Vision Bank v. Sundance, LLC et al

Filing 96

Order granting 76 MOTION to extend the stay to the non-debtor guarantors. This action is now STAYED in all respects. The plaintiff's reporting obligations, (Doc. 65 at 1-2), remain in full force and effect. Signed by Chief Judge William H. Steele on 8/1/2011. (tgw)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
VISION BANK, etc.,
Plaintiff,
v.
SUNDANCE, LLC, etc., et al.,
Defendants.

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) CIVIL ACTION 11-0038-WS-B
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ORDER

This matter is before the Court on the guarantor defendants’ motion to extend stay
to non-debtors. (Doc. 76). The plaintiff has filed a response and the movants a reply,
(Docs. 85, 95), and the motion is ripe for resolution.
Defendant Sundance, LLC (“Sundance”) filed a suggestion of bankruptcy on June
6, 2011. (Doc. 64). The movants recognize that “in general the automatic stay found in
§ 362(a) does not extend to claims against non-debtor defendants (i.e., the individual
guarantors).” (Doc. 76 at 2). However, they argue that the automatic stay should be
extended to cover them on the grounds of “unusual circumstances.” In the alternative,
they argue the Court should extend the stay in the exercise its inherent authority.
The unusual circumstance on which the movants rely is Sundance’s express
indemnity obligation to them.1 The operating agreement provides that Sundance “shall
indemnify any present or former Member, Manager, or agent of [Sundance] against
expenses actually and reasonably incurred in connection with the defense of an action,

1

See Kreisler v. Goldberg, 478 F.3d 209, 213 (4th Cir. 2007) (acknowledging that
unusual circumstances might warrant extending the automatic stay to a non-debtor defendant
“who is entitled to absolute indemnity by the debtor on account of any judgment that might result
against them in the case”) (internal quotes omitted).

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suit, or proceeding, civil or criminal, in which any of the Indemnified Parties is made a
party by reason of being or having been a Member, Manager, or agent of” Sundance,
except in case of gross negligence or similar conduct. (Id., Exhibit A at 27). The
movants are all reported to be present or former members, managers or agents of
Sundance. (Doc. 76 at 1-2). Had they been sued because they are or were members,
managers or agents of Sundance, this indemnity provision might well be in play. But
they were not. Instead, they were sued because they are guarantors of Sundance’s debt,
and the plaintiff seeks recovery on the guaranties. (Doc. 1 at 12-13). To avoid this clear
conclusion, the movants argue that the plaintiff required them to execute guaranties
precisely because they were members and managers of Sundance. (Doc. 76 at 3). There
is no evidence to support this ipse dixit, but even if true it explains only why the movants
are guarantors, not why the plaintiff sued them.2
The movants fare better with their alternative argument. Were this a routine suit
on a note and guaranties – where all that must be shown is default on the note and nonpayment on the guaranties – little would be gained by delaying the action on the
guaranties due to the debtor’s bankruptcy, and significant harm could accrue to the
plaintiff, which procured the guaranties in order to assure repayment regardless of any
default by the debtor.
But this suit is not routine. Prior to Sundance’s bankruptcy, the defendants filed a
motion for summary judgment in which they assert that the note and guaranties are
unenforceable because the plaintiff did not qualify to do business in Alabama. (Doc. 44).
They also raised, in addition to affirmative defenses, a welter of counterclaims against the
plaintiff, asserting all manner of negligent, fraudulent and otherwise improper behavior

2

As the movants recognize, (Doc. 76 at 4), this case is “easily distinguishable” from
GulfMark Offshore, Inc. v. Bender Shipbuilding & Repair Co., 2009 WL 2413664 (S.D. Ala.
2009), in which the Court found unusual circumstances in a case involving a similar indemnity
provision. There, the non-debtors were sued “solely for certain acts and omissions taken in their
official capacities as directors and/or officers of” the debtor, id. at *2, not under guaranties.

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by the plaintiff and seeking as to each rescission and/or cancellation of the note and
guaranties. (Doc. 35 at 9-25). While the automatic stay does not of its own force
preclude Sundance from pursuing these counterclaims, they presumably constitute
property of the estate, such that bankruptcy court approval will be required in order for
Sundance or a trustee to advance them. And, since the counterclaims seek
rescission/cancellation of the guaranties, it is difficult to see how the plaintiff could
receive a judgment on the guaranties without prior resolution of the counterclaims.
This, then, is not a “garden variety” suit, as the plaintiff maintains, (Doc. 85 at 6,
7), but one of unusual complexity, where any number of issues must be resolved
favorably to the plaintiff before it can obtain relief on the guaranties. Further, these same
issues must be resolved with respect to the note. Proceeding now, without Sundance’s
participation, thus virtually guarantees that a tremendous amount of time and effort by
both the parties and the Court must be engaged in not just once, but twice.3
The parties agree that the Court should determine whether to invoke a stay based
on “the nature and substantiality of the injustices claimed on either side,” as well as
considerations of litigation efficiency. (Doc. 76 at 4-5; Doc. 85 at 4, 6-7 (internal quotes
omitted)). Economy certainly cries out for extending the stay to the movants, and the
only prejudice the plaintiff identifies is delay in obtaining judgment. (Id. at 6). At least
when the ultimate right to judgment is as murky as the defendants’ motion for summary
judgment and counterclaims have rendered the plaintiff’s, “[t]hat delay, in and of itself, is
not a sufficiently compelling form of prejudice to outweigh the countervailing
considerations set forth herein.” GulfMark Offshore, Inc. v. Bender Shipbuilding &
Repair Co., 2009 WL 2413664 at *3 n.7 (S.D. Ala. 2009).

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The plaintiff’s suggestion that suit against Sundance will be unnecessary if the plaintiff
is ultimately successful against the guarantors (including on appeal) and if they have, and
surrender, sufficient assets to satisfy the requested $3 million judgment, (Doc. 85 at 6-7), is
hardly reassuring. Nor does it account for Sundance’s likely desire to pursue its counterclaims,
which seek compensatory and punitive damages as well as rescission.

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Upon the filing of Sundance’s suggestion of bankruptcy, the Court ordered the
plaintiff to state “whether and when it intends to seek relief from the automatic stay.”
(Doc. 65 at 1). The plaintiff responded that it does indeed intend to do so (although it did
not comply with the Court’s direction to provide temporal parameters to its effort). (Doc.
81). The plaintiff thus has the means to minimize any delay to the resolution of its claims
herein. Should relief from the automatic stay be unexpectedly denied, or should other
circumstances arise that undermine the advisability of a continued stay as to the
guarantors (such as undue delay in obtaining bankruptcy court approval for Sundance or
a trustee to pursue Sundance’s counterclaims), the plaintiff is not precluded from seeking
revisitation of the stay issued herein.
For the reasons set forth above, the motion to extend the stay to the non-debtor
guarantors is granted. This action is now stayed in all respects. The plaintiff’s reporting
obligations, (Doc. 65 at 1-2), remain in full force and effect.
DONE and ORDERED this 1st day of August, 2011.

s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE

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