Opinion
Case No: 2:20-bk-11675-NB
2020-04-21
IN RE: KOREAN WESTERN PRESBYTERIAN CHURCH OF LOS ANGELES, Debtor.
Won Lee, M.E.T.A.L. Law Group, LLP, Steven Werth, SulmeyerKupetz, Victor A. Sahn, Los Angeles, CA, for Debtor. Dare Law, Office of the United States Trustee, Los Angeles, CA, for U.S. Trustee.
Won Lee, M.E.T.A.L. Law Group, LLP, Steven Werth, SulmeyerKupetz, Victor A. Sahn, Los Angeles, CA, for Debtor.
Dare Law, Office of the United States Trustee, Los Angeles, CA, for U.S. Trustee.
MEMORANDUM DECISION (A) THAT THE AUTOMATIC STAY COVERS STATE COURT LITIGATION BUT (B) DETERMINING THAT "CAUSE" EXISTS TO MODIFY THE STAY SO THAT SUCH LITIGATION MAY PROCEED
Neil W. Bason, United States Bankruptcy Judge
For the reasons set forth below, and on the record at the above-captioned hearing, this Court will grant (a) the motion of the Ko Faction for confirmation that the automatic stay of § 362(a) applies to pending state court litigation (dkt. 71, the "Stay Motion"), and (b) the motion of the Choi Faction for relief from the automatic stay under § 362(d)(1) (dkt. 79, 80, 81, the "R/S Motion").
All terms used in this Memorandum Decision have the meanings provided in this Court's concurrently issued Memorandum Decision To Appoint Chapter 11 Trustee.
1. BACKGROUND
The background is set forth in this Court's concurrently issued Memorandum Decision To Appoint Chapter 11 Trustee. a. The Stay Motion
On March 6, 2020, the Ko Faction filed the Stay Motion seeking an order stating that the automatic stay applies in the case of Korean Western Presbyterian Church of Los Angeles v. Jong Suk Choi, et al , Case No. 19STCV40052 (the "State Court Litigation"), pending in the Superior Court of California for the County of Los Angeles (the "State Court"). The Ko Faction had initiated that litigation pre-petition, on November 6, 2019.
b. The R/S Motion
On March 10, 2020, the Choi Faction filed the R/S Motion. That motion disputes that any stay applies to the State Court Litigation but, to the extent this Court determines that the automatic stay does apply, it requests that this Court grant relief from the automatic stay to allow the State Court Litigation to proceed.
c. Procedural history
On March 31, 2020 at 1:00 p.m., this Bankruptcy Court held a hearing on the Stay Motion and R/S Motion, among other motions. Appearances were as noted on the record.
At the conclusion of the hearing, this Bankruptcy Court took under submission a number of issues. One issue was whether the Choi Faction's earlier filed Dismissal/Trustee Motion (dkt. 29) and supplemental notice (dkt. 74, the "Supplemental Notice"), provided adequate notice of the Choi Faction's request for relief from the automatic stay under 11 U.S.C. § 362. Another issue was whether the R/S Motion was served in compliance with Rule 4001. Another issue was whether there was sufficient "cause" to modify the automatic stay, as to which this Court set a deadline of April 3, 2020 for supplemental pleadings from the Ko Faction. On April 3, 2020, the Ko Faction submitted supplemental papers in opposition to the R/S Motion (dkt. 106).
Based on a review of the Dismissal/Trustee Motion, the Supplemental Notice, the R/S Motion, and the other filed documents in this case, this Bankruptcy Court was not persuaded that sufficient notice was provided to creditors that the Choi Faction sought relief from the automatic stay, in compliance with Rule 4001(a) (Fed. R. Bankr. P.). Accordingly, this Court directed the Choi Faction to provide further notice by April 6, 2020 (dkt. 108). On April 6, 2020, the Choi Faction filed and served additional notice on interested parties (dkt. 109), beyond the Ko Faction that already had received notice and had already filed its papers. The deadline for such other parties to file an opposition was April 16, 2020, but no such opposition is on file.
