THOMAS B. BENNETT, Bankruptcy Judge.
Creative lawyering has its merits. Sometimes, it allows one to solve what previously had been an intractable legal issue. Other times, it is a bane masking problems inherent in what creativity's means is attempting to accomplish. This is a case of the second sort demonstrating the downside of creativity. What is involved is an attempt to avoid the shield afforded debtors by the automatic stay of the Bankruptcy Code, 11 U.S.C. § 362(a), based on Jefferson County, Alabama ("the County") not having been sued by the plaintiff, Assured Guaranty Municipal Corp., f/k/a Financial Security Assurance, Inc. ("Assured") in one of two lawsuits pending in the same New York state court, before the same judge, with the same
The question presented to this Court is whether the degree of sameness between these two lawsuits is sufficient for the automatic stay to apply when the only meaningful difference is that the County is a defendant in one suit and a third-party defendant in the other. Viewed from another perspective, the issue is whether Assured's creative pleading is enough to avoid application of 11 U.S.C. § 362(a)'s shield. The Court holds that it is not. The automatic stay applies to Assured's action against JPMorgan in New York state court ("Assured Action"), and there is no cause to modify the stay to allow the Assured Action to proceed.
The United States District Court for the Northern District of Alabama entered a consent decree in 1996 that required Jefferson County, Alabama to remediate its Sewer System ("Sewer System"). The County proceeded to raise billions of dollars for the development of its sewer system by issuing warrants secured exclusively by revenue generated by its Sewer System, which were underwritten by JPMorgan Chase Bank, N.A. and its affiliate, J.P. Morgan Securities LLC (collectively, "JPMorgan"). The County also entered into several interest rate swap transactions with JPMorgan in relation to these warrants. Between 2002 and 2005, the County and JPMorgan made several agreements with Assured and Syncora Guarantee Inc. ("Syncora") in which Assured and Syncora issued policies that insured against the County's failure to pay principal and interest on the warrants. Assured also reinsured over $360 million in policies originally issued by Syncora and Financial Guaranty Insurance Company ("FGIC"). See Assured's Statement of Legal Issues, at 4, Nov. 15, 2011 (Doc. 146).
To obtain these policies, the County and JPMorgan allegedly made statements and representations to Assured and Syncora that purposefully misrepresented and concealed information about bribes that JPMorgan had paid to County officials. Additionally, the County and JPMorgan allegedly failed to disclose the 2003 Krebs Report, an analysis of the Sewer System's ability to generate revenues and needed sewer rate modifications, to Assured and Syncora.
Syncora's credit rating was downgraded in 2008 partially as a result of its overexposure to subprime residential mortgages. This downgrade triggered a modified and accelerated principal repayment schedule in the Sewer System warrant indebtedness. In addition, starting in April 2008, the Sewer System failed to generate sufficient revenues to meet the payment obligations on its warrants. This confluence of events caused the County to default on its obligations to warrantholders. The SEC subsequently censured JPMorgan for its involvement in the financing of the Sewer System, and several Jefferson County Commissioners were convicted of crimes relating to its rehabilitation and improvements.
On April 29, 2010, Syncora filed a complaint against JPMorgan and the County in the Supreme Court of the State of New York, County of New York ("New York court") that alleged fraud and aiding and abetting fraud in connection with the financing of the Sewer System ("Syncora Action"). Syncora opened its Complaint with the following paragraph:
Syncora Guarantee Inc. v. Jefferson Cnty., Ala., No. 601100/10, Compl. ¶ 1 (N.Y.Sup. Ct. Apr. 29, 2010) ("Syncora Complaint"). The Syncora Complaint contains four causes of action: "Fraud Related to Bribes (2002 Policy, 2003 Policy, and Surety Bond) (Against Jefferson County and JPMorgan)"; "Aiding and Abetting Fraud Related to Bribes (2002 Policy, 2003 Policy, and Surety Bond) (Against Jefferson County and JPMorgan)"; "Fraud Related to Krebs Findings (2003 Policy and Surety Bond) (Against Jefferson County and JPMorgan)"; and "Aiding and Abetting Fraud Related to Krebs Findings (2003 Policy and Surety Bond) (Against Jefferson County and JPMorgan)." Syncora Compl. ¶¶ 108-53. The Syncora Complaint asks the New York court to find "Defendants jointly and severally liable to Syncora for compensatory and punitive damages," among other requests. Syncora Compl. at p. 43.
