1 IN THE UNITED STATES BANKRUPTCY COURT 5 FOR THE DISTRICT OF PUERTO RICO
° IN RE: : CASE NO. 09-03693 BORA BORA INC. 5 : CHAPTER 11 Debtor : 6 : 7 8 OPINION AND ORDER 9 This case is before the court on Bora Bora Inc.’s (the “Debtor”) motion requesting that the 10 |jprotection of the automatic stay be extended to its president, Mr. Oscar Juelle, filed on June 10, 11 12009 (the “Motion to Extend Stay”)(Docket No. 33), and the opposition to the same filed by 12 Quicksilver on July 1, 2009 (Docket No. 80). The Debtor filed a reply on July 8, 2009 (Docket 13 |INo. 88) supplemented on August 10, 2009 (Docket No. 106) and Quicksilver filed a response to 14 |Debtor’s supplement on August 14, 2009 (Docket No. 112). The Debtor filed a reply to 15 |Quicksilver’s response on August 17, 2009 (Docket No. 119) and a second supplement on August 16 ||28, 2009 (Docket No. 143). On October 13, 2009 the Debtor filed a request for determination 17 ||((Docket No. 162) and Quicksilver filed a response to that request on October 23, 2009 (Docket 18 No. 167). At a hearing held on August 10, 2009 the Debtor informed that the issue had been fully 19 |lbriefed and the court took the matter under advisement (Docket No. 109). In essence, the Debtor 20 that Mr. Juelle and the Debtor are “so inextricably bound and so closely identified with one 21 |janother” that a collection action against Mr. Juelle for a pre-petition debt equals to a collection 22 |jaction for a pre-petition debt against the Debtor and that Quicksilver’s collection efforts against 23 Juelle are just a tactic to pressure the Debtor to make payments on its pre-petition debt. For 24 reasons stated below the Motion to Extend Stay is hereby denied. 25 Background 26 On May 6, 2009 the Debtor filed a petition for relief under Chapter 11 of the Bankruptcy 27 and since that date it has been acting as “debtor in possession”. In its Motion to Extend Stay 28 ||the Debtor represents that Mr. Juelle is its founder, president and one of its primary lenders, managing the day-to-day operations and responsible for devising and implementing a
1 reorganization plan under Chapter 11. The Debtor states that Mr. Juelle has executed personal 2 ||guarantees in favor of various of its creditors including Quicksilver'. The Debtor alleges that Mr. 3 |Juelle’s personal guaranty in favor of Quicksilver was for the sole benefit of the Debtor and that 4 consented to the guaranty provided his liability would not exceed that of the Debtor. On June 5 3, 2009 Quicksilver filed a complaint for breach of guaranty agreement against Mr. Juelle before 6 |ithe U.S. District Court for the Central District of California which prays for an amount equal to 7 |Ithat of the pre-petition claim Quicksilver holds against the Debtor, that is, $1.5 million 8 |lapproximately. 9 The Debtor argues that this case presents the unusual circumstances required for the 10 |japplication of the automatic stay to a third party non-debtor, in this case, Mr. Juelle. The Debtor 11 that Mr. Juelle’s identity is so intertwined with that of the Debtor that the Debtor may be 12 to be the real party defendant, and because Mr. Juelle is so essential to the Debtor’s 13 |lreorganization, the stay must be extended to him in order to protect the Debtor’s efforts to 14 |lreorganize. The Debtor further argues that Mr. Juelle has no independent obligation to 15 Quicksilver and given the close relationship between the Debtor and its president, Quicksilver’s 16 to collect against Mr. Juelle is nothing more than an effort to collect from the Debtor 17 ||circumventing the automatic stay provisions of the Bankruptcy Code. Lastly, the Debtor states 18 if Quicksilver’s action is allowed to proceed Mr. Juelle will be irremediably distracted and 19 not be able to dedicate his full attention to the reorganization of the Debtor’s case. According 20 Ito the Debtor Mr. Juelle is uniquely suited to guide the Debtor through its reorganization due to 21 knowledge of the local marketplace, rental agreements, consumer buying patterns and other 22 |lrelated information. The Debtor posits that the loss of Mr. Juelle’s efforts will impair if not 23 |\destroy the ability of the Debtor to reorganize and furthermore any judgment against him will 24 |\limit the funds available to be lent to the Debtor in order to fund its plan of reorganization as Mr. 25 is a potential financier of the Debtor’s reorganization. 26 |———__—- 7 ' Copy of a promissory note for $2,000,000 dated July 20, 2007 signed by Mr. Juelle as president of Bora Bora, Inc. and a personal guaranty also dated July 20, 2007 signed by Mr. Juelle 28 || as guarator, both with Quicksilver as payee, are attached to the Motion to Extend Stay.
