Bodnar et al v. Newport Corporation of Louisiana et al
Filing
88
ORDER AND REASONS granting in part, denying in part 63 MOTION to Dismiss; GRANTED to the extent that the claims of unjust enrichment of all Plaintiffs with the exception of Plaintiffs Bodnar and Reed are hereby DISMISSED, and DENIED in all other re spects. FURTHER ORDERED that the automatic stay of proceedings pursuant to 11 U.S.C. 362 is applied only against the debtor in the related bankruptcy proceeding, Bourbon Saloon, Inc. and no further; proceedings against the debtor's co-defendants are not stayed. Signed by Judge Ivan L.R. Lemelle on 9/29/2011.(blg)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
THOMAS BODNAR, ET AL.
VERSUS
NEWPORT CORPORATION OF LOUISIANA, ET AL.
*
*
*
*
*
CIVIL ACTION
NO. 09-7686
SECTION “B”(2)
ORDER AND REASONS
Before the Court is Defendants’ Motion to Dismiss seeking
dismissal of claims against the individual defendants (Rec. Doc.
No. 63), Plaintiffs have filed opposition thereto at Rec. Doc. No.
77.
Additionally, before the Court is the joint briefing of the
parties regarding the effect of defendants’ Notice of Bankruptcy at
Rec. Doc. No. 79 and the effect of that stay on the parties.
After
reviewing the applicable law and the record before the Court, for
the reasons pronounced below,
IT IS ORDERED that Defendants’ Motion to Dismiss pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure (Rec. Doc.
No. 63) be and is hereby GRANTED IN PART and DENIED IN PART; the
motion
is
GRANTED
to
the
extent
that
the
claims
of
unjust
enrichment of all Plaintiffs with the exception of Plaintiffs
Bodnar and Reed are hereby DISMISSED, and DENIED in all other
respects.
IT IS FURTHER ORDERED that the automatic stay of proceedings
pursuant to 11 U.S.C. § 362 is applied only against the debtor in
the related bankruptcy proceeding, Bourbon Saloon, Inc. and no
1
further; proceedings against the debtor’s co-defendants are not
stayed.
I. Cause of Action and Facts of Case
This
action
arising
under
the
Fair
Labor
Standards
Act
(“FLSA”) (29 U.S.C. § 216(b)) and the Civil Rights Act (42 U.S.C.
§ 1981) was filed by Plaintiffs, all were workers at French Quarter
restaurants that were “own[ed], control[ed], and/or manage[d]” by
defendant, “including Tony Moran’s Restaurant and Jean Lafitte
Bistro. . . .”
(Rec. Doc. No. 1 at 1).
Plaintiffs’ complaint
alleges Defendants withheld their wages by refusing to pay for all
hours worked, not paying workers on time, failing to pay overtime,
improperly
withholding
tips,
under
reporting
hours
to
state
agencies, breaching employee-employer contracts regarding wage
rates
and
promotions,
not
promoting
based
on
race,
and
“discriminatorily assigning nonwhite workers to less favorable work
assignments and unlawfully retaliating against works for asserting
their legal rights.”
Id. at 1-2.
Plaintiffs name six individual defendants in their second
amended complaint as follows (1) Yousef Wafiq Salem Aladwan a/k/a
J’obert Salem, (2) Samer Aladwan, (3) Carolyn Pierce, (4) Givanni
Zedda, (5) Ismail Salem, and (6) Gregory Bonstaff; all of whom are
alleged to have been or are either a manager of daily operations,
director or officer, or Controller of one or all defendant business
corporations and LLCs.
(Rec. Doc. No. 50 at 6).
2
II. Contentions of the Parties
A.
Contentions of Defendants
Defendants
first
contend
that
Plaintiffs’
§
1981
claims
against all individual defendants should be dismissed citing the
Fifth Circuit’s opinion in Felton v. Polles, 315 F.3d 470 (5th Cir.
2002).1
Defendants’
primary
argument
underlying
contentions
that
state employment discrimination and wage payment claims should be
dismissed
is
that
the
individual
defendants
do
not
fit
the
statutory definition of “employer” and thus Plaintiffs’ claims
should be dismissed.
