National Bank of Arkansas v. Panther Mountain Land Development, LLC (In re Panther Mountain Land Development, LLC)
- Citation:
- United States Bankruptcy Appellate Panel for the Eighth Circuit, Federman (Schermer, Venters), Appeal from the United States Bankruptcy Court for the Eastern District of Arkansas (Evans), No. 10-6086, April 15, 2011
- Tag(s):
-
- Ruling:
- The BAP affirmed the Bankruptcy Court's ruling that unusual circumstances existed to justify the application of Section 363(a)(3) to extend the automatic stay to non-debtor, State approved Improvement Districts formed by the debtor pre-petition to create easements and obtain financing for infrastructure in support of debtor's real estate development, the validity of which entities the secured lender wished to challenge in State court.
- Procedural context:
- This is an appeal to the Bankruptcy Appellate Panel from the Bankruptcy Court's decision denying the secured lender relief from the automatic stay under Section 362(d)(1) to
proceed with action in State court to challenge the validity of certain State
approved Improvement Districts formed by the Debtor pre-petition to assist in
its real estate development.
- Facts:
- Prior to its bankruptcy filing, the Debtor obtained State court approval to form certain Improvement Districts to create easements and to obtain financing to complete the necessary infrastructure to support its real estate development and to impose assessments on landowners to pay for such improvements. National Bank of Arkansas (the "Bank") is a secured creditor with mortgages on the Debtor's property. In relevant part, the Bank sought relief from the automatic stay under Section 362(d)(1) to challenge the validity of the Improvement Districts in State court. The Bank's two primary arguments were (1) the stay does not protect the Improvement Districts because they are not in bankruptcy; and (2) the Bank should be permitted to proceed in State court because the Improvement Districts were formed in violation of its rights under the Due Process Clause (Fourteenth Amendment) of the United States Constitution and the corresponding provision of the Arkansas Constitution. The Bankruptcy Court found that a lawsuit against the Improvement Districts would have an adverse impact on property of the estate and that the Debtor had an identity of interest with the Improvement Districts. Based on these findings, the Bankruptcy Court found that the case presented the type of "unusual circumstances" which justify the application of Section 363(a)(3) to extend the automatic stay fo a non-debtor. The BAP did not need to decide the issue of whether actions of the Improvement Districts outside of bankruptcy might violate the Bank's due process rights, noting that any plan of reorganization or other action of the Debtor outside of the ordinary course of business would be subject to Bankruptcy Court approval.
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