United States District Court, D. Massachusetts
In re: 31 TOZER ROAD, LLC, Debtor.
MARK GREENBERG and MICHAEL LAPIERRE, Appellees. 31 TOZER ROAD, LLC and MANUEL BARROS Appellants,
MEMORANDUM AND ORDER
Talwani United States District Judge.
the court is an appeal of two orders of the United States
Bankruptcy Court filed by Appellants 31 Tozer Road, LLC
(“Tozer”), a Debtor-in-Bankruptcy, and Manuel
Barros. Also before the court is Appellees Mark Greenberg and
Michael LaPierre's Motion to Strike Portions of
Appellants' Brief [#12].
and LaPierre contend that a Security Purchase Agreement
(“the Contract”) afforded them a right to
purchase equity in Tozer from Barros. After Tozer filed for
bankruptcy, Greenberg and LaPierre sought a determination
that the automatic stay imposed by the bankruptcy did not
apply to the exercise of their contractual rights. In re
31 Tozer Road, No. 16-14309 (D. Mass. Bankruptcy Ct.
Nov. 16, 2016) (Dkt. 10). On December 21, 2016, the
Bankruptcy Court ruled that the automatic stay did not
prevent Greenberg and LaPierre from exercising rights under
the Contract. Id. The Bankruptcy Court abstained
from resolving the dispute over those rights under the
Contract and instead suspended bankruptcy proceedings pending
the state court resolution of the issue. Id. On
December 28, 2016, the Bankruptcy Court denied a motion for
and Tozer filed this appeal, seeking reversal of the
Bankruptcy Court's finding that the automatic stay did
not apply to prevent Greenberg and LaPierre from exercising
their purchase rights, and the Bankruptcy Court's order
suspending bankruptcy proceedings. See
Appellants' Br. [#8]. Greenberg and LaPierre, in turn,
filed a Motion to Strike Portions of Appellants'
Brief [#12], asserting that certain arguments had not
been raised below. The court directed Greenberg and LaPierre
to respond to the arguments that they conceded were raised
below, and deferred ruling on the motion to strike.
Greenberg and LaPierre tendered payment for an equity
interest in Tozer, and then commenced an action in state
court, requesting a declaratory judgment that, under the
Contract, they are now the rightful owners of an 80%
membership interest in Tozer. Id. Greenberg v.
Barros, 17-00002-BLS1 (Mass. Super. Ct. Sept. 8, 2017)
(Dkt. 26). The Massachusetts Superior Court granted summary
judgment to Greenberg and LaPierre in the state court action,
finding that they are entitled to the membership interest in
Tozer that they purchased pursuant to the purchase option in
the Contract. Id.
automatic stay “springs into being immediately upon the
filing of a bankruptcy petition” and “prevents
creditors from taking any collection actions against the
debtor or the property of the debtor's estate for
pre-petition debts.” In re Slabicki, 466 B.R.
572, 577 (B.A.P. 1st Cir. 2012); see 11 U.S.C.
§ 362(a). The purpose of the automatic stay is “to
provide a fresh start to the honest debtor and to ensure a
uniform distribution of nonexempt assets to creditors of the
same class.” Id. (quoting In re
Panek, 402 B.R. 71, 76 (Bankr. D. Mass. 2009)). For this
reason, the automatic stay is triggered by any “act
against either the debtor, [the debtor's] property, or
the property of [the debtor's] estate, ” but
“does not bar acts against non-debtors.”
Id. at 580.
debtor corporation does not have a property interest in its
own equity, and the purchase of equity is not an act against
the debtor or the debtor's property. See Decker v.
Advantage Fund, Ltd., 362 F.3d 593, 596 (9th Cir. 2004)
(“[U]nissued stock is not an interest of the debtor
corporation in property; it is merely equity in the
corporation itself.”); Matter of Paso Del Norte Oil
Co., 755 F.2d 421, 424 (5th Cir. 1985) (“It is
widely recognized, and we have previously held, that a
corporation, even if a debtor in bankruptcy, has no property
interest in the shares of its stock owned by
shareholders.”). The Bankruptcy Court correctly
concluded that the automatic did not prevent Greenberg and
LaPierre from pursuing a judicial determination of their
rights under the Contract to purchase equity in Tozer, or
from exercising those purchase rights.
separately contend that the Bankruptcy Court abused its
discretion by abstaining from deciding the rights of Barros,
Greenberg, and LaPierre under the Contract and by suspending
bankruptcy proceedings pending resolution of that dispute in
state court. See Appellants' Br. 35-39 [#8].
This argument, too, is without merit. A bankruptcy court may
choose to abstain or suspend proceedings under 11 U.S.C.
§ 305(a) based on a number of factors, including
“(1) the purpose of the bankruptcy; (2) the necessity
of federal proceedings to achieve a just and equitable
solution; (3) the availability of another forum to resolve
the unsettled issues; (4) the efficiency and economy of
having the bankruptcy court settle the matter; (5) the
possible prejudice to the various parties; and (6) whether
the bankruptcy forum is being used to resolve what is in
essence a two-party dispute.” In re Efron, 529
B.R. 396, 405 (B.A.P. 1st 2015). The Bankruptcy Court
determined that the contract dispute was a dispute only among
the current and potential equity owners, not a dispute with
Tozer itself, and that it was in the best interest of Tozer
and its creditors to obtain a state court determination of
the various parties' equity interests in Tozer. As state
courts are the authority on the interpretation of private
contracts, see Volt Information Sciences, Inc., v. Board
of Trustees of Leland Stanford Junior University, 489
U.S. 468, 474 (1989), the state court was a just, equitable,
and efficient forum for the dispute.
offer additional arguments that are the subject of
Appellee's motion to strike. First, Appellants contend
that Greenberg and LaPierre cannot exercise their purchase
rights under the Contract because Tozer is barred from
issuing new membership interests other than under a plan of
reorganization. This argument, along with all but one of the
other arguments identified in the motion to strike, rests on
the premise that Greenberg and LaPierre's exercise of
their purchase rights would require Tozer to issue new
membership interests. The Massachusetts Superior Court found,
however, that the Contract does not require Tozer to issue
new membership interests. Greenberg v. Barros,
17-00002-BLS1 (Mass. Super. Ct. Sept. 8, 2017) (Dkt. 26). In
the final argument, Appellants argue that appellees lack any
statutory ground for relief from the stay under 11 U.S.C.
§ 362(d). Mot. to Strike 3 [#12]. However, the
Bankruptcy Court did not grant Appellees relief from the
automatic stay under 11 U.S.C. § 362(d), but instead
determined that the stay did not apply. As none of the ten
arguments identified in the motion to strike would affect
this court's ruling, the motion is DENIED as moot.
light of the foregoing, the December 21 and 28, 2016, orders