United States District Court, M.D. Pennsylvania
November 14, 2005.
IN RE: GEMINI EQUIPMENT BUSINESS TRUST. GEMINI EQUIPMENT BUSINESS TRUST, Appellant,
FIRST UNION NATIONAL BANK f/k/a CORESTATES BANK, N.A., Appellee.
The opinion of the court was delivered by: SYLVIA RAMBO, Senior District Judge
Before the court is an appeal from an order of the Bankruptcy
Court for the Middle District of Pennsylvania. The parties have
briefed the issue and the matter is ripe for disposition. For the
reasons that follow, the court will affirm the order of the
The facts are well known to the parties, thus the court will
dispense with their recitation in brief. In or about June 1993,
First Union Bank, formerly CoreStates, N.A. (hereinafter "First
Union") loaned the sum of $100,000.00 to Adams County Asphalt
Company (hereinafter "ACA"). ACA is a wholly owned subsidiary of
Appellant, Gemini Equipment Business Trust (hereinafter
"Gemini"). Also in June 1993, First Union increased ACA's
existing line of credit to $3,000,000.00. Both Gemini and Robert
Mumma, the principal of Gemini and ACA, guaranteed the loans for ACA. First Union contends that ACA
defaulted on the terms of the loans, and on June 8, 1998, First
Union initiated proceedings against the guarantors of ACA's
loans, Gemini and Robert Mumma, in the Court of Common Pleas for
Dauphin County, Pennsylvania (hereinafter "the June 8, 1998 State
In February 2003, ACA filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code. The case
is pending under bankruptcy case number 03-00722 in front of
Chief Judge Thomas.*fn1 To date, ACA has not filed a plan of
reorganization. Gemini asserts that ACA has "essentially been a
dormant entity since filing of its Chapter 11 petition."
(Appellant's Principal Brief at 7.) According to Gemini, "the
dormant nature of ACA has been a planned event designed to
minimize expenses until ACA could exercise its rights to operate
a quarry," which Gemini contends contains valuable assets.
On May 25, 2005, Gemini filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code. On or
about June 10, 2005, First Union Bank filed its motion for relief
from the automatic stay pursuant to 11 U.S.C. § 362(d)
(hereinafter the "Lift Stay Motion"). Specifically, First Union
sought an allowance to continue litigation in the June 8, 1998
State Court Proceeding.
On July 5, 2005, one day prior to the scheduled hearing on the
Lift Stay Motion, Gemini filed a motion for a change of venue
("hereinafter "the Change Venue Motion"). No hearing has been set
or held, and no response date has been set by the bankruptcy
court with respect to the Change Venue Motion. On July 6, 2005, the bankruptcy court held a hearing on the Lift Stay Motion and,
on July 7, 2005, entered an order granting the Lift Stay Motion.
Specifically, the bankruptcy court provided that First Union
could go forward with the June 8, 1998 State Court Proceeding so
that the claims of First Union could be liquidated; however, the
bankruptcy court provided that First Union could only execute
judgment against non-debtor third parties, specifically, Mr.
Mumma. The bankruptcy court provided that First Union could not
execute any judgment against Gemini. The court notes the ACA is
not a party to the June 8, 1998 State Court Proceeding. According
to First Union, once its claims have been liquidated, the claims
against Gemini "will be dealt with in a plan or otherwise as will
all other liquidated claims of the estate." (Appellee's Brief at
2.) Gemini timely filed this appeal on August 16, 2005.
II. Legal Standard
District courts have appellate jurisdiction over final
judgments, orders, and decrees of the bankruptcy court.
28 U.S.C. § 158(a)(1). When reviewing the bankruptcy court's factual
determinations, the district court will not disturb such findings
unless it finds that the bankruptcy court committed clear error.
In re Fegley, 118 F.3d 979, 982 (3d Cir. 1997); Universal
Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir.
1981). The district court, however, reviews legal decisions de
novo. Id.; In re Siciliano, 13 F.3d 748, 750 (3d Cir. 1994).
Gemini asserts three arguments in support of its appeal from
the order of the bankruptcy court. First, Gemini alleges that the
presiding bankruptcy judge's failure to recuse herself constituted an error of law and/or was
in violation of judicial rules concerning recusal. Second, Gemini
asserts that the bankruptcy court should have enjoined
proceedings against third-party, non-defendants. Finally, Gemini
argues that the bankruptcy court's granting of the Lift Stay
Motion constituted an error of law and/or and abuse of
discretion. The court will examine each of Gemini's arguments and
First Union's corresponding arguments below.
