Stewart et al

Filing 13

MEMORANDUM OPINION AND ORDER AFFIRMING ORDERS OF THE BANKRUPTCY COURT: The Court: DENIES the Homeowners' motion to dismiss (Dkt. No. 7 ); GRANTS the Appellants' motion to permit the filing of a brief out of time (Dkt. No. 8 ); AFFIRMS the Bankruptcy Court's orders denying the Trustee's motion to compromise and granting the Homeowners' motion for relief from the automatic stay (Dkt. Nos. 3-13; 3-14); and DENIES as MOOT the Appellants' motion to stay (Dkt. No. 5 ). Signed by Senior Judge Irene M. Keeley on 9/27/2018. (wrr)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
THOMAS H. FLUHARTY, Trustee of
the Bankruptcy Estate of John
Stewart Custom Woodworking, Inc.,
and JOHN and MARY STEWART,
Appellants,
v.

//

CIVIL ACTION NO. 1:17CV136
BANKRUPTCY NO. 1:16BK816
(Judge Keeley)

BLAKE STEWART and
LINDSEY STEWART,
Appellees.
MEMORANDUM OPINION AND ORDER AFFIRMING
ORDERS OF THE BANKRUPTCY COURT
Thomas H. Fluharty, Trustee of the Bankruptcy Estate of John
Stewart Custom Woodworking, Inc. (“Trustee”), and John and Mary
Stewart, appeal two orders entered by the United States Bankruptcy
Court for the Northern District of West Virginia (“Bankruptcy
Court”), denying the Trustee’s motion to compromise a certain civil
action, and granting Blake and Lindsey Stewart’s (the “Homeowners”)
motion for relief from the automatic stay otherwise applicable to
that action.
The primary question presented on appeal is whether the claims
asserted by the Homeowners in the underlying state court civil
action are property of the bankruptcy estate which can be settled
by a compromise offered by the Trustee. Finding that the claims at

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issue are not property of the estate subject to the Trustee’s
authority to settle, the Court AFFIRMS the Bankruptcy Court.
I. BACKGROUND1
A.

The State Court Proceedings
In June 2016, the Homeowners, Blake and Lindsey Stewart, sued

Custom Woodworking Spec. Inc. (“Spec”) in the Circuit Court of
Monongalia County, West Virginia (“the Civil Action”), seeking
approximately $270,000.00 in damages related to the allegedly poor
construction of their home. After opposing counsel advised them
that Spec was not the appropriate party defendant, the Homeowners
amended their complaint to add John Stewart Custom Wordworking,
Inc. (“the Debtor”) as a defendant. The Civil Action asserts claims
against the Debtor for breach of contract, breach of fiduciary
duties, and misappropriation of funds paid by them during the
construction of their home. The Civil Action was automatically
stayed when the Debtor filed a petition for Chapter 7 bankruptcy
relief on August 5, 2016 (Dkt. No. 3-4).2

1

The facts are drawn from the parties’ briefs and the
designated record on appeal. The parties do not dispute the factual
and procedural history relevant to the pending appeal.
2

Pursuant to 11 U.S.C. § 362(a)(1), the filing of a
bankruptcy petition stays the continuation of judicial proceedings
against the debtor.
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Based

on

information

they

learned

during

the

initial

creditors’ meeting on September 14, 2016, the Homeowners moved for
leave to file a second amended complaint in the Circuit Court of
Monongalia County to add the Debtor’s sole shareholders, John and
Mary Stewart (“the Shareholders”),3 as individual defendants under
a veil-piercing theory. Concerned that granting the motion to amend
would violate the automatic stay, the Circuit Court declined to
take any further action in the case absent a ruling from the
Bankruptcy Court that the stay did not apply to the Homeowners’
claims against the Shareholders. The Homeowners then sought relief
from the automatic stay from the Bankruptcy Court (Dkt. No. 3-5).
B.

