CresCom Bank v. Terry et al

Filing 35

ORDER denying 28 Motion to Stay Signed by Honorable Patrick Michael Duffy on March 7, 2013.(kspa, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION

CresCom Bank, successor by merger to
Community FirstBank

)
)
)
Plaintiff,
)
)
v.
)
)
Edward L. Terry, Harris Street, LLC, n/k/a )
CCT Reserve, LLC; Sugarloaf Marketplace, )
LLC; and CCT Reserve, LLC
)
)
Defendants.
)
____________________________________)

Case No.: 2:12-cv-00063-PMD
ORDER

This matter is before the Court upon Defendant Edward L. Terry’s (“Terry”) Motion to
Stay Proceedings (“Motion”). For the reasons that follow, the Court will not stay the action in its
entirety at this juncture.
BACKGROUND
On January 5, 2012, Plaintiff CresCom Bank (“CresCom”) sued Defendant CCT Reserve,
LLC (“CCT”) to recover on four separate loans secured by promissory notes and mortgages
executed by CCT and its predecessor companies.1 CresCom also sued Terry as the guarantor of
the promissory notes.
On August 31, 2012, CCT filed a Chapter 11 Petition in the United States Bankruptcy
Court for the Northern District of Georgia. As part of the bankruptcy proceedings, CCT filed a
plan of reorganization that provides for treatment of the claims asserted in this action by
CresCom. Under the proposed plan, CCT would convey to CresCom all of the real estate or

1

On February 4, 2011, Defendants Harris Street, LLC, and Sugarloaf Marketplace, LLC, were merged into CCT
Reserve, LLC.

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collateral securing CresCom’s loans at issue in this case at values to be determined by the
bankruptcy court. The value of the collateral as established by the bankruptcy court would be
credited against CresCom’s claims and would constitute a full or partial satisfaction of
CresCom’s claims. The proposed plan also requires Terry to personally contribute cash for an
additional infusion of capital so as to allow CCT to pay certain tax and unsecured claims.
On January 8, 2013, Terry filed this Motion to Stay, requesting that this Court extend the
automatic stay of 11 U.S.C. § 362 to cover the instant action until completion of CCT’s
bankruptcy proceedings. CresCom filed a brief in opposition, and Terry filed a reply brief.
Neither Terry nor CCT has sought any modification of the automatic stay from the bankruptcy
court.
JURISDICTION
This Court has jurisdiction to hear this matter under 28 U.S.C. § 1334. The Court’s
jurisdiction is concurrent with that of the CCT bankruptcy court. U.S. Dep’t of HUD v. Cost
Control Mktg. & Sales Mgmt. of Va., Inc., 64 F.3d 920, 927 n.11 (4th Cir. 1995) (finding that the
district court had concurrent jurisdiction with the bankruptcy court to determine the effect of the
bankruptcy proceeding on the district court’s case).
ANALYSIS
Section 362(a) of the Bankruptcy Code provides that the filing of a petition for
bankruptcy operates as a stay against all entities in any litigation against the debtor that
commenced prior to the filing of the petition. 11 U.S.C. § 362(a)(1). This automatic stay
provision applies to judicial proceedings and enforcement of judgments against only the debtor,
not third party defendants or co-defendants. Credit Alliance Corp. v. Williams, 851 F.2d 119, 121

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(4th Cir. 1988); A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986). Thus, CCT’s
filing for bankruptcy automatically stayed CresCom’s action against CCT, but not against Terry.
The Fourth Circuit has found, however, that in “unusual circumstances,” a “bankruptcy
court may properly stay the proceedings against non-bankrupt co-defendants.” Piccinin, 788
F.2d at 999. The court explained that an unusual circumstance “arises when there is such
identity between the debtor and the third-party defendant that the debtor may be said to be the
real party defendant and that a judgment against the third-party defendant will in effect be a
judgment or finding against the debtor.”

Id.

