargeable action under 11 U.S.C. 523(a)(5). Here, the State Court Lawsuits do not involve any interpretation of the bankruptcy code. Thus, the instant matter is even more deserving of being allowed to continue in state court than was the creditor/plaintiff in Moralez.
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C. The Court should decide whether to lift the stay based upon the harm to the parties. The Debtors will not be harmed by litigating the State Court Lawsuits. The Debtors are already litigating these matters in state court and they have retained counsel in South Carolina. In contrast, if these cases were litigated in Michigan, the Plaintiffs would have to travel from South Carolina and retain separate counsel to try this matter. This would be harmful to the Plaintiffs, because the Class Action Plaintiffs are close to being ready for trial. Further, this matter will have to be resolved someplace. In re Rounseville, 20 B.R. 892 (Bankr. D.RI. 1982). Finally, the state courts expertise and prior handling of the State Court Lawsuits, will prove less costly if litigation is allowed to continue there rather than beginning the litigation in this Court. Thus, the balance of harm weighs in favor of allowing Plaintiffs to proceed with their State Court Lawsuits in the South Carolina state court. In Moralez, this Court agreed with the creditor that the debtor would not be harmed by litigating the dischargeability claim in state court rather than in the bankruptcy court. The Moralez Court held that because of the state courts expertise and prior handling of the parties divorce action, it may be less costly to litigate in state court. Moralez, at 528-529. Based on Moralez, this Court should rule in favor of allowing the Plaintiffs to proceed with their claim in state court as it would not harm the debtor as it has already been involved in extensive litigation of these matters and should prove less costly to litigate. D. Lifting the stay and allowing the Plaintiffs to continue with their State Court Lawsuits, but only as to liability and the question of damages, will have no effect on the administration of the Debtors bankruptcy estate. Assuming the Plaintiffs prevail, they would seek to have their claims addressed by this Court in the context of the Chapter 11 Plan of Reorganization. There will be a quicker resolution of the State Court Lawsuits if left in state court rather than if the State Court Lawsuits had to start from the beginning as adversary proceedings in the Bankruptcy Court.
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Similarly, in Moralez, this Court held that nothing suggested that litigating the nondischargeability issue in state court would have any effect in the administrative of the debtors bankruptcy estate. Moralez, at 529. The Court held that it was essentially a private issue between the debtor and his former spouse. As the Plaintiffs would seek to have their damage claims addressed by this Court, there is cause to allow the State Court Lawsuits to continue in state court as it will not have any effect on the administration of the Debtors bankruptcy. E. The Bankruptcy Court should consider whether the tribunal where the creditor proposes
to litigate has special expertise in dealing with the issue, Moralez, at 528. As noted above, the state court has much greater expertise in interpreting state court tort law than the Bankruptcy Court. Further, because the state court has been involved with the State Court Lawsuits since 2003, it should be allowed to handle these matters until it assesses liability and damages. In Moralez, this Court agreed that the state court had more expertise than it in resolving state court divorce issues. It also held that denial of the motion to lift the stay would only mean that the creditor had to wait until the stay was lifted. Moralez, at 529. For the same reasons, this Court should find that cause exists to allow the State Court Lawsuits to continue in state court. In In re Robbins, 964 F.2d 342 (4th Cir. 1992) the Fourth Circuit addressed a similar issue to the instant matter. In Robbins, the Plaintiff was the debtors wife and pre-petition husband and wife were involved in a state court action to determine, under state equitable distribution law, how stock they owned was to be divided. Defendant debtor filed for bankruptcy which stayed the state court lawsuit under 11 U.S.C. 362. The plaintiff successfully moved to have the stay lifted for cause under 11 U.S.C. 362(d). Both the District Court and Fourth Circuit affirmed the bankruptcy courts ruling. The Robbins court held that [t]he factors that courts consider in deciding whether to lift the automatic stay include (1) whether the issues in the pending litigation involve only state
