John Stewart Custom Woodworking, INC

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
In re: 	)
)
JOHN STEWART CUSTOM 	)
WOODWORKING, INC. 	) 	Case No. 16-bk-0816
)
Debtor. 	) 	Chapter 7
)
___________________________________ 	)
MEMORANDUM OPINION
On December 28, 2016, Blake and Lindsey Stewart (the “Homeowners”) filed a motion
seeking relief from the automatic stay in order to pursue their civil action against the shareholders
of John Stewart Custom Woodworking, Inc. (the “Debtor”). Specifically, the Homeowners seek
a declaration that the automatic stay does not apply because the state court proceeding is only
nominally against the Debtor and will not affect estate property. The Debtor’s shareholders filed
a response asserting that the stay applies because such a proceeding would prejudice the Debtor. 1
At the court’s first hearing on the matter, held on January 26, 2017, the court and the parties
agreed, based on the court’s opinion in In re Charles Edwards Enterprises, Inc., that claims based
on alter ego theories belong first to the Chapter 7 trustee and can be brought by a creditor only if
the trustee abandons the claim. 344 B.R. 788 (Bankr. N.D.W. Va. 2006). 	In light of that
proposition, the trustee initiated settlement discussions with the Debtor’s sole shareholders, John
and Mary Stewart. On May 5, 2017, the trustee filed a motion seeking to compromise the civil
action. Per the terms of the proposed settlement, the Debtor’s shareholders will pay $28,475.00 to
the estate to settle the veil-piercing action originally identified by the Homeowners. 	The
1 By their response, the Debtor’s shareholders purported to respond on behalf of the Debtor.
However, the trustee supplanted the shareholders as of the petition date such that the shareholders
lacked authority to file a response on behalf of the Debtor. Consequently, the shareholders filed a
response on their own behalf that incorporated their previous response by reference.
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Homeowners object, asserting that the settlement of their claims, rooted in veil-piercing theory, is
not in the estate’s best interest, that the trustee should abandon the estate’s interest in their claims
against the shareholders, to the extent it has any, and that the proposed settlement is inequitable.
On June 20, 2017, the court conducted a hearing regarding the proposed settlement. 	At
that time, the court suggested that the authority to bring a claim containing a veil-piercing element
needed reexamination; that is, for purposes of the case at hand, whether the claim actually belongs
to or can be maintained by the estate and thus can be settled in conjunction with the compromise
offered by the trustee or whether it falls outside property of the estate and thus belongs properly to
the Homeowners. 	After discussion and argument on the record regarding the propriety of the
compromise, the court took the matter under advisement. 	On June 21, 2017, the shareholders
voluntarily filed their Memorandum in Support of Motion to Compromise asserting that the veil-
piercing action is property of the estate. No other interested party filed a brief on the issue because
the court did not solicit briefing from the parties.
For the reasons stated herein, the court will deny the trustee’s motion because he
purportedly seeks to settle the Homeowners’ claims, which are not property of the estate subject
to his authority to settle. Moreover, the court will grant the Homeowners’ motion seeking relief
from the automatic stay.
I. 	BACKGROUND
Before bankruptcy, the Debtor was a custom-home builder. Its sole shareholders are John
and Mary Stewart. The Debtor and the Homeowners contracted for the Debtor to build a residence
for the Homeowners. 	However, the relationship soured, resulting in the Homeowners bringing
suit against the Debtor in the Circuit Court of Monongalia County, West Virginia (“State Court”)
on June 10, 2016. The Debtor then filed its petition for bankruptcy relief on August 5, 2016, and
the State Court proceeding was stayed. 	In light of information that the Homeowners learned
through the Debtor’s meeting of the creditors on September 14, 2016, they sought leave to file an
amended complaint in the State Court to add the Debtor’s shareholders as individual defendants
under a veil-piercing theory. The State Court conducted a hearing on the matter on November 28,
2016, wherein it expressed concern that granting the motion would violate the automatic stay and
therefore refused to take any further action in the case absent a determination from the bankruptcy
court. Thereafter, the Homeowners sought relief in this court.