Defendants
(Rec. Doc. No. 63-1 at 3-5).
next
contend
that
claims
of
negligent
misrepresentation against individual defendants must be dismissed
as such a tort theory, among other elements, requires the existence
of a legal duty on defendants’ part to supply correct information
to
a
plaintiff,
not,
government/State agency”.
Doc. No. 50 at 26).
as
Plaintiffs
allege,
a
“third-party
(Rec. Doc. No. 63-1 at 6) (quoting Rec.
As the requisite duty to supply Plaintiffs
information did not exist for all Defendants, Defendants argue,
those claims must be dismissed.
(Rec. Doc. No. 63-1 at 6).
Defendants assert that claims of unjust enrichment must be
dismissed as to all Defendants because of the availability of other
1
Plaintiffs rightly note that the court in Felton “did not foreclose
individual liability, rather it dismissed the claim on qualified immunity
grounds.” (Rec. Doc. No. 77 at 5) (citing Felton, 315 F.3d at 483).
3
legal relief. Id.
They claim that as “Plaintiffs clearly assert[]
legal claims pursuant to FLSA and La. R.S. 23:631 et seq.” for what
Defendants allege are “the same damages”, “another legal remedy is
available”.
B.
Id. at 7.
Contentions of Plaintiffs
Plaintiffs contend that claims under § 1981 should be allowed
to proceed, as individual defendants may be found liable for
discriminatory acts pursuant to Fifth Circuit precedent.
Doc. No. 77 at 4-5).
(Rec.
Next, they argue against dismissal of claims
under Louisiana employment discrimination and wage payment statutes
because
the
second
amended
complaint
alleges
the
individual
defendants are “employers” within the statutory definitions of the
statutes.2
Id. at 6-12.
Regarding claims for negligent misrepresentation of Plaintiff
Susanne Zeilinger’s work hours, allegedly resulting in her denial
of unemployment insurance benefits,
Plaintiffs contend that under
Louisiana law and jurisprudence, “the duty to supply correct
information extends to disclosures to third parties.”
No. 77 at 14).
(Rec. Doc.
As such, Plaintiffs contend their allegations of
Defendants’ failure to supply correct information about Zeilinger
to the Louisiana Workforce Commission precludes dismissal of these
2
Before countering Defendants’ argument that Plaintiffs’ negligent
misrepresentation claims should be dismissed, Plaintiffs submit that “as alleged
in the Second Amended Complaint, relationships between defendants permit
plaintiffs to ‘pierce the corporate veil’ to prove liability.” (Rec. Doc. No.
77 at 12-13).
4
claims.
Id. at 15.
Finally, Plaintiffs argue that claims for unjust enrichment
are “alternative pleadings and must go forward”
regardless of the
availability of other legal remedies. Id. at 16. “Plaintiffs also
note that several of the Plaintiffs are[,] on the face of the
Second Amended Complaint[,] unable to recover under the Fair Labor
Standards Act or the [Louisiana Wage Payment Act] and have only
unjust enrichment claims” if the jury finds a violation of FLSA was
not willful, and therefore subject to the two year statute of
limitations rather than the three year limitation for willful
violation.3
Id. at 16-17.
The second amended complaint states
that “Plaintiffs Thomas Bodnar and Terrence Reed specifically
allege that Defendants have been enriched by their labor for
periods of time beyond which they is [sic] unable to recover under
the FLSA or the LWPA.”
(Rec. Doc. No. 50 at 27).
contend
and
that
Bodnar
Reed
have
only
Thus, Plaintiffs
claims
for
unjust
enrichment; as “several more” Plaintiffs may only have such a claim
depending upon the applicable statute of limitations.
III.
A.
Law and Analysis
12(b)(6) Standard
3
It should be noted that Plaintiffs do contend that Defendants’ alleged
violations of FLSA were willful. (Rec. Doc. No. 77 at 16).
5
When reviewing a motion to dismiss, courts must accept all
well-pleaded
facts
as
true
and
view
favorable to the non-moving party.
196 (5th Cir. 1996).
them
in
the
light
most
Baker v. Putnal, 75 F.3d 190,
However, "[f]actual allegations must be
enough to raise a right to relief above the speculative level."