1 In its response Quicksilver argues that the Debtor’s failure to file an adversary proceeding 2 |bars this court from granting the injunctive relief requested, as an injunction requires an adversary 3 ||proceeding. Furthermore, the Debtor does not carry its burden of persuasion as to all 4 |requirements warranting the extraordinary and drastic remedy of an injunction. Quicksilver cites 5 |ithis court in In re Codfish, 97 B.R. 132, 135 (Bankr. D.P.R. 1988) by stating that “if a creditor is 6 be enjoined and stayed from prosecuting an action against a codebtor pursuant to 11 U.S.C. § 7 |)105(a) the movant must establish through clear and convincing evidence that the estate would be 8 |lsubstantially and adversely affected by the continuance of such action.” Quicksilver maintains 9 the Debtor provides no evidence whatsoever to support its motion, let alone carry the heavy 10 burden warranting the extraordinary relief it seeks. And even if the Debtor’s assertions were 11 ||supported by evidence they would not justify the application of the automatic stay to Mr. Juelle. 12 Quicksilver posits that a stay extension request is deemed a request for a preliminary injunction 13 |land thus the Debtor must establish the four standard factors to obtain the injunctive relief, to wit, 14 irreparable injury to the Debtor if the injunction is not granted, 2) that such injury outweighs 15 |jany harm which granting injunctive relief would inflict on a defendant, 3) likelihood of success on 16 |the merits and 4) that the public interest will not be adversely affected by the granting of the 17 |linjunction. Quicksilver argues that the Debtor cannot make the required showing of irreparable 18 ||harm and has not shown the likelihood of success on the merits as the Debtor must prove the 19 |lprobability of a successful plan of reorganization and it has failed to do so. 20 In response to the Quicksilver’s arguments the Debtor argues that caselaw establishes that 21 determination of whether a third party non-debtor is protected by the automatic stay may be 22 |lissued within an adversary proceeding or within a contested matter. In response to Quicksilver’s 23 ||argument that the Debtor does not carry its burden of persuasion as to all requirements warranting 24 ||the extraordinary and drastic remedy of an injunction, the Debtor argues that it has been 25 |juncontested that Mr. Juelle is the Debtor’s president and is the person responsible for the Debtor’s 26 |loperations including the formulation of the reorganization plan, and thus the Debtor does not need 27 |\to prove that. The Debtor again concludes that Quicksilver’s collection action against the 28 |\Debtor’s president is part of its efforts to coerce the Debtor into paying its pre-petition debt. Later
1 lin the supplement to the Motion to Extend Stay the Debtor states that Quicksilver admitted that it 2 jlequates Mr. Juelle with the Debtor when in an answer to an interrogatory they stated that they 3 to terminate its business relationship with the company Mr. Juelle controls because it no 4 wished to be associated with Mr. Juelle’s character. From this statement the Debtor 5 llconcludes that Quicksilver’s suit against Mr. Juelle was brought as an effort to coerce payment 6 the Debtor on its pre-petition debt and thus the suit must be stayed as it is, in fact, a suit 7 \lagainst the Debtor. The Debtor attached a sworn declaration by Mr. Oscar Juelle, which states, in 8 jlessence, that he has spent considerable time and effort in the reorganization of the Debtor and 9 llafter the Quicksilver’s suit was filed these efforts along with money have been diverted into 10 |\defending the suit. He states that he has been able to obtain post-petition financing from 11 ||'Westernbank considering himself, through other companies, the Debtor’s lender, thus he has been 12 |lwilling to use his own funds and property to help guarantee funding for the benefit of creditors. 13 ||He concludes that if the suit is allowed to proceed the Debtor would be denied his time and funds 14 would otherwise be available to the creditors. 