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The Homeowners assert that the Debtor breached their mutual contract, violated fiduciary
duties owed to them, and misappropriated funds paid by them during the course of the construction
of their home. They seek to recover approximately $270,000.00 in damages. Among their claims,
the Homeowners assert that the Debtor used funds designated solely for the costs associated with
the construction for their home for unintended and impermissible expenses, including salaries of
the shareholders. 	Moreover, the Homeowners assert that there is a legal basis for the Debtor’s
shareholders to be held liable individually for each of their claims because the Debtor failed to
maintain corporate formalities by allowing the shareholders to maintain and pay charges for a
credit card used in the operation of the Debtor, allowing the shareholders to make loan payments
on behalf of the Debtor to the Debtor’s creditors, and operating a business that is grossly
undercapitalized. In particular, the Homeowners maintain that the Debtor misappropriated funds
paid 	to 	it 	by 	the 	Homeowners 	out 	of 	necessity 	specifically 	because 	the 	Debtor 	was
undercapitalized.
During the course of the bankruptcy proceeding, the Chapter 7 trustee analyzed the claims
of the Homeowners against the Debtor and the veil-piercing theory that would allow the
Homeowners to recover from the Debtor’s shareholders. He found that the Homeowners claims
against the Debtor had merit and related to faulty workmanship, both structural and aesthetic in
nature. He further evaluated the law relating to piercing the corporate veil in West Virginia and
arrived at a valuation of the claim against the shareholders. 	He then sought to settle with the
shareholders for $28,475.00 and they agreed.
II. 	ANALYSIS
i. 	Authority to bring alter-ego or veil-piercing claims
This court previously addressed the issue of veil piercing in the case of In re Charles
Edwards Enterprises, Inc. 344 B.R. 788 (Bankr. N.D.W. Va. 2006). Therein, this court held that
“alter ego theories . . . are the exclusive property of the bankruptcy estate and cannot be pursued
by any party other than the Chapter 7 trustee in the absence of abandonment or the grant of
derivative standing.” 	Id. at 790. 	In that instance, the court concluded that all alter ego claims
belong to the Chapter 7 trustee; albeit without giving consideration to the nature of the injury
associated with a particular claim. 	Id. 	Notably, however, none of the cases relied upon by the
court lead to the conclusion that all alter ego theories are exclusively property of the estate. Baillie
Lumber Co., LP v. Thompson, 344 B.R. 788, 790 (11th Cir. 2005) (under Georgia law, an alter ego
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action is property of the bankruptcy estate if the claim is a general claim that is common to all
creditors); Central Vermont Public Service Corp. v. Herbert, 341 F.3d 186, 192 (2d Cir. 2003)
(failing to distinguish general and specific claims despite relying upon St. Paul Fire and Marine
Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir. 1989); Steyr-Daimler-Puch of America Corp.
v. Pappas, 852 F.2d 132, 136 (4th Cir. 1988) (stopping short of addressing whether a trustee may
bring an alter ego claim as a representative of creditors because, under Virginia law, alter ego
claims are property of the trustee.) 	Based upon the analysis that follows, the court is now
compelled to revisit and refine its holding in In re Charles Edwards Enterprises, Inc., because
further review and consideration of the relevant legal authority shows 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. 	When the
resulting injury is specific to an individual creditor or group of creditors, however, the injured
creditor or creditors are the exclusive owners of the claim even if the claim relies, in part, on a
veil-piercing theory.
Because “the trustee stands in the shoes of the bankrupt corporation and has standing to
bring any suit that the bankrupt corporation could have instituted had it not petitioned for
bankruptcy,” it is clear that trustees may bring direct causes of action against insiders of a
corporation under an alter ego theory. 	In re Cabrini Medical Center, 489 B.R. 7, 16 (S.D.N.Y.
2012). However, “it is well settled that a bankruptcy trustee has no standing generally to sue third
parties on behalf of the estate’s creditors, but may only assert claims held by the bankrupt
corporation itself.” Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir. 1991)
citing Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 34 (1972). Thus, careful analysis
must be given to the origin of the claim. However, as explained by Bankruptcy Judge Schneider,
confusion arises among courts addressing issues of corporate law involving insiders because each
type of corporate claim requires a separate analysis:
Confusion results when courts mistakenly apply the term “piercing the
corporate veil” to distinctly different causes of action against the individuals who
stand behind the corporation. 	The true action to “pierce the corporate veil” is
brought by parties injured by the corporation to hold liable those corporate officers,
directors and/or stockholders whose fraudulent conduct of the corporation caused
the injury to the plaintiffs. Liability for harm caused by the corporation is imposed
upon the corporation’s alter egos by disregarded corporate form.
