BMO Harris Bank N.A. v. Kuskie

Background

On January 4, 2023, the court issued an order granting in part and denying in part several motions to dismiss. On January 17, 2023, Capitol Sales Company, the third-party defendant, informed the court that it had filed for Chapter 7 bankruptcy on December 27, 2022. Capitol Sales stated that the Bankruptcy Code’s automatic stay applied and asked the court to clarify the portion of the January 4 order concerning Curtis Hayes’s claim for advancement of legal fees under Minnesota Statute § 302A.521.

Capitol Sales argued that although the court could deny its motion to dismiss Hayes’s fee-advancement claim, the court should not have required Capitol Sales to pay the fees immediately. Capitol Sales also submitted a report from its special counsel arguing that Hayes was not entitled to advancement. Hayes responded that Capitol Sales had not timely answered his request and that the court should not consider the report. Hayes said he intended to seek an order compelling advancement after conducting discovery.

Fee-Advancement Ruling

The court agreed that part of its January 4 order went too far. It stated that the earlier order properly denied Capitol Sales’ motion to dismiss Hayes’s claim for advancement of legal fees. But the court had understood from the earlier briefing that Capitol Sales’s only objection concerned the timing and technical requirements of Hayes’s request. The court later learned that Capitol Sales also opposed advancement on the merits.

The court concluded that those merits had not been presented in the motions to dismiss. It therefore struck from the earlier order the requirement that Capitol Sales immediately advance the demanded fees. The order did not dismiss Hayes’s fee-advancement claim; the court noted that Hayes intended to pursue a motion to compel after discovery.

Bankruptcy Stay

The court held that the litigation had to be stayed as to Capitol Sales because the stay was mandatory under 11 U.S.C. § 362(a)(1). As a result, Hayes could not conduct discovery or file additional motions concerning Capitol Sales—including a motion seeking advancement of legal fees—while the stay remained in effect. The court clarified that the obstacle was not a missed deadline but the inability to consider such a motion during the bankruptcy stay.

The parties were ordered to file a letter by April 19, 2023, updating the court about the bankruptcy proceedings and advising whether it was appropriate to lift the stay.