Edwards v. McElliotts Trucking, LLC et al
MEMORANDUM OPINION AND ORDER denying 171 MOTION by Richard Edwards, Jr. for Determination if Bankruptcy Filing Stays the Jury Trial Against Non-Debtor Cardinal Transport, Inc.; staying all proceedings in this matter as against all defendants pendi ng the resolution of McElliotts' bankruptcy petition; directing McElliotts to provide the Court with status reports regarding its ongoing bankruptcy proceedings by May 1 and November 1 of each year until its bankruptcy is resolved; further directing McElliotts to file notice with the Court when its bankruptcy proceedings are resolved, at which time this case will proceed. Signed by Judge Robert C. Chambers on 11/17/2017. (cc: attys; any unrepresented parties) (mkw)
IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
RICHARD EDWARDS, JR.,
CIVIL ACTION NO. 3:16-1879
McELLIOTTS TRUCKING, LLC;
DANNY McGOWAN, individually and as
an employee of McElliotts Trucking, LLC and/or
as agent of Cardinal Transport;
CARDINAL TRANSPORT, INC.,
MEMORANDUM OPINION AND ORDER
Now pending before the Court is Plaintiff’s Motion for Determination as to whether the
statutory stay implemented for the benefit of Defendant McElliotts Trucking, LLC (McElliotts)
following its filing of a bankruptcy petition (ECF No. 172) will apply to claims asserted against
non-debtor defendants Cardinal Transport, Inc. (“Cardinal”) and Danny McGowan (ECF No. 171).
Cardinal and McGowan each filed a response to Plaintiff’s motion (ECF Nos. 173, 174) and
Plaintiff subsequently filed a timely reply (ECF No. 175). For reasons specified herein, Plaintiff’s
motion for hearing is DENIED. Additionally, the Court ORDERS that all proceedings in this
action as against all three remaining defendants be STAYED pending resolution of McElliotts’
On February 26, 2016, Plaintiff filed the present Complaint against McElliotts, Cardinal,
McGowan, and Harold Midkiff (ECF No. 1). The Complaint alleged twelve counts of liability,
including various claims of negligence against each individual defendant, claims for vicarious
liability against McElliotts and Cardinal, and punitive damages (ECF No. 1). Plaintiff later argued
that his Complaint also alleged a joint venture claim (ECF No. 121). Midkiff was later dismissed
as a defendant by stipulation (ECF No. 158). Additionally, Plaintiff’s joint venture claim was
dismissed pursuant to the Court’s ruling on Cardinal’s Motion for Summary Judgment (ECF No.
121). All other claims, however, survived dispositive motions and were set to go to trial on
Tuesday, October 17, 2017.
After a Final Settlement Conference held on Monday, October 16, 2017, which did not
result in settlement, McElliotts filed a voluntary petition for relief in the United States Bankruptcy
Court for the Southern District of West Virginia (ECF No. 170). By statute, when a debtor files a
petition in Bankruptcy Court, all judicial and other proceedings against him must be stayed
pending resolution of the bankruptcy petition. 11 U.S.C. § 362. Accordingly, the Court ordered
that the proceedings in this action be stayed as to all parties’ claims against McElliotts (ECF No.
172). Though all matters were stayed as against McElliotts, Plaintiff filed the present Motion for
Determination as to the status of his claims against non-debtor defendants Cardinal and McGowan
(ECF No. 171).
As a preliminary matter, the Court notes that it retains subject matter jurisdiction over this
case despite the ongoing bankruptcy proceedings related hereto. Holland v. High Power Energy,
248 B.R. 53, 56 (S.D.W.Va. 2000) (citing David v. Hooker, Ltd., 560 F.2d 412, 418 (9th Cir.
1977)). Additionally, “while it is correct that the bankruptcy court is the exclusive forum to
consider a motion for relief from the automatic stay, the district court retains jurisdiction
independent of the bankruptcy court to determine whether a pending civil action is subject to the
automatic stay.” Holland, 248 B.R. at 56. As such, this Court may properly decide Plaintiff’s
motion to determine whether the automatic stay applies to the non-debtor defendants in this case.
In deciding whether claims asserted against a non-debtor defendant should be stayed
pending the resolution of a debtor defendant’s bankruptcy proceedings, the Court may consider
the question in the context of two different legal mechanisms: (1) the statutory automatic stay
prescribed by 11 U.S.C. § 362(a)(1), and (2) the Court’s general equitable powers.
a. Statutory Stay as to Cardinal – Indemnification
11 U.S.C. § 362(a)(1) requires that, once a debtor files a bankruptcy petition, an automatic
stay be placed on any action that was or could have been commenced against him before the filing
of the bankruptcy petition. The purpose of the automatic stay is to protect the bankruptcy debtor.
A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 998 (4th Cir. 1986). As such, it is “generally said
to be available only to the debtor, not third party defendants or co-defendants.” Id. at 999. Under
the terms of this general rule, McElliotts is the only defendant in this case entitled to the protections
of the automatic stay since it is the only defendant who has filed for bankruptcy.
