Hector J. Santiago and Helen H. Santiago

Docket 48, 59.1
Docket 54.2
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: ) Case No. 10-17135
)
HECTOR J. SANTIAGO and ) Chapter 13
HELEN H. SANTIAGO, )
) Judge Pat E. Morgenstern-Clarren
Debtors. )
) MEMORANDUM OF OPINION AND
) ORDER DENYING MOTION FOR
) STAY
On February 11, 2011, this court entered an order granting in part and denying in part the
motion of BAC Home Loan Servicing, LP (BAC) to quash a subpoena issued by the United
States Trustee (UST) in connection with a Bankruptcy Rule 2004 examination. BAC is currently
seeking to appeal that decision and has requested a stay from this court pending appeal. The1
UST opposes the stay request. For the reasons discussed below, BAC’s motion for stay is2
denied.
THE ORDER
The UST, with court authority granted in response to an unopposed motion, issued a
subpoena which required BAC to appear through a knowledgeable officer or agent and to
produce documents in connection with a Rule 2004 examination. The UST sought the
examination to determine whether the proof of claim filed by BAC in this case is valid, or
whether it includes objectionable charges. Specifically, the UST asked for an accounting of
BAC’s prepetition arrearage and information as to the reasonableness of charges included in its
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claim; BAC’s policies and procedures for charging foreclosure costs and attorney fees as they
applied to the debtors’ account; and documents and other information that BAC relied on in
signing the proof of claim filed by it in the debtors’ bankruptcy case.
BAC moved to quash the subpoena, arguing that the examination exceeded the scope of
the UST’s powers and that the UST was not a party in interest; that the time and location of the
examination did not comport with the Bankruptcy Rules; and that certain topics of examination
and document requests were objectionable. After oral argument, the court entered a
memorandum of opinion and order which granted the motion to quash as to the location of the
examination and denied the remainder of the motion. BAC filed a notice of appeal or, in the
alternative, motion for leave to appeal that order, and elected to have the appeal heard by the
district court.
DISCUSSION
A. Stay Pending Appeal
Bankruptcy Rule 8005 provides for a stay pending appeal:
A motion for a stay of the judgment, order, or decree of a
bankruptcy judge . . . must ordinarily be presented to the
bankruptcy judge in the first instance. Notwithstanding Rule 7062
but subject to the power of the district court and the bankruptcy
appellate panel reserved hereinafter, the bankruptcy judge may
suspend or order the continuation of other proceedings in the case
under the Code or make any other appropriate order during the
pendency of an appeal on such terms as will protect the rights of all
parties in interest. . . .
FED. R. BANKR. P. 8005. A stay is an exercise of judicial discretion and the propriety of issuing a
stay depends on the circumstances of a particular case. Nken v. Holder, 129 S. Ct. 1749, 1760
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(2009). The “party requesting a stay bears the burden of showing that the circumstances justify
an exercise of that discretion.” Id. at 1761.
These factors are to be considered and balanced in determining whether a stay should be
granted:
(1) the likelihood that the party seeking the stay will prevail on the
merits of the appeal;
(2) the likelihood that the party seeking the stay will be irreparably
harmed absent a stay;
(3) the prospect that others will be harmed if the court grants the stay;
and
(4) the public interest in granting the stay.
Michigan Coalition of Radioactive Material Users, Inc. v. Griepentrog, 945 F.2d 150, 153 (6th
Cir. 1991); In re Best Reception Sys., Inc., 219 B.R. 988, 992-94 (Bankr. E.D. Tenn. 1998).
“These factors are not prerequisites that must be met, but are interrelated considerations that
must be balanced together.” Griepentrog, 945 F.2d at 153.
B. The Motion
1. Are the movants likely to prevail on appeal?
As discussed in Griepentrog:
the probability of success that must be demonstrated is inversely
proportional to the amount of irreparable injury plaintiffs will
suffer absent the stay. Simply stated, more of one excuses less of
the other. This relationship, however, is not without its limits; the
movant is always required to demonstrate more than the mere
‘possibility’ of success on the merits. For example, even if a
movant demonstrates irreparable harm that decidedly outweighs
any potential harm to the defendant if a stay is granted, he is still
required to show, at a minimum, serious questions going to the
merits.
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Id. at 153-54 (internal quotation marks and citations omitted).
The UST argues that BAC’s appeal is not likely to succeed on both procedural and
substantive grounds. As to the former, the UST argues that the court’s discovery order is
interlocutory and not subject to review at this point in the proceedings. As to the latter, the UST
contends that the case law is contrary to BAC’s position. BAC takes the opposite position on
both points.
