BORA BORA INC

OCR transcription for search; preserved printed pages are authoritative

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

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IN RE: CASE NO. 09-03693
BORA BORA INC. :;
Debtor

CHAPTER 11

OPINION AND ORDER

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This case is before the court on Bora Bora Inc.’s (the “Debtor”) motion requesting that the

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protection of the automatic stay be extended to its president, Mr. Oscar Juelle, filed on June 10,
2009 (the “Motion to Extend Stay”)(Docket No. 33), and the opposition to the same filed by
Quicksilver on July 1, 2009 (Docket No. 80). The Debtor filed a reply on July 8, 2009 (Docket

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No. 88) supplemented on August 10, 2009 (Docket No. 106) and Quicksilver filed a response to

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Debtor’s supplement on August 14, 2009 (Docket No. 112). The Debtor filed a reply to

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Quicksilver’s response on August 17, 2009 (Docket No. 119) and a second supplement on August

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28, 2009 (Docket No. 143). On October 13, 2009 the Debtor filed a request for determination

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(Docket No. 162) and Quicksilver filed a response to that request on October 23, 2009 (Docket
No. 167). At a hearing held on August 10, 2009 the Debtor informed that the issue had been fully

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briefed and the court took the matter under advisement (Docket No. 109). In essence, the Debtor

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argues that Mr. Juelle and the Debtor are “so inextricably bound and so closely identified with one

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another” that a collection action against Mr. Juelle for a pre-petition debt equals to a collection

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action for a pre-petition debt against the Debtor and that Quicksilver’s collection efforts against

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Mr. Juelle are just a tactic to pressure the Debtor to make payments on its pre-petition debt. For

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the reasons stated below the Motion to Extend Stay is hereby denied.

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Background
On May 6, 2009 the Debtor filed a petition for relief under Chapter 11 of the Bankruptcy

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Code and since that date it has been acting as “debtor in possession”. In its Motion to Extend Stay

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the Debtor represents that Mr. Juelle is its founder, president and one of its primary lenders,

managing the day-to-day operations and responsible for devising and implementing a

AUTHENT#PATED
U.S. GOVERNMENT
INFORMAFION

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reorganization plan under Chapter 11. The Debtor states that Mr. Juelle has executed personal
guarantees in favor of various of its creditors including Quicksilver’. The Debtor alleges that Mr.
Juelle’s personal guaranty in favor of Quicksilver was for the sole benefit of the Debtor and that
he consented to the guaranty provided his liability would not exceed that of the Debtor. On June
3, 2009 Quicksilver filed a complaint for breach of guaranty agreement against Mr. Juelle before
the U.S. District Court for the Central District of California which prays for an amount equal to
that of the pre-petition claim Quicksilver holds against the Debtor, that is, $1.5 million
approximately.

The Debtor argues that this case presents the unusual circumstances required for the
application of the automatic stay to a third party non-debtor, in this case, Mr. Juelle. The Debtor
argues that Mr. Juelle’s identity is so intertwined with that of the Debtor that the Debtor may be
said to be the real party defendant, and because Mr. Juelle is so essential to the Debtor’s
reorganization, the stay must be extended to him in order to protect the Debtor’s efforts to
reorganize. The Debtor further argues that Mr. Juelle has no independent obligation to
Quicksilver and given the close relationship between the Debtor and its president, Quicksilver’s
efforts to collect against Mr. Juelle is nothing more than an effort to collect from the Debtor
circumventing the automatic stay provisions of the Bankruptcy Code. Lastly, the Debtor states
that if Quicksilver’s action is allowed to proceed Mr. Juelle will be irremediably distracted and
will not be able to dedicate his full attention to the reorganization of the Debtor’s case. According
to the Debtor Mr. Juelle is uniquely suited to guide the Debtor through its reorganization due to
his knowledge of the local marketplace, rental agreements, consumer buying patterns and other
related information. The Debtor posits that the loss of Mr. Juelle’s efforts will impair if not
destroy the ability of the Debtor to reorganize and furthermore any judgment against him will
limit the funds available to be lent to the Debtor in order to fund its plan of reorganization as Mr.

Juelle is a potential financier of the Debtor’s reorganization.

' Copy of a promissory note for $2,000,000 dated July 20, 2007 signed by Mr. Juelle as
president of Bora Bora, Inc. and a personal guaranty also dated July 20, 2007 signed by Mr. Juelle
as guarator, both with Quicksilver as payee, are attached to the Motion to Extend Stay.