15 Quicksilver responds that the guaranty agreement executed between Quicksilver and Mr. 16 (the “Guaranty Contract”) provides that the guarantor (Mr. Juelle) has a financial interest in 17 ||the customer (the Debtor) and for business purposes significantly beneficial to Mr. Juelle wishes 18 Quicksilver continue to extend credit to the Debtor, and that the obligations of the guarantor 19 |\(Mr. Juelle) are independent of the obligations of the customer (the Debtor). Furthermore, 20 Quicksilver argues that even though Mr. Juelle states that the litigation with Quicksilver is 21 |lcausing tremendous hardship and distraction for him with respect to his duties to operate the 22 |[Debtor and seek post-petition financing, he has time to devote to the new round of litigation the 23 Debtor proposes to file against Quicksilver for alleged Act 75 violations. 24 In subsequent motions the Debtor informed the court that through Mr. Juelle’s efforts the 25 |[Debtor secured post-petition financing from an entity named Calacostas, Corp. Calacostas lent 26 |Ithe Debtor $400,000.00 at an annual interest rate of 5.5%, obtaining a lien on the Debtor’s 27 |\inventory and trademarks. It does not appear that Mr. Juelle committed any of his personal assets 28 order to obtain the referred secured post-petition financing for the Debtor.
1 The Disclosure Statement filed on November 3, 2009 provides that Mr. Juelle is the 2 |Ilpresident and CEO of the Debtor deriving a salary of $16,000 per month, plus car allowance and 3 insurance (Docket No. 173). The Disclosure Statement further provides that funding of the 4 of reorganization will come from the operations of the business and the post-petition secured 5 [financing from Calacostas, on which the monthly installments have administrative priority status 6 approved by the court. 7 The Guaranty Contract between Quicksilver and Mr. Oscar Juelle, copy of which is 8 jlattached to the Motion to Extend Stay, provides in its pertinent parts as follows: 9 THIS PERSONAL GUARANTY (this “Guaranty”) is made on July 20, 2007, by Oscar Juelle (“Guarantor”), for the benefit of Quicksilver, Inc. (“Quicksilver”), with reference to 10 the following facts: 11 B. Guarantor has a financial interest in Customer and, for business reasons significantly beneficial to Guarantor, desires that Quicksilver continue to extend credit to Customer. 12 NOW, THEREFORE, in consideration of the foregoing, and for other good reason and 13 valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Guarantor agrees as follows: 14 (8) The obligations of Guarantor hereunder are independent of the obligations of 15 Customer. A separate action or actions may be brought and prosecuted against Guarantor without first proceeding against Customer or any other person or any security held by 16 Quicksilver and without pursuing any other remedy and without joining Customer or any other person in any such action or actions. Any payment of any Indebtedness or other act 17 which shall toll any statute of limitations applicable thereto shall also operate to toll such statute of limitations applicable to Guarantor’s liability hereunder. 18 Discussion 19 The Debtor requests that this court enjoin Quicksilver from continuing a collection action 20 against Mr. Oscar Juelle based on the Guaranty Contract executed between Mr. Juelle and 21 Quicksilver. Section 362(a)(1) provides for an automatic stay of any judicial proceeding against 22 the debtor, thereby protecting the debtor and not prohibiting actions against non debtor third 23 parties or co-defendants. 11 U.S.C. 362(a)(1)’; In re S.I. Acquisition, Inc. 817 F.2d 1142, 1147 24 25 * 11 U.S.C. 362(a)(1) provides that 27 Except as provided in subsection (b) of this section, a petition filed under section 301, 302 or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor 28 Protection Act of 1970, operates as a stay, applicable to all entities, of -
