IN THE DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. THOMAS AND ST. JOHN
ALEX GIBSON, ) ) Plaintiff, ) ) v. ) Case No. 3:24-cv-0020 ) B. MATTHEW MCCLAFFERTY, MAC ) PRIVATE EQUITY, INC. AND MPE CLEARING ) & HOLDINGS, INC., ) ) Defendants. ) )
APPEARANCES: MICHAEL L. SHEESLEY, ESQ.
MICHAEL F OLR. SP H L E A E IN SL T E IF Y F L ALLCE X GIBSON SAN JUAN, PUERTO RICO CHRISTOPHER ALLEN KROBLIN, ESQ. MARJORIE B. WHALEN, ESQ. KELLERH F A O L R S D FE E F R E G N U D S A O N N T KS R B O . M BL A IN TT PHLELWC M CCLAFFERTY, MAC PRIVATE EQUITY, INC., AND MPE CLEARING & ST. THO H MA O S L,D UIN.SG.S V, I I N R C G . I N ISLANDS MEMORANDUM OPINION MOLLOY, Chief Judge. BEFORE THE COURT is Defendants B. Matthew McClafferty, Mac Private Equity, Inc., and MPE Clearing & Holdings, Inc.’s (collectively, “Defendants”) Suggestion of Bankruptcy (Chapter 7), filed on March 5, 2025. (ECF No. 66.) Defendants informed the Court that a petition for Chapter 7 bankruptcy was filed on March 4, 2025, by Defendant Mac Private Id Equity, Inc. (“Mac Equity”) in the United States Bankruptcy Court for the District of Delaware. . Id. . The petition listed Co-defendants B. Matthew McClafferty (“McClafferty”) and MPE Clearing & Holdings, Inc. (“MPE”) as co-debtors Case No. 3:24-cv-0020 Memorandum Opinion Page 2 of 14
On March 7, 2025, Plaintiff Alex Gibson (“Gibson”) filed a response to Defendants’ Suggestion of Bankruptcy, (ECF No. 67), and McClafferty and MPE filed a reply on April 1, 2025. (ECF No. 70.) For the reasons set forth below, the Court finds that Mac Equity’s petition for bankruptcy and the automatic stay pursuant to 11 U.S.C. § 362 applies only to Mac Equity and not to co-debtors and co-defenId. ants MBcACClKafGfeRrOtyU aNnDd MPE. See generally Gibson, a resident and citizen of Puerto Rico, filed the instant action alleging that he 1 Id. had been duped by Defendants through a “Ponzi Scheme.” ( ECF No. 5.) Co- defendant McClafferty is a resident of the U.S. Virgin Islands. at ¶2. Co-defendant Mac Id. Equity is a Delaware corporation and Co-defendant MPE is a U.S. Virgin Islands corporation. at ¶¶3, 4. The parties had presumably settled their disputes in October 2024 with a See consent judgment and a stipulation for dismissal addressing all counts of Gibson’s complaint. See ( ECF Nos. 39, 42, respectively.) However, the judgment languished unsatisfied, and then, on March 4, 2025, Mac Equity �iled for Chapter 7 bankruptcy. ( ECF No. 66.) Events unfolded as follows: McClafferty, as President of Mac Equity, signed a promissory note and lending agreement with Gibson on August 10, 2022, for which Gibson provided $50,000.00 to McClafferty. (ECF No. 5 ¶¶15,16). On November 7, 2022, a second Id promissory note and lending agreement was signed between the same parties, for which Gibson provided McClafferty an additional $20,000.00. . at ¶¶ 24, 26. In early April 2024, when repayment of the funds was not forthcoming as agreed upon, Gibson initiated this action for damages against Defendants alleging five causes of action, namely, breach of agreement, breach of contract, debt, fraudulent misrepresentation, and breach of covenant of good faith and fair dealing. (ECF No. 1.) Gibson filed a first amended complaint on April 5, 2024, alleging the same five causes of action plus three more:
1 Black’s Law Dictionary de�ines Ponzi scheme as a “fraudulent investment scheme in which money contributed by later investors generates artificially high dividends or returns for the original investors, whose example attracts even larger investments. Money from the new investors is used directly to repay or pay interest to earlier investors, usually without any operation or revenue-producing activity other than the continual raising Case No. 3:24-cv-0020 Memorandum Opinion Page 3 of 14
