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Edwards v. McElliotts Trucking, LLC

United States District Court, S.D. West Virginia, Huntington Division

November 17, 2017

RICHARD EDWARDS, JR., Plaintiff,
v.
McELLIOTTS TRUCKING, LLC; DANNY McGOWAN, individually and as an employee of McElliotts Trucking, LLC and/or as agent of Cardinal Transport; CARDINAL TRANSPORT, INC., Defendants.

          MEMORANDUM OPINION AND ORDER

          ROBERT C. CHAMBERS UNITED STATES DISTRICT JUDGE

         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' bankruptcy petition.

         I. Background

         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).

         II. Jurisdiction

         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.

         III. Analysis

         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 ...


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