In Re: 31 Tozer Road, LLC et al
Judge Indira Talwani: ORDER entered. MEMORANDUM AND ORDER DENYING AS MOOT 12 Motion to Strike Portions of Appellants' Brief. In light of the foregoing, the December 21 and 28, 2016, orders of the Bankruptcy Court are AFFIRMED. (DaSilva, Carolina)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
In re: 31 TOZER ROAD, LLC,
31 TOZER ROAD, LLC and
MARK GREENBERG and MICHAEL
Civil Action No. 17-cv-10013-IT
MEMORANDUM AND ORDER
Before the court is an appeal of two orders of the United States Bankruptcy Court filed by
Appellants 31 Tozer Road, LLC (“Tozer”), a Debtor-in-Bankruptcy, and Manuel Barros. Also
before the court is Appellees Mark Greenberg and Michael LaPierre’s Motion to Strike Portions
of Appellants’ Brief [#12].
Greenberg and LaPierre contend that a Security Purchase Agreement (“the Contract”)
afforded them a right to purchase equity in Tozer from Barros. After Tozer filed for bankruptcy,
Greenberg and LaPierre sought a determination that the automatic stay imposed by the
bankruptcy did not apply to the exercise of their contractual rights. In re 31 Tozer Road, No. 1614309 (D. Mass. Bankruptcy Ct. Nov. 16, 2016) (Dkt. 10). On December 21, 2016, the
Bankruptcy Court ruled that the automatic stay did not prevent Greenberg and LaPierre from
exercising rights under the Contract. Id. The Bankruptcy Court abstained from resolving the
dispute over those rights under the Contract and instead suspended bankruptcy proceedings
pending the state court resolution of the issue. Id. On December 28, 2016, the Bankruptcy Court
denied a motion for clarification.
Barros and Tozer filed this appeal, seeking reversal of the Bankruptcy Court’s finding
that the automatic stay did not apply to prevent Greenberg and LaPierre from exercising their
purchase rights, and the Bankruptcy Court’s order suspending bankruptcy proceedings. See
Appellants’ Br. [#8]. Greenberg and LaPierre, in turn, filed a Motion to Strike Portions of
Appellants’ Brief [#12], asserting that certain arguments had not been raised below. The court
directed Greenberg and LaPierre to respond to the arguments that they conceded were raised
below, and deferred ruling on the motion to strike.
Meanwhile, Greenberg and LaPierre tendered payment for an equity interest in Tozer,
and then commenced an action in state court, requesting a declaratory judgment that, under the
Contract, they are now the rightful owners of an 80% membership interest in Tozer. Id.
Greenberg v. Barros, 17-00002-BLS1 (Mass. Super. Ct. Sept. 8, 2017) (Dkt. 26). The
Massachusetts Superior Court granted summary judgment to Greenberg and LaPierre in the state
court action, finding that they are entitled to the membership interest in Tozer that they
purchased pursuant to the purchase option in the Contract. Id.
An automatic stay “springs into being immediately upon the filing of a bankruptcy
petition” and “prevents creditors from taking any collection actions against the debtor or the
property of the debtor's estate for pre-petition debts.” In re Slabicki, 466 B.R. 572, 577 (B.A.P.
1st Cir. 2012); see 11 U.S.C. § 362(a). The purpose of the automatic stay is “to provide a fresh
start to the honest debtor and to ensure a uniform distribution of nonexempt assets to creditors of
the same class.” Id. (quoting In re Panek, 402 B.R. 71, 76 (Bankr. D. Mass. 2009)). For this
reason, the automatic stay is triggered by any “act against either the debtor, [the debtor’s]
property, or the property of [the debtor’s] estate,” but “does not bar acts against non-debtors.” Id.
A debtor corporation does not have a property interest in its own equity, and the purchase
of equity is not an act against the debtor or the debtor’s property. See Decker v. Advantage Fund,
Ltd., 362 F.3d 593, 596 (9th Cir. 2004) (“[U]nissued stock is not an interest of the debtor
corporation in property; it is merely equity in the corporation itself.”); Matter of Paso Del Norte
Oil Co., 755 F.2d 421, 424 (5th Cir. 1985) (“It is widely recognized, and we have previously
held, that a corporation, even if a debtor in bankruptcy, has no property interest in the shares of
its stock owned by shareholders.”). The Bankruptcy Court correctly concluded that the automatic
did not prevent Greenberg and LaPierre from pursuing a judicial determination of their rights
under the Contract to purchase equity in Tozer, or from exercising those purchase rights.