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In its response Quicksilver argues that the Debtor’s failure to file an adversary proceeding
bars this court from granting the injunctive relief requested, as an injunction requires an adversary
proceeding. Furthermore, the Debtor does not carry its burden of persuasion as to all
requirements warranting the extraordinary and drastic remedy of an injunction. Quicksilver cites
this court in In re Codfish, 97 B.R. 132, 135 (Bankr. D.P.R. 1988) by stating that “if a creditor is
to be enjoined and stayed from prosecuting an action against a codebtor pursuant to 11 U.S.C. §
105(a) the movant must establish through clear and convincing evidence that the estate would be
substantially and adversely affected by the continuance of such action.” Quicksilver maintains
that the Debtor provides no evidence whatsoever to support its motion, let alone carry the heavy
burden warranting the extraordinary relief it seeks. And even if the Debtor’s assertions were
supported by evidence they would not justify the application of the automatic stay to Mr. Juelle.
Quicksilver posits that a stay extension request is deemed a request for a preliminary injunction
and thus the Debtor must establish the four standard factors to obtain the injunctive relief, to wit,
1) irreparable injury to the Debtor if the injunction is not granted, 2) that such injury outweighs
any harm which granting injunctive relief would inflict on a defendant, 3) likelihood of success on
the merits and 4) that the public interest will not be adversely affected by the granting of the
injunction. Quicksilver argues that the Debtor cannot make the required showing of irreparable
harm and has not shown the likelihood of success on the merits as the Debtor must prove the
probability of a successful plan of reorganization and it has failed to do so.

In response to the Quicksilver’s arguments the Debtor argues that caselaw establishes that
the determination of whether a third party non-debtor is protected by the automatic stay may be
issued within an adversary proceeding or within a contested matter. In response to Quicksilver’s
argument that the Debtor does not carry its burden of persuasion as to all requirements warranting
the extraordinary and drastic remedy of an injunction, the Debtor argues that it has been
uncontested that Mr. Juelle is the Debtor’s president and is the person responsible for the Debtor’s
operations including the formulation of the reorganization plan, and thus the Debtor does not need
to prove that. The Debtor again concludes that Quicksilver’s collection action against the

Debtor’s president is part of its efforts to coerce the Debtor into paying its pre-petition debt. Later

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in the supplement to the Motion to Extend Stay the Debtor states that Quicksilver admitted that it
equates Mr. Juelle with the Debtor when in an answer to an interrogatory they stated that they
chose to terminate its business relationship with the company Mr. Juelle controls because it no
longer wished to be associated with Mr. Juelle’s character. From this statement the Debtor
concludes that Quicksilver’s suit against Mr. Juelle was brought as an effort to coerce payment
from the Debtor on its pre-petition debt and thus the suit must be stayed as it is, in fact, a suit
against the Debtor. The Debtor attached a sworn declaration by Mr. Oscar Juelle, which states, in
essence, that he has spent considerable time and effort in the reorganization of the Debtor and
after the Quicksilver’s suit was filed these efforts along with money have been diverted into
defending the suit. He states that he has been able to obtain post-petition financing from
Westernbank considering himself, through other companies, the Debtor’s lender, thus he has been
willing to use his own funds and property to help guarantee funding for the benefit of creditors.
He concludes that if the suit is allowed to proceed the Debtor would be denied his time and funds
that would otherwise be available to the creditors.

Quicksilver responds that the guaranty agreement executed between Quicksilver and Mr.
Juelle (the “Guaranty Contract”) provides that the guarantor (Mr. Juelle) has a financial interest in
the customer (the Debtor) and for business purposes significantly beneficial to Mr. Juelle wishes
that Quicksilver continue to extend credit to the Debtor, and that the obligations of the guarantor
(Mr. Juelle) are independent of the obligations of the customer (the Debtor). Furthermore,
Quicksilver argues that even though Mr. Juelle states that the litigation with Quicksilver is
causing tremendous hardship and distraction for him with respect to his duties to operate the
Debtor and seek post-petition financing, he has time to devote to the new round of litigation the
Debtor proposes to file against Quicksilver for alleged Act 75 violations.

In subsequent motions the Debtor informed the court that through Mr. Juelle’s efforts the
Debtor secured post-petition financing from an entity named Calacostas, Corp. Calacostas lent
the Debtor $400,000.00 at an annual interest rate of 5.5%, obtaining a lien on the Debtor’s
inventory and trademarks. It does not appear that Mr. Juelle committed any of his personal assets

in order to obtain the referred secured post-petition financing for the Debtor.

