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suggesting that the "[t]he weight of authority holds that a request to extend a § 362 stay is to be filed in the court where the bankruptcy action is pending, and further, that the request is to be filed by the debtor"
Summary of this case from Baechel v. Republic Storage Sys., LLCOpinion
No. 03 C 5866.
September 15, 2004
MEMORANDUM OPINION
Before the court is defendant Currey's motion to stay proceedings. For the reasons that follow, the motion is denied.
DISCUSSION
Lee filed this action against RCN and Robert Currey alleging that he was unlawfully deprived of stock at the time of a merger between RCN and other related entities. Currey was an officer of one of these related entities at the time of the merger, and became an officer of RCN after the merger.
On May 27, 2004, RCN filed a voluntary petition for Chapter 11 bankruptcy protection in the Bankruptcy Court for the Southern District of New York. On August 11, 2004, Currey filed the instant motion to stay the proceedings arguing that the automatic stay applicable to RCN pursuant to 11 U.S.C. § 362 should be extended to him as well.
The purpose of the automatic stay is to "protect the debtor from an uncontrollable scramble for its assets in a number of uncoordinated proceedings in different courts, to preclude one creditor from pursuing a remedy to the disadvantage of the other creditors. . . ." Fox Valley Constr. Workers v. Pride of the Fox Masonry Expert Restorations, 140 F.3d 661, 666 (7th Cir. 1998) (quoting A.H. Robins Co. v. Piccinin, 788 F.2d 994, 998 (4th Cir. 1986)). It is clear from a plain reading of § 362(a) that the automatic stay applies only to Chapter 11 debtors. 11 U.S.C. § 362(a)(1); see also Fox Valley, 140 F.3d at 666; Pitts v. Unarco Indus., Inc., 698 F.2d 313, 314 (7th Cir.), cert. denied, 464 U.S. 1003 (1983). Adopting a literal reading of § 362(a) comports with the overall purpose of the statute — the section was intended to protect the assets of the debtor for the benefit of creditors, and was "not designed to afford collateral benefits to non-debtor parties involved in litigation with the debtor as party defendants or as co-defendants. The debtor is not stayed from pursuing claims in its favor and plaintiffs are free to pursue the debtor's codefendants." In re. Koop, 2002 WL 1046700, at *3 (Bankr. N.D. Ill. May 23, 2002) (emphasis added).
In certain unusual circumstances, however, an automatic stay under § 362 may be extended to nondebtor co-defendants. See In re. Fernstrom Storage Van Co., 938 F.2d 731, 736 (7th Cir. 1991). The first exception, known as the "identity of interest" exception, applies 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. (quoting A.H. Robins, 788 F.2d at 999). The second exception operates when "the pending litigation, though not brought against the debtor, would cause the debtor, the bankruptcy estate, or the reorganization plan irreparable harm."Id. (citations and internal quotations omitted).
Currey focuses his attention on the "identity of interest" exception. Currey submits that RCN is obligated under its Articles of Incorporation to indemnify him and that RCN in fact has been paying for his defense in the present action. These facts, which appear uncontroverted, make out a colorable claim for extension of the stay under the "identity of interest" exception. See In re. Kmart Corp., 285 B.R. 679, 688 (Bankr. N.D. Ill. 2002). Simply, a judgment against Currey may in effect constitute a judgment against RCN. But Currey has another problem. The weight of authority holds that a request to extend a § 362 stay is to be filed in the court where the bankruptcy action is pending, and further, that the request is to be filed by the debtor. See, e.g., In re. Richard B. Vance Co., 289 B.R. 692, 697 (Bankr. C.D. Ill. 2003); In re. Lennington, 286 B.R. 672, 674 (Bankr. C.D. Ill. 2001); C.H. Robinson Co. v. Paris Sons, Inc., 180 F.Supp.2d 1002, 1015 (N.D. Iowa 2001). This makes sense. The bankruptcy court is in the best position to evaluate the effect on the bankruptcy estate, if any, of litigation against a nondebtor co-defendant. And the request should be filed by the debtor because it is the debtor's interests, not those of the nondebtor co-defendants, that are intended to be protected by an extension of the stay.
Accordingly, Currey's motion for a stay of the proceedings is denied.