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law, so the expertise of the bankruptcy court is unnecessary; (2) whether modifying the stay will promote judicial economy and whether there would be greater interference with the bankruptcy case if the stay were not lifted because matters would have to be litigated in bankruptcy court; and (3) whether the estate can be protected properly by a requirement that creditors seek enforcement of any judgment through the bankruptcy court. See, In re MacDonald, 755 F.2d at 717; In re Holtkamp, 669 F.2d 505, 508-09 (7th Cir. 1982); In re Revco D.S., Inc., 99 Bankr. 768, 776077 (N.D. Ohio 1989); In re Pro Football Weekly, Inc., 60 Bankr. 824, 826-27 (N.D. Ill. 1986); Broadhurst v. Streamtronics Corp., 48 Bankr. 801, 802-03 (D. Conn. 1985). While Congress intended the automatic stay to have broad application, the legislative history to section 362 clearly indicates Congress recognition that the stay should be lifted in appropriate circumstances. Robbins, at 345. The Robbins court in applying the factors listed above held that the litigation involved a dispute in the category of cases in which state courts have a special expertise and for which federal courts owe significant deference. This is also true in the instant matter, as the State Court Lawsuits were brought for violations of state law rather than federal or bankruptcy law. With respect to the second factor, the Fourth Circuit found that allowing the state court action to continue would promote judicial economy and would be less expensive for both the debtor and the movant plaintiff. The Robbins court ruled this way as both parties had attorneys in Florida who had been involved with the case for five years. Further the attorneys were familiar with the evidence and were well versed in Florida law. Robbins, at 346. The movants ask this Court to find this factor also weights in their favor, as considerable time and expense has been expended in getting the State Court Lawsuits ready for trial. In addition, the attorneys handling the State Court Lawsuits are familiar with the evidence and state court law involved in these cases.
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The Fourth Circuit in analyzing the third factor concluded that lifting the stay would not harm the estate or the interests of other creditors. Robbins, at 346. The Fourth Circuit concluded that the state court could determine the amount of the parties claims in question, while the bankruptcy court would retain jurisdiction subsequently to determine the allowance of claims against the estate. Robbins, at 346. With respect to the instant matter, this Court could lift the stay and allow the Plaintiffs to continue their State Law Lawsuits. In another case which recently addressed the issue of whether the automatic stay should be modified for the purpose of permitting the parties to continue litigation in another court, Judge Shefferly in In re Expresstrak, L.L.C., 2004 Bankr. Lexis 114 (Bankr. E.D. Mich. 2004) found good cause to do so. In Expresstrak, the debtor was established for the purpose of entering into a joint venture with the National Railroad Passenger Corporation (Amtrak) to provide express nonpassenger services in conjunction with Amtraks passenger service. The relationship lead to much litigation, and eventually Expresstraks Chapter 11 bankruptcy. On September 9, 2002, Amtrak filed suit against Expresstrak in the District Court for the District of Columbia, alleging that Expresstrak defaulted under the parties operating agreement. After the bankruptcy was filed, the court concluded, among other things, that the automatic stay should be lifted to enable the District Court litigation to continue. The bankruptcy court held that the question in the case was not whether it could conduct an evidentiary hearing and provide for discovery, but rather whether it should do so despite the fact that there was a pending litigation in the District Court. In deciding this issue, the bankruptcy court stated, [a] bankruptcy court may sua sponte modify the stay to allow litigation commenced prepetition in another forum to continue. See Elder-Beerman Stores Corp. vs. Thomasville Furniture Indus. Inc. (In re Elder-Beerman Stores Corp.): 195 B.R. 1019, 1023 (Bankr. S.D. Ohio 1996; In
