Funding Holding, LLC d/b/a LawCash v. Blue Ocean Partners LLC

Background

Funding Holding brought this action against Blue Ocean Partners LLC, Dean Chase, and Joseph DiNardo. The opinion states that Blue Ocean and DiNardo had filed for bankruptcy, so the case was already stayed as to those defendants under the bankruptcy code’s automatic-stay provision. Chase, who was not identified as a bankruptcy debtor, asked the court to extend that automatic stay to him.

Chase argued that claims against him were based on Blue Ocean’s obligations and that he would be entitled to indemnification, subrogation, or exoneration for obligations incurred because of his alleged status as an officer of Blue Ocean. Funding Holding opposed the request, arguing that it sought to hold Chase responsible for his own alleged tortious conduct and that Blue Ocean would not necessarily have to indemnify him for separate damages.

Automatic-Stay Analysis

The court explained that the automatic stay generally applies to proceedings against a bankruptcy debtor, not to non-debtor co-defendants. Courts may extend the stay to a non-debtor in unusual circumstances, including when continuing the case could seriously threaten the debtor’s reorganization or when the debtor’s and non-debtor’s liabilities are so connected that one is legally attributed to the other.

The court rejected Chase’s stated basis for extending the automatic stay. It noted that courts had rejected reliance on possible indemnification rights when the record showed only that a defendant might later seek indemnification or contribution. The court found that Chase had cited common-law doctrines but had not meaningfully explained how Blue Ocean would actually be responsible for the tort claims against him.

The court nevertheless identified a colorable risk that the bankruptcy court could later issue an injunction or otherwise extend bankruptcy protection. The claims against Blue Ocean and DiNardo and the claims against Chase shared a similar factual basis and were closely related. The court also observed that Funding Holding had addressed Chase’s and DiNardo’s arguments together and had not clearly identified which claims could be adjudicated despite the bankruptcy filings.

Discretionary Stay and Disposition

Even when the automatic stay does not apply, a court may exercise discretion to pause proceedings against non-bankrupt co-defendants. The court considered the connection between the claims, Chase’s relationship to Blue Ocean, the possibility that the bankruptcy court would address the stay, and the interests of judicial economy.

The court ordered the Clerk of Court to stay the case. It specified that the discretionary stay would last six months and would be lifted on October 18, 2023, if the bankruptcy court had taken no action or if later developments did not justify extending the automatic stay to Chase. Chase and Funding Holding were directed to file a joint letter by that date reporting on the bankruptcy proceedings. The opinion did not decide the pending motions to dismiss or the underlying claims.