2. DISCUSSION
For the reasons stated below, this Court is persuaded that the automatic stay applies to the State Court Litigation, but "cause" exists to modify the automatic stay to allow the State Court Litigation to proceed.
a. The automatic stay does apply
This is a thornier issue than first appears. And arguably it is not necessary to determine whether the automatic stay applies because, as set forth below, there is "cause" ( § 362(d)(1) ) to grant relief from any stay that does exist.
But, as set forth later in this discussion, this Court finds that "cause" exists to modify but not terminate the automatic stay, so it makes a difference if there is or is not any automatic stay to begin with. Although several aspects of the automatic stay do not apply, one does apply. (i) § 362(a)(1)
Section 362(a)(1) operates as a stay of "the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title." § 362(d)(1) (emphasis added). No stay exists under § 362(a)(1) because the subject litigation does not include any claims, counterclaims, or other legal actions against Debtor. See Parker v. Bain , 68 F.3d 1131 (9th Cir. 1995).
The Ko Faction asserts that § 362(a)(1) applies because the claims by Debtor (or, more precisely, by the Ko Faction purporting to act for Debtor) "have the same effect as if they had been brought by the Defendants instead" (i.e. , by the Choi Faction) and therefore should be characterized as "effectively causes of action against the Debtor." Dkt.93, p.10:9-10 (emphasis added). There is no authority cited for that proposition. To the contrary, it is well established that the act of defending against claims brought in the name of a debtor is not stayed. See, e.g. , In re Merrick , 175 B.R. 333, 338 (9th Cir. BAP 1994). Accordingly, the automatic stay of § 362(a)(1) does not apply.
(ii) § 362(a)(3)
Section 362(a)(3) operates as a stay of "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." § 362(a)(3).
(A) Property "of" or "from" the estate
Although claims held by a debtor are property of the bankruptcy estate, claims about who controls a debtor are not "property of the estate." Any "possession" of property that Debtor owned as of the petition date stays with Debtor, regardless who controls Debtor. The Ko Faction's arguments to the contrary (e.g. , dkt. 93, pp.10:25-6:12) are not persuasive.
(B) Acts to exercise "control" over property of the estate
The Ko Faction's alternative argument is more persuasive. In this case the gravamen of the parties' disputes is who has control over Debtor's real property, alleged to be worth roughly $17 to $25 million or more (dkt. 71, p.4:9; dkt.84, p.5:19-21). There are interrelated disputes about whether each faction is entitled to control Debtor or is merely a creditor or other type of interested party - e.g. , whether LA Open Door is merely a lessee, which is or is not current on rent, or if LA Open Door merged with Debtor and the Choi Faction now controls Debtor.
The issues involve not merely theoretical or future control. The issues include who has current control over physical access to the real property for church services, who can examine books and records, who can use Debtor's name, who can speak for Debtor, who can make agreements for Debtor, who has signing authority over its bank accounts, etc.
In this situation this Bankruptcy Court finds that the stay does apply, because the disputes over governance are so intertwined with the control of Debtor's property that they constitute acts "to exercise control over property of the estate" within the meaning of § 362(a)(3) (emphasis added). See, e.g. , dkt.71, p.16:20-26; Allentown Ambassadors , 361 B.R. 422, 435-40 & nn.34-40 (Bankr. E.D. Pa. 2007) (extensive review of cases, concluding that whether § 362(a)(3) applies depends on "(1) the nexus between the conduct at issue and the property interests of the bankruptcy estate, (2) the degree of impact on the bankruptcy estate, and (3) the competing legal interests of the non-debtor parties") (footnotes omitted).
As the Ko Faction explains:
The Complaint [in the State Court action that is the main subject of the motions regarding the automatic stay] thus alleges that the current state of affairs is that the [Choi Faction] are exerting control over the Property, to the exclusion of the Debtor [i.e. , the Ko Faction]. The Debtor [i.e. , the Ko Faction] seeks a declaration by the Court as to the respective rights of the parties. The relief sought in the Complaint is thus a zero sum game; if the Debtor [i.e. , the Ko Faction] fails to obtain this relief, Defendants [i.e. , the Choi Faction] will continue to exert control over the Property to the exclusion of the Debtor [i.e. , the Ko Faction]. If the Debtor [i.e. , the Ko Faction] prevails, the opposite result will occur. [Dkt.71, p.8:17-22 (emphasis added) ]
The same exclusive control applies not just to Debtor's real property but also to every other type of property: Debtor's name, bank account, goodwill, etc.