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re Laventhol & Horwath, 139 B.R. 109, 116 n.6 (Bankr. S.D.N.Y. 1992). Courts have examined several factors in considering such relief. In Sonnax Industries, Inc. v. Tri Component Products Corp. (In re Sonnax Industries, Inc.), 907 F.2d 1280 (2d Cir. 1990), the Second Circuit addressed whether the stay should be lifted in a chapter 11 case to allow a civil antitrust action to proceed in state court. 907 F.2d at 1282. The court weighed the following factors: (1) whether relief would result in a partial or complete resolution of the issues; (2) lack of any connection with or interference with the bankruptcy case; (3) whether the other proceeding involves the debtor as a fiduciary; (4) whether a specialized tribunal with the necessary expertise has been established to hear the cause of action; (5) whether the debtors insurer has assumed full responsibility for defending it; (6) whether the action primarily involves third parties; (7) whether litigation in another forum would prejudice the interests of other creditors; (8) whether the judgment claim arising from the other action is subject to equitable subordination; (9) whether movants success in the other proceeding would result in a judicial lien avoidable by the debtor; (10) the interests of judicial economy and the expeditious and economical resolution of litigation; (11) whether the parties are ready for trial in the other proceeding; and (12) impact of the stay on the parties and the balance of harms. Id. at 1286 (citing In re Curtis, 40 B.R. 795, 799-800 (Bankr. D. Utah 1984)); see also In re Johnson, 115 B.R. 634, 636 (Bankr. D. Minn. 1989) (applying factors to a breach of contract claim, and focusing on prejudice to and respective hardships on the debtor and the creditor). Expresstrak, 2224.
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This Court concluded in Expresstrak that there were substantial reasons that dictated that the parties litigate their dispute in the District Court rather than commence and conduct a duplicative proceeding before the bankruptcy court. Expresstrak, at 24. This Court in the instant matter should order that the automatic stay be lifted to allow the State Court Lawsuits to continue in state court for the following reasons: First, there are genuine and substantial issues of fact that will need to be adjudicated in order to render a decision as to whether Defendants are liable to Plaintiffs. Conducting discovery and litigating the factual issues regarding the State Court Lawsuits in the bankruptcy court will be duplicative of the proceedings in state court. Parallel litigation over the State Court Lawsuits in two forums is not sensible and will not provide a benefit to the Debtors estate and their creditors. Thus, judicial economy dictates that only one proceeding be conducted to litigate these issues. Second, because there only needs to be one proceeding to litigate these issues, it is generally the second court which will stay its action and defer to the courts where the matters were first filed. Urbain v. Knapp Brothers Manufacturing Co., 217 F.2d 810, 815 (6th Cir. 1954). In the instant matter, the State Court Lawsuits are ongoing, and the Class Action Lawsuit was scheduled for trial in December 2005. Third, the Class Action Lawsuit was filed in 2003. It is clear that the state court has already invested substantial amount of time with the factual and legal issue surrounding the disputes between Plaintiffs and the Debtors. Judicial economy dictates that this court not duplicate these efforts. Fourth, as noted above, both the Plaintiffs and Debtors have their primary trial counsel concerning the State Court Lawsuits in South Carolina. Allowing the State Court Lawsuits to continue in South Carolina will produce a savings in the expense of the litigation for all parties.
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Fifth, adjudicating the State Court Lawsuits in this bankruptcy court may result in only a partial resolution of the issues between the parties. Allowing the State Court Lawsuits to continue in state court would allow all issues between the parties to be resolved. Sixth, the South Carolina state court has the necessary expertise to hear the State Court Lawsuits as they involve interpretation of South Carolina law. Seventh, allowing the State Court Lawsuits to continue would not prejudice the interests of other creditors as any claim would be subject to the terms of a confirmed Chapter 11 Plan. On balance, this court should conclude that there are numerous and substantial reasons why the State Court Lawsuits should be allowed to continue in state court. WHEREFORE, for the reasons stated above, Plaintiffs request that their motion to modify the automatic stay be granted. Respectfully submitted,
/s/ Stuart A. Gold STUART A. GOLD (P27766) WILLIAM L. HUEBNER (P56097) Gold, Lange & Majoros, P.C. 24901 Northwestern Hwy., Suite 444 Southfield, MI 48075 Phone: (248) 350-8220 Email: [email protected]
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