On March 21, 2001, a continued relief from stay hearing was held concurrently with the hearing on confirmation of the debtor's third amended plan. David Bundy appeared on behalf of the debtor, Spencer Sneed appeared for the Unsecured Creditors' Committee, and Fred Triem appeared on behalf of the Kake shareholders who are seeking relief from stay. Having reviewed the motion and opposition thereto, as well as the supplemental briefs filed after the hearing, and considered the comments of counsel made at the hearing,

IT IS ORDERED:

1) Relief from stay is granted with regard to the appeal pending in the state court proceeding Hanson v. Kake Tribal Corporation, Case No. 1PE-90-072 CI [S-09299]. Any costs awarded to Mr. Triem as a result of this appeal may be recovered from the common fund which exists in the state court action. Under no circumstance may Mr. Triem seek to recover costs awarded in this state court action from the debtor in this proceeding.

2) Relief from stay is denied with respect to the state court action, Nauska v. Kake Tribal Corporation, Case No. 1PE-95-001 [S-09180].

       7 ABR 91 

3) Relief from stay is denied with respect to the shareholder derivative claim contained in the state court action entitled Tagaban v. Jackson, et al., Case No. 1PE-98-022.

4) With regard to the direct shareholder cause of action, purportedly on behalf of the Martin and Hanson classes of shareholders, contained in the state court action entitled Tagaban v. Jackson, et al., Case No. 1PE-98-022, relief from stay is denied at this time, pending a resolution of the issue of Mr. Triem's standing to represent those classes of shareholders in this bankruptcy proceeding.

Discussion

At the hearing on March 21, the debtor agreed that the motion for relief from stay could be granted with regard to the appeal pending in Hanson v. Kake Tribal Corporation, Case No. 1PE-90-072 CI, [S-09299]. This appeal pertains solely to the award of litigation costs to Mr. Triem out of a common fund. Mr. Triem represented at the hearing that the outcome of this appeal would have no impact on the debtor, one way or the other. Mr. Bundy indicated that the parties could possibly stipulate to relief from stay as to this appeal, provided there was appropriate language in any order granting relief from stay that precluded Mr. Triem from recovering any of his costs from Kake. Mr. Triem did not object to this suggested limitation. Relief from stay with regard to this appeal will therefore be granted.

Mr. Triem also seeks relief from stay with regard to two remaining state court actions. The first is an appeal pending in a class action suit brought against the debtor, Nauska v. Kake Tribal Corporation, Case No. 1PE-95-001 [S-09180]. This action        7 ABR 92  was dismissed, with prejudice, pursuant to the terms of a court approved settlement. The appeal in this action pertains to the appropriateness of a Kake director's intervention in the shareholder suit, as a plaintiff, and then reaching a settlement and agreeing to dismiss the suit, over the objections of the plaintiffs who initially filed the suit. Mr. Triem contends prosecution of this appeal, if successful, will benefit Kake because Kake's liability to the Martin class of shareholders will be significantly reduced.

The second action still at issue in Mr. Triem's motion, Tagaban v. Jackson, et al., Case No. 1PE-98-022, is pending in the superior court. The complaint has two counts. The first is a shareholder derivative claim, brought on behalf of Kake, for damages for the purported illegal dividend payments authorized by Kake's directors and others. Mr. Triem concedes that this count is property of the bankruptcy estate. The second count is brought by Tagaban, on behalf of the Hanson and Martin class shareholders as judgment creditors, and again seeks damages for the purported illegal dividends. At the hearing on March 21, Mr. Triem stated that conditional relief from stay could be granted as to this count, so that any damages awarded would not be recovered from either Kake or its directors and officers.

Relief from stay will not be granted at this time for the remaining two state court actions. First, a confirmed plan in this case would make the shareholder suit involving the Martin class moot. The confirmed plan would be binding on all members of the Martin class, including the initial plaintiffs who object to Martin's intervention in the suit. A confirmed plan would also render moot the shareholder derivative action claim pending in state court against Kake's officers and directors. Judicial economy will best be served if the debtor is allowed to focus its efforts on reorganization and proceed to        7 ABR 93  confirmation. Relief from stay is denied with respect to the appeal in Nauska v. Kake Tribal Corporation, Case No. 1PE-95-001 [S-09180] and the shareholder derivative claim contained in Tagaban v. Jackson, et al., Case No. 1PE-98-022. ⁽¹⁾

While the direct claim against Kake's professionals for allowing payment of illegal dividends would not be resolved by plan confirmation, I find it is appropriate to defer the granting of relief from stay on this count. "Although an action against third parties such as guarantors or codefendants is not stayed under section 362(a), a court retains the power to enjoin the action if continuation of the action would interfere substantially with the debtor's reorganization." ⁽²⁾ I feel that the prosecution of this claim would interfere with Kake's reorganization efforts.

Additionally, the issue of Mr. Triem's standing to represent these classes in this bankruptcy proceeding is in question. The direct action pending in state court is purportedly brought on behalf of the Martin and Hanson classes of shareholders. The voting on confirmation of the debtor's third amended plan reflects that an overwhelming majority of the Hanson class, represented by Mr. Triem, accepted the plan, contrary to Mr. Triem's direction. ⁽³⁾ The issue of whom Mr. Triem is representing, and whether his        7 ABR 94  proposed course of action in this bankruptcy case is in accord with the wishes of his clients, must be resolved before the court will determine the remaining relief from stay issues. The court will deal with the standing issue through a separate order.

DATED: April 26, 2001

BY THE COURT



DONALD MacDONALD IV
United States Bankruptcy Judge

N O T E S:

1. See Benedor Corp. v. Conejo Enterp., Inc. (In re Conejo Enterp., Inc.), 96 F.3d 346, 352 (9th Cir. 1996) [bankruptcy court's denial of relief from stay to permit state court action to proceed was reasonable, where reasons for denial included: 1) staying the state court action would give the court and other parties time to see whether a particular creditor would file a proof of claim before an upcoming claim bar date, 2) staying the action promoted judicial economy by minimizing the duplication of litigation in two separate forums and promoting the efficient administration of the estate, and 3) staying the state court action preserved a level playing field for negotiation of a consensual reorganization plan.].

2. 3 Collier on Bankruptcy, ¶ 362.07[2] at p. 362-80 (15th ed. revised 2000).

3. Mr. Triem filed an objection to confirmation and cast a ballot for the entire Hanson class, rejecting the plan.