ORDER RE: REQUEST FOR BRIEFING AND CONTINUANCE OF HEARING AND RELATED COUNTERCLAIMS AND THIRD-PARTY COMPLAINT.
Plaintiffs Zurich American Insurance Company, American Guarantee and Liability Insurance Company, and American Zurich Insurance Company filed a complaint against defendants Trans Cal Associates, Trans Cal Insurance Associates, Inc. ("Trans Cal Insurance"), Sacramento Surplus Lines Insurance Brokers, Inc. ("Sacramento Surplus"), Mark Scott, and Gray Scott, arising from defendants' alleged failure to remit over $1.1 million in insurance premiums that defendants had allegedly collected for plaintiffs. Plaintiffs and third-party defendant Zurich American Insurance Company of Illinois have filed a motion to strike Trans Cal Associates, Trans Cal Insurance, and Sacramento Surplus's answer and Trans Cal Associates's cross-complaint and to enter their default for failure to retain counsel. (Docket No. 70.) Individual defendant Mark Scott, proceeding pro se, filed an untimely opposition to the motion in which he informed the court that he filed Chapter 7 bankruptcy on June 21, 2011, and states that his "information" is that his brother, defendant Gray Scott, also filed for bankruptcy. (Docket No. 72.)
The automatic stay of 11 U.S.C. § 362(a)(1) prohibits the "commencement or continuation . . . 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(a)(1). Section 362(a)(2) prohibits "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." Id. § 362(a)(2).
"In the absence of special circumstances, stays pursuant to section 362(a) are limited to debtors and do not include [claims against] non-bankrupt co-defendants."
Ingersoll-Rand Fin. Corp. v. Miller Mining Co., 817 F.2d 1424, 1427 (9th Cir. 1987) (citing Teachers Ins. & Annuity Ass'n of Am. v. Butler, 803 F.2d 61, 65 (2d Cir. 1986)). Likewise, the automatic stay does not ordinarily apply to claims asserted by the debtor. See In re Merrick, 175 B.R. 333, 338 (B.A.P. 9th Cir. 1994); see also Parker v. Bain, 68 F.3d 1131, 1137 (9th Cir. 1995) ("Multiple claim and multiple party litigation must be disaggregated so that particular claims, counterclaims, cross claims and third-party claims are treated independently when determining which of their respective proceedings are subject to the bankruptcy stay." (quoting and adopting Maritime Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1204-05 (3d Cir. 1992))) (internal quotation mark omitted).
In light of Mark Scott's and Gray Scott's bankruptcy filings, the court requires briefing from the non-bankrupt parties addressing the effect that § 362 has on future proceedings in this action. In their briefs, the parties shall state their position and cite the authorities in support thereof. The court cannot decide plaintiffs' motion until it decides the effect of the automatic stay; accordingly, the hearing will be continued to August 1, 2011.
IT IS THEREFORE ORDERED that the non-bankrupt parties shall file briefs addressing the effect of 11 U.S.C. § 362 on further proceedings in this action within fourteen days of the date of this Order. Corporate and partnership parties are advised that they may appear only by counsel.
IT IS FURTHER ORDERED that the hearing on plaintiffs' motion to strike and to enter default is continued to August 1, 2011, at 2:00 p.m.
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