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "'To survive
a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is
plausible on its face.'"
Gonzales v. Kay, 577 F.3d 600, 603 (5th
Cir. 2009) (quoting Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009))
(internal quotation marks omitted).
The Supreme Court in Iqbal
explained that Twombly promulgated a "two-pronged approach" to
determine whether a complaint states a plausible claim for relief.
Iqbal, 129 S.Ct. at 1950.
First, courts must identify those
pleadings that, "because they are no more than conclusions, are not
entitled to the assumption of truth." Id. Legal conclusions "must
be supported by factual allegations." Id. "Threadbare recitals of
the elements of a cause of action, supported by mere conclusory
statements, do not suffice."
Id. at 1949.
Upon identifying the well-pleaded factual allegations, courts
then
“assume
their
veracity
and
then
determine
plausibly give rise to an entitlement to relief.”
whether
they
Id. at 1950.
“A
claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that
6
the defendant is liable for the misconduct alleged.”
Id. at 1949.
This is a “context-specific task that requires the reviewing court
to draw on its judicial experience and common sense.”
plaintiffs
must
“nudge[]
conceivable to plausible.”
B.
their
claims
across
the
Id.
The
line
from
Twombly, 550 U.S. at 570.
Individual Liability Pursuant to § 1981
Defendants state that although Fifth Circuit’s opinion in
Felton v. Polles, 315 F.3d 470 (5th Cir. 2002) noted that “it had
not yet decided ‘whether a § 1981 claim lies against an individual
defendant not a party to the contract giving rise to a claim,’” it
did
note
that
liability
exists
where
“‘essentially the same’ as the state . . . .”
the
individual
is
(Rec. Doc. No. 63-1
at 3).
The
plaintiff
in
Felton,
a
long
time
employee
of
the
Mississippi Department of Wildlife, Fisheries, and Parks alleged
racially discriminatory conduct against the State and two of her
supervisors in their individual capacities.
Id. at 473.
On
appeal, the Fifth Circuit reversed the district court’s denial of
qualified immunity as to Plaintiffs’ § 1981 and § 1983 claims.
Id.
The issues involved in Felton are in part distinguishable from
those of the case sub judice; Plaintiffs here have made neither §
1983 claims nor other claims against the state or an arm of the
state.
Additionally, parts of Felton have since been at least
7
partially abrogated by Burlington N. & Santa Fe Ry. Co. v. White,
548 U.S. 53 (2006).
However, Fifth Circuit precedent has partially delineated the
scope of individual liability under § 1981.4
In Foley v. Univ. of
Houston Sys., 355 F.3d 333, 337 (5th Cir. 2003), where defendants
were technically co-workers of plaintiffs, the court noted that
defendants “exercised control over the faculty positions and titles
held by” the plaintiffs when making certain voting decisions that
became the predicate acts for plaintiffs’ § claims pursuant to §
1981.
“We have . . . accepted that § 1981 liability will lie
against an individual defendant if that individual is “‘essentially
the same’ as the State for the purposes of the complained-of
conduct.” Id. at 337 (citing Felton, 315 F.3d 470, quoting Bellows
v. Amoco Oil Co., 118 F.3d 268, 274 (5th Cir. 1997)).
Simply put, “[a]n employee who exercises control over the
plaintiff
with
respect
to
an
employment
decision
may
be
individually liable if the employee was ‘essentially the same’ as
the employer in exercising this authority.”5
Miller v. Wachovia
Bank, N.A., 541 F.Supp.2d 858, 863 (N.D. Tex. 2008) (citing Foley,
4
See Faraca v. Clements, 506 F.2d 956, 957 (5th Cir.1975); Bellows v. Amoco
Oil Co.,118 F.3d 268, 274 (5th Cir. 1997).
5
See also Hicks v. IBM, 44 F.Supp.2d 593, 597 (S.D.N.Y. 1999) (denying
individual defendant’s 12(b)(6) motion to dismiss plaintiff’s § 1981 claims for
a hostile work environment because plaintiff pleaded that defendant “exercised
supervisory authority over [p]laintiff.”
