EDWARD J. COLEMAN, III, Bankruptcy Judge.
Before the Court is the Emergency Motion Under 11 U.S.C. § 105 for Interim Stay of State Court Action Against Guarantor (dckt. 219) filed by A & B Associates, L.P. (the "Debtor"). The Debtor requests the Court stay a lawsuit against guarantor Christopher Kettles ("Mr. Kettles"), the principal owner of the Debtor, filed by creditor FCRE REL, LLC ("FCRE") in the Supreme Court of New York. For the reasons set forth below, the Court will DENY the Debtor's Emergency Motion.
This Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and the Standing Order of Reference signed by then Chief Judge Anthony A. Alaimo on July 13, 1984. This is a "core proceeding" within the meaning of 28 U.S.C. § 157(b).
The Debtor is a Limited Partnership organized under the laws of the State of Georgia. (Dckt. 1, p. 1). Mr. Kettles, the Debtor's managing general partner, individually owns a twenty-percent interest in the Debtor. Id. at pp. 4, 20. Kettles also owns one hundred percent of both ABGP, Inc., which owns a one-percent interest in the Debtor, and The August Group, Inc., which owns a fifty-one percent interest in the Debtor. Id. at pp. 20-21). See also (Dckt. 162-16). The Debtor has several other owners. Id.
The Debtor owns a 96-unit residential apartment complex known as "August on Southside" located at 2208 Southside Blvd., Port Royal, South Carolina 29935 (the "Property"). Id. at p. 10. On April 15, 2015, FCRE made a mortgage loan to the Debtor in the amount of $3,900,000.00. (Dckt. 33-4, 33-5). The same day, Mr. Kettles signed a Guaranty of the loan. (Dckt. 33-8).
On August 15, 2016, the Debtor filed a complaint against FCRE in the Court of Common Pleas, County of Beaufort, South Carolina (the "South Carolina case"). (Dckt. 219-2). In the complaint, the Debtor alleged FCRE falsely declared a non-monetary default on July 18, 2016, and forcibly removed the Debtor from the Property. Id. at 1. Based on these allegations, the Debtor asserted claims for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, conversion, a declaration of violation of public policy, a declaration of non-default, tortious interference with contracts, an accounting, and a permanent injunction. Id. at pp. 12-19.
The same day the Debtor filed the complaint in the South Carolina case, the South Carolina court granted the Debtor's motion for temporary restraining order, requiring FCRE to restore possession of the Property to the Debtor by the following day. (Dckt. 65-2, p. 2). On August 24, 2016, the South Carolina court issued an order granting the Debtor's motion for temporary injunction, allowing the Debtor to continue its possession of the Property and ordering FCRE to turn over to the Debtor "all of [the Debtor's] money." (Dckt. 65-2, p. 7).
On September 6, 2016, FCRE filed an answer, counterclaims, and a third-party complaint against Mr. Kettles in the South Carolina case. (Dckt. 65-3). In its third-party complaint, FCRE asserted a claim for breach of guaranty against Mr. Kettles. Id. at p. 32. On September 23, 2016, the South Carolina court issued an order granting the Debtor's motion for contempt against FCRE for violating the temporary injunction by failing to return certain funds to the Debtor. (Dckt. 65-4). On May 15, 2017, this Court entered an Order lifting the automatic stay for the limited purpose of allowing FCRE to pursue an appeal in the state of South Carolina of the temporary injunction and contempt orders entered by the South Carolina court. (Dckt. 130).
On February 3, 2017, the Debtor filed its Chapter 11 bankruptcy petition. (Dckt. 1). In its schedules, the Debtor valued the Property at $5,375,000.00 (dckt. 1, p. 10) and listed FCRE as the holder of a secured claim in the amount of $3,812,441.79 (dckt. 1, p. 13). The Debtor's schedules also list Mr. Kettles as the holder of an unsecured claim in the amount $115,737.00 and explain the basis for this claim as "[l]oans from Owner." Id. at p. 15. On May 17, 2017, FCRE filed a claim in the amount of $4,733,901.78, of which $3,801,548.15 represents the principal balance and interest accrued between January 7, 2017, and February 2, 2017. (Claim 2-1, Part 2). The Debtor is currently operating as debtor in possession pursuant to 11 U.S.C. §§ 1107 and 1108.
On May 8, 2017, FCRE initiated a proceeding against Mr. Kettles in the Supreme Court of the State of New York, County of New York (the "New York case") by filing a Motion for Summary Judgment in Lieu of a Complaint. (Dckt. 219-1) pursuant to New York Civil Practice Law and Rules § 3213. In the New York case, FCRE asserts that under the Guaranty, the Debtor's filing of a voluntary bankruptcy petition triggered Mr. Kettles' liability for the debt. Id. FCRE seeks a judgment against Mr. Kettles in the amount of $3,801,548.15, representing the total outstanding principal balance and interest accrued as of February 2, 2017, together with prejudgment and post-judgment interest, attorneys' fees, and costs and expenses. Id. at p. 4. On July 26, 2017, Mr. Kettles and FCRE stipulated that the "return date" for the Motion for Summary Judgment in Lieu of a Complaint would be adjourned until August 17, 2017. (Dckt. 223-1). The Court is unable to ascertain when the New York case is due to be adjudicated.
