MEMORANDUM OF DECISION IN SUPPORT OF ISSUANCE OF STAY PENDING APPEAL
[No hearing required]
MEREDITH A. JURY, Bankruptcy Judge.
The court has filed the Fourth Amended Plan of Reorganization (As Modified) and entered its final orders in this case, including the Order Confirming Fourth Amended Plan of Reorganization (As Modified) and the Order Allowing the Claim of the Minority Voting Trust. The Debtor, Orange County Nursery (OCN), controlled by the Majority shareholders, filed its Notice of Appeal of those orders and requested a certification for a direct appeal to the Ninth Circuit. Concurrently with this Memorandum and Order Issuing Stay Pending Appeal, the court is also filing the Certification for Direct Appeal to the Ninth Circuit.
At a hearing on April 4, 2017, regarding the modifications to the Fourth Amended Plan which needed to be made in accordance with the court's Memorandum of Decision re Treatment of the Minority Voting Trust's Claim and Modifications to Chapter 11 Plan, the Debtor raised issues regarding how certain provisions in the plan would be implemented while an appeal of the confirmation order was pending. The court construed Debtor's comments as a premature
The factors to be considered in determining whether to issue a stay pending appeal are "(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies."
The Supreme Court in
Although it acknowledged the holding of
Keeping in mind that the existence of a serious legal question is sufficient to satisfy the likelihood of success on the merits prong, this court analyzes why a stay in this case pending Debtor's appeal to the Ninth Circuit is appropriate. After it valued the equity in Debtor on the petition date and from that valuation determined the monetary value of MVT's claim, findings subject to a clearly erroneous standard of review on appeal and unlikely to be overturned, the court then was required to determine how MVT's claim should be treated in the chapter 11 plan. This second ruling, which is captured in the Fourth Amended Plan of Reorganization (As Modified) and the Order Allowing the Claim of the Minority Voting Trust, required the interpretation of legal principles, a ruling normally subject to de novo review by an appellate court. Moreover, this court's ultimate ruling on the treatment of the claim was premised on two prior District Court Orders re Bankruptcy Appeal, which had reversed on legal grounds earlier rulings of this court. As a consequence, there is a high likelihood that the circuit court's review of the bankruptcy court's rulings will be de novo, a standard of review more likely to result in reversal than clear error.
In addition to the standard the circuit will utilize is the substance of this court's ruling, which was unique and had no pertinent case law precedent to support its determinations. The Ratable Redistribution of the shares of the Debtor on the Effective Date of the Plan certainly raises a "serious legal question" as to its propriety. As the trial court, this court is unable to make a call on the likelihood Debtor will overturn the equitable determination this court has made, done after considerable deliberation and in light of the District Court rulings which controlled its decision. It seems fair to say reversal is more than a remote possibility. But it seems even more clear that the appeal raises serious legal questions, satisfying the first prong.
The second and third factors are logically considered together, particularly in light of the balancing test the court must conduct. This court's ruling would have a substantial, perhaps devastating impact on the Majority and perhaps on Debtor, as it would turn the controlling ownership upside down. Those not in control before, MVT, would control the board as majority and the prior controlling owners would be relegated to second chair. Once that switch is implemented, its effect will be irreparable to the majority. On the flip side, although MVT has waited almost ten years since it commenced its corporate dissolution action in state court to either gain control of OCN or be paid the 2009 monetary value of its ownership interest, waiting a bit longer will be just that — a wait — without a substantial daily impact on the lives of the beneficiaries of the trust.
Perhaps this balance is better seen in light of what the court could do or undo, depending on the appellate ruling. If the court did not issue a stay, corporate control would go to MVT, causing unknown changes to the operation of OCN and most certainly having an impact on the daily lives of several individuals. If the Ninth Circuit then reversed that ruling, causing control to be revested in the Majority, the sudden switch back would have a daily impact on everyone's lives, or at least so it seems. In essence, unscrambling this egg would be most difficult. On the other hand, with a stay in place, business would continue as usual until the ruling is affirmed, at which time an orderly transition to new controlling ownership could take place. These factors overwhelmingly favor issuance of a stay.
The court perceives no public interest in this private party (largely family) dispute and therefore, finds that factor is neutral.
Based on the analysis above, the court will issuance a stay pending appeal.