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Blundell v. Home Quality Care Home Health Care, Inc.

United States District Court, N.D. Texas, Dallas Division

November 29, 2017

SABRINA A. BLUNDELL, on behalf of Herself and all others similarly situated, and ALICIA K. MORGAN, on behalf of Herself and all others similarly situated, Plaintiffs,
v.
HOME QUALITY CARE HOME HEALTH CARE, INC. d/b/a Bethany Home Health Services, BRADLEY P. LASSITER, and WYNDALL S. LANDERS, Defendants.

          MEMORANDUM OPINION AND ORDER

          DAVID L. HORAN, UNITED STATES MAGISTRATE JUDGE

         This case has been referred to the undersigned United States magistrate judge for pretrial management under 28 U.S.C. § 636(b) and a standing order of reference from United States District Judge Sam A. Lindsay. See Dkt. No. 18.

         The Court must now address the nondispositive matter of the effect of the recent bankruptcy filings of Defendant Home Quality Care Home Health Care, Inc., d/b/a Bethany Home Health Services on Plaintiffs Sabrina A. Blundell and Alicia K. Morgan's claims in this case against Defendants Home Quality Care Home Health Care, Inc., d/b/a Bethany Home Health Services, Bradley P. Lassiter, and Wyndall S. Landers, in light of the automatic stay provisions of 11 U.S.C. § 362. See generally Gonzales v. Allstate Vehicle & Prop. Ins. Co., No. 6:17-CV-58-RP-JCM, 2017 WL 4678238, at *1 (W.D. Tex. Oct. 17, 2017) (“Although the Fifth Circuit has never decided whether a motion to sever and abate is a nondispositive matter for the purposes of 28 U.S.C. § 636(b) and [Federal Rule of Civil Procedure] 72, this Court construes motions to sever as nondispositive under those provisions for the following reasons.”); Weiters v. Vannoy, Civ. A. No. 16-14945, 2017 WL 736313, at *1 n.1 (E.D. La. Feb. 24, 2017) (“A magistrate judge has authority to address a motion to stay a proceeding, when the order is not dispositive in that it merely suspends the proceedings and does not result in an absolute denial of ultimate relief.”); U.S. ex rel. Becker v. Tools & Metals, Inc., Nos. 3:05-cv-627-L & 3:05-cv-2301-L, 2013 WL 1293818, at *3 (N.D. Tex. Mar. 31, 2013) (“Motions to stay are nondispositive in nature and thus are subject to the ‘clearly erroneous or contrary to law' standard of review.”); S.E.C. v. Kornman, No. 3:04-cv-1803-L, 2006 WL 148733, at *2 (N.D. Tex. Jan. 18, 2006) (“The United States' Expedited Motion to Intervene and its Expedited Application for Stay of Proceedings, referred to the magistrate judge, are nondispositive motions.”).

         Background

         On October 24, 2017, Defendants Bradley P. Lassiter and Wyndall S. Landers filed a Suggestion of Bankruptcy for Defendant Home Quality Care Home Health Care, Inc. d/b/a Bethany Home Health Services, see Dkt. No. 32, in which they advised the Court of (1) the petition that on October 23, 2017 commenced the chapter 7 case of In Re Home Quality Care Home Health Care, Inc., Case No. 17-33958-sgj7 (Bankr. N.D. Tex.) and (2) the petition that on October 23, 2017 commenced the chapter 7 case of In Re Bethany Home Health of Nacogdoches, Inc., Case No. 17-33961-bjh7 (Bankr. N.D. Tex.).

         The Court then ordered the parties to file briefs explaining their “views on the effect of these bankruptcy filings on Plaintiffs' claims against Defendants Home Quality Care Home Health Care, Inc., d/b/a Bethany Home Health Services [(‘Bethany')] and against Defendants Bradley P. Lassiter and Wyndall S. Landers, in light of the automatic stay provisions of 11 U.S.C. § 362.” Dkt. No. 33.

         Plaintiffs Sabrina A. Blundell and Alicia K. Morgan filed a brief asserting that “this Court should issue an order providing that: 1. Plaintiffs' FLSA and Texas Wage Theft Claims against Bethany are stayed and severed due to Bethany's bankruptcy filing; 2. The Section 362 Stay does not apply to Plaintiffs' FLSA claims against Lassiter and Landers, and those claims in this lawsuit shall proceed; 3. All pending case management order deadlines, if any, applicable to Plaintiffs' claims against Bethany are terminated; and 4. Plaintiffs' rights, if any, to file a motion to lift the stay of Plaintiffs' FLSA and Texas Wage Theft Claims against Bethany shall continue until 30 days after Bethany's bankruptcy proceedings are concluded or dismissed.” Dkt. No. 35 at 6.