On June 16, 2010, Assured (using the same law firm as Syncora) filed a Complaint against JPMorgan — but not the County — in the New York court, alleging fraud and aiding and abetting fraud in connection with the financing of the Sewer System ("Assured Action"). Assured opened its Complaint with the following paragraph:
Assured Guar. Mun. Corp. v. JPMorgan Chase Bank, N.A., No. 650642/2010, Compl. ¶ 1, (N.Y. Sup.Ct. June 16, 2010) ("Assured Complaint"). The remainder of the Assured Complaint repeats many of the same allegations — often verbatim — from the Syncora Complaint. The Assured Complaint contains two causes of action, which mirror the first two causes of action in the Syncora Complaint: "Fraud" and "Aiding and Abetting Fraud." Assured Compl. ¶¶ 28-31. The main difference between the two Complaints, apart from Assured's decision not to name the County as a party, is the absence of discussion about the Krebs Report in the Assured Complaint. The facts section in the Assured Complaint does not discuss the Krebs Report, and the third and fourth causes of action in the Syncora Complaint, which are premised on the Krebs Report, are not present in the Assured Complaint.
Both the Assured and Syncora Actions are assigned to the same judge in the New York court. On July 28, 2010, JPMorgan filed a motion to dismiss the Assured Complaint, but the New York court denied this motion. JPMorgan then filed a third-party complaint in the Assured Action on February 10, 2011, in which it denied that Assured is entitled to any relief, but if any liability were to be imposed upon it, JPMorgan asserted two cross-claims against the County for indemnification (both contractual and common law) and contribution. Jefferson County filed a motion to dismiss JPMorgan's third-party complaint on April 1, 2011, but the New York court denied that motion.
JPMorgan's arguments for contractual indemnification are based on provisions in various warrant purchase agreements between JPMorgan and the County. In one such agreement, the County agreed to indemnify J.P. Morgan Securities LLC, along with its members, officers, and employees, among others, against:
Objection of JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC to the Motion of Assured Guaranty Municipal Corp. for a Determination that the Automatic Stay Does Not Apply or For Relief From the Automatic Stay ("JPMorgan Br."), Ex. 9 § 11(a) (Doc. 871-11). Other standby warrant purchase agreements contain a similar provision, in which the County agreed to indemnify JPMorgan Chase Bank, N.A. along with its officers and employees "from and against any and all claims, damages, losses, liabilities, reasonable costs or expenses whatsoever that [JPMorgan Chase Bank, N.A.] may incur... that arises [sic] out of the transactions contemplated by this Agreement or the Related Documents...." JPMorgan Br., Ex. 10 § 9.03(b).
Assured, Syncora, JPMorgan, and the County agreed to coordinate discovery for efficiency purposes in the Assured and Syncora Actions, but the discovery in these cases was and remains nonetheless substantial. During the pre-bankruptcy period, the County agreed to cooperate with Assured's document requests and produced more than 370,000 pages of documents. On October 6, 2011, the parties informed the New York court that they had agreed to a framework for settlement negotiations, and had therefore reached an informal standstill on the Assured and Syncora Actions. At the time of this standstill, document discovery was unfinished, third-party document discovery had been minimal, depositions and expert discovery had yet to commence, and the parties still had unresolved discovery disputes. Further, at the time of the standstill, the County had already spent over $2.5 million from its limited General Fund to defend itself in the Assured and Syncora Actions.