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The Disclosure Statement filed on November 3, 2009 provides that Mr. Juelle is the
president and CEO of the Debtor deriving a salary of $16,000 per month, plus car allowance and
health insurance (Docket No. 173). The Disclosure Statement further provides that funding of the
plan of reorganization will come from the operations of the business and the post-petition secured
financing from Calacostas, on which the monthly installments have administrative priority status
as approved by the court.

The Guaranty Contract between Quicksilver and Mr. Oscar Juelle, copy of which is
attached to the Motion to Extend Stay, provides in its pertinent parts as follows:

THIS PERSONAL GUARANTY (this “Guaranty”) is made on July 20, 2007, by Oscar

Juelle (“Guarantor”), for the benefit of Quicksilver, Inc. (“Quicksilver”), with reference to

the following facts:

B. Guarantor has a financial interest in Customer and, for business reasons significantly
beneficial to Guarantor, desires that Quicksilver continue to extend credit to Customer.

NOW, THEREFORE, in consideration of the foregoing, and for other good reason and
valuable consideration, the receipt and adequacy of which are hereby acknowledged, the
Guarantor agrees as follows:

(8) The obligations of Guarantor hereunder are independent of the obligations of

Customer. A separate action or actions may be brought and prosecuted against Guarantor

without first proceeding against Customer or any other person or any security held by

Quicksilver and without pursuing any other remedy and without joining Customer or any

other person in any such action or actions. Any payment of any Indebtedness or other act

which shall toll any statute of limitations applicable thereto shall also operate to toll such

statute of limitations applicable to Guarantor’s liability hereunder.

Discussion

The Debtor requests that this court enjoin Quicksilver from continuing a collection action
against Mr. Oscar Juelle based on the Guaranty Contract executed between Mr. Juelle and
Quicksilver. Section 362(a)(1) provides for an automatic stay of any judicial proceeding against
the debtor, thereby protecting the debtor and not prohibiting actions against non debtor third

parties or co-defendants. 11 U.S.C. 362(a)(1)’; In re S.I. Acquisition, Inc. 817 F.2d 1142, 1147

2 11 U.S.C. 362(a)(1) provides that

Except as provided in subsection (b) of this section, a petition filed under section 301, 302
or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor
Protection Act of 1970, operates as a stay, applicable to all entities, of -

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(5th Cir. 1987). The automatic stay is imposed by operation of law and does not require an

injunction but it is clear that the statutory language of 11 U.S.C. § 362 imposes the automatic ex

parte injunction only as to actions against the debtor. In re Supermercado Gamboa, 68 B.R. 230,
232 (Bankr. D.P.R. 1986).
Extension of the stay pursuant to 11 U.S.C. § 362(a) - Procedure

The power of the bankruptcy courts to enjoin certain actions not subject to the automatic
stay, such as an action against non debtor parties, has been recognized, when such action is
interfering improperly with the purposes of the bankruptcy law or the debtor’s reorganization
efforts. A.H. Robins Co.., Inc. v. Piccinin, 788 F.2d 994 (4th Cir. 1986). Although called an

extension of the automatic stay provisions of the Bankruptcy Code to non-debtor parties, these are
in fact injunctions issued by a bankruptcy court under 11 U.S.C. § 105(a), after determining that
the situation requires it in order to protect the interests of the bankruptcy estate. In re Cincom

iOutsource, Inc., 398 B.R. 223, 227 (Bankr. S.D. Ohio, 2008) citing Patton v. Bearden, 8 F.3d 343

(6th Cir. 1993); “Under the Bankruptcy Act, it was believed that the bankruptcy court lacked
jurisdiction to issue such an injunction. Under the Code, broad injunctive power is available
under section 105, and the issue appears to be one directed to the discretion of the court rather

than to its jurisdiction.” 3 Alan N. Resnick and Henry J. Sommer, Collier on Bankruptcy, § 362.04

(15th Ed. Rev’d 2005). In the case of In re Philadelphia Newspapers, LLC, 407 B.R. 606 (E.D.

