In Re: SK Foods, L.P

Filing 21

ORDER signed by Judge Lawrence K. Karlton on 1/31/12 ORDERING the Bankruptcy Court did not abuse its discretion in declining to issue a stay. Appellants' motion for stay 6 is DENIED. (Becknal, R)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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IN RE:

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SK FOODS, L.P.,

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Debtor.

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SCOTT SALYER, et al.,

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Appellants,

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CIV. S-11-2987 LKK

v.
O R D E R

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SK FOODS, L.P., et al.,
Appellees.

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/
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I.

BACKGROUND

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On July 11, 2011, this court considered the Bankruptcy Court’s

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decision to approve the compromise the Trustee had reached with the

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Bank

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creditors).

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Civ. S-10-3467-LKK (E.D. Cal. July 11, 2011).

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the Trustee would turn over to BMO certain accounts receivables and

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other assets, make a cash payment to BMO of $2.4 million and grant

of

Montreal

(“BMO,”

as

agent

for

the

secured

lender

See Salyer v. SK Foods, L.P. (In re SK Foods, L.P.),
In the compromise,

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BMO a “super-priority claim” of $27.66 million.

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that, BMO would get in line with the un-secured non-priority

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creditors

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$190 million it lent SK Foods.

in

hopes

of

getting

paid

the

In exchange for

remainder

of

the

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This court remanded the matter to the Bankruptcy Court with

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instructions to consider the “Brincko Declaration,” which the

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Bankruptcy Court had previously excluded from its consideration of

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the matter.

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Declaration and allowed discovery of Mr. Brincko.

The Bankruptcy Court has now considered the

Brincko

On December 21,

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2011, the Bankruptcy Court again approved the compromise after

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addressing the Brincko declaration.

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The

Salyer

entities

again

appeal

the

approval

of

the

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compromise to this court.

They moved before the Bankruptcy Court

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for a stay of the order approving the compromise.

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Court denied the motion for a stay.

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moved this court for a stay.

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II. STANDARD

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A.

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Pursuant to Fed. R. Bankr. P. 8005, an appellant seeking a

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stay of the Bankruptcy Court’s order must first present the request

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to the Bankruptcy Court itself.

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Court denies the stay, the appellant may then bring the motion to

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the district court, but must “show why the relief ... was not

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obtained from the bankrtupcy judge.”

The Bankruptcy

The Salyer entities have now

District Court’s Standard

Where, as here, the Bankruptcy

Fed. R. Bankr. P. 8005.

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The Rule does not indicate whether the district court in that

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case is “reviewing” the Bankruptcy Court’s order, or making its own
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de novo decision.

Nevertheless, both sides agree that under Rule

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8005, this court “reviews” the Bankruptcy Court order denying the

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stay, and that the “abuse of discretion” standard applies.

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Appellants cite Bankruptcy Appellate Panel and Eastern District

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decisions for this proposition, although there appears to be no

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binding authority. In Ohanian v. Irwin (In re Irwin), 338 B.R. 839

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(E.D. Cal. 2006), Judge Ishii discussed at length whether the

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proper standard was “abuse of discretion” or de novo, and concluded

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that the “abuse of discretion” standard applied.1

See also

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Universal Life Church v. U.S., 191 B.R. 433, 444 (E.D. Cal. 1995)

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(Wanger, J.), citing (Wymer v. Wymer) In re Wymer, 5 B.R. 802, 807

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(9th Cir. BAP 1980).

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The Bankruptcy Appellate Panel for the Ninth Circuit has also

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held that the “abuse of discretion” standard applies here.

Wymer

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v. Wymer (In re Wymer), 5 B.R. 802, 807 (9th Cir. BAP 1980).

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Wymer decision however, relies entirely upon decisions from 1894

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to 1963,2 none of which involved bankruptcy cases, or addressed the

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standard the district court should use when the bankruptcy court

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had denied the request for a stay.

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the principles taken from those cases – on appeals of district

The

Wymer does not address whether

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Judge Ishii found no binding authority on the issue, but
also found that most district courts in the Ninth Circuit have used
the abuse of discretion standard.
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Sommer v. Rotary Lift Co., 58 F.2d 765 (9th Cir. 1932);
American Strawboard Co. V. Indianapolis Water Co., 81 F. 423 (7th
Cir. 1894); Hormann v. Northern Trust Co., 114 F.2d 118 (7th Cir.),
cert. denied, 311 U.S. 713 (1940); U.S. v. Platt Contracting Co.,
324 F.2d 96 (1st Cir. 1963); Chadeloid Chem. Co. V. H.B. Chalmers
Co., 242 F. 71 (2d Cir. 1917).
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court stay denials – carry over to modern bankruptcy practice.

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Nevertheless, the court is aware of no authority to indicate

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any other standard of review, and accordingly it will adopt the

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“abuse of discretion” standard in reviewing the bankruptcy court’s

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denial of the stay.

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B.

