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Commercial Litigation | Monday, august 11, 2014 | 7

that the presiding court is aware of the bank- judge, may be able to give you a good sense
We’re in the business of HELPING YOU
ruptcy.
of the likelihood of stay relief being granted.
Your next step should be to consider where the debtor-defendant is the only
build a BETTER case.
whether to try to seek bankruptcy court defendant, seeking stay relief may be your
permission to continue the lawsuit as to the only option for continuing the existing suit
debtor-defendant notwithstanding the auto- because the stay freezes the entire action.
Our dedicated litigation and valuation practice matic stay. That is called “relief from the auto- If you decide not to seek stay relief (or seek
matic stay” and is governed by Bankruptcy it but are denied), then your only available
provides exceptional client service on forensic Code §362(d). That section provides that the remedy is to file a proof of claim in the debtor-
bankruptcy court shall grant relief from the defendant’s bankruptcy case asserting the

accounting, fraud accounting, business valuation, automatic stay, which may come in the form litigation claim (unliquidated or contingent
of “terminating, annulling, modifying, or con- claims may be asserted), taking care to have
and state and federal criminal matters.
ditioning” the stay, and sets forth four distinct the proof of claim received before the general
tests for courts to consider when faced with bar date in the bankruptcy, which should be
As one of the largest and most experienced forensic such a motion.19 relevant to commercial litiga- noticed to all creditors. If the debtor objects
tion is the first, which provides that relief is to the claim and the parties cannot settle, the
accounting and valuation practices in the New York granted “for cause.”20 The Bankruptcy Code bankruptcy court will, in most circumstances,
does not define “cause.”21
conduct trial to estimate the claim.27 Getting
metropolitan area, we invite you to get to know us.
Therefore, in determining whether “cause” to adjudication could take years, especially
exists, courts in the Second Circuit consider
in a large bankruptcy case.
where other defendants exist in your law-
suit, you also have the option of dismissing
the debtor-defendant from the lawsuit, pro-
“In the Second Circuit, actions ceeding with the litigation as to the other
defendants and never filing a proof of claim
taken in violation of the auto- against the debtor. That route may have a
strong tactical advantage. while a plaintiff
matic stay are generally void
ab initio,” but more than that, cannot continue litigation against a defen-
dant that files for bankruptcy, the auto-
commercial litigators should matic stay generally permits a plaintiff to
take third-party discovery from a bankruptcy
tread carefully because conse- debtor.28 By dismissing the debtor-defendant
Connect with us: bakertilly.com
quences for violations can be from the lawsuit and not pursuing any claims
© 2014 Baker Tilly Virchow Krause, LLP
against it in the bankruptcy, you open the
Baker Tilly refers to Baker Tilly Virchow Krause, LLP,
an independently owned and managed member of Baker Tilly International.
631 719 3226
harsh.
door for seeking discovery from the debtor-
defendant to help prosecute claims against

12 factors articulated in In re Sonnax Industries the other defendants. This strategy is espe-
(the Sonnax factors): (1) whether relief would cially useful where a debtor-defendant is
result in partial or complete resolution of the deeply insolvent and judgment proof, yet
issues; (2) the lack of connection with or inter- has books and records that are key to your
ference with the bankruptcy; (3) whether the suit. (A bankruptcy practitioner may be able
litigation involves the debtor as a fiduciary; to provide a sense of the debtor-defendant’s
(4) whether a specialized tribunal with the ability to cover a judgment, based on certain
necessary expertise has been established to public financial filings the debtor is required

hear the litigation; (5) whether the debtor’s to make at the onset of the bankruptcy.29)
insurer has assumed full responsibility for where the likelihood of collecting from the
defending the action; (6) whether the action debtor-defendant is so low, you do not give
primarily involves third parties; (7) whether up much by dropping claims against it, but
litigation in another forum would prejudice you then pick up substantial benefit by being
the interests of other creditors; (8) whether able to subject it to third-party discovery.
the judgment claim arising from the other It may still be prudent to seek stay relief,
action is subject to equitable subordination; or a stipulation of dismissal, to dismiss the
(9) whether the movant’s success in the litiga- debtor-defendant because even dismissal of

tion would result in a judicial lien avoidable a debtor from pending litigation can be held
by the debtor; (10) the interests of judicial to violate the stay.30 Moreover, it is important
economy and the expeditious and economi- to note that the broad powers of Bankruptcy
cal resolution of litigation; (11) whether the Code §105(a) may provide a bankruptcy court
parties are ready for trial in the litigation; authority to limit or restrict third-party dis-
and (12) the impact of the stay on the par- covery from a debtor in appropriate circum-
ties and balance of harms.22 Not all Sonnax stances, and a New York bankruptcy judge has
factors will be relevant in every case, and articulated six factors for bankruptcy courts for quality, variety, and personalized service,
“cause” is broad, flexible and determined on to weigh in making such a determination.
31
attorneys trust The Tasa Group.
a case-by-case basis.23
Generally, stay relief must be sought by Conclusion
notice and motion, although ex parte relief It takes an expert to find an expert. And no one has more experience in referring expert witnesses than The TASA Group. Since 1956, we have helped thousands of attorneys
is available in limited circumstances.24 The In sum, the automatic stay poses huge identify the best expert witnesses for their cases – always at no charge until an expert
litigant moving for stay relief bears the ini- obstacles for commercial litigators. Upon a is designated or engaged. And we continue to lead the industry through innovative
tial burden to demonstrate that cause exists bankruptcy filing, the stay immediately, auto- services like free, expert-led CLE webinars, Challenge History Reports, and e-Discovery
under the Sonnax factors.25 where the moving matically halts continuation or commence- solutions that help attorneys work more efficiently and effectively. When you want the
party is unsecured, as a commercial litigant ment of civil actions against the debtor. Sanc- shortest route to the highest quality expert for your case, think The TASA Group.

usually will be, the policies underlying the tions for violation are potentially steep and Technical advisory service for aTTorneys
stay weigh against granting relief, with some may be imposed as long as the violator knows 800-523-2319 | [email protected] | Tasanet.com
courts going so far as to state that “extraordi- about the bankruptcy. Thus, the best practice
nary circumstances” must exist for the stay to for a commercial litigator when a defendant
be lifted.26 A bankruptcy practitioner, especial- files for bankruptcy is to halt all litigation, to
ly one familiar with the presiding bankruptcy
explore the possibility of seeking » Page 10