BMO Harris Bank N.A. v. Marken Enterprise, LLC et al

Filing 10

ORDER Staying Case Pending Resolution of Automatic Stay re: Gary Marken; Denying Motion 7 for Default Judgment Without Prejudice. The Clerk of Court is instructed to administratively close this case, to be reopened after the conclusion of the bankruptcy proceedings upon written request and application of the parties and order of this court. Signed by Judge Gonzalo P. Curiel on 9/14/17.(dlg)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 BMO HARRIS BANK N.A., a national banking association, 15 16 ORDER Plaintiff, 13 14 Case No.: 3:17-cv-00091-GPC-NLS v. (1) STAYING CASE PENDING RESOLUTION OF AUTOMATIC STAY RE: GARY MARKEN MARKEN ENTERPRISE, LLC, an Arizona limited liability company, AND GARY MARKEN, an individual, (2) DENYING MOTION FOR DEFAULT JUDGMENT WITHOUT PREJUDICE Defendants. 17 18 19 [ECF No. 7.] 20 21 22 23 24 25 26 27 28 On July 31, 2017, Plaintiff BMO Harris Bank N.A. filed a motion for default judgment against Defendants Marken Enterprise, LLC and Gary Marken. (Dkt. No. 7.) A hearing has been scheduled for October 6, 2017 at 1:30 p.m. On August 21, 2017, Plaintiff filed a Notice of Automatic Stay Pursuant to 11 U.S.C. § 362 to inform the court that Gary Marken (“Debtor”) had filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code (“Petition”). (Dkt. No. 8.) This Petition is currently pending in the United States Bankruptcy Court for the District of Arizona in Case Number 2:17-bk08563-MCW. 1 3:17-cv-00091-GPC-NLS 1 Pursuant to 11 U.S.C. § 362(a), an automatic stay is applicable to actions and legal 2 proceedings against the Debtor, including in this instant case, until further order from the 3 Bankruptcy Court. An automatic stay precludes the “commencement or continuation, 4 including the issuance or employment of process, of a judicial, administrative, or other 5 action or proceeding against the debtor that was or could have been commenced before 6 the commence of the case under [the Bankruptcy title], or to recover a claim against the 7 debtor that arose before the commencement of the case under this title.” Once a 8 discharge is granted in a Chapter 7 bankruptcy, a stay issued pursuant to § 362(a) is 9 lifted. 11 U.S.C. § 362(c)(2)(C). 10 Pursuant to 11 U.S.C. § 362, the filing of the bankruptcy petition operates as an 11 automatic stay only as to Defendant Gary Marken. See 11 U.S.C. § 901(a). Section 362 12 does not stay this action as to the non-bankrupt defendant, Marken Enterprise, LLC. See 13 Ingersoll-Rand Financial Corp. v. Miller Mining Co. Inc., 817 F.2d 1424, 1427 (9th Cir. 14 1987) (“In the absence of special circumstances, stays pursuant to section 362(a) are 15 limited to debtors and do not include non-bankrupt co-defendants.”) Plaintiff has not 16 expressed a view as to whether the stay should apply to Marken Enterprise, LLC. See 17 (Dkt. No. 8.) 18 Courts have found that the automatic stay may apply to non-debtor entities under 19 the “unusual circumstances” exception. See Zurich Amer. Ins. Co. v. Trans Cal 20 Associates, 2011 WL 6329959, at *2–3 (E.D.Cal. Dec.16, 2011) (explaining the “unusual 21 circumstances” exception and ultimately staying the action as to non-bankrupt co- 22 defendants pursuant to the court's inherent authority). “The courts have carved out 23 limited exceptions [to the general rule that stays pursuant to § 362(a) are limited to 24 debtors and do not include non-bankrupt co-defendants] where: (1) ‘there is such identity 25 between the debtor and the third-party defendant that the debtor may be said to be the real 26 party defendant and that a judgment against the third-party defendant will in effect be a 27 judgment or finding against the debtor,’ or (2) extending the stay against codefendants 28 2 3:17-cv-00091-GPC-NLS 1 ‘contributes to the debtor's efforts of rehabilitation.’” United States v. Dos Cabezas 2 Corp., 995 F.2d 1486, 1491 n. 3 (9th Cir.1993). See also Queenie, Ltd. V. Nygard Int’l, 3 321 F.3d 282, 287 (2d Cir.2003) (staying the proceedings as to non-debtor corporation 4 co-defendant that was wholly owned by debtor because the “claim against the non-debtor 5 will have an immediate