The Bankruptcy Proceedings
During a January 2017 hearing before the Bankruptcy Court on

the Homeowners’ motion for relief from the stay, the parties
initially agreed that claims based on alter ego theories belong
first to a Chapter 7 trustee and can be brought by a creditor only
if the trustee abandons the claims. See In re Charles Edwards
Enterprise,

Inc.,

344

B.R.

788

(Bankr.

N.D.W.

Va.

2006).

Consequently, the Trustee initiated settlement discussions with the
Shareholders.

3

The Homeowners are not related to the Shareholders.
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Several months later, on May 5, 2017, the Trustee filed a
motion to compromise the Civil Action (Dkt. No. 3-9). The terms of
the

proposed

settlement

obligated

the

Shareholders

to

pay

$28,475.00 to the estate to settle the Homeowners’ claims. The
Homeowners objected to the proposed settlement, however, asserting
that the Trustee should abandon the estate’s interest, if any, in
their veil-piercing claims against the Shareholders (Dkt. No. 310). During a hearing on the proposed settlement,4 the Bankruptcy
Court questioned whether the Homeowners’ veil-piercing claims
actually belong to the bankruptcy estate and can be settled in
conjunction with a compromise offered by the Trustee, or whether
they fall outside the property of the estate and thus belong
exclusively to the Homeowners.
C.

The Bankruptcy Court Decisions
On July 20, 2017, the Bankruptcy Court denied the Trustee’s

motion to compromise and granted the Homeowners’ motion for relief
from the automatic stay (Dkt. Nos. 3-13; 3-14). In a thoroughly
reasoned Memorandum Opinion, it first concluded that, by seeking to
compromise the Homeowners’ veil-piercing claims, the Trustee sought

4

Pursuant to Fed. R. Bankr. P. 9019, “[o]n motion by the
trustee and after notice and a hearing, the court may approve a
compromise or settlement.”
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to settle claims that are not property of the estate and thus are
beyond his authority to settle (Dkt. No. 3-2 at 7-9). Having
determined that the claims involving veil-piercing properly belong
to the Homeowners, the Bankruptcy Court then found good cause to
lift the automatic stay, thereby allowing the Homeowners to pursue
their veil-piercing claims against the Shareholders in the Circuit
Court. Id. at 10-11.
On

August

7,

2017,

the

Trustee

and

the

Shareholders

(collectively, “the Appellants”) noted their joint appeal from this
ruling (Dkt. No. 1). The Homeowners moved to dismiss the appeal on
October 17, 2017, based on the Appellants’ failure to timely file
a brief in support of their appeal (Dkt. No. 7). On October 24,
2017, the Appellants simultaneously moved to file a brief out of
time and filed their opening brief (Dkt. Nos. 8;9). The appeal is
now fully briefed, and for the reasons that follow, the Court
affirms the Bankruptcy Court.
II. JURISDICTION
District courts have jurisdiction to hear appeals “from final
judgments, orders, and decrees . . . of bankruptcy judges entered
in cases and proceedings referred to the bankruptcy judges under
section 157.” 28 U.S.C. § 158(a).

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III. STANDARD OF REVIEW
A district court sitting in its capacity as a bankruptcy
appellate court reviews “findings of fact only for clear error, but
consider[s] the relevant legal questions de novo.” In re Varat
Enters., Inc., 81 F.3d 1310, 1314 (4th Cir. 1996). Therefore, when
the parties do not dispute the relevant facts, the Court’s review
is de novo. See In re Jones, 591 F.3d 308, 310 (4th Cir. 2010). A
decision to lift the automatic stay, however, is “within the
discretion of the bankruptcy judge and this decision may be
overturned on appeal only for abuse of discretion.” In re Robbins,
964 F.2d 342, 345 (4th Cir. 1992), as amended (May 27, 1992)
(citing In re Boomgarden, 780 F.2d 657, 660 (7th Cir. 1985).
IV. DISCUSSION
A.