Bankruptcy Court’s Standard

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Both sides agree on the standard that the Bankruptcy Court was

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required to use in determining the stay motion, specifically, a

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standard drawn from the preliminary injunction context:

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The seeker of the stay ... has the burden of showing (1)

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he is likely to succeed on the merits of the appeal; (2)

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he will suffer irreparable injury; (3) no substantial

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harm will come to Appellee; and (4) the stay will do no

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harm to the public interest.

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In re Irwin, 338 B.R. at 845.

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be Ninth Circuit authority on the issue.

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this bankruptcy case was previously decided by Judge England, in

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SS Farms, LLC v. Sharp (In re SK Foods, L.P.), 2009 WL 5206639

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(E.D. Cal. December 24, 2009).

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stay of the Bankruptcy Court’s order, Judge England applied the

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Irwin

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determination “law of the case” stature even though it was made in

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a different adversary proceeding.

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to the contrary from the parties, the court determines that it

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would be too disruptive to have different appellate standards apply

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to the various appeals from a bankruptcy case, depending solely

standard.

This

Once again, there does not seem to
However an appeal from

In determining the motion for a

court

will

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accord

Judge

England’s

In the absence of any argument

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upon which district judge happened to hear the appeal of the

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particular adversary matter at issue.

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IV.

ANALYSIS

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A.

Likelihood of Success on the Merits.

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Appellants

cannot

establish

the

first

factor

–

their

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likelihood of success on the merits of the appeal.3 On the appeal,

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this court will review the Bankruptcy Court’s approval of the

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compromise for an abuse of discretion.

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C Properties), 784 F.2d 1377, 1380 (9th Cir.) (“the bankruptcy

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court's order approving the trustee's application to compromise the

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controversy is reviewed for an abuse of discretion”), cert. denied,

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479 U.S. 854 (1986).

Martin v. Kane (In re A &

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The Bankruptcy Court has now permitted discovery on the

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Brincko Declaration, and considered the declaration in reaching its

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conclusion.

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Bankruptcy Court sets out a detailed analysis of the Brincko

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declaration and how it affects the determination of whether to

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approve the compromise.

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to have done exactly what it was supposed to do in deciding the

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motion.

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Bankruptcy

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argument, is that the Bankruptcy Court “got it wrong.” That is not

In its new decision approving the compromise, the

The Bankruptcy Court accordingly appears

The crux of the Salyer entities’ objection to the
Court

decision,

as

they

succintly

stated

at

oral

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Appellants agree that they must establish their “likelihood”
of success on the merits. However, they go on to argue that they
have a “fair chance” of success on the merits. Whichever standard
applies does not matter, because appellants have not made their
case using either formulation.
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sufficient to establish a likelihood of success on the merits.

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In any event, the Bankruptcy Court reasonably found that

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Appellants’ arguments for a stay ignored critical evidence the

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Bankruptcy Court considered, and improperly characterized its

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overall view of the evidence before the court, and its role in

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considering the motion to approve the compromise.

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Bankruptcy Court reasonably rejected Appellants’ assertion that,

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in essence, the court simply made the wrong decision.

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this court will review the approval under the abuse of discretion

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standard, it is not enough to argue that the Bankruptcy Court

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weighed the evidence differently than the Appellants would have.

In short, the

Given that

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B.

Appellant’s Irreparable Harm

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Appellant argues that if no stay is granted, its appeal will

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be mooted.

The court has already accepted appellant’s contrary

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argument put forth in the prior appeal, namely that the appeal is

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not mooted by the absence of a stay.

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re SK Foods, L.P.), Dkt. No. 21, Civ. S-10-3467 (E.D. Cal. July 11,

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2011) (Karlton, J.).

Salyer v. SK Foods, L.P. (In

That decision is the law of the case.

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C.

The Public Interest.

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Appellants argue that a stay will preserve the integrity of

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the right to appellate review, without further explanation.

As

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best the court can tell, this can only refer to their view that the

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appeal will be mooted in the absence of a stay.

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already been rejected as the law of case.

That argument has

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D.

Harm to Appellee.

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Appellants argue that no harm will come to Appellee by issuing
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a

stay

because

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Appellants simply assert that there is no danger of diminution of

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assets if a stay is issued.

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showing

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opportunity.

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stay will “force the estate to incur costs of preserving and

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prosecuting claims assigned to BMO in the compromise, and render

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those claims more difficult to prosecute as time passes and

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evidence – and memories – deteriorate.”

that

the

they

stay

could

merely

preserves

the

status

quo.

They offer no evidence, and make no
offer

such

evidence

if

given

the

The Bankruptcy Court reasonably points out that a

Accordingly, appellants

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have failed to show that a stay will cause no harm to the appellee.

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IV. CONCLUSION

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The Bankruptcy Court did not abuse its discretion in declining

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to issue a stay.

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Appellants’ motion for stay (Dkt. No.6), is

DENIED.

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IT IS SO ORDERED.

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DATED:

January 31, 2012.

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