E-Alert Case Updates

The U.S. District Court for the District of Maryland Denied Motion to Stay Under the Long and Real Truth Tests

Rose v. Logan
No. RDB-13-3592 (D. Md., July 21, 2014)
by Sarah M. Grago, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.mdd.uscourts.gov/Opinions/Opinions/Rose%20v.%20Logan%207-21-14%20Memo%20&%20order.pdf

In Rose v. Logan, the United States District Court for the District of Maryland denied Appellant’s Motion to Stay under both the Long and Real Trust tests. Appellant, Rainer T. Rose (“Rose”), sought relief from the sale of real property owned by the Debtor, Blackwater Enterprises, Inc. (“Blackwater”). This case arose out of Rose’s opposition to the sale of 9843 Wades Point Road, Claiborne, Maryland (“the Property”), the sole asset of Blackwater. Blackwater filed a voluntary petition for bankruptcy on August 23, 2012 under Chapter 11 of the United States Bankruptcy Code, later converted to a Chapter 7 proceeding with Sean Logan (“Logan”) designated as the Trustee for the estate.¹ Logan filed a Motion to Sell the property in Bankruptcy Court, though Blackwater wanted the property sold at auction. Ultimately, the Bankruptcy Court granted Logan’s Motion to Sell. On August 26, 2013, Rose filed a Motion to Reconsider Sale of the property, arguing that Logan’s marketing efforts had been deficient; however, the Bankruptcy Court rejected the motion, as Rose’s argument had not been raised at the previous hearing.

Rose filed a timely appeal of the Bankruptcy Court’s ruling along with a Motion for Stay Pending Appeal in the Bankruptcy Court, though the latter was denied on December 17, 2013. On March 25, 2015, on appeal, the United States District Court for the District of Maryland found that the Bankruptcy Court did not err when it granted the Motion to Sell or when it denied Rose’s Motion to Reconsider; thus, it denied Rose’s appeal.

Rose appealed the March 25, 2015 order granting Trustee’s Motion to Sell Debtor’s Real Property to the United States Court of Appeals for the Fourth Circuit. In the interim, Rose filed a Motion for Stay Pending Appeal and Waiver of Supersedeas Bond or Alternatively to Establish a Bond (“Motion to Stay”) before this Court.

In its analysis, the court discussed the correct standard for motions to stay pending appeal. It observed that the Fourth Circuit had not recently devoted any attention to the standard, and, thus, the court endeavored to tease out the standard in light of previous decisions. The court looked to the standards set forth in two previous cases as guideposts, yet it noted that even the two “guiding” standards had been applied inconsistently across districts.

First, it took note of the Long standard for considering motions to stay. This standard, rooted in the holding of Long v. Robinson, 432 F.2d 977 (4th Cir. 1970), set forth a four factor sliding-scale test to guide courts considering motions to stay. Courts applying this test have looked to the Blackwelder standard, established in Blackwelder Furniture Co. Statesville, Inc. v. Seilig Manufacturing Co., 550 F.2d 189 (4th Cir. 1997), used for granting preliminary injunctions for instruction guided by the notion that both stays and preliminary injunctions are forms of preliminary equitable relief making similar standards appropriate.

The court then parsed out the four factors of the Long test. The test weighed the following four factors: (1) that the movant will likely prevail on the merits of the appeal, (2) that the movant will suffer irreparable injury if the stay is denied, (3) that other parties will not be substantially harmed by the stay, and (4) that the public interest will be served by granted the stay. Although courts employing the Long test evaluate the same four factors, they have differed in how they apply them. For instance, some courts apply the four factors on a sliding scale where the strength of one factor can compensate for the lack of another. In contrast, this court, and others, has required a showing of all four factors.

Second, the court considered the Real Truth standard primarily used to consider preliminary injunctions for additional guidance. Although established to assist courts considering preliminary injunctions, this court and other courts have looked to the test when considering a stay pending appeal. Under this test, the movant must satisfy each of the following four (4) requirements: (1) that he is likely to succeed on the merits, (2) that he is likely to suffer irreparable harm in the absence of preliminary relief, (3) that the balance of equities tips in his favor, and (4) that an injunction is in the public interest.

The court acknowledged that three (3) of the four (4) factors of the Real Truth standard paralleled those in the Long test. The third factor in each test differs. The Long test requires a party to show that other parties will not be substantially harmed by the stay, whereas the third factor of the Real Truth test calls on the movant to show that the balance of equities will tip in his favor. In assessing the latter, courts must balance the claims of injury while evaluating the impact of granting or withholding the requested relief on each party. The Real Truth also imposes a higher burden than the Long test in that it does not operate as a sliding scale, but requires the movant satisfy each of the four (4) factors in every application.

Given that the two tests are substantially similar, aside from the one factor, the court engaged in its analysis using both, and ultimately concluded that Rose could meet neither so as to merit a stay pending appeal.

First, the court assessed the first factor of both tests— the likelihood of success on merits. The court points to the procedural history of the case as an indication that the appellant’s claim did not appear likely to succeed. It recalled that the Bankruptcy Court made multiple findings of fact in favor of the appellee. It noted that Rose failed to offer little to counter the holdings of the Bankruptcy Court and as such, this court affirmed the Bankruptcy Court’s holdings on March 25, 2014. Additionally, the court observed that Rose lacked standing to bring an appeal to which Rose proffered no argument to the contrary.

Next, the court concluded that Rose also fell short of demonstrating that he would suffer irreparable harm as required by the second element of both tests. While the court conceded that the sale of the property at issue might harm Rose, it failed to accept such harm as an automatic showing of the requisite irreparable harm. The court then dismissed Rose’s contention that he would have no other recourse on appeal if the sale continued because Rose had an opportunity to object to the sale on prior occasions, yet he refrained. The court reasoned that it would not grant a stay where the appellant was the cause of the irreparable injury alleged.

The court then considered the third factors from both tests and concluded that Rose failed to meet either. Merging the factors from both tests, the court considered the injury to other parties (Long test) and the balance of equities (Real Truth test) concurrently. The court considered other parties who may have been vulnerable to an injury should the stay be granted. It reasoned that a stay would substantially injure creditors as it would delay the payments due by Rose and the Debtor. Concerning the balance of equities, the court concluded the balance weighed in favor of Logan as he needed to administer the estate and pay the creditors, rather than Rose who failed to demonstrate a threshold finding of irreparable harm.

Last, the court held that Rose failed to demonstrate that a stay pending appeal would serve the public interest. Rather, Rose based his claim on unsubstantiated accusations against the Trustee’s conduct during the sale. Rose did not offer any further evidence proving the stay of the sale of the property would further any public interest, but instead only focused on his personal stake in the matter.

Upon application of both the Long and Real Truth tests, the court concluded that the appellant failed to meet its burden under either test so as to warrant a stay pending appeal. As such, the court denied Rose’s Motion to Stay.

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¹ The factual background can be found in the U.S. District Court for the District of Maryland’s Memorandum Opinion of March 24, 2014, Rose v. Logan, No. RDB-13-3592 (D. Md. March 25, 2014)