1 Cir. 1987). The automatic stay is imposed by operation of law and does not require an 2 |linjunction but it is clear that the statutory language of 11 U.S.C. § 362 imposes the automatic ex 3 injunction only as to actions against the debtor. In re Supermercado Gamboa, 68 B.R. 230, 4 (Bankr. D.P.R. 1986). 5 ||Extension of the stay pursuant to 11 U.S.C. $ 362(a) - Procedure 6 The power of the bankruptcy courts to enjoin certain actions not subject to the automatic 7 such as an action against non debtor parties, has been recognized, when such action is 8 ||interfering improperly with the purposes of the bankruptcy law or the debtor’s reorganization 9 jefforts. A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994 (4th Cir. 1986). Although called an 10 |llextension of the automatic stay provisions of the Bankruptcy Code to non-debtor parties, these are 11 fact injunctions issued by a bankruptcy court under 11 U.S.C. § 105(a), after determining that 12 |Ithe situation requires it in order to protect the interests of the bankruptcy estate. In re Cincom 13 |}iOutsource, Inc., 398 B.R. 223, 227 (Bankr. S.D. Ohio, 2008) citing Patton v. Bearden, 8 F.3d 343 14 ||(6th Cir. 1993); “Under the Bankruptcy Act, it was believed that the bankruptcy court lacked 15 ||jurisdiction to issue such an injunction. Under the Code, broad injunctive power is available 16 section 105, and the issue appears to be one directed to the discretion of the court rather 17 ||than to its jurisdiction.” 3 Alan N. Resnick and Henry J. Sommer, Collier on Bankruptcy, § 362.04 18 (15th Ed. Rev’d 2005). In the case of In re Philadelphia Newspapers, LLC, 407 B.R. 606 (E.D. 19 |[Pa., 2009) the court explained that in evaluating the issuance of a preliminary injunction 20 |lextending the section 362(a) stay protection to non-debtors, appellate courts must analyze whether 21 |Ithe bankruptcy court properly extended the section 362(a) stay to the non-debtors and whether the 22 exercised its discretion properly in issuing an injunction pursuant to 105(a). This is so 23 ||because section 105(a) is not a repository of substantive rights but allows the court to issue an 24 fi 25 (1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the 27 case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title; 28 Emphasis ours.
1 when “necessary or appropriate” to carry out the provisions of the Bankruptcy Code, in this 2 Section 362(a). The fact that courts have combined the analysis has created confusion, but 3 steps of the inquiry must be satisfied in order for the injunction to be issued. Id. at 616. 4 Paragraph 17 of Debtor’s reply filed on July 8, 2009 (Docket No. 88) provides as follows: 5 Regardless, no court has required that the issue of whether to grant the protection of the automatic stay to parties who are not the debtor be raised through an adversary proceeding. 6 || One court contends that using the term “stay” interchangeably with “injunction” has led to unnecessary confusion for some practitioners. Jn re Philadelphia Newspapers, LLC, 7 U.S.Dist. LEXIS 56245 * 7 (E.D. Pa., July 2, 2009). According to Philadelphia Newspapers the key doctrine to be understood is that 11 USC § 362 grants Bankruptcy 8 courts the power fo enjoin lawsuits against non-debtors under certain circumstances—regardless of whether one considers this power a “stay” or an “injunction.” 9 Id. Accordingly, this issue may be submitted through either an adversary proceeding or a contested matter. 10 Here, the Debtor suggests that when granting the protection of the automatic stay to non- 11 debtors the courts need only apply section 362(a). The Debtor is misinterpreting the holding in 12 the case of In re Philadelphia Newspapers, LLC, U.S.Dist. LEXIS 56245 * 7 (E.D. Pa., July 2, 13 2009). As discussed above, the Philadelphia Newspapers court explained that in evaluating the 14 issuance of a preliminary injunction extending the section 362(a) stay protection to non-debtors, 15 the courts will analyze both whether the extension of the stay under section 362(a) is proper and 16 whether the issuance of an injunction under 105(a) is proper, which means that in order for the 17 injunction to be issued the requirements of both statutes must be satisfied. 18 In evaluating the issuance of the preliminary injunction extending the protection of section 19 362(a) to Non-Debtor third parties, the Court will undertake a three-step analysis."“* The Court will determine, first, whether the Bankruptcy Court had jurisdiction to issue the 20 injunction. Second, whether the Bankruptcy Court properly extended the section 362(a) stay to the Non-Debtors. Finally, whether the Bankruptcy Court properly exercised its 21 discretion in issuing an injunction, pursuant to section 105(a), enjoining suit against Non- Debtors. 