Appellants separately contend that the Bankruptcy Court abused its discretion by
abstaining from deciding the rights of Barros, Greenberg, and LaPierre under the Contract and by
suspending bankruptcy proceedings pending resolution of that dispute in state court. See
Appellants’ Br. 35-39 [#8]. This argument, too, is without merit. A bankruptcy court may choose
to abstain or suspend proceedings under 11 U.S.C. § 305(a) based on a number of factors,
including “(1) the purpose of the bankruptcy; (2) the necessity of federal proceedings to achieve
a just and equitable solution; (3) the availability of another forum to resolve the unsettled issues;
(4) the efficiency and economy of having the bankruptcy court settle the matter; (5) the possible
prejudice to the various parties; and (6) whether the bankruptcy forum is being used to resolve
what is in essence a two-party dispute.” In re Efron, 529 B.R. 396, 405 (B.A.P. 1st 2015). The
Bankruptcy Court determined that the contract dispute was a dispute only among the current and
potential equity owners, not a dispute with Tozer itself, and that it was in the best interest of
Tozer and its creditors to obtain a state court determination of the various parties’ equity interests
in Tozer. As state courts are the authority on the interpretation of private contracts, see Volt
Information Sciences, Inc., v. Board of Trustees of Leland Stanford Junior University, 489 U.S.
468, 474 (1989), the state court was a just, equitable, and efficient forum for the dispute.
Appellants offer additional arguments that are the subject of Appellee’s motion to strike.
First, Appellants contend that Greenberg and LaPierre cannot exercise their purchase rights
under the Contract because Tozer is barred from issuing new membership interests other than
under a plan of reorganization. This argument, along with all but one of the other arguments
identified in the motion to strike, rests on the premise that Greenberg and LaPierre’s exercise of
their purchase rights would require Tozer to issue new membership interests. 1 The
Specifically, in the second argument identified by in Appellees’ motion to strike, Mot. to Strike
2 [#12], Appellants argue that the Bankruptcy Court erred in abstaining from determining the
ownership of Tozer because the Bankruptcy Court made an “erroneous factual finding that the
Debtor had no role in the issuance of new membership interests” under the Contract. Appellants’
Br. 35 [#8]. In the third and fourth arguments identified, Mot. to Strike 2 [#12], Appellants argue
that the exercise of the purchase options is barred by the automatic stay because “causing Tozer
to issue and distribute new membership interests to Greenberg and LaPierre” is an act to obtain
possession of property of the bankruptcy estate or to exercise control over property of the
bankruptcy estate, Appellants’ Br. 23-24 [#8]. In the fifth argument identified, Mot. to Strike 2
[#12], Appellants argue that Appellees’ exercise of their purchase options should be barred by
the automatic stay because “requiring Tozer, as the Debtor, to issue new membership interests . .
. constitute the assertion of claims against the Debtor,” Appellants’ Br. 25 [#8]. In the seventh
and ninth arguments identified, Appellants argue that Greenberg and LaPierre’s exercise of their
purchase option constitutes the assertion of a claim against Tozer and should therefore be
subordinated to other creditors. Mot. to Strike 2-3 [#12]. In the eighth argument identified,
Appellants argue that the exercise of the purchase options is void because it would require Tozer
to purchase its stock. Mot. to Strike 3 [#12]. In the tenth argument identified, Appellants contend
that Tozer is entitled to reject the Contract because it is an executory contract that would require
Tozer to issue membership interests. Mot. to Strike 3 [#12]; Appellants’ Br. 32-33 [#8].
Massachusetts Superior Court found, however, that the Contract does not require Tozer to issue
new membership interests. Greenberg v. Barros, 17-00002-BLS1 (Mass. Super. Ct. Sept. 8,
2017) (Dkt. 26). In the final argument, Appellants argue that appellees lack any statutory ground
for relief from the stay under 11 U.S.C. § 362(d). Mot. to Strike 3 [#12]. However, the
Bankruptcy Court did not grant Appellees relief from the automatic stay under 11 U.S.C.
§ 362(d), but instead determined that the stay did not apply. As none of the ten arguments
identified in the motion to strike would affect this court’s ruling, the motion is DENIED as moot.
In light of the foregoing, the December 21 and 28, 2016, orders of the Bankruptcy Court
IT IS SO ORDERED.
January 9, 2018
/s/ Indira Talwani
United States District Judge
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?