Stromer v. Carmel et al

Filing 11

ORDER: Appellant's motion for a stay (Doc. 2 ) is denied. Signed by Judge David G Campbell on 10/30/2015. (REK)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Dr. Merrill Stromer,

No. CV-15-01963-PHX-DGC
Appellant,

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v.

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ORDER

Michael W. Carmel, Chapter 11 Trustee;
United States Trustee; and BioDlogics
LLC,

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Appellees.

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On August 14, 2015, the U.S. Bankruptcy Court for the District of Arizona entered

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an order confirming a reorganization plan for Stromer/Southwest Medical & Orthopedics

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LLC (“SSMO”), over the objections of SSMO’s founder, Dr. Merrill Stromer. On

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October 1, 2015, Dr. Stromer filed a Notice of Appeal and an emergency motion to stay

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the order under Rule 8007(b) of the Federal Rules of Bankruptcy Procedure. Doc. 2.

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Pursuant to an order of the Court, Appellee and plan proponent BioDlogics (“BioD”)

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filed a response (Doc. 6) and Dr. Stromer filed a reply (Doc. 7).

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considered the parties’ briefing, and has determined that oral argument will not aid in its

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decision.1 For the reasons set forth below, the Court will deny the motion to stay.

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I.

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The Court has

Background.
In 2011, Appellant founded SSMO, a reseller of amniotic tissue products used by

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Appellee’s request for oral argument is therefore denied. See Fed. R. Civ. P.
78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998).

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doctors to treat certain maladies. Doc. 2 at 2. On October 28, 2013, SSMO filed for

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Chapter 11 bankruptcy. Doc. 1 at 12. That filing listed SSMO’s primary asset as

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accounts receivable in the amount of $1,050,867.85. Doc. 6 at 3. The filing also listed

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three unsecured creditors, with BioD, SSMO’s former supplier, having the largest claim

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of any creditor at $1,567,250.00. Id. Appellant continued to operate SSMO as a debtor-

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in-possession until March 5, 2015, when, in response to an emergency motion filed by

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BioD, the bankruptcy court appointed a Chapter 11 Trustee. Id. at 13.

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On July 9, 2015, the Trustee filed a complaint in bankruptcy court against

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Appellant, alleging, among other things, that he fraudulently transferred funds to himself,

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his ex-wife, and his other business entities in the year prior to his bankruptcy petition.

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Reorganized Stromer/Southwest Medical & Orthopedic v. Stromer, Adv. No. 2:15-ap-

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00593-GBN. The complaint sought approximately $2.46 million in damages. Id.

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On August 14, 2015, the bankruptcy court issued an order confirming BioD’s

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proposed reorganization plan for SSMO. Doc 1. The plan terminates all equity interests

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in SSMO and requires the Trustee to use the company’s remaining assets – including its

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accounts receivable and the proceeds from any pending or potential legal claims – to

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satisfy SSMO’s creditors. In re Stromer/Southwest Medical & Orthopedic, No. 2:13-bk-

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18727-GBN, Doc. 315. The plan became effective on September 17, 2015. Doc. 6 at 7.

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II.

Standard of Review.

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Rule 8007(b) of the Federal Rules of Bankruptcy Procedure provides that a district

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court may stay a bankruptcy court’s order pending review. Like any other stay applicant,

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a party requesting a stay under Rule 8007 must show that she is likely to succeed on the

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merits, that she will be irreparably injured absent a stay, that a stay will not substantially

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injure other parties with an interest in the proceeding, and that a stay is not contrary to the

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public interest. Nken v. Holder, 556 U.S. 418, 434 (2009). If the applicant fails to establish

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irreparable harm, the Court may reject the application without considering the other

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factors. See Oakland Tribune, Inc. v. Chronicle Pub. Co., 762 F.2d 1374, 1376 (9th Cir.

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1985).

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III.

Analysis.

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A party is not entitled to a stay unless she demonstrates that she is likely to suffer

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irreparable harm absent such relief. Nken, 556 U.S. at 434-35 (2009) (citing Winter v.

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Natural Res. Def. Council, 555 U.S. 7, 22 (2008)). Appellant argues that he will likely

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suffer irreparable harm if a stay is not granted because his appeal will be equitably

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mooted before the Court can rule on it, which will “wipe[] out, forever” his equity

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interest in SSMO. Doc. 2 at 7. BioD responds that Appellant’s equity interest in SSMO

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is worthless and likely to remain so, and that there is little risk of Appellant’s appeal

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being equitably mooted. Doc. 6 at 13.

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BioD has the better argument. Appellant’s equity interest in SSMO is worthless

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unless the company recovers enough from its accounts receivable and legal claims to

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become solvent. Appellant fails to explain why the company he took into bankruptcy just

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two years ago – and which he admits has “not done any business since . . . late 2013”

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(Doc. 2 at 2) – is likely to become solvent before the Court can render a decision on his

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appeal. SSMO’s accounts receivable are valued at between $471,050 and $982,449, and

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its debts are valued at $2,063,351. Id. at 16-17. SSMO’s debts exceed its assets by

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between $1,080,902 and $1,592,301. Id.

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Appellant argues that SSMO’s assets are sufficient to bring the company into

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solvency once the value of its $2.46 million claim against him is taken into account.

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Doc. 2 at 10. But as recently as July 28, 2015, Appellant asserted that this claim was

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“worth nothing.” 2:13-bk-18727-GBN, Doc. 421. Even if that is not true, Appellant has

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not shown that the Trustee is likely to prevail in its suit against him, that he will be able

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to pay if a judgment for $2.46 million is entered against him, or that all of this is likely to

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occur before the Court renders a decision on his appeal.

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established that SSMO’s claim against him makes up the shortfall between the

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company’s assets and its debts, such that his equity interest is worth something.

Thus, Appellant has not

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Nor has Appellant show that his appeal is likely to be equitably mooted absent a

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stay. The Ninth Circuit recently clarified that a bankruptcy appeal is not rendered

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equitably moot as long as it is “possible to devise an equitable remedy to at least partially

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address [the appellant’s] objections without unfairly impacting third parties or entirely

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unraveling the plan.” In re Transwest Resort Props., Inc., 2015 WL 5332447 at * 1 (9th

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Cir. Sept. 15, 2015). Because SSMO is in the process of winding up and has no

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employees or customers, it is likely that an equitable remedy could be fashioned in the

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event of a successful appeal that would address Appellant’s objections without unfairly

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impacting third parties. Cf. In re Fleetwood Enterp., 2010 WL 960358 at *4 (C.D. Cal.

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Mar. 15, 2010) (no irreparable harm where stay applicant would be able to recover

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monetary damages in the event of a successful appeal).

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In sum, Appellant is not entitled to a stay because he has not shown that such
relief is necessary to prevent irreparable harm.

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IT IS ORDERED that Appellant’s motion for a stay (Doc. 2) is denied.

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Dated this 30th day of October, 2015.

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