In Re: Motors Liquidation Company

Filing 26

MEMORANDUM OPINION AND ORDER: For the foregoing reasons, the decision of the bankruptcy court is affirmed. The Clerk is directed to close this case and all pending motions. (Signed by Judge John G. Koeltl on 6/17/2011) (jpo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
In re
10 Civ. 4322 (JGK)
MOTORS LIQUIDATION COMPANY, ET AL.,
f/k/a/ General Motors Corp., et al.,

MEMORANDUM OPINION AND
ORDER

Debtors.
STANLEY R.STASKO,
Appellant,
- against MOTORS LIQUIDATION COMPANY,
Appellee.
────────────────────────────────────
JOHN G. KOELTL, District Judge:
The plaintiff-appellant, Stanley R. Stasko (the
“appellant”), appeals from an order of the United States
Bankruptcy Court for the Southern District of New York (Gerber,
R.) dated April 21, 2010, denying his motion for relief from the
automatic stay, and ordering him to withdraw the action he
brought against the defendants-appellees, Motors Liquidation
Company, et al., f/k/a General Motors Corp., et al.
(collectively “MLC”), in the Eastern District of Michigan (the
“Michigan Action”).

The appellant was an employee of the

defendants-appellees’ over ten years prior to the filing of the
Michigan Action, which alleged claims pursuant to 42 U.S.C. §
1983.

I.
On June 1, 2009, MLC and certain subsidiaries
(collectively, the “debtors”) voluntarily filed for bankruptcy
pursuant to chapter 11 of the Bankruptcy code.
¶¶ 1, 13-16.)

(Henderson Aff.

The filing of the chapter 11 petition stayed all

pending and future litigation against the debtors.
362(a)(1).

11 U.S.C. §

On July 10, 2009, the debtors consummated a sale

pursuant to 11 U.S.C. 363 in which substantially all of their
assets were transferred to NGMCO, Inc., a United States
Treasury-sponsored purchaser.

(See Amended and Restated Master

Sale and Purchase Agreement, Designation No. 2.)

The Bankruptcy

Court issued an order stating that if any person or entity
failed to file a proof of claim based on any prepetition claims
against the debtor on or before November 30, 2009, that party
would be “forever barred, estopped, and enjoined from asserting
such claim[s] . . . and the [d]ebtors . . . shall be forever
discharged from any and all indebtedness or liability with
respect to such claim.”

(Order, Sept. 16, 2009, Designation No.

3 at 5.)
On December 11, 2009, the appellant filed a complaint
against MLC in Michigan, alleging a claim pursuant to 42 U.S.C.
§ 1983 and requesting compensatory damages for “actual work
performed [by appellant] . . . from July 1983 to August 1995,”
and punitive damages for hostile work environment.
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(Appellant’s

Mot. to Lift Automatic Stay (“Appellant’s Mot.”) Ex. A, ¶¶ 57,
60.)

In response to the appellant’s complaint, the debtors’

counsel sent a letter to the appellant on January 7, 2010,
advising him of the chapter 11 cases and the automatic stay, and
asking him to withdraw his complaint because it violated the
automatic stay.

(Debtors’ Opp. to Appellant’s Mot. to Lift the

Stay (“Debtors’ Opp.”), Ex. A.)

When the appellant failed to

withdraw the Michigan Action, the debtors filed a Suggestion of
Bankruptcy in the Michigan Action.
On February 19, 2010, the appellant moved to lift the
automatic stay so that he could proceed with the Michigan
Action.

(See Appellant’s Mot.)

On March 19, 2010, the

appellant also moved for a default judgment against the debtors
in the Michigan Action, seeking $2,775,266 in damages.
(Debtors’ Opp. Ex. B.)
On April 8, 2010, a hearing was held before the bankruptcy
court on the appellant’s motion to lift the stay.

The

bankruptcy court noted that the appellant had proceeded in the
Michigan Action without filing a proof of claim.

(Hr’g Tr. 41.)

The court then evaluated the motion under the twelve factors
outlined by the Second Circuit Court of Appeals in Sonnax
Indus., Inc. v. Tri Component Products Corp. (In re Sonnax
Indus., Inc.), 907 F.2d 12080 (2d Cir. 1990), focusing on the
second, seventh, and twelfth factors.
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The court found that the seventh factor, whether litigation
in another forum would prejudice the interests of other
creditors, weighed heavily against granting the appellant’s
motion.

The court explained that the debtors would be forced to

“expend scarce resources litigating this case in Michigan, as
well as being subject to an onslaught of similar lift-stay
motions that would likely ensue if [this motion were granted].”
(Hr’g Tr. 41-42.)

Applying similar reasoning, the court found

that the second factor, lack of any connection with or
interference with the bankruptcy case, weighed against granting
the appellant’s motion because allowing the Michigan Action to
proceed would interfere with the bankruptcy case.

(Hr’g Tr.

42.)
The court stated that the twelfth factor, balance of harms,
was “one of the most important” factors, and found that it
weighed in favor of denying the appellant’s motion.

(Id.)

In

particular, the court noted the substantial burden on the
bankruptcy estate and the prejudice to other creditors that
would result from lifting the stay for the Michigan Action.
The court also emphasized that, because the appellant

(Id.)

failed to file a proof of claim, he “could not, without a
further order from [the court], get estate assets anyway.”
(Id.)
The court then explained that the remaining Sonnax factors
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were inapplicable to this case.

The court noted that although,

when true, the eleventh factor, whether the parties are ready
for trial in the other proceeding, carries substantial weight,
it was irrelevant in this case because the Michigan Action had
just been filed and the parties were therefore far from being
ready for trial.

(Id.)

Because the relevant Sonnax factors

weighed against granting the appellant’s motion, the bankruptcy
court denied the motion.

