
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________          No. 94-1674                               PAUL J. GRELLA, TRUSTEE,                                      Appellant,                                          v.                            SALEM FIVE CENT SAVINGS BANK,                                      Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                   [Hon. Edward F. Harrington, U.S. District Judge]                                               ___________________                                 ____________________                                        Before                               Torruella, Chief Judge,                                          ___________                     Coffin and Campbell, Senior Circuit Judges.                                          _____________________                                _____________________               Kevin P. Sweeney, with whom Alexander L. Cataldo, Timothy E.               ________________            ____________________  __________          McAllister and Cuddy Bixby were on brief for appellant.          __________     ___________               Kevin  J.  Simard, with  whom Isaac  H.  Peres and  Riemer &               _________________             ________________      ________          Braunstein were on brief for appellee.          __________                                 ____________________                                   December 6, 1994                                 ____________________                    TORRUELLA, Chief  Judge.   This appeal raises  an issue                    TORRUELLA, Chief  Judge.                               ____________          frequently debated  in bankruptcy courts around  the country, but          never  yet addressed  by  this court  -- namely,  the permissible          scope of a hearing on a motion for relief from the automatic stay          under    362 of the Bankruptcy Code.1  Paul J. Grella, trustee in          bankruptcy  ("Trustee") for  debtor The Beverly  Corporation (the          "Debtor"),  appeals   the  district  court's  affirmance  of  the          bankruptcy court's  grant of summary judgment  against Trustee in          favor of  creditor Salem  Five Cents  Savings Bank  (the "Bank").          Because  we  find that  the  bankruptcy court  erred  in entering          summary  judgment   against  the  Trustee  and   barring  him  on          principles of res judicata  and collateral estoppel from pursuing                        ___ ________          a  counterclaim against the Bank,  we reverse, and  remand to the          bankruptcy  court for  further proceedings  consistent  with this          opinion.                                    I.  BACKGROUND                                    I.  BACKGROUND                    On  January 26,  1988, the  Debtor signed  a $1,000,000          promissory  note  in  favor  of  the  Bank.    The  Debtor  later          collaterally assigned various promissory notes and mortgages (the          "Seventeen Notes") to  the Bank to  secure that debt.   Among the          Seventeen  Notes was a $290,000 note  from the Wellesley Mortgage          Corporation (the "Wellesley Note").                      On  September 4,  1992,  the Debtor  filed a  voluntary          petition under Chapter 7  of the Bankruptcy Code, activating  the                                        ____________________          1   Unless otherwise noted,  all citations of  statutory sections          are  to the Bankruptcy  Reform Act of  1978, 11 U.S.C.     101 et                                                                         __          seq., as amended.          ___                                         -2-          automatic stay provisions of    362.   On December 18, 1992,  the          Bank filed a Motion  for Relief from the Automatic  Stay pursuant          to   362(d)(1),  seeking an order  allowing the Bank  to exercise          its contractual  and state  law rights  and remedies against  the          Debtor with respect  to the Seventeen Notes.2  In  its Motion for          Relief, the  Bank claimed to have a "perfected security interest"          in  the Seventeen  Notes because  it was  "in sole  and exclusive          possession" of the  originals.  The Bank did not  state or allege          any  other details  regarding its  security interest.   The  Bank          asserted, as a  basis for relief, that  the Debtor was  unable to          provide  the Bank  with  adequate protection  for its  collateral          position.                    In his Response  to the Bank's  Motion for Relief  from          Stay, the Trustee did  not contest the Bank's Motion,  but merely          stated  that he  had  not  had  sufficient  time  to  review  the          pertinent  files  and determine  the  existence  of any  possible          defenses to the Bank's claims.  The Trustee then requested that a          preliminary hearing on the  Motion be scheduled, after sufficient          time to review the files.                    After a  hearing on the  Bank's Motion for  Relief from                                        ____________________          2  Section 362(d)(1) provides in pertinent part:                      On  request  of a  party in  interest and                      after notice  and  a hearing,  the  court                      shall grant  relief from  the stay .  . .                      for cause, including the lack of adequate                      protection of an interest in  property of                      such party in interest. . . .                                         -3-          Stay  on  January 14,  1993,3  the Bankruptcy  Court  granted the          Motion  and issued an order lifting the  automatic stay as to the          Bank, and  allowing  the Bank  to exercise  "any and  all of  its          contractual and state  law rights and  remedies" with respect  to          the Seventeen  Notes.  In neither  the hearing nor the  order did          the  bankruptcy court make any  findings about the  status of the          Bank's security interest in the Seventeen Notes.                    Having  obtained relief  from  stay, the  Bank filed  a          Complaint on February 19, 1993, requesting a determination of its          secured  status under   506(a),4 and a turnover and accounting of          funds by  the Trustee as to  the Seventeen Notes.   In support of          its Complaint, the  Bank alleged  only that it  had a  "perfected          security  interest"  in the  Notes because  it  was "in  sole and          exclusive  possession" of them.  Again, the Bank offered no other          details or arguments regarding its interest in the Notes.                     