Memorandum Opinion and Order Granting Debtors' Motion for Summary Judgment and Denying Creditor's Motions for Summary Judgment and Relief From Stay

ROBERT D. BERGER, Bankruptcy Judge.

Creditor J.D. Holdings, LLC and its affiliates (hereinafter referred to as "J.D. Holdings") seek relief from the automatic stay in order to pursue litigation in Delaware state court against Debtors for breach of contract.1 Debtors have moved for summary judgment seeking denial of J.D. Holdings' motion,2 and J.D. Holdings has cross-moved for summary judgment seeking relief from stay.3 Because the Court finds that J.D. Holdings has not met its burden to show cause for relief from the automatic stay, the Court denies J.D. Holdings' motion for relief from stay and cross-motion for summary judgment seeking relief from stay. The Court grants Debtors' motion for summary judgment dismissing J.D. Holdings' motion.

I. Findings of Fact4

Debtors consist of the Hammons Trust and 75 of its directly or indirectly wholly owned subsidiaries and affiliates. Debtors' cases are jointly administered, as referenced in the caption above. John Q. Hammons, of which the Hammons Trust is named, entered into a Sponsor Entity Right of First Refusal Agreement ("ROFR") on September 16, 2005 with J.D. Holdings. The ROFR was amended in 2008. Broadly, the ROFR required the parties to sell certain hotels by a defined date, and the 2008 amendment added a requirement that in any sale to J.D. Holdings, Debtors had to provide seller financing of at least 22.5% of the sale price, plus costs. The ROFR also contained a forum selection clause that states, in pertinent part:

In 2013 Hammons died, triggering a number of affirmative obligations in the ROFR, which in turn triggered more litigation. J.D. Holdings filed an amended complaint seeking specific performance of the ROFR in the form of a compelled transfer of certain hotels to J.D. Holdings. J.D. Holdings then sought, and obtained, a ruling largely in its favor in the state court litigation, interpreting various terms and obligations of the ROFR.5 J.D. Holdings ultimately also obtained a status quo order from the Delaware state court in October, 2015, enjoining Debtors from taking action outside the ordinary course of business.6

In April, 2016, J.D. Holdings filed a motion for contempt for a violation of the status quo order. A trial was already scheduled for July 2016 in the matter, therefore, the Delaware court set the contempt matter to that trial date as well and stated it would hear evidence regarding contempt at that time.7

In late June and early July 2016, essentially on the eve of the state court trial, Debtors filed their Chapter 11 petitions. J.D. Holdings initially requested that this Court either dismiss the Chapter 11 cases, abstain from hearing them, or lift or modify the automatic stay.8 In a separate order, this Court addressed the motion for dismissal or abstention9 and other aspects of that initial motion have been withdrawn.

On December 13, 2016, this Court entered an order approving the rejection of the ROFR by the Debtors pursuant to § 365(a).10 J.D. Holdings has appealed that decision to the Tenth Circuit Bankruptcy Appellate Panel.11

In this Order the Court will address the remaining issue from J.D. Holdings' initial motion: the automatic stay. The specific matters before this Court are:

II. Analysis

A motion to lift or modify the automatic stay is a core proceeding under 28 U.S.C. § 157(b)(2)(A) ("matters concerning the administration of the estate") and (G) ("motions to terminate, annul, or modify the automatic stay"), over which this Court may exercise subject matter jurisdiction.13

A. Legal Standard for Assessing Cross Motions for Summary Judgment

Federal Rule of Civil Procedure 56 requires a court to grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."14 An issue is `genuine' if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way."15 `Material facts' are those that are "essential to the proper disposition of [a] claim" under applicable law.16 The party moving for summary judgment bears the initial burden of demonstrating—by reference to pleadings, depositions, answers to interrogatories, admissions, or affidavits—the absence of genuine issues of material fact.17 When analyzing summary judgment, the Court draws all reasonable inferences in favor of the non-moving party.18

