Cain v. Rackspace US, Inc. et al

Filing 7

Order on Bankruptcy Appeal Affirming appeal. Signed by Judge Xavier Rodriguez. (rg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
GARY L. CAIN,
Appellant,
v.
RACKSPACE US, INC.,
WINDCREST ECONOMIC
DEVELOPMENT COMPANY, LLC,
BUDDIN PROPERTIES, LLC,

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Civil Action No. SA-14-MC-333-XR

Appellees.
ORDER
On this date, the Court considered Appellant Gary Cain’s appeal of the Bankruptcy
Court’s order partially lifting the automatic stay in Cain’s civil litigation that is ongoing in
state court. After careful consideration, the Bankruptcy Court is AFFIRMED.
BACKGROUND
In addition to this bankruptcy action, Cain is a defendant in both civil and criminal
state court actions. Doc. No. 5 at p. 2. Under 11 U.S.C. § 362, Cain’s state civil case was
automatically stayed when he filed for bankruptcy in August of 2013. Doc. No. 6 at p. 5.
Thereafter, the Bankruptcy Court partially lifted the automatic stay so as to allow the civil
action to proceed, but maintained it with regard to the debtor’s estate. Id. at 8. On appeal,
Cain requests that this Court reverse the Bankruptcy Court’s order partially lifting the stay in
his state civil case. Doc. No. 5. Cain argues that failure to maintain the stay will inhibit his
ability to adequately defend himself in the civil case.1 Id. Specifically, Cain contends that if
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It is worth noting at the outset that the civil case was ongoing for four years before Cain filed for bankruptcy.
Doc. No. 6.

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the civil case proceeds, he will be forced to assert his Fifth Amendment right against selfincrimination and thus be prejudiced because he is the key witness for the defense in the civil
fraud action. Id.
DISCUSSION
When a party files for bankruptcy, an automatic stay goes into effect with respect to
any other litigation to which that person is a party. 11 U.S.C. § 362. A bankruptcy court has
authority to grant relief “by terminating, annulling, modifying, or conditioning such stay …
for cause.” 11 U.S.C. §362(d)(1).

This statutory provision has been interpreted to give

bankruptcy courts broad discretion to modify, or even lift, an automatic stay. In re Mirant
Corp., 440 F.3d 238, 245 (5th Cir. 2006). Accordingly, a district court reviews a bankruptcy
court’s determination with respect to the modification of an automatic stay for abuse of
discretion. Id. at 252.
In general, a bankruptcy court abuses its discretion in lifting or modifying an automatic
stay only if it applies an improper legal standard or bases its decision on clearly erroneous
facts. See In re Butan Valley, N.V., 2009 WL 6509349, at *2 (Bankr. S.D. Tex. 2009); see also
In re Cahill, 428 F.3d 536, 539 (5th Cir. 2005). Determining whether sufficient cause exists
for a bankruptcy court to modify a § 362 stay requires a case-by-case analysis. Matter of
Reitnauer, 152 F.3d 341, 343 n.4 (5th Cir. 1998). In making this determination, a district
court weighs the purpose of the automatic stay against the interests of the debtor and
creditor(s) involved in the bankruptcy proceeding. Prince v. CMS Wireless LLC, 2012 WL
1015001, at *4 (E.D. Tex. 2012).

In particular, the district court looks to whether the

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bankruptcy court’s modification of the stay promotes or impedes the purposes behind § 362. In
re U.S. Lines, Inc., 197 F.3d 631, 640 (2d Cir. 1999).
According to the legislative history of § 362, the stay is intended to provide the debtor
with a “breathing spell from his creditors.” Teachers Ins. and Annuity Ass’n of Am., 803 F.2d
61, 64 (2d Cir. 1986) (quoting S. Rep. No. 989, 95th Cong., 2d Sess. 54-55 (1978)); see also
Reliant Energy Servs., Inc. v. Enron Can. Corp., 349 F.3d 816, 825 (5th Cir. 2003) (noting
that § 362 stay is intended to protect debtors). The stay also protects creditors. It does so by
allowing the bankruptcy court to ensure equal treatment and fair disbursement of a debtor’s
assets and preventing a run on the courthouse. Hunt v. Baker’s Trust Co., 799 F.2d 1060, 1069
(5th Cir. 1986).
The Bankruptcy Court’s decision to maintain the stay on Cain’s estate ensures that
these purposes have not been undermined. Cain’s estate still gets the intended “breathing
spell” and allows the Court to fashion a repayment plan which protects the rights of his
creditors. Cain has not presented evidence showing that lifting the automatic stay on his
pending civil action runs in contravention to the above purposes. Bankruptcy judges possess
wide latitude to assess whether lifting the stay is appropriate and a variety of justifications for
modifying automatic stays have been deemed an appropriate exercise of discretion on review.
See e.g. BroadStar Wind Sys. Grp. LLC. v. Stephens, 459 F.App’x. 351 (5th Cir. 2012)
(granting relief from an automatic stay to allow declaratory judgment in civil action was not an
abuse of discretion); In re Kemble, 776 F.2d 802 (9th Cir. 1985) (lifting automatic stay on retrial of damages determination was not an abuse of discretion when extensive preparation for
re-trial made proceeding efficient).

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Cain cites no authority indicating that the preservation of a debtor’s Fifth Amendment
rights is considered a legitimate purpose of a § 362 stay. While parallel civil and criminal
proceedings can raise strategic issues for a defendant, nothing suggests that the § 362 stay was
intended to ameliorate these practical problems. Cf. United States v. Kordel, 397 U.S. 1
(1970) (finding that no constitutional rights were violated by parallel proceedings, despite
practical difficulties faced by a defendant in such a scenario). Accordingly, the Court finds
that the Bankruptcy Court did not abuse its discretion in partially lifting the stay.
CONCLUSION
For the foregoing reasons, Appellant’s request that this Court reverse the Bankruptcy
Court’s modification of the § 362 stay is DENIED. The order of the Bankruptcy Court is
AFFIRMED.

SIGNED this 10th day of July, 2014.

XAVIER RODRIGUEZ
UNITED STATES DISTRICT JUDGE

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