On  March 29,  1993,  the Trustee  answered the  Bank's          Complaint (the  "Answer"), denying the Bank's  allegation that it          had a perfected security interest  in the Seventeen Notes because          of  its  exclusive  possession.    The  Trustee  asserted  as  an          affirmative defense  that the Bank  did not perfect  its security                                        ____________________          3  The Trustee did not attend this hearing, for  reasons that are          unexplained in the record.  Both the Bank and  the district court          make much of his absence.  While we agree with the district court          that  a  trustee's  failure  to  attend  a  scheduled  hearing is          troubling and not to  be encouraged, we do  not find his  absence          relevant to our analysis here.          4  Section  506 allows a  creditor to seek  determination of  the          status of  a lien on property in which the debtor's estate has an          interest.                                         -4-          interest in the Wellesley Note prior to 90 days before the Debtor          filed  its  bankruptcy petition.    The  Answer also  included  a          Counterclaim, alleging that the  Bank's interest in the Wellesley          Note is avoidable as a preferential transfer.5                      On  April  8, 1993,  the  Bank  answered the  Trustee's          counterclaim (the  "Reply").  The  Bank asserted, inter  alia, on                                                            _____  ____          the grounds of estoppel, waiver and collateral estoppel, that the          Trustee  was barred  from  pursuing  his preference  counterclaim          because he  failed to file or pursue  any objection to the Bank's          Motion for Relief from Stay.                    On July 7, 1993, the Trustee moved for summary judgment          on  his preference  counterclaim.   On August  3, 1993,  the Bank          opposed  that motion and cross-moved  for summary judgment on the          ground that either res judicata or collateral estoppel barred the                             ___ ________          counterclaim,  as  the  issue of  the  "validity"  of  the Bank's          interest  in  the Notes  was  decided when  the  Bankruptcy Court          granted the relief from  stay.  The Bankruptcy Court  denied both          summary judgment motions, finding genuine issues of material fact          to exist regarding "the status of the holder of the note."   With          respect  to  the  Bank's  res judicata  and  collateral  estoppel                                    ___ ________                                        ____________________          5   A "preference"  is a transfer  of a debtor's  assets during a          specified  pre-bankruptcy  period that  unjustifiably  favors the          transferee  over other creditors.  In re Melon Produce, Inc., 976                                             _________________________          F.2d  71, 73 (1st  Cir. 1992).   Section 547 allows  a bankruptcy          trustee,   in  certain   circumstances,  to   avoid  preferential          transfers  of an interest of the debtor  if the transfer was made          within 90  days before the date  of the filing of  the bankruptcy          petition.    The creation  of  a perfected  security  interest in          property  during  this  90-day  preference  period  is  itself  a          preferential transfer  if it  meets the other  requirements of             547.  In re Melon Produce, Inc., 976 F.2d at 74.                _________________________                                         -5-          arguments, the Bankruptcy Court did not make a ruling, but merely          said that it was a "legal issue which we can get into later."                      On November  16, 1993, the  Trustee filed a  motion for          summary  judgment on  the  res judicata  and collateral  estoppel                                     ___ ________          issues,  arguing  that the  doctrines  were  inapplicable to  the          Trustee's   preference  counterclaim,   as  there  had   been  no          adjudication on the merits of the Bank's security interest during          the  relief from  stay  proceeding.   On the  first  page of  his          Memorandum  of Law in support of the Motion for summary judgment,          the Trustee stated:                      Only the note  entitled "Wellesley  Mort.                      Corp. of April  25, 1990" (the  Wellesley                      Note) . . . is presently in dispute.  The                      other notes and mortgages . . . have been                      determined   [by   the  Trustee]   to  be                      perfected security interests in  favor of                      [the Bank].                    Three days  later, the Trustee filed a Motion for Leave          to Amend his Memorandum  of Law, seeking to amend  this statement          of facts.  The Trustee explained that the original memorandum was          written  some months before, and at that time the Trustee thought          that there was  no dispute as to sixteen of  the Seventeen Notes.          Sometime after the original memorandum was written, but before it          was  filed, the Trustee apparently determined  that he did indeed          dispute the Bank's interest  in the other notes as well,  but had          neglected to edit his memorandum before filing it with the court.          The Bank objected to the Trustee's Motion for summary judgment on          the res judicata and  collateral estoppel issues, and cross-moved              ___ ________          for summary judgment.                                           -6-                    After a  hearing on  the motions, the  bankruptcy court          granted  summary  judgment  in  favor  of  the  Bank.6    In  its          decision,  the  court  stated  without explanation  that  it  was          treating the Trustee's preference counterclaim as an "affirmative          defense."   Although  the court  recognized that  the hearing  on          relief from  stay was a  preliminary one,  the court  went on  to          state:                      The   question   of   the  validity   and                      perfection of a  security interest  which                      is the  subject of  a request  for relief                      from stay goes to the heart of the issues                      before  the court  [during a  relief from                      stay hearing].   If the security interest                      were invalid or unperfected,  there would                      be no cause for  relief from stay and the                      request  would  be denied  .  .  . .  The                      Trustee could have raised  the perfection                      issue    [underlying    his    preference                      counterclaim]  at  the  hearing   on  the                      motion for relief.  