22 Courts have often conflated the analysis. This has led to confusion. 23 Philadelphia Newspapers, 407 B.R. at 610 (citations omitted). 24 In paragraph 19 of the reply (Docket No. 88) the Debtor alleges that the court in the case 26 of In re M.J.H. Leasing, Inc., 328 B.R. 363 (Bankr. D.Ma. 2005) held that the issue before us was properly raised in a contested matter. Again, the Debtor is misinterpreting such decision. In 28 M.J.H. Leasing the issue before the court was an objection to the disclosure statement because it
1 |icontained a provision for the discharge and release of the principals of the debtors. The court 2 |jreviewed cases involving the injunction of actions against third-party non-debtors raised through 3 jladversary proceedings as it found such cases were relevant in view of similar legal and factual 4 licircumstances. Id. at 370. However, at no point did the M.J.H. Leasing court insinuate that a 5 jlrequest to extend the stay to third-party non-debtors could be raised outside an adversary 6 |proceeding. 7 A request for injunctive relief must be brought by adversary proceeding. Fed. R. Bankr. P. 8 7001(7); Cincom, 398 B.R. at 227 citing In re Swallen’s Inc., 205 B.R. 879, 880 (Bankr. S.D. 9 lOhio 1997)(injunctive relief was denied for failure to request it through adversary proceeding); In 10 le Nasco P.R., Inc., 17 B.R. 35, 38 (Bankr. D.P.R. 1990)(“A party wishing to invoke the Court’s injunctive power under Section 105(a) must file an adversary proceeding... and must follow the 12 |traditional standards for the issuance of an injunction.”) While it is true that 11 U.S.C. § 105(a) 13 gives the bankruptcy courts broad power to issue any order that is “necessary or appropriate” to 14 lithe reorganization effort, “this broad authority does not allow the bankruptcy court to apply a less 15 stringent standard for granting injunctive relief for the benefit of non-debtor defendants than is 16 traditionally required for the issuance of any injunction.” Supermercado Gamboa, 68 at 232-233 7 citing Matter of Electronic Theatre Restaurants Corp., 53 B.R. 458 (N.D. Ohio 1985); A.H. 18 |Robins, 788 F.2d at 1008; Philadelphia Newspapers, 407 B.R. at 616; Codfish, 97 B.R. at 165. The broad injunctive powers under 11 U.S.C. § 105(a) should be used sparingly. In re 20 Lazarus Burman Assoc., 161 B.R. 891, 901 (Bankr. E.D.N.Y. 1993); In re Codfish, 97 B.R. 132 (Bankr. D.P.R. 1988); In re Criadores de Yabucoa, Inc., 75 B.R. 96 (Bankr. D.P.R. 1987). Thus, a 22 preliminary injunction is an extraordinary and drastic remedy which should only be granted when 3 the movant has carried its burden through clear and convincing evidence. Philadelphia Newspapers, 407 B.R. at 616; Cincom, 398 B.R. at 227. This court clearly set forth the standard to grant an injunction under 11 U.S.C. § 105(a) as follows:
7 In the First Circuit, as elsewhere, the four standard factors that the debtor corporation would have to establish to obtain injunctive relief are as follows: (1) That the debtor would 28 suffer irreparable injury if the injunction were not granted; (2) That such injury outweighs
1 any harm which granting injunctive relief would inflict on a defendant; (3) That the debtor has exhibited a likelihood of success on the merits; (4) That the public interest will not be 2 adversely affected by the granting of the injunction. Codfish, 97 B.R. at 135 citing Supermercado Gamboa, 68 B.R. at 232; Lazarus Burman, 161 B.R. * at 901. 5 6 In summary, a request to extend the automatic stay provisions of section 362(a) to a non- debtor is an action for injunctive relief and should be initiated as an adversary proceeding. Fed. g R. Bankr. P. 7001(7). 