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A completely different cause of action is one brought directly by the
corporation (or derivatively by shareholders) against corporate alter egos for
damage to the corporation itself through mismanagement or fraud. 	Because the
bankruptcy trustee’s standing to prosecute a lawsuit on behalf of the bankruptcy
estate is the same as the debtor’s standing absent the bankruptcy case, the trustee
may assert corporate causes of action in the bankruptcy court against third parties
who have injured the debtor, including insiders whose mismanagement may have
created the necessity of filing the bankruptcy petition in the first place.
National City Bank of Minneapolis v. Lapides (In re Transcolor Corp.), 296 B.R. 343, 362 (Bankr.
D.Md. 2003). Thus, the first step to assessing a claim against corporate insiders is to determine
whether the claim seeks to pierce the corporate veil or if it is actually a direct claim 2 against the
shareholders brought by trustee standing in the shoes of the corporation. Id. at 362-64; see also
C.F. Trust, Inc. v First Flight, Ltd. P’ship, 306 F.3d 126, 134 (4th Cir. 2002) (“In a traditional veil-
piercing case, a creditor of a corporation seeks to reach the assets of a corporate shareholder or
director to satisfy a corporate debt.”). If the claim is a direct claim, then it is property of the estate,
and the trustee has the authority to prosecute or settle the claim. Lapides, at 363.
However, the distinction “between suits brought by a corporation against its officers and
those brought by defrauded parties against a corporation and its officers” is more subtle than it
may initially appear: causes of action for veil-piercing frequently arise “from breaches of fiduciary
duty by the corporate debtor’s principals that could have been brought directly by the debtor.” Id.
at 366 (concluding that claims that appear to seek to pierce the corporate veil are actually disguised
claims of fraud against the corporation); see also Steinberg v. Buczynski, 40 F.3d 890 (7th Cir.
1994) (acknowledging that disregard of corporate form could be a “species of wrongdoing that
entitles the corporation to recapture all the corporate moneys [from the principals].”). Adding to
the confusion among the caselaw, due to the subtlety of this distinction, courts may conclude that
2 There is the risk of confusing terms of art here. The claims herein referred to as direct claims are
frequently subdivided into direct or derivative claims outside of bankruptcy, depending on whether
the action is pursued directly by a corporation or derivatively by its shareholders. 	See National
City Bank of Minneapolis v. Lapides (In re Transcolor), 296 B.R. at 363. Moreover, some courts
have referred to specific veil-piercing claims as direct claims and claims maintained by a trustee
standing in the shoes of a creditor as derivative claims. To avoid this confusion, in this opinion,
the court refers to independent causes of action against corporate insiders brought by the trustee
on behalf of the corporation itself as direct claims. Additionally, causes of action containing veil-
piercing theories are subdivided into general claims—those where the injury runs to all creditors—
and individual claims—those where the injury is peculiar to a single creditor or group of creditors.
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a trustee owns a veil-piercing action, when in reality, the claim is a direct claim disguised under a
veil-piercing theory. 	Lapides at 366.
If the court determines that the pertinent claim is not one whereby a corporation or its
shareholders seek to hold insiders accountable as an independent cause of action, but rather is a
claim brought by a third party to pierce the corporate veil and hold shareholders liable for corporate
debts, then the court must determine whether there is any other justifiable reason why the claim
should be brought by the trustee rather than the creditor pursuing the claim. When claims asserting
veil-piercing theories are available to all creditors, courts generally find justification exists for a
trustee to bring the claim for one of two potential reasons. First, some courts find that § 544(a) of
the Bankruptcy Code grants the Trustee the authority to assert some rights of creditors because
“federal bankruptcy law permits the trustee to recover property on behalf of all creditors for
equitable distribution.” 	Koch Refining v. Farmers Union Cent. Exchange, Inc., 831 F.2d 1339,
1346 (2d Cir. 1987). Alternatively, the majority of courts reject that application of § 544(a) of the
Bankruptcy Code, but still find that an action vests in a trustee as an assignee for the benefit of
creditors because all creditors have an equal right and interest in claims wielding a general veil-
piercing theory. 	Picard v. JPMorgan Chase & Co., 460 B.R. 84, 96 (S.D.N.Y. 2011); see also
Mannuci v. Cabrini Medical Center (In re Cabrini Medical Center), 489 B.R. 7, 22 (“[I]nside of
bankruptcy, an orderly distribution of the debtor’s assets is the rule. 	Prior to the bankruptcy
petition, any creditor . . . would have standing to assert a [veil-piercing theory based] claim against
[the debtor] . . . . Once the petition was filed, all such claims became property of the estate.”).
