Fountain Powerboat Industries, Inc.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
GREENVILLE DIVISION
IN RE:
FOUNTAIN POWERBOAT INDUSTRIES, INC.
FOUNTAIN POWERBOATS, INC.
FOUNTAIN DEALERS’ FACTORY
SUPERSTORE, INC.
BAJA BY FOUNTAIN, INC.
DEBTORS
CASE NOS.
ADMINISTRATIVELY
CONSOLIDATED
UNDER CASE NO.
09-07132-8-RDD
09-07133-8-RDD
09-07134-8-RDD
09-07135-8-RDD
ORDER DENYING MOTION TO ENFORCE ORDER CONDITIONALLY
GRANTING ORAL MOTION TO STAY ORDER PENDING
APPEAL PURSUANT TO BANKRUPTCY RULE 8005 AND GRANTING
TEMPORARY STAY ON A CLAIM AGAINST PRESENT BOND
Pending before the Court is the Motion to (I) Enforce Order Conditionally Granting Oral
Motion to Stay Order Pending Appeal Pursuant to Bankruptcy Rule 8005 and (ii) Prohibit Claim
Against Bond During Pendency of Appeal filed by Liberty Associates, L.C. (“Liberty”) on May 26,
2011 (the “Motion”) and the Objection to the Motion to (I) Enforce Order Conditionally Granting
Oral Motion to Stay Order Pending Appeal Pursuant to Bankruptcy Rule 8005 and (ii) Prohibit
SO ORDERED.
SIGNED this 22 day of July, 2011.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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1Although the Bankruptcy Administrator did not file a response to the Motion, C. Scott
Kirk appeared on behalf of the Bankruptcy Administrator at the hearing on June 28, 2011.
2
Claim Against Bond During Pendency of Appeal filed by Michael Jacobs and Jacobs Capital, LLC
(collectively referred to herein as, “Jacobs Capital”) on June 15, 2011 (the “Objection”). The Court
conducted a hearing on June 28, 2011 in Greenville, North Carolina to consider the Motion and the
Objection.1
CASE HISTORY
Fountain Powerboat Industries, Inc., Fountain Power Boats, Inc., Fountain Dealers’ Factory
Superstore, Inc. and Baja by Fountain, Inc. (collectively, the “Debtors”) filed petitions for relief
under Chapter 11 on August 24, 2009.
One of the first day motions filed by the Debtors was a Motion To Employ Jacobs Capital
as the Debtors’ Investment Banker Pursuant to Section 327 of the Bankruptcy Code (the “Motion
to Employ”).
On October 15, 2009, the Court entered an order allowing the employment of Jacobs Capital
as the Debtors’ Investment Banker (the “Order to Employ”).
On November 24, 2009, the Debtors and Liberty jointly, as co-proponents, filed with the
Court and submitted to creditors and other parties in interest a disclosure statement (the “Disclosure
Statement”) and a proposed plan of reorganization. The Disclosure Statement, in the section entitled
“Classification and Treatment of Claims and Interests” under the Administrative Claims portion,
stated: “Debtors’ investment banker, Jacobs Capital: approximately $450,000 based upon 5% of
a transaction value of $9,000,000 ($8,000,000 to FB Investments and $1,000,000 for allocation
among all Unsecured Claims).” See Disclosure Statement, docket entry 180, p. 10.
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3
On January 20, 2010, Jacobs filed an Interim Application for Compensation of Michael T.
Jacobs and Jacobs Capital, LLC as Investment Banker (the “Application”). Pursuant to the
Application, Jacobs requested compensation in the amount of $375,000.00 based upon a proposed
$7,500,000 transaction between the Debtors and Liberty. On February 10, 2010, Liberty filed its
Objection to the Interim Application for Compensation of Michael T. Jacobs and Jacobs Capital,
LLC as Investment Banker (“Objection to Application”).
On January 29, 2010, the Debtors and Liberty filed their First Amended Joint Plan of
Reorganization (the “Amended Plan”). 	Since Jacobs was not listed as a creditor in Debtor’s
petition, Jacobs was not served with a ballot in connection with the Amended Plan. On February
11, 2010, the Court entered an Order Confirming First Amended Joint Plan of Reorganization (the
“Order Confirming Plan”).
