Chen v. Lilis 200 West 57th Corp.

Background

Chang Yan Chen sued Lilis 200 West 57th Corp., doing business as Lili’s 57 Asian Cuisine & Sushi Bar; 792 Restaurant Food Corp., doing business as Lilli and Loo; and individual defendants. Chen alleged that the defendants had a policy and practice of not fully paying employees for all hours worked and of not paying time-and-a-half for hours worked above 40 in a workweek. The court had conditionally certified a collective action, and Pei Qin Li later joined as an opt-in plaintiff.

On October 7, 2021, the two corporate defendants and Siew Moy Low filed bankruptcy petitions. Under federal bankruptcy law, that filing created an automatic stay, meaning a pause in litigation against the bankruptcy debtors. The remaining defendants—Alan Phillips, Thean Choo Chong, and Jonah Phillips—asked the court to extend the stay to the entire case.

The Parties’ Arguments

The remaining defendants argued that defending the claims would require discovery of payroll records, time records, and other documents held by the bankrupt defendants. They contended that continuing the case would therefore affect the bankruptcy estates.

The plaintiffs argued that the remaining defendants were independently liable. They also argued that Thean Choo Chong and Jonah Phillips’s claimed lack of involvement in the restaurants showed that they were sufficiently separate from the bankrupt defendants that the stay should not be extended.

Court’s Analysis

The court explained that an automatic bankruptcy stay ordinarily protects only the bankruptcy debtors, not their non-bankrupt co-defendants. An extension to non-debtors is allowed in unusual circumstances, generally when litigation against the non-debtors would have an immediate adverse economic effect on the bankruptcy estate or when the debtor is effectively the real party defending the case.

The court found those circumstances present here. It concluded that discovery and any trial against the non-debtor defendants would necessarily involve records belonging to the corporate defendants, which had employed the plaintiffs. The court reasoned that requiring the non-debtor defendants to produce those records would affect the bankrupt defendants and their reorganization efforts. The court reached the same conclusion for Alan Phillips, even though his position as a 50 percent shareholder might have made him better able to answer some discovery requests.

Disposition

The court granted the motion to stay and stayed the case in its entirety pending an update from the bankruptcy proceedings. The bankruptcy defendants must update the court every three months, with the first report due March 1, 2022. The Clerk of Court was directed to close the motion at Docket 95. The opinion did not decide whether Chen’s wage claims were legally valid or whether any defendant was liable.