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Litton Loan Servicing, L.P. v. Dennis Schubert

Summarizing by Amir Shachmurove

In re Martin, Sr.

In re Martin (6th Cir. BAP Dec. 16, 2015)
Bankruptcy court did not err in granting creditor stay relief to continue litigation against the Debtor in pending state court action. Applying the factors set forth in In re Sonnax Industries, 907 F.2d 1280 (2d Cir. 1990) and In re Garzoni, 35 F. App'x. 179 (6th Cir. 2002), the Court agreed with the bankruptcy court that judicial economy, trial readiness, the resolution of preliminary bankruptcy issues, creditor's chance of success on the merits, and impact of litigation on other creditors weighed in favor of stay relief. The Court rejected the debtor's primary argument on appeal that by allowing the state court litigation to proceed while holding the adversary proceeding in abeyance, the bankruptcy court was, in effect, allowing the state court judge to decide the issue of dischargeability in contradiction to the exclusive jurisdiction of the bankruptcy court to determine the dischargeability of a debt because a judgment rendered by the state court would likely have preclusive effect. The court held that, "although bankruptcy courts have exclusive jurisdiction to determine dischargeability issues, this does not require the bankruptcy court to re-determine all the underlying facts of the case if they were previously determined in an earlier lawsuit." The fact that a bankruptcy court may give preclusive effect to the state court judgment does not mean that it is deferring to the state court to determine dischargeability. Rather, the dischargeability of a debt must recognized as a matter separate from the merits of the debt itself.
Procedural context:
The debtor appealed the bankruptcy court's order granting creditors relief from the automatic stay to allow state court litigation against him to continue.
The debtor filed a chapter 7 bankruptcy petition on January 28, 2015. Postpetition, two creditors filed a motion for relief from the automatic stay in order to continue state court litigation against the debtor. On April 29, 2015, the same creditors filed an adversary proceeding seeking nondischargeability of a debt pursuant to sections 523(a)(2)(A), (4) & (6) stemming from the same state court litigation. The bankruptcy court granted the motion for relief from stay, noting that the discovery process was further along in the state court case, that there were additional parties involved in the state court case, and that the creditors had requested a jury trial and not consented to a jury trial in the bankruptcy court. The bankruptcy court also entered an order holding the adversary proceeding in abeyance pending the outcome of the state court litigation.
Delk, Harrison and Lloyd

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