The Court declines to dismiss the appeal based on the late
filing of the Appellants’ brief.
As an initial matter, the Court must decide whether this case

is subject to dismissal based on the Appellants’ failure to comply
with the Federal Rules of Bankruptcy Procedure. Pursuant to Rule
8018, “unless the district court . . . excuses the filing of briefs
or

specifies

different

time

limits,”

a

litigant

appealing

a

decision of a bankruptcy court “must serve and file a brief within
30 days after the docketing of notice that the record has been

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transmitted or is available electronically.” Fed. R. Bankr. P.
8018(a)(1). If an appellant fails to timely file a brief, “an
appellee may move to dismiss the appeal.” Fed. R. Bankr. P.
8018(a)(4).
This Court received the designated record on appeal from the
Clerk of the Bankruptcy Court on September 12, 2017 (Dkt. No. 3).
The Clerk then issued a “Notice of Receipt of Designated Record on
Appeal and Bankruptcy Briefing Schedule” on the same day, which
required the Appellants to file their opening brief by October 12,
2017 (Dkt. No. 4). On October 17, 2017, after no opening brief had
been filed, the Homeowners moved to dismiss the appeal, pursuant to
Federal Rule of Bankruptcy Procedure 8018(a)(4) (Dkt. No. 7).
Seven days later, the Appellants filed their opening brief,
together with a motion to permit the filing of a brief out of time
(Dkt. No. 8). While the Appellants acknowledge that their opening
brief was due on October 12, 2017, they state that the “subtlety of
the implicit meaning of the transmission of the notice of the
record was simply overlooked” and seek permission to file their
brief out of time. Id. at 2. The Homeowners oppose the extension
and continue to seek dismissal of the appeal (Dkt. No. 10).

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Under Rule 8018(a)(4), the Court has the discretion to dismiss
an appeal if an appellant fails to file a brief on time. Fed. R.
Bankr. P. 8018(a)(4). In exercising its discretion, the Court must:
(1) make a finding of bad faith or negligence; (2) give
the appellant notice and an opportunity to explain the
delay; (3) consider whether the delay had any possible
prejudicial effect on the other parties; or (4) indicate
that it considered the impact of the sanction and
available alternatives.
In re Serra Builders, Inc., 970 F.2d 1309, 1311 (4th Cir. 1992). In
applying this test, the Court must “consider and balance all
relevant factors,” and “bear in mind that, although dismissal is an
option, less drastic alternatives must be considered,” because
dismissal “is a harsh sanction which . . . must not [be] impose[d]
lightly.” In re SPR Corp., 45 F.3d 70, 73-74 (4th Cir. 1995)
(quoting Serra, 970 F.2d at 1311).
Here, the Appellants promptly responded to the Homeowners’
motion to dismiss and provided an explanation for the two-week
delay in filing their opening brief. Although the Court’s briefing
schedule clearly indicated that the brief was due thirty (30) days
from

September

12,

2017,

the

Court

credits

the

Appellants’

explanation for their late filing. Moreover, the short length of
the delay, combined with a lack of bad faith on the part of the

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Appellants or any resulting prejudice to the Homeowners, weigh
against dismissal in this case.
Accordingly, the Court declines to dismiss the appeal based on
the late filing of the Appellants’ opening brief, DENIES the
Homeowners’

motion

to

dismiss

(Dkt.

No.

7),

and

GRANTS

the

Appellants’ motion to permit the filing of a brief out of time
(Dkt. No. 8).
B.

The Bankruptcy Court did not err by denying the Trustee’s
motion to compromise the Homeowners’ claims.
Turning next to the merits of this appeal, the Appellants

argue that the Bankruptcy Court erred by concluding that the veilpiercing claims against the Shareholders are personal to the
Homeowners, and therefore do not belong to the bankruptcy estate of
the Debtor. The Appellants contend that these claims are the
exclusive property of the bankruptcy estate and

thus subject to

the Trustee’s authority to settle. The central issue on appeal is
whether

the

Bankruptcy

Court

erred

in

determining

that

the

Homeowners’ veil-piercing claims are not property of the estate.
For the reasons that follow, the Court concludes that it did not
err.
1.