Seegenerally defamation, intentional infliction of emotional distress, and negligent infliction of emotional distress. ( ECF No. 5.) By the end of October 2024, it appeared that the parties had completely resolved all their disputes. A mediation report was signed on October 29, 2024, by mediator Carl A. 2 Beckstedt, Esq. (ECF No. 44.) The parties had reached an agreement on three of the counts and motioned the Court to approve the consent judgment on October 30, 2024. (ECF No. 39.). That same day the Court approved and granted the parties’ consent judgment. (ECF No. 40). The consent judgment awarded Gibson �inal judgment on Counts Tw o, Three, and Five of the First Ame nded Complaint in the amount of $215,000.00 as follows: 1. Judgment against McClafferty in the amount of $110,000.00. 2. Judgment against Mac Equity and MPE in the total amount of $105,000.00, “which judgment amount shall be jointly and severally attributable to both Id. defendants.” The next day, on October 31, 2024, the parties stipulated to and agreed to the dismissal of the remaining claims— Counts One, Four, Six, Seven, and Eight, of the First Amended Complaint, ECF No. 5, and any asserted counterclaims, with prejudice. (ECF No. See 42.) The Court acknowledged the parties’ stipulation of partial dismissal and dismissed the counterclaims with prejudice. ( ECF No. 43.) On December 12, 2024, Gibson motioned the Court to schedule a judgment debtor examination ordering McClafferty to provide testimony under oath concerning his assets and property that are not exempt from execution. (ECF No. 48.) McClafferty did not file a response. The Court granted the motion and scheduled a judgment debtor examination hearing for March 24, 2025. (ECF No. 65.) Two days later, Defendants �iled their Suggestion of Bankruptcy, notifying the Court that Mac Equity �iled a Petition for Bankruptcy in the United States Bankruptcy Court for the District of Delaware, “Case #25-10386, listing B. Matthew McClafferty and MPE Clearing & Holdings, Inc. as Co-Debtors.” (ECF No. 66.) Pending evaluation as to wh ether the petition for bankruptcy and automatic stay applies to Case No. 3:24-cv-0020 Memorandum Opinion Page 4 of 14
See co-debtors McClafferty and MPE, the Court continued the judgment debtor examination hearing. ( ECF No. 69.) Defendants argue that co-defendant co-debtors MPE and McClafferty should be treated as real parties in interest in the instant suit, that MPE is property of Mac Equity’s bankruptcy estate as a wholly owned subsidiary of Mac Equity, and that even if it is not, the automatic stay should nevertheless apply to all three parties. Gibson, of course, disagrees. The Court addresses these argumIIe. nts inL tEuGrAn.L STANDARD Once a Chapter 7 bankruptcy petition is filed, an automatic stay goes into effect, prohibiting the commencement or continuation of any action or proceeding against the debtor. 11 U.S.C. § 362(a)(1). It also prohibits any act to recover a claim against the debtor that arose before the commencement of the bankruptcy case. 11 U.S.C. §§ 362 (a)(6). In addition, no actions may be taken to obtain possession of or to exercise control over property of the bankruptcy estate. 