In Piccinin, the debtor manufacturer faced

thousands of lawsuits involving a defective product. Id. at 1008. The court upheld a preliminary
injunction staying litigation against the debtor’s codefendants, finding that permitting lawsuits to
go forward against the codefendants likely would deplete the amount of insurance money
available in the debtor’s estate “to the detriment of the debtor’s creditors as a whole.” Id.
Terry argues that unusual circumstances exist in this case because he is the sole member
of CCT, and as such, he is the only person who can effectively carry out CCT’s plan of
reorganization. He contends that without a stay, CCT’s reorganization would suffer because he
would be unable to devote his full attention and money toward it. He further maintains that a
monetary judgment against him would make it financially impossible for him to contribute cash
for an infusion of capital into CCT, again compromising CCT’s efforts to reorganize. Terry also
notes that under Georgia law—the state in which he contends he executed the guaranty
agreements—he would be entitled to bring an indemnification action against CCT for any
payment he makes as guarantor, which action would then impact CCT’s estate. See Ga. Code.
Ann. § 10-7-41. Thus, Terry concludes that his relationship with CCT creates the “unusual
circumstances” necessary for an extension of the bankruptcy stay to a non-debtor codefendant.

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The Court is not persuaded that unusual circumstances are present in this case. Unlike
the debtor in Piccinin, CCT is not facing thousands of lawsuits. Furthermore, a judgment against
Terry would not deplete the existing bankruptcy estate as would have a judgment against the
codefendants in the Piccinin case. See Credit Alliance, 851 F.2d at 121-22 (“It is unnecessary to
stay proceedings . . . against the non-bankrupt guarantor to protect [the debtor] or to prevent the
dissipation of its assets, since neither [the debtor] nor its estate is jeopardized by the judgment
against [its guarantor].”). Far from unusual, CresCom merely seeks to continue its action against
a non-debtor guarantor. The guaranties at issue are unconditional guaranties of payment and
primary obligations of Terry in his individual capacity.

“Nothing in § 362 suggests that

Congress intended that provision to strip from the creditors of a bankrupt debtor the protection
they sought and received when they required a third party to guaranty the debt.” Credit Alliance,
851 F.2d at 121. “The very purpose of a guaranty is to assure the creditor that in the event the
debtor defaults, the creditor will have someone to look to for reimbursement.” Id. at 122
(quotation and alterations omitted). This purpose “would be frustrated by interpreting § 362 so
as to stay [the creditor’s] action against the non-bankrupt guarantor when the defaulting debtor
petitioned for bankruptcy.” Id. Moreover, a statutory right to bring an action for indemnification
is not sufficient to justify extension of the automatic stay. See Doyle v. Fleetwood Homes of Va.,
Inc., C.A. No. 2:08-1442, 2009 WL 1210697, at *2 (S.D. W. Va. Apr. 30, 2009) (“Simply
because [the non-debtor codefendants] may be entitled to contribution or indemnity from [the
debtor] does not call for expansion of the stay imposed by § 362(a)(1).”). In Credit Alliance, the
Fourth Circuit refused to expand the automatic stay to include the guarantor of a note despite the
fact that the guarantor would be entitled to bring claims for reimbursement through the

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bankruptcy proceedings. 851 F.2d at 120-21. The Court fails to see how the instant case differs
from Credit Alliance.2
Under the circumstances of this case, the Court concludes that the question of whether to
extend the automatic stay to the present action is most appropriately considered by the
bankruptcy court overseeing CCT’s bankruptcy proceedings.

Terry maintains that CCT’s

reorganization efforts will be harmed if he is forced to defend the instant suit and if he cannot
infuse capital into the company. The bankruptcy court—with its expertise, greater access to
financial facts, and jurisdiction to adopt the proposed reorganization plan—is in a superior
position to assess the validity of these arguments. Accordingly, the Court will defer to the
bankruptcy court’s judgment on the matter. See Chi. Title Ins. Co. v. Lerner, 435 B.R. 732, 737
(S.D. Fla. 2010) (deferring to the bankruptcy court on the question of extending the automatic
stay). Absent an order from the bankruptcy court extending the stay, this action shall proceed.
CONCLUSION
For the foregoing reasons, it is ORDERED that Defendant Terry’s Motion to Stay is

DENIED.

March 7, 2013
Charleston, SC

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Terry relies on an example the Piccinin court provided of an “unusual situation” that might justify extension of the
automatic stay: “An illustration of such a situation would be a suit against a third-party who is entitled to absolute
indemnity by the debtor on account of any judgment that might result against them in the case. To refuse
application of the statutory stay in that case would defeat the very purpose and intent of the statute.” Piccinin, 788
F.2d at 999. Not only is this portion of the Piccinin opinion dictum, but two years later the Fourth Circuit decided
Credit Alliance and refused to extend the stay despite the fact that the guarantor had the right to bring a claim for
indemnification. Credit Alliance, 851 F.2d at 120-21. Under the facts of this case, the Credit Alliance holding is
controlling precedent.

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