DIANE SIGMUND, Bankruptcy Judge
Before the Court is the Motion for Relief from Automatic Stay (the "Motion") of Sapa, Inc. f/k/a Anodizing, Inc. ("Sapa") and the objection thereto of the Chapter 7 Trustee. For the reasons stated herein, the Motion shall be granted.
FACTUAL AND PROCEDURAL BACKGROUND
The relevant facts behind the Motion are not in dispute and arise out of a construction project in Ko'Olina, Hawaii, namely a Marriot Hotel (the "Hotel" and the "Hotel Project"). Debtor, Ware Window, Inc. (hereinafter "Ware" or the "Debtor") was indirectly involved in the Hotel Project the same year in which it filed this voluntary Chapter 7 case, November 18, 2002 (the "Petition Date"). Specifically, sometime between May 2002 and the Petition Date, the Debtor supplied windows to Kalu Glass Company ("Kalu"), a subcontractor on the Marriot Project, who subsequently installed the windows into the Hotel. The Hotel Project is now in the final stages and may reach completion at any time. The amount which Kalu owes to the Debtor for the windows is the only material asset of the estate, valued on the Debtor's Schedule G as $209,000. It is unclear what, if anything, the Trustee is doing to expeditiously liquidate this single asset in a Chapter 7 case that has been pending since November 2002.
The Trustee has stipulated to the relevant facts attached to the Memorandum of Law in Support of Sapa, Inc.'s Motion for Relief from Automatic Stay ("Sapa's Memorandum). See Mem. of Points and Authorities of Michael H. Kaliner, Trustee of the Estate of Ware Window Company ("Trustee's Memorandum") at 5 n. 3.
The only other asset is $500 in a checking account.
Of relevance here is that the windows provided by the Debtor contain aluminum extrusions, which the Debtor in turn had ordered from Sapa and were invoiced by Sapa between May 14 and 23, 2002. Sapa claims that the Debtor owes approximately $68,000 on these invoices, an amount disputed by the Debtor. Thus, the chain of supply to the Hotel Project is as follows: (1) Sapa to the Debtor (aluminum extrusions for which the Debtor owes Sapa); (2) the Debtor to Kalu (windows for which Kalu owes the Debtor); and (3) Kalu to the Hotel (windows installed into the Hotel). Before the Debtor received payment from Kalu or made payment to Sapa, it filed the current bankruptcy case. It is unknown to the Court whether Kalu has been paid for the windows either by the general contractor or owner of the Hotel.
Perhaps unwilling to chance a less than full payment in the context of the Debtor's bankruptcy or perhaps unwilling to wait for the Trustee to administer the estate, Sapa represents to the Court that it wants to collect directly from the party that benefitted from the windows containing Sapa's extrusions, i.e., the owners of the Hotel. Specifically, Sapa wishes to pursue a proceeding in the Hawaii courts to perfect and enforce a lien against the Hotel (the "Lien Proceeding") pursuant to Hawaii's Mechanic's and Materialman's Lien Law, Haw. Rev. Stat. § 507-41 et. seq. (the "Hawaii Lien Law"). The Trustee opposes the Motion on the grounds that the proposed Lien Proceeding violates the automatic stay. Sapa disputes this, but rather than risk acting in contravention of the stay, seeks a determination as to its applicability and alternatively relief if the stay is applicable. Having heard oral argument and given the parties the opportunity to file memoranda of law, the issue is now ripe for decision.
Sapa has yet to file a proof of claim in the bankruptcy case. The last date to file proofs of claim is August 26, 2003.
DISCUSSION
The automatic stay of § 362 is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors by stopping all collection efforts, all harassment and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan or simply to be free of the financial pressures that drove him into bankruptcy. H.R. Rep. No. 595, 95th Cong., 1st Sess 174-75 (1977); S.Rep. No. 989, 95th Cong.2d Sess. 49-50 (1978). It also protects creditors by preventing a race to seize the debtor's assets. Id. To accomplish this objective, the statue prohibits a broad scope of creditor activities. See 11 U.S.C. § 362(a)(1)-(8).