The Choi Faction cites authority that, at least as a general proposition, governance disputes are not stayed by § 362(a)(3). Dkt.84, pp.18:26-20:10. But the cited authorities are distinguishable.
The decision on which the Choi Faction principally relies is In re Am. Media Distribs. , LLC , 216 B.R. 486 (Bankr. E.D. N.Y. 1998). But that decision notes that there was "little or no explanation as to why the automatic stay would apply" and the principal focus was only on the "distraction" that the dispute would cause. Id. at 489. Another decision cited by the Choi Faction did not involve the automatic stay - it never even cites § 362. Rather, it involved whether to enjoin stockholders from exercising their regular voting rights to elect directors, which is not at issue in this case. See In re Johns-Manville Corp. , 801 F.2d 60, 64-69 (2d Cir. 1986).
The last decision cited by the Choi Faction involved the voting of pledged shares, but there is no indication that such voting was anything beyond the conventional application of nonbankruptcy contract and voting rights. In re Marvel Ent. Group , 209 B.R. 832, 838-40 (D. Del. 1997). In fact, Marvel distinguishes contrary authorities as involving creditor/shareholders exercising extraordinary remedies, in contrast to "the conventional case of a shareholder seeking to invoke its corporate governance rights" and "matters of corporate governance in the orthodox sense." Id. at 839 (citations and internal quotation marks omitted, emphasis added).
Unlike Marvel , this case involves disputes by the Ko Faction and the Choi Faction that are anything but a "conventional" or "orthodox" exercise of equity holders' voting rights. Instead, both factions allegedly have a mix of roles that appear to include both "claims" (in the broad bankruptcy sense) and the exercise of "equity control," and both factions assert the right to control the disposition of Debtor's real property and other assets. It is difficult to see how the Factions' acts to wrest control of Debtor and all its property from one another are not acts to "exercise control over property of the estate." § 362(a)(3).
This is illustrated by the fact that the Ko Faction has filed a motion to appoint a real estate agent to sell the real property. Similarly, the Choi Faction has filed a motion to dismiss this bankruptcy case, which would have the effect of terminating the automatic stay and other provisions of the Bankruptcy Code that protect the estate's real property and its rights to whatever rents are or are not being paid. See, e.g. , §§ 362(a)(3) & (c)(2)(B), and 549.
In other words, the papers filed in this Bankruptcy Court reflect that the Factions' litigation in State Court is not just a conventional stockholder dispute but is a fight among parties whose roles as equity, or creditors, or something else is far from clear, and is a fight over "control" of Debtor's property as much as it is a fight over control of Debtor itself. In these circumstances, this Court finds that the automatic stay of § 362(a)(3) applies.
(iii) Conclusion regarding application of the automatic stay
For the foregoing reasons the automatic stay does apply. But, as set forth below, there is cause to modify the automatic stay to permit the parties to continue their State Court Litigation.
Alternatively, even if the automatic stay were inapplicable to the State Court Litigation, the stay still would apply in other respects. For example, the stay would prevent any party from enforcing any future judgment for money damages by collecting out of property of the bankruptcy estate. See §§ 362(a)(1), (3), (4), (6) and (7). Therefore, it is still important to determine how much relief to grant, even if (contrary to this Bankruptcy Court's conclusion above) the stay does not apply to the governance/control aspects of the State Court litigation.
b. There is "cause" to grant relief from the automatic stay
(i) Legal Standards
The Bankruptcy Court "shall grant relief from the stay" upon a showing of "cause." § 362(d)(1). Such relief need not take the form of a complete termination of the automatic stay, but instead may include "modifying or conditioning such stay." Id.
" ‘Cause’ is determined on a case-by-case basis." In re Tucson Estates, Inc. , 912 F.2d 1162, 1166 (9th Cir.1990). In determining whether "cause" exists to grant relief from the automatic stay to allow a movant to pursue litigation in a non-bankruptcy forum, courts in the Ninth Circuit have examined the factors set forth in In re Curtis , 40 B.R. 795, 799–800 (Bankr. D. Utah 1984). See In re Kronemyer , 405 B.R. 915 (9th Cir. BAP 2009) ; In re Plumberex Specialty Prods., Inc. , 311 B.R. 551, 559–60 (Bankr. C.D. Cal.2004).