On April 28, 2010, the Court conducted a hearing on the Application and the Objection to
Application in Wilson, North Carolina. 	At the conclusion of that hearing, the Court allowed
compensation to Jacobs in the amount of $370,000.00 and classified this claim as an allowed
administrative claim to be paid pursuant to the terms of the confirmed Amended Plan. Furthermore,
the Court determined that the Application and fees awarded thereunder would be final and that the
Court would not consider any additional fee applications by Jacobs in connection with the
transaction.
On May 7, 2010, the Court entered its Order Allowing Application for Compensation of
Michael T. Jacobs and Jacobs Capital, LLC as Investment Banker which was consistent with the
terms of its oral ruling made from the bench at the hearing on April 28, 2010 (the “Fee Order”).
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2 There are two primary distinctions between the relief requested by the Oral Stay Motion
and the alternative relief requested in Payment Motion. These distinctions include: (1) the
amount of the supersedeas bond or the cash deposit required and (2) whether Liberty, as
appellant who filed the appeal of the Fee Order, or the Debtors would be required to make the
requisite cash deposit or post such bond.
4
On May 21, 2010, Liberty filed its appeal of the Fee Order to the United States District Court
for the Eastern District of North Carolina.
Liberty did not file a motion to stay enforcement of the Fee Order.
On September 23, 2010, Jacobs filed a Motion to Enforce Order Allowing Application for
Compensation of Michael T. Jacobs and Jacobs Capital, LLC as Investment Banker or, in the
alternative, to Require Payment into Court or Posting of Supersedeas Bond on Appeal (“Payment
Motion”). Pursuant to the Payment Motion, Jacobs requested that Liberty be required to comply
with the terms of the Fee Order, to provide a letter of credit, or to “post a supersedeas bond in the
full amount of the fee award, plus interest at the judgment rate, for the anticipated time of Liberty’s
appeal.” See Payment Motion, docket entry 384, p. 5.
On October 12, 2010, Liberty filed its Response to Motion to Enforce Order Allowing
Application for Compensation of Michael T. Jacobs and Jacobs Capital, LLC as Investment Banker
or, in the alternative, to Require Payment into Court or Posting of Supersedeas Bond on Appeal (the
“Payment Motion Response”).
On October 18, 2010, the Court conducted a hearing on the Payment Motion and the
Payment Motion Response in Wilson, North Carolina. During the hearing, John Northen, counsel
for the Debtors, made an oral motion pursuant to Bankruptcy Rule 8005 requesting that the Debtors
be permitted to post a bond or cash deposit in the amount of $370,000 with the bankruptcy court
pending the appeal of the Fee Order (the “Oral Stay Motion”).2
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5
At the conclusion of the hearing, this Court conditionally granted the Oral Stay Motion.
Consistent with that ruling, the Court granted in part and denied in part the Motion to Enforce Order
Allowing Application for Compensation of Michael T. Jacobs and Jacobs Capital, LLC, as
Investment Banker, or, in the alternative, to Require Payment into Court of Posting of Supersedeas
Bond on Appeal.
Subsequently, on October 26, 2010, the Court entered an order consistent with its finding
from the October 18, 2010 hearing and granting the stay pending the appeal. More specifically, the
order provided that:
Based on the arguments of counsel, the pleadings filed in these cases,
and the appeal of this Court’s Order Allowing Application for
Compensation of Michael T. Jacobs and Jacobs Capital, LLC, as
Investment Banker, filed by Liberty pending before the United States
District Court in the Eastern District of North Carolina, docketed as
case number 4:10-cv-00117-H, the Stay Motion is GRANTED on
the condition that Fountain Powerboat Industries, Inc., Fountain
Power Boats, Inc., Fountain Dealers’ Factory Superstore, Inc., Baja
by Fountain, Inc., and Liberty Associates, LC post a supersedeas
bond with the Clerk of Court for the United States Bankruptcy Court
for the Eastern District of North Carolina in the amount of Three
Hundred Seventy Thousand Dollars ($370,000.00) or, place on
deposit, certified funds in the amount of Three Hundred Seventy
Thousand Dollars ($370,000.00) on or before 5:00 p.m. on Friday,
October 29, 2010.
(the “Stay Order”).
