ARTS DES PROVINCES DE FRANCE, INC. et al v. KARTZMAN

Filing 13

OPINION. Signed by Judge Dennis M. Cavanaugh on 6/12/13. (DD, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

in re:

Hon. Dennis M. Cavanaugh

ARTS DES PROVINCES DE FRANCE,

INC.,

OPINION
Bankruptcy Case No. 11-29111 DHS
Debtor.

Civil Action No. 2:1 2-cv-06574

FiRST DATA SERVICES, LLC,

Appellant,
V.

STEVEN P. KARTZMAN,
Chapter 7 Trustee

Appellee.

DENNIS M. CAVANAUGH, U.S.D,J.:
This matter comes before the Court on appeal by First Data Services (FDS” or
“Appellant”) from an Order entered by the United States Bankruptcy Court for the District of
New Jersey (“Bankruptcy Court”) on August 20, 2012 scheduling a consolidated evidentiary
hearing on the Turnover of Property of the Estate Pursuant to Bankruptcy Code Section 542 (a)
(“the Turnover Motion”). Appellant’s cross-motion (‘the Motion to Lift Stay”), and the
contested language of paragraph 3 of the proposed order by the Appellee (“the Trustee”).
(Appeal from Bankruptcy Court, Oct. 17, 2012, ECF No. 1). For the reasons slated below, the
appeal is denied, and the Bankruptcy Court’s Order is affirmed.

I.

BAcKGR0uN&

FDS, a financial services company, processed credit card sales and provided other
services and financial accommodations to the Debtor. The parties’ relationship was predicated

on Merchant Agreements, which allowed FDS to fund a reserve to protect itself from obligations

FDS may have to pay on behalf of the Debtor to third parties, including those arising from fees,
costs, expenses, and chargebacks. After periodic increases, by the time of the Petition Date, FDS
held a reserve in the amount of approximately $400,000.
On June 23, 2011, the Debtor filed a voluntary petition for relief under chapter 7 of Title
11 of the United States Code (“the Bankruptcy Code”) in Bankruptcy Court. Thereafter, Steven
P. Kartzman (“the Trustee”) was appointed Chapter 7 Trustee to the estate of the Debtor.

Subsequently, on September 27, 2011, the Trustee filed the Turnover Motion seeking turnover of
the reserve. In response, FDS filed the Motion to Lift Stay objecting to the Turnover Motion and

petitioned for relief from the stay so that FDS could assert its contractual rights pursuant to the
Merchant Agreements between the two parties. The preliminary hearing on the merits of the
Turnover Motion and the Motion to Lift Stay was scheduled for October 18, 2011.
After a series of consensual adjournments, a hearing was conducted on March 27, 2012 in

regards to the Turnover Motion and the Motion to Lift Stay. During the hearing, the Court
granted the Trustee’s petition for additional time for discovery, scheduled the final hearing to

continue on May 22, 2012, and ordered the parties to provide the Bankruptcy Court with status
report within approximately thirty days. Both parties participated in discovery. At request of
FDS, the Bankruptcy Court adjourned the final hearing, initially scheduled for May 22, 2012,

1

The facts set-forth in this Opinion are taken from the paies’ statements in their respective moving

papers.

2

until July 18, 2012.
On July 6, 2012, the Bankruptcy Court granted the Trustee’s petition for a sixty-day
continuance of the July 18, 2012 continued final hearing. FDS objected to this adjournment on
the grounds that FDS was entitled to have its Motion to Lift Stay heard on July 18, 2012 under
Bankruptcy Code

§

362(e)(1). There is a disagreement between the parties as to whether FDS’

objection to the sixty-day continuance on July 6, 2012 was FDS’ first instance of claiming relief
pursuant to

§

362(e)(1). Furthermore. FDS objected that the Bankruptcy Court did not make

any findings and did not determine that the Trustee had a reasonable likelihood of prevailing in
its object to FDS’s Motion to Lift Stay or that there were compelling circumstances justifying
extension of the stay. In response, the Trustee argues that FDS waived its rights to enforce the
time constraint.
On August 20, 2012, FDS objected to paragraph 3 of a proposed order by the Trustee,
which provided that “pursuant to Bankruptcy Code Section

§

362(e)(1), the automatic stay as to

[FDS] shall remain in full force and effect pending the Court’s determination of’ [FDS’s]
Motion

[

‘

Cross

The Trustee submitted the proposed order to the Bankruptcy Court advising the

Bankruptcy Court about FDS’ objection. Subsequently. the Bankruptcy Court entered the
proposed form of order on August 20, 2012 in the form submitted by the Trustee’s counsel, FDS
appealed the Order continuing the automatic stay on August 22, 2012.
IL

STANDARD OF REvIEw

This Court has jurisdiction over final judgments and orders of the Bankruptcy Court
pursuant to 28 U.S.C.

