On August 18, 2015, Judge Laurie Selber Silverstein of the Delaware Bankruptcy Court issued her first written opinion in the bankruptcy case Scarborough-St. James Corporation. In her 17 page opinion, Judge Silverstein addressed a long-running dispute between a landlord and the debtor.
Neither the Landlord nor the Debtor were original parties to the lease agreement. However, since they had both assumed their respective positions, they had engaged in extensive litigation concerning the payment of rent. The parties had eventually engaged in arbitration, as required by their contract. Following a lengthy arbitration process, in which the arbitrator issued both an initial ruling and a final award, the litigation between the parties continued. The arbitration award was challenged in the New York state courts; the Landlord sought to evict the Debtor and collect on rent due through litigation in Michigan; and ultimately, the Debtor filed for bankruptcy in the Delaware Bankruptcy Court. The Debtor listed total debts of $740,323.18, $720,204.80 of which is the Landlord’s claim. Opinion at *8.
The standard arguments were made under Rexene, as that is the controlling precedent for lift-stay motions. The Rexene opinion has been discussed multiple times in this blog – click here to see prior posts related to Rexene.
Ultimately, as the Debtor had not been highly engaged in the bankruptcy process and there had already been extensive litigation prior to the bankruptcy filing, Judge Silverstein held that the Debtor would not suffer great prejudice if the stay was lifted. Opinion at *10. Judge Silverstein also held that all of the other Rexene factors weighed against the Debtor. Opinion at *11-13. Additionally, Judge Silverstein held that the injunction previously entered by the Michigan State Court, which severely limited the Debtor’s ability to use rents, acted as adequate protection of the Landlord’s interests and so declined to grant the Landlord’s motion for additional adequate protection. Opinion at *6 & 16.
One of the Debtor’s arguments against the motion for relief from stay is that it would distract the Debtor’s principals, harming their reorganization efforts. To this Judge Silverstein responded, “based on the docket to date, the Court concludes that continuation of the Michigan Litigation will in no way impact the administration of the estate…. in the five months since this case was commenced, Debtor has not sought assistance from this Court in administering these cases.” If you are going to argue that the bankruptcy case is distracting your principals, you need to, at a minimum, be pursuing your bankruptcy.
Judge Silverstein’s first published decision may not be groundbreaking, but it does not contain any surprises and upholds the Delaware Bankruptcy Court’s reputation for publishing well reasoned decisions. I’m sure all the members of the bar join me in wishing the best for Judge Silverstein as she rules on the matters before her.