Liberty timely submitted a bond to the Court. The initial bond submitted to the Court failed
to properly caption this proceeding, failed to properly name Liberty Associates as Liberty
Associates, L.C., described that the bond was being issued on account of an order of this Court
related to awarding damages for willful violation of the automatic stay against the Debtors, used
“Creditor” as both a capitalized and non-capitalized term with different parties described in the
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3As of the date of the hearing on the Motion, neither Liberty nor the Debtors have filed a
motion seeking a stay pending appeal pursuant to Bankruptcy Rule 8017.
6
definitions, improperly included a date in a blank associated to the amount of the bond, and listed
Jacobs as the Debtors in this proceeding. 	The Court subsequently informed the parties that the
caption of the bond submitted to the Court included the name of Mr. Jacobs and Jacobs Capital, as
opposed to providing the case information for the Debtors. However, the Court signed and docketed
the proposed bond as it determined that it would not make any changes to the document submitted
by Liberty.
Subsequently, 15 days later on November 16, 2010, an amended bond was filed with the
Court (the “Amended Bond”). The Amended Bond corrected the above-referenced errors and
inconsistencies. 	The Amended Bond, dated October 29, 2010, was approved by the Court and
docketed on November 16, 2010.
On April 12, 2011, the Honorable Malcolm J. Howard, United States District Judge for the
Eastern District of North Carolina, entered an order affirming the Fee Order issued by the
bankruptcy court. In addition, on that same day, the deputy clerk, on behalf of the Clerk of Court
for the United States District Court for the Eastern District of North Carolina - Eastern Division,
filed and entered the judgment affirming the order of the bankruptcy court.
Subsequently, on May 11, 2011, Liberty filed its Notice of Appeal of the District Court
Order to the United States Court of Appeals, which has been docketed as case number 4:10-CV-117-
H.
Upon the expiration of the automatic 14 day stay of the judgment and order of the District
Court under Bankruptcy Rule 8017,3 Jacobs informed Liberty that it intended to collect its judgment
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against the Amended Bond should Liberty fail to timely pay the administrative fee awarded to
Jacobs by this Court. As a result of this demand, Liberty filed the present motion requesting the
Court to take any steps necessary to implement and enforce the provision of its Stay Order,
including, without limitation, entering an Order specifically prohibiting Jacobs from making any
demand or claim against the initial bond or the Amended Bond until such time as no appeal of the
Fee Order was pending and granting Liberty further and other relief that may be appropriate.
Jacobs objects to the Motion.
DISCUSSION
The Stay Order entered by the Court is limited to the “stay pending appeal” which is
consistent with the language set forth in Federal Rule of Bankruptcy Procedure 8005.
Jacobs contends that the stay pending appeal has been terminated and asserts that Bankruptcy
Rule 8005 governs only the appeal from the bankruptcy court to the district court. At the hearing
on June 28, 2011, counsel for Jacobs directed the Court to the specific language of Bankruptcy Rule
8005 and to the different language used in Bankruptcy Rule 8017, that contemplates a stay pending
appeal of a district court order while such order is on appeal to the circuit court.
Liberty disagrees and asserts the stay was granted and its bond posted in compliance with
the Stay Order allowed under Bankruptcy Rule 8005. Since it complied with the requirements of
the Stay Order and Bankruptcy Rule 8005, it argues that the stay pending appeal is therefore,
effective through the entire appeals process. 	At the hearing, counsel for Liberty argued that
Bankruptcy Rule 8005 and Bankruptcy Rule 8017 are mutually exclusive of each other. Counsel
asserted that Bankruptcy Rule 8017 applies only when a stay was not allowed or sought under
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Bankruptcy Rule 8005 or when a district court reverses a decision of the bankruptcy court which is
then appealed to a circuit court.
A review of the audio file of the hearing reveals that counsel for the Debtors requested a stay
pending appeal and made its motion based on that language. Counsel for Liberty requested a stay
pending the appeals process. Therefore, the question before the Court is whether the stay it imposed
pursuant to Rule 8005 extends through the conclusion of the appeal in the district court or if such
stay extends through the entire appeals process, including an appeal to the Court of Appeals.
