United States District Court, D. New Mexico
ORDER DENYING EMERGENCY MOTION FOR STAY PENDING
HONORABLE GREGORY J. FOURATT UNITED STATES MAGISTRATE JUDGE.
MATTER comes before the Court on Appellant's Emergency
Motion for Stay Pending Appeal [ECF No. 3]. Appellant seeks a
stay of the Bankruptcy Court's order modifying the
automatic bankruptcy stay pursuant to 11 U.S.C. § 362.
Having reviewed the parties' submissions, the record, and
applicable law, the Court will deny the motion.
is the beneficiary of trusts established by his late wife,
Mary Pat Abruzzo. ECF No. 6 at 56. Appellees Louis and
Benjamin Abruzzo are the contingent remainder beneficiaries
of their sister's trusts. Id. In 2013, the
Appellant and the Abruzzo brothers filed cross-claims in New
Mexico's Second Judicial District Court (State Court) for
breach of fiduciary duty, as they all functioned as
co-trustees. Id. at 70. The State Court concluded
Appellant breached his fiduciary duties and that “good
cause … exists for modification of the Mary Pat
Abruzzo Trust, including but not limited to appointment of a
Successor Trustee….” Id. at 71.
September 1, 2017, before any trust modifications were made,
Appellant filed a Chapter 11 bankruptcy case. See
No. 17-12274-t11, Bankruptcy Docket No. (“BK
No.”) 1. The State Court action was automatically
stayed pursuant to 11 U.S.C. § 362. About a week after
the bankruptcy filing, the Abruzzo brothers filed a motion
for relief from the automatic stay to resolve the remaining
issues in the State Court litigation. BK No. 13. The
Bankruptcy Court (Hon. David Thuma) heard the motion on
November 22, 2017 and determined “all parties would be
better served by attempting to mediate their differences and
negotiate a plan of reorganization, rather than incurring
attorney fees in further litigation.” BK No. 111.
Another Bankruptcy Judge, Hon. Robert Jacobvitz, agreed to
act as mediator. Id. The Bankruptcy Court kept the
stay motion under advisement but reserved the right to
terminate the automatic stay “at any time it perceives
that continuing the stay no longer benefits the [Abruzzo
brothers] and the estate.” Id. at 3.
the same period, the United States Trustee appointed an
unsecured creditors' committee (UCC) in accordance with
11 U.S.C. § 1102. BK No. 103. The Abruzzo brothers are
not members of the UCC, presumably because they may qualify
as secured creditors by virtue of the trusts. Id.
The UCC, Appellant, and the Abruzzo brothers participated in
the mediation, but it was unsuccessful. BK No. 111. On August
13, 2018, the UCC proposed an amended Chapter 11 Plan of
Reorganization (UCC Plan), which contemplates trust
modifications. BK No. 360. The key points of the proposed UCC
Plan are as follows:
1. The family business founded by the Abruzzos (ARCO) will
pay $12, 571, 799 to Appellant's trusts in exchange for
all ARCO stock held by the trusts.
2. The Abruzzo brothers will deliver a $3 million trust
payment to Appellant, which would be delivered to
3. Appellant's $350, 890.55 priority tax debt will be
paid from net income that would otherwise be distributable to
Appellant from the trusts.
Id. at 6. Confirmation of the UCC Plan is contingent
upon State Court approval of these items, which are
hereinafter referred to as the “Three Actions.”
ECF No. 3 at 1. Appellant proposed a competing Chapter 11
Plan of Reorganization (Debtor's Plan), which did not
contemplate such trust modifications. BK No. 381.
September 4, 2018, the Bankruptcy Court modified the
automatic stay pursuant to 11 U.S.C. § 362 to allow the
Abruzzo brothers to obtain a State Court hearing on the Three
Actions. ECF No. 1 at 8. The Bankruptcy Court entered a
second, substantive order modifying the automatic stay on
September 18, 2018. Id. at 11-12. The second order
permitted the Abruzzo brothers to pursue the Three Actions
against Appellant in State Court. Id. Together, the
orders are hereinafter referred to as the “Section 362
filed the instant appeal challenging the Section 362 Orders
on September 20, 2018. ECF. No. 1. He first sought a stay
pending appeal in the Bankruptcy Court, as required by
Bankruptcy Rule 8007(a)(1), which was denied. ECF No. 3 at 6.
