Hong v. Mommy's Jamaican Market Corp.

Background

Kap Won Kim and Myong Su Kim filed for Chapter 13 bankruptcy in the District of New Jersey on May 16, 2023. They asked the court to stay, or pause, this action as to them under the federal bankruptcy law’s automatic-stay provision, 11 U.S.C. § 362(a). Sun Yeul Hong did not oppose the motion.

The court had entered a default judgment against all defendants—Mommy’s Jamaican Market Corp., Kap Won Kim, Myong Su Kim, and Dae Kyu Kim—on October 15, 2021. The defendants later moved to undo that judgment and to respond to Hong’s complaint late. The court granted that motion and reopened the case. Hong then moved to set aside the order that had undone the default judgment, arguing that the basis for that earlier order had been called into question.

An evidentiary hearing was scheduled for May 19, 2023. Because the earlier default judgment covered all defendants, Hong’s motion to set aside the order also covered all defendants.

Court’s analysis

The court held that the bankruptcy automatic stay applied to the action against Kap Won Kim and Myong Su Kim. It therefore granted the motion to stay the action as to those two defendants.

The court declined to extend the stay to Mommy’s Jamaican Market Corp. and Dae Kyu Kim. It explained that the automatic stay generally does not protect non-bankrupt co-defendants. Although a court may extend a stay in limited circumstances—for example, when a claim against a non-bankrupt defendant would immediately harm the bankruptcy estate or when the debtor and the other defendant are effectively the same party—the court found no basis to do so on the record before it.

The complaint alleged that all defendants were Hong’s employers under the Fair Labor Standards Act and the New York Labor Law. The court stated that joint employers can be jointly and separately responsible for violations of those laws, and that courts generally do not extend bankruptcy stays to non-bankrupt co-defendants in such wage cases. The court also noted that Kap Won Kim and Myong Su Kim had admitted they no longer owned Mommy’s Jamaican Market Corp., which further undermined extending the stay to the company.

Discovery and ruling

The court also ruled that the automatic stay did not prevent Hong from obtaining testimony or documents from Kap Won Kim and Myong Su Kim for use against the non-bankrupt defendants. The court reasoned that treating discovery from a debtor as barred in every circumstance would prevent a debtor from serving as a witness even in cases where the debtor was not a party. Hong could therefore subpoena their testimony and documents to the extent the information was sought for claims against Mommy’s Jamaican Market Corp. and Dae Kyu Kim.

Judge Lewis J. Liman directed the Clerk of Court to stay the action only as to Kap Won Kim and Myong Su Kim and to close the stay motion, docket number 143. The evidentiary hearing was to proceed as scheduled as to the non-bankrupt defendants.