If he felt that I was                      wrong in denying  him additional time  to                      respond,  an  appeal  from my  order  was                      appropriate.    Having had  the potential                      for  one bite  at  the  apple, he  cannot                      relitigate the issue at this time.          The  court reasoned  that the  perfection issue  was necessarily,          implicitly decided in the relief from stay  proceedings, and thus          granted  summary judgment in the  Bank's favor "as  to the entire          adversary  proceeding"  on collateral  estoppel  or  res judicata                                                               ___ ________          grounds.                    On May 23, 1994, the district court issued a Memorandum          and  Order  affirming  the  bankruptcy  court's  decision.    The                                        ____________________          6   Although the  court did not explicitly  rule on the Trustee's          Motion for Leave  to Amend  his original memorandum  of law,  the          court stated in  its Decision  that the parties  agreed that  the          only note in dispute was the Wellesley Note.                                         -7-          district court ruled that  collateral estoppel bars the Trustee's          preference counterclaim, and entered judgment in the Bank's favor          on May 25, 1994.                                       II.  DISCUSSION                                   II.  DISCUSSION                    A.  Standard of Review                    A.  Standard of Review                        __________________                    In an appeal from district court review of a bankruptcy          court  order, we  independently  review  the  bankruptcy  court's          decision, applying  the "clearly erroneous" standard  to findings          of fact and de novo review to conclusions of law.  In re SPM Mfg.                      __ ____                                ______________          Corp.,  984  F.2d  1305,   1310-11  (1st  Cir.  1993)  (citations          _____          omitted).  No special  deference is owed to the  district court's          determinations.  Id. at 1311.                           __                    B.  Claim and Issue Preclusion                    B.  Claim and Issue Preclusion                        __________________________                    To evaluate  the bankruptcy  court's decision, we  must          consider  the doctrine  of  res  judicata  generally.    We  have                                      ___  ________          explained that there are two different aspects of res judicata --                                                            ___ ________          claim  preclusion  and  collateral  estoppel (also  called  issue          preclusion).  Dennis v.  Rhode Island Hosp. Trust, 744  F.2d 893,                        ______     ________________________          898  (1st Cir. 1984).  The essential elements of claim preclusion          are: (1) a final judgment on the merits in an earlier action; (2)          an identity  of parties or privies  in the two suits;  and (3) an          identity of  the cause of action  in both suits.   Aunyx Corp. v.                                                             ___________          Canon U.S.A., Inc., 978 F.2d 3, 6 (1st Cir. 1992), cert.  denied,          __________________                                 _____  ______          __ U.S.  __, 113  S. Ct.  1416 (1993).   Once these  elements are          established, claim  preclusion also bars the  relitigation of any          issue  that was,  or might  have been, raised  in respect  to the                               ________________                                         -8-          subject matter of the prior litigation.  Dennis, 744 F.2d at  898                                                   ______          (citations omitted) (emphasis in original).                    The   principle  of   collateral  estoppel,   or  issue          preclusion, bars relitigation  of any factual or legal issue that          was actually decided in previous litigation "between the parties,              ________          whether on the  same or a different claim."   Dennis, 744 F.2d at                                                        ______          899  (quoting Restatement  (Second)  of Judgments,    27  (1982))          (emphasis in original).  When there is an identity of the parties          in  subsequent actions,  a  party must  establish four  essential          elements for a successful application of issue preclusion to  the          later action:  (1) the  issue sought to be precluded must  be the          same  as that involved  in the prior  action; (2) the  issue must          have been  actually  litigated;  (3) the  issue  must  have  been          determined by a  valid and  binding final judgment;  and (4)  the          determination  of  the  issue must  have  been  essential  to the          judgment.  See NLRB  v. Donna-Lee Sportswear Co., Inc.,  836 F.2d                     ___ ____     ______________________________          31, 34  (1st Cir. 1987); In re Sestito, 136 B.R. 602, 604 (Bankr.                                   _____________          D. Mass. 1992);  In re Dubian, 77 B.R. 332,  337 (Bankr. D. Mass.                           ____________          1987).   An  issue may be  "actually" decided  even if  it is not          explicitly  decided, for  it may  have constituted,  logically or          __________          practically, a necessary component of the decision reached in the          prior  litigation.     Dennis,  744  F.2d  at  899  (emphasis  in                                 ______          original).                    As the  Trustee points out,  it is unclear  whether the          bankruptcy court relied on claim or  issue preclusion in entering          summary   judgment   and   barring   the   Trustee's   preference                                         -9-          counterclaim.   Although  the  court's decision  refers to  claim          preclusion, it is  based on  an issue preclusion  analysis.   The          district court  likewise expressly  based its reasoning  on issue          preclusion principles.   Both  the Bank  and the Trustee  contend          that  the doctrine of  issue preclusion is  the appropriate basis          for  our analysis  here,  and we  agree.   Thus, the  broad issue          before us is whether all of the elements of issue preclusion, set          forth  above,  are met.   In  order  to make  this determination,          however,  we  must  first   consider  exactly  what  issues  were          adjudicated  during the initial action, a hearing on a motion for          relief from stay.                    