Gemini argues that presiding Bankruptcy Judge France should
have recused herself from the instant case, and that her failure
to do so constitutes an error of law and is in violation of the
judicial rules concerning recusal. In response, First Union
asserts that there has been no motion for recusal; thus,
according to First Union, there has been no appealable decision.
First Union also purports that there are not sufficient facts in
the record to support the recusal of Judge France.
With respect to First Union's argument that there is no
appealable decision from the bankruptcy court, the court notes
that there has been no motion for recusal at any point during the
proceedings before Judge France. Gemini does not dispute this;
rather, Gemini alleges that Judge France should have recused
herself sua sponte. According to Gemini, the issue of recusal
was raised by counsel during the July 5, 2005 Lift Stay Hearing.
Gemini also contends that it filed the July 4, 2005 Change Venue
Motion because of the perceived impartiality of Judge France. The
court notes that the Change Venue Motion was filed one day before
the hearing on the Lift Stay Motion; the bankruptcy court has not
ruled on the Change Venue Motion, and there is no pending motion
for recusal before the bankruptcy court. Thus, there has been no
final order and the district court cannot hear the appeal on the matter of recusal at this time. See 28 U.S.C. 158(a) ("The
district courts of the United States shall have jurisdiction to
(1) hear appeals from final judgments, orders, and decrees . . ."
of the bankruptcy courts).
Regardless, the court finds that there are not sufficient facts
in the record to support Gemini's argument that Judge France
should have recused herself. Title 28 U.S.C. § 455(a) provides
that "[a]ny justice, judge, or magistrate judge of the United
States shall disqualify himself in any proceeding in which his
impartiality might reasonably be questioned." "The test for
recusal under § 455(a) is where a reasonable person, with
knowledge of all the facts, would conclude that the Judge's
impartiality might reasonably be questioned." In re Kensington
Intern. Ltd., 368 F.3d 289, 296 (3d Cir. 2004). Furthermore,
recusal for a lack of impartiality must have a reasonable basis.
U.S. v. Schreiber, 599 F.2d 534, 536 (3d Cir. 1979). "Granting
the truth of the allegations [of partiality], however, [the
moving party] also `must give fair support to the charge of a
bent of mind that may prevent or impede impartiality of judgment'
before the judge need disqualify himself." Parker Precision
Products Co. v. Metropolitan Life Ins. Co., 407 F.2d 1070, 1077
(3d Cir. 1969) (quoting Berger v. United States, 255 U.S. 22,
It is undisputed that Judge France was employed by the Office
of the United States Trustee prior to her appointment to the
bankruptcy court. Gemini asserts that Judge France, during her
employment with the Trustee's Office, was exposed to Gemini's
wholly owned subsidiaries ACA and the McDermott Company, as well
as Gemini's principal Mr. Mumma. According to Gemini, Judge
France was predisposed to an adverse association with Mr. Mumma
and Gemini because of their interrelatedness. Gemini asserts that
Judge France has consistently declined from participating in Chapter 11 cases involving matters with which
she dealt while employed in the Trustee's office. There is no
indication and Gemini provides no evidence that Judge France
dealt with the instant matter while she was at the Trustee's
office. In addition, Gemini asserts that Judge France has refused
to hear Chapter 13 cases involving principals of Chapter 11 cases
that were pending when she was at the Trustee's Office. The court
notes that the present case is a Chapter 11 and not a Chapter 13
case; thus Gemini's argument on this point is without merit.
Moreover, Gemini does not elaborate on the extent of this alleged
exposure or how it allegedly affected Judge France's
impartiality. The court finds that Gemini has failed to provide
"fair support" for its assertion that Judge France should have
recused herself. Parker Precision Products Co.,
407 F.2d at 1077. Accordingly, the court finds no reasonable basis for
finding that Judge France should have recused herself.
Schreiber, 599 F.2d at 536. The court will deny Gemini's appeal
with respect to this issue.
