A preliminary hearing on the motion for relief from stay filed by certain of Kake's shareholders was held on December 13, 2000. David Bundy appeared on behalf of the debtor, Spencer Sneed appeared for the Unsecured Creditors' Committee, Dan Bruce appeared telephonically for the City of Kake, 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 that a final hearing on the Kake shareholders' motion for relief from stay will be held at the same time as the hearing on confirmation of the debtor's chapter 11 plan, currently scheduled for TUESDAY, MARCH 20, 2001, AT THE HOUR OF 9:00 A.M., in the Historic Courtroom, Old Federal Building, 605 West 4th Avenue, Anchorage, Alaska. The stay shall continue in effect until further order of this court.

Discussion

This motion for relief from stay was filed on behalf of certain shareholders ("the moving shareholders") who have been involved in three prepetition class action suits against the debtor. The first suit, which resulted in a judgment in favor of roughly 20% of the Kake shareholders, is on appeal. The issue on appeal, according to the moving shareholders, is "[w]hether class counsel can be paid his litigation costs and expenses out of the class action common fund."⁽¹⁾ The second suit was dismissed, with prejudice, pursuant to the terms of a court approved settlement. An a        7 ABR 53  ppeal is also pending in this suit, on the issue of "[w]hether a KTC director can intervene in a shareholder suit aligned as a plaintiff and then dismiss the case with prejudice over the objections of the named plaintiffs who filed the suit."⁽²⁾ The third class action suit, filed as both a direct and derivative action suit, claims that certain of Kake's directors and their professional advisors breached their fiduciary duties to the debtor by authorizing the payment of illegal dividends which rendered the debtor insolvent.⁽³⁾ Discovery has not yet been completed in this suit, and a trial scheduled for May, 2000, was vacated after the debtor filed its bankruptcy petition.

The moving shareholders contend that being permitted to proceed with these three state court suits will not prejudice the debtor nor result in loss or liability to the debtor. They also contend that the third suit, if successful, may recover funds for Kake. The moving shareholders have conceded that the shareholder derivative suit is property of the Kake bankruptcy estate. Even assuming they were to receive relief from stay, they cannot prosecute this claim unless the debtor declines to do so.⁽⁴⁾ However, the derivative claim is so intertwined with the direct claim for damages asserted by the shareholders in the third suit that bifurcation of these claims would be impracticable.

The debtor opposes relief from stay. Kake contends its plan will provide for the payment of the claims of its shareholders and, if the shareholder classes accept the plan, all shareholder litigation will end. It says the moving shareholders have not shown cause for granting relief from stay and that the motion should be denied or, at the very least, the stay should remain in effect pending confirmation.

A bankruptcy court must grant relief from stay upon a showing of "cause." ⁽⁵⁾ "'Cause' has        7 ABR 54  no clear definition and is determined on a case-by-case basis." ⁽⁶⁾ The stay is terminated 30 days after the moving party's request unless the court orders the stay to be continued pending the conclusion of a final hearing. ⁽⁷⁾ The final hearing is to be concluded no later than 30 days after a preliminary hearing, unless such period "is extended with the consent of the parties in interest or for a specific time which the court finds is required by compelling circumstances."

Here, the moving shareholders seek relief from stay to continue litigation that may become moot if the debtor's plan is confirmed. The issues which are pending in the three state court suits may be resolved in the debtor's plan. The confirmation hearing is less than three months away. The moving shareholders will not be significantly prejudiced if the final hearing on their motion for relief from stay is put over to the time of confirmation. Further, allowing the stay to continue until the time of confirmation will promote judicial economy and allow the debtor to focus its efforts on reorganization for the next few months.⁽⁸⁾ I conclude that there are compelling circumstances here which justify putting the final hearing on the moving shareholders' motion for relief from stay over to the time of confirmation. The stay will, accordingly, remain in effect until that time.

DATED: January 8, 2001
BY THE COURT


DONALD MacDONALD IV
United States Bankruptcy Judge