A. BENJAMIN GOLDGAR, Bankruptcy Judge.
Most requests for relief from the automatic stay come from a party wanting to take action against a debtor or against property of the bankruptcy estate. Debtors often resist these requests. This case presents the unusual picture of a debtor seeking relief from the stay to permit a civil action against it to go forward and the plaintiff in the action resisting stay relief. Sweports Ltd. ("Sweports"), an alleged debtor in an involuntary chapter 11 case, has moved for relief from the stay to permit a declaratory judgment action against it to proceed in the district court. Norwex USA, Inc. and Norwex Enviro Products, Inc. (collectively "Norwex"), plaintiffs in the action, object to the motion. For the reasons that follow, the motion will be denied.
The following facts are drawn from the parties' papers, the court's docket, and the docket in the district court action. No facts are in dispute.
On April 9, 2012, three creditors filed an involuntary chapter 11 bankruptcy petition against Sweports. Sweports answered, opposing the petition. Discovery is proceeding, and to date no order for relief has been entered.
In December 2011, some months before the involuntary case began, Norwex filed an action against Sweports and another party in the U.S. District Court for the Northern District of Texas. The complaint alleged that Norwex sold cleaning and personal care products, including microfiber cloths. The complaint further alleged that Sweports owned a patent on an "antimicrobial ultra-microfiber cloth" and in November 2011 had sent a cease-and-desist letter to Norwex asserting that Norwex was infringing on the patent. Norwex sought a declaratory judgment that it was not engaged in patent infringement and that the patent was invalid and unenforceable.
Sweports moved to have the action transferred to this district, and in March 2012, the Texas court granted the motion. The action is now pending in this district as Norwex USA, Inc., et al. v. Sweports, Ltd., et al., No. 12 C 1933. Before Sweports could answer or otherwise plead to Norwex's complaint, however, the involuntary bankruptcy petition was filed, staying
Sweports now moves for relief from the stay to permit "all parties in interest" to pursue the Norwex action. (Sweports Mot. at 12).
The motion will be denied. Although Norwex is wrong to contend that a debtor can never obtain relief from the stay, a debtor cannot seek stay relief on behalf of an unwilling creditor, asserting that creditor's rights. And even if a debtor could assert the creditor's rights, Norwex is correct that an alleged debtor in an involuntary case cannot obtain relief from the stay, for the creditor or for itself, during the gap period.
Norwex's first point — that a debtor can never be the proper party to seek relief from the stay — is not well taken. As Norwex itself acknowledges, section 362(d) does not limit stay relief to "creditors." It says that "a party in interest" may seek relief from the stay. 11 U.S.C. § 362(d). The Code does not define "party in interest" for purposes of section 362(d). In re Miller, 666 F.3d 1255, 1261 (10th Cir.2012). In a chapter 11 case, though, the term includes "the debtor," among others. 11 U.S.C. § 1109(b); see 3 Collier on Bankruptcy ¶ 362.07[2] at 362-105 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2012). Whether a party is a party in interest under section 362(d), moreover, is determined, not by labels, but "on a case-by-case basis, with reference to the interest asserted and how that interest is affected by the automatic stay." In re Rice, 462 B.R. 651, 657 (6th Cir. BAP 2011) (internal quotation omitted). Since the stay will prevent even the debtor from proceeding in an action "against the debtor," 11 U.S.C. § 362(a); see also Parker v. Bain, 68 F.3d 1131, 1135-36 (9th Cir.1995); Farley v.
In support of its position, Norwex relies on Roslyn Savings Bank v. Comcoach Corp. (In re Comcoach Corp.), 698 F.2d 571 (2d Cir.1983), in which the court commented that "notwithstanding the use of the term `party in interest,' it is only creditors who may obtain relief from the automatic stay." Id. at 573. The court reached that conclusion by considering the "purposes" of the Bankruptcy Code, one of which is to distribute property to creditors, and by consulting "legislative history," a snippet of which suggested that "[c]reditors may obtain relief from the stay if their interests would be harmed by continuance of the stay." Id. at 573-74 (internal quotation omitted).