11 U.S.C. §§ 362 (a)(3). While the scope of the automatic stay is broad, it is limited to claims against the Mar. Elec. Co. v. debtor. The clear language of section 362(a) indicates that it stays enforcement or United Jersey Bank accordACandS, Inc. v. Travelers Cas. proceedings only against a ‘debtor’—the term used by the statute itself. & Sur. Co. see alsoFortier v. Dona Anna Plaza Partners, , 959 F.2d 1194, 1204 (3d Cir. 1991); , 435 F.3d 252, 259 (3d Cir. 2006); 747 F.2d 1324, 1330 (10th Cir. 1984) (“There is nothing in the statute [11 U.S.C. §362] which purports to extend the stay to causes of action against solvent co-defendants of the debtor.”). “The automatic stay functions as one of the Bankruptcy Code's fundamental Usoroh v. Koger (In re Koger) protections, providing the honest but unfortunate debtor with a breathing spell from their creditors.” , Nos. 24-21081-G a L c T c , o 3 r 3 d , 4 JE 1 L , D 20 -W 24 E N Ba , I n n k c r . . v L . E V X a I n S B 20 ru 8 n 6 t , In re Grossman's Inc. at *4 (Bankr. W.D. Pa. Sep. 9, 2024) (citations omitted); Williford v. Armstrong World Indus., Inc. , 607 F.3d 114, 122 (3d Cir. 2010). “That insulation, however, belongs exclusively to the ‘debtor’ in bankruptcy.” , 715 F.2d th 124, 125 (4 Cir. 1983). “It would make no sense to extend the automatic stay protections to solvent co-defendants. They don't need it, and at the same time it would work a hardship on Case No. 3:24-cv-0020 Memorandum Opinion Page 5 of 14
plaintiffs, by giving an unwarranted immunity from suit to solvent co-defendants. Extending Fortier the stay to protect solvent co-defendants would not advance either of the purposes 3 underlying the automatic stay.” , 747 F.2d at 1330. That being said, there are certain situations, however, where courts have applied the McCartney v. Integra Nat'l Bank N. automatic stay protection to non-debtor co-defendants in accordance with 11 U.S.C.S. See, e.g., A.H. Robins Co. v. Piccinin §362(a)(1)—but only under "unusual circumstances." , 106 F.3d 506, 509-10 (3d Cir. 1997) (citation omitted). , 788 F.2d 994, 999, 1008 (4th Cir. 1986), cert. denied, 479 U.S. 876 (1986) (granting see alsoFirst Nat'l nondebtor protection under sections 362(a)(1) & (a)(3) because of “unusual circumstances” Bank of Louisville v. Kanawha Trace Dev. Partners In re Kanawha Trace Dev. Partners in the relationship between nondebtor, debtor, and property of the estate); ( ), 87 Family Health Servs., Inc., v. Centinela Mammoth B.R. 892 (Bankr. E.D. Va. 1988) (applying section 362(a)(1) to protect nondebtor guarantor Hosp. In re Family Health Servs with indemnification rights against debtor); ( .), 105 B.R. 937 (Bankr. C.D. Cal. 1989) (protecting nondebtor members of debtor HMO under section 362(a)(1) because of unusual circumstances). The “unusual circumstances” test adopted by the Third Circuit is whether: (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 Sussino v. Work Out World, Inc. will in effect be a judgment or finding against the debtor," or (2) "stay protection is essential to the debtor's efforts of reorganization." , Civil Action No. 3:15-cv-05881 (PG. S)(TJB), 2021 U.S. Dist. LEXIS 263945, at *6 (D.N.J. Oct. 25, 2021) (citations omitted) Section 362 (a)(1) stays “actions against the debtor and arguably against A.H. Robins, those whose interests are so intimately intertwined with those of the debtor that the latter may be said to be the real party in interest.” 788 F.2d at 1001. “An illustration of
3 “The language of the statute reflects the legislative purposes behind the automatic stay. This is to permit the debtor to organize his or her affairs without creditor harassment and to allow orderly resolution of all claims. Congress has stated that the automatic stay is oneF oorf ttihere Vfu. Dndonama Aenntnaal Pdleabztao rP aprrtonteercstions provided by the bankruptcy laws. . . .It also provides creditor protection. Without it, certain creditors would be able to pursue theitrh own remedies against the debtor’s property.” , 747 F.2d 1324, 1330 Case No. 3:24-cv-0020 Memorandum Opinion Page 6 of 14