Courts analyzing whether a veil-piercing theory effects all creditors typically look to who
is harmed when the corporate veil is inequitably maintained. 	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.”). 	Where “the right to relief and the benefits of
relief are peculiar to individual or groups of creditors, the right is not a generalized one that belongs
to the debtor’s estate.” Picard v. JPMorgan Chase & Co., 460 B.R. 84, 96 (S.D.N.Y. 2011). Thus,
“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.” In re Cabrini Medical Center, 489 B.R. 7, 17 (S.D.N.Y. 2012). Moreover, the accrual
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of benefit to all creditors on its own is not enough to make claims general when creditors are
harmed in varying forms or degrees. Picard, 460 B.R. at 96 (“any recovery on [such] claims will
not necessarily accrue to the benefit of all creditors harmed by the fraud, at least not in the same
way.”).
Ultimately, the analysis of who is harmed turns on state law. Pappas, 852 F.2d at 135. In
West Virginia, courts permit plaintiffs “to ‘pierce the corporate veil’ in order to hold the
shareholder(s) actively participating in the operation of the business personally liable.” Syl. Pt. 3,
Laya v. Erin Homes, Inc., 352 S.E.2d 93, 94 (W.Va. 1986). Notably, this court was not able to
identify a West Virginia case that permitted veil-piercing as an independent cause of action.
Rather, it is an equitable remedy by which a plaintiff may hold a shareholder liable for damages
awarded for a concurrent legal cause of action. Id. at 347. Thus, it is evident that a party seeking
to pierce the corporate veil must have a separate cause of action for which it seeks to recover from
a corporation.
In West Virginia, courts will disregard corporate form, and thus pierce the corporate veil,
when “(1) there [is] such unity of interest and ownership that theseparate [sic] personalities of the
corporation and the individual shareholder(s) no longer exist (a disregard of formalities
requirement) and (2) an inequitable result would occur if the acts are treated as those of the
corporation alone (a fairness requirement).” 	Id. at Syl. Pt. 3. 	Moreover, “grossly inadequate
capitalization combined with disregard of corporate formalities, causing basic unfairness, are
sufficient to pierce the corporate veil.” Id. at Syl. Pt. 5. Therefore, courts must look at both the
actions of the corporation with respect to corporate formalities and the effect that those actions
have on a third-party seeking to recover from the corporation’s shareholders.
In this case, both the Chapter 7 trustee and the Homeowners have expressed an interest in
asserting a claim against the Debtor’s shareholders. 	The Homeowners assert a series of claims
relating to the inadequate construction of their home and seek to hold the shareholders liable for
their anticipated recovery because the Debtor, through its shareholders, failed to maintain
corporate form and operated a business 	without adequate capitalization. 	Moreover, the
Homeowners have outlined their argument in State Court. 	They assert that the Debtor
misappropriated money advanced by them for construction of their home because the Debtor was
undercapitalized, although they also more generally argue that the Debtor failed to respect
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corporate formalities and was grossly undercapitalized. 3 The trustee attempts to settle the
Homeowners’ claims in reliance on In re Charles Edwards Enterprises, Inc., and its holding,
notwithstanding the discussion earlier in this opinion distinguishing its authoritativeness, that the
trustee owns all alter ego claims against a debtor’s shareholders. The trustee does not assert that
the corporation possesses a cause of action against the shareholders for damage to the corporation
itself through mismanagement or fraud. 	Although the shareholders assert that the corporation
suffered harm because it became unable to pay its debts, there is no indication, at this time, that
such a harm was brought about by an independent cause of action against the shareholders based
upon, for instance, mismanagement or fraud. Moreover, the asserted justifications for piercing the
veil—failure 	to 	maintain 	corporate 	form 	and 	operation 	of 	a 	business 	without 	adequate
capitalization—do not, as the facts are currently before the court, appear to contain a disguised
direct claim that the trustee could bring. 4 Thus, this is a dispute over who possesses the right to
bring the Homeowners’ claims that contain veil-piercing elements. Therefore, having eliminated
a direct claim by the estate as being in play, the court is tasked with determining whether the
Homeowner’s claim is general to all creditors or specific to them. 	As explained above, this
requires an analysis of whether the harm is peculiar to the Homeowners or common to all creditors.