8
355 F.3d at 337-38); see also Leige v. Capitol Chevrolet, Inc., 895
F.Supp. 289 (M.D. Ala. 1995) (denying defendants summary judgment
motion in § 1981 wrongful discharge action because defendants,
general manager and CEO of company, were in position to influence
employment decisions).
Here,
after
discussing
the
positions
as
outlined
supra,
Plaintiffs allege that “the management team at the restaurants,
Directors and Officers of Defendant corporations, and Members of
Defendant
corporations,
are
solely
responsible
for
.
.
.
supervisory decisions” over Plaintiffs’ employment. (Rec. Doc. No.
50 at 6, 8, 10). Plaintiffs’ second amended complaint sufficiently
alleges facts to preclude dismissal of their § 1981 claims.
C.
Louisiana Employment Discrimination Claims
Louisiana Revised statutes 23:302(1) defines “Employee”
as “an individual employed by an employer”; 23:302(2) defines
“Employer” in pertinent part, as “a person, association, legal or
commercial entity . . . receiving services from an employee and, in
return, giving compensation of any kind to an employee.”
It
follows the dictates of logic and common sense that individual
defendants who do not meet this definition cannot be held liable
for a violation of the following statutes.6
6
Defendants cite Wright
“It is [] well established that ‘Louisiana’s antidiscrimination law
provides no cause of action against individual employees, only against
employers.’” Johnson et al. v. Acosta et al., No. 10-1756, Rec. Doc. No. 32 at
9
v. Sears Roebuck & Co., No. 09-1498, 2010 WL 148173 at *3 (W.D. La.
Jan. 12, 2010) in which the district court, considering the
Magistrate
Judge’s
report
and
recommendations,
dismissed
plaintiffs’ claims against individual defendants where “plaintiffs'
petition
contains
[individual]
no
allegations
defendants
.
.
.
or
may
basis
be
an
for
finding
‘employer’
that
under
Louisiana's Employment Discrimination Law. Indeed, plaintiffs do
not even so argue.”
Id. at *4.
Here, Plaintiffs’ second amended complaint alleges that “[a]t
all
times
employers
relevant
of
23:302(2).”7
the
to
this
Plaintiffs
action,
as
the
defined
(Rec. Doc. No. 50 at 4).
Defendants
by
La.
were
Rev.
the
Stat.
Plaintiffs further allege
that Defendants “have a policy and practice of paying cash to
employees
in
lieu
of
paychecks,
which
paychecks
are,
information and belief, printed but retained by Defendants.”
at 9.
upon
Id.
The complaint also alleges that each individual defendant
“employed Plaintiffs in [his/her] individual capacity.” (Rec. Doc.
No.
50
at
6).
Thus,
Plaintiffs’
complaint
argues
that
all
defendants, including those individually named were “employers”
12, 2010 WL 4025883 (E.D. La., 2010 Oct. 12, 2010).
7
Plaintiffs also allege that “all Defendants are so financially related and
their management so intertwined, as to together form one unified operation or
together maintain an enterprise with common control, under 29 U.S.C. §203(r).”
Id. at 6.
10
within the applicable statutory definition and that they “gave
compensation” in cash.
These allegations preclude dismissal under
Rule 12(b)(6) and as such, Defendants motion here should be denied.
D.
Louisiana Wage Payment Act Claims
The Louisiana Wage Payment Act (“LWPA”), La. Rev. Stat.
Ann. § 23:631 et seq., does not define “employee” and “employer”
although, the § 631(A)(1)(a) states:
Upon the discharge of any laborer or other employee of
any kind whatever, it shall be the duty of the person
employing such laborer or other employee to pay the
amount then due under the terms of employment, whether
the employment is by the hour, day, week, or month, on or
before the next regular payday or no later than fifteen
days following the date of discharge, whichever occurs
first.
Defendants contend that the dispositive issue remains whether
the individual defendants are “employers” within the context of the
above quoted statute.
(Rec. Doc. No. 63-1 at 4-5).
Defendants
state “it is undisputed that none of the individual defendants
employed Plaintiffs.”
Id. at 5.