Those factors are: (1) Whether the relief will result in a partial or complete resolution of the issues; (2) The lack of any connection with or interference with the bankruptcy case; (3) Whether the foreign proceeding involves the debtor as a fiduciary; (4) Whether a specialized tribunal has been established to hear the particular cause of action and whether that tribunal has the expertise to hear such cases; (5) Whether the debtor's insurance carrier has assumed full financial responsibility for defending the litigation; (6) Whether the action essentially involves third parties, and the debtor functions only as a bailee or conduit for the goods or proceeds in question; (7) Whether the litigation in another forum would prejudice the interests of other creditors, the creditors' committee and other interested parties; (8) Whether the judgment claim arising from the foreign action is subject to equitable subordination under Section 510(c); (9) Whether movant's success in the foreign proceeding would result in a judicial lien avoidable by the debtor under Section 522(f); (10) The interests of judicial economy and the expeditious and economical determination of litigation for the parties; (11) Whether the foreign proceedings have progressed to the point where the parties are prepared for trial; and (12) The impact of the stay on the parties and the "balance of hurt." Plumberex , 311 B.R. at 559. "[W]hile the Curtis factors are widely used to determine the existence of ‘cause,’ not all of the factors are relevant in every case, nor is a court required to give each factor equal weight." In re Landmark Fence Co., Inc. , 2011 WL 6826253 at *4 (C.D. Cal. Dec. 9, 2011).
(ii) Application of the legal standards
Based on the present record, these factors weigh in favor of modifying the automatic stay to permit the parties to continue their State Court Litigation.
As to the first Curtis factor (would relief result in partial or complete resolution of the issues), this Bankruptcy Court finds and concludes that granting relief would result in complete resolution of the issues. The State Court appears to have all the parties before it, and to be addressing the same governance/control issues that this Bankruptcy Court would have to address, so it can completely resolve these issues.
True, governance issues are also a critical threshold issue for bankruptcy purposes. As the State Court put it, "it's hard for me to believe that the Bankruptcy Court doesn't, as a threshold matter, decide who's in charge." Tr. 2/21/20, p.12:7-9 (dkt.71, Ex.10, at PDF p.139). But, as the State Court also observed, the issues are the same in both fora . See Tr. 2/21/20, p.14:11-13 (dkt.71, Ex.10, at PDF p.141) ("the threshold issue is I suspect the Bankruptcy Court does decide who's in charge just like I'm trying to do for this preliminary injunction") (emphasis added).
It is also true that COVID-19 has caused the State Courts to temporarily close, which might result in some delay in resolving the governance dispute. But there is no evidence from which this Bankruptcy Court can presume that the shutdown will last for a very long time, especially given that this Bankruptcy Court, for example, is conducting almost all of its regular business and this Court and litigants appearing in this Bankruptcy Court have adapted to telephonic procedures.
This Bankruptcy Court is not persuaded by the Ko Faction's contention that litigation in the State Court will take longer than in this Bankruptcy Court (dkt. 106, p.2:10-3:11). The Ko Faction's asserted timeline includes time for appeals, but if the same time is factored into any decisions rendered by this Bankruptcy Court, there is no showing that the time frame would be any shorter. For example, this Bankruptcy Court takes judicial notice that in the bankruptcy system there are two intermediate levels of appeal (the District Court and/or Ninth Circuit Bankruptcy Appellate Panel and the Court of Appeals for the Ninth Circuit) before the litigation could be presented for consideration by the Supreme Court, whereas in State Court there is just one intermediate level of appeal. There is also no showing that it would be efficient for this Bankruptcy Court to reinvent the wheel as to the preliminary issues that have already been addressed by the State Court.