Section 362(a)(1) broadly prohibits all forms of litigation against the Debtor. See 3 Collier on Bankruptcy ¶ 362.03 (15th ed. 2003). The Lien Proceeding, which Sapa characterizes as an in rem proceeding against the Hotel, would not at first blush appear to implicate § 362(a)(1). However, both parties appear to agree that under applicable state law, the Debtor must be named as a defendant in the Lien Proceeding. At the hearing on the Motion, the Trustee stated his position that Sapa cannot initiate the Lien Proceeding without the Debtor, requiring the estate to expend time and money to defend itself. Sapa, while not conceding the applicability of § 362(a)(1), notes that if it is applicable, it is only because Sapa is required to name the Debtor as a defendant in the filing of the Notice of Application. Sapa Reply Mem. at 4.
Sapa also asserts that if the stay is applicable, it should be lifted because it does not seek to enforce the lien against any property of the estate. Id.
As the parties agree on this point, I start with the premise that the Debtor must be named as a defendant in the Lien Proceeding. Accordingly, the Lien Proceeding is a judicial proceeding against the Debtor stayed by § 362(1)(a). That said, the Bankruptcy Code also provides that the Court shall grant relief from the automatic stay "for cause." 11 U.S.C. § 362(d)(1). As this section does not define cause, the bankruptcy court must consider what constitutes cause based on the totality of the circumstances in each particular case. In re Wilson, 116 F.3d 87, 90 (3d Cir. 1997).
Courts have found cause for relief from stay to permit the commencement or continuance of pending litigation in another forum in certain circumstances. In making a determination of whether it is appropriate to do so upon request, the court will evaluate whether (1) any "great prejudice" to either the bankrupt estate or the debtor will result from the lawsuit; (2) the hardship to the non-debtor party by maintenance of the stay considerably outweighs the hardship of the debtor; and (3) the creditor has a probability of prevailing on the merits. IBM v. Fernstrom Storage and Van Co., (In re Fernstrom Storage and Van Co.), 938 F.2d 731, 735 (7th Cir. 1991) (adopting test articulated in In re Pro Football Weekly, 60 B.R. 824, 826 (N.D. Ill. 1986). The Second Circuit Court of Appeals in Sonnax Industries, Inc. v. TRI Component Products Corp. (In re Sonnax Industries, Inc.), 907 F.2d 1280, 1286 (2d Cir. 1990), expanded on those fundamental considerations by posing the following questions: (1) whether relief would result in a partial or complete resolution of the issues; (2) whether there is any connection 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 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) whether relief furthers the interests of judicial economy and the expeditious and economical resolution of litigation; (11) whether the parties are ready for trial; and (12) how the stay impacts on the parties and the balance of harms.
The court in Robbins v. Robbins (In re Robbins), 964 F.2d 342, 345 (4th Cir. 1992) also asked whether the estate can be properly protected by a requirement that creditors seek enforcement of any judgment through the bankruptcy court. Since Sapa does not seek to collect a debt owed by the Debtor, this factor is not implicated.
In all of the cases addressing relief from the stay under § 362(d)(1) to allow the commencement or continuation of non-bankruptcy litigation, the overriding consideration is whether the debtor's estate or the debtor will be prejudiced if the litigation is permitted in another forum. Absent a showing of prejudice, relief has generally been granted.
While debating the validity of Sapa's lien under the Hawaii Lien Law, an issue not before me and one best decided by a Hawaii court, the Trustee has not enunciated how the Debtor or the estate would be prejudiced by the Lien Proceedings. The Debtor's right to pursue its own lien proceeding — something that the Trustee has not indicated an interest in pursuing — will not be impacted by granting the Motion. Sapa gains no upper hand here. Under the Hawaii Lien Law, the Trustee could subsequently file its own lien on behalf of the Debtor and it would rank equally in priority to Sapa's lien. Haw. Rev. Stat. § 507-46. As to any prejudice to the estate, Sapa has made clear that it seeks to attach a lien against the Hotel and improvements therein and not against the Kalu receivable. The naming of the Debtor would therefore appear to comply with the statute so as to establish the contract between Sapa and Debtor for the aluminum extrusions that were incorporated into the Hotel improvements.