The parties do not dispute that Rule 8005 was applicable as staying the Fee Order during
the appeal to the district court. Furthermore, this Court agrees that Liberty complied with the
requirements of Rule 8005 in seeking the initial stay pending appeal. Had the Debtors not brought
a motion for stay pending appeal under Rule 8005 to the bankruptcy court, and elected to bring such
motion before the district court, it would have been required to explain why it did not seek a stay
from the bankruptcy court first. See 2-VIII Collier Pamphlet Edition, F.R.B.P. 8005 (Matthew
Bender & Company, Inc. 2010).
In order to determine the extent of the stay pending appeal, this Court must consider the
interplay, if any, between Bankruptcy Rule 8005 and Bankruptcy Rule 8017.
Bankruptcy Rule 8005 provides:
[A] motion for a stay of the judgment, order, or decree of a
bankruptcy judge, for approval of a supersedeas bond, or for other
relief pending appeal 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. A motion for
such relief, or for modification or termination of relief granted by a
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bankruptcy judge, may be made to the district court or the bankruptcy
appellate 	panel, 	but 	the 	motion 	shall 	show 	why 	the 	relief,
modification, or termination was not obtained from the bankruptcy
judge. The district court or the bankruptcy appellate panel may
condition the relief it grants under this rule on the filing of a bond or
other appropriate security with the bankruptcy court. When an appeal
is taken by a trustee, a bond or other appropriate security may be
required, but when an appeal is taken by the United States or an
officer or agency thereof or by direction of any department of the
Government of the United States a bond or other security shall not be
required.
emphasis added.
Bankruptcy Rule 8017 provides in part:
(a) Judgments of the district court or the bankruptcy appellate panel
are stayed until the expiration of 10 days after entry, unless otherwise
ordered by the district court or the bankruptcy appellate panel.
(b) On motion and notice to the parties to the appeal, the district court
or the bankruptcy appellate panel may stay its judgment pending an
appeal to the court of appeals. The stay shall not extend beyond 30
days after the entry of the judgment of the district court or the
bankruptcy appellate panel unless the period is extended for cause
shown. If before the expiration of a stay entered pursuant to this
subdivision there is an appeal to the court of appeals by the party who
obtained the stay, the stay shall continue until final disposition by the
court of appeals. A bond or other security may be required as a
condition to the grant or continuation of a stay of the judgment. A
bond or other security shall not be required if a stay is obtained by the
United States or an officer or an agency thereof or at the direction of
any department of the Government of the United States.
emphasis added.
In 2010, the United States Bankruptcy Court for the Eastern District of Virginia recognized
that Bankruptcy Rule 8005 and the case law interpreting the rule does not provide a clear answer
in how long a stay pending appeal entered by the bankruptcy court remained in effect. In re RMAA
Real Estate Holdings, LLC, 2010 Bankr. LEXIS 3153 (Bankr. E.D.Va. Sept. 10, 2010). 	In the
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4In Gleasman, the court focused on the flexible approach such that impact of the grant of
relief on the appellate process neither undid nor overwhelmed the bankruptcy proceeding.
Gleasman, 111 B.R. at 599.
10
RMAA case, the bank, which had been granted relief from the automatic stay in a bankruptcy
proceeding, questioned how long a stay entered by the bankruptcy court pending appeal would
remain in effect. Id. Looking to Gleasman v. Jones, Day, Reaves & Pogue (In re Gleasman), 111
B.R. 595, 599 (Bankr. W.D.Tex. 1990),4 the Virginia bankruptcy court stated:
Rule 8005 is by its design a flexible tool which permits a bankruptcy court to
uniquely tailor relief to the circumstances of the case, so that the appellate process
will neither undo nor overwhelm the administration of the bankruptcy case. See, e.g.,
In re Charles & Lillian Brown’s Hotel, Inc., 93 B.R. 49 (Bankr. S.D.N.Y. 1988).
Rule 8005 gives a bankruptcy judge authority to “make any . . . appropriate order
during the pendency of an appeal on such terms as will protect the rights of all
parties in interest.” The bankruptcy judge can design stays to avoid unjust results,
taking into consideration all of the exigencies of the entire bankruptcy case. See In
re Tenfield, 12 B.R. 14 (Bankr. E.D.Va. 1981). Discretion is not unbridled. . .
RMAA, 2010 Bankr. LEXIS 3153 *2.