C.   Issues Determined During a   362(d) Hearing                    C.   Issues Determined During a   362(d) Hearing                         ___________________________________________                    The  Trustee argues that the  allowance of a motion for          relief from stay  does not  preclude the later  prosecution of  a          preference action, as a  determination of the non-avoidability of          a lien  under   547 is  not, logically or practically,  part of a          court's  decision to grant relief from  stay.  In support of this          position,  the Trustee  cites the  Seventh Circuit's  decision of          Matter  of Vitreous  Steel Prods.  Co., 911  F.2d 1223  (7th Cir.          ______________________________________          1990), and urges us to adopt that court's reasoning.                    In  Vitreous  Steel,  the  appeals court  held  that  a                        _______________          decision to lift the automatic stay pursuant to   362(d) does not          preclude the prosecution under    547 of an adversary  complaint.          Vitreous Steel, 911 F.2d  at 1234.  The  court reasoned that  the          ______________          possible avoidability of a transfer to a creditor  under   547 is          not  an issue proper for adjudication by a court during a hearing                                         -10-          on a motion  to lift  the automatic stay,  and accordingly  found          that  the   bankruptcy  court   erred  in  barring   a  trustee's          preferential transfer claim on  collateral estoppel grounds.  Id.                                                                        __                    The Vitreous Steel holding rests on persuasive grounds.                        ______________          First,  as the Seventh Circuit  noted, it is  consistent with the          statutory scheme established by   362,  and particularly with the          purpose of  the relief from stay  provision of   362(d).   Id. at                                                                     __          1232.   As  soon  as  a  petition in  bankruptcy  is  filed,  the          automatic stay provisions  of   362  take effect, preventing  all          pre-petition creditors from taking action to collect their debts.          In certain situations,  such as  when a creditor  has a  security          interest in the debtor's property and the value of the collateral          is less than the  amount of the debt, bankruptcy  proceedings may          only delay the inevitable result.  There may be no reason to make          the creditor wait for the distribution of the estate, and indeed,          early release  of  the property  may  aid administration  of  the          estate  by allowing a quicker  determination of the  amount of an          undersecured creditor's  claim.  Id. at 1231-32.   Thus, Congress                                           __          included  the provision  for  relief from  stay  under    362(d),          allowing  bankruptcy  courts  to  lift  the  stay  as to  certain          creditors if grounds for relief are presented.   Id. at 1232; see                                                           __           ___          11 U.S.C.   362(d).  These grounds are the adequacy of protection          for  the creditor, the debtor's  equity in the  property, and the          necessity of the  property to  an effective  reorganization.   11          U.S.C.   362(d).  That the statute sets forth certain grounds for                                         -11-          relief and  no others indicates Congress' intent  that the issues          decided by a bankruptcy  court on a creditor's motion to lift the          stay be limited to these matters.  See 11 U.S.C.   362(d).                                             ___                    Moreover, the hearing  on a motion for relief from stay          is meant to be a summary proceeding, and the statute requires the          bankruptcy  court's action to be quick.  Vitreous Steel, 911 F.2d                                                   ______________          at 1232; see 11 U.S.C.   362(e).  Section    362(e) provides that                   ___          a bankruptcy court must hold a preliminary hearing on a motion to          lift  the stay  within thirty days  from the  date the  motion is          filed, or the  stay will be considered  lifted.  A  final hearing          must  be  commenced  within  thirty days  after  the  preliminary          hearing.  Vitreous Steel, 911 F.2d at 1232 (citing Fed. R. Bankr.                    ______________          P. 4001(a)(2)); see 11 U.S.C.   362(e).                               ___                    The  limited  grounds  set   forth  in  the   statutory          language, read in the context of the overall scheme of   362, and          combined with the preliminary, summary nature  of the relief from          stay proceedings, have led most courts to find that such hearings          do  not  involve a  full adjudication  on  the merits  of claims,          defenses,  or counterclaims,  but  simply a  determination as  to          whether  a  creditor has  a colorable  claim  to property  of the          estate.   See,  e.g., Estate  Contruction Co.  v. Miller  & Smith                    ___   ____  _______________________     _______________          Holding Co., Inc., 14 F.3d 213, 219  (4th Cir. 1994) (hearings to          _________________          lift the stay are summary in character, and counterclaims are not          precluded later if not raised at this stage); Vitreous Steel, 911                                                        ______________          F.2d at 1232 (questions of the validity of liens are not at issue          in a   362 hearing,  but only whether there is a  colorable claim                                         -12-          on property); In re Johnson, 756 F.2d 738, 740 (9th Cir.),  cert.                        _____________                                 ____          denied,  474  U.S. 828  (1985)  (relief  from stay  hearings  are          ______          limited in scope to adequacy of protection, equity, and necessity          to an effective reorganization, and validity of underlying claims          is  not litigated); Nat'l  Westminster Bank, U.S.A.  v. Ross, 130                              _______________________________     ____          B.R. 656, 658 (Bankr. S.D.N.Y.), aff'd, 962 F.2d 1 (2d Cir. 1991)                                           _____          (decision  to  lift  stay   does  not  involve  determination  of          counterclaims, and thus those claims are not precluded later); In                                                                         __          re  Quality Elect. Ctrs., Inc.,  57 B.R. 288,  290 (Bankr. D.N.M.          ______________________________          1986) (relief from stay proceedings limited to whether the moving          creditor has a colorable claim to a perfected security interest);          In  re Pappas,  55  B.R.  658,  660-61  (Bankr.  D.  Mass.  1985)          _____________          (trustee's   counterclaims  may   be   considered,   though   not          adjudicated, at relief from stay proceedings);7 In  re Geller, 55                                                          _____________          B.R.  970, 974-75  (Bankr.  D.N.H. 1985)  (although a  bankruptcy          court  may  consider  counterclaims  during a  relief  from  stay          hearing,  it is not authorized to a res judicata determination of                                              ___ ________                                        ____________________          7   The Bank cites In  re Pappas in support of  its argument that                             _____________          preference  counterclaims are  among  claims  that challenge  the          "validity" of a creditor's lien, and thus are part of  the relief          from  stay  determination.   The  Bank's reliance  on  that case,          however,  is misplaced.   As  the Trustee  points out,  that case          involved  the unusual factual  situation of a  creditor trying to          prevent a trustee from pursuing a defense to a motion for relief.          The Pappas court recognized that while a   362  motion for relief              ______          hearing  is not the  proper forum  for deciding  counterclaims, a          court  need not  blind  itself  to  such counterclaims,  and  may          consider them where  raised.   In re Pappas,  55 B.R. at  660-61.                                         ____________          The   court  went   on   to  discuss   the  distinction   between          "considering"  and "adjudicating"  such claims,  and specifically          stated that claims that challenge the validity of a lien "will be          considered, though not adjudicated, at the hearing on relief from          stay."  Id. at 661.  The Bank somehow overlooked this statement.                  __                                         -13-          such claims on their  merits); In re  Tally Well Serv., Inc.,  45                                         _____________________________          B.R. 149, 151-52  (Bankr. E.D.  Mich. 1984) (a  court may  merely          consider  counterclaims  and  defenses  at  a  relief  from  stay          hearing,  but such hearing is not the proper proceeding for those          claims'  adjudication);  cf.  In  re Shehu,  128  B.R.  26, 28-29                                   __   ____________          (Bankr.  D.  Conn.  1991)  (acknowledging  the  narrow  scope  of          hearings  on relief from stay, but allowing the debtor to present          evidence on "indirect defenses" going to offset the amount of the          secured debt, for the limited  purpose of determining whether the          debtor has equity in the property).                     These courts'  interpretation  of    362 also  comports          with the statute's legislative history:                      At the expedited hearing under subsection                      (e), and at  all hearings on relief  from                      the  stay,  the  only issue  will  be the                      claim of  the  creditor and  the lack  of                      adequate protection or existence of other                      cause  for relief  from  the stay.   This                                                           ____                      hearing  will not be the appropriate time                      _________________________________________                      at which to  bring in other  issues, such                      _________________________________________                      as counterclaims against the  creditor on                      _________________________________________                      largely   unrelated   matters.      Those                      _____________________________                      counterclaims  are not  to be  handled in                      the summary fashion that  the preliminary                      hearing  under  this  provision will  be.                      Rather, they will be  the subject of more                      complete proceedings by  the trustees  to                      recover  property of  the  estate  or  to                      object to the allowance of a claim.           H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 344 (1977), reprinted                                                                  _________          in  1978 U.S. Code  Cong. & Admin.  News 5787, at  6300 (emphasis          __          added).   The Senate report reiterates this explanation, but also          adds:                      However,  this  would  not  preclude  the                      party  seeking  continuance  of the  stay                                         -14-                      from presenting evidence on the existence                      of claims which the court may consider in                      exercising  its  discretion.     What  is                                                       ________                      precluded  is  a  determination  of  such                      _________________________________________                      collateral  claims on  the merits  at the                      _________________________________________                      hearing.                       _______          S. Rep. No.  95-989, 95th Cong., 2d  Sess. 55, reprinted  in 1978                                                         _____________          U.S. Code Cong. & Admin. News 5787, at 5841 (emphasis added).                       The  relief  from stay  procedures  established  by the          Bankruptcy  Rules also point to the limited scope of the hearing.          Relief  from the stay  is obtained  by a  simple motion,  Fed. R.          Bankr.  P. 4001, and it  is a "contested  matter," rather than an          adversary  proceeding.   Fed. R.  Bankr. P.  9014.   See Advisory                                                               ___          Committee  Note to Fed. R. Bankr. P. 7001 ("[R]equests for relief          from   the  automatic   stay   do  not   commence  an   adversary          proceeding.").    In  contrast,  all  actions  to  determine  the          validity  of a  lien, such as  a preference  action under    547,          require  full adjudication  on  verified pleadings,  and must  be          litigated in adversary proceedings.  Fed. R.  Bankr. P. 7001.  