In a scenario with cross-motions for summary judgment, the Court is "entitled to assume that no evidence needs to be considered other than that filed by the parties, but summary judgment is nevertheless inappropriate if disputes remain as to material facts."19 In addition, the court "must view each motion separately, in the light most favorable to the non-moving party, and draw all reasonable inferences in that party's favor."20 "Cross motions for summary judgment are to be treated separately; the denial of one does not require the grant of another."21

B. The Automatic Stay Generally and the Burden of Proof

The Bankruptcy Code's automatic stay is governed by 11 U.S.C. § 362,22 and bankruptcy courts have the power to grant relief from the stay under § 362(d). J.D. Holdings seeks relief from the automatic stay under § 362(d)(1), which states:

The standard for stay relief under § 362(d)(1), then, is "cause." Other than the lack of adequate protection mentioned in § 362(d)(1), "cause" is not further defined in the Bankruptcy Code. Because of this lack of a specific definition, whether to lift the stay is a discretionary determination to be made on a case by case basis.23

Under § 362(g), the party requesting relief from stay has the burden of proof on the issue of the debtor's equity in property; the party opposing such relief has the burden on all other issues. However, as a preliminary matter, the party requesting relief has the burden of showing the cause exists, and must establish a prima facie case for the relief requested.24

C. Whether cause exists to lift the stay under § 362(d)

Pending litigation in another forum can be sufficient cause for lifting the stay.25 In weighing whether to lift the stay to allow litigation to continue in another forum, courts may consider a number of factors. Twelve nonexclusive factors were identified in In re Curtis26 as some of the issues a bankruptcy court might consider in determining whether to lift the stay to permit litigation in another forum. These factors, commonly referred to as the "Curtis factors," have been widely adopted by bankruptcy courts.27 Not every factor need be present.28 Nor does every factor weigh equally.29 In considering these factors, courts must bear in mind that "the process of determining the allowance of claims is of basic importance to the administration of a bankruptcy estate."30

The Curtis factors that J.D. Holdings argues weigh in favor of lifting the stay are (1) judicial economy, (2) the progression of the Delaware litigation, (3) the Delaware Chancery Court's ability to resolve all of the issues, (4) the Delaware litigation's lack of interference with the bankruptcy case, and (5) the lack of prejudice to other creditors.31 J.D. Holdings also argues that the forum selection clause in the ROFR dictates that relief from stay be granted.

1. Judicial Economy

Judicial economy is the notion that courts should operate efficiently and "minimize duplication of effort . . . to avoid wasting the judiciary's time and resources."32 Judicial economy alone can be sufficient reason for lifting the stay.33

Judicial economy is sometimes cited as weighing in favor of lifting the stay34 and sometimes against.35 Unsurprisingly in this case, both parties argue that judicial economy favors their position. Interestingly, outside of the bankruptcy courts, federal courts are more inclined to retain supplemental jurisdiction in the interest of judicial economy.36

J.D. Holdings argues that judicial economy would be served by lifting the stay because the Delaware Chancery Court had made previous rulings in this case and was prepared to conduct a trial on the merits, as well as the contempt motion. Debtors counter that judicial economy is better served by resolution of all issues in a bankruptcy court, especially given that the rejection of the ROFR under § 365(a) leaves J.D. Holdings with claims for damages, which should be resolved by this Court.

The Court acknowledges that the Delaware court has invested significant time in the parties' disputes, and the parties and their issues would undoubtedly be familiar to that court. Yet Debtors' point is well-taken. Since J.D. Holdings first moved for relief from stay, this Court granted Debtors' motion to reject the ROFR pursuant to § 365(a), thus negating J.D. Holdings' quest for specific performance of the ROFR. Rejection of an executory contract under § 365(a) leaves the aggrieved party with a damage claim for breach.37 J.D. Holdings has not shown, however, that the Delaware Court is in a better position, or better equipped, to rule on such claims than this Court.38 Although the Delaware trial was scheduled to begin in July, 2016, the Delaware court is presently in no better position than this Court to rule on the matter. Indeed, ruling on the validity, extent, and dischargeability of debtors' obligations to a prepetition creditor is the raison d'être of bankruptcy courts.39 Also, in this Court any party in interest can lodge an objection to claim, whereas in the Delaware court not all of the 4,000 creditors in this case would have standing to participate in the proceedings. Thus, judicial economy does not weigh in favor of lifting the stay.

