DENNIS M. CAVANAUGH, District Judge.
This matter comes before the Court on appeal by First Data Services or "Appellant") from an Order entered by the United States Bankruptcy Court for the District of New Jersey ("Bankruptcy Court") on August 20, 2012 scheduling a consolidated evidentiary hearing on the Turnover of Property of the Estate Pursuant to Bankruptcy Code Section 542 (a) ("the Turnover Motion"). Appellant's cross-motion (`the Motion to Lift Stay"), and the contested language of paragraph 3 of the proposed order by the Appellee ("the Trustee"). (Appeal from Bankruptcy Court, Oct. 17, 2012, ECF No. 1). For the reasons slated below, the appeal is denied, and the Bankruptcy Court's Order is
FDS, a financial services company, processed credit card sales and provided other services and financial accommodations to the Debtor. The parties' relationship was predicated on Merchant Agreements, which allowed FDS to fund a reserve to protect itself from obligations FDS may have to pay on behalf of the Debtor to third parties, including those arising from fees, costs, expenses, and chargebacks. After periodic increases, by the time of the Petition Date, FDS held a reserve in the amount of approximately $400,000.
On June 23, 2011, the Debtor filed a voluntary petition for relief under chapter 7 of Title 11 of the United States Code ("the Bankruptcy Code") in Bankruptcy Court. Thereafter, Steven P. Kartzman ("the Trustee") was appointed Chapter 7 Trustee to the estate of the Debtor. Subsequently, on September 27, 2011, the Trustee filed the Turnover Motion seeking turnover of the reserve. In response, FDS filed the Motion to Lift Stay objecting to the Turnover Motion and petitioned for relief from the stay so that FDS could assert its contractual rights pursuant to the Merchant Agreements between the two parties. The preliminary hearing on the merits of the Turnover Motion and the Motion to Lift Stay was scheduled for October 18, 2011.
After a series of consensual adjournments, a hearing was conducted on March 27, 2012 in regards to the Turnover Motion and the Motion to Lift Stay. During the hearing, the Court granted the Trustee's petition for additional time for discovery, scheduled the final hearing to continue on May 22, 2012, and ordered the parties to provide the Bankruptcy Court with status report within approximately thirty days. Both parties participated in discovery. At request of FDS, the Bankruptcy Court adjourned the final hearing, initially scheduled for May 22, 2012, until July 18, 2012.
On July 6, 2012, the Bankruptcy Court granted the Trustee's petition for a sixty-day continuance of the July 18, 2012 continued final hearing. FDS objected to this adjournment on the grounds that FDS was entitled to have its Motion to Lift Stay heard on July 18, 2012 under Bankruptcy Code § 362(e)(1). There is a disagreement between the parties as to whether FDS' objection to the sixty-day continuance on July 6, 2012 was FDS' first instance of claiming relief pursuant to § 362(e)(1). Furthermore. FDS objected that the Bankruptcy Court did not make any findings and did not determine that the Trustee had a reasonable likelihood of prevailing in its object to FDS's Motion to Lift Stay or that there were compelling circumstances justifying extension of the stay. In response, the Trustee argues that FDS waived its rights to enforce the time constraint.
On August 20, 2012, FDS objected to paragraph 3 of a proposed order by the Trustee, which provided that "pursuant to Bankruptcy Code Section § 362(e)(1), the automatic stay as to [FDS] shall remain in full force and effect pending the Court's determination of' [FDS's] Cross Motion [. . .]" The Trustee submitted the proposed order to the Bankruptcy Court advising the Bankruptcy Court about FDS' objection, Subsequently, the Bankruptcy Court entered the proposed form of order on August 20, 2012 in the form submitted by the Trustee's counsel, FDS appealed the Order continuing the automatic stay on August 22, 2012.
This Court has jurisdiction over final judgments and orders of the Bankruptcy Court pursuant to 28 U.S.C. § 158. A district court applies a clearly erroneous standard to the bankruptcy judge's findings of fact and reviews the bankruptcy judge's legal conclusions de novo.
The main issue on appeal is whether the Bankruptcy Court erred in continuing the automatic stay as to FDS in light of § 362(e)(1). The relevant text of § 362(e)(1) is as follows:
11 U.S.C. § 362(e)(1) (2010).
While facially it is apparent that the automatic stay in this instance exceeded the time constraints of § 362(e)(1), the Bankruptcy Court did not err in continuing the automatic stay as to FDS because FDS acted "inherently inconsistent with adherence to the time constraints of § 362(e)(1); therefore, their actions constituted an implicit waiver of § 362(e)(1).
The court first turns to the common law interpretation of what constitutes an implicit waiver. This definition is predicated on the interpretation found in
The court now examines FDS' actions that may be found to constitute an implicit waiver of § 362(e)(1). The Trustee argues and this court finds that FDS implicitly waived its rights under § 362(e)(1) by: (1) cross-moving for a stay of relief and for allowance and payment of an administrative expense and (2) failing to assert their rights under § 362(e)(1) by participating in discovery and failing to oppose a request for the adjournment of a motion for relief.
FDS implicitly waived their rights to enforce the time constraints of § 362(e)(1) by cross-moving for a stay of relief and for allowance and payment of administrative expense. The Bankruptcy Court sitting in the District of Maryland has found an implicit waiver of the right to enforce § 362(e)(1) when a creditor seeks not only a relief from an automatic stay, but also alternative reliefs, in a single, combined motion.
FDS failed to enforce its rights under § 362(e)(1) on the account of two procedural issues that occurred during the Bankruptcy Court proceedings. A creditor must "insist on his rights" under § 362(e)(1); otherwise, an act or omission inconsistent with the statutory rights of § 362(e)(1) may constitute an implicit waiver.
FDS' participation in discovery is evident of their failure to assert their statutory rights under § 362(e)(1). A creditor, who participates in discovery that extends beyond the thirty-day period of § 362(e)(1) may implicitly waive his right to enforce the time constraints of § 362(e)(1).
FDS further failed to assert the protection of § 362(e)(1) by failing to oppose a request by the Trustee for the adjournment of a motion for relief. The Bankruptcy Court has recognized a failure to assert statutorily granted rights pursuant to § 362(e)(1), and subsequently an implicit waiver, when a creditor agrees to or fails to oppose a hearing that is inconsistent with the thirty day period of § 362(e)(1).
Based on the foregoing, the Bankruptcy Court was correct in its application of law to the facts in this case. Therefore, the Appeal is