A bankruptcy court's decision to retroactively annul an automatic stay of Bankruptcy Code Section 362 was affirmed Feb. 4 by the U.S. District Court for the Middle District of North Carolina (Kadlecek v. Schwank USA Inc., M.D.N.C., No. 1:12-cv-00096-TDS, 2/5/13).
Judge Thomas D. Schroeder found that the bankruptcy court considered the proper factors in deciding to retroactively annul the stay and that no Fourth Circuit precedent requires distinguishing between prospective and retroactive relief from the stay.
Shortly after his termination, Kadlecek accepted employment with two of Schwank's competitors. Concerned that Kadlecek was misappropriating trade secretes, Schwank brought suit against Kadlecek in Georgia state court seeking a temporary restraining order and an injunction. Schwank's complaint against Kadlecek alleged violations of the Georgia Trade Secrets Act, breach of contract, fraud, trover, and quantum meruit.
Schwank initiated an adversary proceeding against Kadlecek in the bankruptcy court and moved for retroactive relief from the automatic stay. Kadlecek filed an answer asserting a counterclaim for violation of the stay. The bankruptcy court granted Schwank relief from the automatic stay and annulled the stay retroactive to Feb. 8, 2011, in order to validate the state court action and allow the parties to liquidate Schwank's claims against Kadlecek in the Georgia court. Kadlecek appealed to the district court.
The bankruptcy court found cause in this case because: (1) Schwank had not received notice of the bankruptcy filing; (2) Schwank's claims exclusively involved state law; (3) Kadlecek's estate would be protected; and (4) modifying the stay would promote judicial economy.
The district court agreed with Schwank that “no Fourth Circuit precedent requires distinguishing between prospective and retroactive relief from the stay and the level of cause necessary to obtain relief.” The court did note that in an unpublished case with no precedential value, In re Wiencko,99 F. App'x 466 (4th Cir. 2004), the Fourth Circuit found that the application of the Robbins factors, “while not exhaustive, can suffice for finding cause to retroactively annul the automatic stay is logical.”
The court also said that despite Kadlecek's contentions, the bankruptcy court did not limit its analysis to the Robbins factors. The bankruptcy court also considered the fact that Kadlecek had failed to list Schwank on his bankruptcy schedules or otherwise alert Schwank to the bankruptcy. The court found that Kadlecek was attempting to use the stay “not as the shield it was intended to be, but as a sword.” The court said that the bankruptcy court was correct in not permitting Kadlecek to exploit the protection of the stay. Accordingly, the bankruptcy court's order was affirmed.
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