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In re Arts Des Provinces De France, Inc.

United States District Court, Third Circuit

June 12, 2013

In Re ARTS DES PROVINCES DE FRANCE, INC., Debtor.
v.
STEVEN P. KARTZMAN, Chapter 7 Trustee, Appellee. FIRST DATA SERVICES, LLC, Appellant, Civil Action No. 2:12-cv-06574.

OPINION

DENNIS M. CAVANAUGH, District Judge.

This matter comes before the Court on appeal by First Data Services or "Appellant") from an Order entered by the United States Bankruptcy Court for the District of New Jersey ("Bankruptcy Court") on August 20, 2012 scheduling a consolidated evidentiary hearing on the Turnover of Property of the Estate Pursuant to Bankruptcy Code Section 542 (a) ("the Turnover Motion"). Appellant's cross-motion (the Motion to Lift Stay"), and the contested language of paragraph 3 of the proposed order by the Appellee ("the Trustee"). (Appeal from Bankruptcy Court, Oct. 17, 2012, ECF No. 1). For the reasons slated below, the appeal is denied, and the Bankruptcy Court's Order is affirmed.

I. BANKRUPTCY[1]

FDS, a financial services company, processed credit card sales and provided other services and financial accommodations to the Debtor. The parties' relationship was predicated on Merchant Agreements, which allowed FDS to fund a reserve to protect itself from obligations FDS may have to pay on behalf of the Debtor to third parties, including those arising from fees, costs, expenses, and chargebacks. After periodic increases, by the time of the Petition Date, FDS held a reserve in the amount of approximately $400, 000.

On June 23, 2011, the Debtor filed a voluntary petition for relief under chapter 7 of Title 11 of the United States Code ("the Bankruptcy Code") in Bankruptcy Court. Thereafter, Steven P. Kartzman ("the Trustee") was appointed Chapter 7 Trustee to the estate of the Debtor. Subsequently, on September 27, 2011, the Trustee filed the Turnover Motion seeking turnover of the reserve. In response, FDS filed the Motion to Lift Stay objecting to the Turnover Motion and petitioned for relief from the stay so that FDS could assert its contractual rights pursuant to the Merchant Agreements between the two parties. The preliminary hearing on the merits of the Turnover Motion and the Motion to Lift Stay was scheduled for October 18, 2011.

After a series of consensual adjournments, a hearing was conducted on March 27, 2012 in regards to the Turnover Motion and the Motion to Lift Stay. During the hearing, the Court granted the Trustee's petition for additional time for discovery, scheduled the final hearing to continue on May 22, 2012, and ordered the parties to provide the Bankruptcy Court with status report within approximately thirty days. Both parties participated in discovery. At request of FDS, the Bankruptcy Court adjourned the final hearing, initially scheduled for May 22, 2012, until July 18, 2012.

On July 6, 2012, the Bankruptcy Court granted the Trustee's petition for a sixty-day continuance of the July 18, 2012 continued final hearing. FDS objected to this adjournment on the grounds that FDS was entitled to have its Motion to Lift Stay heard on July 18, 2012 under Bankruptcy Code § 362(e)(1). There is a disagreement between the parties as to whether FDS' objection to the sixty-day continuance on July 6, 2012 was FDS' first instance of claiming relief pursuant to § 362(e)(1). Furthermore. FDS objected that the Bankruptcy Court did not make any findings and did not determine that the Trustee had a reasonable likelihood of prevailing in its object to FDS's Motion to Lift Stay or that there were compelling circumstances justifying extension of the stay. In response, the Trustee argues that FDS waived its rights to enforce the time constraint.

On August 20, 2012, FDS objected to paragraph 3 of a proposed order by the Trustee, which provided that "pursuant to Bankruptcy Code Section § 362(e)(1), the automatic stay as to [FDS] shall remain in full force and effect pending the Court's determination of' [FDS's] Cross Motion [...]" The Trustee submitted the proposed order to the Bankruptcy Court advising the Bankruptcy Court about FDS' objection, Subsequently, the Bankruptcy Court entered the proposed form of order on August 20, 2012 in the form submitted by the Trustee's counsel, FDS appealed the Order continuing the automatic stay on August 22, 2012.

II. STANDARD OF REVIEW

This Court has jurisdiction over final judgments and orders of the Bankruptcy Court pursuant to 28 U.S.C. § 158. A district court applies a clearly erroneous standard to the bankruptcy judge's findings of fact and reviews the bankruptcy judge's legal conclusions de novo. See FED. R. BANKR. P. 8013; In re Cohn , 54 F.3d 1108, 1113 (3d Cir. 1995). A factual finding is clearly erroneous if, in reviewing all the evidence, the reviewing court is left with the detnite and firm conviction that a mistake has been committed, even if there is evidence to support the finding In re Allegheny Int'l Inc, 333 U.S. 869, 173 (3d Cir 1992) (quoting United States v. U.S. Gypsum Co. , 333 U.S. 364, 395 (1948)). A district court reviews the bankruptcy court's "exercise of discretion for abuse thereof Manus Corp. v. NRG Energy. Inc., (In i.e O'Brien Envtl. Energy, Inc.) , 188 F.3d 116, 122 (3d. Cir, 1999). A bankruptcy court abuses its discretion when it's ruling is founded on an error of law or a misapplication of law to the facts. Id.

III. DISCUSSION

The main issue on appeal is whether the Bankruptcy Court erred in continuing the automatic stay as to FDS in light of § 362(e)(1). The relevant text of § 362(e)(1) is as follows:

"The court shall order such stay continued in effect pending the conclusion of the final hearing under subsection (d) of this section if there is a reasonable likelihood that the party opposing relief from such stay will prevail at the conclusion of such final hearing. If the hearing under this subsection is a preliminary hearing, then such final hearing shall he concluded not later than thirty days after the conclusion of such preliminary hearing. unless the 30-day period is extended with ...

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