         Defendants Bradley P. Lassiter and Wyndall S. Landers filed a brief contending that “[t]his case is subject to an automatic Section 362 bankruptcy stay from the bankruptcy proceedings for Home Quality Care Home Health Care, Inc. and Bethany Home Health Services (together, the ‘Corporate Defendants')” and that “the stay should be extended to Lassiter and Landers because the joint and several liability of the [Fair Labor Standards Act (‘FLSA')] will negatively impact the bankruptcy estate, could have preclusive effect against the Corporate Defendants' rights, and will violate the purposes of any bankruptcy stay for the Corporate Defendants” and requesting that “this Court stay Plaintiffs' claims against them pending the outcome of the bankruptcy proceedings.” Dkt. No. 37 at 1-2. According to Lassiter and Landers, “[r]efusing to extend the stay would require ‘one litigant in one cause [to] be compelled to stand aside while a litigant in another settles the rule of law that will define the rights of both.'” Id. at 1 (quoting Wedgeworth v. Fibreboard Corp., 706 F.2d 541, 544-45 (5th Cir. 1983) (quoting Landis v. N. Am. Co., 299 U.S. 248, 254-55 (1936))).

         Legal Standards and Analysis

         11 U.S.C. § 362(a)(1) provides for an automatic stay of any judicial “proceeding against the debtor.” “Section 362(a)(3) provides that the filing of a petition ‘operates as a[n] [automatic stay] applicable to all entities, of ... any act to obtain possession of property of the estate or of property from the estate'” or “to obtain or exercise control over the property of the debtor.” Matter of S.I. Acquisition, Inc., 817 F.2d 1142, 1148 (5th Cir. 1987) (quoting 11 U.S.C. § 362(a)(3)). In short, the automatic stay generally forestalls any action against debtors in bankruptcy but not against co-debtors, co-tortfeasors, or other non-debtors. See Reliant Energy Servs., Inc. v. Enron Can. Corp., 349 F.3d 816, 825 (5th Cir. 2003).

         The United States Court of Appeals for the Fifth Circuit has held that “a section 362(a)(1) stay is available only for the debtor's benefit and does not prohibit actions against nonbankrupt third parties or codefendants.” Matter of S.I. Acquisition, 817 F.2d at 1147. Thus, “it is well-established ‘that the protections of § 362 neither apply to co-defendants nor preclude severance.'” Hamel-Schwulst v. Country Place Mortg. Ltd., 406 F. App'x 906, 911 (5th Cir. 2010) (quoting Wedgeworth, 706 F.2d at 544).

         Further, “[t]he automatic stay of the bankruptcy court does not divest all other courts of jurisdiction to hear every claim that is in any way related to the bankruptcy proceeding, ” and courts retain jurisdiction “to determine the applicability of the stay to litigation pending before them, and to enter orders not inconsistent with the terms of the stay.” Picco v. Global Marine Drilling Co., 900 F.2d 846, 850 (5th Cir. 1990); see also Arnold v. Garlock Inc., 288 F.3d 234, 236 (5th Cir. 2002) (citing cases).

         One exception to the general rule against extending the stay to non-debtors has been applied where there is “an actual relationship with the debtor such that any judgment would actually apply to the bankrupt party.” Labaty v. UWT, Inc., No. SA-13-CV-389-XR, 2013 November 28, 2017reWL 4520562, at *7 (W.D. Tex. Aug. 26, 2013) (internal quotation marks omitted). The Fifth Circuit has acknowledged the United States Court of Appeals for the Fourth Circuit's holding in A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986), that, “when the liability of the nonbankrupt is not independent of the debtor's liability and a judgment against the nonbankrupt will be binding upon the debtor's estate, the stay protection must be extended to encompass actions against the nonbankrupt.” Matter of S.I. Acquisition, 817 F.2d at 1147-48. That is, the stay may be extended to “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, '” but the Fifth Circuit has declined to extend the stay under this exception where “no claim of a formal tie or contractual indemnification had been made to create an identity of interests between the debtor and nondebtor.” Reliant, 349 F.3d at 825 (quoting A.H. Robins, 788 F.2d at 999; citing Arnold v. Garlock, Inc, 278 F.3d 426, 436 (5th Cir. 2001)); accord Lopez v. Trujillo, 475 B.R. 550, 559 (N.D. Tex. 2012) (“The automatic stay forestalls action against debtors in bankruptcy, not co-debtors, co-tortfeasors, or other non-debtors. The Fifth Circuit has therefore held that it is well established that the protections of § 362 neither apply to co-defendants nor preclude severance. An exception to this general rule may apply to protect non-debtor 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. Section 362, however, is rarely ... a valid basis on which to stay actions against non-debtors.” (internal quotation marks and citations omitted)). “The party invoking the stay has the burden to show that it is applicable.” Beran, 747 F.Supp.2d at 723.

         And the Court may exercise its discretion to stay a proceeding against a non-bankrupt co-defendant in the interests of justice and in control of its dockets. See Wedgeworth, 706 F.2d at 545. As to a discretionary stay issued for the benefit of non-debtor defendants, the Fifth Circuit has explained that such “[a] stay can be justified only if, based on a balancing of the parties' interests, there is a clear inequity to the suppliant who is required to defend while another action remains unresolved and if the order granting a ...


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