such a situation would be a suit against .a I
d third party who is entitled to absolute indemnity by the debtor” on account of a judgmIIeIn. t D. aISt C9U96S.S ION Gibson presents verification of an unsatisfied consent judgment against Defendants Mac Equity, McClafferty and MPE, and argues that because only Mac Equity �iled a voluntary petition for chapter 7 bankruptcy, the automatic stay applies only to Mac Equity. (ECF No. 67 at 1.) Defendants, on the other hand, contend that two “unusual circumstances” exist to warrant extending the automatic stay to McClafferty and MPE. First, Defendants argue that the three entities are so closely related to Mac Equity, that the bankruptcy debtor is “in essence the real party in interest” for any claim against McClafferty or MPE. (ECF No. 70 at 3.) MPE is a wholly owned subsidiary of Mac Equity, and McClafferty is the president and sole owner of Mac Equity. (ECF No. 70 at 2.) Second, Defendants argue that Gibson’s claims against McClafferty and MPE “amount to competing claims against the estate assets” of Mac Equity. (ECF No. 70 at 3.) Specifically, Defendants argue that MPE is an asset of Mac Equity, and to the extent the settlement agreement of the parties is enforced against the co- 4 defendants, any payment “could potentially” impact the bankruptcy estate of Mac Equity. (ECF No. 70 at 3.) Although, the power of the district courts to grant automatic stays is well recognized, Williford it is not without limitation. “Proper use of this authority calls for the exercise of judgment that must weigh competing interests and maintain an even balance.” , 715 F.2d at 124. “[T]he suppliant for a stay must make out a clear case of hardship or inequity in being Landis v. N. Am. Co ee also Residential required to go forward, if there is even a fair possibility that the stay for which he prays will Capital, LLC v. Fed. Hous. Fin. Agency (In re Residential Capital, LLC) work damage to someone else." ., 299 U.S. 248 (1936); s , 529 F. App'x 69, 70-71 (2d Cir. 2013) (concluding that an automatic stay does not apply to non-debtor entities “as a
4 Defendants also employ the argument that all three Defendants should not have been sued in the �irst place because McClaffertayl land MPE “were clearly not parties to the promissory notes.” (ECF No. 70 at 3.) This Case No. 3:24-cv-0020 Memorandum Opinion Page 7 of 14
categorical matter, without factual findings as to whether the lawsuit against those entities would have had immediate adverse economic consequence[s]” on the debtor’s estate). The burAde. nR eisa sl qPuaarrteielys oinn DInetfeernedsatn ts here. Because Mac Equity filed Chapter 7 bankruptcy, which does not involve
reorganization,we focus only on whether a judgment against co-defendant co-debtors MPE McCartneyv. Integra Nat. Bank N 5 and McClafferty would “in effect” be a judgment against Mac Equity, the bankruptcy debtor. McCartney Defendants rely on ., 106 F.3d 506 (3d Cir. 1997), a not-so-straightforward case. was an appeal of a bankruptcy court decision denying the discharge of a bankruptcy debt. The appeals court af�irmed the debt along with Id. the bankruptcy court’s decision to extend the automatic stay to the debtor’s wholly-owned corporation because it found that the debtor was “in essence, the real party in interest.” McCartney at 511.