To          allow a relief  from stay  hearing to become  any more  extensive          than  a quick determination of whether a creditor has a colorable          claim would turn the hearing into a full-scale adversary lawsuit,          In re  Gellert, 55 B.R.  at 974, and  would be inconsistent  with          ______________          this procedural scheme.                    We  agree with  the  Trustee's argument  that  allowing          these hearings  to become adversary proceedings  would also force          the  untimely,  expedited  adjudication of  complex  and critical          issues during the  early stages of the case, on  the basis of the          movant creditor's  unverified motion for relief.   Trustees would                                         -15-          be forced to assert (and win) not only objections to motions  for          relief  from  stay,  but  any   and  all  possible  defenses  and          counterclaims to the underlying claims of the movant creditor, or          risk being precluded  from raising them later.  Bankruptcy courts          would likewise be forced to determine the  validity, priority and          extent of  a lien during  the relief from  stay hearing,  and the          creditor's motion would thus become a "substitute" for the normal          adversary   proceedings  on  the  merits.    See  In  re  Quality                                                       ___  _______________          Electronics, 57 B.R. at 290.          ___________                    Moreover,  the  Bankruptcy  Code specifically  provides          that a trustee has two years after appointment or until the close          of  the case  to commence  a    547  preference action.   Section          546(a)(1).  A relief from stay proceeding, conversely, is usually          commenced very  shortly after  the bankruptcy petition  is filed,          and, as explained  above, must  be completed no  more than  sixty          days from the filing of the  motion for relief.  Forcing trustees          to raise  their counterclaims  within that short  period, usually          during the nascent stages  of a bankruptcy case, would  in effect          allow  movant  creditors  to  drastically  reduce  the   two-year          limitations period  set forth  in  the Code.   Not  only is  this          result patently unfair and inefficient, it renders the Bankruptcy          Code's statutes  of limitations provision irrelevant  -- a result          we cannot endorse.                    For  all these  reasons, we  find that  a hearing  on a          motion for relief  from stay  is merely a  summary proceeding  of          limited effect, and adopt the Vitreous Steel court's holding that                                        ______________                                         -16-          a court hearing a motion for relief from stay should seek only to          determine whether the party seeking  relief has a colorable claim          to property of the estate.  The statutory and procedural schemes,          the legislative history,  and the  case law all  direct that  the          hearing on  a motion to  lift the  stay is not  a proceeding  for          determining  the  merits of  the  underlying substantive  claims,          defenses,  or  counterclaims.    Rather,  it is  analogous  to  a          preliminary   injunction   hearing,   requiring   a   speedy  and          necessarily  cursory determination  of the  reasonable likelihood          that  a creditor has a legitimate claim  or lien as to a debtor's          property.8  If  a court finds that  likelihood to exist, this  is          not a determination of the validity of those claims, but merely a          grant  of permission  from the  court allowing  that  creditor to          litigate its substantive claims  elsewhere without violating  the          automatic stay.                    This is not  to say  that bankruptcy  courts can  never                                        ____________________          8   Indeed, the legislative history  of   362  suggests this very          analogy:                      [T]he  automatic  stay  is similar  to  a                      temporary   restraining   order.      The                      preliminary  hearing  [on  a  motion  for                      relief  from  stay]  is  similar  to  the                      hearing  on   a  preliminary  injunction,                      . . . . The main difference lies in which                      party  must bring  the  issue before  the                      court.  While in the  injunction setting,                      the  party  seeking  the injunction  must                      prosecute the action, in  proceedings for                      relief  from  the  automatic   stay,  the                      enjoined party must move.            H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 344 (1977), reprinted                                                                  _________          in 1978 U.S. Code Cong. & Admin. News 5787, at 6300.          __                                         -17-          consider   counterclaims   and  defenses,   including  preference          ________          counterclaims, during  a relief  from stay  hearing.   As several          bankruptcy  courts  have   discussed,  there  is  a   significant          difference  between  mere  consideration  of  claims   and  final          adjudication on the merits.  See In re Pappas, 55 B.R. at 660; In                                       ___ ____________                  __          re Gellert,  55 B.R. at 974-75; In re Tally Well, 45 B.R. at 152.          __________                      ________________          Certainly,  a court may take  into account any  matter that bears          directly  on  the debtor's  equity,  or  that  clearly refutes  a          creditor's  claim to  the property.   For  example, if  a trustee          raises a defense  to a creditor's claim  at the relief  from stay          hearing, the court need not ignore this defense, but may consider          it when deciding whether to lift the stay.  If, however, the stay          is not lifted, that  creditor is not barred forever  from seeking          payment.  It must simply comply with the automatic stay, and wait          with the other creditors for the estate's administration.                     Conversely,  if the  stay is  lifted, the  creditor may          then prosecute its  claim in subsequent litigation.   The trustee          is not precluded from raising  defenses or counterclaims in those          subsequent  proceedings,  because  the  defense  was  not   fully          adjudicated, but only considered, during the preliminary hearing.          