On November 9, 2011, the County filed its Chapter 9 petition and scheduled approximately $4.23 billion dollars of debt, with approximately $3.14 billion of that
Section 362(a)(1) automatically stays "the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title." 11 U.S.C. § 362(a)(1). Generally, the automatic stay of § 362(a)(1) applies only to certain actions taken or not taken with respect to a debtor, and not with respect to such action or inaction affecting other parties. See A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 999 (4th Cir.1986). However, courts have recognized that certain "unusual circumstances" warrant applying the § 362(a)(1) stay to proceedings against a non-debtor defendant where such an application furthers the purposes behind the stay. See id.; Queenie, Ltd. v. Nygard Int'l, 321 F.3d 282, 287 (2d Cir. 2003) ("The automatic stay can apply to non-debtors, but normally does so only when a claim against the non-debtor will have an immediate adverse economic consequence for the debtor's estate."). Such unusual circumstances have been found (1) when an indemnification or contribution relationship creates an identity of interests between the debtor and the non-debtor defendant; (2) when the proceeding imposes a substantial burden of discovery on the debtor; or (3) when the proceeding would have a potential preclusive effect that forces the debtor to participate in the proceeding as if the debtor were a party. See, e.g., A.H. Robins, 788 F.2d at 999; Queenie, Ltd., 321 F.3d at 287; Johns-Manville Corp. v. Asbestos Litig. Grp. (In re Johns-Manville Corp.) (Johns-Manville I), 40 B.R. 219, 223-26 (S.D.N.Y. 1984); Lesser v. A-Z Assocs. (In re Lion Capital Grp.), 44 B.R. 690, 702-04 (Bankr. S.D.N.Y.1984).
In the context of determining whether specific "unusual circumstances" warrant extension of the automatic stay, it is important to consider the bigger picture at issue — the purposes behind the 11 U.S.C. § 362 automatic stay and Chapter 9 generally. As the House Report on the bill enacting the § 362 automatic stay succinctly explains,
H.R.Rep. No. 95-595, at 340 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6296-97. See also S.Rep. No. 95-989, at 49, 54-55 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5835, 5840-41.
This "breathing spell" afforded by the stay is particularly important in the context of a Chapter 9 case:
Alliance Capital Mgmt. L.P. v. Cnty. of Orange (In re Cnty. of Orange), 179 B.R. 185, 191 (Bankr.C.D.Cal.1995), rev'd in part on other grounds & remanded, 189 B.R. 499 (C.D.Cal.1995).
Courts routinely cite the purpose behind the automatic stay when applying it to non-debtors. See, e.g., Maaco Enters., Inc. v. Corrao, No. 91-3325, 1991 WL 255132, at *2 (E.D.Pa. Nov. 25, 1991) (citing legislative history describing the broad application of the stay and holding that the stay "applies to suits against non-debtor defendants who are related to the debtor
In effectuating the purpose behind the stay, courts have declined to elevate form over substance. In a case similar to this one, a district court upheld a bankruptcy court's imposition of the stay in a suit against officers of the debtor where the allegations in the complaint were actually against the debtor. Lomas Fin. Corp., 117 B.R. at 65-68. The court held that § 362(a)(1) applied to the action against the non-debtor defendants based on the indemnification agreement between the debtor and non-debtor defendants, the harm to the debtor's reorganization, and the potential for collateral estoppel. Id. at 66-68. The district court agreed with the bankruptcy court's conclusion that naming the non-debtors in the suit was merely a "transparent attempt ... to end run the automatic stay." Id. at 68 (internal quotations and citation omitted).
Similarly, in Kaiser Grp. Int'l, Inc. v. Kaiser Aluminum & Chemical Corp. (In re Kaiser Aluminum Corp., Inc.), 315 B.R. 655 (D.Del.2004), an adversary proceeding plaintiff argued that because only the insurance company, and not the debtor, was named as a defendant in the adversary proceeding, the automatic stay did not apply. 315 B.R. at 657. Both the bankruptcy and district courts disagreed, noting that who was named in the suit was not controlling. Id. at 658-59. The district court held
Id. at 658; see also Maaco Enters., Inc., 1991 WL 255132, at *2-3 (staying action against individuals who owned debtor franchise because it would "effectively be a judgment against the debtor").