On the eve of the State Court hearing, Appellant removed the
Three Actions to Federal District Court. ECF No. 1 in No.
18-cv-922 JCH/SCY. Appellees filed a motion to remand or
abstain. ECF No. 4 in No. 18-cv-922 JCH/SCY. The Court (Hon.
Judith Herrera) transferred the Three Actions to Bankruptcy
Court in accordance with the standing referral of all
bankruptcy jurisdiction. ECF No. 8 in No. 18-cv-922 JCH/SCY.
October 8 and 9, 2018, Appellant filed three emergency
motions. In the first two motions, filed in No. 18-cv-922
JCH/SCY, Appellant asked the Court to withdraw the standing
reference of bankruptcy jurisdiction and/or to stay
proceedings. The Court initially entered a text-only order
advising that Appellant was not entitled to relief on an
emergency basis. ECF No. 10 in No. 18-cv-922 JCH/SCY.
Appellant filed a second emergency motion the next day,
prompting the Court to deny both motions. ECF No. 10 in No.
filed the emergency motion for a stay pending appeal in this
proceeding on October 9, 2018. ECF No. 4. He seeks an order
staying the Section 362 Orders in accordance with Bankruptcy
Rule 8007. Id. The Court set an expedited briefing
schedule, and the matter is fully briefed. ECF No. 6, 7, and
8. Appellees advise that since the motion was filed: (1) the
Bankruptcy Court remanded the Three Actions to State Court;
and (2) a State Court hearing on the Three Actions is set for
October 23, 2018. ECF No. 6 at 4; ECF No. 7 at 6.
contends a stay must issue for two reasons. First, he argues
the appeal divested the Bankruptcy Court of all jurisdiction
pertaining to the Chapter 11 Plan confirmation process and
the removal/remand proceeding. ECF No. 3 at 5-6; 16-19.
Alternatively, Appellant argues the traditional injunction
standards favor a stay. Id. at 6-16. For the reasons
below, the Court is unpersuaded by either argument.
The Divestiture Doctrine Does Not Justify Relief
filing of a notice of appeal is an event of jurisdictional
significance.” Griggs v. Provident Consumer Disc.
Co., 459 U.S. 56, 58 (1982). “[I]t confers
jurisdiction on the court of appeals and divests the district
court of its control over those aspects of the case involved
in the appeal.” Id. A notice of appeal does
not stay the Bankruptcy Court from all further action,
however. See Fed. R. Bankr. P. 8001. In accordance
with Bankruptcy Rule 8007(e)(1), all “other proceedings
in the [bankruptcy] case” may continue unless and until
the Bankruptcy Court suspends them.
argues the remand proceedings and Plan confirmation process
constitute “aspects of the case involved in” the
Section 362 appeal. ECF No. 3. Appellee UCC contends they
constitute other, unrelated proceedings. ECF No. 6. Having
considered the interplay between different sections of the
Bankruptcy Code, the Court agrees with Appellee UCC. Section
362 “give[s] a debtor a breathing spell from his
creditors, ” who must obtain Bankruptcy Court approval
before continuing any pre-bankruptcy state court lawsuit.
In re Calder, 907 F.2d 953, 957 (10th Cir. 1990)
(quotations omitted). A creditor who willfully continues a
pre-bankruptcy lawsuit without Court approval is subject to
monetary sanctions. 11 U.S.C. § 362(k). Thus, the
Section 362 Orders allowed the Abruzzo brothers to continue
to pursue the State Court “proceeding against the
debtor” and/or attempt to “recover a
[pre-bankruptcy] claim against the debtor” without
risking sanctions. 11 U.S.C. § 362. The Section 362