Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_16-cv-00602/USCOURTS-azd-2_16-cv-00602-1/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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WO NOT FOR PUBLICATION 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

IN THE MATTER OF: 

Albert L. Jacobs, et al., 

Debtors. 

No. CV-16-00602-PHX-JJT

BK NO. 2:15-bk-15429-EPB 

BK NO. 2:15-bk-15431-EPB 

ORDER 

Diana Parker, 

Appellant, 

v. 

Albert L. Jacobs, et al., 

Appellees. 

At issue are the Opening Brief on Appeal (Doc. 15, Opening Br.) filed by 

Appellant Diana Parker as Executor of the Estate of Gertrude F. Rothschild (collectively, 

“Rothschild Estate”), to which Appellees Albert Jacobs LLP and Albert Jacobs, Jr. 

(collectively, “Debtors”) filed a Response (Doc. 30, Resp. Br.) and the Rothschild Estate 

filed a Reply (Doc. 35, Reply); and Proposed Intervenors Troutman Sanders LLP and 

Attorneys’ Liability Assurance Society, Inc.’s Emergency Motion to Intervene in 

Bankruptcy Appeal (Doc. 37), to which the Rothschild Estate filed a Response (Doc. 45) 

and Proposed Intervenors filed a Reply (Doc. 47). The Court held a hearing on the 

pending matters on May 26, 2016. (Doc. 48.) 

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I. Motion to Intervene 

 Pursuant to the Court’s discussions with Proposed Intervenors at the hearing and 

the representations they made at that time, the Court denied Proposed Intervenors’ 

Motion to Intervene. Because the adjudication of rights between Debtors and Proposed 

Intervenors is not before the Court in this appeal, Proposed Intervenors’ stake in the 

appeal is insufficient to warrant intervention. 

II. Appeal of Bankruptcy Court Order 

This appeal arose after Debtors filed for bankruptcy protection in the United States 

Bankruptcy Court and one of their creditors, the Rothschild Estate, sought relief from the 

automatic bankruptcy stay to litigate claims against Debtors. Debtors filed for Chapter 11 

bankruptcy relief in December 2015, just two days before they were scheduled to go to 

trial in New York state court to defend against claims brought by the Rothschild Estate, 

after more than five years of pre-trial litigation. (Opening Br. at 1, 3.) The Rothschild 

Estate filed motions for relief from the automatic stay with respect to both Debtors. 

(Doc. 17-1, App. 1 to Opening Br. at 22-23; Doc. 17-2, App. 2 to Opening Br. at 6-7.) 

The Rothschild Estate argued that Debtors had the wherewithal to cover their expenses 

for the trial and it would be prejudiced if Debtors did not appear at the scheduled trial—

which is still set to proceed against another defendant, Troutman Sanders LLP—and it 

would later have to conduct a separate trial against Debtors. (App. 2 to Opening Br. at 

12-14.) After examining the evidence of Debtors’ financial status and considering the 

Rothschild Estate’s assertion that Debtors’ litigation costs may be covered by insurance 

but it had been unable to conduct discovery on the issue, the Bankruptcy Court denied the 

Rothschild Estate’s motions in a Minute Entry Order entered on February 26, 2016. 

(Doc. 8-1.) 

On March 7, 2016, the Rothschild Estate timely filed its Notice of Appeal of the 

Bankruptcy Court’s Minute Entry Order Denying Creditor’s Motion for an Order 

Granting Relief from the Automatic Stay. (Doc. 2; App. 2 to Opening Br. at 287.) 

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Debtors filed a Motion to Dismiss the Appeal (Doc. 19), which this Court denied 

(Doc. 25). 

After it discovered additional information regarding Debtors’ ability to cover their 

legal fees in the New York action by way of insurance, the Rothschild Estate filed a 

Second Motion for Relief from Automatic Stay in the Bankruptcy Court on April 15, 

2016, and the Bankruptcy Court held an expedited hearing on April 21, 2016. (Doc. 28-

4.) In a written Order dated April 25, 2016, the Bankruptcy Court found that resolution of 

the Rothschild Estate’s stay relief motion turned on the truth of its claim that Debtors had 

an insurance policy providing for the cost of their legal representation in the New York 

action. (Doc. 28-5.) Relying on Debtors’ sworn statements and the alleged insurer’s 

assertions—including counsel for the alleged insurer’s representation that the insurer 

would “very likely” deny Debtors’ claim for coverage—the Bankruptcy Court denied the 

Rothschild Estate’s renewed stay relief motion. (Doc. 28-5; Reply at 7.) 

On April 28, 2016, the Court granted the Rothschild Estate’s motion to 

supplement the record on appeal with an expert report, insurance policy and 

supplementary declaration. (Doc. 29.) In conjunction with their Response brief on appeal, 

Debtors also supplemented the record with its briefs to the Bankruptcy Court and an 

additional Declaration of Debtor Albert L. Jacobs, Jr. (Resp. at 6.) 