In the context of the County's Chapter 9 case, Assured's position on the inapplicability of the automatic stay and in the alternative, for its modification, elevates form over substance. The Assured Action against JPMorgan and the Syncora Action against JPMorgan and the County are virtually identical. Even though Syncora directly named the County as a defendant and JPMorgan brought the County into the Assured Action as a third-party defendant, it is obvious that the County is a party in interest in both cases. Both the Assured and Syncora Complaints contain numerous material allegations implicating conduct by the County. Indeed, one of the two claims Assured asserts against JPMorgan is that it aided and abetted the County's fraud. In order to succeed on that claim, it will have to prove that the County committed the underlying fraud and that JPMorgan had actual knowledge of it and provided substantial assistance to advance the fraud's commission. See, e.g., Lerner v. Fleet Bank, N.A., 459 F.3d 273, 292 (2d Cir.2006) ("To establish liability for aiding and abetting fraud, the plaintiffs must show (1) the existence of a fraud; (2) the defendant's knowledge of the fraud;
Just as in the Kaiser and Lomas cases, the fact that the Assured Complaint does not actually name the County as a defendant is simply not controlling. As more fully detailed below, the claims against the County and JPMorgan are inextricably interwoven, and the County has an indemnification agreement with JPMorgan that could make it responsible for any recovery Assured wins against JPMorgan. See infra Section III.B. This relationship is augmented by Assured's reinsurance of some of Syncora's liability exposure to warrantholders, which, if the Assured Action continued, would effectively be litigation of the Syncora Action via the Assured Action.
Allowing the Assured Action to proceed would circumvent the purpose of the automatic stay. It would significantly infringe on the County's "breathing spell" by requiring it to expend significant time and resources defending its interests in the action. See infra at Section III.C. Moreover, Assured's fraud allegations may affect the claims allowance, subordination, and adjustment of debt processes in this Court. In fact, Assured might try to rely on a finding of fraud to advance its interests ahead of other creditors by turning its non-recourse contract claim into one against the County's General Fund, fundamentally altering the balance of the County's Chapter 9 case. The Assured Action also represents an attempt to fix the amount of Assured's claim against the County via outside litigation even though the bankruptcy court is the more efficient forum for making such a determination. See McKesson Corp. v. El Paso Pharm., Inc. (In re El Paso Pharm., Inc.), 130 B.R. 492, 496 (Bankr.W.D.Tex.1991) (bankruptcy courts generally do not modify the automatic stay to allow parties to pursue claims adjudication in state court because it is not "as fast, as inexpensive, or as fair to the estate" as the claims allowance process and because of concerns about uniformity of decision within bankruptcy case).
In short, the automatic stay's application to the Assured Action furthers the purpose behind the stay by giving the County a true breathing spell and allowing the Chapter 9 adjustment process to move forward in a fair and orderly fashion. The "unusual circumstances" that support its application or extension to the Assured Action — the identity of interests between the County and JPMorgan, the discovery burden on the County, and the potential preclusive effect of the Assured Action — are further discussed in detail below.
Courts have held that proceedings against a non-debtor defendant should be stayed where there is such a close identity between the non-debtor defendant and the debtor that a judgment against the non-debtor defendant would in effect be a judgment against the debtor. See, e.g., A.H. Robins, 788 F.2d at 999; Gulfmark Offshore, Inc. v. Bender Shipbuilding & Repair Co., Inc., No. 09-0249-WS-N, 2009 WL 2413664, at *1 (S.D.Ala. Aug. 3, 2009); Sudbury, Inc., 140 B.R. at 464. A stay is appropriate where the claims against the debtor and non-debtor defendant are "inextricably interwoven," such as in the case of an indemnification agreement. See E. Air Lines, Inc. v. Rolleston (In re Ionosphere Clubs, Inc.), 111 B.R. 423, 434 (Bankr.S.D.N.Y.1990) (internal quotations and citation omitted); see also Queenie, Ltd., 321 F.3d at 287-88; A.H. Robins, 788 F.2d at 999; Gulfmark Offshore, Inc., 2009 WL 2413664, at *1.
Id. at 999 (internal quotations and citations omitted) Because A.H. Robins had liability coverage from its insurance company and because the individual co-defendants involved in the production of the Dalkon Shield were indemnified by corporate by-laws, state statutes, and the debtor's insurance agreement, the Fourth Circuit upheld the extension of the automatic stay because this case fell within the "unusual circumstances" exception. Id. at 997, 1007-09. The Fourth Circuit also explained one possible consequence of not applying the automatic stay in the context of such an indemnity relationship:
Id. at 1000.
