Tuesday, January 5, 2010

Bankruptcy Automatic Stay Does Not Impact Co-Defendants

In Puig v. PADC Marketing, LLC, et al (3D09-2094), the Third District granted certiorari and quashed an order indefinitely staying a case.  The opinion discusses the impact of a bankruptcy filing and the automatic stay over co-defendants.

The trial court entered an "order denying plaintiffs’ motion to compel the deposition of R. Donahue Peebles and granting an indefinite stay of this entire action against all defendants pending the completion of the bankruptcy proceeding of only one defendant, PADC Marketing, LLC."  The court stated:
The filing of a bankruptcy petition imposes an automatic stay under the United States Bankruptcy Code. See 11 U.S.C. § 362. The bankruptcy stay is imposed by Congress, protects the debtor, and is triggered by the filing of a voluntary or involuntary petition. The scope of the automatic stay, however, does not include the non-debtors, Collins Avenue and Peebles. As a result, the only way that this action could be properly stayed is through the discretionary power of the lower court. A stay for an indefinite time frame (through the bankruptcy proceeding), like what happened here, is overbroad and improper.
Although the scope of the automatic stay under section 362 is broad, the clear language of section 362(a) stays actions only against a “debtor.”....The language of section 362 refers only to actions against the debtor and does not relate to any other interparty claims....Both federal and state courts in Florida have followed the general rule that the United States Bankruptcy Code generally stays proceedings against the debtor alone, in this case, PADC, which is the only party to this matter that has sought protection from the bankruptcy court.


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