Clearly, RMAA took an expansive view of Rule 8005. Instead of focusing on the language
of the rule, the court in RMAA focused on the flexibility a bankruptcy judge should have in order
to meet “differing and unique circumstances” in a particular case. Id. RMAA provides that although
allowing judges flexibility “does not directly address the question of termination of a stay pending
appeal after a district court’s resolution of an appeal and before a court of appeals’ resolution, it
suggests that a stay pending appeal from a bankruptcy court order should stay in effect until the
appeal has fully run its course.” Id. The court went on to note that a bankruptcy court, as the court
granting the stay pending appeal, could modify this concept and make it effective only “until the
entry of the district court’s order and the amount of the bond may be subject to review if a further
appeal is taken to the court of appeals.” Id. Depending on the decision of the district court, either
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5Judge Teel, in 2005, recognized that the failure of the a clerk to issue a mandate under
Fed. R. Bankr. P. 8016(b) does not stay a district court order. In re Capitol Hill Group, 330 B.R.
1 (Bankr. D.D.C. 2005). This finding rejected his earlier findings made in Richards that a
11
the district court or the bankruptcy court could terminate the stay pending appeal or modify the bond
thereafter. Id. The bankruptcy court in RMAA, allowed the stay pending appeal to continue through
any appeal, even an appeal to the court of appeals. Id. However, it specifically tailored its order to
include language providing for the length of the stay and allowing the review of the amount of the
bond and the allowance of either modification or termination of the stay pending appeal, if an appeal
was made to the court of appeals. Id.
This Court rejects such an expansive reading of Rule 8005 and is more persuaded by the
rationale set forth by the Bankruptcy Court for the District of Columbia in Richards v. Linder &
Associates, P.C. (In re Richards), 241 B.R. 769 (Bankr. D.D.C. 1999).
In Richards, the debtor, who was also a defendant, moved for the release of the supersedeas
bond staying the enforcement of a judgment pending appeal. Id. The initial stay pending appeal was
granted by the bankruptcy court pursuant to Rule 8005. Id. 	The United States District Court
affirmed the bankruptcy court’s monetary judgment in favor of the defendant debtor. Id. Thereafter,
the debtor moved for the release of the bond. Id. The plaintiff opposed the release of the bond and
requested that the bankruptcy court extend the initial stay pending appeal to include not only the
appeal to the district court but also the appeal of the district court judgment to the court of appeals
and that the bankruptcy court allow the existing deposit to serve as a bond for the circuit court
appeal. Id. At the time of the motion before the bankruptcy court, the district court had not entered
its mandate. Id. Therefore, the court found that without the mandate, the district court maintained
jurisdiction and enforcement of the bond was premature.5 Id.
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mandate was required by the district court to dispose of a bankruptcy appeal and that entry of a
mandate was necessary to give effect to the judgment of the district court. Capitol, 330 B.R. 1.
In Capitol, the bankruptcy court stated that “only a stay under Rule 8017 would stay the
effectiveness of the [o]rders.” Id. at 10. However, since the debtor had filed a motion for stay in
the district court within the time frame allowed by Rule 8017, the bankruptcy court determined
that it was proper to delay enforcement of its judgment against the bond to permit the district
court to decide whether to issue a stay pending appeal based on the debtor’s motion pending in
the district court. Id. at 10-11.
12
Even though the issue as to the requirement of the mandate was subsequently modified by
the bankruptcy court, the rationale of the bankruptcy court that Rule 8017, and not Rule 8005,
applied to stay a district court order which affirmed the bankruptcy court is most persuasive.
The court in Richards states:
F.R. Bankr. P. 8017 should be viewed as the rule controlling the stay of an affirmed
bankruptcy court judgment. Two other rules, F.R. Bankr. P. 7062 and F.R. Bankr.
P. 8005, authorize stays pending “an appeal” without any distinction drawn between
an appeal to the district court or a further appeal to the court of appeals. Unlike F.R.
Bankr. P. 8017, however, these rules fail expressly to deal with a stay pending an
appeal to the court of appeals. 	So Rules 7062 and 8005 ought not be viewed as
addressed to a stay pending an appeal to the court of appeals.
Id. at 775.