Since A.H. Robins — and contrary to the argument set forth by Assured,
One particularly relevant case, American Film Technologies., Inc. v. Taritero (In re American Film Technologies, Inc.), 175 B.R. 847, 851-55 (Bankr.D.Del.1994), demonstrates that a court need not formally determine that a non-debtor defendant is indemnified by the debtor to apply the "unusual circumstances" exception. See Am. Film, 175 B.R. at 851-55. The plaintiff in American Film was a former officer and director of American Film Technologies, Inc., who sued the company and its officers and directors for fraud and breach of his employment contract. Id. at 848. The company subsequently filed a petition for Chapter 11 bankruptcy and sought a stay of the lawsuit against its officers and directors, who were to be indemnified for any such damages under the company's charter and by-laws. Id. at 848-49. The plaintiff argued that if the officers and directors had committed fraud, the applicable state laws prevented them from being indemnified by the debtor. Id. at 851, 854-55. The court rejected that argument, holding that the plaintiff's lawsuit "squarely implicate[d] [the debtor's] indemnification obligations" and that the "unusual circumstances" exception applied. Id. at 855.
Because of the bases on which these indemnification and contribution claims are premised, JPMorgan's interests are "inextricably interwoven" with the County's. In order to prove that JPMorgan aided and abetted the County's fraud, Assured will have to prove that the County committed fraud, and if the New York court enters a judgment against JPMorgan on Assured's fraud claims, that judgment could, via preclusion, result in a judgment against the County when JPMorgan pursues its indemnification and contribution claims. See A.H. Robins Co., 788 F.2d at 999; Vazquez v. Aetna Cas. & Sur. Co., 112 Misc.2d 125, 446 N.Y.S.2d 176, 178-79 (Civ.Ct.1982) (offensive collateral estoppel is permissible where the non-party can show privity with the party against whom the judgment was rendered). Although Assured's fraud allegations have yet to be addressed by the New York court, and even if state law eventually prevents JPMorgan from being indemnified by the County for the fraud claims, these allegations "squarely implicate" the potential applicability of the County's indemnification and contribution obligations. See Am. Film, 175 B.R. at 855. Accordingly, these "unusual circumstances" warrant application of the § 362(a)(1) automatic stay.
Courts apply the § 362(a)(1) stay to proceedings against non-debtor defendants when discovery in those proceedings would impose a burden on the debtor that would substantially hinder the debtor's reorganization.
Id. at 224-25.
Allowing the Assured Action to proceed would impose a burden on the County that would substantially hinder its adjustment of debts by diverting its attention and resources away from the bankruptcy process. The stakes in the Assured Action are high, and discovery is in the early stages. Assured alleges that fraud occurred during the financing of the Sewer System, which is responsible for approximately $3.14 billion of the County's $4.23 billion in scheduled debt, and makes allegations that involve hundreds of millions of dollars in potential compensatory and punitive damages. The County has already produced more than 370,000 pages of documents to Assured and spent over $2.5 million from its General Fund defending itself, and the parties still have yet to finish what remains as extensive and expensive pre-trial discovery. Document discovery — including third-party document discovery — is not yet complete, depositions and expert discovery have not begun, and numerous discovery disputes have yet to be briefed and resolved.
Participating in this discovery would distract key personnel of the County — including Commissioners, employees, and counsel — from the process of developing and executing a plan of adjustment because they will be required to respond to document discovery and be deposed or, at the very least, be involved in the deposition process. Even if Assured seeks discovery only from former, and not current, officials and employees of the County as it currently asserts it will do, JPMorgan, which also has a right to engage in discovery against the County, anticipates undertaking much broader discovery, including discovery from both current and former County officials. JPMorgan Br. at 3.
In short, discovery in the Assured Action promises to be the same sort of "extensive and expensive" process described by the Johns-Manville court. See Johns-Manville I, 40 B.R. at 224. Application of the stay is therefore appropriate.
This Court also considers whether the Assured Action should be stayed because of its potential preclusive effect.
When dealing with preclusion, courts look to the laws of the state in which judgment would be or has been rendered. See, e.g., Marrese v. Am. Acad.
