Gary J. Blan v. Nachogdoches County ( 1999 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 99-6032WA
In re: *
*
Gary James Blan and *
Jayna Otwell Blan, *
*
Debtors. *
*
Gary James Blan, * Appeal from the United States
* Bankruptcy Court for the
Debtor-Appellant * Western District of Arkansas
*
*
v. *
*
Nachogdoches County Hospital, *
*
Movant-Appellee. *
*
Submitted: August 2, 1999
Filed: August 30, 1999
Before KOGER, Chief Judge, SCHERMER, and DREHER, Bankruptcy Judges.
DREHER, Bankruptcy Judge
Debtor Gary James Blan appeals the April 15, 1999, order of the Bankruptcy Court,1
which granted Appellee Nachogdoches County Hospital relief from the automatic stay. The
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The Honorable Robert F. Fussell, United States Bankruptcy Judge, Western District of
Arkansas.
Court’s order permitted Nachogdoches to continue adjudication of state court litigation
against the Debtor, which is currently pending in the District Court of Nacogdoches County,
Texas. Finding no abuse of discretion by the Bankruptcy Court, we affirm.
BACKGROUND
On November 12, 1997, Nachogdoches County Hospital District (“Nachogdoches”)
filed a lawsuit against Debtor Gary James Blan (“Debtor”) and six other co-defendants. The
state court complaint contains allegations of breach of fiduciary duty, fraud, conversion, civil
conspiracy, breach of contract, and special liability of a government employee.
On October 23, 1998, Debtor and his wife filed a bankruptcy petition, thus imposing
a stay on the state court suit. Nachogdoches filed a motion for relief from stay on December
23, 1998. In support of the motion, the attorney for Nachogdoches in the state court suit
testified as to the status of the proceedings. At the time of the bankruptcy filing, the parties
had engaged in substantial written discovery, but had not yet taken any depositions. The
attorney further noted that several of the allegations against the Debtor in the state court
complaint require interpretation of Texas state law. His testimony revealed that
Nachogdoches expects to call between ten and twenty primary witnesses to prove the
allegations against Debtor, but may call hundreds of witnesses in total. The majority of these
witnesses reside in the Nachogdoches County, Texas, area, which is approximately 300 miles
from the presiding bankruptcy court. A substantial portion of the documents that would be
used in the case also are housed in Nachogdoches County. Moreover, trying the case against
Blan in bankruptcy court while continuing against the remaining co-defendants in state court
would result in a substantial duplication of efforts and additional costs. Debtor presented no
evidence to contravene the attorney’s testimony with respect to any of these matters.
Weighing all of these factors, the Bankruptcy Court granted Nachogdoches’ motion and
permitted it to go forward with the state court litigation against the Debtor.
STANDARD OF REVIEW
A decision to grant or deny a motion for relief from the automatic stay is within the
discretion of the bankruptcy court and will be reviewed only for an abuse of discretion. E.g.,
Mazzeo v. Lenhart (In re Mazzeo), 167 F.3d 139, 142 (2d Cir 1999); In re Williams, 144
F.3d 544, 546 (7th Cir. 1998); Mataya v. Kissinger (In re Kissinger), 72 F.3d 107, 108 (9th
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Cir. 1995); Robbins v. Robbins (In re Robbins), 964 F.2d 342, 345 (4th Cir. 1992);
Barclays-American/Business Credit, Inc. v. Radio WBHP, Inc. (In re Dixie Broadcasting,
Inc.), 871 F.2d 1023, 1026 (11th Cir. 1989); Cannery Row Co. v. Leisure Corp. (In re
Leisure Corp.), 234 B.R. 916, 920 (B.A.P. 9th Cir. 1999); see Kirwan v. Vanderwerf (In re
Kirwan), 164 F.3d 1175, 1178 (8th Cir. 1999); In re Wald, 211 B.R. 359, 362 (Bankr.