There are essentially two assertions provided by the Homeowners, and adopted by the
trustee in seeking to settle the matter, justifying the theory for piercing the corporate veil. First,
the Debtor and its shareholders disregarded corporate form by allowing the Debtor’s shareholders
to pay corporate debts with noncorporate funds. Second, the Debtor operated a home construction
business without adequate capitalization necessary to engage in such a business. The Homeowners
allege that, because of these two variables, the shareholders should be held liable to them for their
actions for breach of contract, breach of fiduciary duty, and misappropriation of the funds that they
paid to have their home constructed. 	Importantly, the Homeowners specifically point to the
Debtor’s misappropriation of the funds directed to the Debtor for the construction of the
Homeowner’s 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. 	The
3 This is not meant to be viewed as an evaluation of the merits of the Homeowners cause of action
or veil-piercing theory; rather it is an attempt to determine the nature of the harm.
4 This is not to say that no such claim exists, but merely that the trustee has not identified such a
claim and it is not readily evident to the court that such a claim exists.
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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 an injury particular to the Homeowners. The Homeowners also assert a more general
assertion that the corporate veil should be pierced for lack of corporate formality and for gross
undercapitalization; and that assertion is available to all creditors. However, it is clear, on the facts
asserted by the Homeowners, particularly because of the alleged misappropriation, that the
Homeowners were subjected to a greater degree of harm than any other creditor. 	Thus, the
Homeowners possess an individual claim that does not belong to the estate and may not be
prosecuted by the trustee.
Because the trustee seeks to settle a claim that is outside of his authority to prosecute or
settle, the court will deny the trustee’s motion to compromise the claim. Insofar as the trustee has
other claims that he seeks to compromise with the shareholders, he may submit a new motion to
compromise. 5
ii. 	Automatic Stay
Upon reaching a determination that the claims involving veil-piercing rightfully belong to
the Homeowners, and are thus outside of the trustee’s authority to settle, the court now turns to the
Homeowner’s motion regarding the automatic stay. The Homeowners assert that the automatic
stay does not apply and should not prevent them from amending their State Court complaint to
name the Debtor’s shareholders as defendants under a veil-piercing theory because the Debtor will
not be involved in the litigation as they seek to proceed only against the shareholders individually.
Moreover, they assert that the Debtor will be dissolved, thus it will not suffer any harm from
allowing the Homeowners to proceed in State Court against the shareholders.
The automatic stay applies to the commencement or continuation of a judicial action or
proceeding against the debtor, and to any act to obtain possession of property of the estate or to
exercise control over property or the estate. 11 U.S.C. § 362(a)(1) and (3). Notably, the stay does
not apply to the Debtor’s shareholders and no party has sought to extend the stay to protect them.
Based on the analysis in Part III.i., the claim that the Homeowners seek to prosecute is not estate
5 The Debtor’s shareholders argued that the court should give deference to the trustee because he
is entitled to exercise reasonable business judgment, and therefore, the court should accept his
conclusion that the settlement involves estate property. Although trustees are entitled to exercise
business judgment in pursuing and settling causes of action owned by the estate, trustees are not
entitled to deference in determining whether property belongs to the estate.