B. Non-Debtor Third Parties
Gemini's second argument asserts that the bankruptcy court
should have enjoined proceedings against the non-debtor
third-party, Mr. Mumma.*fn2 First Union contends that such relief is not proper because Gemini has not
properly sought it and the record does not support granting such
As properly cited by Gemini, In re United Health Care
Organization, 210 B.R.228, 232 (S.D.N.Y. 1997) (citing A.H.
Robbins Co. v. Piccinin, 788 F. 2d 994, 999 (4th Cir.
1986)), provides that the "body of case law establishes that
courts may enjoin proceedings against a non-debtor third party
defendant under [11 U.S.C.] § 105 where there is such identity
between the debtor and that third party defendant that debtor may
be said to be the real party defendant and that a judgment
against the third party defendant will, in effect, be a judgment
against the debtor." (Appellant's Brief in Supp. at 14.) However,
as United Health Care Organization indicates, the proper means
for extending the automatic stay to non-debtor third parties is
through 11 U.S.C. § 105.*fn3 First Union contends that
Gemini has never requested a § 105 injunction. This contention is
supported by the record . As provided by the Third Circuit: "The
relief under section 105(a), however, is neither automatic nor
may it be imposed sua sponte by the court." In re Wedgewood
Realty Group, Ltd., 878 F.2d 693, 701 (3d Cir. 1989). Because there has been no request for a
§ 105 injunction the issue is not ripe for appeal.*fn4
The court notes that while Gemini asserts that "the legal
effect of the harm to [Gemini] if assets owed by Mr. Mumma or ACA
are liquidated would be irreparable" (Appellant's Principal Brief
at 16), it offers no evidence in support of its claim that if the
assets of Mr. Mumma were seized, Gemini and ACA would not be able
to reorganize. To the contrary, Gemini asserts that the
reorganization is to be funded by ACA's assets and income. (Id.
at 17.) However, as noted, ACA is not a party to the June 8, 1998
State Court Proceeding. Therefore, any ACA assets that are to be
used by ACA to fund reorganization will not be disturbed by
allowing the First Union to proceed with the June 8, 1998 State
Court Proceeding. Thus, the court finds that Gemini has failed to
show that it would suffer any harm if the assets of Mr. Mumma are
liquidated. Accordingly, the court finds that there was no error
of law and no abuse of discretion on the part of the bankruptcy
court by not extending the automatic stay to non-debtor third
parties. The court will deny Gemini's appeal on this issue. C. The Lift Stay Motion
Gemini asserts that the granting of the Lift Stay Motion
constituted an abuse of discretion.*fn5 Specifically, Gemini
asserts that 11 U.S.C. § 362(b)*fn6 does not provide any
exception to the automatic stay found in the instant case. Gemini
asserts that any exception to the automatic stay would need to be
found in § 362(d). According to Gemini, there is no specific
exception to the automatic stay regarding the continuation of a
state court proceeding in § 362(d). Thus Gemini posits that the
lift of the automatic stay was improper. In response, First Union
argues that the granting of the Lift Stay Motion was proper.
Section 362(d) provides:
On request of a party in interest and after notice
and a hearing, the court shall grant relief from the
stay provided under subsection (a) of this section,
such as by terminating, annulling, modifying, or
conditioning such stay
(1) for cause, including the lack of adequate
protection of an interest in property of such party
The court finds Gemini's interpretation of § 362(d) to be
incorrect. As stated, § 362(d) provides that the automatic stay
can be lifted for cause. The statute does not define cause. The
bankruptcy court is to look to the totality of the circumstances
to determine if cause exists in each particular case. In re
Wilson, 116 F. 3d 87, 90 (3d Cir. 1997). "The easiest ground for
determining that `cause' exists in favor of an unsecured creditor
is when the creditor seeks to recover from nonestate property. . . ." In re Borbidge, 81 B.R. 332, 335 (E.D. Pa.
1988). Courts have lifted the automatic stay in instances where
the "matter in dispute would be resolved more economically,
conveniently, and quickly in a nonbankruptcy forum." Id.
(citing In re Westwood Broadcasting, Inc., 35 B.R. 47 (Bankr.
D. Hawaii 1983); In re Philadelphia Athletic Club, Inc.,
9 B.R. 280 (Bankr. E.D. Pa., 1981)).
Whether or not to lift an automatic stay under § 362(d) is in
the discretion of the bankruptcy judge and may only be reversed
for an abuse of discretion. In re Hohol, 141 B.R. 293, 297
(M.D. Pa. 1992) (citing In re Dixie Broadcasting, Inc.,
871 F.2d 1023, 1026 (11th Cir. 1989)). The court finds that the
bankruptcy court has looked to the totality of circumstances and
has not abused its discretion.