D.N.D. 1997); In re Johnson, 115 B.R. 634, 635 (Bankr. D. Minn. 1989); LaSalle v. Endicott
(In re Endicott), 79 B.R. 439, 441 (Bankr. W.D. Mo. 1987). An abuse of discretion will only
be found if the lower court’s judgment was based on clearly erroneous factual findings or
erroneous legal conclusions. Barger v. Hayes County Non-Stock Co-op (In re Barger), 219
B.R. 238, 243 (B.A.P. 8th Cir. 1998) (citing Mathenia v. Delo 99 F.3d 1476, 1480 (8th Cir.
1996)). “A finding is ‘clearly erroneous’ when although there is evidence to support it, the
reviewing court, on the entire evidence is left with the definite and firm conviction that a
mistake has been committed.” Id. (quoting Anderson v. City of Bessemer City, 470 U.S.
564, 573 (1985)).
DISCUSSION
Bankruptcy Code § 362(d)(1) provides that the Bankruptcy Court may grant relief
from the automatic stay for cause. 11 U.S.C. § 362(d)(1) (1994). Although Congress did
not define cause, it intended that the automatic stay could be lifted to allow litigation
involving the debtor to continue in a nonbankruptcy forum under certain circumstances.
H.R. Rep No. 95-595, at 341 (1977); S. Rep. No. 95-989, at 50 (1978) (“It will often be more
appropriate to permit proceedings to continue in their place of origin, when no great
prejudice to the bankruptcy estate would result, in order to leave the parties to their chosen
forum and to relieve the bankruptcy court from duties that may be handled elsewhere.”); see
In re United Imports, Inc., 203 B.R. 162, 166 (Bankr. D. Neb. 1996).
In making the determination of whether to grant relief from the stay, the court must
balance the potential prejudice to the Debtor, to the bankruptcy estate, and to the other
creditors against the hardship to the moving party if it is not allowed to proceed in state
court. Internal Revenue Service v. Robinson (In re Robinson), 169 B.R. 356, 359 (E.D. Va.
1994); United Imports, 203 B.R. at 166; In re Marvin Johnson’s Auto Services, Inc., 192
B.R. 1008, 1014 (Bankr. N.D. Ala. 1996); Smith v. Tricare Rehabilitation Systems, Inc. (In
re Tricare Rehabilitation Systems, Inc.), 181 B.R. 569, 572-73 (Bankr. N.D. Ala. 1994). The
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factors used to balance the hardships are well established and include: (1) judicial economy;
(2) trial readiness; (3) the resolution of preliminary bankruptcy issues; (4) the creditor’s
chance of success on the merits; and (5) the cost of defense or other potential burden to the
bankruptcy estate and the impact of the litigation on other creditors. See United Imports, 203
B.R. at 167; In re Johnson, 115 B.R. 634, 636 (Bankr. D. Minn. 1989); In re Curtis, 40 B.R.
795, 799-800 (Bankr. D. Utah 1984); see also, e.g., Sonnax Indus, Inc. v. Tri Component
Prods. Corp. (In re Sonnax Indus., Inc.), 907 F.2d 1280, 1286 (2d Cir. 1990); Marvin
Johnson’s, 192 B.R. at 1014; Tricare, 181 B.R. at 573-74.
The Bankruptcy Court properly assessed each of these standards giving weight to its
lack of jurisdiction over the co-defendants, the duplication that would result from trying the
co-defendants separately, the status of the discovery, the state law basis for the claims, and
the location of the witnesses and documents. Upon review of the Bankruptcy Court’s
assessment, we are not left with a definite and firm conviction that it erred in its factual
findings or legal conclusions. In short, we can find no abuse of discretion in the Bankruptcy
Court’s decision to grant relief from the automatic stay.
Accordingly, the decision of the Bankruptcy Court to grant relief from the automatic
stay shall be AFFIRMED.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL
FOR THE EIGHTH CIRCUIT
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