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property and thus may be pursued against the Debtor’s shareholders without violating the
automatic stay. Therefore, the only pertinent concern regarding the applicability of the automatic
stay is whether the proceeding violates the stay because it is a proceeding against the Debtor or
otherwise harms the estate. Insofar as the Debtor is a named defendant in the proceeding in the
State Court lawsuit, the automatic stay is implicated, because it is, at least nominally, a proceeding
against the Debtor. However, the Debtor’s assets will not be affected because the Homeowners
seek to proceed only against the Debtor’s shareholders, thus the Debtor will not need to defend
itself nor could it be found liable. Nonetheless, because the Debtor is a named defendant in the
proceeding, the court will address whether cause exists to lift the stay.
Relief from the automatic stay may be granted for cause. 11 U.S.C. § 362(d)(1). “Cause”
is not specifically defined in the Bankruptcy Code, but “a desire to permit an action to proceed to
completion in another tribunal may provide . . . cause.” HR Rep. No. 595, 95th Cong., 1 st Sess.
343-33 (1977). 	“Congress . . . has granted broad discretion to bankruptcy courts to lift the
automatic stay to permit the enforcement of rights against property of the estate.” 	Claughton v.
Mixon, 33 F.3d 4, 5 (4th Cir. 1994). In exercising its discretion to determine if “cause” is present
to lift the stay, the factors the court is to consider include:
(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 (3) whether the estate can be
protected properly by a requirement that creditors seek enforcement of any
judgment through the bankruptcy court.
In re Robbins, 964 F.2d 342, 345 (4 th Cir. 1992). In considering these factors, “[t]he court must
balance potential prejudice to the bankruptcy debtor’s estate against the hardships that will be
incurred by the person seeking relief from the automatic stay if relief is denied.” Id. The moving
party has the burden to make a prima facie case that “cause” exists to lift the stay, after which the
burden shifts to the party opposing the motion to demonstrate that the stay should be left in place.
E.g., In re Joyner, 416 B.R. 190, 192 n.2 (Bankr. M.D.N.C. 2009) (“[T]he party seeking relief
from the stay has the initial burden of production . . . to establish a prima facie case for relief,
[however] the burden of proof, i.e., the burden of persuasion, rests on the party opposing relief on
all issues except the existence of equity.”) (citations omitted); see § 362(g).
Here, based on the totality of the circumstances, the above factors weigh in favor of lifting
the stay. First, the causes of action alleged by the Homeowners involve only issues of state law
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and deal with events that took place before the filing of the Debtor’s bankruptcy petition. Thus,
the expertise of the bankruptcy court is unnecessary.
Second, lifting the stay will promote judicial economy. 	The state court proceeding is
already underway. The Homeowners now seek to proceed with their litigation against the Debtor’s
shareholders instead of the Debtor itself. 	Third, the Debtor’s bankruptcy estate does not need
protection relating to this matter. 	The Homeowners’ seek to proceed against the Debtor’s
shareholders, and the Debtor will soon be liquidated and dissolved.
Additionally, the scale tips in favor of lifting the stay when balancing the potential
prejudice to the Debtor’s estate against the hardships of the Homeowners if stay relief is denied.
Although the trustee may be implicated in some discovery, the Debtor and its estate will otherwise
be undisturbed by the proceeding. 	The estate will not be subjected to a judgment nor will the
trustee need to defend any claims against the Debtor. On the other hand, the Homeowners would
suffer serious hardship if the stay were not lifted. Refusing to lift the stay would unduly delay the
ability 	to 	resolve 	the 	dispute 	between 	the 	Homeowners 	and 	the 	Debtor’s 	shareholders.
Importantly, the Homeowners seek to proceed solely against the Debtor’s shareholders and no
party has moved to extend the stay to the shareholders. 	Insofar as the automatic stay applies,
there is sufficient cause to grant relief from stay in order to allow the Homeowners to proceed
against the Debtor’s shareholders in State Court because the Debtor’s estate will not be harmed.
III. 	CONCLUSION
For reasons stated herein, the court cannot grant the trustee’s motion to compromise
because the trustee lacks authority to settle the Homeowners claim. Moreover, the Homeowners
may proceed in State Court against the Debtor’s shareholders under a veil-piercing theory without
violating the automatic stay. Furthermore, the court will lift the automatic stay for cause to allow
the Homeowners to proceed with their claims in State Court that name the Debtor as a defendant.
Therefore, the court will enter two separate orders denying the trustee’s Motion to Compromise
Claims and granting the Homeowners’ Motion for Relief from Stay.
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