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Zokaites Properties, Lp v. La Mesa Racing

May 19, 2011

ZOKAITES PROPERTIES, LP, PLAINTIFF,
v.
LA MESA RACING, LLC, DEFENDANT.



The opinion of the court was delivered by: Judge Nora Barry Fischer

MEMORANUDM OPINION

I. Introduction

This matter is before the Court to determine whether the instant action should be stayed in light of a pending bankruptcy proceeding and a pending appeal in a parallel state action. On May 2, 2011, the Court issued a rule upon the parties to show cause as to why this matter should not be stayed given the Superior Court of Pennsylvania's stay of Defendant's appeal of Judge O'Reilly's Order finding proper service*fn1 pursuant to the automatic stay provision of the United States Bankruptcy Code, 11 U.S.C. § 362, and given the Court's discretion to stay a case to abide the outcome of another which may substantially affect it or be dispositive of the issues. (Docket No. [38]). On May 5, 2011, the Superior Court of Pennsylvania lifted its stay of Defendant's appeal upon receiving notice that the bankruptcy proceeding involving similar parties in the District of Maryland (the "Maryland Bankruptcy Court") had been dismissed. Although the Maryland Bankruptcy Court dismissed the bankruptcy proceeding on October 4, 2010, the parties each have subsequently submitted motions in that court and it has since scheduled a hearing to address same on June 14, 2011. Upon consideration of the pending appeal in the Superior Court of Pennsylvania, the pending motions in the Maryland Bankruptcy Court, as well as Plaintiff's Response and Supplemental Response to the Court's Order issuing a rule to show cause why this matter should not be stayed (Docket Nos. [39], [40]) and Defendant's Response to same (Docket No. [41]), IT IS HEREBY ORDERED that this matter is STAYED.

II. Relevant Background

A. Maryland Bankruptcy Action

On July 31, 2007, Defendant filed for bankruptcy relief in the United States Bankruptcy Court for the District of Maryland, Case Number 07-17069. The original petition was for a Chapter 7 proceeding but it was converted to a Chapter 11 proceeding by an Order of the Maryland Bankruptcy Court on August 20, 2007. Over three years later, the Court entered an Order dismissing the Chapter 11 case with a five-year bar to refilling and a notice that the automatic stay is terminated on October 4, 2010. (Maryland Bankruptcy Court Docket No. 374).

On March 2, 2011, Defendant filed a Motion to Reopen the bankruptcy case ("Motion to Reopen") to determine whether Plaintiff violated the automatic stay of 11 U.S.C. § 362 by filing the action in the Court of Common Pleas of Allegheny County (the "Pennsylvania Action") against Defendant prior to the Court's termination of the automatic stay on October 4, 2010. (Maryland Bankruptcy Court Docket No. 383). In turn, Plaintiff filed a Motion to Dismiss Defendant's Motion to Reopen the bankruptcy case ("Motion to Dismiss"). (Maryland Bankruptcy Court Docket No. 385). That same day, Plaintiff also filed a Motion to Strike Defendant's Motion to Reopen the bankruptcy case ("Motion to Strike"). (Maryland Bankruptcy Court Docket No. 386). Within said motions, Plaintiff argues that the Maryland Bankruptcy Court orally dismissed the bankruptcy proceeding on September 29, 2010 with prejudice to refiling a bankruptcy petition for five years and immediately terminated the automatic stay effective on that date. (Maryland Bankruptcy Court Docket No. 385). Thus, Plaintiff contends that when it commenced the Pennsylvania Action on October 1, 2010, it did so after the bankruptcy proceeding was dismissed on September 29, 2010. Id. The Maryland Bankruptcy Court has scheduled a hearing to address the various motions on June 14, 2011. (Maryland Bankruptcy Court Docket Nos. 387, 388).

B. Pennsylvania Action

Prior to the Maryland Bankruptcy Court entering its Order terminating the automatic stay, Plaintiff commenced the Pennsylvania Action against Defendant on October 1, 2010, Zokaties Properties, LP v. La Mesa Racing, LLC, Civil Case No. G.D. 10-018611. (Pennsylvania Action Docket No. 1). Plaintiff subsequently obtained a judgment against Defendant by default judgment in the Pennsylvania Action and had said judgment recorded in New Mexico, the location of Defendant's principal place of business. (Pennsylvania Action Docket No. 3). In response, Defendant filed a petition to open/strike the default judgment arguing that Plaintiff did not effectuate proper service in the Court of Common Pleas of Allegheny County. (Pennsylvania Action Docket No. 6). In an Order dated February 25, 2011, Judge O'Reilly ruled that service was adequate. (Pennsylvania Action Docket No. 11). That same day, Defendant filed its notice of removal to federal court. (Pennsylvania Action Docket No. 10).

Despite Defendant's decision to remove this case to federal court, on March 28, 2011 Defendant filed a "Precautionary Notice of Appeal" in the Superior Court of Pennsylvania in an effort to reserve its appeal rights in the event that this Court grants Plaintiff's Motion to Remand.

(Pennsylvania Action Docket No. 13). On April 25, 2011, the Superior Court of Pennsylvania issued an Order staying the appeal pursuant to the automatic stay provision of the United States Bankruptcy Code, 11 U.S.C. § 362. (Pennsylvania Action Docket No. 15). The Superior Court's Order provided that:

The parties shall be responsible for notifying this Court (1) that the stay pursuant to the Bankruptcy Code is no longer in effect due to the issuance of an order by the Bankruptcy Court either lifting the automatic stay or providing for severance of any parties, in which case this Court will proceed with the appeal, or (2) that the appeal has been rendered moot by conclusion of the bankruptcy proceedings.

Id. However, the Superior Court then lifted its stay of Defendant's appeal on May 5, 2011 upon receiving notice that the Maryland Bankruptcy Court had dismissed the bankruptcy proceeding and had lifted the automatic stay. (Pennsylvania Action Docket No. 16). Since ...


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