The potential preclusive effect of allowing the Assured Action to proceed against JPMorgan presents a concern for the County because of the Syncora Action involving claims against it in the hundreds of millions of dollars, if not greater, and the County's indemnification agreements with JPMorgan. The Assured and Syncora Complaints allege substantially similar fraud claims, have been assigned to the same judge, and the parties had been coordinating discovery for both cases.
As a practical matter, the County cannot be a bystander to a suit which may have a preclusive effect on claims for of hundreds of millions of dollars against it by a pre-petition creditor. The County's doing nothing is even more problematic because Assured has reinsured certain of Syncora's potential obligations to warrantholders. When one recognizes that the underlying liability basis to warrantholders is identical for the reinsured policies, it is obvious that the County cannot avoid participating in the Assured Action. More simply, it would be forced to a significant degree to participate in the Assured Action unless it wants to gamble that no adverse facts or rulings will be conclusively established. Therefore, the potential prejudice to the County's positions in the Syncora Action and indemnity actions by JPMorgan further supports application of the automatic stay.
Unlike § 362(a)(1), § 362(a)(3) is not limited to actions against the debtor but instead stays "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate," 11 U.S.C. § 362(a)(3), and courts have applied the (a)(3) stay to non-debtor actions that "have an adverse impact on property of the estate."
An indemnification claim against the debtor — even if it is ultimately unsuccessful — may fall within § 362(a)(3) because it has an "immediate adverse economic consequence for the debtor's estate:"
Robert Plan Corp., 2010 WL 1193151, at *3 (citing Queenie, Ltd., 321 F.3d at 287). But see In re All Seasons Resorts, Inc., 79 B.R. 901, 904 (Bankr.C.D.Cal.1987) (officer's right to be indemnified by debtor does not implicate § 362(a)(3)).
The Assured Action is an attempt to indirectly obtain property of the debtor under § 362(a)(3). Just as in Robert Plan Corp., JPMorgan's indemnification and contribution claims against the County create an immediate adverse economic consequence for the debtor regardless of whether they are ultimately successful. Additionally, and as already discussed, the reinsurance agreement between Assured and Syncora effectively brings the underlying reinsured liabilities in the Syncora Action into the Assured Action as well. These identical underlying claims should not be allowed to go forward in the Assured Action while they are stayed in the Syncora Action simply because of Assured's pleading differences. The Assured Action is stayed pursuant to 11 U.S.C. § 362(a)(3).
Having determined that the automatic stays of 11 U.S.C. § 362(a)(1) and (a)(3)
Section 362(d) allows the Bankruptcy Court to grant relief from the automatic stay for "cause." "Cause" is not defined in the Bankruptcy Code. "Because there is no clear definition of what constitutes `cause,' discretionary relief from the stay must be determined on a case by case basis." In re Mac Donald, 755 F.2d 715, 717 (9th Cir.1985); see also In re S. Oakes Furniture, Inc., 167 B.R. 307, 308 (Bankr. M.D.Ga.1994). To determine whether "cause" exists to lift the stay and allow a suit to proceed in a non-bankruptcy forum, this Court has analyzed whether (1) any great prejudice to either the bankrupt estate or the debtor will result from continuation of a civil suit, (2) the hardship to the non-bankrupt party by maintenance of the stay considerably outweighs the hardship to the debtor, and (3) the creditor has a probability of prevailing on the merits of its lawsuit.
As detailed in the preceding sections of this opinion, the County would be greatly prejudiced by allowing the Assured Action to continue. It would be forced to participate in an extensive and expensive discovery process and a trial in another state, further depleting the County's rapidly diminishing General Fund. Moreover, the County's indemnification agreements with JPMorgan could mean that the County will essentially be required to participate in litigation involving the issues in the Assured Action twice. Further, if the Assured Action proceeds, the evidence presented may have a preclusive effect in the Syncora Action or the indemnification claims. It may also alter the type and classification of the claim Assured would otherwise have in the County's Chapter 9 case while other claimholders would not have a similar opportunity.
In contrast, Assured will suffer very little hardship if the stay is applied to the Assured Action. If the Assured Action is stayed, Assured can still pursue its claims against the County in this Court and will not forfeit its right to pursue its claims against JPMorgan at a later date. Even more pointedly, Assured is being treated identically to Syncora with respect to what for all intents and purposes are identical claims and causes of action.