However, that issue is disputed,
at least in the context of a motion to dismiss.
As discussed
supra, Plaintiffs’ second amended complaint puts forth allegations
sufficient to survive the analysis attendant disposition of a
motion to dismiss pursuant to Rule 12(b)(6). It remains to be seen
whether in another context, e.g. summary judgment, there are
11
material
factual
disputes
relative
to
Defendants’
status
as
employees of Plaintiffs.
E.
Negligent Misrepresentation Claims
Under Louisiana Civil Code article 2315, a party may
recover in tort for economic losses caused by negligent
misrepresentation. For the cause of action to arise,
whether the plaintiff is a third party or a party to the
contract/transaction, there must be a legal duty on the
part of the defendant to supply correct information,
there must be a breach of that duty, which can occur by
omission as well as by affirmative misrepresentation, and
the breach must have caused the plaintiff damage.
Beta Technology, Inc. v. State Indus. Products Corp., No. 06-735,
2008 WL 4330105 at *4 (M.D. La. Sept. 15, 2008) (citing Barrie v.
V.P. Exterminators, Inc., 625 So.2d 1007, 1015-16 (La. 1993);
Kadlec Medical Center v. Lakeview Anesthesia Assoc., 527 F.3d 412,
418 (5th Cir. 2008)).
The above cited passage does not require the existence of a
legal duty to supply correct information to the plaintiff as did
the Louisiana Court of Appeal for the First Circuit in Busby v.
Parish Nat. Bank, 464 So.2d 374, 377 (La. App. 1st Cir. 1985).
Interestingly,
neither
party
addresses
or
even
makes
passing
mention of the problems unique to the State of Louisiana in the
context of the Erie doctrine.8
However, when viewing the pleadings
8
See John Burritt McArthur, Good Intentions Gone Bad: the Special
No-deference Erie Rule for Louisiana State Court Decisions, 66 La. L. Rev. 313,
337 (2006). “Erie ‘does not command blind allegiance to [any] case on all fours
with the case before the court,’ and, moreover, that [] ‘flexibility is even
greater’ when analyzing the law in Louisiana, a state where caselaw is only
12
and law in light of the standard for 12(b)(6) motions, it is clear
that
Plaintiff
Susanne
Zeilinger’s
claims
for
negligent
misrepresentation cannot be dismissed at this juncture.
F.
Unjust Enrichment Claims
Louisiana Civil Code article 2298, codifies the Louisiana
doctrine of unjust enrichment stating, in pertinent part:
A person who has been enriched without cause at the
expense of another person is bound to compensate that
person. The term "without cause" is used in this context
to exclude cases in which the enrichment results from a
valid juridical act or the law. The remedy declared here
is subsidiary and shall not be available if the law
provides another remedy for the impoverishment or
declares a contrary rule.
The elements of an unjust enrichment claim are: (1) an enrichment
of the defendant; (2) an impoverishment of the plaintiff; (3) a
connection between the enrichment and the resulting impoverishment;
(4) an absence of justification or cause for the enrichment and
impoverishment; and (5) there must be no other remedy at law
available to the plaintiff.9
“The unjust enrichment remedy is
‘only applicable to fill a gap in the law where no express remedy
‘secondary information.’” Id. (quoting Shelp v. National Sur. Corp., 333 F.2d
431, 439 (5th Cir. 1964) and Green v. Walker, 910 F.2d 291, 294 (5th Cir. 1990)).
9
Baker v. Maclay Properties Co., 648 So.2d 888, 897 (La. 1995).
See
Westbrook v. Pike Elec., LLC, 2011 WL 2601013 at *6-7 (E.D. La. June 30, 2011)
(citing Walters v. MedSouth Record Management, LLC, 38 So. 3rd 243, 244 (La.
2010), quoting Mouton v. State, 525 So.2d 1136, 1142 (La. App. 1st. Cir. 1988));
Bauer v. Dean Morris, L.L.P., 2011 WL 1303806 at *8 (E.D. La. Mar 30, 2011). See
also McCullum v. McAlister’s Corp. of Mississippi, 2010 WL 4364369 at *3 (E.D.