There is an exception to this rule, however, for cases that involve “unusual circumstances.”
Id. Such circumstances may be found “when there is such identity between the debtor and the
third-party 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.” Id.
The Fourth Circuit noted in its decision of Piccinin that “an illustration of such a situation would
be a suit against a third-party who is entitled to absolute indemnity by the debtor on account of
any judgment that might result against them in the case.” Id.
Though the Fourth Circuit’s Piccinin decision continues to be the leading authority
regarding the “unusual circumstances” exception today, district courts have been unable to achieve
any substantial clarity regarding appropriate application of the exception. In 2000, 14 years after
Piccinin, Judge Copenhaver, sitting in this District, declined to extend the § 362 stay even where
the non-debtor defendant requesting an extension of the automatic stay had an indemnification
agreement with the debtor defendant. See Holland, 248 B.R. at 55. The court noted that the
defendants’ interests were not “closely intertwined” as required by Piccinin simply by virtue of
the indemnification agreement and that, because the non-debtor defendant was a potential joint
tortfeasor in the action, the automatic stay would not be extended to him. Id. at 59.
In 2008, though, Judge Hudson of the Eastern District of Virginia extended the automatic
stay to a non-debtor defendant where the non-debtor and debtor defendants had an agreement that
“unambiguously state[d]” that the debtor defendant would indemnify the non-debtor defendant.
Dunnam v. Sportsstuff, Inc., 2008 WL 200287, at *3 (E.D.Va. Jan. 23, 2008). The court in Dunnam
noted that, because of the indemnity agreement between the parties, the case appeared to be
“exactly like the paradigmatic illustration provided by the Fourth Circuit as guidance in Piccinin .
. .” Id. The court found that, if it declined to extend the automatic stay to the non-debtor defendant,
“any finding of liability on the part of [the non-debtor defendant] would pass through to [the debtor
defendant].” Id. The court went on to say, “In effect, the proceeding against [the non-debtor
defendant] would unavoidably become a de facto proceeding against [the debtor defendant] and
would frustrate the purposes of 11 U.S.C. § 362(a)(1). That is exactly the scenario that Piccinin’s
holding was designed to avoid.” Id. Accordingly, the court extended the automatic stay to the nondebtor defendant. Id.
Then, in 2009, Judge Copenhaver again declined to extend the stay in a products liability
case that again involved indemnification. Doyle v. Fleetwood Homes of Va., Inc., 2009 WL
1210697, at *2 (S.D.W.Va. Apr. 30, 2009). In that case, two non-debtor defendants asked to have
the automatic stay extended to them because of their possible right to indemnification from the
debtor defendant. Id. While the court recognized that the non-debtor defendants “may [have been]
entitled to contribution or indemnity from [the debtor defendant],” it found that the situation “[did]
not call for expansion of the stay imposed by § 362(a)(1).” Id. In reaching its decision, the court
noted that the non-debtor defendants had not offered evidence that they would have been entitled
to “absolute indemnity” as required by Piccinin and, accordingly, that they were not entitled to the
benefits of the automatic stay. Id.
Although it is difficult to derive a singular rule of law from Piccinin’s progeny, the case
now before the Court aligns most closely with the facts of Dunnam. As to Cardinal, there is an
indemnification agreement between debtor McElliotts and non-debtor Cardinal, making the
situation unlike the mere possibility of indemnification presented in Doyle. See Doyle, 2009 WL
1210697, at *2. Additionally, while Plaintiff asserts independent claims against Defendant
Cardinal, his claim for vicarious liability against Cardinal is entirely predicated upon a showing of
negligence on the part of McElliotts. This makes his case unlike Holland, where the non-debtor
defendant was independently and primarily liable for claims asserted against him, and the court
accordingly found that his liability was not derivative the liability of the debtor defendant. See
Holland, 248 B.R. at 58.
In Dunnam, on the other hand, a central issue of the case was whether the debtor defendant
had been negligent in its design and manufacturing of a consumer good. Dunnam, 2008 WL
200287, at *3. There was also a valid and relevant indemnification agreement between the debtor
and the non-debtor defendants. Id. The court in that case found that allowing the plaintiff to
proceed against the non-debtor defendant would have necessarily involved a determination as to
whether the debtor defendant had been negligent. Id. The court also found that any judgment
awarded against the non-debtor defendant would have entitled it to file a claim for indemnification
against the debtor defendant. Id. In effect, the court found, allowing the plaintiff to continue against
the non-debtor defendant in the debtor defendant’s absence would have “unavoidably become a
de facto proceeding against [the debtor defendant] and would [have] frustrate[d] the purposes of
11 U.S.C. § 362(a)(1).” Id.
In this case, the claim of vicarious liability as against Defendant Cardinal is inherently
dependent upon a determination as to whether McGowan and/or McElliotts was negligent.
Additionally, there is an indemnification agreement between the debtor and non-debtor defendants.