As  a  matter of  law, the  only  issue properly  and necessarily          before a bankruptcy  court during relief from stay proceedings is          whether  the  movant  creditor  has a  colorable  claim;  thus, a          decision to lift the  stay is not an adjudication of the validity          or avoidability of the  claim, but only a determination  that the          creditor's  claim   is  sufficiently  plausible   to  allow   its                                         -18-          prosecution elsewhere.                    The Bank  nevertheless submits that the  Vitreous Steel                                                             ______________          analysis is "flawed," and argues:                      [A] determination (though not necessarily                      a final one) as  to a creditor's security                      interest  is  an  integral  part  of  any                                __                      decision  regarding  the  lifting of  the                      stay .  . .  if  the creditor's  security                      interest  can be avoided  for any reason,                      there is no cause  to grant the  creditor                      relief  from  stay  because the  creditor                      lacks   an   interest  in   the  debtor's                      property.            (Emphasis  in original).    Essentially, the  Bank contends  that          because  establishing  the  validity  of  a  creditor's  security          interest is an essential element of a relief from  stay, the fact          that  the stay  was indeed  lifted  necessarily implies  that the          security interest is valid.                      This argument is meritless for two reasons.  First,  it          ignores the  important distinction between  the consideration and          adjudication of an  issue.  In  a relief  from stay hearing,  the          only  issue  properly before  the court,  and  thus the  only one          actually  adjudicated,  is  whether  the stay  should  be  lifted          because a creditor has shown a colorable claim.  Put another way,          and employing the preliminary injunction analogy discussed above,          a  creditor must  show  a reasonable  likelihood  that it  has  a          meritorious claim,  and the  court may  consider any  defenses or          counterclaims that  bear on  whether  this reasonable  likelihood          exists.  If  the stay is lifted, however, what  has been actually          adjudicated  is only that the creditor  has shown this reasonable          likelihood.   It is not a ruling  on the merits of the underlying                                         -19-          claim.9                    Second, the Bank's argument also ignores the difference          between  a void claim or lien, and a  valid yet voidable lien.  A                     ____                                 ________          creditor's valid,  perfected  security interest  in the  debtor's          property may nevertheless be  voidable as a preferential transfer          under   547.  In  re Melon Produce, 976 F.2d at 74  (the creation                        ____________________          of  a  perfected  security  interest  in  property  is  itself  a                                                                  ______          preference, when the perfection  takes place during the statutory          preference period and other criteria  are satisfied).  A creditor          may therefore have a  lien that is sufficient to  justify lifting          the  stay,  yet   ultimately  avoidable  by  the   trustee  as  a          preferential  transfer under   547.   Thus, the Bank's contention          that  "if the creditor's security interest can be avoided for any          reason, there is no cause to grant the creditor relief from stay"          is simply wrong.                     The  only   case  that   the  Bank   cites  purportedly          supporting  its argument that  a relief from  stay proceeding can          have  preclusive effect  on a  subsequent counterclaim  is In  re                                                                     ______          Monument Record Corp.,  71 B.R.   853 (Bankr.  M.D. Tenn.  1987).          _____________________          This  case, however,  is entirely  distinguishable.   In Monument                                                                   ________          Record,  the creditor  and  the trustee  entered into  a specific          ______                                        ____________________          9   The Bank also urges  us to reject the  Vitreous Steel court's                                                     ______________          "rigid rule"  and adopt a "flexible approach"  which takes unique          circumstances  into  account.   We  will  not, however,  overlook          Congressional  intent,  statutory   language,  and   well-settled          procedural   machinery  that  all   limit  the   issues  properly          adjudicated  in such hearings.  It is perhaps not surprising that          the  Bank fails to cite any authority for its "flexible approach"          argument, as it lacks any legal or practical basis.                                         -20-          agreement, in order to  resolve the motion for relief  from stay,          stipulating  that the  creditor's security  interest was  a valid          first lien.   Id. at  855.  The  bankruptcy court held  that this                        __          specific agreement  precluded the  trustee from challenging  in a          later  adversary  proceeding  the  perfection  of  the   security          interest.   Id.  at 864.    We agree  with the  Trustee that  the                      __          parties' express agreement  was the crux  of the Monument  Record                                                           ________________          court's  ruling, and find  that decision is  logically limited to          those unique circumstances.                        Applying our holding to the facts presented here, it is          evident that  the bankruptcy court's order  lifting the automatic          stay upon the Bank's motion did not have preclusive effect on the          Trustee's  counterclaims.   The  only issue  properly before  the          court  during  that  hearing  was whether  the  Bank's  claim was          colorable, or  sufficiently plausible,  to lift  the  stay.   The          court did not, and  indeed, could not adjudicate  the substantive          merits  of either the Bank's  claim, or any  possible defenses or          counterclaims.10    Thus,  the  issue  raised  by  the  Trustee's                                        ____________________          10  This is  so even if the Trustee had  attended the hearing and          actually raised any defenses.  Thus, the Trustee's absence at the          hearing  is  irrelevant.   