9 |Unjunction under 11 U.S.C. § 105(a) 10 Section 105(a) of the Bankruptcy Code provides the court with the authority to exercise its 11 |lequitable powers when necessary or appropriate to facilitate the implementation of other 12 Ilprovisions of the Bankruptcy Code. 11 U.S.C. § 105(a). “[A]lthough § 105(a) does not itself 13 a private right of action a court may invoke § 105(a) if the equitable remedy utilized is 14 |idemonstrably necessary to preserve a right elsewhere provided in the Code.” In re Nosek, 544 15 |IF.3d 34, 43 (1st Cir. 2008)(citations omitted). However, § 105(a) may not be invoked “where the 16 llresult of its application would be inconsistent with any other Code provision or it would alter 17 llother substantive rights set forth in the Code. Id. “The issuance of an injunction that restrains 18 Iicreditors from enforcing their claims against nondebtors in non-bankruptcy fora is an exception to 19 |Ithe general principle that to enjoy the benefits of bankruptcy a recipient needs to suffer the 20 |lburdens.” In re Saxby’s Coffee Worldwide, LLC, 2009 WL 4730238 at *5 (Bankr. 21 |E.D.Pa.)(citation omitted). 22 The four standard factors that the Debtor would have to establish to obtain injunctive relief 23 restraining an action against Mr. Juelle are as follows: (1) that the debtor would suffer irreparable 24 injury if the injunction were not granted; (2) that such injury outweighs any harm which granting 2 injunctive relief would inflict on Quicksilver; 3) that the debtor has exhibited a likelihood of 26 success on the merits, which means in this context a reasonable likelihood of a successful 27 reorganization; (4) that the public interest will not be adversely affected by the granting of the 28
1 |jinjunction which requires a balancing of the public interest in successful bankruptcy 2 |jreorganizations with other public interests. Saxby’s Coffee Worldwide, LLC, 2009 WL 4730238 3 |jat *6 (citation omitted); Codfish, 97 B.R. at 135 citing Supermercado Gamboa, 68 B.R. at 232; 4 |\Lazarus Burman, 161 B.R. at 901. The Debtor failed to meet its burden. 5 “Trreparable injury in the preliminary injunction context means an injury that cannot 6 adequately be compensated for either by a later-issued permanent injunction, after a full 7 adjudication on the merits, or by a later-issued damages remedy.” Rio Grande Community Health 8 Center, Inc. v. Rullan, 397 F.3d 56 (1* Cir. 2005). To establish irreparable harm the movant does ? not need to show that the injunctive relief will be fatal to the business, only that its legal remedies 10 inadequate. Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 15 (1* Cir. 1996). 1] the plaintiff suffers a substantial injury that is not accurately measurable or adequately 12 compensable by money damages, irreparable harm is a natural sequel.” Id. For example “harm to 13 goodwill, like harm to reputation, is the type of harm not readily measurable of fully compensable 14 Vin damages-and for that reason, more likely to be found “irreparable”.” K-Mart Corp. v. Oriental 15 Plaza, Inc., 875 F.2d 907, 915 (1* Cir. 1989). The irreparable harm must be “neither remote nor 16 speculative, but actual and imminent.” In re Dunes Hotel Associates, 1997 WL 33344279 *4 17 Bankr.D.S.C.1997), citing Dan River, Inc. v. Ieahn, 701 F.2d 278, 284 (4th Cir.1983). “Mere 18 injuries, however substantial, in terms of money, time, and energy necessarily expended in the 19 absence of a stay, are not enough.” Cunningham v. Adams, 808 F.2d 815, 821 (11th Cir.1987). 20 The Debtor failed to show that it would suffer irreparable injury should the collection 21 against Mr. Juelle be allowed to proceed. The Debtor argues that the action will divert Mr. 22 lJuelle’s attention from the business. But the extent of which or the specific effect this distraction 23 have on the Debtor was not alleged with specificity. Thus this court cannot conclude that 24 llthe Debtor will suffer any injury in the event the action is not stayed. Having failed to meet the first of the four-prong injunction standard we need go no further, *6 the Debtor’s request for an injunction staying Quicksilver’s action against Mr. Juelle must be denied. 28 10