Unlike the instant scenario, the initial automatic stay in was in place McCartney not against the bankruptcy debtor in his individual capacity, and the bankruptcy debtor in Id. did want an automatic stay extended to his corporation, Lamar’s Restaurant & Lounge, Inc. (“Lamar’s”). at 510. The matter of the stay was addressed in the context of a creditor’s obligations under the Pennsylvania De�iciency Judgment Act (“DJA”)—a state statute—governing circumstances where a creditor forces real estate to be sold in an McCartney execution sale. In a nutshell, the question boiled down to fair market value of property sold. The appellee creditor in had extended a loan to appellant debtor's Id corporation, Lamar’s, which was secured by a mortgage on its property that had been guaranteed by the debtor. . at 508. After the debtor filed for Chapter 13 bankruptcy and moved to sell the corporate property, the creditor obtained the property through a sheriff's sale for costs and taxes, re-sold it, and then �iled a proof of claim in the debtor’s bankruptcy
5 “The Bankruptcy Code provides diverse courses debtors may pursue to gain discharge of their financial obligations. . . . Chapter 7 allows a debtor to make a clean break frCoumlp hvi.s S ftiannaznicailael (pInas rte, bCuutl pa)t a steep price: prompt liquidation of the debtor's assets. When a debtor files a Chapte r 7 petition, his assets, with specified exemptions, are immediately transferred to a bankruptcy estate.” , 550 B.R. 683, Case No. 3:24-cv-0020 Memorandum Opinion Page 8 of 14
case for the difference owed. The debtor filed an objection to the claim asserting that the creditor’s claim was satisfied as a matter of law because it failed to file a petition to fix the McCartney fair market value of the property within six months after the sheriff's sale as required under 6 the DJA. The bankruptcy court in concluded that the automatic stay provision of the Bankruptcy Code had prevented the creditor from complying with the requirements of Id. the DJA and noted that the circumstances of the issue did not present “a normal situation where the DJA can be applied by its literal terms.” at 508-09. When the debtor filed for any Id bankruptcy, “the automatic stay provision of 11 U.S.C. § 362(a) was triggered and effectively McCartney as guarantor precluded [the creditor] from state court actions of type against [the debtor].” . at 509. In , the debtor— —was secondarily liable for any deficiency Id entered against his corporation, Lamar's, and following the foreclosure and sheriff's sale, Id Lamar’s had no assets. . at 511. Therefore, the debtor would have been the real party defendant in a deficiency judgment action by the creditor against Lamar's. . Accordingly, the Court extended the automatic stay to Lamar’s and the creditor was stayed from pursuing Id. a deficiency judgment action against Lamar's because the debtor was, “in essence, the real McCartney party in interest.” Unlike the instant scenario, the appellant bankruptcy debtor in was a private individual. Here, the bankruptcy debtor—Mac Equity—is a corporation. Co- defendant McClafferty is apparently solvent as the sole owner of the bankruptcy debtor Mac McCartney Equity, and Defendants present no evidence demonstrating the existence of a guarantor Queenie, Ltd. v. Nygard Int'l relationship as was the case in . Queenie Defendants also rely on , 321 F.3d 282 (2d Cir. 2003). According to ,, an automatic stay “can apply to non-debtors but normally does so only when a claim against the non-debtor will have an immediate adverse economic consequence
6 McCartney Under Pennsylvania law, every judgment creditor who forces real estate to be sold in an execution sale must comply with the DJA to protect its claim to any unpaid balance remaining after the sale. at 509. The appeals court affirmed the bankruptcy court’s decision holding that “the bankruptcy court properly found that the automatic stay placed on debtor extended to enjoin the creditor from complying with Irde.quirements of the DJA, and that the case fell “squarely under the ‘unusual circumstances’ exception” because “any deficiency judgment recovery from Lamar's would have necessarily impacted upon debtor's estate.” at 511. The Court Case No. 3:24-cv-0020 Memorandum Opinion Page 9 of 14 Id.