As this case’s circumstances align most closely with those in the Dunnam case, the Court FINDS
that Cardinal is entitled to the protection of the automatic stay prescribed in 11 U.S.C. § 362(a)(1)
for the claim of vicarious liability asserted against it. Accordingly, Plaintiff’s claim for vicarious
liability as against Cardinal is STAYED pending resolution of McElliotts’ bankruptcy
b. Statutory Stay as to Cardinal – Derivative Liability
As briefly discussed above, the Holland court noted that the automatic stay should not be
extended to non-debtor defendants who may be found to be independently and primarily liable to
a plaintiff. 248 B.R. at 58. The court expanded upon the definition of the “unusual circumstances”
doctrine by explaining that when a non-debtor’s liability is “derivative of” the liability of a debtor
defendant, such a situation would fit comfortably within the bounds of “unusual circumstances.”
Plaintiff’s claims of negligent hiring and negligent entrustment against Cardinal are
different from his vicarious liability claim against Cardinal because of the possible applicability
of the indemnification agreement. They are similar, however, in the respect that any finding of
liability on Cardinal’s part on these claims requires an underlying finding of negligence on the part
of McElliotts. See Payne v. Kinder, 127 S.E.2d 726, 738 (W. Va. 1962). To succeed in his claim
for negligent entrustment against Cardinal, Plaintiff will be required to prove both that Cardinal
was negligent in entrusting the equipment at issue to McElliotts and/or McGowan, and that
McElliotts and/or McGowan was negligent in using the equipment. Similarly, to prove his claim
for negligent hiring, Plaintiff will need to show some misconduct or negligence on the part of
McElliotts and/or McGowan in addition to proving Cardinal’s negligence.
Both Plaintiff’s negligent entrustment and negligent hiring claims rest on an underlying
determination of whether McElliotts was negligent. As such, these claims against Cardinal are
both derivative of the liability of debtor defendant McElliotts. Given the Holland court’s rule, the
claims are therefore within the scope of the “unusual circumstances” exception and entitled to the
protections of the automatic stay. Accordingly, Plaintiff’s remaining claims asserted against
Cardinal are STAYED pending resolution of McElliotts’ bankruptcy petition.
c. Statutory Stay as to McGowan – Piccinin Exception
As to McGowan, the case before the Court closely mirrors, albeit on a smaller scale, the
facts of Piccinin. In Piccinin, over 5,000 suits were brought against manufacturer A.H. Robins
Co., Inc. regarding their manufacturing and marketing of the Dalkon Shield. 788 F.2d at 995. When
Robins filed for bankruptcy, staying the pending actions against it, plaintiffs in many of those
actions sought to proceed with their cases as against top Robins executives in the executives’
individual capacities. Id. at 996. The Fourth Circuit ultimately found that there was such identity
between Robins and its top executives that “a judgment against the [executives] [would have been]
in effect a judgment or finding against the debtor.” Id. at 999. Accordingly, the court ordered the
claims against Robins’ executives to be stayed pending resolution of Robins’ bankruptcy
In this case, Danny McGowan is the sole owner and operator of McElliotts. Just as was the
case in Piccinin, allowing Plaintiff’s claims against McGowan to proceed would in effect be
allowing his claims against McElliotts to proceed. This would frustrate the purposes of the
automatic stay’s protections. Accordingly, the Court FINDS that Defendant McGowan is entitled
to the protections of the automatic stay provisions. All claims against Defendant McGowan are
therefore STAYED pending resolution of McElliotts’ bankruptcy proceedings.
d. General Equitable Powers
Under their general powers of equity, courts have the inherent power to grant relief to nondebtor defendants in the form of staying claims against them even when those non-debtor
defendants are not entitled to the protections of the automatic stay. Williford v. Armstrong World
Industries, Inc., 715 F.2d 124, 127 (4th Cir. 1983). While the Court FINDS that all remaining
claims against both non-debtor defendants are entitled to the protections of the statutory automatic
stay, the Court also FINDS that considerations of justice and equity weigh in favor of the stay.
Jurisdiction of the Bankruptcy Court
As a final matter, the Court notes that the United States Bankruptcy Court for the Southern
District of West Virginia retains jurisdiction over McElliotts’ bankruptcy proceedings. Pursuant
to 11 U.S.C. §105(a), the Bankruptcy Court has the power to expand or narrow the scope of the
automatic stay if it finds that doing so is “necessary or appropriate to carry out the provisions of
[the Bankruptcy Code].” While this Court finds that it is appropriate to extend the stay to cover all
claims brought against all defendants in this case at this time, Plaintiff may still properly seek relief
from the stay in Bankruptcy Court.
For the reasons specified above, Plaintiff’s motion for hearing is DENIED. The Court
ORDERS that all proceedings in this matter as against all defendants be STAYED pending the
resolution of McElliotts’ bankruptcy petition. Pursuant to the stay, the Court ORDERS McElliotts
to provide the Court with status reports regarding its ongoing bankruptcy proceedings by May 1
and November 1 of each year until its bankruptcy is resolved. The Court further ORDERS
McElliotts to file notice with the Court when its bankruptcy proceedings are resolved, at which
time this case will proceed.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
November 17, 2017
ROBERT C. CHAMBERS
UNITED STATES DISTRICT JUDGE
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