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In re Target Graphics

June 4, 2007

IN RE: TARGET GRAPHICS, INC.


The opinion of the court was delivered by: Chief Judge Curtis L. Collier

MEMORANDUM

Before the Court is Target Graphics, Inc.'s ("Target") motion for review of the United States Bankruptcy Court for the Eastern District of Tennessee at Chattanooga ("Bankruptcy Court") denial of motion for a stay of orders pending appeal (Court File No. 5) as well as a supporting memorandum of law (Court File No. 6). Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch") filed a response brief in opposition (Court File No. 7). The Court heard oral arguments on Target's motion on May 31, 2007. After carefully considering the record, the controlling law, as well as the parties' briefs and arguments, the Court does not believe the Bankruptcy Court erred or abused its discretion in denying Target's motion for a stay pending appeal. Accordingly, the Court will AFFIRM the Bankruptcy Court's order denying Target's motion for stay pending appeal and will not stay the orders Target is appealing.

I. RELEVANT FACTUAL and PROCEDURAL HISTORY

Target is a printing company located in Chattanooga, Tennessee that has been operating since 1919 (Court File No. 6). It has over twenty employees, some who have been with the company for over thirty years (Id.). Merrill Lynch is Target's major secured creditor and holds a security interest in all of Target's assets to secure payment of three (3) debts totaling $1,936,489.41 (Court File No. 7). Merrill Lynch's total lien claim exceeds the value of its collateral, therefore, it is undersecured (Court File No. 1, Attachment 21).

Target filed a voluntary petition for Chapter 11 bankruptcy on June 28, 2005 in Bankruptcy Court (Court File No. 7). During the pendency of the case, Target has made no payments to Merrill Lynch while it continued to use the collateral which secures Merrill Lynch's claims (Id.). Target did not file a plan of reorganization until almost nine months after filing bankruptcy; therefore, Merrill Lynch filed a motion for relief from the automatic stay on March 16, 2006 asking the Bankruptcy Court to allow it to repossess the collateral (Court File No. 1, Attachment 2, Bankruptcy Court Docket Sheet). Thereafter, Target filed a plan of reorganization on March 20, 2006 (Id.). Target was unable to obtain the necessary support for its plan, therefore the Court granted it leave to file an amended plan, which it filed on June 23, 2006 (Court File No. 1, Attachment 8). Merrill Lynch filed an objection to the amended plan contending it violated the absolute priority rule and it improperly valued Merrill Lynch's secured claim (Court File No. 7).

The Bankruptcy Court held a hearing on confirmation of Target's amended plan as well as on Merrill Lynch's motion for relief from the automatic stay on October 18, 2006 (Court File No. 1, Attachment 2).*fn1 After the hearing, on November 7, 2006 the Bankruptcy Court entered a memorandum opinion and order denying confirmation of Target's amended plan of reorganization based on the violation of the absolute priority rule and the failure to properly value Merrill Lynch's secured claim ("November 7 order") (Court File No. 1, Attachments 21 & 22). The Court also granted Merrill Lynch relief from the automatic stay (Id.). Target then filed a motion to alter or amend and/or for a new trial, which the Bankruptcy Court denied in a memorandum opinion and order dated December 11, 2006 ("December 11 order") (Court File No. 1, Attachments 36 & 37).

Target appealed the November 7 and December 11 orders to this Court (Court File No. 1, Attachment 38, Notice of Appeal).*fn2 Thereafter, Target filed a motion requesting stay of the briefing schedule contained in the Federal Rules of Bankruptcy Procedure pending receipt of the transcripts from the hearings concerning the orders Target was appealing (Court File No. 3). On March 6, 2007, the Court granted Target's motion and suspended the appellate briefing schedule pending receipt of the hearing transcripts (Court File No. 4). The Court also ordered the briefing schedule shall commence upon receipt of the transcripts and set a hearing on the merits of the appeal for June 13, 2007 (Id.). The clerk received the hearing transcripts on March 12, 2007 (Court File No. 1).

On December 21, 2006 Target filed a motion for stay of the Bankruptcy Court's November 7 and December 11 orders pending appeal (Court File No. 6, Attachment 1). After oral argument, the Bankruptcy Court denied that motion by memorandum opinion and order dated March 16, 2007 ("March 16 order") (Court File No. 6, Attachment 2). Target then filed the instant motion requesting review and reversal of the Bankruptcy Court's denial of its motion for stay in this Court on March 19, 2007 (Court File No. 5). Merrill Lynch filed a response brief on April 5, 2007 (Court File No. 7). At Target's request this Court heard oral argument on this motion on May 31, 2007 (Court File No. 9).

II. STANDARD OF REVIEW

Pursuant to Federal Rule of Bankruptcy Procedure 8005 ("Rule 8005"), Target requests this Court to review the Bankruptcy Court's denial of its motion for a stay pending appeal of the two orders which it is appealing. Rule 8005 provides:

Stay pending appeal: A motion for a stay of the judgment, order, or decree of a bankruptcy judge, for approval of a supersedeas bond, or for other relief pending appeal must ordinarily be presented to the bankruptcy judge in the first instance. Notwithstanding Rule 7062 but subject to the power of the district court and the bankruptcy appellate panel reserved hereinafter, the bankruptcy judge may suspend or order the continuation of other proceedings in the case under the Code or make any other appropriate order during the pendency of an appeal on such terms as will protect the rights of all parties in interest. A motion for such relief, or for modification or termination of relief granted by a bankruptcy judge, may be made to the district court or the bankruptcy appellate panel, but the motion shall show why the relief, modification, or termination was not obtained from the bankruptcy judge.

The district court or the bankruptcy appellate panel may condition the relief it grants under this rule on the filing of a bond or other appropriate security with the bankruptcy court . . .

FED. R. BANKR. P. 8005. As evidenced by the Bankruptcy Court's March 16 order, Target has satisfied the procedural requirement of first seeking stay pending appeal in the Bankruptcy Court prior to seeking relief in this Court. "Where, as here, the trial court has considered and ruled on the request for a stay pending appeal, the role of the appellate court is limited; the appellate court simply determines whether the trial court abused its discretion." In re Rhoten, 31 B.R. 572, 577 (M.D. Tenn. 1982) (indicating it is important to a "properly functioning bankruptcy court that the trial judge's rulings on stays pending appeals be disturbed only in the event of error or abuse of discretion"). "The abuse of discretion standard is highly deferential. An abuse of discretion is found where the reviewing court is firmly convinced that a mistake has been made." Rolen v. Hansen Beverage Co., 193 Fed.Appx. 468, 472 (6th Cir. 2006) (citations and quotation marks omitted). Therefore, the sole issue this Court must determine is whether the Honorable Bankruptcy Judge John C. Cook ("Judge Cook") abused his discretion in denying Target's motion for a stay pending appeal.

The criteria governing a motion for stay under Rule 8005, which are similar to the factors considered in the issuance of a preliminary injunction, include: (1) the likelihood of success on the merits; (2) the likelihood of irreparable harm; (3) harm to others; and (4) whether the public interest will be served. Michigan Coalition of Radioactive Material Users, Inc. v. Griepentrog, 945 F.2d 150, 153 (6th Cir. 1991); In re Bradford, 192 B.R. 914, 917 (E.D. Tenn. 1966). Accordingly, in order to succeed, Target must show, by a preponderance of the evidence, it will likely prevail on the merits of its appeal, it will suffer irreparable injury if the stay is denied, other parties will not be substantially harmed by the stay, and the public interest will be ...


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