for the debtor's estate.” at 287. Examples include “a claim to establish an obligation of which the debtor is a guarantor, a claim against the debtor’s insurer, and actions where there Id. is such identity between the debtor and the third-party defendant that the debtor may be
said to be the real party defendant.” at 287. (citation altered and internal citations Queenie omitted). The court in considered whether the automatic stay—which required a stay
of the appeal with respect to the appellant debtor—would also apply to the appeals of three Id Queenie other co-appellants. The appeal addressed an amended District Court judgment awarding 7 attorney’s fees and damages. . at 283. The bankruptcy debtor defendant in was a private individual who was president of the solvent co-debtor corporation Queenie. He wholly owned it. The bankruptcy debtor wanted the stay on his behalf to apply not only to Id. himself, but to his corporation Queenie and to the remaining other two co-defendants. Queenie and the other co-defendants either took no position or were silent on the issue. at 287. The court concluded that the stay of appeal would apply to Queenie and not to the other co-defendants in accordance with the principle that such identity existed between the Id owner bankruptcy debtor and the third-party defendant Queenie “that the debtor may be said to be the real party defendant.” . at 288. The Court found that adjudication of the claim Id. against Queenie—as a wholly-owned corporation of the debtor—would have had immediate Queenie adverse economic impact on the owner debtor. Unlike , here it is the wholly-owned corporation Mac Equity that filed for Chapter 7 bankruptcy—not its owner—and Defendants do not demonstrate how Id. adjudication of the claims against MPE and McClafferty “will have an immediate adverse economic consequence for the debtor's estate.” “Although the automatic stay can be extended to situations involv ing non-debtors, courts are careful to reserve such power to the Queenie 7 In the plaintiff and the defendant were both corporations and distributors of women’s clothing. Plaintiff Queenie sued Defendant Nygard for copyright infringement of designs used on its products, and Nygard counterclaimed against Queenie for tortious interference. Queenie was wholly owned by an individual named Mark Gardner. Defendant Nygard named Gardner and two other defendants as additional counterclaim defendants. The jurQy ureeejneicet,e Ldt dQ. vu. eNeyngiea'rsd cInotp'lyright infringement claim, found in favor of Nygard on its c ounterclaim, and awarded attorneys’ fees and damages against all defendants. Queenie’s owner, Gardner, then Case No. 3:24-cv-0020 Memorandum Opinion Page 10 of 14 W.R. Grace & Co. v. Chakarian (In re W.R. Grace &
Co. most extreme and unusual circumstances.” In re SDNY 19 Mad Park, LLC ), No. 01-01139(JFK), 2004 Bankr. LEXIS 579, at *7 (Bankr. D. Del. Apr. 29, 2004) (citation omitted.) It is considered "extraordinary relief.” , No. 14-11055 (ALG), 210. T14h eB aanuktor.m LEatXiIcS s 3t8ay7 7d, oaet s* 3n o(Bt aanpkprl.y S t.Do .Nco.Y-d. Seefepn. 1d1a,n 2t0 M14c)C.l afferty The Court is not convinced that “unusual circumstances” exist here based on identities of the parties alone. McClafferty argues that the automatic stay in place for Mac Equity should extend to McClafferty because he is the sole owner of Mac Equity. However, the primary reason many business owners choose the structure of a corporation is to limit See Terry v. Yancey their own risks. The existence of the corporate structure cannot simply be disregarded so that an owner may escape its drawbacks. , 344 F.2d 789, 790 (4th Cir. 1965) (explaining that "where an individual creates a corporation as a means of carrying out see also Rich v. Witt O'Brien's, USVI, LLC his business purposes, he may not ignore the existence of the corporation in order to avoid its disadvantages"); , No. 1:19-cv-00022-RAM-EAH, 2024 U.S. Dist. LEXIS 75523, at *24 n.9 (D.V.I. Apr. 25, 2024) (“The corporate form should not be disregarded lightly. . . .The Virgin Islands, as in other jurisdictions, will respect Cesar Castillo, Inc. v. Healthcare Enterprises, L.L.C. corporate separateness unless presented with a compelling reason to disregard such a well- entrenched concept.") (citing , No. 12-cv- 0108, 2016 U.S. Dist. LEXIS 132281, 2016 WL 5660437, at *3 (D.V.I. Sept. 27, 2016)) (internal quotation marks, citations, and alterations omitted). The stay generally only applies to the SeeMcCartney, debtor and its property and does not extend to third parties such as a debtor's affiliates, officers and principals, or co-defendants. 