Court Opinion

ID: 3029921
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:43:35.125492+00
Date Added: 2024-06-11T08:27:20.754966
License: Public Domain

United States Bankruptcy Appellate Panel
                        FOR THE EIGHTH CIRCUIT

                                No. 02-6032 NE

In re:                                   *
                                         *
Edward L. Wintroub, a/k/a Edward L.      *
Wintroub P.C., f/d/b/a Wintroub,         *
McCrary, Lunz, Jersey, f/d/b/a Wintroub, *
Rinden, Sens & McCrary, f/d/b/a          *
Wintroub, Rinden, Sens; and Pamela       *
Jeanie Wintroub, a/k/a Jeanie Wintroub, *
                                         *
      Debtors.                           *
                                         *
Ronald S. Bergman, D.O.,                 *       Appeal from the United States
                                         *       Bankruptcy Court for the
      Creditor - Appellant,              *       District of Nebraska
                                         *
            v.                           *
                                         *
Edward L. Wintroub and                   *
Pamela Jeanie Wintroub,                  *
                                         *
      Debtors - Appellees.               *

                        Submitted: September 10, 2002
                           Filed: October 4, 2002

Before KOGER, Chief Judge, SCHERMER and FEDERMAN, Bankruptcy Judges

SCHERMER, Bankruptcy Judge
       Ronald S. Bergman, D.O. (“Creditor”) appeals the bankruptcy court’s1 order
denying the Creditor’s request for relief from the automatic stay of 11 U.S.C. § 362
to pursue a claim for reimbursement against a professional disciplinary commission
fund. We have jurisdiction over this appeal from the final order of the bankruptcy
court. See 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.

                                       ISSUE

       The issue on appeal is whether the bankruptcy court abused its discretion when
it denied the Creditor’s motion for relief from the automatic stay of 11 U.S.C. § 362
to prosecute a claim against a professional disciplinary commission fund. We
conclude that the bankruptcy court did not abuse its discretion when it denied the
Creditor’s request for relief from the automatic stay.

                                 BACKGROUND

       The Debtor Edward L. Wintroub (“Debtor)” is an attorney who represented the
Creditor in various legal matters from 1998 through 2001. During this same period,
the Creditor loaned the Debtor $275,000 represented by a promissory note, purchased
twenty-two and one-half shares of stock in a corporation formed by the Debtor for the
price of $150,000, and transferred additional sums totaling $282,800 to the Debtor,
either as loans or as payment of fees.

       The professional relationship between the Creditor and the Debtor deteriorated.
The Debtor did not repay any of the sums loaned by the Creditor and the Creditor
eventually sued the Debtor. On January 24, 2002, summary judgment was entered
in favor of the Creditor and against the Debtor in the amount of $275,000 on account

      1
      The Honorable Timothy J. Mahoney, Chief Judge, United States
Bankruptcy Court for the District of Nebraska.
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of the promissory note. The following day the Debtor filed a petition for relief under
Chapter 11 of the Bankruptcy Code.

      At all relevant times, the Debtor was licensed to practice law in Iowa. The
Iowa Supreme Court established the Client’s Security Trust Fund of the Bar of Iowa
(“Fund”) to, inter alia, provide indemnification for losses caused to the public by
dishonest lawyers. I.C.A. Rule 39.3(3). The Creditor’s potential recovery from the
Fund is capped at $50,000. See I.C.A. Rule 39.9(3). The Creditor sought relief from
the automatic stay in order to prosecute a claim against the Fund.

       The bankruptcy court applied a balance of harm test and concluded that the
burden on the Debtor and the bankruptcy estate that would result from the
administrative proceeding against the Fund would outweigh the harm to the Creditor
if the stay were to remain in effect. The court noted that the Creditor had filed an
adversary proceeding to determine whether his claim against the Debtor should be
excepted from discharge pursuant to 11 U.S.C. § 523(a)(4) as a debt for fraud or
defalcation while acting as a fiduciary. The court concluded that the administrative
proceeding against the Fund would be duplicative of the pending dischargeability
proceeding. Without any relevant evidence in the record, the court assumed that the
Creditor would be free to pursue his claim against the Fund regardless of the outcome
of the dischargeability action and that a judgment in his favor in the dischargeability
proceeding could be used as part of the record for a subsequent claim against the
Fund. The Creditor appeals the denial of his motion for relief from the automatic
stay.

                            STANDARD OF REVIEW

       A decision to grant or deny a motion for relief from the automatic stay is within
the discretion of the bankruptcy court and is reviewed for an abuse of discretion.
In re Kirwan, 164 F.3d 1175, 1178 (8th Cir. 1999); In re Bowman, 253 B.R. 233, 237

                                           3
(B.A.P. 8th Cir. 2000); In re Blan, 237 B.R. 737, 739 (B.A.P. 8th Cir. 1999). An abuse
of discretion will only be found if the lower court’s judgment was based on clearly
erroneous factual findings or on erroneous legal conclusions. Bowman, 253 B.R. at
237; Blan, 237 B.R. at 739.

                                   DISCUSSION

        A court may grant relief from the automatic stay for cause. 11 U.S.C.
§ 362(d)(1). Congress did not define cause; however, it contemplated relief from the
automatic stay to allow litigation involving the debtor to proceed in another forum
under appropriate circumstances. Blan, 237 B.R. at 739 (citing H.R. REP. NO. 95-
595, at 341 (1977) and S. REP. NO. 95-989, at 50 (1978)). The court must balance the
potential prejudice to the debtor, the bankruptcy estate, and the other creditors
associated with a proceeding in another forum against the hardship to the movant if
it is not allowed to proceed in the other forum. Id. The relevant factors which the
court must consider include judicial economy, trial readiness, the resolution of
primary bankruptcy issues, the movant’s chance of success on the merits, the costs
of defense or other potential burdens to the estate, and the impact of the litigation on
other creditors. Id.

      The bankruptcy court concluded that because the dischargeability of the
indebtedness was subject to pending litigation before the bankruptcy court, it would
be improvident to let the Creditor proceed in a foreign forum at that time. The court
concluded that the burden to the Debtor and the estate if the Creditor was allowed to
proceed in another forum “when the same claims will nevertheless be tried here
regardless of the outcome of the Iowa proceeding” outweighed the harm to the
Creditor caused by the denial of the motion. Appellant’s Appendix, p. 5.

       The bankruptcy court properly applied the Blan test, weighing the relevant
factors and concluding that the distraction to the Debtor of defending the proceeding

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before the Fund would adversely impact his efforts to reorganize under Chapter 11
of the Bankruptcy Code. We find no abuse of discretion and accordingly affirm.

        We were advised at oral argument that four days after the bankruptcy court
denied the Creditor’s motion for relief, it granted the motion of the United States
Trustee to convert the Debtor’s case from a Chapter 11 reorganization to a Chapter 7
liquidation. If such conversion has in fact occurred, we see no reason why a new
motion for relief from the automatic stay would not be granted at this time as the
reasons the motion on appeal was denied – namely the distraction from the Debtor’s
efforts to reorganize – are no longer relevant. Consequently we invite the Creditor
to file a new motion for relief from the automatic stay.

                                 CONCLUSION

       The court properly weighed the relevant factors and concluded that the harm
to the Debtor and the estate if the Creditor were allowed to proceed against the Fund
outweighed the harm to the Creditor imposed by the automatic stay. The order of the
bankruptcy court is accordingly AFFIRMED.

      A true copy.

             Attest:

                     CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
                     EIGHTH CIRCUIT

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