The Richards court looked to the distinction between the judgment and mandate language
included as part of the Federal Bankruptcy Rules, Federal Rules of Appellate Procedure Rule 41,
and certain federal statutes. Richards, 241 B.R. 769. cf. fn. 4. However, in dicta, the Richards court
provides certain other considerations that this Court finds persuasive in determining the applicability
of Rules 8005 and 8017. Id. at 775. First, the bankruptcy court recognizes the importance of
deference to the district court so as to maintain “sound relations” with the district court. Id. Rule
8017 is specifically directed to the district court and “[a]though...court’s judgment would be the one
being collected, the district court’s order of affirmance is at stake on the further appeal.” Id. Second,
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6 The United States Supreme Court’s recent holding in Stern v. Marshall, 564 U.S. ___,
131 S. Ct. 2594, 180 L.Ed. 2d 475, 2011 U.S. LEXIS 4791, 2011 WL 2472792 (2011) dealt with
the limited jurisdiction of the bankruptcy court versus the district court. Given that these rules
are promulgated by the Supreme Court, it is entirely logical that the Supreme Court intended
Rule 8005 to be limited to an "appeal" to district court and for Rule 8017 to be applicable for
appeals from the district court or bankruptcy appellate panel. Arguably, had the Supreme Court
intended for the “appeals process” to be addressed in Rule 8005, it could have referred to
"appeals," or the “appeals process,” or even more specifically “to any and all appeals to the
district court, court of appeals and/or Supreme Court.” Since Rule 8017 specifically sets forth a
procedure for requesting a stay pending appeal of the district court judgment, the bankruptcy
court should refrain from encroaching in an area reserved by Rule 8017 for the district court.
13
the district court is in a better position to establish costs that were incurred as part of the district
court appeal, the possible costs related to an appeal to the circuit court, and an assessment as to the
duration of the circuit court appeal. Id. All of these factors are relevant in determining whether a
supersedeas bond is necessary and the amount that such bond should be. Id. Lastly, Judge Teel
recognized that viewing Bankruptcy Rule 8017 as controlling the stay of an affirmance of the
bankruptcy court by the district court “has the merit of establishing a clear rule regarding the court
from which the stay should be sought.” Id. at 775. 	The Richards court notes that there are
circumstances where it would be inappropriate for a bankruptcy court to consider staying a district
court judgment pending an appeal. Id.
Discounting the arguments in favor of the bankruptcy court further extending the stay
pending appeal of the affirmance of its judgment by the district court, the Richards court found that
having a clear cut rule applicable to all cases and giving deference to the district court6 were of
greater importance. Id. at 776.
As a result, Judge Teel declined to further extend the stay pending an appeal of the district
court affirmance of the bankruptcy court decision to the circuit court, noting that the district court
or the court of appeals would be the appropriate forums for a party to seek extension of the stay
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7 The Richards court went on to note that nothing prevents the district court from
directing the bankruptcy court to set the terms of a bond or from requesting a recommendation
from the bankruptcy court as to the amount that would be appropriate for a supersedeas bond for
the period of appeal to the circuit court. Richards, 241 B.R. at 776. As such, the district court
could request a recommendation from the bankruptcy court before issuing its findings regarding
a stay pending appeal to the circuit court, especially if the granting of a stay or not granting a
stay might have a significant impact on the continuing operations of a chapter 11 debtor in
possession.
14
pending an appeal to the circuit court. Richards, 241 B.R. 769. See also Grippando, James, Circuit
Court Review or Orders On Stays Pending Bankruptcy Appeals to U.S. District Courts or Appellate
Panels, 62 AM. Bank. L.J. 353, n. 6 (Fall, 1988)(providing “Rule 8005...The Bankruptcy Rules
govern only appeals from the bankruptcy court to the district court.”).
This Court is persuaded to limit the “appeal” language in Bankruptcy Rule 8005 to include
only the appeal from the bankruptcy court to the district court or bankruptcy appellate panel.
Bankruptcy Rule 80177 would apply where the district court judgment has been appealed to the court
of appeals, regardless of whether or not a stay was sought in the appeal from the bankruptcy court
order or judgment to the district court. 	Rule 8005 specifically provides that the motion to stay
applies to a judgment, order, or decree of a bankruptcy court and such rule makes no reference to
a decision of the district court. In contrast, Rule 8017 includes language as to the district court
decision. 	The caption of Rule 8017 is even entitled: STAY OF JUDGMENT OF DISTRICT
COURT OR BANKRUPTCY APPELLATE PANEL. Therefore, it is clear to this court that any stay
of a district court judgment must be ordered by the district court under Rule 8017.