As to the second Curtis factor (connection with or interference with the bankruptcy case) and the seventh Curtis factor (prejudice to other creditors/interested parties) this Bankruptcy Court finds and concludes that, far from interfering with this bankruptcy case or causing prejudice, resolution of the issues that are already well underway in the State Court is essential to determine the bankruptcy issues: e.g. , whether Debtor's bankruptcy petition was even authorized; who is authorized to determine the disposition of property of the bankruptcy estate; who has authority to decide what litigation to pursue on Debtor's behalf; etc. But the underlying legal and factual disputes are all state law issues. As interesting as these issues would be for this Bankruptcy Court to delve into, the roughly 2000 pages of documents attached to the Choi Faction's motion papers (dkt. 79) show that this Bankruptcy Court would be reinventing the wheel. Starting over and re-litigating the issues would be prejudicial to all parties in interest, and it appears that resolving these issues in State Court is the most expeditious and efficient way to address these issues.
As to the fourth Curtis factor (whether a specialized tribunal has been established to hear the action) and the eleventh Curtis factor (whether the proceedings have progressed to the point where the parties are prepared for trial), this Bankruptcy Court finds and concludes that, (i) although the State Court is not specialized in the sense of limiting itself to corporate/religious governance/control issues, the same is true for this Bankruptcy Court, so this factor is neutral, and (ii) although the proceedings in State Court appear to be far from any trial, the roughly 2000 pages show that those proceedings are well underway.
As to the tenth Curtis factor (interest of judicial economy) this Bankruptcy Court finds and concludes that, while it is true that one purpose of bankruptcy is to avoid piecemeal litigation and enable the bankruptcy court to decide in one forum various related proceedings, forcing the parties to start anew in this Bankruptcy Court would result in a duplication of efforts and would be a waste of judicial resources. This Bankruptcy Court agrees that severing bankruptcy and non-bankruptcy issues also runs the risk of duplicative or wasteful litigation, but the solution is to let the litigation play out in State Court. The record before this Bankruptcy Court is that the State Court has ruled that at least three of the matters before it are related and there is no showing that, if appropriate, it could not decide any and all related matters together.
As to the twelfth Curtis factor (the impact of the stay on the parties and the "balance of hurt"), the bankruptcy petition has already delayed adjudication of the issues before the State Court, and caused considerable expense and disruption, which this Bankruptcy Court finds fall more heavily on the Choi Faction than the Ko Faction. Among other things, the Choi Faction was not given adequate notice by the Ko Faction of the extraordinary "emergency" relief that the latter sought in this Bankruptcy Court, and it turns out that, so far as this Bankruptcy Court can discern, there is no emergency.
To be clear, this Bankruptcy Court is not saying that there is no legitimate need for bankruptcy protection. True, it is not apparent that Debtor is insolvent. But the automatic stay ( § 362(a) ) and § 549 may provide broader protection than what is available in other fora to protect against unauthorized transfers of property. For example, a typical injunction only applies to specified parties and specified property, and it does not necessarily render acts in violation of the injunction void ab initio . In contrast, the automatic stay applies even to unknown parties and unknown property and acts in violation of the stay are void ab initio . See, e.g. , In re Schwartz , 954 F.2d 569, 571 (9th Cir. 1992).
But there is no reason known to this Bankruptcy Court why the Ko Faction could not have gained the legitimate protections of the automatic stay and § 549 and then stipulated to relief from the automatic stay to conclude the State Court Litigation. Instead, as noted above, the Ko Faction sought "emergency" relief with inadequate notice, in what appears to be an attempted end-run around the State Court proceedings. For all of these reasons, any continued stay of the State Court Litigation has greater cognizable impact on the Choi Faction than the Ko Faction, and the "balance of hurt" also favors granting relief from the stay.
In addition to the precise factors outlined in Curtis , this Bankruptcy Court is considering all the other facts and circumstances. In the interest of comity and to discourage forum shopping, it is appropriate for the litigation to continue in the State Court. That is the initial forum that the Ko Faction selected, and it is the forum that the Choi Faction favors retaining.
For all of the foregoing reasons, this Bankruptcy Court finds that under the Curtis factors and analysis there is "cause" ( § 362(d)(1) ) to grant relief from the automatic stay as set forth below. This Bankruptcy Court considers below whether there is an alternative basis on which relief from the automatic stay must be granted.
c. Mandatory abstention does not apply
An alternative ground for relief from the automatic stay would be if mandatory abstention applies. (Even then, "relief" from the stay does not necessarily mean immediate termination of the stay - it might be appropriate to modify but not terminate the stay, or to leave it fully in place for some period of time, to give Debtor a "breathing spell" - but the point is that, if mandatory abstention were to apply, that would be an alternative basis for some form of relief from the automatic stay.)
