Residential World Development, LLC

CourtUnited States Bankruptcy Court, W.D. New York
DecidedNovember 21, 2024
Docket1-24-10793
StatusUnknown

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Bluebook
Residential World Development, LLC, (N.Y. 2024).

Opinion

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF NEW YORK _________________________________________

In re:

Residential World Development, LLC, Case No. 24-10793-PRW Chapter 7

Debtor. _________________________________________

DECISION AND ORDER GRANTING MOTION TO VACATE THE AUTOMATIC STAY

PAUL R. WARREN, U.S.B.J.

On July 24, 2024, Residential World Development, LLC, (“Residential”) filed a Chapter 7 petition, pro se.1 (ECF No. 1). On November 16, 2022, long before Residential filed its Chapter 7 petition, Windtree Homeowners Association, Inc. (“Windtree”) commenced an action against Residential, and three other non-debtor defendants, in the Texas state courts, alleging “misappropriation of insurance proceeds”—an action sounding in embezzlement. (ECF No. 23 ¶ 11). The parties to the Texas litigation, including Residential, have engaged in significant pre-trial discovery and motion practice before the Texas court. Because of Residential’s alleged deficient responses to Windtree’s discovery demands, Windtree filed a motion to compel Residential to comply with its discovery demands, which motion was

1 While Residential did eventually retain counsel (ECF No. 15), Residential (a corporation) appeared pro se for nearly two months. It is well established that “[a] corporation cannot commence or appear in a proceeding pro se.” In re Seneca Mgmt. Partners, LLC., 2023 Bankr. LEXIS 1168, at *2 (Bankr. W.D.N.Y. May 2, 2023) (citing Jones v. Niagara Frontier Transp. Auth., 722 F.2d 20, 22 (2d Cir. 1983)); see also In re Encore Prop. Mgmt., 585 B.R. 22, 26 (Bankr. W.D.N.Y. Feb. 16, 2018). This Court routinely dismisses pro se cases filed by corporations or partnerships, sua sponte and immediately. scheduled to be heard by the Texas court on July 25, 2024. (Id. at ¶ 15). On July 24, 2024, the day prior to the hearing on Windtree’s motion to compel, Residential filed a Chapter 7 petition. (ECF No. 1). Windtree has moved for an order lifting the automatic stay, so that it can proceed with the state court litigation in Texas. (ECF No. 23). Windtree alleges that Residential filed its Chapter

7 petition on the eve of the hearing on Windtree’s motion to compel, in an attempt to “thwart [Windtree’s] efforts to obtain information about missing or misappropriated insurance proceeds.” (Id. at ¶ 35). Residential filed opposition to the lift stay motion, arguing that lifting the stay would interfere with Residential’s discharge and that the Texas action would be rendered moot by the granting of a discharge to Residential.2 (ECF No. 28-1). For the reasons that follow, the motion to lift the automatic stay is GRANTED. I. DISCUSSION A. There is “Cause” Under § 362(d)(1) of the Code to Lift the Stay and Permit the Texas Litigation to Proceed “The burden of proof on a motion for relief from stay under section 362(d) is a shifting one.” 3 Collier on Bankruptcy ¶ 362.10 (16th ed. 2016). “Section 362(d)(1) requires an initial showing of cause by the movant, while Section 362(g) places the burden of proof on the debtor for all issues other than ‘the debtor’s equity in property.’” In re Sonnax Indus., Inc., 907 F.2d 1280, 1285 (2d Cir. 1990). Section 362(d)(1) permits the Court to terminate the automatic stay “for cause, including the lack of adequate protection of an interest in property of such party in interest.” 11 U.S.C. § 362(d)(1).

2 It is black letter law that a corporation cannot receive a discharge in Chapter 7. 11 U.S.C. § 727(a)(1). Counsel would do well to read the Code, as that exercise may assist Counsel in avoiding embarrassingly frivolous arguments in the future. Use of the word “cause” suggests an intention that the bases for relief from the stay should be broader than merely lack of adequate protection. Thus, relief might be granted when the court finds that the debtor commenced the case in bad faith. And relief also may be granted when necessary to permit litigation to be concluded in another forum, particularly if the nonbankruptcy suit involves multiple parties or is ready for trial. Relief may also be granted to permit an embezzlement victim to pursue the embezzled property in the debtor’s hands.

3 Collier on Bankruptcy ¶ 362.07[3][a] (16th ed. 2019) (emphasis added). The Second Circuit has identified twelve factors for the Court to consider in deciding whether “cause” exists under Section 361(d)(1) to permit litigation in another forum to continue. The so-called Sonnax factors are: (1) whether the 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 debtor’s 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 movant’s 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.

In re Sonnax Indus., Inc., 907 F.2d 1280, 1286 (2d Cir. 1990). The Second Circuit recognized that not every Sonnax factor will be relevant in every case. See In re Mazzeo, 167 F.3d 139, 143 (2d Cir. 1999). Courts in the Second Circuit have held that “[o]nly those factors relevant to a particular case need be considered, and the Court need not assign them equal weight.” In re Touloumis, 170 B.R. 825, 828 (Bankr. S.D.N.Y. 1994) (citing In re Anton, 145 B.R. 767, 770 (Bankr. E.D.N.Y. 1992) (internal citation omitted). Here, the Court finds that Sonnax factors 1, 2, 6, 7, 10, 11, 12 are relevant, and each of those factors strongly favor granting stay relief. Factor 1. Relief Would Result in Partial or Complete Resolution of Issues This factor weighs heavily in favor of granting stay relief. As indicated in the motion, the Texas state court litigation involves not only Residential, but also three other defendants. (ECF No. 23 ¶ 11). Residential is currently the only party not taking part in the state court

litigation. (Id. at ¶ 29(a)). By granting Windtree’s request for stay relief, the Texas state court litigation would be permitted to resume. Resumption of the Texas litigation will not only resolve Windtree’s claim, but also Residential’s counterclaim against Windtree. As a result, the Texas court will be in a position to completely resolve the issues between all of the parties. Factor 2. Lack of Any Connection with or Interference with the Bankruptcy Case

This factor also weighs heavily in favor of granting stay relief. This is a no-asset Chapter 7 case in which the Trustee has completed her administration. Residential is statutorily not eligible for a discharge. 11 U.S.C. § 727(a)(1). The bankruptcy case will be closed shortly, at which point the automatic stay would dissolve. 11 U.S.C.

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Related

In Re Touloumis
170 B.R. 825 (S.D. New York, 1994)
In Re Anton
145 B.R. 767 (E.D. New York, 1992)
In re Encore Prop. Mgmt. of W. N.Y., LLC
585 B.R. 22 (W.D. New York, 2018)

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Residential World Development, LLC, Counsel Stack Legal Research, https://law.counselstack.com/opinion/residential-world-development-llc-nywb-2024.