§

158. A district court applies a clearly erroneous standard to the

bankruptcy judge’s findings of fact and reviews the bankruptcy judge’s legal conclusions de
novo. See

FED.

R.

BANKR.

P. 8013; In re Cohn, 54 F.3d 1108, 1113 (3d Cir. 1995). A factual

3

finding is clearly erroneous if, in reviewing all the evidence, the reviewing court is left with the
detnite and firm conviction that a mistake has been committed, even if there is evidence to
support the finding In re Allegheny Int’l Inc 333 U S 869, 173 (3d Cii 1992) (quoting
,

United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). A district court reviews the
bankruptcy court’s “exercise of discretion for abuse thereof Manus Corp. v. NRG Energy. Inc..
(In i.e O’Brien Envtl. Energy, Inc.), 188 F.3d 116, 122 (3d. Cir, 1999). A bankruptcy court
abuses its discretion when it’s ruling

is

founded on an error of law or a misapplication of law to

the facts. Id.
III.

I)IscussloN

The main issue on appeal is whether the Bankruptcy Court erred in

continuing

the

automatic stay as to FDS in light of § 362(e)(1). The relevant text of § 362(e)(1) is as follows:
“The court shall order such stay continued in effect pending the conclusion of the final
hearing under subsection (d) of this section if there is a reasonable likelihood that the
party opposing relief from such stay will prevail at the conclusion of such final hearing. If
the hearing under this subsection is a preliminary hearing, then such final hearing shall he
concluded not later than thirty days after the conclusion of such preliminary hearing.
unless the 30-day period is extended with the consent of the parties in interest or for a
specific time which the court finds is required by compelling circumstances.”
11 U.S.C.

§

362(e)(l) (2010).

While facially it is apparent that the automatic stay in this

instance

exceeded the time

constraints of § 362(e)(1). the Bankruptcy Court did not err in continuing the automatic sta as to
FDS because FDS acted “inherently inconsistent with adherence to the time constraints of §
362(e)(1); therefore, their actions constituted an implicit waiver of § 362(e)(l). Sc ini
Wedgewood Realty Group, 878 F.2d 693, 699 (3d. Cir. 1989). The court in In re Wedgewood
held that a court may

continue

the

automatic stay past

the thirty-day period set forth in

§

362(e)(l) according to the doctrine of implicit waiver if there exists evidence that a creditors

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actions require a delay beyond the time constraints of § 362(e)(l). Id. FDS, pursuant to the
standard put forth in In re Wedgewood, implicitly waived its rights under

§

362(e)(1) by: (1)

cross-moving for a stay of relief and for allowance and payment of an administrative expense:
and (2) failing to assert their rights under

§

362(e)(l) by participating in discovery and failing to

oppose a request for the adjournment of a motion for relief, By acting inconsistently in regards
to an adherence to the time constraints of § 362(e)(l), FDS implicitly waived their rights under

§

362(e)(l); therefore, the Bankruptcy Court did not err in continuing the automatic stay as to
FDS.
A. Implied Waiver
The court first turns to the common law interpretation of what constitutes an implicit
waiver. This definition is predicated on the interpretation found in In re Wedgewood wherein
the Third Circuit held that the submission of two letters after the preliminary hearing by the
creditor did not constitute an implied waiver of § 362(e)(l). See In re Wedgewood Realty
Group. 878 F.2d 693. 699 (3d. Cir. 1989); Borg—Warner Acceptance Corp. v. Hall, 685 F.2d
1306, 1308 (11th Cir. 1982) (finding implied waiver where creditor not only failed to object to
the absence of preliminary hearing but also attended the final hearing beyond thirty day period
without objection): In re McNeely, 51 B.R. 816. 821 (Bankr. D. Utah 1985) (recognizing implied
waiver where creditor failed to schedule final hearing within thirty day period); In re Snjill, 38
13.R. 143, 147 (Bankr. D. Md. 1984) (determining an implied waiver of thirty day requirement
where creditor flied discovery request to which responses were due beyond the thirty day
period); In re Wilmette Partners, 34 B.R. 958, 961 (Bankr. N.D. Ill. 1983) (noting an implied
waiver where creditor agreed to continuance of preliminary hearing beyond thirty day time
period). The Third Circuit has thus recognized that an implicit waiver occurs when the creditor

acts inconsistent

with the rights promised to him under

§

362(e)( I). In i’e Wedewood Realty

Group, 878 F.2d at 698.
B. FDS’ Actions Inconsistent to the Statutory Rights Afforded Under