Much of the Trustee's memorandum is addressed to the merits of Sapa's lien claim. The Trustee argues that Sapa simply has no lien until it complies with the procedural requirements of the Hawaii Lien Law. That is precisely what Sapa wishes to do, indeed has been trying to do for months, yet the Trustee opposes Sapa's attempts because Sapa has no lien under Hawaii law. I will leave it to the Hawaii court to sort out this chicken and egg quandary.
This provision (the "Priority Provision") states that any mechanics' and materialmen's liens lien granted under the Hawaii Lien Law "shall rank equally in priority subject to the provisos hereinafter contained [and not relevant here] with all other mechanics' and materialmen's liens." Id.
The Trustee, however, characterizes the Lien Proceeding as violative of § 362(a)(4), which prohibits "any act to create, perfect, or enforce any lien against property of the estate." Trustee's Mem. at 15-18. In his effort to identify estate property effected by the Lien Proceeding, he attempts to equate the Kalu receivable (estate property) with the improvements owned by the Hotel owner (non-estate property). His argument begins with § 507-42 of the Hawaii Lien Law (hereinafter the "Granting Provision"), which states as follows:
Any person or association of persons furnishing labor or material in the improvement of real property shall have a lien upon the improvement as well as upon the interest of the owner of the improvement in the real property upon which the same is situated, or for the benefit of which the same was constructed, for the price agreed to be paid (if the price does not exceed the value of the labor and materials), or if the price exceeds the value thereof or if no price is agreed upon by the contracting parties, for the fair and reasonable value of all labor and materials covered by their contract, "express or implied.
Haw. Rev. Stat. § 507-42. Noting that the lien attaches to the improvement itself and is for the price agreed to be paid, the Trustee asserts that the lien sought by Sapa therefore represents funds due to Sapa from the Debtor, which in turn represent funds due to the % Debtor by Kalu. It then follows, argues the Trustee, that "the economic rights embodied in those `improvements' (i.e., the funds due the Debtor by Kalu) are clearly property of the Debtor's bankruptcy estate. . . . Thus, the funds spent and owed on those specific improvements are obviously property of the estate." Trustee's Mem. at 18. I respectfully disagree. The Trustee simply has provided no authority for the proposition that the Debtor has an "economic interest" in the Hotel improvements that merits protection by barring Sapa from exercising its rights under the Hawaii Lien Law.
Clearly the Granting Provision provides a lien solely on the Hotel and its improvements. Neither there nor anywhere else in the statute is a lien provided on the funds owed by the owner to Kalu and certainly no lien is provided on the funds owed by Kalu, a third party to the Lien Proceeding, to the Debtor. The only property of the estate is the Kalu receivable. The Lien Proceeding therefore is not an act to create, perfect or enforce a lien against estate property. In Yobe Electric v. Graybar Electric Co., Inc (In the Matter of Yobe Electric, .), 30 B.R. 114 (Bankr. W.D. Pa. 1983), aff'd 728 F.2d 207 (3d Cir. 1984), the court held that under Pennsylvania law which was applicable there, materialmen are not given a lien on the fund representing the balance due or to become due from the owner to the contractor. Accordingly, the Debtor's argument that the materialman's action in filing a notice of intention to file a mechanic's claim against the owner of the project violated the automatic stay was rejected. The court stated:
The Court noted that the Pennsylvania and New Jersey statutes relied upon by debtor had provisions which allowed owners to withhold funds to protect them from losses resulting from mechanic's liens but that the withholding statute was not the equivalent of the imposition of a lien on those funds. Only the New Jersey Statute imposed a lien on the funds withheld. Here the facts are even less favorable than in Yobe since the owner has no offset rights against funds owed to the Debtor but only funds owed to Kalu.
Subcontractor argues that the mechanics' lien in the case at bar involves an in rem action against the real property of the owner. It further avers that it has not attempted to lien any funds in the hands of the Owner, nor does Pennsylvania law so permit. The Court agrees.
Id. at 119. This is the precise argument made by Sapa under Hawaii law, and I too agree.
Moreover, because I find that Sapa's actions in filing a notice of lien will not violate § 362(a)(4), the exception of § 363(b)(3) which allows certain liens to be perfected post-petition to the extent the trustee's rights and powers are subject to perfection under § 546(b) is not relevant.