La. Oct. 21, 2010) (citing Baker, 648 So.2d at 897).
13
is provided.’”
Westbrook v. Pike Elec., LLC, 2011 WL 2601013 at
*6-7 (E.D. La. June 30, 2011) (citing Walters v. MedSouth Record
Management, LLC, 38 So. 3rd 243, 244 (La. 2010)).
“The mere fact
that a plaintiff does not successfully pursue another available
remedy does not give the plaintiff the right to recover under the
theory of unjust enrichment.” Walters, 38 So.2d at 245 (citing Jim
Walter Homes v. Jessen, 98–1685, p. 13 (La. App. 3 Cir. 3/31/99),
732 So.2d 699, 706).
Under the FLSA the applicable statute of limitations on a
cause of action for unpaid wages differs depending on willfulness
of the violator; the applicable portion states, in pertinent part:
Any action . . . to enforce any cause of action for
unpaid minimum wages, unpaid overtime compensation, or
liquidated damages, under the Fair Labor Standards Act
may be commenced within two years after the cause of
action accrued, and every such action shall be forever
barred unless commenced within two years after the cause
of action accrued, except that a cause of action arising
out of a willful violation may be commenced within three
years after the cause of action accrued . . . .
29 U.S.C. § 255(a).
Here, Defendants maintain that as Plaintiffs “clearly assert[]
legal claims pursuant to FLSA and LA. R.S. 23:631 et seq. for these
same damages”, another remedy at law is available.
Plaintiffs’
second amended complaint makes clear that Plaintiffs Bodnar and
Reed are “unable to recover under the [FLSA] or the LWPA.”
If the
jury’s determination of willfulness requires application of the two
14
year statute of limitations, “several plaintiffs [would be left]
with only unjust enrichment claims.”
(Rec. Doc. No. 77 at 17).
However, the fact that some claims may eventually be barred by the
applicable statute of limitations does not mean the law provides no
other remedy; Plaintiffs’ own syntax and diction make it clear that
other remedies are currently available.
The second amended complaint appears to waive all claims for
damages made by Plaintiffs Bodnar and Reed under any theory of
recovery, save a cause of action sounding in unjust enrichment.
Additionally, it would appear that only Plaintiffs Bodnar and
Reed’s claims of unjust enrichment may be allowed to proceed
against all defendants with such claims, at this juncture.
G.
Title
Automatic Stay - 11 U.S.C. § 362
11
United
States
Code
section
362,
regarding
an
automatic stay of certain proceedings states, in pertinent part:
(a) Except as provided in subsection (b) of this section,
a petition filed under section 301, 302, or 303 of this
title, or an application filed under section 5(a)(3) of
the Securities Investor Protection Act of 1970, operates
as a stay, applicable to all entities, of–
(1) the commencement or continuation, including the
issuance or employment of process, of a judicial . . .
proceeding against the debtor that was or could have been
commenced before the commencement of the case under this
title, or to recover a claim against the debtor that
arose before the commencement of the case under this
title . . . .
15
“Numerous courts have found that actions against solvent
codefendants
generally
are
not
stayed
codefendants's filing of bankruptcy.”
by
an
insolvent
In re Babcock & Wilcox Co.,
2001 WL 536305, at *2 (E.D. La. May 18, 2001) (citing In re S.I.
Acquisition, Inc., 817 F.2d 1142, 1147 (5th Cir. 1987); Teachers
Ins. and Annuity Ass'n of America v. Butler, 803 F.2d 61, 65 (2d
Cir. 1986); Fortier v. Dona Anna Plaza Partners, 747 F.2d 1324,
1329-30 (10th Cir. 1984); Williford v. Armstrong World Indus.,
Inc., 715 F.2d 124, 126-27 (4th Cir. 1983); Lynch v. Johns-Manville
Sales Corp., 710 F.2d 1194, 1196-97 (6th Cir. 1983); Austin v.