This Court's resolution of issues involving the allowance of claims, subordination, and the County's plan of adjustment of debts will implicate — and may even moot — the Assured Action, and allowing Assured to litigate these issues outside the context of the County's Chapter 9 case
Unlike the stay relief motion this Court recently ruled on in In re Jefferson County, Ala., 484 B.R. 427 (Bankr.N.D.Ala. 2012), Assured's likelihood of success on the merits is unclear from the record before this Court. See In re Tovar, No. BR 12-00357, 2012 WL 4845593, at *6 (Bankr. N.D.Iowa Oct. 10, 2012) (because movant's chances of success on the merits were unclear on the record provided, the factor was neutral); In re Marvin Johnson's Auto Serv., Inc., 192 B.R. 1008, 1017 (Bankr.N.D.Ala.1996) ("Without knowing the testimony the state court will hear, it is not possible for this Court to predict to what extent, if any, Mr. Franks will be successful."). In any event, it appears it may be too early in the Assured Action for the Court to assess Assured's likelihood of success. See In re Pro Football Weekly, Inc., 60 B.R. 824, 826 (N.D.Ill.1986). This factor is therefore neutral, and the balance of these three factors weighs heavily against modifying the automatic stay of 11 U.S.C. § 362 with respect to the Assured Action, and it will not be modified.
Based on the foregoing findings of fact and conclusions of law, Assured's Motion is denied. The Court holds that based on the unusual circumstances presented in this case — specifically, the identity of interests between JPMorgan and the County, the effect on the County's reorganization efforts, and the potential preclusive effect of a judgment in the Assured Action — that the automatic stay of 11 U.S.C. § 362 applies to the Assured Action.
A separate order incorporating the Court's decision will be entered contemporaneously with this Memorandum Opinion.
As set forth in detail below, this Court holds that the automatic stay of 11 U.S.C. § 362(a)(1) and (a)(3) apply to the Assured Action. Alternatively, for those actions or proceedings requiring its extension, this Court is imposing the automatic stay. Whether the imposition may be accomplished without the use of 11 U.S.C. § 105, must be done in conjunction with § 105, or requires an adversary proceeding is not and need not be resolved. This Court reaches the same conclusion based on the circumstances presented regardless of whether it utilizes § 105, and, to the extent an adversary proceeding might be required, this Court would issue such relief consistent with this opinion if an adversary proceeding were to be filed.
JPMorgan Br. at 3. Assured counters JPMorgan's contentions by arguing that JPMorgan will not need to engage in such discovery "because none of the current County Commissioners were in office at the time of JPMorgan's fraud and its bribery scheme in the early half of the last decade (and none is believed to have been involved in the JPMorgan bribery scandal)." Assured Reply Br. at 16. Assured contends that JPMorgan misstates the reasons for these depositions and ignores the possibility that the County may decide to cooperate with JPMorgan's discovery requests (as the County did with Assured's document requests in the pre-bankruptcy period of 2011). However, the County's resistance to Assured's motion demonstrates that cooperation is not likely to occur. Furthermore, the costs that would be incurred even if the County cooperated would be substantial, and the other factors supporting application of the automatic stay that are discussed in the text of this opinion remain. Finally, even if Assured were correct that JPMorgan would not need to depose such officials and employees, reaching that determination could itself be a significant discovery dispute that would contribute to the County's burden.
All Seasons Resorts, Inc., 79 B.R. at 904. As detailed in Sections III.C and V, the County's adjustment of debts would be significantly impacted if the Assured Action were to proceed.
The Court also notes that the automatic stay of 11 U.S.C. § 922(a) does not apply to the Assured Action because that stay applies only to actions or proceedings "against an officer or inhabitant of the debtor." No such officer or inhabitant is named in the Assured Action; only the County itself is a third-party defendant. Cf. In re Jefferson Cnty., Ala., 484 B.R. 427, 447 (Bankr.N.D.Ala.2012) (§ 922(a) stay has potential application only to County Commissioners); In re City of Stockton, Cal., 484 B.R. 372 (Bankr.E.D.Cal.2012) (staying action against city officers).