2. Progression of the Delaware litigation

This bankruptcy case was commenced just a few weeks prior to the scheduled trial in Delaware. J.D. Holdings argues that the imminent trial weighs in favor of lifting the stay, given the extensive discovery, depositions, and overall preparation of the parties in that court, and that starting over in bankruptcy court would be waste of resources and time.

Stay relief may be granted to proceed with an imminent trial.40 However, as previously discussed, the underlying cause of action in the Delaware litigation—specific performance of a contract—is no longer available as a remedy due to the rejection of the ROFR. J.D. Holdings has a claim for damages for breach of contract.41 This Court is prepared to resolve the damages claim though the claim estimation process found in § 502(c). In addition, any discovery that was undertaken in the Delaware court can be used here; this Court would not permit the parties to start over, but would require the parties to merely update the discovery undertaken in Delaware, or engage in new discovery only as to any new issues. This factor does not weigh in favor of lifting the stay.

3. The Delaware Court's Ability to Resolve the issues

J.D. Holdings argues that the Delaware court's familiarity with Delaware law and with the parties in this case make that court better-suited to resolve this litigation. While the Delaware Chancery court "certainly has a significant amount of experience and expertise in interpreting and applying [state] law, that court cannot be considered a specialized tribunal."42 Again, rejection of the ROFR rendered it unenforceable; and as Debtors point out, anything learned by the Delaware court in the previous litigation will have little bearing on any future litigation regarding J.D. Holdings' claims. Any litigation in Delaware over the damage claims would not result in a complete resolution of the issues between the parties; as the allowance of the claims would still be for this Court to determine. This factor does not weigh in support of lifting the stay.

4. Interference with the Bankruptcy case and impact on other creditors

Courts have long recognized that:

It is difficult to see how the Delaware litigation would not interfere with the administration of the bankruptcy estate. J.D. Holdings is one of Debtors' largest creditors. The proposal and confirmation of a plan will undoubtedly be impacted by the amount of J.D. Holdings' claims; pausing the bankruptcy proceedings in order for the parties to return to state court would be a great interference and further delay proceedings herein. J.D. Holdings' claims—referred to by J.D. Holdings as "hundreds of millions of dollars larger than the next largest claims"44—would necessarily impact the other 4,000 creditors, again, many of whom would not have standing in the Delaware litigation.45

The Court finds it significant that five creditors have filed motions opposing J.D. Holdings and in support of the Bankruptcy Court's continued oversight.46 At a minimum, those creditors believe that they will be adversely impacted if the Delaware litigation resumes. Instead of causing no interference with this case, lifting the stay will undoubtedly further complicate and interfere with the bankruptcy proceedings.47 This factor weighs against lifting the stay.

5. Forum Selection Clause

The ROFR, which Debtors rejected under § 365(a), contains a forum selection clause mandating that disputes be decided by either a Delaware State Court, or the U.S. District Court for the District of Delaware. The forum selection clause is broad: it requires "[a]ny action or proceeding seeking to enforce any provision of, or based on any right arising out of" the ROFR to be brought only in Delaware. J.D. Holdings argues that the litigation over the claims for breach of the ROFR should take place in Delaware due to this forum selection clause.

As a preliminary matter, J.D. Holdings argues, without authority, that the forum selection clause divests this Court of jurisdiction. This Court can find no authority for this proposition; rather, the Supreme Court explicitly has stated that such clauses do not "oust" a court of jurisdiction but that instead a court may exercise its jurisdiction to give effect to the legitimate expectations of the parties.48 Rejection of a contract under § 365 does not, by itself, affect other rights under the contract that a party might have, such as, for example, an arbitration clause, although there may be other, non-bankruptcy reasons to reject the arbitration.49 However, some courts have said that rejection under § 365(a) constitutes rejection in toto, and at least as far as the debtor is concerned, the debtor cannot reject undesirable aspects of the contract while claiming its benefits.50 Moreover, the voluntary act of filing a proof of claim triggers the process of allowance and disallowance of claims, a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (B).51