Pa., 2009) the court explained that in evaluating the issuance of a preliminary injunction
extending the section 362(a) stay protection to non-debtors, appellate courts must analyze whether
the bankruptcy court properly extended the section 362(a) stay to the non-debtors and whether the
court exercised its discretion properly in issuing an injunction pursuant to 105(a). This is so

because section 105(a) is not a repository of substantive rights but allows the court to issue an

(1) the commencement or continuation, including the issuance or employment of
process, 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;

Emphasis ours.

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order when “necessary or appropriate” to carry out the provisions of the Bankruptcy Code, in this

case, Section 362(a). The fact that courts have combined the analysis has created confusion, but

both steps of the inquiry must be satisfied in order for the injunction to be issued. Id. at 616.
Paragraph 17 of Debtor’s reply filed on July 8, 2009 (Docket No. 88) provides as follows:

Regardless, no court has required that the issue of whether to grant the protection of the
automatic stay to parties who are not the debtor be raised through an adversary proceeding.
One court contends that using the term “stay” interchangeably with “injunction” has led to
unnecessary confusion for some practitioners. Jn re Philadelphia Newspapers, LLC,
U.S.Dist. LEXIS 56245 * 7 (E.D. Pa., July 2, 2009). According to Philadelphia
Newspapers the key doctrine to be understood is that 11 USC § 362 grants Bankruptcy
courts the power fo enjoin lawsuits against non-debtors under certain
circumstances—regardless of whether one considers this power a “stay” or an “injunction.”
Id. Accordingly, this issue may be submitted through either an adversary proceeding or a
contested matter.

Here, the Debtor suggests that when granting the protection of the automatic stay to non-
debtors the courts need only apply section 362(a). The Debtor is misinterpreting the holding in
the case of In re Philadelphia Newspapers, LLC, U.S.Dist. LEXIS 56245 * 7 (E.D. Pa., July 2,

2009). As discussed above, the Philadelphia Newspapers court explained that in evaluating the
issuance of a preliminary injunction extending the section 362(a) stay protection to non-debtors,
the courts will analyze both whether the extension of the stay under section 362(a) is proper and
whether the issuance of an injunction under 105(a) is proper, which means that in order for the
injunction to be issued the requirements of both statutes must be satisfied.

In evaluating the issuance of the preliminary injunction extending the protection of section
362(a) to Non-Debtor third parties, the Court will undertake a three-step analysis."™ * The
Court will determine, first, whether the Bankruptcy Court had jurisdiction to issue the
injunction. Second, whether the Bankruptcy Court properly extended the section 362(a)
stay to the Non-Debtors. Finally, whether the Bankruptcy Court properly exercised its
discretion in issuing an injunction, pursuant to section 105(a), enjoining suit against Non-
Debtors.

Courts have often conflated the analysis. This has led to confusion.

Philadelphia Newspapers, 407 B.R. at 610 (citations omitted).

In paragraph 19 of the reply (Docket No. 88) the Debtor alleges that the court in the case
of In re M.J.H. Leasing, Inc., 328 B.R. 363 (Bankr. D.Ma. 2005) held that the issue before us was

properly raised in a contested matter. Again, the Debtor is misinterpreting such decision. In

M.J.H. Leasing the issue before the court was an objection to the disclosure statement because it

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contained a provision for the discharge and release of the principals of the debtors. The court
reviewed cases involving the injunction of actions against third-party non-debtors raised through
adversary proceedings as it found such cases were relevant in view of similar legal and factual

circumstances. Id. at 370. However, at no point did the M.J.H. Leasing court insinuate that a

request to extend the stay to third-party non-debtors could be raised outside an adversary

proceeding.

A request for injunctive relief must be brought by adversary proceeding. Fed. R. Bankr. P.
7001(7); Cincom, 398 B.R. at 227 citing In re Swallen’s Inc., 205 B.R. 879, 880 (Bankr. S.D.

Ohio 1997)(injunctive relief was denied for failure to request it through adversary proceeding); In

re Nasco P.R.. Inc., 17 B.R. 35, 38 (Bankr. D.P.R. 1990)(“A party wishing to invoke the Court’s

injunctive power under Section 105(a) must file an adversary proceeding... and must follow the
traditional standards for the issuance of an injunction.”) While it is true that 11 U.S.C. § 105(a)
gives the bankruptcy courts broad power to issue any order that is “necessary or appropriate” to
the reorganization effort, “this broad authority does not allow the bankruptcy court to apply a less
stringent standard for granting injunctive relief for the benefit of non-debtor defendants than is

traditionally required for the issuance of any injunction.” Supermercado Gamboa, 68 at 232-233

citing Matter of Electronic Theatre Restaurants Corp., 53 B.R. 458 (N.D. Ohio 1985); A.H.
Robins, 788 F.2d at 1008; Philadelphia Newspapers, 407 B.R. at 616; Codfish, 97 B.R. at 165.