Mandatory abstention is governed by statute:
Upon timely motion of a party in a proceeding based upon a State law claim or State law cause of action, related to a case under title 11 [i.e. , the Bankruptcy Code] but not arising under title 11 or arising in a case under title 11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under this section, the district court [and the bankruptcy court as a unit thereof] shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, in a State forum of appropriate jurisdiction. [ 28 U.S.C. § 1334(c)(2) (emphasis added).]
The emphasized terms "related to," on the one hand, and "arising under" or "arising in," on the other hand, are terms of art. The Supreme Court has held that the latter are equivalent to the statutory term "core" under 28 U.S.C. § 157(b)(1). Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).
A non-exclusive list of matters defined as "core" proceedings is set forth in 28 U.S.C. § 157(b)(2). Matters concerning who has authority to file a bankruptcy petition, make decisions for a debtor in possession, and control its property is a "core" proceeding, as a matter of statutory construction ( 28 U.S.C. § 157(b)(2)(A) & (O) ). See e.g. In re Fisher Island Invs., Inc. , 778 F.3d 1172 (11th Cir. 2015) (confirming bankruptcy court had statutory authority over ownership dispute under 28 U.S.C. § 157(b)(2)(A), (O), because "ownership issue is a core matter that clearly ‘arises under’ or ‘arises in a case under’ chapter 11. Resolution of threshold ownership issue was critical to the administration of the Alleged Debtors' estates ....").
Turning to Constitutional limitations, a determination of who controls Debtor and its property is sufficiently central to the administration of the bankruptcy estate that it has been held to be what is sometimes called "Constitutionally core." See e.g. , In re Fisher Island Invs. Inc. , 778 F.3d at 1192 (affirming bankruptcy court's determination that it had constitutional authority over ownership dispute because "[t]he ownership issue does not simply have ‘some bearing’ on the bankruptcy proceedings ... the bankruptcy court could not undertake the bankruptcy proceedings without first determining who owned the Alleged Debtor, and thus who represented them ...."); In re First Korean Christian Church of San Jose , 567 B.R. 575, 578-578 (Bankr. N. D. Cal. 2017) (rejecting argument that bankruptcy court lacked jurisdiction to determine who controlled Debtor and noting that although bankruptcy court must defer to church hierarchy for resolution of religious issues, bankruptcy court could "apply ‘neutral principals of law’ such as corporate governance in settling disputes as to ownership of church property ...").
True, the governance of Debtor depends entirely on nonbankruptcy issues: (i) interpretation and application of nonbankruptcy law and (ii) interpretation and application of nonbankruptcy agreements and principles of the local church and any national or international church organizations. But it is difficult to conceive of anything more central to the administration of a bankruptcy case than determining who has authority to file the bankruptcy petition, or to hire professionals for the debtor in possession, or to sell a debtor's assets or otherwise manage the bankruptcy estate as a trustee for the benefit of creditors.
Therefore, any determination of who controls Debtor comes within this Bankruptcy Court's "arising in" jurisdiction and is both statutorily and constitutionally core. In other words, mandatory abstention does not apply, so this is not a ground on which this Bankruptcy Court will grant relief from the automatic stay.
Alternatively, even if mandatory abstention were to apply (contrary to this Court's conclusion above), this Court would grant the same relief from the automatic stay, which is set forth below.
d. Scope of relief
Under § 362(d) this Court "shall" grant relief if the statutory criteria for such relief are established. But such relief need not take the form of "terminating" the stay. The statute states: "relief ... such as by terminating, annulling, modifying, or conditioning such stay ...." § 362(d) (emphasis added).
The appropriate balance in this case is to modify and condition the automatic stay under § 362(d)(1) such that the parties may proceed in the State Court Litigation to final judgment (including any appeals) in accordance with applicable nonbankruptcy law, subject to the following limitations (the standard limitations of the undersigned Bankruptcy Judge).
