New Bankruptcy Opinion: JA DAVIS PROPERTIES, LLC v. ESCO-VINA, LLC – Dist. Court, WD Louisiana, 2014

J.A. DAVIS PROPERTIES, L.L.C. Plaintiff

v.

ESCO-VINA, L.L.C., F/K/A VINA TEXAS METAL TRADING, L.L.C., & KEVIN NGUYEN Defendants.

Civil Action No. 2:12-CV-01169.

United States District Court, W.D. Louisiana, Lake Charles Division.

May 15, 2014.

MEMORANDUM RULING

PATRICIA MINALDI, District Judge.

Before the court is the Motion to Limit Effect of the 11 U.S.C. § 362 Stay, or Alternatively, Motion to Sever [Doc. 30], filed by J.A. Davis Properties, L.L.C. (plaintiff), to which the defendant, Kevin Nguyen (Nguyen), has filed an Opposition [Doc. 40]. For the following reasons, the Motion is hereby GRANTED.

FACTS & PROCEDURAL HISTORY

The plaintiff filed suit against Esco-Vina, L.L.C. (Esco-Vina), and Nguyen, on or about March 12, 2012, in the Thirty-Eighth Judicial District Court for the Parish of Cameron, Louisiana, in connection with Esco-Vina’s alleged breach of a lease contract. [1] The state court petition alleges that the plaintiff had leased properties to Esco-Vina, and that Esco-Vina had essentially failed to live up to its obligations under the lease as to the maintenance and repair of the property. [2] The petition further alleges that Nguyen is liable in solido with Esco-Vina for all of the costs of restoration and remediation of the subject property, having executed a personal guarantee of the lease. [3]

The case was removed on May 4, 2012, pursuant to the court’s diversity of citizenship subject matter jurisdiction under 28 U.S.C. 1332(a). [4] On August 2, 2012, Esco Vina [5] filed a Notice of Automatic Stay [Doc. 22], advising the court that Esco-Vina had filed a voluntary petition for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Western District of Texas, bearing case number 12-11356. [6] Thus, the automatic stay provided for by 11 U.S.C. § 362(a) [7] is presently in force as to Esco-Vina; this is undisputed. On March 11, 2013, the plaintiff filed the instant Motion [Doc. 30] essentially seeking either a declaration that the stay currently in effect does not prohibit the prosecution of the claims against Nguyen, or, in the alternative, the severance of the plaintiff’s claims against Nguyen from those asserted against Esco-Vina. [8]

LAW & ANALYSIS

In support of its Motion [Doc. 30], the plaintiff relies on GATX Aircraft Corporation v. M/V Courtney Leigh, 768 F.2d 711 (5th Cir. 1985), [9] in which the United States Fifth Circuit Court of Appeals clearly stated that, “while the stay protects the debtor who has filed a bankruptcy petition, litigation can proceed against other co-defendants.” [10] Id. at 716. Indeed, it is well-established that “[s]ection 362 is rarely . . . a valid basis on which to stay actions against non-debtors.” Arnold v. Garlock, Inc., 278 F.3d 426, 435 (5th Cir. 2001) (citing Wedgeworth v. Fibreboard Corp., 706 F.2d 541, 544 (5th Cir. 1983) ).

Nguyen asserts that the automatic stay extends to Nguyen on the grounds that “continuation of the action would interfere with Esco-Vina’s bankruptcy proceeding.” [11] In support, Nguyen argues that “a court retains the power to enjoin the action if continuation of the action would interfere substantially with the debtor’s reorganization.” [12] Indeed, the Fifth Circuit has recognized a relatively narrow exception to the general rule that 11 U.S.C. § 362 applies only to debtors in every instance; “a bankruptcy court may invoke § 362 to stay proceedings against nonbankrupt co-defendants where `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.'” Reliant Energy Services, Inc. v. Enron Canada Corp., 349 F.3d 816, 825 (5th Cir. 2003) (citing A.H. Robins, Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986) ). See also Arnold, 278 F.3d 426, 436 . There is little argument made herein, nor evidence offered, which would support a finding that this exception is applicable to the instant facts. See, e.g., Compass Bank v. Vey Finance, L.L.C., et al., No. EP-10-cv-137-PRM, 2011 U.S. Dist. LEXIS 98064, at *6 (W.D. Tex. Jun. 1, 2011) (holding that this exception did not apply to non-bankrupt co-defendants under similar circumstances). Furthermore, the Fifth Circuit has indicated that the ability to stay a proceeding against a non-bankrupt party in this manner is discretionary. See, e.g., Reliant Energy Servs., Inc., 459 F.3d at 825 (noting that such an exceptional stay “may” be invoked by the bankruptcy court).