Section 546(b) limits the trustee's avoidance powers to the extent that any "generally applicable law . . . permits [among other things] perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection." 11 U.S.C. § 546(b)(1)(A). Third Circuit case law construe these provisions to create an exception to the automatic stay where a creditor has a (1) pre-petition "interest in property" and (2) the generally applicable law allows for perfection of this interest to relate back and be effective against an entity that acquires an interest in the same property before the date of perfection, notwithstanding that perfection takes place post-petition. See Makoroff v. City of Lockport, N.Y., 916 F.2d 890, 892-894 (3d Cir. 1990); In re Perona Bros., Inc., 186 B.R. 833, 837 (D. N.J. 1995). The parties have extensively briefed the applicability of the § 362(b)(3) exception and § 546(b)(1). One issue posed by their conflicting views is whether Hawaii law would permit the Sapa lien to relate back. In Yobe, the Court pointed out that Pennsylvania law did provide for relation back whereas New Jersey law did not. In the former case, the stay was not applicable by reason of § 362(b)(3) whereas in the latter it was. Fortunately I can leave to the Hawaii court the interpretation of its own state law. Since I find that Sapa does not seek to impose a mechanic's lien on estate property, its action does not violate the § 362(d)(4) stay and there is no need to rely on the § 362(b)(3) exception.
Having concluded that the only recognizable property of the estate implicated by this dispute is the Kalu receivable and that Sapa's proposed Lien Proceeding does not seek to attach such asset, there is no prejudice to the estate in granting Sapa relief from the stay. While there is some implication in Sapa's briefs and in its statements at oral argument that Kalu could conceivably set off from the amount it owes the Debtor any amount recovered by Sapa from the owner of the Hotel, the Trustee has not even alleged this potential jeopardy to the estate nor was any evidence presented on this issue. The Hawaii statute does allow the property owner to retain from the amount it owes to a contractor any lien it has to pay. Haw. Rev. Stat. § 507-48. However, the Trustee represented to the Court that he was unaware if the Hotel owner was in fact holding back any funds owed to Kalu. Furthermore, there is no corresponding statutory authority or evidence of any contractual provisions allowing Kalu in turn to set off any retention by the owner from funds Kalu owes the Debtor. In any event, the Hawaii statute invoked by Sapa does not create a lien on the Kalu receivable but only the Hotel and the improvements thereon.
CONCLUSION
Sapa seeks to pursue an alternative remedy granted to unpaid materialmen by Hawaii law against the ultimate beneficiary of their supplied material, i.e., the property owner. This is a provident business move and one which the Trustee might consider if he is concerned about offsets to the Kalu receivable. Sapa's diligent pursuit of its own claim against the Hotel in no way infringes upon the estate's right to do so. The Hawaii Lien Law does not impose a lien on the Kalu receivable by reason of Sapa's perfection of a lien against the Hotel owners. Nor is there any evidence that the Lien Proceeding will attach or have any prejudicial effect upon the Kalu receivable.
Notably, the Trustee does not address the consequence of a ruling in his favor. Is Sapa to be indefinitely stayed until the Trustee collects the Kalu receivable based on the these speculative arguments? If the Trustee has been concerned that Sapa's assertion of a mechanic's lien will impact on his negotiations with Kalu to collect the receivable, he has had over six months to recover the asset. The time for filing mechanic's liens under the Hawaii statute is presumably running or at least that is what the Hotel owner will state if Sapa's lien cannot be filed until after the statutory period expires. The maintenance of the stay thus imposes a hardship on Sapa which outweighs the undefined and unproven prejudice to the estate. I therefore find that Sapa has shown adequate cause for the Court to grant relief from the automatic stay.
An Order consistent with this Memorandum Opinion shall be entered. ORDER AND NOW, this 28th day of July 2003, upon consideration of the Motion for Relief from Automatic Stay (the "Motion") of Sapa, Inc. f/k/a Anodizing, Inc. ("Sapa") and the objection thereto of the Chapter 7 Trustee and for the reasons stated in the accompanying Memorandum Opinion;
It is hereby ORDERED that the Motion is GRANTED. Relief from the automatic stay is granted to allow Sapa to exercise its state law remedies pursuant to the Hawaii * Mechanic's and Materialman's Lien Law, Haw. Rev. Stat. 507-41, et seq.