United States District Court, D. Minnesota
N. Leung United States Magistrate Judge
matter is before the Court upon Defendant Mark E.
Herman's March 16, 2018 Notice of Bankruptcy Case Filing.
(ECF No. 98). The parties were “directed to meet and
confer[, ] then submit a joint letter to this Court . . .
concerning the effect on this litigation of Defendant Mark
Herman's bankruptcy filing, ” including a
“discussion of whether it is appropriate to hold the
motion hearing on Defendant Roberta Herman's motion to
compel.” (ECF No. 99). The parties submitted their
letter, with all parties except Defendant Roberta Herman
agreeing that this litigation should be stayed pending the
bankruptcy stay. (ECF No. 100). In reviewing the filings, and
in exercising inherent authority to manage the docket, the
Court finds it appropriate to enter an order staying this
litigation until further order of the Court, absent one
specific and temporally-limited carve-out explained below.
filing of a bankruptcy petition triggers an automatic stay
of, inter alia, the “continuation . . . of a
judicial . . . action or proceeding against the debtor that
was or could have been commenced before the commencement of
the [bankruptcy case], or to recover a claim against the
debtor that arose before the commencement of the [bankruptcy
case].” 11 U.S.C. § 362(a)(1). Thus, Defendant
Mark Herman's bankruptcy filing triggers an automatic
stay of the United States' suit against him under the
Bankruptcy Code. Unresolved, however, is whether the United
States' suit against Defendant Roberta Herman and the
other defendants continues.
automatic stay does not, in general, apply to actions against
third parties.” In re Panther Mountain Land Dev.,
LLC, 686 F.3d 916, 921 (8th Cir. 2012); Sav-A-Trip,
Inc. v. Belfort, 164 F.3d 1137, 1139 (8th Cir. 1999)
(holding that an automatic stay applicable to a defendant
firm and one of its employees did not extend to nonbankrupt
codefendants). “The only exception to this rule that
any of the circuits recognize seems to relate only to
nonbankrupt codefendants in ‘unusual
circumstances.'” Croyden Assocs. v. Alleco,
Inc., 969 F.2d 675, 677 (8th Cir. 1992) (quoting
A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th
Cir. 1986)); see C.H. Robinson Co. v. Paris & Sons,
Inc., 180 F.Supp.2d 1002, 1015 (N.D. Iowa 2001)
(“Eighth Circuit caselaw . . . is illustrative of a
generalized reluctancy to expand the scope of the automatic
stay provision of the Bankruptcy Code and to limit any
expansion to truly extraordinary cases.”).
Notwithstanding the Bankruptcy Code, a federal district court
has “the inherent power to stay the proceedings of an
action, so as to control [its] docket, to conserve judicial
resources, and to provide for the just determination of cases
which pend before [it].” Armstrong v. Mille Lacs
Cnty. Sheriff's Dept., 112 F.Supp.2d 840, 843 (D.
Minn. 2000) (citing Landis v. American Water Works &
Electric Co., 299 U.S. 248, 254-55 (1936)).
the only remaining claim in this litigation seeks an order
for sale of property owned by Defendant Mark Herman to
satisfy federal tax liens. This remaining claim rests on a
determination of the priority order of the various ownership
interests in Mark Herman's property. The other
defendants, Brigadoon, Roberta Herman, and Hennepin County,
all assert some interest in the property the United States
seeks to foreclose. As such, these parties are all
inextricably intertwined with their co-defendant, Mark
Herman. Because the United States' suit against Mark
Herman cannot proceed by reason of the automatic bankruptcy
stay, the Court finds that the United States' claim
against Brigadoon, Roberta Herman, and Hennepin County should
not proceed either. To try to resolve the disputes as to lien
priority under the specific circumstance of this case without
the participation of the property owner, Mark Herman, would
be an exercise in futility and a tremendous waste of
resources. Accordingly, the Court concludes that judicial
economy commands a stay of the United States' action
against all defendants in this action.
Court does find, however, that a limited exception to the
stay is appropriate. Roberta Herman originally moved in
November 2016 to compel the United States to respond to her
discovery requests related to her affirmative defense of
equitable subrogation, (ECF No. 51), but that motion was
denied as moot given the parties' settlement, (ECF Nos.
70, 71). Now that this litigation has been reopened, Roberta
Herman has again moved to compel the United States to respond
to her discovery requests. (ECF No. 87). A hearing is
scheduled for March 22, 2018. (ECF Nos. 88, 97). The United
States' responses to these discovery requests, if
ordered, would relate only to information the United States
has or knows, such as when the United States became aware of
Roberta Herman's marital lien. This information only
relates to the United States and Roberta Herman, it would not
require discovery from Mark Herman or any other defendant.
Moreover, the information could prove useful in the
bankruptcy proceeding where the parties are likely to make
arguments concerning their lien interests in Mark
Herman's property. Simply put, the discovery dispute
between the United States and Roberta Herman will have no
impact on Mark Herman; the dispute has been ongoing since
November 2016; and the dispute and motion hearing were
contemplated well before Mark Herman filed for bankruptcy.
Therefore, the Court finds it appropriate that the motion
hearing on Roberta Herman's motion to compel go forward
as scheduled and, should any discovery be ordered produced as
a result of that hearing, for that discovery to occur.
Court reiterates that, outside the motion hearing and
resulting order, this case is stayed in its entirety; the
United States' claims are stayed and further litigation
on Roberta Herman's affirmative defense is stayed. Absent
relief from the automatic bankruptcy stay by the bankruptcy
court or further order from this Court, no other litigation
shall take place in this matter.
on the foregoing and all of the files, record, and
proceedings herein, IT IS HEREBY ORDERED as
proceeding is STAYED until further order of
the Court, with the exception described herein.
prior consistent orders remain in full force and effect.
Failure to comply with any provision of this Order or any
other prior consistent order shall subject the non-complying
party, non-complying counsel and/or the party such counsel
represents to any and all appropriate remedies, sanctions and
the like, including without limitation: assessment of costs,
fines and attorneys' fees and disbursements; waiver of
rights to object; exclusion or limitation of witnesses,
testimony, exhibits, and other evidence; striking of
pleadings; complete or partial dismissal with ...