This issue involves the interplay of a forum selection clause, rejection of a contract under § 365(a), and the § 362 automatic stay. The Tenth Circuit has not provided guidance on this issue, and our sister jurisdictions within the Circuit have reached differing results.52 The Supreme Court, however, analyzed a forum selection clause in M/S Bremen v. Zapata Off-Shore Co.,53 and stated that forum selection clauses are "prima facie valid and should be enforced unless enforcement is shown by the resisting party to be `unreasonable' under the circumstances."54 Under the Bremen framework, a forum selection clause may be unreasonable if it would cause great inconvenience, is contrary to a strong public policy, or if the clause is invalid for reasons such as fraud or overreaching.55 The Bremen case concerned an international shipping dispute, however, not bankruptcy.56 And the Supreme Court has subsequently recognized that the presumption of validity of a forum selection clause from the Bremen case must give way when Congress specifically enacts legislation that controls.57

The Bankruptcy Code does not specifically address this matter, but the Bankruptcy Code's strong public policy in favor of centralized claim resolution is cited by Debtors as favoring retaining oversight of this matter. Most courts that have touched on the issue have shied away from bright line, per se rules disfavoring such clauses, instead adopting a case by case approach.58

Here, Debtors argue that the second Bremen unreasonableness factor—strong public policy—applies. Debtors say the strong public policy in favor of centralized claim resolution favors retaining oversight of this matter in bankruptcy court. Debtors argument is persuasive. When disputed matters "constitute core proceedings and are not inextricably intertwined with non-core proceedings," a court may decline to enforce a forum selection clause in light of the strong public policy of the Bankruptcy Code's primary objective of centralized resolution of disputes.59 Some courts have found that the filing of a proof of claim may transform a contract-based state law cause of action into a core proceeding.60 Resolution of claims is a core proceeding under 28 U.S.C. § 157(b)(2)(B). So long as the claim is not inextricably intertwined with other litigation, the bankruptcy court is the appropriate forum.61 Retaining core proceedings in a bankruptcy court "promotes the well-defined policy goals of centralizing all bankruptcy matters in a specialized forum to ensure the expeditious reorganization of debtors."62

This is not to say that every dispute involving a prepetition claim will lead to the same result. In D.E. Frey Group, Inc., the U.S. District Court for the District of Colorado reversed the bankruptcy court's finding that a debtor's adversary complaint for breach of contract against a creditor should be litigated in the U.S. District Court for the Southern District of New York due to an enforceable forum selection clause.63 However, that case involved a debtor's affirmative claims against a creditor, and the bankruptcy court in that case had adopted a per se, bright line rule that forum selection clauses were unenforceable when the dispute concerned the adjudication of claims.64 Instead, the District Court said that the Bremen factors should be considered, and found that in that particular case the enforcement of the forum selection clause would not be inherently unfair.65

The Court is persuaded that in this case the strong public policy of centralized resolution of claims supports keeping the matter in bankruptcy court and not enforcing the forum selection clause in the rejected ROFR. The Court has invested significant time and resources to this litigation, and the commencement of the claims estimation process is imminent. Although the Delaware litigation had been ongoing for four years prior to the commencement of the bankruptcy case, the parties were focused on specific performance of the ROFR, and had not focused on a monetary claim for damages for breach of contract. Therefore the Delaware Court is in no better position to resolve the dispute than this Court, and, in fact, returning to the Delaware Court would cause a significant delay and burden to the resolution of the bankruptcy case, as well as be inherently unfair to the numerous other creditors who do not have standing to participate in the Delaware litigation. For these reasons, this factor does not weigh in favor of lifting the stay.

III. Conclusion

J.D. Holdings has not carried its initial burden of showing that cause exists to lift the automatic stay. The Court therefore grants Debtors' motion for summary judgment,66 and denies J.D. Holdings' motion to lift stay67 and J.D. Holdings' cross-motion for summary judgment seeking relief from the automatic stay.69

IT IS SO ORDERED.