The broad injunctive powers under 11 U.S.C. § 105(a) should be used sparingly. In re
Lazarus Burman Assoc., 161 B.R. 891, 901 (Bankr. E.D.N.Y. 1993); In re Codfish, 97 B.R. 132
(Bankr. D.P.R. 1988); In re Criadores de Yabucoa, Inc., 75 B.R. 96 (Bankr. D.P.R. 1987). Thus, a

preliminary injunction is an extraordinary and drastic remedy which should only be granted when
the movant has carried its burden through clear and convincing evidence. Philadelphia
Newspapers, 407 B.R. at 616; Cincom, 398 B.R. at 227. This court clearly set forth the standard

to grant an injunction under 11 U.S.C. § 105(a) as follows:

In the First Circuit, as elsewhere, the four standard factors that the debtor corporation
would have to establish to obtain injunctive relief are as follows: (1) That the debtor would
suffer irreparable injury if the injunction were not granted; (2) That such injury outweighs

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any harm which granting injunctive relief would inflict on a defendant; (3) That the debtor
has exhibited a likelihood of success on the merits; (4) That the public interest will not be
adversely affected by the granting of the injunction.

Codfish, 97 B.R. at 135 citing Supermercado Gamboa, 68 B.R. at 232; Lazarus Burman, 161 B.R.
at 901.

In summary, a request to extend the automatic stay provisions of section 362(a) to a non-
debtor is an action for injunctive relief and should be initiated as an adversary proceeding. Fed.

R. Bankr. P. 7001(7).
Injunction under 11 U.S.C. § 105(a)

Section 105(a) of the Bankruptcy Code provides the court with the authority to exercise its
equitable powers when necessary or appropriate to facilitate the implementation of other
provisions of the Bankruptcy Code. 11 U.S.C. § 105(a). “[A]lthough § 105(a) does not itself
create a private right of action a court may invoke § 105(a) if the equitable remedy utilized is
demonstrably necessary to preserve a right elsewhere provided in the Code.” In re Nosek, 544
F.3d 34, 43 (1st Cir. 2008)(citations omitted). However, § 105(a) may not be invoked “where the
result of its application would be inconsistent with any other Code provision or it would alter
other substantive rights set forth in the Code. Id. “The issuance of an injunction that restrains
creditors from enforcing their claims against nondebtors in non-bankruptcy fora is an exception to
the general principle that to enjoy the benefits of bankruptcy a recipient needs to suffer the
burdens.” In re Saxby’s Coffee Worldwide, LLC, 2009 WL 4730238 at *5 (Bankr.

E.D.Pa.)(citation omitted).

The four standard factors that the Debtor would have to establish to obtain injunctive relief
restraining an action against Mr. Juelle are as follows: (1) that the debtor would suffer irreparable
injury if the injunction were not granted; (2) that such injury outweighs any harm which granting
injunctive relief would inflict on Quicksilver; 3) that the debtor has exhibited a likelihood of
success on the merits, which means in this context a reasonable likelihood of a successful

reorganization; (4) that the public interest will not be adversely affected by the granting of the

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injunction which requires a balancing of the public interest in successful bankruptcy

reorganizations with other public interests. Saxby’s Coffee Worldwide, LLC, 2009 WL 4730238

at *6 (citation omitted); Codfish, 97 B.R. at 135 citing Supermercado Gamboa, 68 B.R. at 232;

Lazarus Burman, 161 B.R. at 901. The Debtor failed to meet its burden.

“Trreparable injury in the preliminary injunction context means an injury that cannot
adequately be compensated for either by a later-issued permanent injunction, after a full
adjudication on the merits, or by a later-issued damages remedy.” Rio Grande Community Health
Center, Inc. v. Rullan, 397 F.3d 56 (1* Cir. 2005). To establish irreparable harm the movant does

not need to show that the injunctive relief will be fatal to the business, only that its legal remedies

are inadequate. Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 15 (1* Cir. 1996).