Alter Ego Doctrine and Piercing the Corporate Veil

The filing of a bankruptcy petition creates a bankruptcy
estate encompassing “all legal or equitable interests of the debtor
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in property as of the commencement of the case.” 11 U.S.C. §
541(a)(1). Property interests in bankruptcy are created and defined
by state law, unless federal law requires a different result. See
Butner v. United States, 440 U.S. 48, 55 (1979). Thus, “the
question of whether a veil-piercing claim is property of the
estate—and therefore properly asserted by the trustee—is a matter
determined by the source of law giving rise to the veil-piercing
claim.” In re Cabrini Med. Ctr., 489 B.R. 7, 16 (Bankr. S.D.N.Y.
2012) (citing St. Paul Fire and Marine Ins. Co. v. PepsiCo, Inc.,
884 F.2d 688, 700 (2d Cir. 1989)).
Concerning corporations, West Virginia law recognizes that
“separately incorporated business are separate entities and that
corporations are separate from their shareholders.” Syl. Pt. 3,
Southern Elec. Supply Co. v. Raleigh County Nat'l Bank, 320 S.E.2d
515 (W. Va. 1984). West Virginia law provides, however, that
“[j]ustice may require that courts look beyond the bare legal
relationship of the parties to prevent the corporate form from
being used to perpetrate injustice, defeat public convenience or
justify

wrong.

However,

the

corporate

form

will

never

be

disregarded lightly.” Laya v. Erin Homes, Inc., 352 S.E.2d 93, 97
(W. Va. 1986) (quoting Southern States Cooperative, Inc. v. Dailey,
280 S.E.2d 821, 827 (W. Va. 1981) (quotation marks omitted)).

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Under West Virginia law, piercing the corporate veil does not
constitute an independent cause of action; rather, the alter ego
doctrine is an equitable remedy invoked to disregard the corporate
entity in order to find the shareholders liable for the debts of
the corporation. Therefore, a party seeking to pierce the corporate
veil must have a separate cause of action for which it seeks to
recover damages from the corporation.
In a case involving an alleged breach of contract, courts
normally utilize a two-prong test to pierce the corporate veil and
“hold the shareholder(s) actively participating in the operation of
the business personally liable for such breach to the party who
entered into the contract with the corporation.” Syl. Pt. 3, Laya,
352 S.E.2d at 94. First, the “disregard of formalities prong”
requires “such unity of interest and ownership that the separate
personalities

of

the

corporation

and

of

the

individual

shareholder(s) no longer exist.” Second, the “fairness prong”
requires that “an inequitable result would occur if the acts are
treated as those of the corporation alone.” Id.

Indeed, “grossly

inadequate capitalization combined with a disregard for corporate
formalities, causing basic unfairness, are sufficient to pierce the
corporate veil.” Id. at Syl. Pt. 5. Thus, under West Virginia law,
courts must consider “both the actions of the corporation with

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respect to corporate formalities and the effect that those actions
have

on

a

third-party

[sic]

seeking

to

recover

from

the

corporation’s shareholders” (Dkt. No. 3-12 at 7).
2.

