Mardice v. Ebony Media Operations, LLC

Background

The plaintiffs moved by letter to lift a stay in their wage-and-hour case. The stay had been imposed after the defendants informed the court that Ebony Media Operations, LLC and Ebony Media Holdings, LLC were involved in bankruptcy proceedings. The court had previously extended the stay while waiting for the bankruptcy court to address the scope of the stay under 11 U.S.C. § 362(a).

The plaintiffs argued that a December 9, 2020 bankruptcy-court order had lifted the automatic stay, or that the case should at least proceed against CVG Group, LLC, Michael Gibson, and Elizabeth Burnett. The defendants argued that the December 9 order modified the stay only as needed for debtor-in-possession financing and did not generally permit the plaintiffs to pursue discovery against Ebony. They also argued that continuing the case against the non-debtor defendants would be unfair and could lead to indemnification or contribution claims against the bankruptcy debtors.

Automatic Stay as to Ebony

An automatic stay is a legal pause that generally stops actions against a bankruptcy debtor. The court explained that requests for relief from that stay must ordinarily be made to the bankruptcy court under § 362(d). The court found that the December 9 order modified the stay only for the limited purpose of allowing the debtors and lender to complete financing transactions; it did not vacate the stay entirely.

Because the bankruptcy court had not granted broader relief from the stay, and the stay had not lapsed, the court declined to lift the stay as to Ebony or allow discovery against Ebony. The court stated that adjudicating the matter against Ebony before the bankruptcy court ruled on relief from the stay would be inappropriate.

Non-Debtor Defendants

The court explained that an automatic stay normally protects only the bankruptcy debtor, not co-defendants who are not in bankruptcy. Extending the stay to non-debtors requires unusual circumstances, such as evidence that the debtor and non-debtor are effectively the same party, that a judgment against the non-debtor would immediately harm the bankruptcy estate, or that continuing the case would seriously threaten the debtor’s reorganization. The party seeking the extension bears the burden of showing that it is needed.

The court found the defendants’ evidence insufficient as to Gibson and Burnett. The allegations treated them as directly responsible employers based on their personal actions, including hiring, firing, disciplining, and promoting employees. The defendants did not provide indemnification agreements showing that either individual was entitled to absolute indemnification from Ebony, and they did not show that continuing the case against them would seriously threaten Ebony’s reorganization.

The court also declined to extend the stay to CVG. Although CVG and Ebony were financially linked and CVG partially owned Ebony, the defendants did not show the required identity between the companies or demonstrate that proceeding against CVG would affect Ebony’s reorganization. The possibility of a future contribution or indemnification claim was not enough.

Disposition

The court denied in part the plaintiffs’ motion to the extent it sought to lift the automatic stay as to Ebony, and granted in part the motion to the extent it sought an order declining to extend the stay to the non-debtor defendants. The court ordered that proceedings against Ebony remain stayed until the bankruptcy court grants relief from the stay or the stay lapses. It ordered the parties excluding Ebony to submit a new proposed case-management plan and scheduling order by January 21, 2021. The order was without prejudice to the defendants submitting additional evidence later in support of extending the stay.