(Id.)

On April 19, 2010, the Michigan Court issued an order
administratively closing the Michigan Action during the duration
of the bankruptcy proceedings involving MLC.
Ex. A to MLC’s Answering Brief.)

(Order attached as

On April 21, 2010 the

bankruptcy court issued an order consistent with its oral
decision.

The order stated that consideration of the

appellant’s motion for relief from the automatic stay was a
“core proceeding” pursuant to 28 U.S.C. § 157(b), denied the
appellant’s motion, and ordered the appellant to withdraw the
Michigan Action.

(Order Denying Motion of Stanley R. Stasko for

Relief from the Automatic Stay, Apr. 21, 2010, Designation No.
8.)
In violation of the Bankruptcy Court’s order establishing
November 30, 2009, as the deadline to file a proof of claim, the
appellant filed a proof of claim in the bankruptcy cases on May
12, 2010.

The appellant filed this appeal on November 23, 2010.
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After this appeal was filed, on May 3, 2011, the bankruptcy
court expunged the plaintiff’s proof of claim.

That order is

not in issue on this appeal from the bankruptcy court’s April
21, 2010 Order.

II.
In general, a district court reviews a bankruptcy court's
factual findings for clear error and its legal conclusions de
novo.

In re Bell, 225 F.3d 203, 209 (2d Cir. 2000); In re BDC

56 LLC,, 330 F.3d 111, 119 (2d Cir. 2003), abrogated on other
grounds by In re Zarnel, 619 F.3d 156, 166-68 (2d Cir. 2010);
Fed. R. Bankr. P. 8013.

A bankruptcy court's decision to deny a

motion for relief from the automatic stay, however, is reviewed
for abuse of discretion.

See In re Dairy Mart Convenience

Stores, Inc., 351 F.3d 86, 91 (2d Cir. 2003); In re Sonnax
Indus., Inc., 907 F.2d at 1286.

A ruling is an abuse of

discretion only if the bankruptcy court “bases its ruling on a
mistaken application of the law or a clearly erroneous finding
of fact.”

Duane Reade, Inc. v. St Paul Fire & Marine Ins. Co.,

411 F.3d 384, 388 (2d Cir. 2005) (internal quotation marks
omitted); see also Peskin v. Picard, 440 B.R. 579, 584 (S.D.N.Y.
2010).
The bankruptcy court ruled that the appellant was not
entitled to relief from the automatic stay because he failed to

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establish cause and ordered the appellant to withdraw the
Michigan Action.

The ruling was not an abuse of discretion.

The Michigan Action was filed on December 11, 2009, six
months after the debtors filed petitions for bankruptcy pursuant
to chapter 11, triggering the automatic stay, and almost two
weeks after the deadline to file a proof of claim with the
bankruptcy court.

The bankruptcy court appropriately weighed

the relevant Sonnax factors.

If the stay were lifted in this

case, the bankruptcy estate and its resources would be greatly
depleted from litigating the Michigan Action and the many other
lawsuits that would likely follow.

Furthermore, because the

Michigan Action was recently filed and was in the very early
stages of litigation, and because the appellant knowingly
proceeded with the Michigan Action despite notice of the
bankruptcy proceedings and the automatic stay, the appellant is
not prejudiced by the operation of the stay.
The appellant expends a considerable amount of energy
explaining that the events giving rise to the Michigan Action
occurred prior to the debtors’ filing of the bankruptcy
petition, but the timing of those events is irrelevant.

The

relevant action in relation to the filing of the bankruptcy
petition is the filing of the actual lawsuit, the Michigan
Action.

There is no dispute that the Michigan Action was

brought on December 11, 2009, approximately six months after the
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debtors commenced the bankruptcy.

The lawsuit was therefore

brought in violation of the automatic stay.

Even if the

appellant had brought the Michigan Action prior to June 1, 2009,
when the debtors filed their bankruptcy petitions, the case
would have been stayed pursuant to 11 U.S.C. § 362(a)(1) upon
the filing of the petition.

The appellant also failed to file a

proof of claim by November 30, 2009.

As a result, even if the

appellant were granted relief from the automatic stay, he would
need further orders from the bankruptcy court in order to access
assets of the bankruptcy estate.

The fact that the appellant

subsequently filed an untimely proof of claim on May 12, 2010,
is irrelevant.

The appellant has failed to show cause as to why

he should be granted relief from the automatic stay.
The appellant also argues that the bankruptcy court erred
in considering the Michigan Action a “core proceeding.”

The

appellant misunderstands the finding of the bankruptcy court.
The court did not find that the Michigan Action was a core
proceeding, but rather that the appellant’s motion before the
bankruptcy court to lift the automatic stay was a core
proceeding, which is correct under 28 U.S.C. § 157(b).

See 28

U.S.C. § 157(b)(1) & (b)(2)(G).
Finally, the appellant asserts that the bankruptcy court
did not have the authority to order the appellant to withdraw
the Michigan Action.

There is no question that the bankruptcy
8

court had the authority to order the appellant to withdraw the
Michigan Action.

The bankruptcy court had personal jurisdiction

over the appellant, who had brought the motion to lift the stay,
and the bankruptcy court had the power to issue orders in
furtherance of its authority over a core proceeding, such as the
appellant's motion for relief from the automatic stay.
U.S.C.

§

157(b).

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The Michigan Action was plainly in violation

of the automatic stay, and the bankruptcy court acted within its
power and discretion when it ordered the appellant to withdraw
the Michigan Action.
III.

For the foregoing reasons, the decision of the bankruptcy
court is affirmed.

The Clerk is directed to close this case and

all pending motions.
SO ORDERED.
Dated:

New York, New York
June
2011

/7'

John G. Koeltl
States District Judge

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