Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

IN RE METIOM

December 8, 2004.

In re: METIOM, INC., Debtor. EPLUS, INC., Appellant,
v.
BERNARD KATZ, Creditor Trustee of Metiom, Inc., Appellee.



The opinion of the court was delivered by: VICTOR MARRERO, District Judge

DECISION AND AMENDED ORDER

ePlus, Inc. ("ePlus"), a non-party in the bankruptcy proceedings of Metiom, Inc. ("Metiom"), appealed an order by the United States Bankruptcy Court for the Southern District of New York (Drain, U.S.B.J.) requiring it to submit to an examination pursuant to Federal Rule of Bankruptcy Procedure 2004 ("Rule 2004").*fn1 ePlus moved for a stay of the Bankruptcy Court's order pending the appeal. Because the appeal had not yet been assigned to a judge at the time that ePlus filed its motion for a stay, that motion came before this Court as a miscellaneous matter. By Order dated November 24, 2004, the Court denied ePlus's motion and indicated that its findings, reasoning and conclusions would be detailed in a subsequent Decision and Order. Accordingly, for the reasons set forth below, ePlus's request for a stay pending appeal of the Bankruptcy Court's Order is denied.

I. BACKGROUND*fn2

  Metiom filed a petition for bankruptcy under Chapter 11 of Title 11 of the United States Code on May 15, 2001. Sometime in 2001,*fn3 ePlus and Metiom commenced discussions concerning the possible purchase of Metiom's assets by ePlus. In August 2001, Metiom employees attempted to install Metiom software on ePlus's computer servers. Metiom contends, and ePlus denies, that Metiom's software was successfully installed on ePlus's computer servers.

  The parties also disagree regarding the results of the discussions about ePlus's possible purchase of Metiom's assets. ePlus maintains that it withdrew its offer to purchase Metiom's software and accounts after having conducted due diligence. (See Appellant's Mem. at 1-2; Geltner Decl. at ¶ 2.) Metiom, however, indicates that ePlus did not withdraw its offer, claiming that "[t]o date, ePlus has not paid any part of the $2.1 million purchase price to Metiom" and that "Metiom may have claims for breach of contract . . . against ePlus." (Appellee's Mem. at 3.)

  Based on the contention that Metiom had obtained information indicating that ePlus had converted and misappropriated its software and other assets during the sale negotiations, Bernard Katz, Metiom's creditor trustee in the bankruptcy proceeding ("Metiom"), applied to the Bankruptcy Court for an order requiring ePlus to submit to an examination and produce documents pursuant to Rule 2004. Metiom sought to discover documents "relating, among other things, to ePlus' initial efforts which were purportedly directed towards purchase and thereafter to misappropriate and convert the Debtors' software and other assets and the identification and investigation of certain potential claims against ePlus and other third parties." (Katz Application at ¶ 1.) The Bankruptcy Court entered an order on November 25, 2003 granting that application (the "Rule 2004 Order"). Metiom and ePlus then entered into discussions to attempt to resolve the discovery dispute on a consensual basis.

  On October 20, 2004, ePlus terminated those discussions and elected to proceed with a contested hearing on its motion to set aside or limit the Rule 2004 Order. The Bankruptcy Court held a hearing on ePlus's motion on November 4, 2004, at which it denied ePlus's motion.

  On November 10, 2004, ePlus filed a Notice of Appeal from the Bankruptcy Court's denial of its motion. ePlus also moved for a stay of the Rule 2004 Order pending the appeal. At a hearing on November 17, 2004, the Bankruptcy Court denied ePlus's motion for a stay pending appeal, though it did grant a temporary stay until November 24, 2004 to allow ePlus time to seek a longer stay before this Court. ePlus filed a motion with this Court seeking a stay of the Rule 2004 Order on November 19, 2004. Metiom filed opposition papers on the same day. The Court denied ePlus's motion for a stay on November 24, 2004. The reasons for the denial are set forth below.

  II. DISCUSSION

  Fed.R.Bankr.P. 8005 provides that a motion for a stay of a bankruptcy court order may be made to the district court pending an appeal of the order. See Fed.R.Bankr.P. 8005. In determining whether or not to grant such relief, the district court must consider: (1) whether the movant has demonstrated a substantial possibility, although less than a likelihood, of success on appeal; (2) whether the movant will suffer irreparable injury without a stay; (3) whether any party will suffer substantial injury if a stay is issued; and (4) whether public interests may be implicated. See In re Deep, 288 B.R. 27 (N.D.N.Y. 2003). The Court finds that these factors weigh against granting a stay.

  A. LIKELIHOOD OF SUCCESS ON THE MERITS

  A bankruptcy court's decision to order a Rule 2004 examination is reviewed for abuse of discretion. See In re Enron Corp., 281 B.R. 836, 840 (Bankr. S.D.N.Y. 2002) (noting that the bankruptcy court "has the discretion to grant a request for a 2004 examination" (citations omitted)); see also In re Dinubilo, 177 B.R. 932, 939 (E.D. Cal. 1993), called into doubt on other grounds by In re Symington, 209 B.R. 678 (D. Md. 1997), ("A bankruptcy court's decision to order a Rule 2004 examination is reviewed under an abuse of discretion standard." (citing In re Hammond, 140 B.R. 197, 200 (S.D. Ohio 1992); In re Hawley Coal Mining Co., 47 B.R. 392, 393 (S.D.W. Va. 1984); 8 Lawrence P. King, Collier on Bankruptcy ¶ 2004.04 (15th ed. 1993) ("Collier on Bankruptcy"))). "A bankruptcy court abuses its discretion if it bases its decision on an erroneous view of the law or clearly erroneous factual findings. A [bankruptcy] court [also] abuses its discretion if the reviewing court has a definite and firm conviction that the lower court committed a clear error of judgment in the conclusion it reached based on all the appropriate factors." In re Williams, 224 B.R. 523, 529 (2d Cir. B.A.P. 1998) (citations omitted). Therefore, in order to find that ePlus has a substantial possibility of success on the merits of its appeal, this Court would have to find that there is a substantial possibility that the Bankruptcy Court based its decision on an erroneous view of the law or clearly erroneous factual findings, or that it made a clear error of judgment in denying ePlus's motion to set aside or limit the Rule 2004 examination. The Court finds that there is not a substantial possibility that the Bankruptcy Court committed such errors.

  ePlus argues that the Bankruptcy Court failed to apply the correct legal standard in ordering the Rule 2004 examination. According to ePlus, Metiom was required to make "a showing of good cause," Appellant's Mem. at 3, in support of its request for a Rule 2004 order, but failed to do so.*fn4 ePlus contends that "Metiom never made a record to support a good cause determination against ePlus, nor did Judge Drain require a record or find good cause." (Appellant's Mem. at 5.)

  The Court agrees with ePlus, and Metiom does not deny, that the Bankruptcy Court was required to make a finding of good cause in order to uphold its Rule 2004 order. As the court explained in Matter of Wilcher: "[a]lthough a Rule 2004 examination may be ordered ex parte, once a motion to quash a subpoena is made, the examiner bears the burden of proving that good cause exists for taking the requested discovery." 56 B.R. at 434. The Court is not persuaded, however, that there is a ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.