(i) No enforcement against property of the bankruptcy estate
The stay remains in effect with respect to enforcement of any judgment against property of the debtor's bankruptcy estate - any such property shall be distributed when and how provided by the Bankruptcy Code. Nevertheless, the Choi Faction is permitted to enforce its final judgment by (i) collecting upon any available insurance in accordance with applicable nonbankruptcy law or (ii) proceeding against the debtor as to any property that is not property of this bankruptcy estate. See, e.g. , § 362(b)(2)(B) & 541(b)(7) (analogous provisions of the Bankruptcy Code permitting collection of domestic support obligations from ERISA qualified retirement plans).
(ii) Claim allowance, priority and discharge issues
Any claims arising from the State Court Litigation are subject to this Bankruptcy Court's jurisdiction regarding claim allowance and priority, and the existence and scope of any bankruptcy discharge.
(iii) No relief in other bankruptcy cases
To the extent, if any, that the R/S Motion seeks to terminate the automatic stay in other past or pending bankruptcy cases, such relief is denied on the present record. See In re Ervin (Case No. 14-bk-18204-NB, docket no. 311).
(iv) Effective date of relief
This Court will grant the Choi Faction's request to waive the 14-day stay provided by FRBP 4001(a)(3). The State Court litigation has been stayed long enough without adding further delays.
e. Comity with State Court
The State Court Judges stayed their proceedings pending this Bankruptcy Court's ruling on the Stay Motion and R/S Motion. This Bankruptcy Court appreciates the State Court's careful approach to the possible existence of the automatic stay, which turned out to be a complex issue as discussed above.
This Bankruptcy Court also seeks to preclude any undue delays or potential gamesmanship in future by parties who might seek to invoke the automatic stay when it does not apply (either because of this Bankruptcy Court's order(s) granting relief from the automatic stay, or because of the inherent limits of § 362(a) ). To that end, this Bankruptcy Court offers the following.
First and foremost, this Bankruptcy Court is available to make rulings on the applicability of the automatic stay, and to grant any appropriate relief. The Local Bankruptcy Rules and this Bankruptcy Court's posted procedures permit expedited relief, including speedy telephonic hearings if warranted. Even during this COVID-19 situation, this Bankruptcy Court's law clerks and the Clerk's Office staff are constantly monitoring voicemails, processing orders, setting up telephonic hearings, etc.
Second, recognizing that even speedy relief might not be speedy enough, this Bankruptcy Court reiterates that, contrary to the Choi Faction's arguments (dkt.71, pp.21:25-23:7), the State Court has concurrent jurisdiction. The State Court can interpret (a) the automatic stay (which is deemed to be an order of this Bankruptcy Court), and (b) any other order of this Bankruptcy Court, such as an order modifying the stay. This is no different from the State Court interpreting the orders of any other court, as it does all the time.
In other words, the State Court need not halt its proceedings every time any litigant asserts that the automatic stay might apply. See 28 U.S.C. § 1334(b) (federal District Courts, and the Bankruptcy Courts as a unit thereof, have "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11") (emphasis added), In re Gruntz , 202 F.3d 1074, 1083-84 (9th Cir. 2000) (distinguishing State Court orders "modifying the automatic stay" from those "merely interpreting federal law").
Of course, it is up to the State Court, in the exercise of its judgment, to assess whether the risks of proceeding are outweighed by the benefits. See Gruntz , 202 F.3d 1074, 1087 (if State Court proceeds without order of Bankruptcy Court, the former "risks having its final judgment declared void"). Meanwhile, again, this Bankruptcy Court will make every effort to grant speedy rulings on any issue that might arise involving the automatic stay.
3. CONCLUSION
For all of the foregoing reasons, the automatic stay applies under § 362(a)(3), but there is "cause" for relief from the automatic stay under § 362(d)(1). Such relief should take the form of modifying the automatic stay as set forth above.
As set forth in more detail above, the parties can proceed with their State Court litigation to final judgments or orders. But the automatic stay remains in place to prevent collection of any monetary judgment out of the bankruptcy estate or disposition of estate property, absent further order of this Bankruptcy Court.
This Court will issue separate orders granting the Stay Motion and R/S Motion. The Choi Faction is directed to lodge proposed orders for each of the foregoing motions within seven days after entry of this Memorandum Decision on the docket.