The bankruptcy court determined that lifting the stay would not
have a significant impact on the Gemini estate. (Transcript Lift
Stay Motion Hearing at 39.) With respect to Gemini, the
bankruptcy court provided that any judgment in the June 8, 1998
State Court Proceeding could only be entered. (Id.) First Union
is not allowed to execute any judgment of the June 8, 1998 State
Court Proceeding against Gemini without leave from the bankruptcy
court. The bankruptcy court also stated that any judgment "can be
treated in the plan that [First Union] indicate[d] [will] be
filed. If these are substantively consolidated, then it can be
treated in a substantively consolidated matter." (Id.) As
stated, the litigation involving Gemini and the litigation
involving ACA have not been consolidated at this time. The court
finds that the bankruptcy court did not abuse its discretion when
it determined that neither Gemini or the assets of the estate
will be adversely affected by the granting of the Lift Stay
Motion. The bankruptcy court also determined that the claim would need
to be liquidated before it can be administered and that the
litigation would occur in the Court of Common pleas or in the
bankruptcy court. (Transcript Lift Stay Motion Hearing at 25.)
The court notes that First Union initiated proceedings against
Gemini over seven years ago in state court; thus, the state court
has much more familiarity with the issue at hand. The court is
cognizant that the Rooker-Feldman Doctrine precludes a
bankruptcy court from reviewing a state court's judgment. In re
Knapper, 407 F.3d 573 (3d Cir. 2005). However, Gemini cannot
point to any reasons why the Court of Common Pleas cannot render
a competent decision. Moreover, considerations of judicial
economy and resources dictate that the court should avoid
duplicitous litigation. The Third Circuit, in quoting the
legislative history of § 362(d)(1), stated: "[I]t will often be
more appropriate to permit proceedings to continue in their place
of origin, when no great prejudice to the bankruptcy estate would
result, in order to leave the parties to their chosen forum and
to relieve the bankruptcy court from many duties that may be
handled elsewhere." In re Wilson, 116 F.3d 87, 91 (3d Cir.
1997) quoting S.Rep. No. 95-989 at 50 (1978), reprinted in 1978
U.S.C.C.A.N 5787, 5836.
In its reply brief, Gemini asserts that "judicial economy is
best served where interrelated Defendants are allowed to deal
with the claim of a particular Plaintiff through an existing
Bankruptcy case of one of the Defendants." (Appellant Reply Brief
at 2.) In support, Gemini relies on the Memorandum and Order
issued by this court in Docu-Test Systems, Inc., et al. v.
National Medical Services of Maryland, Inc., No. 95-787 slip op.
at 1 (M.D. Pa. March 4, 1997). However, as noted by this court,
sufficiently unusual circumstances must exist. Id. (citing McCartney v. Integra Nat. Bank North, 106 F.3d 506, 509 (3d
Cir. 1997)). "[C]ourts have found `unusual circumstances' where
`there is such identity between the debtor and the third-party
defendant that the debtor may be said to be the real party
defendant and that a judgment against the third-party defendant
will in effect be a judgment or finding against the debtor."
McCartney, 106 F.3d at 509 (quoting A.H. Robins Co., Inc. v.
Piccinin, 788 F.2d 994, 999 (4th Cir. 1986)). Gemini has not
shown that such unusual circumstances exist in this case.
Moreover, the granting of the Lift Stay Motion provides that a
judgment obtained in state court may only be executed against Mr.
Mumma. The bankruptcy court has determined that this would not
have an adverse effect on Gemini. Thus, there is no "identity"
issue as detailed in McCartney. Id.
In light of the fact that neither the debtor nor the assets of
the estate will be harmed by the granting of the Lift Stay
Motion, and that judicial economy is best served by having the
parties proceed with the June 8, 1998 State Court Proceeding, the
court finds no abuse of discretion by the bankruptcy court in its
decision to grant the Lift Stay Motion. Accordingly, the court
will deny Gemini's appeal with respect to this issue.
In accordance with the foregoing discussion, the court will
deny Gemini's appeal from the bankruptcy court's order. An
appropriate order will issue.
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