Alter Ego Theories as Property of a Bankruptcy Estate

In In re Charles, the bankruptcy court held that “[a]lter ego
theories . . . are the exclusive property of the bankruptcy estate
and cannot be pursued by any other party other than the Chapter 7
trustee in the absence of abandonment or grant of derivative
standing.” 344 B.R. at 790. The Appellants rely on In re Charles
for the broad proposition that claims based on alter ego theories,
such as those asserted here by the Homeowners, belong first to the
Trustee. Other courts, however, have recognized that determining
whether veil-piercing claims are property of a bankruptcy estate
requires a more nuanced determination of whether those claims
accrue individually to the claimant or claimants, or generally to
the corporation.
As did the Bankruptcy Court, this Court finds persuasive the
reasoning in In re Cabrini Med. Ctr., which explained that
[a] creditor has standing to bring an alter ego claim
when the harm alleged in support of the claim is personal
to them; a creditor lacks standing to bring such a claim
when the harm alleged is general. See St. Paul Fire and
Marine Ins. Co., 884 F.2d at 704 (“If . . . the cause of
action is a general one, and does not accrue to [the
creditor] individually, [then the creditor] cannot seek
individual relief outside of the bankruptcy court.”).
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Accord Picard v. JP Morgan Chase & Co., 460 B.R. 84, 96
(Bankr. S.D.N.Y. 2011) (quoting Koch Refining v. Farmers
Union Cent. Exchange, Inc., 831 F.2d 1339, 1349 (7th Cir.
1987) (“To determine whether an action accrues
individually to a claimant or generally to the
corporation, a court must look to the injury for which
relief is sought and consider whether it is peculiar and
personal to the claimant or general and common to the
corporation and creditors.”)).
489 B.R. at 17 (internal quotation marks omitted). In other words,
courts must determine whether the harm alleged in support of a
veil-piercing claim is “peculiar and personal” to the claimant(s)
or “general and common” to the corporation and its creditors.
Consistent with this authority, the Bankruptcy Court held that
“alter ego theories are the exclusive property of the bankruptcy
estate only when the harm incurred is general to all creditors or
when the estate possesses a direct cause of action against a
shareholder.” On the other hand, “when the resulting injury is
specific to an individual creditor or group of creditors, . . . the
injured creditor or creditors are the exclusive owners of the claim
even if the claim relies, in part, on a veil-piercing theory” (Dkt.
No. 3-12 at 4). In light of this, the court recognized that it was
tasked with determining whether the Homeowners’ claims are “general
to all creditors or specific to them,” and that this determination
“requires an analysis of whether the harm [alleged] is peculiar to
the Homeowners or common to all creditors.” Id. at 8.

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This Court agrees with the Bankruptcy Court that a veilpiercing claim becomes the exclusive property of the bankruptcy
estate “only when the harm incurred is general to all creditors,”
and thus remains the property of the claimant “when the resulting
injury is specific to” that claimant.
3.

Analysis of the Harm Alleged

Given that alter ego claims are the exclusive property of the
bankruptcy estate only when the harm incurred is general to all
creditors, the Court must next determine whether the harm alleged
in support of the Homeowners’ veil-piercing claims is “peculiar and
personal” to them or “general and common” to the Debtor and its
creditors. The Homeowners assert a series of claims related to the
allegedly inadequate construction of their home by the Debtor.
Relevant here is their attempt to hold the Shareholders liable for
their

anticipated

recovery

because

the

Debtor,

through

its

Shareholders, purportedly failed to maintain corporate formalities
and

operated

a

home

construction

business

without

adequate

capitalization. See Dkt. Nos. 3-5 at 3; 11 at 6.
According to the Appellants, the financial injury asserted by
the Homeowners, if proven, would harm “all corporate creditor [sic]
and shareholders . . . pro rata” and thus are general and common
(Dkt. No. 12 at 7-8). The Homeowners respond that the claims

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asserted against the Shareholders in the Civil Action - and the
alleged harms that stem from those claims – relate solely to the
poor construction of their home and therefore are personal to them
(Dkt. No. 11 at 8, 11-12).
Courts recognize that a claim is “personal” to a creditor
“[w]hen a third party has injured not the bankrupt corporation
itself but a creditor of that corporation....” Picard, 460 B.R. at
89 (quoting Steinberg v. Buczynski, 40 F.3d 890, 892–93 (7th Cir.
1994)). In contrast, a claim is general “if [there is] . . . no
particularized injury arising from it, and [it] could be brought by
any creditor of the debtor....” St. Paul Fire and Marine Ins. Co.,
884 F.2d at 701.
Here, the Homeowners assert claims for misappropriation of
funds and breach of fiduciary duties related to their alleged
payment of funds to the Debtor for the construction of their home.
Based on information contained in the Debtor’s Bankruptcy Petition
(Dkt. No. 3-4), as well as testimony provided by the Shareholders
during the initial meeting of the creditors, the Homeowners allege
that the Shareholders paid themselves and others salaries from the
funds advanced to the Debtor for their home’s construction (Dkt.
No. 3-5 at 3-4). Thus, while arguing somewhat generally that the
Debtor failed to respect corporate formalities and was grossly