§ 362(e)(1)

The court now examines FDS’ actions that may be found to constitute an implicit

waiver

of § 362(e)( 1). The Trustee argues and this court finds that FDS implicitly waived its rights
under

§

362(e)(l) by: (1) cross-moving for a stay of relief and for allowance and payment of an

administrative expense and (2) failing to assert their rights under

§

362(e)(l) by participating in

discovery and failing to oppose a request for the adjournment of a motion for relief.
1. Cross-Motion for a Sta of Relief and for Allowance and Payment of an
Administrative Expense
FDS implicitly waived their rights to enforce the time constraints of § 362(e)(l) by crossmoving for a stay of relief and for allowance and payment of administrative

expense.

The

Bankruptcy Court sitting in the District of Maryland has found an implicit waiver of the right to
enforce

§

362(e)( 1) when a creditor seeks not only a relief from an automatic stay. hut also

alternative reliefs, in a single. combined motion. In re Small. 38 B.R. 143. 147 (Bankr. D. Md.
1984). in re Small is analogous to this case because in both instances the creditors, seeking
additional relief from the Bankruptcy Court, added alternative measures for relief into their
motion for relief from the automatic stay. By seeking the allowance and payment of an
administrative expense, in conjunction with the motion for relief from the automatic stay, FDS
acted inconsistent with the

time

constraints of § 362(e)( I )

because

relief constitute a delay of the time constraints. FDS’ attempt to

the alternative actions for

recover alternative

measures

signifies a conscious acknowledgement and disregard for the time constraints of § 362(e)(l).
Therefore, by seeking the allowance and payment of an administrative expense on top of the
relief from the automatic stay, FDS delayed the possibility of the Bankruptcy Court enforcing the
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time constraints. This conscious delay by FDS constitutes an implicit waiver of its rights under

§

362(e)(l).
2. Participation in 1)iscovery and Failure to Oppose a Request for the
Adjournment of a Motion for Relief
FDS failed to enforce its rights under

§

362(e)(l) on the account of two procedural issues

that occurred during the Bankruptcy Court proceedings. A creditor must “insist on his rights”
under

§

362(e)(1); otherwise, an act or omission inconsistent with the statutory rights of §

362(e)(1) may constitute an implicit waiver. In re Wedgewood, 878 F.2d 693, 699 (3d. Cir.
I 989). FDS falls short of the standard established by In re Wedgewood through participation in
discovery and a failure to oppose a request for the adjournment of a motion for relieL
FDS’ participation in discovery is evident of their failure to assert their statutory rights
under

§

362(e)(1). A creditor, who participates in discovery that extends beyond the thirty-day

period of § 362(e)(1) may implicitly waive his right to enforce the time constraints of §
362(e)(l). In re Small, 38 B.R. at 147 (citing Borg-Warner Acceptance Corp. v. Hall. 685 F.2d
1306 (11th Cir. 1982)). As both FDS and the Trustee state in their briefs. FDS participated in
discovery that extended beyond the thirty-day period of § 362(e)(i). By doing so, FDS
implicitly waived their rights to enforce the statutory time constraints provided for in

§

362(e)(1).
FDS further failed to assert the protection of § 362(e)(1) by failing to oppose a request by
the Trustee for the adjournment of a motion for relief. The Bankruptcy Court has recognized a
failure to assert statutorily granted rights pursuant to

§

362(e)(1), and subsequently an implicit

waiver, when a creditor agrees to or fails to oppose a hearing that is inconsistent with the thirty
day period of § 362(e)( 1). See Borg-Warner Acceptance Corp.. 685 F.2d at 1308: Inre
McNeelv, 51 B.R. 816, 821 (Bankr. D. Utah 1985). As both parties agree in their briefs. FDS
7

consensually agreed to an adjournment of the October 11, 2011 meeting. The October 11
meeting was scheduled within the thirty-day time frame of § 362(e)(l). By agreeing to an
adjournment, FDS failed to assert to the statutorily granted rights of § 362(e)(l). Therefore, Fl)S
cannot be considered to have asserted their rights under

§

362(e)(1) and thus implicitly waived

the time constraints set forth therein.
IV.

CoNcLusioN

Based on the foregoing. the Bankruptcy Court was correct in its application of law to the
facts in this case. Therefore, the Appeal is denied, and the Bankruptcy Court’s Order is
affirmed. An appropriate Order accompanies this Opinion.

Dennis M.

PA-rr;
Original:
Cc:

JJ /Oz
Clerk’s Office
All Counsel of Record
File

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