Judge Holly J. Fujie, Case 22STCV09350 2022-08-30 Tentative Ruling

MOVING PARTY: Defendants Danny M. Elia, Walter Tharp, Capital Financial Advisors, Inc., and El Conector LLC (collectively, “Moving Defendants”)

The Court has considered the moving papers. No opposition papers were filed. Any opposition papers were required to have been filed and served at least nine court days before the hearing under California Code of Civil Procedure (“CCP”) section 1005, subdivision (b).

On March 16, 2022, Plaintiff filed a complaint (the “Complaint”) alleging: (1) common count – money had and received; (2) common count – goods and services rendered; (3) reasonable value of work, labor and services; (4) breach of written contract; (5) intentional misrepresentation; (6) false promise; (7) suppression of fact; (8) interference with economic relations; (9) unjust enrichment; and (10) unlawful business practices. On May 24, 2022, Moving Defendants filed a demurrer (the “Demurrer”) to the Complaint which was scheduled to be heard on June 24, 2022. On May 31, 2022, Plaintiff filed a Notice of Stay indicating that Defendant Alex A. Khadavi (“Khadavi”) has filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Petition”). Due to Bankruptcy Petition, the Notice of Stay provides that the proceedings against Khadavi are stayed pursuant to 11 U.S.C. section 362.

On June 8, 2022, the Court issued an order which noted that Plaintiff filed the Notice of Stay. Although the Court did not expressly order that the entire matter be stayed as to all Defendants, the Court vacated the hearing on the Demurrer.

On July 21, 2022, Moving Defendants filed a motion seeking a court order resetting the hearing on the Demurrer (the “Motion”). The Motion argues that Khadavi’s Bankruptcy Petition does not operate as a stay on Plaintiff’s claims against Moving Defendants.

Pursuant to U.S.C., title 11, section 362, the filing of a petition under section 301, 302, or 303 of that section operates as a stay to: the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title. (11 U.S.C. § 362, subd. (a)(1).) In the absence of special circumstances, stays pursuant to section 362, subdivision (a) are limited to debtors and do not include non-bankrupt co-defendants. (Ingersoll-Rand Fin. Corp. v. Miller Mining Co. (9th Cir. 1987) 817 F.2d 1424, 1427; United States v. Dos Cabezas Corp. (9th Cir. 1993) 95 C.2d 1486, 1491 (“Ordinarily, however, unless the assets of the bankrupt estate are at stake, the automatic stay does not extend to actions against parties other than the debtor, such as codebtors and sureties.”); see also Higgins v. Superior Court (2017) 15 Cal.App.5th 973, 979-80.) The automatic stay is not available to non-bankrupt co-defendants of a debtor even if they are in a similar legal or factual nexus with the debtor. (Maritime Electric Company, Inc. v. United Jersey Bank (3d Cir. 1991) 959 F.2d 1194, 1205.) Courts have carved out limited exceptions to this general rule in cases where: (1) there is such identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment or finding against the debtor; or (2) extending the stay against codefendants contributes to the debtor's efforts of rehabilitation. (United States v. Dos Cabezas Corp. (9th Cir. 1993) 995 F.2d 1486, 1491.)

The Court has the inherent authority to stay claims during the pendency of an automatic bankruptcy stay. (See, e.g., Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 758 (referring to the case management tools available to trial courts, including the inherent authority to stay an action when appropriate; Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1489 (“Trial courts generally have the inherent power to stay proceedings in the interests of justice and to promote judicial efficiency.”).

The Court finds that while the automatic stay may not apply to Moving Defendants, in the interests of justice and judicial efficiency, it is appropriate to extend the automatic stay to all named Defendants. The Court therefore DENIES the Motion and orders that this matter be STAYED as to all Defendants while the mandatory stay as to Khadavi remains in effect.

In consideration of the current COVID-19 pandemic situation, the Court strongly encourages that appearances on all proceedings, including this one, be made by LACourtConnect if the parties do not submit on the tentative. If you instead intend to make an appearance in person at Court on this matter, you must send an email by 2 p.m. on the last Court day before the scheduled date of the hearing to SMC_DEPT56@lacourt.org stating your intention to appear in person. The Court will then inform you by close of business that day of the time your hearing will be held. The time set for the hearing may be at any time during that scheduled hearing day, or it may be necessary to schedule the hearing for another date if the Court is unable to accommodate all personal appearances set on that date. This rule is necessary to ensure that adequate precautions can be taken for proper social distancing.

Parties who intend to submit on this tentative must send an email to the Court at SMC_DEPT56@lacourt.org as directed by the instructions provided on the court website at www.lacourt.org. If the department does not receive an email and there are no appearances at the hearing, the motion will be placed off calendar.

Hon. Holly J. Fujie

Judge of the Superior Court