In re Lengacher

485 B.R. 380, 2012 WL 6949806, 2012 Bankr. LEXIS 6042
CourtUnited States Bankruptcy Court, N.D. Indiana
DecidedDecember 12, 2012
DocketNo. 12-12512
StatusPublished
Cited by4 cases

This text of 485 B.R. 380 (In re Lengacher) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Indiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Lengacher, 485 B.R. 380, 2012 WL 6949806, 2012 Bankr. LEXIS 6042 (Ind. 2012).

Opinion

DECISION ON RICHLAND BANK’S MOTION FOR RELIEF FROM STAY

ROBERT E. GRANT, Chief Judge.

The debtors in this chapter 11 case are the sole owners of two limited liability companies: Manor House Assisted Living, Ltd. and Essen House Restaurant, Ltd. Prior to the petition, Richland Bank had filed two separate actions in the Ohio state courts involving those entities. In one, Manor House was the sole defendant. In the other, Manor House, Essen House, both debtors, and Midwest Senior Living Trust, Ltd., a trust settled by the debtors, were the named defendants. Soon after the debtors’ petition for relief under chapter 11, Manor House filed a suggestion of stay in the action against it, suggesting that the matter had been stayed by 11 U.S.C. § 362; the debtors filed a similar suggestion in the action involving them.1 Although the debtors were not parties to the first case and are only two of five defendants in the second, the state court promptly entered orders staying both proceedings in their entirety.

Rather than asking the state court to revisit its orders, see e.g., In re Dunbar, 235 B.R. 465, 472 (9th Cir. BAP 1999) (state court has authority to construe the automatic stay), the bank filed a motion in this court seeking relief from the automatic stay. It does not seek the wholesale termination of the stay. Instead, it wants to do only three things: (1) proceed against Manor House in the first action, (2) proceed against the non-debtor defendants in the second, and (3) to the extent it may be needed, take discovery from the debtors in both actions. Its primary argument is that § 362(a) does not apply to these things and so they are not stayed at all. The matter has been submitted to the court on the parties’ stipulations of fact and the briefs of counsel.

The automatic stay of § 362(a) is quite broad. It protects debtors, the trus[383]*383tee, the bankruptcy estate and creditors by, in general terms, staying or prohibiting proceedings and various acts against the debtor, the debtor’s property, and property of the bankruptcy estate. See, 11 U.S.C. § 362(a)(1) — (8). ’ Despite its breadth, the automatic stay is not infinite. It does have limits. It does not prevent actions against non-debtor co-obligors, debtor’s sureties or guarantors. See, Matter of Fernstrom Storage and Van Co., 938 F.2d 731, 736 (7th Cir.1991). It does not protect separate legal entities, corporations, partnerships or non-debtor co-defendants in pending litigation. Patton v. Bearden, 8 F.3d 343, 349 (6th Cir.1993); Pitts v. Unarco Industries, Inc., 698 F.2d 313, 314 (7th Cir.1983); Maritime Electric Co. Inc. v. United Jersey Bank, 959 F.2d 1194, 1205 (3rd Cir.1991) (“All proceedings in a single case are not lumped together for purposes of automatic stay analysis.... Within a single case, some actions may be stayed, others not.”). This remains so even “where the non-debtor is a corporation wholly owned by the debtor.” In re Winer, 158 B.R. 736, 743 (N.D.Ill.1993). And the stay does not prohibit taking discovery from debtors in connection with litigation against non-debtors, even if that information might later be used against the debtors. In re Richard B. Vance & Co., 289 B.R. 692, 697 (Bankr.C.D.Ill.2003). See also, Matter of Mahurkar Double Lumen Hemodialysis Catheter Patent Litigation, 140 B.R. 969, 977 (N.D.Ill.1992); In re Koop, 2002 WL 1046700, *5 (Bankr.N.D.Ill.2002) (automatic stay did not extend to debtor in his capacity as registered agent for corporation to prevent discovery of corporate assets). Although the stay does protect property of the debtor and the bankruptcy estate, a shareholder has no interest in the assets of a corporation; corporate assets do not become property of a shareholder’s bankruptcy estate and are not protected by the automatic stay. See, Fowler v. Shadel, 400 F.3d 1016, 1019 (7th Cir.2005); In re Murray, 147 B.R. 688, 690 (Bankr.E.D.Va.1992). See also, Winer, 158 B.R. at 743 (automatic stay cannot be invoked just because action against corporation will impact the value of debtor’s stock).

In response to the bank’s arguments concerning the scope of the automatic stay, the debtors advocate an expansive interpretation of § 362(a). They argue, albeit only briefly, that “any proceeding against Manor House and Essen House should be considered a proceeding against the Debtors” and, therefore, stayed by § 362(a)(1), because the debtors are the sole owners of those LLCs, their worth contributes value to the bankruptcy estate, which will be lost if the bank is allowed to proceed, and their ongoing operation is vital to the debtors’ successful reorganization. The court declines the invitation to read so much into § 362(a). A more literal approach to its language is preferable. The court should not, under the guise of interpretation, expand the stay beyond the limits Congress has established. To do so ignores principles of statutory construction, is bad policy, and, given the other available alternatives, unnecessary.

As for principles of statutory construction, the Supreme Court has clearly expressed a decided preference for interpreting the Bankruptcy Code according to its plain meaning, see, Connecticut National Bank v. Germain, 503 U.S. 249, 254, 112 S.Ct. 1146, 1149-50, 117 L.Ed.2d 391 (1992); U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241-42, 109 S.Ct. 1026, 1030-31, 103 L.Ed.2d 290 (1989), and nowhere does § 362(a) extend the automatic stay beyond debtors, their property and property of the bankruptcy estate. When Congress wanted a stay to protect non-debtor [384]*384co-obligors it said so explicitly. See, 11 U.S.C. §§ 1201(a), 1301(a). In light of this, the court should not “interpret” § 362(a) to prohibit actions it plainly does not. Doing so would read things into it that simply are not there. See, In re Gruntz, 202 F.3d 1074, 1085 (9th Cir.2000).

On a policy level, the court notes that the effect of proceedings in one court upon proceedings in another is for the judge in that case to decide. Pettibone Corp. v. Easley, 935 F.2d 120, 123 (7th Cir.1991). See also, Midway Motor Lodge of Elk Grove v. Innkeepers’ Telemanagement & Equipment Corp.,

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Kroft v. Viper Trans, Inc.
2025 IL App (1st) 240220 (Appellate Court of Illinois, 2025)
Paulson v. McKowen
D. Colorado, 2020
In re Caesars Entertainment Operating Co.
540 B.R. 637 (N.D. Illinois, 2015)

Cite This Page — Counsel Stack

Bluebook (online)
485 B.R. 380, 2012 WL 6949806, 2012 Bankr. LEXIS 6042, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-lengacher-innb-2012.