Summary of a Recent
Judicial Development in
Bankruptcy

Analysis of Motion to Stay Pending Appeal

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In In re Rafter Seven Ranches, LP, No. 05-40483, 2008 WL 4330009 (Bankr. D. Kan. Sept. 19, 2008), the United States Bankruptcy Court for the District of Kansas denied a Chapter 12 debtor's motion for stay pending resolution of its appeals to the Bankruptcy Appellate Panel (BAP), because the debtor was unlikely to prevail on the merits of its appeals and would not suffer irreparable injury if the stay was denied; however, its creditors would likely suffer irreparable harm if the stay were granted, and public policy favored allowing the case to proceed in a timely manner.

Background

A creditor filed a motion to remove Chapter 12 debtor Rafter Seven Ranches (Rafter Seven) as the debtor-in-possession or alternatively to convert the bankruptcy case to a Chapter 7 proceeding, because the case had been pending for 3.5 years and during that time, the debtor had failed to submit a confirmable plan, nor had it made any payments to its creditors or engaged in any family farming operations. Id. at *1-2. Rafter Seven filed a motion to stay all proceedings in the case pending resolution of two related matters on appeal before the Tenth Circuit Bankruptcy Appellate Panel. Id. at *2.

Arguments

Rafter Seven argued that it was likely to succeed on the merits of its appeals due to pretrial procedural flaws, and due to the court's flawed factual and legal analysis. Id. at *2, *5, *6. Rafter Seven also argued that it would be irreparably injured if its creditors were allowed to auction its property because auctioneer fees and sales costs would be deducted from the proceeds, thus diminishing the amount of return. Id. at *6.

Analysis and Holdings

The Tenth Circuit Bankruptcy Appellate Panel considers four factors in determining whether to grant a stay pending appeal: (1) the likelihood that the party seeking the stay will prevail on the merits of the appeal; (2) the likelihood that the moving party will suffer irreparable injury unless the stay is granted; (3) whether granting the stay will result in substantial harm to the other parties to the appeal; and (4) the effect of granting the stay upon the public interest. Id. at *2. The court first determined that it was "highly unlikely that [Rafter Seven] will prevail on appeal with its 'procedural defect' theory," because Rafter Seven had never objected to the procedure, nor was it harmed by the procedure. Id. at *3-5. The court also found no fault in its factual findings or legal analysis, and stated that Rafter Seven was unlikely to succeed on appeal on those grounds either. Id. at *5-6.

The court further concluded that Rafter Seven would not be irreparably injured if the stay was not granted, because monetary loss alone generally does not constitute irreparable injury, and also because regardless of the outcome of the appeals, the property in dispute would be auctioned eventually anyway. Id. Likewise, the court noted that the outcome of the appeals would have no effect on the creditor's motion to remove Rafter Seven as the debtor-in-possession or convert the case to a Chapter 7 proceeding, as the appeals mainly involved an alleged violation of the debtor's automatic stay and, if successful, would result only in monetary damages. Id. at *7. The court did find, however, that there was a strong possibility that creditors would suffer irreparable harm if the stay was granted, as they would have to continue to hold and pay taxes on certain property owned by the debtor, and because they had the right to have their own unrelated motions heard in a timely manner. Id. at *7-8. Lastly, the court opined that public policy was in favor of seeing the case proceed in a timely fashion, and there was no good reason that Rafter Seven could not work toward a confirmable plan or alternatively have its case converted to Chapter 7 while the appeals were pending. Id. at *8. The court therefore denied Rafter Seven's request for stay. Id.

The case was decided on September 19, 2008.