Opinion
00-CV-0742E(Sr)
November 7, 2003
MEMORANDUM and ORDER
This decision may be cited in whole or in any part.
Plaintiff commenced this negligence action in the New York State Supreme Court, Erie County, on April 25, 2000 against Consolidated Rail Corporation ("Conrail") Canadian American Transportation, Inc. ("CanAm"), Pierre Desmeules, DT Escort Service (DT") and Nova Permit Pilot Cars (Nova) in connection with an accident that had occurred at a railroad crossing in Corfu, N.Y. on May 29, 1998. The action was subsequently removed to this Court on August 25, 2000 and thereafter, all of the defendants — except DT — filed Answers. DT never appeared and, pursuant to their respective requests, the Clerk of the Court entered default against DT in favor of plaintiff and Conrail on April 9, 2001, Can Am and Desmeules on April 11, 2001 and Nova on May 10, 2001. All parties subsequently filed motions for default Judgment against DT on the issue of liability — Conrail on April 1 9, 2001, plaintiff on April 27, 2001, CanAm and Desmeules on May 15, 2001 and Nova on May 18, 2001. DT failed to appear and, having received no opposition, the undersigned granted all of the respective motions that day by signing orders that had been submitted by the parties. DT made its first appearance in this action by filing a September 25, 2001 Answer and, on May 8, 2002, it filed a motion to vacate the May 18 default Judgment based in part on the fact that it had previously filed for bankruptcy protection in Canada. The Court then issued a February 4, 2003 Memorandum and Order whereby DT's motion was granted and the Court ordered the parties to appear before the Court to show cause why this action should not continue against DT in light of its Canadian bankruptcy filing. Brenton, at *7. The parties subsequently appeared and Conrail argued on behalf of the other parties that, although a stay of proceedings is generally warranted under Canadian bankruptcy law, circumstances exist in this case which permit relief from, or a lifting of, such a stay.
A more detailed recitation of the facts and procedural history of this case is set out in this Court's February 4, 2003 Memorandum and Order. See Brenton v. Consol. Rail Corp., 2003 WL 21383255 (W.D.N.Y. 2003).
All defendants in this case have asserted crossclaims against each other.
In doing sea, this Court held that (1) it would extend end comity to Canada's governing bankruptcy laws and (2), pursuant to such law, DT's Canadian bankruptcy filing operated to stay the present proceeding. See Brenton, at *4-7 Thus, there is no issue regarding whether, and to what extent, this Court should give effect to a Canadian bankruptcy filing. 1 he only issue presently before the Court is whether to lift the automatic stay pursuant to the applicable Canadian bankruptcy law.
Conrail also submitted papers, dated April 4, 2003, in support of its position that this action should continue against DT. DT has submitted no papers in opposition to Conrail's position.
Pursuant to governing law, a stay of collateral proceedings is generally imposed when a party has filed for bankruptcy. See Bankruptcy and Insolvency Act ("BIA"), R.S.C., ch. B-3, s. 69.3(1) (1985) (Can.). However, section 69.3 is subject to section 69.4 which provides:
A creditor who is affected by the operation of [section 69.3]*** may apply to the court for a declaration that those sections no longer operate in respect of that creditor or person, and the court may make such a declaration, subject to any qualifications that the court considers proper, if it is satisfied
"(A) that the creditor or person is likely to be materially prejudiced by the continued operation of those sections; or
(b) that it is equitable on other grounds to make such a declaration. BIA § 69.4.
Conrail argues that this case falls within the purview of section 69.4 and that a stay of the proceedings against DT should be lifted inasmuch as any Judgment against it would be satisfied by its insurer, CGU Insurance Company of Canada ("CGU").
Circumstances in which Canadian courts have lifted a stay of proceedings against a party that has filed for bankruptcy include, Inter alia, (1) actions in respect of a contingent or unliquidated debt, the proof of which and valuation has that degree of complexity which makes the summary procedure prescribed by [the DlAJ (2) inappropriate, (2) actions in which the bankrupt is a necessary party for the complete adju-dication of the matters at issue involving other parties and (3) actions brought to establish Judgment against the bankrupt to enable the Plaintiff to recover under a contract of insurance or indemnity or under compensatory legislation. In re Advocate Mines Limited, [1984] O.J. 1189. The second and third of such circumstances are applicable in this case. DT is a necessary party inasmuch as its participation in the present action is needed to determine its relative liability, if any, in relation to each of the other parties. In addition, the present action falls under the third circumstance because any judgment awarded to plaintiff against DT will be paid by CGU. Finally, section 145 of the BIA provides that:
See also in re Catahan, [2003] O.J. 1300 (noting the clear approval of Advocate Mines by the Court of Appeal for Ontario].
In its Amended Answer, UT has asserted not only an affirmative defense against plaintiff fear contributory negligence but also cross-claims against each of the other defendants for contribution or indemnity.
Nothing in this Act affects the right afforded by provincial statute of any person who has a claim against the bankrupt for damages on account of injury to or death of any person, or injury to property, occasioned by a motor vehicle, or on account of injury to property being carried in or on a motor vehicle, to have the proceeds of any liability insurance policy applied in or toward the satisfaction of the claim." BlA (emphasis added).
DT had liability insurance in place from CGU at the time of the accident at issue and it appears from the record that, although CGU initially denied coverage for the present claims against DT, it no longer denies such coverage and has decided to provide a defense for DT in this matter. See May 6, 2002 Affirmation of Gregory V. Pajak, Esq. ¶ 16; DT's Response to Conrail's First Set of Interrogs. ¶ 1. Thus, the Court finds that continued operation of the automatic stay in this action will materially prejudice the other parties in this action and that, upon consideration of equitable circumstances, such stay should be lifted.
Accordingly, it is hereby ORDERED that the parties have shown cause why this action should continue against DT despite its Canadian bankruptcy filing and that the parties shall respond to DT's crossclaims as contained in its April 24, 2003 Amended Answer within 30 days of the filing of this Order.