DOUGLAS O. TICE, JR., Chief United States Bankruptcy Judge.
Final hearing was held April 30, 2002, on movants' motion for relief from the automatic stay so that they may proceed in personal injury litigation against debtor. As requested by this court at hearing the parties have submitted proposed findings of fact and conclusions of law.
For reasons stated below, the motion will be granted to a limited extent.
Findings of Fact.
Debtor filed a chapter 11 petition on July 30, 2001, and continues to operate as debtor-in-possession. On March 28, 2002, debtor filed its disclosure statement and plan of liquidation.
Movants are parties in litigation styled Howard v. AMF Bowling, Inc., pending in U.S. District Court, Nevada (No. CV-S-00-1359-RHL(LRL)). This suit, which was originally filed in Nevada state court on October 13, 2000, arose from a personal injury suffered by movant Melanie Howard on November 14, 1998. Debtor is a defendant in the litigation. Movants Stephen Gould Paper Company, Inc., and Columbia Industries, Inc., are also defendants, and they have filed cross claims against debtor.
Prior to filing this bankruptcy case, debtor had filed an answer and removed the lawsuit to the district court. The litigation has been stayed by the bankruptcy.
The debtor's bankruptcy schedules did not list any of the claims of the movants related to the Nevada lawsuit, and none of the movants have filed a proof of claim in debtor's bankruptcy case.
Position of Parties.
MOVANTS
Cause Exists For Relief From the Automatic Stay.
Movants make several arguments that the necessary elements for cause are present. These include 1) all parties to the personal injury lawsuit will be prejudiced if the suit cannot continue, and debtor will suffer no hardship or prejudice if the stay is lifted; 2) Nevada law controls the suit, and movants have demonstrated a probability of success on the merits; and 3) judicial economy will be served by the relief sought.
The Filing of a Claim Is Not Necessary.
Movants rely on IBM v. Fernstrom Storage Van Co. (In re Fernstrom Storage Van Co.), 938 F.2d 731 (7th Cir. 1991). In Fernstrom, the 7th Circuit held that plaintiff, IBM's, failure to file a timely proof of claim in the bankruptcy case was not a bar to the bankruptcy court granting relief from the stay so that plaintiff could proceed in litigation to collect against fire insurance proceeds. The court of appeals agreed that IBM was not required to file a claim because it sought recovery only from the debtor's insurance coverage. 938 F.2d at 733.
DEBTOR
Debtor advances two arguments in opposition to the motion.
Movants Have Failed to File Claims.
The deadline for filing claims passed on December 28, 2001. Movants have neither filed claims nor sought approval to file late claims. Relief from stay would require debtor to defend the action when any judgment rendered against it would have "absolutely no value." See Benedor Corp. v. Conejo Enters., Inc., (In re Conejo Enters., Inc.), 96 F.3d 346 (9th Cir. 1996); Wright v. Placid Oil Co., 107 B.R. 104 (N.D. Tex. 1989). Relief should not be granted "without the Movants first taking the necessary action to establish their claims in the bankruptcy case."Def.'s Findings of Fact, Conclusions of Law and Order Den. Mot. for Relief from Stay, at 3.
Relief From Stay Would Divert Attention of Debtor's Management and Other Employees.
Debtor has no employees and no operations. Its subsidiary is in a separate bankruptcy case, and an employee of the subsidiary is responsible to supervise debtor's plan of liquidation. Relief from the stay would impose time demands on that employee and other employees of the subsidiary and divert their attention from their responsibilities with respect to the bankruptcy cases.
Conclusions of Law.
The court may grant relief from the automatic stay of Code § 362 for "cause", a term not defined in the Code. 11 U.S.C. § 362(d)(1);Stone St. Servs., Inc. v. Granati, (In re Granati), 271 B.R. 89, 93 (Bankr. E.D. Va. 2001). In the context of relief from stay to proceed with civil lititation pending in another court, the court must balance the "potential hardship that will be incurred by the party seeking relief if The automatic stay is not lifted, against the potential prejudice to the debtor and the debtor's estate". IRS v. Robinson (In re Robinson), 169 B.R. 356, 359 (E.D. Va. 1994); accord In re Granati, 271 B.R. at 93. Other factors include 1) whether the litigation involves state law issues only, 2) the promotion of judicial economy, 3) whether lifting the stay will disrupt the bankruptcy case, and 4) whether bankruptcy estate can be protected if stay lifted. Id.
The court finds that any significant prejudice to debtor caused by its employees being required to oversee its counsel's handling of the litigation is minimal at best. Any prejudice to debtor is more than offset by the judicial economy of letting the personal injury litigation continue in Nevada, the prejudice to movants of the denial of their motion, and the probability of movants' succeeding on the merits in the litigation.
This leaves the primary issue here of the effect of the movants' failure to file claims in the case. of all the cases cited by the parties in support of their respective positions on this issue, the decision of the 7th Circuit in In re Fernstrom Storage Van Co., 938 F.2d 731, is closest to the circumstances of this case.
Movants argue that they look to debtor's insurance coverage and do not necessarily seek recovery from the debtor's bankruptcy estate. Moreover, they argue that there is excusable neglect in their failure to file claims due to "misnomer" problems caused by debtor and its subsidiary.
From the argument, it does appear that debtor or its subsidiary may have perpetuated some confusion over which entity was the proper defendant in the litigation. On the other hand, it is not clear why the movants have not filed claims even yet and pressed the court to find excusable neglect. What is clear is that at this stage of the case and in connection with a motion for stay relief, the court cannot determine whether the movants' failure to file claims is due to excusable neglect.
It may be presumed that debtor has insurance coverage for the type of claim involved. However, in this respect the record is undeveloped. Debtor's proposed findings and conclusions do not allude to any lack of coverage or other problem with the movants' argument that recovery may be had from debtor's insurance.
Movants' motion requests the court to lift the stay and allow movants to proceed to final judgment in the Nevada district court. Because movants have failed to file claims they are not entitled to a blanket relief from stay. However, it is appropriate under the circumstances that they should have relief from stay to proceed in the district court litigation for a determination of debtor's liability, if any.
While the court recognizes the likelihood that debtor has liability insurance coverage, it would be premature for the court to authorize collection from this source at this time. Therefore, the court will not grant relief from stay to collect any liability either from the debtor's bankruptcy estate or from insurance. Any recovery issues that the parties are unable to resolve will be subject to further motion.
A separate order will be entered.