Unarco Indus., Inc., 705 F.2d 1, 4-5 (1st Cir. 1983), cert. denied,
463 U.S. 1247, 104 S.Ct. 34 (1983); Pitts v. Unarco Indus., Inc.,
698 F.2d 313, 314 (7th Cir.1983) (per curiam)).
Defendant Bourbon Saloon Incorporated d/b/a Mango Mango and
Old Absinthe House f/k/a Conti Management Group, Inc. f/k/a Dantes
of Decatur, Inc. f/k/a Newport Corporation is the only debtor named
in the related bankruptcy proceeding pending in United States
Bankruptcy Court for the Eastern District of Louisiana, Case No.
11-11518.
applies,
At issue here is whether the automatic stay provision
or
rather
extends
to
the
Debtor’s
co-defendants.
Generally, an automatic stay pursuant to 11 U.S.C. § 362(a)(1) acts
to stay proceedings against the debtor and does not extend to
16
third-parties or co-defendants.10 Matter of S.I. Acquisition, Inc.,
817 F.2d 1142, 1147 (5th Cir. 1987).
In S.I. Acquisition, the court explained that extension of the
automatic stay under 362(a)(1) to non-bankrupt defendants “who were
not related to or components of the debtor did not advance the
underlying purposes of the automatic stay provisions.”
Boudreaux
v. Americon, Inc., 2000 WL 1285400 at *2 (E.D. La. Sep. 12, 2000)
(citing Matter of S.I., 817 F.2d 1142 (5th Cir. 1987)).
However,
“in very limited situations, a section 362(a)(1) stay may apply to
actions against nonbankrupt defendants.”
Matter of S.I., 817 F.2d
at 1147; see also Creighton v. Fleetwoood Enters., Inc. 2009 WL
1210881
at
*1
(E.D.
La.
May
4,
2009)
(citing
In
Re
S.I.
Acquisition). Those “very limited situations” have been recognized
“in circumstances where the debtor and nonbankrupt party can be
considered one entity or as having a unitary interest,” in those
cases, “a section 362(a)(1) stay may suspend the action against a
nonbankrupt codefendant.”
Boudreaux, 2000 WL 1285400 at *2.
The
court in S.I. Acquisition stated:
This ‘unusual situation,’ it would seem arises when there
is such identity between the debtor and the third-party
10
See also Lynch v. Johns-Manville Sales Corp., 710 F.2d 1194, 1197 (6th
Cir. 1983) (noting that “[t]he legislative history of § 362 discloses a
congressional intent to stay proceedings against the debtor, and no other, to
preserve the status quo of the estate in an effort to ultimately effect and
implement, to the extent possible, a successful and equitable reorganization or
liquidation.”).
17
defendant that the debtor may be said to be the real
party defendant and that a judgment against the
third-party defendant will in effect be a judgment or
finding against the debtor.
S.I. Acquisition, 817 F.2d at 1148.11
Here, there appears to be no
“unusual situation” warranting extension of the stay to defendants
other than the debtor in the related bankruptcy proceeding noted
supra.
As such, the automatic stay of 11 U.S.C. § 362(a) applies
only to proceedings against the debtor in the related bankruptcy
proceeding and no further; trial against the remaining defendants
shall proceed according to the scheduling order to be issued
following a scheduling conference with the Case Manager.
New Orleans, Louisiana, this 29TH day of September, 2011.
________________________________
UNITED STATES DISTRICT JUDGE
11
The S.I. Acquisition court noted that other courts, in those “very
limited situations,” have found “that a nonbankrupt codefendant may be protected
by the automatic stay of section 362(a)(1) if extension of the stay contributes
to the debtor's efforts of rehabilitation or the debtor and nonbankrupt are
closely related.” Id. at 1147. (citing Teachers Insurance, 803 F.2d at 65; In
re Johns-Manville Sales Corp., 33 B.R. 254, 263-64 (Bankr.S.D.N.Y.1983); In re
Old Orchard Investment Co., 31 B.R. 599, 603 (Bankr.W.D.Mich.1983); In re
Johns-Manville Sales Corp., 26 B.R. 405, 410 (Bankr.S.D.N.Y.1983); In re Otero
Mills, Inc., 25 B.R. 1018, 1020-21 (Bankr.D.N.M.1982); In re Metal Center, 31
B.R. 458, 462 (D.Conn.1983)).
18
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