“Tf the plaintiff suffers a substantial injury that is not accurately measurable or adequately
compensable by money damages, irreparable harm is a natural sequel.” Id. For example “harm to
goodwill, like harm to reputation, is the type of harm not readily measurable of fully compensable

in damages-and for that reason, more likely to be found “irreparable”.” K-Mart Corp. v. Oriental

Plaza, Inc., 875 F.2d 907, 915 (1* Cir. 1989). The irreparable harm must be “neither remote nor
speculative, but actual and imminent.” In re Dunes Hotel Associates, 1997 WL 33344279 *4
(Bankr.D.S.C.1997), citing Dan River, Inc. v. Icahn, 701 F.2d 278, 284 (4th Cir.1983). “Mere

injuries, however substantial, in terms of money, time, and energy necessarily expended in the
absence of a stay, are not enough.” Cunningham v. Adams, 808 F.2d 815, 821 (11th Cir.1987).
The Debtor failed to show that it would suffer irreparable injury should the collection
against Mr. Juelle be allowed to proceed. The Debtor argues that the action will divert Mr.
Juelle’s attention from the business. But the extent of which or the specific effect this distraction
would have on the Debtor was not alleged with specificity. Thus this court cannot conclude that

the Debtor will suffer any injury in the event the action is not stayed.

Having failed to meet the first of the four-prong injunction standard we need go no further,
the Debtor’s request for an injunction staying Quicksilver’s action against Mr. Juelle must be

denied.

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Extension of the stay pursuant to 11 U.S.C. §362(a) - “Unusual Circumstances”

It is uncontested that Mr. Juelle is the president and founder of the Debtor, responsible for
the day-to-day operations and responsible for devising and implementing the reorganization plan
under Chapter 11. The Debtor argues that Mr. Juelle’s identity is so intertwined with that of the
Debtor that the Debtor may be said to be real party defendant, so the stay must be extended to Mr.
Juelle to protect the Debtor’s interests. The Debtor further states that Mr. Juelle has no
independent obligation to Quicksilver and if the action is allowed to proceed Mr. Juelle will be
distracted and will not be able to dedicate his full attention to the reorganization of the Debtor’s
case. According to the Debtor Mr. Juelle is uniquely suited to guide the Debtor through its
Chapter 11 due to his knowledge of the local marketplace, rental agreements, consumer buying
patterns and other related information, furthermore, a judgment against him will limit the funds

available to be lent to the Debtor to fund a reorganization plan.

While the scope of the automatic stay provision, 11 U.S.C. § 362, is broad, it only stays
actions against the debtor and does not extend its protection to guarantors. Philadelphia
Newspapers, 407 B.R. at 616. Courts have extended the stay to non debtor third parties when
“unusual circumstances” exist, such as when “(i) the non-debtor and debtor enjoy such an identity
of interests that the suit of the non-debtor is essentially a suit against the debtor’; or (ii) the third-
party action will have an adverse impact on the debtor’s ability to accomplish reorganization.” Id.
Debtor’s allegations are insufficient by themselves to establish either scenario. While it is true
that Mr. Juelle is the president and manager of the Debtor, there is no basis for us to conclude at
this juncture that their identity is so intertwined that a suit against Mr. Juelle is essentially a suit

against the Debtor, or that judgment against Mr. Juelle would in effect be a judgment against the

> An illustration of a situation where there is such identity between the debtor and the
non-debtor defendant arises when the suit is against a non debtor defendant who is entitled to
absolute immunity by the debtor on account of any judgment that might be entered against him.
Kreisler v. Goldberg, 478 F.3d 209, 213 (4th Cir. 2007). “Yet the purpose served by extending
the stay to directors and officers indemnified by the debtor must be consistent with the purpose of
the stay itself, to suspend actions that pose a serious threat to a corporate debtor’s reorganization
efforts.” In re Uni-Marts, LLC, 399 B.R. 400, 415 (Bankr. D.Del. 2009)(citations omitted)

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Debtor, and that by filing this action against Mr. Juelle Quicksilver is circumventing the automatic

stay provision of the Bankruptcy Code. See, Kreisler v. Goldberg, 478 F.3d 209, 213 (4th Cir.