adverse economic consequence for the debtor's estate”). The 6 Court observes that the instant case is a prime candidate for the “unusual circumstances” 7 exception because (1) there is significant identity between the Debtor and co-defendant 8 and because (2) Debtor serves as a guarantor for the loan undertaken by Marken 9 Enterprise LLC that is the subject of this instant action and the claim against the LLC will 10 have an “adverse economic consequence” for his estate. See Compl. ¶ 2-3 (stating that 11 Marken Enterprise LLC’s sole and Managing Member is Gary Marken and that Marken 12 is the guarantor of the obligations owed by Marken Enterprise LLC in this lawsuit); 13 Queenie, Ltd. v. Nygard Int'l, 321 F.3d 282, 287 (2d Cir. 2003) (finding that claims that 14 “establish an obligation of which the debtor is a guarantor” constitute unusual 15 circumstances to warrant an extension of automatic stay to a non-debtor). 16 However, even if such an exception applied, the weight of authority holds that the 17 bankruptcy court must extend the automatic stay, not the district court. See Zurich, 2011 18 WL 6329959, at *2 (citing Placido v. Prudential Ins. Co. of Am., No. c09-00668-WHA, 19 2010 WL 334744, at *1 (N.D. Cal. Jan. 22, 2010). See also Boucher v. Shaw, 572 F.3d 20 1087, 1093 n.3 (9th Cir. 2009). Consequently, the Court will not and cannot stay the 21 instant action as to Marken Enterprise LLC pursuant to the automatic stay provisions of 22 Section 362. 23 However, the court will stay the action against Marken Enterprise LLC under its 24 inherent authority since doing so would be judicially efficient and the fairest course for 25 the parties. District courts faced with similar situations have pursued a similar course and 26 exercised their inherent authority to stay matters as to a non-debtor party. See J&J Sports 27 Products Inc. v. Brar, No. 2:09-cv-3394-GEB-EFB, 2012 WL 4755037, at *2 (E.D. Cal. 28 Oct. 3, 2012) (ordering a stay as to claims against the debtor’s LLC pursuant to inherent 3 3:17-cv-00091-GPC-NLS 1 authority pending resolution of the debtor’s bankruptcy petition); Zurich, 2011 WL 2 6329959, at *2-3 (staying case against non-bankrupt co-defendants pursuant to inherent 3 authority). In J&J Sports, Judge Brennan explained that default judgment should not be 4 entered until the case is finally adjudicated as to all claims and all parties. J&J, 2012 WL 5 4755037, at *2. By permitting plaintiff to proceed against only the LLC, a “later trial of 6 the claims against the individual defendant could involve the relitigation of most if not all 7 of the issues litigated in the first proceeding against [the] LLC.” Id. These same 8 concerns of judicial economy and fairness to the parties are present in this instant case. 9 The Court concludes that a stay of Plaintiff’s claims are appropriate, in the interest 10 of judicial economy, and is permissible under the Court’s inherent authority to manage its 11 cases. See SCI Northbay Commerce Fund 4, LLC v. SCI Real Estate Invs., LLC, 2011 12 WL 1133898, at *1 (M.D. Fla. Mar.28, 2011). The court will therefore deny plaintiff’s 13 motion for default judgment without prejudice. 14 Accordingly it is HEREBY ORDERED that: 15 1. Plaintiff’s Motion for Default Judgment is DENIED without prejudice as to its 16 reassertion upon termination of the bankruptcy proceeding or an order granting 17 relief from the automatic stay. The Court vacates the hearing set for October 6, 18 2017 at 1:30 p.m. 19 20 21 22 23 2. This action is stayed pending resolution of Defendant Gary Marken’s bankruptcy petition, case number 2:17-bk-08563-MCW, filed July 25, 2017 3. The parties shall notify the court within fourteen days of the resolution of the bankruptcy proceeding 4. The Clerk of Court is instructed to administratively close this case, to be reopened 24 after the conclusion of the bankruptcy proceedings upon written request and 25 application of the parties and order of this court. 26 27 28 4 3:17-cv-00091-GPC-NLS 1 2 IT IS SO ORDERED. Dated: September 14, 2017 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 3:17-cv-00091-GPC-NLS

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