Silagy v. U.S. Bank National Association, as Trustee

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO

EASTERN DIVISION
IN RE: ) CHAPTER 7
)
DINO BRIAN BURSON AND ) CASE NO. 09-62338
SHARON LYNN BURSON, )
) ADV. NO. 09-6111
Debtors. )
) JUDGE RUSS KENDIG
ANNE PIERO SILAGY, )
)
Plaintiff, )
)
v. )
) MEMORANDUM OF OPINION (NOT
U.S. BANK NATIONAL ) INTENDED FOR PUBLICATION)
ASSOCIATION, )
)
Defendant. )

Following an adverse ruling by the court, Defendant appealed the court’s decision and
now seeks a stay pending the appeal pursuant to Federal Rule of Bankruptcy Procedure 8005. If
successful, the stay would prevent Plaintiff, the chapter 7 trustee (hereafter “Trustee”) from
selling the real estate subject to Defendant’s purported mortgage on the property. Defendant’s
motion to impose a stay was filed on April 27, 2010. Plaintiff responded on June 4, 2010 and
opposes the relief requested. Defendant replied on June 11, 2010. A hearing was held on May

24, 2010.

Pootrrn Doc 62 FILED 07/15/10 ENTERED 07/15/10 12:22:28 Page1of5

The court has jurisdiction of this proceeding pursuant to 28 U.S.C. §§ 1334 and the
general order of reference entered in this district on July 16, 1984. Venue in this district and
division is proper pursuant to 28 U.S.C. § 1409. This adversary is a core proceeding under 28
U.S.C. 157(b)(2)(A), (K) and (O). The following constitutes the court’s findings of facts and
conclusions of law under Federal Rule of Bankruptcy Procedure 7052.

This opinion is not intended for publication or citation. The availability of this opinion,
in electronic or printed form, is not the result of a direct submission by the Court.

BACKGROUND

On April 7, 2010, the court entered an opinion granting Trustee’s motion for summary
judgment, finding the mortgage was defectively acknowledged. As a result of that decision,
Trustee can exercise her powers under 11 U.S.C. § 544 to avoid the mortgage and become the
equivalent of a bona fide purchaser, giving her the ability to sell the real estate for the benefit of
the estate free of the mortgage. Defendant seeks a stay to prevent Trustee from taking this action.

ARGUMENTS

Defendant argues that a stay pending appeal is necessary to protect its rights as a secured
creditor. According to Defendant, the property is adequately protected by an insurance policy
and there is no prejudice to Trustee in enforcing a stay. Trustee denies the lack of prej udice,
contending that if the property is not sold immediately, it could decrease in value or fall into
disrepair. Further, real estate taxes will continue to accrue to the detriment of the estate and any
safety issues would inure to the estate. Defendant counters that it faces the greater potential harm
because of the loss of rights it suffers in a bankruptcy auction process compared to a foreclosure
action. Ina foreclosure, a minimum bid would be established, plus Defendant would have the
ability to credit bid. Defendant also complains a bankruptcy sale takes away its ability to time

the sale and increases the fees of a sale.
ANALYSIS

A party may seek a stay pending appeal under the auspices of Federal Rule of Bankruptcy
Procedure 8005. Rule 8005 gives a bankruptcy court latitude in issuing injunctive relief: “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. To determine whether a
stay is appropriate, a court employs the same review used in issuing preliminary injunctions. See
In re Akron Thermal, LP, 414 B.R. 193 (N.D. Ohio 2009) (citing Michigan Coal. of Radioactive
Users, Inc. v. Griepentrog), 945 F.2d 150 (6 Cir. 1991)). This review requires a court to
consider and weigh four items: “(1) the likelihood that the party seeking the stay will prevail on
the merits of the appeal; (2) the likelihood that the moving party 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.” Griepentrog at 153 (citing Ohio ex rel. Celebrezze v.

09-06111-rk Doc62 FILEDO7/15/10 ENTERED 07/15/10 12:22:28 Page 2of5

Nuclear Regulatory Comm’n, 812 F.2d 288, 290 (6" Cir. 1987) (other citations omitted)). The
movant bears the burden of proof, “providing specific facts and affidavit supporting assertions

that these factors exist.” Id.

Movant did not address the first consideration, its likelihood of success on the merits of
the appeal, in its motion. In its reply memorandum, Defendant states “it has substantive issues of
merit to present on appeal regarding the specific acknowledgment at issue in this adversary
proceeding.” (Def.’s Reply Memo. at 3.) This is the sum of Defendant’s arguments on this point
and falls short of demonstrating Defendant is likely to succeed on the appeal. For this
consideration to weigh in favor of Defendant, some showing of a probability of success is
required. See Griepentrog at 153 (stating “a party seeking a stay must ordinarily demonstrate to a
reviewing court that there is a likelihood of reversal”); Spring Creek Airpark, Inc. v. Roswell
Holding, LLC, 2010 WL 2573745 (W.D. Ky. 2010) (citing Mason County Med. Ass’n v. Knebel,
563 F.2d 256, 261 n. 4 (6" Cir. 1977) (requiring more than a possibility of success) and In re
DeLorean Motor Co., 775 F.2d 1223, 1229 (6" Cir. 1985) (requiring “serious questions going to
the merits”) (other citations omitted)). Rather than focus on this factor, Defendant points out
that the court must balance several factors. The court tends to read bypass of this factor as either
a suggestion that this factor does not favor Defendant, or, at a minimum, is neutral to the parties’
positions. Regardless, Defendant did not meet a showing that it is likely to succeed on the
appeal. This is not fatal because the balancing of the factors could still tip in Defendant’s favor.
As the Sixth Circuit stated, “[t]he probability of success that must be demonstrated is inversely
proportional to the amount of irreparable injury [defendants] will suffer absent the stay. Id.
Simply stated, more of one excuses less of the other.” Griepentrog, 945 F.2d at 153 (relying on
Celebrezze, 812 F.2d at 290 and Cuomo v. U.S. Nuclear Regulatory Comm’n, 772 F.3d 972, 974

(D.C. Cir. 1985)).

