Unreported / Non-Citable
Background
Michel Moreno obtained a Goldman Sachs loan intended to fund a company he controlled. Instead, the Morenos used the proceeds to purchase a house formerly owned by Troy Aikman for $10 million, despite loan documents prohibiting the use of the funds for a home purchase. After the company entered bankruptcy, its trustee sued Michel for tortious interference in Delaware.
The Delaware Bankruptcy Court found Michel personally liable and recommended imposing a constructive trust on the house. The Delaware District Court imposed the trust, the Third Circuit affirmed, and the trustee domesticated the judgment in Texas. After Michel later filed an individual bankruptcy case, the bankruptcy court granted summary judgment to the trustee and ordered the Morenos to vacate the house by October 6, 2026. The Morenos appealed and sought an emergency stay pending appeal.
The Court’s Holding
The district court denied the stay because all four stay factors weighed against the Morenos. They had not shown a likelihood of success on the merits: the Delaware judgment validly placed the house in a constructive trust, the trustee properly domesticated that judgment in Texas, and res judicata required the bankruptcy court to honor it. The court also rejected the Morenos’ jurisdictional argument, reasoning that Michel invoked bankruptcy jurisdiction by claiming a homestead exemption and that determining whether claimed property belongs to the bankruptcy estate is a core proceeding.
The Morenos also failed to establish irreparable injury because the liquidation trust, not the Morenos, held the equitable interest in the house, preventing them from claiming it as their homestead. A further stay would prejudice creditors awaiting payment of more than $16 million under a judgment unpaid since 2020, and the public interest favored respecting another federal court’s valid judgment. The court also denied the requested administrative stay as moot.
Key Takeaways
- A debtor who invokes bankruptcy jurisdiction by claiming a homestead exemption cannot defeat that jurisdiction when the court determines whether the property belongs to the estate.
- A constructive-trust judgment establishing another party’s equitable ownership can foreclose a debtor’s claimed homestead interest and undermine a showing of irreparable injury.
- Res judicata, lengthy nonpayment of a final judgment, prejudice to creditors, and respect for another federal court’s judgment all weighed against a stay pending appeal.
Why It Matters
The ruling illustrates the difficulty of obtaining a stay pending a bankruptcy appeal when prior final judgments have already resolved ownership and exemption issues. The court treated the Delaware constructive-trust judgment as controlling and declined to permit the Morenos to delay enforcement through renewed jurisdictional and homestead arguments.
For bankruptcy practitioners, the decision underscores that claimed injury from losing possession may carry little weight when the movant lacks the equitable interest in the property, particularly where additional delay would harm creditors awaiting payment on a long-outstanding judgment.