As an exercise in statutory interpretation, Comcoach leaves something to be desired. Unless the phrase "party in interest" was ambiguous, the court had no reason to consult legislative history or consider the Code's "purposes." See United States v. LaFaive, 618 F.3d 613, 616 (7th Cir.2010) ("We only consider the legislative history if the statute contains an ambiguity that the text or structure of the statute cannot resolve."). The court never addressed the phrase's ambiguity or lack of it. (The phrase is admittedly broad, but breadth is not the same as ambiguity. Pennsylvania Dept. of Corr. v. Yeskey, 524 U.S. 206, 212, 118 S.Ct. 1952, 141 L.Ed.2d 215 (1998).) Nor did the court consider either that the Code might have purposes other than the distribution of property to creditors, see After Six, Inc. v. Abraham Zion Corp. (In re After Six, Inc.), 167 B.R. 35, 41 (E.D.Pa.1994) ("The policies and purposes underlying the Bankruptcy Code are many and varied."), or that the legislative history cited said that "creditors" could obtain relief from the stay, not "only creditors." Had Congress wanted to limit standing under section 362(d) to creditors, it could have used the term "creditor." See In re Golek, 308 B.R. 332, 337 (Bankr.N.D.Ill.2004) (noting that "[w]hen Congress wants to say something, it knows how to say it"). It did not.
Comcoach represents a "narrow view" of the term "party in interest," In re Kronemyer, 405 B.R. 915, 921 (9th Cir. BAP 2009); see also In re Armenakis, 406 B.R. 589, 619 (Bankr.S.D.N.Y.2009), a view that has been criticized as resulting in "the anomalous situation in which a party is subject to the automatic stay but is unable to seek relief even when damage may result from its continuance." 3 Collier on Bankruptcy, supra, ¶ 362.07[2] at 362-105; see also In re Schlupp, No. 05-16879DWS, 2005 WL 2483209, at *3-4 (E.D.Pa. Sept. 2, 2005) (criticizing Comcoach).
But although a debtor may sometimes be able to seek relief from the stay to vindicate its own rights, a debtor has no ability to seek relief from the stay to vindicate the rights of others. To obtain relief from the stay, a movant must have standing. In re Wilhelm, 407 B.R. 392, 398 (Bankr.D.Idaho 2009). Standing has two components, one constitutional, the other prudential. Winkler v. Gates, 481 F.3d 977, 979 (7th Cir.2007). The prudential limitations on standing include "`the general prohibition on a litigant's raising another person's legal rights.'" Id. (quoting Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 12, 124 S.Ct. 2301, 159 L.Ed.2d 98 (2004)). As a general matter, a party "must assert his or her own legal rights and interests, and cannot rest a claim to relief on the legal rights or interests of third parties." Powers v. Ohio, 499 U.S. 400, 410, 111 S.Ct. 1364, 113 L.Ed.2d 411 (1991); see also MainStreet Org. of Realtors v. Calumet City, 505 F.3d 742, 746 (7th Cir.2007) (finding action barred by the principle that "one cannot sue in a federal court to enforce someone else's legal rights").
Here, Sweports is moving to lift the stay, not merely to allow it to defend the Norwex action, but to allow Norwex to prosecute the action. The right to prosecute Norwex's action, however, and the right to have the stay lifted to permit the action's prosecution, are rights that belong to Norwex, not Sweports. Sweports is not entitled to obtain relief from the stay on Norwex's behalf to permit Norwex's prosecution of the action. See Johns v. Steege (In re National Indus. Chem. Co.), No. 98 C 4081, 1998 WL 887065, at *4 (N.D.Ill. Dec. 11, 1998) (affirming decision that one party did not "have standing to modify the automatic stay on behalf of [another]" because "a litigant must assert his own legal rights and interests").
Finally, even if Sweports could seek relief from the stay for Norwex as well as for itself, it has no such ability as an alleged debtor during the gap period in an involuntary case. It is true, as Sweports argues, that section 303(f) of the
This limit on an alleged debtor's powers is entirely consistent with the purpose of an involuntary case. Section 303 gives creditors the ability to force a debtor into bankruptcy "when they believe that a debtor may dissipate the estate through dishonesty or incompetence." Joseph Mullin, Bridging the Gap: Defining the Debtor's Status during the Involuntary Gap Period, 61 U. Chi. L. Rev. 1091, 1091 (1994). Allowing the alleged debtor to have the stay lifted would "frustrate the very purpose of arming creditors with the right to file an involuntary petition." Wilkins, 235 B.R. at 650. By placing estate property in jeopardy, "the administration of the estate by any future trustee would be effectively thwarted." Id.
Here, the disputed patent constitutes property of the Sweports bankruptcy estate. Section 303(f) permits Sweports to use that property and even dispose of it as if no involuntary case had been filed. But Sweports is not a debtor in possession with the powers of a trustee, and section 303(f) does not give Sweports the authority to have the stay lifted to place the patent at the mercy of challengers like Norwex. Even if Sweports somehow had standing to seek relief from the stay on Norwex's behalf, then, Sweports has no right to do so as an alleged debtor during the gap period in this involuntary case.
The motion of Sweports, Ltd. for relief from the automatic stay relating to the Norwex litigation is denied. A separate order will be entered consistent with this opinion.