1 ||Extension of the stay pursuant to 11 U.S.C. §362(a) - “Unusual Circumstances” 2 It is uncontested that Mr. Juelle is the president and founder of the Debtor, responsible for 3 day-to-day operations and responsible for devising and implementing the reorganization plan 4 Chapter 11. The Debtor argues that Mr. Juelle’s identity is so intertwined with that of the > Debtor that the Debtor may be said to be real party defendant, so the stay must be extended to Mr. 6 to protect the Debtor’s interests. The Debtor further states that Mr. Juelle has no 7 independent obligation to Quicksilver and if the action is allowed to proceed Mr. Juelle will be 8 IIdistracted and will not be able to dedicate his full attention to the reorganization of the Debtor’s ? Icase. According to the Debtor Mr. Juelle is uniquely suited to guide the Debtor through its 10 Chapter 11 due to his knowledge of the local marketplace, rental agreements, consumer buying patterns and other related information, furthermore, a judgment against him will limit the funds 12 lavailable to be lent to the Debtor to fund a reorganization plan. 8 While the scope of the automatic stay provision, 11 U.S.C. § 362, is broad, it only stays actions against the debtor and does not extend its protection to guarantors. Philadelphia 5 Newspapers, 407 B.R. at 616. Courts have extended the stay to non debtor third parties when '6 “unusual circumstances” exist, such as when “(i) the non-debtor and debtor enjoy such an identity "7 of interests that the suit of the non-debtor is essentially a suit against the debtor’; or (ii) the third- 8 party action will have an adverse impact on the debtor’s ability to accomplish reorganization.” Id. Debtor’s allegations are insufficient by themselves to establish either scenario. While it is true that Mr. Juelle is the president and manager of the Debtor, there is no basis for us to conclude at 21 this juncture that their identity is so intertwined that a suit against Mr. Juelle is essentially a suit against the Debtor, or that judgment against Mr. Juelle would in effect be a judgment against the
24 > An illustration of a situation where there is such identity between the debtor and the 25 || non-debtor defendant arises when the suit is against a non debtor defendant who is entitled to absolute immunity by the debtor on account of any judgment that might be entered against him. 26 |! Kreisler v. Goldberg, 478 F.3d 209, 213 (4th Cir. 2007). “Yet the purpose served by extending 7 || the stay to directors and officers indemnified by the debtor must be consistent with the purpose of the stay itself, to suspend actions that pose a serious threat to a corporate debtor’s reorganization 28 || efforts.” In re Uni-Marts, LLC, 399 B.R. 400, 415 (Bankr. D.Del. 2009)(citations omitted) 11
1 Debtor, and that by filing this action against Mr. Juelle Quicksilver is circumventing the automatic 2 provision of the Bankruptcy Code. See, Kreisler v. Goldberg, 478 F.3d 209, 213 (4th Cir. 3 12007). In fact, the Guaranty Contract provides that Mr. Juelle’s obligation under the same is 4 llindependent of the obligations of the Debtor and a separate action may be brought and prosecuted 5 jlagainst Mr. Juelle without first proceeding against the Debtor and without joining the Debtor in 6 |jany such action. While it is true that if the action is allowed to continue Mr. Juelle will need to 7 |\dedicate some time defending himself, the factual allegations fail to establish that this collection 8 |jaction brought by Quicksilver based on the Guaranty Contract is so complex that it will actually 9 the Debtor, its operation and its reorganization because of Mr. Juelle’s distraction. Also, 10 allegations do not detail why the business is so complicated it requires the undivided personal 11 jlattention of Mr. Juelle for it to run smoothly. In fact, at the August 10, 2009 hearing the Debtor 12 that this is a “small asset chapter 11 case”. There are no allegations regarding the amount 13 lof time Mr. Juelle dedicates to the Debtor and the amount of time Mr. Juelle has diverted from the 14 ||Debtor to deal with this collection action. See, In re Uni-Marts, LLC, 399 B.R. at 417 (The court 15 that the time pressures of the suit against the principal, did not constitute “unusual 16 ||circumstances” as the debtor’s chapter 11 case was small and relatively straightforward, unlike 17 such as Johns-Manville or A.H. Robins, which involved many thousands of tort cases, and 18 |Ithe limited scope of the adversary action would most probably not consume significant portions of 19 |Ithe debtor’s principal time or energy.) Furthermore, although initially the Debtor argued that a 20 |judgment against Mr. Juelle would limit