In GATX, as here, the non-bankrupt co-defendants were guarantors of the bankrupt parties’ obligation to the plaintiff, GATX. GATX, 768 F.2d at 713 . When the bankrupt parties defaulted, GATX sued both the non-bankrupt guarantors and the bankrupt parties, alike. [13] Id. at 714.

First, [the defendants] suggest[ed] that GATX was required to sever [the bankrupt parties] at the trial court level in order not to violate the automatic stay. Second, they assert[ed] that their claims . . . against [the bankrupt parties] were so intertwined with their liability to GATX that it [would have been] inequitable to render judgment against the Guarantors at [the] time. . . . In any event both of these assertions lack[ed] merit and border[ed] on frivolousness.

Id. at 715-16. The Fifth Circuit continued by stating that “[t]o prevent or delay GATX from enforcing its rights in a situation foreseen by it and contractually provided for with each guarantor would be, under these circumstances, legally inequitable.” Id. at 717. The court finds this reasoning persuasive and applicable to the instant facts.

The court can see no reason why the automatic stay should extend to Nguyen. [14] While Nguyen argues that this court does not possess jurisdiction to “limit” the automatic stay of 11 U.S.C. § 362, [15] the court herein is merely recognizing the well-defined scope of the statutory stay provision under well-established federal law. Accordingly,

IT IS ORDERED that the plaintiff’s Motion [Doc. 30] is GRANTED insofar as it seeks recognition by the court that the 11 U.S.C. § 362 stay issued by the bankruptcy court as to the bankrupt defendant, Esco-Vina, does not apply to claims asserted by the plaintiff against Nguyen in the above-captioned matter. As such, it is unnecessary to address the plaintiff’s alternative request for severance.

[1] See Not. of Removal [Doc. 1], at 1. See also Mot. to Sever [Doc. 30], at ¶¶ 1-2.

[2] Pet. [Doc. 1-2], at ¶¶ 2, 4.

[3] Pet. [Doc. 1-2], at ¶ 13.

[4] Not. of Removal [Doc. 1], at 3.

[5] It should be noted that Esco-Vina was originally known as Vina Texas Metal Trading, L.L.C., and further advises the court in its Notice of Automatic Stay [Doc. 22], that it is now known as SEM Holdings, L.L.C. However, for purposes of clarity and consistency, the court will continue to refer to the defendant L.L.C. as Esco-Vina.

[6] See Not. of Automatic Stay [Doc. 22], at 1.

[7] See 11 U.S.C. § 362(a), stating

(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, administrative, or other action or 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;

(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;

(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;

(7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and

(8) the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor that is a corporation for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title.

[8] Mot. to Sever [Doc. 30], at ¶¶ 1-4.

[9] See Memo. in Supp. [Doc. 30-1], at 2.

[10] The GATX Aircraft court also rejected the argument that the claims against the non-bankrupt party needed to be necessarily severed in order to proceed. GATX, 768 F.2d at 715-16 .

[11] Opp. [Doc. 40], at ¶ 21.

[12] Id. (citing 3 COLLIER ON BANKRUPTCY ¶ 362.03).

[13] This occurred prior to the bankrupt parties’ filing for bankruptcy. GATX Aircraft Corp., 768 F.2d at 714 .

[14] See also GATX Aircraft Corp., 768 F.2d at 717 (stating that “[t]he inequity, if any, of GATX’s obtaining the instant judgment against Appellants derives largely from Appellants’ investment decision that turned sour”).

[15] Opp. [Doc. 40], at ¶ 2.

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