HSH Nordbank AG

Filing 15

OPINION AND ORDER granting 10 EMERGENCY MOTION MOTION to Abate. The parties shall inform the Court when the mediation is concluded and the Bankruptcy Judge has issued written findings. The parties shall not file briefs in this action until 30 days after Judge Clark states that the mediation is concluded. (Signed by Judge Melinda Harmon) Parties notified.(htippen, )

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE:

§
§
BAYTOWN NAVIGATION, INC., et al.§
§
Debtors.
§
HSH NORDBANK AG,
§
§
Appellant,
§
§
V.
§
§
BAYTOWN NAVIGATION, INC., et al.§
§
Appellees.
§

Bankruptcy Case 11-35926
Civil Action H-12-36

OPINION AND ORDER
Pending before the Court in the above referenced appeal from
a Chapter 11 voluntary bankruptcy case is Appellees/Debtors and
Debtors-in-Possession Omega’s Navigation Enterprises, Inc. et al.’s
(“Omega’s) amended emergency motion to abate briefing schedule
(instrument #10).
Debtors

explain

that

a

December

19,

2011

order

of

the

Bankruptcy Court denied without prejudice two motions filed by HSH
Nordbank AG, as Senior Facilities Agent for a group of banks
(“Senior Lenders”)1:

(1) motion for an order dismissing Debtors’

1

Debtors in the jointly administered Bankruptcy Cases under
Case No. 11-35926 are Omega Navigation Enterprises, Inc., Galveston
Navigation, Inc. Beaumont Navigation, Inc., Carrolton Navigation,
Inc., Decatur Navigation, Inc., Fulton Navigation, Inc., Orange
Navigation, Inc., Baytown Navigation, Inc., and Omega Navigation
(USA), LLC. The Senior Facilities Agent states that Debtors are
“inter-related shipping companies” that borrowed hundreds of
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Cases or Converting Debtors’ Cases to Chapter 7 pursuant to 11
U.S.C. § 112(b), and (2) motion for an order lifting the automatic
stay pursuant to 11 U.S.C. § 362(d).

In the same order the

Bankruptcy Court granted the Debtors’ opposed motion to extend
exclusive period to file and solicit plans of reorganization
through June 30, 2012. The denial order stated that the Bankruptcy
Court would issue a formal order, but, before doing so, on December
19, 2011 the Bankruptcy Court ordered some parties, including
Debtors and the Senior Facilities Agent, to mediation, abated the
proceedings “for the purposes of the mediation, and I

understand

that to be in the best interest of everyone in this case,” and
indicated that she would not issue written opinions regarding the
denial order until the mediation concluded.

#10 at 3 n.3.

Judge Leif Clark, the United States Bankruptcy Judge for the
Western District of Texas, was appointed mediator.

The first

session took place in San Antonio, Texas on February 16 and 17,
2012.

A second session was held in Washington, D.C. on March 17

and 18, 2012.

Discussions continue among the parties, and Judge

Clark has not concluded the mediation.

Meanwhile on December 30,

2011, the Senior Facilities Agent appealed both the denial order
and the exclusivity order to this Court.

The appeal was docketed

on March 22, 2012, so Appellant’s initial brief is due on April 5,

millions of dollars from Senior Lenders with the debt secured by
eight tanker ships and their earnings.
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2012, with Appellees’ response to be filed 24 days later.

Fed. R.

Bankr. P. 8009(a).
Omega for Appellees states, “If the mediation is successful,
it will result in a global resolution that will render moot this
appeal.

This in turn will render moot the need for the Bankruptcy

court to issue a written opinion.”

#10 at 4.

If unsuccessful it

will take substantial time for the Bankruptcy Court to issue what
will

be

a

lengthy

opinion

underlying litigation.

after

five

days

of

trial

in

the

They further state that “the Debtors’

chapter 11 cases have been very extensively followed in the
international maritime shipping media, such that the filing of an
appeal brief by the Senior Facilities Agent prior to conclusion of
the mediation could have an adverse effect on the Debtors’ ongoing
business operations.”

For this reason they seek an extension of

the briefing deadlines and ask this Court to order the parties not
to file briefs until thirty days after Judge Clark states that the
mediation is concluded.
In response, insisting that Appellees’ contention, without any
supporting evidence, that filing a brief “could have an adverse
effect” on Appellees’ business does not entitle them to bar the
Senior Facilities Agent from its right to have its appeal heard,
the Senior Facilities Agent maintains that Appellees have failed to
show “cause.”

Senior Facilities Agent claims that continued delay

of the Bankruptcy court in entering findings on its final order is

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prejudicing
collateral

the
is

Senior
eroding.