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undercapitalized,

an

assertion

potentially

available

to

all

creditors, the Homeowners also specifically allege that because the
Debtor was undercapitalized, it misappropriated money advanced by
the Homeowners solely for the construction of their home (Dkt. No.
3-5 at 3-4).
Critically,

the

Bankruptcy

Court

recognized

that

the

Homeowners “specifically point to the Debtor’s misappropriation of
funds directed to [it] for the construction of the Homeowner’s
[sic] residence as evidence of the Debtor’s undercapitalization by
asserting that the Debtor needed to misappropriate those funds in
order to conduct its ordinary business” (Dkt. No. 3-12 at 8). This
Court

agrees

with

the

Bankruptcy

Court

that

the

purported

“connection between the Debtor’s alleged gross undercapitalization
and the alleged misappropriation of funds paid to the Debtor for
construction of the Homeowners’ residence demonstrates a injury
particular to the Homeowners.” Id. at 8-9 (emphasis added). Because
the specific harm alleged by the Homeowners is different from the
general harm suffered by the creditors of the Debtor generally, the
veil-piercing claims at issue remain the property of the Homeowners
and do not belong to the bankruptcy estate.
Finally, to the extent that the Appellants contend that the
Bankruptcy Court should have given deference to the Trustee’s

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decision to settle the Homeowners’ claims because he is entitled to
exercise reasonable business judgment (Dkt. No. 12 at 7), this
contention

is

unavailing.

As

noted

by

the

Bankruptcy

Court,

although trustees are entitled to exercise business judgment in
pursuing and settling causes of action owned by the bankruptcy
estate, they are not entitled to deference in determining whether
property belongs to the estate. See Dkt. No. 3-12 at 9 n.5.
Accordingly, the Bankruptcy Court did not err by declining to
accept the Trustee’s conclusion that the proposed settlement of the
Homeowners’ claims involved estate property.
C.

The Bankruptcy Court did not err by granting the Homeowners’
motion for relief from the automatic stay.
Although the parties devote almost no briefing to the issue on

appeal, the Appellants also seek to reverse the Bankruptcy Court’s
order granting the Homeowners’ motion for relief from the automatic
stay (Dkt. Nos. 1; 9 at 9). They contend that the Bankruptcy
Court’s decision constitutes an abuse of discretion.
It

is

well

established

that

“[a]