The UST’s argument on these points is the stronger one. As to the procedural issue, the
court finds that the district court decision of In re Gray, No. 11-10640, 2011 WL 902733 (E.D.
Mich. Mar. 15, 2011) is persuasive authority. There, a district court in this circuit denied a
creditor’s motion for leave to appeal a bankruptcy court’s Rule 2004 order entered on the motion
of a United States trustee. The district court under very similar facts concluded that the order
was not a final order appealable as of right, was not appealable as of right under the collateral
order doctrine, and was not the type of order meriting interlocutory review. Applying that
reasoning here leads this court to conclude that it does not appear likely that BAC will succeed
on its appeal. See also Countrywide Home Loans, Inc. v. Office of the United States Trustee, No.
08-617, 2008 WL 2388285 (W.D. Pa. June 11, 2008) (denying leave to appeal a bankruptcy
court’s order overruling objections to a Rule 2004 examination to be conducted by the United
States trustee and motion to quash the related subpoena).
As to the substantive prong, the UST’s position is again stronger, for the reasons stated in
this court’s memorandum of opinion and also in the UST’s response to the motion for a stay.
For these reasons, the court concludes that this factor does not weigh in favor of granting
a stay.
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2. Will the movants suffer irreparable harm without a stay?
BAC argues that it will suffer irreparable harm absent a stay because it will be required to
produce the documents, it will be required to expend time and money preparing and submitting a
witness for examination, and it may be put at a competitive disadvantage due to the confidential
nature of its policies and procedures. The UST replies that this is essentially a financial
argument, which is insufficient to prove irreparable harm.
Irreparable harm is evaluated in terms of the substantiality of the alleged injury, the
likelihood that it will occur, and the proof provided by the movant. Griepentrog, 945 F.2d at
154. BAC’s argument that the time it will spend and the costs it will incur in preparing for and
attending the examination support a stay is not compelling because mere injury “in terms of
money, time and energy necessarily expended in the absence of stay” does not constitute
irreparable injury. Id. BAC’s argument that allowing the examination to proceed will put it at a
competitive disadvantage due to the confidential nature of its policies and procedures also fails,
because BAC did not provide information which would allow this court to determine whether the
UST is seeking confidential information or to assess whether BAC is likely to suffer a
competitive disadvantage. This is a recurrent problem as BAC expressed this same concern in
connection with its motion to quash, but failed to provide reasoned support for it. As this court
noted then, BAC is free to move for a protective order to the extent it is able to establish that
requested documents should be protected.
As BAC has not shown that it will be irreparably harmed by turning over the documents
and proceeding with the examination, this factor does not weigh in favor of granting a stay.
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3. Will others be harmed if a stay is granted?
BAC argues that the UST’s discovery efforts are unnecessary in this case, which means
that no party will be harmed if a stay is imposed. BAC suggests that the debtors or the chapter
13 trustee may object to its claim if they believe it is erroneous. The UST argues that a stay will
delay his efforts to investigate and to resolve his concerns regarding this matter expeditiously.
As it is clear that a stay would delay the UST’s efforts to obtain information and any consequent
action to be taken based on the information obtained (whether by the UST, the debtors, or the
chapter 13 trustee), this factor does not weigh in favor of granting a stay.
4. Is a stay in the public interest?
BAC argues that a stay would serve the public interest because it would allow appellate
resolution as to the UST’s authority to conduct the examination, thereby assisting parties in other
bankruptcy cases. The UST, on the other hand, argues that the public interest is best served by
his efforts in this case and others to determine whether BAC has filed accurate proofs of claim.
Each of the parties’ arguments has some merit. If BAC has filed an improper claim, the public
interest is served by permitting the UST’s investigation to continue and uncovering the
impropriety. On the other hand, if the UST lacks authority and standing to pursue the
investigation, a stay would prevent him from acting and would serve the public interest. The
court, therefore, finds that this factor weighs neither for nor against granting a stay.
CONCLUSION
As discussed, three of the relevant factors weigh against granting BAC’s stay request and
the fourth factor is neutral. BAC has not established that it is likely to succeed given the
interlocutory character of the order being appealed and the case law on the merits of its position.
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BAC has also failed to establish that it will be irreparably harmed, or that other parties in interest
will be harmed, in the absence of a stay. And the public interest weighs neither for nor against
granting a stay. On balance, therefore, the court concludes that a stay pending appeal is not
warranted in this case. BAC’s motion is, therefore, denied.
IT IS SO ORDERED.
_________________________________
Pat E. Morgenstern-Clarren
United States Bankruptcy Judge
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