The 2002 decision of the United States Bankruptcy Court for the Northern District of Texas
supports this finding. In re Texas Equip. Co., Inc., 283 B.R. 222 (Bankr. N.D. Tx. 2002). That court
found that in considering how long its stay would apply through the appeals process noted that
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Richards was the only bankruptcy opinion on point and that the Richards court “held that it [the
bankruptcy court] was without authority to extend its stay past the appeal in the district court.” Texas
Equip., 283 B.R. 222. The Northern District of Texas Bankruptcy Court interpreted Richards as
holding that “it ‘lacked authority to issue a stay of its affirmed judgment pending appeal to the court
of appeals; the district court and the court of appeals are appropriate courts under which to seek a
stay’ under Rule 8017.” Texas Equip., 283 B.R. 222. cf. In re RMAA, 2010 Bankr. LEXIS 3153
(Bankr. E.D.Va. Sept. 2010)(specifically providing in its order that the stay pending appeal pursuant
to Bankruptcy Rule 8005 applies through any appeal in the court of appeals but allowing for
modification or termination of the stay by either the bankruptcy court or the district court based on
the developments of the district court case).
Arguably, this court could have fashioned its Stay Order to be effective through the entire
appeals process. However, counsel for the Debtors specifically requested a stay pending the appeal.
Counsel for Liberty stated at one point during the hearing that he proposed a stay pending the
appeals process. The language used in the order specifically refers to the “appeal” and neither party
sought to have the court reconsider its order. Therefore, this Court holds that Bankruptcy Rule 8005
limits the stay pending appeal entered by the bankruptcy court until entry of judgment by the district
court on an appeal of the bankruptcy court order, judgment or decree. This holding does not
prejudice the appellant, Liberty, from seeking a stay pursuant to Bankruptcy Rule 8017(b) for its
appeal from the district court to the court of appeals. By holding otherwise, this Court would be
expanding the meaning of Bankruptcy Rule 8005 beyond its intended scope and encroaching upon
the powers to stay a judgment of the district court which is specifically reserved to the district court
under Rule 8017(b). The bankruptcy court retains the ability to modify or terminate its stay pending
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appeal at the request of a party prior to the entry of judgment in the district court. Once the district
court has entered its judgment, the stay pending appeal granted by the bankruptcy court and pursuant
to Bankruptcy Rule 8005, no longer applies. 	An appellant must then employ Bankruptcy Rule
8017(b) in order to seek the imposition of a stay pending appeal to the circuit court if the appellant
desires the stay to extend beyond the fourteen(14) day stay provided under Bankruptcy Rule
8017(a).
Based upon the foregoing, the Motion to (I) Enforce Order Conditionally Granting Oral
Motion to Stay Order Pending Appeal Pursuant to Bankruptcy Rule 8005 and (ii) Prohibit Claim
Against Bond During Pendency of Appeal is hereby DENIED. However, any effort to file a claim
against the bond by Jacobs at this time is TEMPORARILY STAYED for a period of fourteen (14)
days from the entry of this order to permit Liberty to file a motion pursuant to Bankruptcy Rule
8017(b) for the district court to consider whether it should stay its judgment affirming the
bankruptcy court order during the pendency of the appeal to the court of appeals. If no such motion
is filed within the period of fourteen (14) days from the entry of this order, then the temporary stay
is lifted. If such motion is filed within the fourteen (14) day period from the entry of this order, then
Jacobs is TEMPORARILY STAYED from efforts to file a claim against the bond until such time
as the United States District Court has issued its order as to the imposition or not, of a stay of the
district court judgment affirming the order of the bankruptcy court pending the appeal to the court
of appeals and/or posting of a bond or other security, or continuation, modification, or release of the
present bond, pursuant to Bankruptcy Rule 8017(b).
SO ORDERED.
END OF DOCUMENT
Case 09-07132-8-RDD Doc 443 Filed 07/22/11 Entered 07/22/11 14:37:06 Page 16 of
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