The Bank  contends that  the Trustee's          failure  to deny the allegations in the Bank's motion for relief,          and  to attend the hearing, constitutes a "judicial admission" of          the  validity of  the  Bank's security  interest.   The  Bank  is          misguided.    Because  a  court cannot  properly  adjudicate  the          validity of a lien  during relief from stay proceedings,  a party          also  cannot  "admit,"  with  preclusive, binding  effect,  to  a          claim's validity.   See In re Torco Equip. Co.,  65 B.R. 353, 355                              ___ ______________________          (Bankr.  W.D. Ky.  1986) (preference  claim is  not a  compulsory          counterclaim  to a motion for relief because of the limited scope          of   362 proceedings).  To hold otherwise would require a trustee          to  plead  any and  all  affirmative  defenses and  counterclaims          during the relief  from stay proceedings,  or be forever  barred.                                         -21-          preference counterclaim was  not before the  court at the  relief          from  stay  hearing,  was   not  actually  (or  even  implicitly)          litigated,  and was not essential to the court's decision to lift          the  stay.  Therefore, the  elements of issue  preclusion are not          met here.11    Accordingly, both  the  bankruptcy court  and  the          district  court   erred  in   precluding   the  Trustee's   later          counterclaim on those grounds.                                        ____________________          As we have explained, this is untenable.          11   Moreover,  because  a  relief  from stay  proceeding  merely          removes a  bar to  a creditor  from  prosecuting its  substantive          claims,  and does  not  determine the  merits  of the  underlying          claim, there is no identity  of cause of action between a  relief          from  stay proceeding and an adversary  proceeding on the claim's          validity.   Thus, the  elements of claim  preclusion are likewise          not met here.                                         -22-                    D.   The Trustee's   547 Preference Counterclaim                    D.   The Trustee's   547 Preference Counterclaim                         ___________________________________________                      1.  The Wellesley Note                      1.  The Wellesley Note                    With respect to the Trustee's counterclaim under   547,          the  bankruptcy court ruled that a genuine issue of material fact          exists as  to the status of  the Bank's security interest  in the          Wellesley  Note, and we find that the record supports the court's          finding.12    We  therefore remand  the  case  to the  bankruptcy          court for further proceedings on the validity of the Bank's claim          and the Trustee's counterclaim as to the Wellesley Note.                      2.  The other sixteen of the Seventeen Notes                        2.  The other sixteen of the Seventeen Notes                    Regarding  the parties' dispute  over the other sixteen          of the Seventeen Notes, the Trustee requests, in the "Conclusion"          section  of his  brief,  that we  "strike  any finding  that  the          Trustee  has  agreed  that  the Seventeen  Notes  other  than the          Wellesley  Note are  'valid'  security interests."    In a  final          footnote to his reply brief, the Trustee maintains that he is not          contending that his motion to amend should have been allowed, but          only that genuine factual issues exist regarding the validity, as                                                               ________          opposed  to the perfection, of the other sixteen of the Seventeen          Notes, and thus summary  judgment as to those notes  is improper.          He offers no further support for this statement.                     Regardless  of the  meaning or  merit of  the Trustee's                                        ____________________          12   While  the Bank contends  that its security  interest in the          Wellesley Note  was perfected by  possession prior to  the 90-day          statutory preference  period, the Trustee contends  that the Bank          did  not actually  have possession  of the  Note until  about two          months before  the Debtor filed  its bankruptcy  petition.   Both          parties'  contentions have support in the record, thus creating a          genuine factual issue.                                         -23-          argument as to the other sixteen of the Seventeen Notes, we agree          with  the Bank  that the  Trustee has  not properly  presented or          argued  this  issue on  appeal.   We  have warned  litigants that          issues averted to  in a perfunctory manner, unaccompanied by some          effort at developed argumentation, are deemed waived for purposes          of appeal.   Willhauck v.  Halpin, 953  F.2d 689,  700 (1st  Cir.                       _________     ______          1991).    Parties must  spell  out their  arguments  squarely and          distinctly, or "forever  hold their peace."  Id.   In his 50-page                                                       __          brief,  the Trustee  did not raise  or address  the issue  of the          other sixteen  notes at  any  point except  for the  one-sentence          statement,  unsupported  by any  argument  or  case law,  in  his          conclusion.   Even  when  the Bank  pointed  out this  flaw,  the          Trustee  did not  more fully  develop the  argument in  his reply          brief, but  deemed it worthy of only a cursory footnote.  This is          simply insufficient  presentation and argumentation of  the issue          for any meaningful analysis,  and we therefore deem  it waived.13                                   III.  CONCLUSION                                   III.  CONCLUSION                    For the  foregoing reasons,  we conclude that  both the          bankruptcy  court and  the district  court erred  in barring  the          Trustee's preference counterclaim as to the Wellesley Note on the          grounds of  either claim  or issue  preclusion.  Accordingly,  we          remand  to the bankruptcy court for adjudication on the merits of                                        ____________________          13  Because the argument is waived, we do not  address it, and we          likewise  do not  address the  Bank's counter-arguments  that the          Trustee's statements  in his Memorandum of  Law are "admissions,"          and that the Trustee is estopped from denying his statements.                                         -24-          the  Bank's  security  interest and  the  Trustee's  counterclaim          regarding the Wellesley Note.                                         -25-