Lenders

because

Appellant

the

cannot

value

of

foreclose

their

on

the

collateral unless the stay is lifted.
Senior Facilities Agent insists that it is entitled to have
the stay lifted as a matter of law. The Debtors’ highest valuation
of the collateral is that the ships as collateral are worth about
ten percent more that the over $242 million the Debtors owe the
Senior Lenders. Under 11 U.S.C. § 362(d)(1) a secured creditor who
is

prevented

by

the

automatic

stay

from

foreclosing

on

it

collateral is entitled to have its interest “adequately protected”
or the stay must be lifted to allow the creditor to foreclose.
Furthermore, the Senior Facilities Agent cites cases holding that
ten percent is not sufficient as an equity cushion2 to provide
protection; instead twenty percent is required, especially if the
Debtor is not making payments.
emphasizes the following:

The Senior Facilities Agent

both sides agree that the shipping

market is volatile; the Debtors have been trying to refinance their
debt to Senior Lenders or otherwise reorganize for more than 18
months; in that time there has been no real plan of reorganization;

2

An “equity cushion, a recognized form of “adequate
protection,” is “‘the value of the property, above the amount owed
to the creditor with a secured claim, that will shield that
interest from loss due to any decrease in the value of the property
during the time the automatic stay remains in effect.’”
In re
WorldCom, Inc., Case No. 02-13533, 2003 WL 22035051, *5 (Bkrtcy.
S.D. N.Y. January 30, 2003), quoting In re New Era Co., 125 B.R.
725, 728-29 (S.D.N.Y. 1991).
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in the nine months since the petition date, the Debtors have made
no adequate protection payments to the Senior Lenders; and the
value of the collateral has been depreciating.

They contend that

they are entitled to appeal the Bankruptcy Court’s final order now.
Court’s Decision
“When

a

bankruptcy

petition

is

filed,

§

362(a)

of

the

Bankruptcy Code provides an automatic stay of actions taken to
realize the value of collateral given by the Debtor.”

United

Savings Ass’n of Texas v. Timbers of Inwood Forest Associates, 484
U.S. 365, 365 (1988).

On the other hand, 11 U.S.C. § 362(d)(1)

provides, “On request of a party in interest and after notice and
a hearing, the
under

court shall grant relief from the stay provided

subsection

(a)

of

this

section,

such

as

terminating,

annulling, modifying, or conditioning such stay–-(1) for cause,
including lack of adequate protection of an interest in property of
such

party

in

interest.”

The

automatic

stay

keeps

secured

creditors from repossessing the collateral securing their claims,
but they are entitled to adequate protection of their security
interests against the depreciating value of collateral prior to
confirmation of a reorganization plan.
Ultimately a decision granting or denying a motion to lift
automatic stay pursuant to 11 U.S.C. § 362(d) is left to the
discretion of the Bankruptcy Judge and decided on a case-by-case
basis, and the decision may be overturned only upon a showing that

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the bankruptcy court abused its discretion. In re Fowler, 259 B.R.
856, 858 (Bkrtcy. E.D. Tex. 2001).

On appellate review, the

findings of a bankruptcy court will not be set aside unless clearly
erroneous, i.e., unless the district court is left with a definite
and firm conviction that a mistake has been made.
Quinlivan, 434 F.3d 314, 318 (5th Cir. 2005).

Carol v.

Here this Court does

not have the benefit of findings of fact by the Bankruptcy Court
regarding her denial of the motions to lift stay and dismiss or
convert the Debtors’ cases nor her decision to grant extension of
the exclusivity period.

Nevertheless her determination not to

issue such an opinion because mediation was in the best interests
of all parties in the case is well within her discretion and
Appellant has not shown that it was an abuse of discretion.

The

equitable nature of bankruptcy is realized in the bankruptcy
court’s effort to seek a balance between debtors and creditors, as
reflected in her decision here, taking into consideration all the
circumstances involved in the bankruptcy.
The movant bears the initial burden of showing “cause” for
relief from the automatic stay.

11 U.S.C. § 362(g)(1); In re

WorldCom, Inc., Case No. 02-13533, 2003 WL 22025051, *3-4 (Bkrtcy.
S.D. N.Y. January 30, 2003). The movant may satisfy that burden by
establishing that the value of the collateral is declining as a
result of the stay.

In re George, 315 B.R. 624, 628 (Bkrtcy. S.D.

Ga. 2004), citing In re Elmira Litho, Inc., 174 B.R. 892, 902-03

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(noting that a creditor may generally show that the collateral was
worth more at an earlier date than it will be in the future; or it
may show the threat of a decline by demonstrating a failure to
maintain property insurance or to keep the property in a good state
of repair)(and cases cited therein.).

The existence of an equity

cushion is not part of the secured creditor’s prima facie case of
cause;

rather the secured creditor must show either a decline in

value or the threat of a decline in value during the term of the
automatic stay by either quantitative or qualitative methods.
WorldCom, 2003 WL 22025051, *6, citing Elmira Litho, 174 B.R. at
903, 904.

If the movant fails to meet that burden, the Court will

dismiss the motion for relief from stay before the burden shifts to
the Debtors, who would otherwise bear the ultimate burden of
persuasion under § 362(g)(2).
Here,

the

Senior

WorldCom, 2003 WL 22025051, at *4.

Facilities

Agent

has

argued

about

the

requisite percentage for an adequate equity cushion and vaguely
contended that the collateral is depreciating in value, but he has
failed to provide evidence, quantitative or qualitative, of that
decline.
Accordingly, for all these reasons, the Court
ORDERS that Appellees/Debtors’ amended emergency motion to
abate briefing schedule (instrument #10) is GRANTED.

The parties

shall inform the Court when the mediation is concluded and the
Bankruptcy Judge has issued written findings.

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The Court further

ORDERS that the parties shall not to file briefs in this
action

until

thirty

days

after

Judge

Clark

states

that

the

mediation is concluded.
SIGNED at Houston, Texas, this

2nd

day of

April , 2012.

___________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE

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