Opinion
Case No. 95-13061-AM, Adversary Proceeding No. 95-1228
August 8, 1995
Sally Ann Hostetler, Esquire, Odin, Feldman Pittleman, P.C., Fairfax, VA, Of Counsel for debtor
Iris McCollum Green, Esquire, Green Foushee, Washington, DC, Of Counsel for Lilia Kreb a/k/a Lilia el Ouaer
Timothy J. McGary, Esquire, Fairfax, VA, Of local counsel for Lilia Kreb a/k/a Lilia el Ouaer
Pleasant S. Brodnax, III, Esquire, Bullock Brodnax, Alexandria, VA, Of Counsel for Lilia Kreb a/k/a Lilia el Ouaer
John P. Van Beek, Esquire, Young, Goldman Van Beek, Alexandria, VA, Of Counsel for Lilia Kreb a/k/a Lilia el Ouaer
Richard Stahl, Esquire, Dixon, Smith Stahl, Fairfax, VA, for Nancy Boxall
MEMORANDUM OPINION
This matter is before the court on the plaintiff's motion for a stay pending appeal of this court's order of July 24, 1995, which granted in part and denied in part a motion for preliminary injunction with respect to two cashier's checks the plaintiff had given to the defendant. The plaintiff has filed a timely notice of appeal and a motion for leave to appeal.
The notice erroneously states that the appeal is taken to the "bankruptcy appellate panel" rather than to the United States District Court for the Eastern District of Virginia. A bankruptcy appellate panel has not yet been established in the Fourth Circuit.
This is an action to avoid, as either a fraudulent conveyance under § 548 of the Bankruptcy Code or as a preference under § 547, the sums represented by two cashier's checks, one for $170,000.00 drawn on NationsBank of D.C., N.A. and one for $120,000.00 drawn on NationsBank of Va., N.A. The checks were delivered by the debtor to the defendant, his paramour, in May and June, 1995, respectively. Both checks had been deposited by the defendant in a Tunisian bank account and were in the process of being transmitted to NationsBank for payment. On July 14, 1995, after a hearing on expedited notice, the court entered a seven-day temporary restraining order prohibiting NationsBank from paying the checks in order to preserve the status quo until an evidentiary hearing could be held on a motion for preliminary injunction. That hearing was held on July 21, 1995. At the hearing, the court granted the oral motion of NationsBank for relief in the nature of interpleader, permitted NationsBank to pay the $290,000.00 represented by the two checks into the registry of the court, and enjoined the plaintiff and the debtor from maintaining an action against NationsBank in any other forum with respect to the two checks.
After hearing extensive testimony concerning the circumstances under which the checks were delivered, the source of the funds, and the debtor's debts and assets, the court concluded that there was a reasonable likelihood that the debtor (in his capacity as debtor in possession) would ultimately prevail on the fraudulent conveyance claim only to the extent of approximately $100,000.00, that appearing to be the amount by which the debtor was rendered insolvent as a result of the transfer of funds represented by the two cashier's checks. The court also found that the prejudice to the debtor in possession of not enjoining the payment of those funds to the defendant pending a final hearing on the merits outweighed the prejudice to the defendant in not allowing her access to the funds, since the funds would have been effectively put beyond the reach of the court. Accordingly, the court's order of July 24, 1995, ordered that the clerk hold $102,500.00 pending a final judgment on the merits of the underlying action, but directed that the remaining amount be released to the defendant, as the payee of the checks, upon her surrender of the original instruments. The effectiveness of the order was stayed for 10 days and was subsequently extended through August 8, 1995.
The $100,000.00 portion of the two checks which the court found the debtor in possession was likely to prevail upon as a fraudulent conveyance, plus $2,500.00 which the court estimated as the possible amount which might be awarded to NationsBank out of the interpleaded funds as its costs in connection with the interpleader. The court has not yet made a ruling on the allowability of such costs.
F.R.Bankr.P. 8005 provides in pertinent part:
A motion for a stay of the judgment, order, or decree of a bankruptcy judge, for approval of a supersedeas bond, or for other relief pending appeal must ordinarily be presented to the bankruptcy judge in the first instance. Notwithstanding Rule 7062 but subject to the power of the district court and the bankruptcy appellate panel reserved hereinafter, the bankruptcy judge may suspend or order the continuation of other proceedings in the case under the Code or make any other appropriate order during the pendency of an appeal on such terms as will protect the rights of all parties in interest. . . .
There are four factors for the court to consider on motion for stay pending appeal:
1. The likelihood that the party seeking the stay will prevail on the merits of the appeal. 2. Irreparable injury to the moving party unless the stay is granted. 3. The lack of substantial harm to other interested parties. 4. The lack of harm to the public interest.
In re Richmond Metal Finishers, 36 B.R. 270 (Bankr.E.D.Va. 1984). These factors essentially mirror those applied by the court under the standard of Blackwelder Furniture Co. v. Seilig Mfg. Co., Inc., 550 F.2d 189 (1977), in determining whether to issue the preliminary injunction, except that the focus is not, as it was at the hearing on the preliminary injunction, whether the plaintiff would prevail on the merits of the underlying action, but with whether the plaintiff can prevail on the argument that the court should have maintained the status quo with respect to the entire $290,000.00 until there could be a final hearing on the merits.
A preliminary injunction is an extraordinary remedy, not to be lightly granted. For the court to deny the preliminary injunction but grant a stay pending appeal of the ruling denying the injunction would be in effect no different than granting the preliminary injunction. The prejudice to the debtor in possession from not granting the stay, assuming it were ultimately to prevail at trial on its entire $290,000 claim, is obviously great, since any judgment in excess of the $100,000.00 that the court has sequestered would likely be unenforceable. At the same time, a stay will result in substantial detriment to the defendant should she prevail, since she will have lost the use of the funds for the period required to decide the appeal.
The plaintiff admits that he does not have the funds to post a bond to protect the defendant and requests that the Court exercise its discretion under F.R.Bankr.P. 8005 to not require a bond.
The plaintiffs likelihood of success on the merits is problematic. First, the preliminary injunction not being a final order, there is no appeal as a matter of right. Instead, the plaintiff is relegated to a motion for leave to appeal under 28 U.S.C. § 158(a) and F.R.Bankr.P. 8003, and the decision whether to hear the appeal is discretionary with the district court. The issue raised by the appeal does not address an issue that would be dispositive on the merits, but rather the extent to which the plaintiff, which had the burden of proof in seeking a preliminary injunction, carried that burden at the hearing and established a reasonable likelihood that he would succeed on the merits with respect to the entire $290,000.00. For the same reasons that the court previously concluded that the plaintiff had not met that burden with respect to more than $100,000.00 of the funds involved, the court finds that the likelihood of such ruling being reversed on appeal is not great. Judges are often required to rule in doubtful areas of the law, and where the law is doubtful, and where the prejudice to the appealing party outweighs the detriment to the other parties, and the public interest is not offended, it is reasonable to grant a stay pending appeal on even a slight showing of success on the merits. The issues here, however, do not involve novel or unsettled areas of the law, and the court cannot find that, weighing the four factors, a stay pending appeal is warranted. The court will, however, stay the effectiveness of the order of July 24, 1995, to the extent it orders $187,500.00 of the interpleaded funds released to the defendant, for an additional ten days in order to permit the plaintiff to apply to the United States District Court for a stay.
A separate order will be entered consistent with this opinion.