The second factor to review is the danger of irreparable harm to Defendant. Defendant’s
arguments focus on the loss of rights as a secured creditor, more specifically its inability to drive
the foreclosure process. This does not rise to the level of an irreparable injury. The harm
envisioned by the second factor “must be both certain and immediate, rather than speculative or
theoretical.” Id. (citing Wisconsin Gas Co. v. Federal Energy Regulatory Comm’n, 758 F.2d
669, 674 (D.C. Cir. 1985)). The harm cited by Defendant is speculative.

If Trustee sells the property while the appeal is pending, Defendant’s lien will attach to
the proceeds. Only upon final disposition of the appeal will the proceeds be distributed, thereby
protecting Defendant’s secured status. The balance of Defendant’s arguments presume that the
bankruptcy sale will result in less money in Defendant’s pocket. Defendant, without any solid
evidentiary support, posits that it would fare better in a foreclosure action. This ignores the
pitfalls of a foreclosure, as well as the detriment of waiting to sell the property. There is no
guarantee the real estate would sell at a foreclosure sale, or that it would sell for more than a
bankruptcy sale or auction. Trustee aptly points out that until the property is sold, there is a
danger that it will deteriorate in value, fall into disrepair, or become the subject of safety issues,

all disadvantages to both parties.

Defendant also suggests the Trustee’s fees for a bankruptcy sale would be higher, thereby

09-06111-rk Doc62 FILED 07/15/10 ENTERED 07/15/10 12:22:28 Page 3of5

decreasing net proceeds. Defendant would also incur fees to sell, whether it be through a private
sale or a foreclosure action. Defendant did not provide any foundation that the fee difference is
material. Additionally, Defendant completely ignores the time value of money in its arguments.
Defendant’s arguments focus on speculation and conjecture, not specific and irreparable harm.
Defendant’s arguments are therefore not persuasive and the court cannot conclude that Defendant
is likely to be irreparably harmed in the absence of a stay, or arguably a better position as the

property will be reduced to cash.

The next consideration is whether others will be harmed if the stay is approved.
Defendant only cursorily addresses this aspect, stating “with the Debtors occupying the Real
Property and with Defendant’s maintaining of hazard insurance there is no indication that
granting the stay will ‘substantially injury’ [sic] any other interested parties.” (Defendant’s
Reply at 3.) The “other parties” that may have an interest in this matter include the creditors and
Debtors. Debtors’ property interest reverted to the estate on the filing of the bankruptcy, so a
stay pending appeal will not be harmful. The most notable “other interested parties” are the
unsecured creditors who stand to benefit from the sale. The stay will not help or hinder them
because there will be no immediate distribution regardless of whether the stay is approved. If the
stay is put in place, the Trustee will not be able to sell the property unless she succeeds on the
appeal. If the stay is not in place, Trustee can sell the property, but the proceeds will be held
until the appeal is resolved. In terms of a potential distribution, the unsecured creditors are in the

same position regardless of the stay.

The creditors interests are aligned with Trustee, so the potential harm to Trustee parallels
the potential harms to the creditors. Delaying the sale could mean a decline in value, either
through market forces or deterioration. Any expenses incurred in maintaining or securing the
property would be funded by the estate, depleting resources. As a result, delaying the sale could
have a negative impact on the creditors through the loss of proceeds.

Finally, the court must consider the public interest in imposing the stay. Defendant
argues that the public interest is served in protecting a secured creditor’s rights. According to
Defendant, harm to secured creditors results in restriction of credit to the public. The reasoning
is not only tenuous, but strained. The need for this litigation has its genesis in Defendant’s
failure to draft or utilize documents that withstood legal challenge and fully complied with Ohio
law. But that is not the issue before the court. The issue is whether imposing a stay is in the
public interest. In this case, that boils down to the question of which benefits the public interest
more: the immediate sale of the property, or imposing a stay to prevent the sale of the property.
Defendant has not addressed this specific consideration.

After balancing the factors outlined above, the court finds that Defendant did not
demonstrate its entitlement to a stay pending appeal. It did not show a likelihood of success on
the merits of the appeal or irreparable injury if the stay is denied. Nor was there evidence other
interested parties or the public would be harmed in the absence of the stay. There are stronger
arguments that not imposing the stay may have a more deleterious effect on Trustee, the estate,
and the unsecured creditors. Consequently, the court denies the relief sought by Defendant and

declines to enter a stay pending appeal.

09-06111-rk Doc62 FILEDO7/15/10 ENTERED 07/15/10 12:22:28 Page4of5

An appropriate order shall be issued immediately.

Service List:

John J Rutter

Roetzel & Andress, LPA
222 S. Main Street
Akron, OH 44308

Richard J. Lolli

Clay Keller

Justin S. Greenfelder

Buckingham, Doolittle & Burroughs, LLP
4518 Fulton Drive, NW

P.O. Box 35548

Canton, OH 44735-5548

Mia L. Conner

120 E. 4th St.

PO Box 5480
Cincinnati, OH 45202

09-06111-rk Doc62 FILEDO7/15/10 ENTERED 07/15/10 12:22:28 Page5of5