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LLC v. 4 Box, LLC

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

April 22, 2019

GIGI'S CUPCAKES, LLC, Plaintiff/Counterdefendant,
v.
4 BOX LLC, et al., Defendants/Counterclaimants,
v.
KEYCORP, LLC, et al., Counterdefendants.

          MEMORANDUM OPINION & ORDER

          JANE J. BOYLE, UNITED STATES DISTRICT JUDGE.

         Four of the counterdefendants in this case-Gigi's Cupcakes, LLC, KeyCorp, LLC, Sovrano, LLC and Gigi's Operating, LLC (collectively the “Debtors”)-have filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division. On January 30, 2019, this Court stayed and administratively closed this consolidated action for ninety days to determine the effect of the bankruptcy proceedings on this action. Doc. 162, Order. The Court requested arguments on whether the stay should be continued after that ninety-day period. Nondebtor counterdefendants Food Business Services, LLC and FundCorp, Inc. and Gina Butler separately moved to extend the ninety-day discretionary stay. Docs. 165 & 166. The franchisees filed a joint response in opposition to these motions. Doc. 169. The moving parties filed replies. Docs. 170 & 171. After reviewing the briefing, the Court finds that-in the interests of justice and to appropriately control its docket-a stay of some of claims in this case is warranted. The Court thus GRANTS, in part, and DENIES, in part, Food Business and FundCorp's motion to stay (Doc. 165) and Gina Butler's motion to stay (Doc. 166).

         I. LEGAL STANDARDS

         A.Automatic Stays

         The automatic stay under 11 U.S.C. § 362(a) generally protects only the debtor in the bankruptcy proceeding, not codebtors, cotortfeasors, or other nondebtors. See Reliant Energy Servs., Inc. v. Enron Can. Corp., 349 F.3d 816, 825 (5th Cir. 2003). Nor does it protect codefendants or preclude severance. Hamel-Schwulst v. Country Place Mortg. Ltd., 406 Fed.Appx. 906, 911 (5th Cir. 2011) (citing Wedgeworth v. Fibreboard Corp., 706 F.2d 541, 544 (5th Cir. 1983)). 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.” Picco v. Glob. Marine Drilling Co., 900 F.2d 846, 850 (5th Cir. 1990). Thus, despite the initiation of the Chapter 11 proceeding here, this Court can “retain jurisdiction to determine the applicability of the stay to litigation pending before [it], and to enter orders not inconsistent with the terms of the stay.” Id.

         But the Fifth Circuit has recognized at least one instance where the stay may be extended to nondebtors-cases where “there is such an 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.” Reliant Energy Servs., 349 F.3d at 825 (quoting A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986)). However, this exception should only apply where a “claim of a formal tie or contractual indemnification ha[s] been made to create an identity of interests between the debtor and nondebtor.” Id.

         B. Discretionary Stays

         District courts have broad, but not unlimited, discretion to stay proceedings “in the interest of justice and in control of their dockets.” Beran v. World Telemetry, Inc., 747 F.Supp.2d 719, 723 (S.D. Tex. 2010) (quoting Wedgeworth, 706 F.2d at 545). As such, district courts may issue a discretionary stay against a nonbankrupt codefendant even when an automatic stay is not appropriate under § 362. Id. (collecting cases). “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 stay can be framed to contain reasonable limits on its duration.” Id. (quoting GATX Aircraft Corp. v. M/V Courtney Leigh, 768 F.2d 711, 716 (5th Cir. 1985)). If there is a “fair possibility” that the stay will harm the nonmovant, the party requesting the stay “must make out a clear case of hardship or inequity in being required to go forward.” Id. (quoting Landis v. N. Am. Co., 299 U.S. 248, 254-55 (1936)).

         II.

         ANALYSIS

         FundCorp, Inc. and Food Business Services, LLC (Doc. 165) and Gina Butler (Doc. 166) move to extend the discretionary stay currently in place. They request that the Court stay all claims against them until the automatic stay is lifted in the related bankruptcy proceedings. This consolidated action is comprised of seventeen individual cases with separate, but very similar, claims against the same parties. FundCorp and Food Business are commercial entities that do business with Gigi's Cupcakes, LLC (the current franshisor) and allegedly benefitted from fraudulent transfers from Gigi's prior to its declaration of bankruptcy. Gigi's Cupcakes is one of the entities that filed for bankruptcy, along with KeyCorp, LLC (Gigi's Cupcakes sole owner), Sovrano, LLC (an investment company associated with Gigi's Cupcakes), and Gigi's Operating, LLC (a subsidiary of KeyCorp that operates the corporate-owned franchises in Texas) (together with FundCorp and FoodBusiness, the “Gigi's Entities”). See Doc. 139, Suggestion of Bankruptcy; Doc. 161, Suggestion of Bankruptcy. Gina Butler is one of the original founders of the Gigi's Cupcakes franchise. But after the original (now-defunct) franchise entities transferred their assets and interests, including the existing franchise agreements, to KeyCorp, Butler claims she no longer has an interest in KeyCorp or Gigi's Cupcakes. Doc. 159, Butler's Mot. to Dismiss, 2.[1] The franchisees, however, allege that Butler still has some interest in these entities. See, e.g., Doc. 6, Franchisee 4Box LLC's Answer & Countercl., ¶¶ 103-04. Because the claims raised against FundCorp and Food Business differ from those raised against Butler, the Court resolves each motion in turn.

         A. Claims Against FundCorp and Food Business Are Stayed.

         The franchisees generally assert the following claims against FundCorp and FoodBusiness:

1. State-law fraudulent transfer;
2. Civil conspiracy;
3. Declaratory judgment; ...

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