A. Legal Standard 

 In its appellate capacity, this Court reviews the Bankruptcy Court’s factual 

findings for clear error and legal conclusions de novo. Wegner v. Murphy (In re Wegner), 

839 F.2d 533, 536 (9th Cir. 1988). Under the clearly erroneous standard, the Court 

accepts the Bankruptcy Court’s findings of fact unless the Court “on the entire evidence 

is left with the definite and firm conviction that a mistake has been committed” by the 

bankruptcy judge. Anderson v. Bessemer City, 470 U.S. 564, 573 (1985). The appellee 

does not have the burden to persuade the Court that the Bankruptcy Court’s findings were 

correct, but rather the appellant “must persuade this Court that such findings are, as 

claimed by [appellant], clearly erroneous.” Purer & Co. v. Aktiebolaget Addo, 410 F.2d 

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871, 878 (9th Cir. 1969). “This court must view the evidence in the light most favorable 

to the parties who prevailed below. Such parties must be given the benefit of all 

inferences that may reasonably be drawn from the evidence.” Id. 

B. Substantial Evidence Supports Bankruptcy Court’s Decision 

 A court may grant relief from the automatic bankruptcy stay “for cause.” 

11 U.S.C. § 362(d)(1). While courts evaluate a number of non-exclusive factors to 

determine if cause exists to permit litigation involving a debtor to proceed in another 

forum, Truebro, Inc. v. Plumberex Specialty Prods., Inc. (In re Plumberex Specialty 

Prods., Inc.), 311 B.R. 551, 557 (Bankr. C.D. Cal. 2004), the Bankruptcy Court found—

and this Court agrees—that the question whether the Rothschild Estate is entitled to relief 

from the automatic bankruptcy stay turns on whether Debtors have the resources for 

competent legal representation in the New York action. The Bankruptcy Court relied on 

the sworn statements and schedules of Debtors to conclude that they do not have such 

means. While the Court finds merit in the Rothschild Estate’s question regarding how 

Debtors have the means to pay their legal costs in the bankruptcy action but not the New 

York action, the Court cannot conclude that the Bankruptcy Court clearly erred in making 

its finding in light of the evidence Debtors provided as to their lack of means. In other 

words, to answer the narrow question before this Court on appeal, Debtors’ evidence was 

sufficiently substantial to support the Bankruptcy Court’s decision. 

 The Court allowed the Rothschild Estate to provide supplemental evidence—

which was only considered by the Bankruptcy Court after the Rothschild Estate filed its 

notice of appeal—to try to show that the cost of Debtors’ defense in the New York action 

is covered at least in part by an insurance policy. Debtors oppose the Court’s 

consideration of that evidence because the Rothschild Estate did not timely appeal the 

Bankruptcy Court’s later decision on this issue, even though this Court granted the 

Rothschild Estate’s motion to supplement and, as a result, both parties took the 

opportunity to supplement the record on appeal. In any event, the Court’s consideration 

of that evidence does not change the outcome of the appeal. While the Rothschild 

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Estate’s evidence indicates some possibility that Debtors’ defense would be covered, at 

least in part, by an insurance policy, Debtors produced evidence by way of Mr. Jacobs’ 

Declaration of a lack of insurance, and counsel for the alleged insurer averred to 

Bankruptcy Judge Ballinger that the insurer would “very likely” deny any insurance 

claim by Debtors. The evidence was sufficiently substantial to support the Bankruptcy 

Court’s finding that Debtors lacked means for a legal defense in the New York action, 

and thus this Court may not disturb that finding on appeal. 

 The Court notes that the Rothschild Estate’s claims are not extinguished and will 

be litigated before the Bankruptcy Court. But the charge of the Bankruptcy Court is to 

balance the interests of Debtors and all of their Creditors. See In re Mense, 509 B.R. 269, 

276-77 (Bankr. C.D. Cal. 2014). Here, the Court finds that the Bankruptcy Court did not 

err in finding insufficient cause to grant the Rothschild Estate relief from the automatic 

stay on claims against Debtors. 

IT IS THEREFORE ORDERED denying Proposed Intervenors Troutman 

Sanders LLP and Attorneys’ Liability Assurance Society, Inc.’s Motion to Intervene 

(Doc. 37). 

IT IS FURTHER ORDERED affirming the United States Bankruptcy Court’s 

February 26, 2016 Order denying Appellant Rothschild Estate’s Motion for an Order 

Granting Relief from the Automatic Stay. 

IT IS FURTHER ORDERED that the Clerk of Court shall enter judgment 

accordingly and close this case. 

Dated this 10th day of June, 2016. 

Honorable John J. Tuchi

United States District Judge 

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