2007). In fact, the Guaranty Contract provides that Mr. Juelle’s obligation under the same is
independent of the obligations of the Debtor and a separate action may be brought and prosecuted
against Mr. Juelle without first proceeding against the Debtor and without joining the Debtor in
any such action. While it is true that if the action is allowed to continue Mr. Juelle will need to
dedicate some time defending himself, the factual allegations fail to establish that this collection
action brought by Quicksilver based on the Guaranty Contract is so complex that it will actually
affect the Debtor, its operation and its reorganization because of Mr. Juelle’s distraction. Also,
the allegations do not detail why the business is so complicated it requires the undivided personal
attention of Mr. Juelle for it to run smoothly. In fact, at the August 10, 2009 hearing the Debtor
stated that this is a “small asset chapter 11 case”. There are no allegations regarding the amount

of time Mr. Juelle dedicates to the Debtor and the amount of time Mr. Juelle has diverted from the

Debtor to deal with this collection action. See, In re Uni-Marts, LLC, 399 B.R. at 417 (The court
found that the time pressures of the suit against the principal, did not constitute “unusual
circumstances” as the debtor’s chapter 11 case was small and relatively straightforward, unlike

cases such as Johns-Manville or A.H. Robins, which involved many thousands of tort cases, and

the limited scope of the adversary action would most probably not consume significant portions of
the debtor’s principal time or energy.) Furthermore, although initially the Debtor argued that a
judgment against Mr. Juelle would limit the funds available to be lent to the Debtor to fund its
plan of reorganization, the disclosure statement informs that Mr. Juelle will not fund the Debtor’s
plan as post petition financing was obtained from a third party, Calacostas, Corp. Thus the
financial cost to Mr. Juelle personally in defending the collection action may not have a
significant impact on the Debtor. This court agrees with Judge Hillman in the case of M.J.H.
Leasing, Inc. when he stated that the debtor’s principal intention to devote personal assets to the
reorganization of the debtor does not automatically shield him from suit on his personal

obligations. M.J.H. Leasing, Inc., 328 B.R. at 367.

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In support of its position the Debtor cites cases such as A.H. Robins 788 F.2d 994, which
involved multiple cases against the debtor and other co-defendants seeking damages for injuries
allegedly sustained by the use of an intrauterine contraceptive device known as Dalkon Shield,
manufactured by the debtor. Some of this personal injury cases filed pre-petition against A.H.
Robins and others had been settled, some lost and some won, and the costs of defending these
suits both to the debtor and to its insurance carrier had risen into the millions prior to the filing.
The court stayed these actions in part because of the enormous impact they would have on the
debtor if they were allowed to continue against the co-defendants because, for example, the non
debtors third party co-defendants were entitled to absolute indemnity by the debtor on account of
any judgment that might result against them in the case. Id. at 999. Similarly the court, in the

case of Philadelphia Newspapers found “unusual circumstances” warranting the stay of the actions

against non-debtor co-defendants because “the Debtors owe potential contractual and common
law duties to indemnify the Non-Debtors, the interests of the Debtors and Non-Debtors in the state
action are identical, and the diversion of resources caused by the state action against the Non-
Debtors will impact the Debtors’ ability to engage in timely and effective reorganization.”

Philadelphia Newspapers, 407 B.R. at 616. In Codfish the debtor sought the extension of the

automatic stay to debtor’s president who had guaranteed debtor’s obligations with the FDIC. The
court concluded that in order to apply the injunctive power under 11 U.S.C. 105(a) the evidence
presented must “clearly and convincingly show that the estate would be substantially and
adversely affected” if the creditor continue to pursue the action against the non-debtor. This court
extended the automatic stay to debtor’s president in that case upon finding that the president was
uniquely essential in the debtor’s reorganization, he had no assets other than his salary as
president and would have no incentive to continue in his duties as president of the debtor “if
whatever benefits he could anticipate for himself from the reorganization of debtor would become

subject to a judgment entered against him in favor of FDIC.” Codfish, 97 B.R. at 134.

The Debtor has failed to show that this case presents such “unusual circumstances”

watranting the extension of the automatic stay provision to a non-debtor third party.

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Conclusion

In light of the aforestated reasons the Debtor’s Motion to Extend the Protections of the
Automatic Stay to Debtor’s President, Oscar Juelle, and to Enjoin the Proceedings Currently
Pending Against Him (Docket No. 33) is hereby denied for the following reasons: the request
must be initiated as an adversary proceeding and it was not; the allegations in the motion as
amended and supplemented fail to address that the Debtor will suffer irreparable harm, thus
failing to meet the burden to obtain injunctive relief; and for failure to establish unusual

circumstances warranting the extension of the automatic stay.
SO ORDERED.

In San Juan, Puerto Rico, this 20" day of January 2010.

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ENRIQUE S. LAMOUTTE
U. S. Bankruptcy Judge

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