the funds available to be lent to the Debtor to fund its 21 |/plan of reorganization, the disclosure statement informs that Mr. Juelle will not fund the Debtor’s 22 plan as post petition financing was obtained from a third party, Calacostas, Corp. Thus the 23 |ifinancial cost to Mr. Juelle personally in defending the collection action may not have a 24 |lsignificant impact on the Debtor. This court agrees with Judge Hillman in the case of M.J.H. 25 |\Leasing, Inc. when he stated that the debtor’s principal intention to devote personal assets to the 26 |jreorganization of the debtor does not automatically shield him from suit on his personal 27 |lobligations. M.J.H. Leasing, Inc., 328 B.R. at 367. 28 12
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1 In support of its position the Debtor cites cases such as A.H. Robins 788 F.2d 994, which 2 |jinvolved multiple cases against the debtor and other co-defendants seeking damages for injuries 3 llallegedly sustained by the use of an intrauterine contraceptive device known as Dalkon Shield, 4 manufactured by the debtor. Some of this personal injury cases filed pre-petition against A.H. 5 ||Robins and others had been settled, some lost and some won, and the costs of defending these 6 both to the debtor and to its insurance carrier had risen into the millions prior to the filing. 7 ||The court stayed these actions in part because of the enormous impact they would have on the 8 if they were allowed to continue against the co-defendants because, for example, the non 9 |idebtors third party co-defendants were entitled to absolute indemnity by the debtor on account of 10 judgment that might result against them in the case. Id. at 999. Similarly the court, in the 11 of Philadelphia Newspapers found “unusual circumstances” warranting the stay of the actions 12 |lagainst non-debtor co-defendants because “the Debtors owe potential contractual and common 13 duties to indemnify the Non-Debtors, the interests of the Debtors and Non-Debtors in the state 14 |jaction are identical, and the diversion of resources caused by the state action against the Non- 15 |Debtors will impact the Debtors’ ability to engage in timely and effective reorganization.” 16 Philadelphia Newspapers, 407 B.R. at 616. In Codfish the debtor sought the extension of the 17 |jautomatic stay to debtor’s president who had guaranteed debtor’s obligations with the FDIC. The 18 concluded that in order to apply the injunctive power under 11 U.S.C. 105(a) the evidence 19 |presented must “clearly and convincingly show that the estate would be substantially and 20 |jadversely affected” if the creditor continue to pursue the action against the non-debtor. This court 21 llextended the automatic stay to debtor’s president in that case upon finding that the president was 22 |juniquely essential in the debtor’s reorganization, he had no assets other than his salary as 23 |[president and would have no incentive to continue in his duties as president of the debtor “if 24 |jwhatever benefits he could anticipate for himself from the reorganization of debtor would become 25 |lsubject to a judgment entered against him in favor of FDIC.” Codfish, 97 B.R. at 134. 26 The Debtor has failed to show that this case presents such “unusual circumstances” 27 watranting the extension of the automatic stay provision to a non-debtor third party. 28 13
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1 Conclusion 2 In light of the aforestated reasons the Debtor’s Motion to Extend the Protections of the 3 | Automatic Stay to Debtor’s President, Oscar Juelle, and to Enjoin the Proceedings Currently 4 Pending Against Him (Docket No. 33) is hereby denied for the following reasons: the request > be initiated as an adversary proceeding and it was not; the allegations in the motion as © amended and supplemented fail to address that the Debtor will suffer irreparable harm, thus 7 failing to meet the burden to obtain injunctive relief; and for failure to establish unusual 8 Icircumstances warranting the extension of the automatic stay. ° SO ORDERED. 10 In San Juan, Puerto Rico, this 20" day of January 2010. 12 13 14 S. LAMOUTTE 15 U. S. Bankruptcy Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 14