On July 26, 2017, the Debtor filed the instant Emergency Motion (Dckt. 219), asking this Court to stay the New York case against Mr. Kettles pursuant to 11 U.S.C. § 105. On July 31, 2017, the Court held a hearing on the Debtor's Emergency Motion. No evidence was presented at the hearing.
The starting point in this case is that the automatic stay of 11 U.S.C. § 362 does not stay FCRE's claim against Mr. Kettles in the New York case. Section 362 provides in relevant part as follows:
"The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws." B.F. Goodrich Emps. Fed. Credit Union v. Patterson (In re Patterson), 967 F.2d 505, 512 n.9 (11th Cir. 1992). Any acts taken by creditors against the debtor after the filing of a bankruptcy petition, with or without notice of the filing of the petition, are void ab initio. Borg Warner Accept. Corp. V. Hall, 685 F.2d 1306, 1308 (11th Cir. 1982). By the terms of § 362, however, the automatic stay protects only "the debtor," not someone who has not filed bankruptcy. In re Caesars Entertainment Operating Co., Inc., 540 B.R. 637, 642-43 (Bankr. N.D. Ill. 2015). The automatic stay "does not stay actions against guarantors, sureties, corporate affiliates, or other non-debtor parties liable on the debts of the debtors." In re Advanced Ribbons & Office Prods., Inc., 125 B.R. 259, 263 (B.A.P. 9th Cir. 1991). See also McCartney v. Integra Nat. Bank North, 106 F.3d 506, 509-10 (3d Cir. 1997) (noting it is "universally acknowledged" that the automatic stay "may not be invoked by . . . guarantors"). Because Mr. Kettles is a guarantor, not a debtor, he is not protected by the automatic stay.
In this case, however, the Debtor asks the Court to stay the New York case pursuant to 11 U.S.C. § 105. In certain circumstances, "bankruptcy courts have the power to restrain legal action by creditors of the debtor against non-debtor third parties" under § 105. In re Monroe Well Service, Inc., 67 B.R. 746, 751 (Bankr. E.D. Pa. 1986). Under § 105, a bankruptcy court "may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a). A request to stay an action against a non-debtor third party is an action for injunctive relief.
Here, the Debtor has failed to establish a danger of imminent, irreparable harm to its ability to reorganize in the absence of an injunction, and thus the Court need not address the three remaining requirements for injunctive relief under § 105. The cases under 11 U.S.C. § 105 in which courts have enjoined actions against third parties "are based on a showing that absent the injunction the debtor will be adversely affected by the loss of either the third party's necessary skill and expertise or by the loss of assets necessary for the continued operation or reorganization of the debtor." In re Diaconx Corp., 69 B.R. 343, 347 (Bankr. E.D. Pa. 1987). Thus, in In re Chicora Life Center, 553 B.R. 61 (Bankr. D.C.S. 2016), the court enjoined an action on the guaranty of the debtor's manager, who had a line of credit with a bank from which he intended to borrow $1,000,000 to contribute to the debtor's plan of reorganization. Id. at 62-63. Because the debtor required the manager's funding to pay its ongoing operating costs, including insurance, utilities, security, payroll, and professional fees, the court held that the action against the manager would place the debtor's Chapter 11 plan at risk. Id. at 65-66.
No such circumstances are present in this case. In its Emergency Motion, the Debtor simply asserts that Mr. Kettles is "actively involved in the management of the company," that "his participation is . . . critical to the success of the company," that he is "a source of funding when necessary," and that he has "obligated himself to make unsecured loans to the Debtor for necessary expenses in this bankruptcy case, such as supplies for repairs, costs, and administrative expenses when needed." (Dckt. 219, p. 6-7). The Debtor presented no evidence, oral or otherwise, in support of any of these assertions at the July 31, 2017 hearing. The presentation was limited to argument of counsel. The Court invited the parties to submit proposed findings of fact and conclusions of law. From the testimony of Mr. Kettles and his wife Sharon Kettles in prior hearings, the Court is aware of Mr. Kettles' participation in the management of the Debtor, but there is no evidence that the New York case would interfere substantially with those duties. Further, Mr. Kettles' financial contributions to the Debtor were stated in very broad terms. The Court finds that the Debtor has failed to carry its burden of showing that the New York case against Mr. Kettles should be enjoined pursuant to § 105. The Debtor is at liberty to renew its motion if additional evidence is available to support the requested relief.
For the reasons set forth above, it is ORDERED that the Debtor's Emergency Motion Under 11 U.S.C. § 105 for Interim Stay of State Court Action Against Guarantor (dckt. 219) is DENIED, without prejudice.