decision

to

lift

the

automatic stay under section 362 of the [Bankruptcy] Code is within
the discretion of the bankruptcy judge.” In re Robbins, 964 F.2d at
345; see also Claughton v. Mixon, 33 F.3d 4, 5 (4th Cir. 1994)
(“Congress . . . has granted broad discretion to bankruptcy courts
to lift the automatic stay to permit the enforcement of rights
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against property of the estate.”). According to section 362(d), the
bankruptcy court may lift the stay “for cause.” See 11 U.S.C. §
362(d)(1).
Because the Bankruptcy Code does not define “cause,” courts
“must determine when discretionary relief is appropriate on a
case-by-case basis”. In re Robbins, 964 F.2d at 345 (citing In re
Mac Donald, 755 F.2d 715, 717 (9th Cir. 1985)). In exercising their
discretion, bankruptcy courts consider the following factors when
deciding whether cause exists to lift the automatic stay:
(1) whether the issues in the pending litigation involve
only state law, so the expertise of the bankruptcy court
is unnecessary; (2) whether modifying the stay will
promote judicial economy and whether there would be
greater interference with the bankruptcy case if the stay
were not lifted because matters would have to be
litigated in bankruptcy court; and (3) whether the estate
can be protected properly by a requirement that creditors
seek enforcement of any judgment through the bankruptcy
court.
Id. (citing In re Mac Donald, 755 F.2d at 717; In re Holtkamp, 669
F.2d 505, 508-09 (7th Cir. 1982); In re Revco D.S., Inc., 99 B.R.
768, 776-77 (N.D. Ohio 1989); In re Pro Football Weekly, Inc., 60
B.R. 824, 826-27 (N.D. Ill. 1986); Broadhurst v. Steamtronics
Corp., 48 B.R. 801, 802-03 (D. Conn. 1985)).
The Fourth Circuit has instructed that, in considering these
factors, courts “must balance potential prejudice to the bankruptcy
debtor’s estate against the hardships that will be incurred by the
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person seeking relief from the automatic stay if relief is denied.”
Id. (citing In re Peterson, 116 B.R. 247, 249 (D. Colo. 1990)). It
has further observed that, “[w]hile Congress intended the automatic
stay to have broad application, the legislative history to section
362 clearly indicates Congress’ recognition that the stay should be
lifted in appropriate circumstances.” Id.
Here, the Bankruptcy Court analyzed each of the factors from
In re Robbins in determining that cause existed to lift the
automatic stay (Dkt. No. 3-12 at 10-11). First, it found that the
claims asserted by the Homeowners involve only issues of state law
and, therefore, that the expertise of the bankruptcy court is
“unnecessary.” Id. Next, it found that lifting the stay would
promote judicial economy as the Civil Action was “already underway”
in Circuit Court, and because the Homeowners sought to proceed
against the Shareholders and not the Debtor. Id. at 11. Finally,
the Bankruptcy Court concluded that the Debtor’s estate did not
need protection relating to the Civil Action because the Homeowners
intended to seek damages only from the Shareholders, and the Debtor
would “soon be liquidated and dissolved.” Id.
In addition, the Bankruptcy Court applied the appropriate
balancing test by weighing the potential prejudice to the Debtor’s
estate

against

the

hardships

that

19

would

be

incurred

by

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ORDERS OF THE BANKRUPTCY COURT
Homeowners if relief from the automatic stay were denied. While
recognizing that the Trustee could be implicated in some discovery
in the Civil Action, the court correctly observed that, “the Debtor
and its estate will otherwise by undisturbed by the proceeding,”
and

that

the

bankruptcy

estate

“will

not

be

subjected

to

a

judgment.” Id. It further recognized that, on the other hand, the
Homeowners would suffer hardship if the stay were not lifted as the
denial of such relief would “unduly delay the[ir] ability to
resolve the dispute” with the Shareholders. Id. Finally, the
Bankruptcy Court again emphasized that, in the Civil Action, the
Homeowners intended to proceed solely against the Shareholders and
that no party had moved to extend the automatic stay to the
Shareholders.
For these reasons, it is this Court’s opinion that the
Bankruptcy Court did not abuse its discretion by lifting the
automatic stay in this case.
V. CONCLUSION
In conclusion, for the reasons discussed, the Court:
•

DENIES the Homeowners’ motion to dismiss (Dkt. No. 7);

•

GRANTS the Appellants’ motion to permit the filing of a
brief out of time (Dkt. No. 8);

20

FLUHARTY, ET AL., v. STEWART, ET UX.

1:17CV136

MEMORANDUM OPINION AND ORDER AFFIRMING
ORDERS OF THE BANKRUPTCY COURT
•

AFFIRMS
Trustee’s

the

Bankruptcy

motion

to

Court’s

compromise

orders
and

denying

the

granting

the

Homeowners’ motion for relief from the automatic stay
(Dkt. Nos. 3-13; 3-14); and
•

DENIES as MOOT the Appellants’ motion to stay (Dkt. No.
5).

It is so ORDERED.
The Court

DIRECTS

the Clerk to transmit copies of this

Memorandum Opinion and Order to counsel of record, to enter a
separate judgment order, and to remove this case from the Court’s
active docket.
DATED: September 27, 2018.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE

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