106 F.3d at 509-10 (stating that “’it is universally acknowledged that an automatic stay of proceedings accorded by section 362 Lynch v. Johns-Manville Sales Corp. may not be invoked by entities such as sureties, guarantors, co-obligors, or others with a accordTeachers. Ins. & Annuity Ass'n v. Butler similar legal or factual nexus to the . . . debtor’” (quoting , Nev. Power Co. v. Calpine Corp. (In re Calpine Corp.) 710 F.2d 1194, 1196-97 (6th Cir. 1983)); , 803 Diocese of Rochester v. AB 100 Doe (In re Diocese of Rochester) F.2d 61, 65 (2d Cir. 1986); , 365 B.R. 401, see also In re 408 (S.D.N.Y. 2007); , Nos. 19- 20905-PRW, 22-02075-PRW, 2022 LX 86497 (Bankr. W.D.N.Y. May 23, 2022); Case No. 3:24-cv-0020 Memorandum Opinion PAargreo 1w1 Hofu 1s4s , Inc
., 51 B.R. 853, 856 (Bankr. D. Utah 1985) ("It is well settled that Section 362 of the Bankruptcy Code . . . does not forbid actions against its non-debtor principals, partners, [or] officers."); 3 Collier on Bankruptcy P 362.03 (“Although the stay protects the debtor 8 against a broad range of actions and activities, it does not protect separate legal entities, such as corporate directors, officers or affiliates, partners in debtor partnerships or co- defendants in pending litigation.”). As mentioned earlier, courts in this Circuit allow extension for an automatic stay to a non-debtor co-defendant in one of two situations, the relevant one here being when a 9 judgment against the co-defendant will in effect be a judgment or finding against the debtor. Int'l Union of Painters & Allied Trades Dist. Council No. 21 Health & This exception applies when the debtor is “forced to indemnify its co-defendants in the event Welfare Fund v. Serv. Painting, Inc. of an adverse verdict." , No. 18-3480, 2019 U.S. Dist. LEXIS 83446, at *16 (E.D. Pa. May 16, 2019) (citations omitted). Here the Court is not convinced that either co-defendant here is forced to indemnify bankruptcy debtor Mac Equity. The record is short on evidence to support what material effect—if any—action against McClafferty will have on Mac Equity’2s .e Tsthaete a aust oa mcoartpico rsattaiyo nd.o es not apply to co-defendant MPE Because MPE is a subsidiary of Mac Equity, Defendants argue that MPE is an asset of Mac Equity, and therefore enforcement of the parties’ settlement agreement against MPE will potentially have impact upon Mac Equity’s estate. (ECF No.70 at 3.) Again, based on the record, the Court is unpersuaded.In general, “holding companies and their subsidiaries are considered to be separate legal entities. Corporate entities as holding companies are separate and distinct from the corporate entities of the subsidiaries which they own.” 8 “These entities may, however, obtain protection through a section 105 injunction if relief is appropriate.” 3 Collier on Bankruptcy P 362.03. 9McCartney The other exception is when the “stay protection is essential to the debtor’s efforts of reorganization.” , 106 F.3d at 510. Here, MVaecl eEzq vu. iEtyZ R�ielendt Afo Cra Cr hInacp. t(eIrn 7re bVaenlekzr)uptcy—which does not involve reorganizataioccno. r“d[U]nKleinkne eidny C Fhuanpdteinrg 1, 2In ocr. Cv.h Oarpateclre 1 B3u csa. sDeesv, sc.o, L-dtde.b Ltoiarbs .o Cfo a. Chapter 7 debtor are not provided the protections of the automatic stay.” , 601 B.R. 351, 365 (Bankr. M.D. Pa. 2019); ( , Civil Action No. 2 012-0009, 2020 Case No. 3:24-cv-0020 Memorandum Opinion PKaiglrea 1i2n eo fv 1. 4U nited States
see also Douglas v. Atrium Med. Corp. , No. 07-4778 (WJM), 2010 U.S. Dist. LEXIS 4087, at *1, 105 A.F.T.R.2d (RIA) 2010-745 (D.N.J. Jan. 20, 2010); , No. 3:23-CV- 0747, 2023 U.S. Dist. LEXIS 220011, at *33 (M.D. Pa. Dec. 11, 2023) (“[S]ubsidiaries, even if w ac h c o o l r l d y o C w la n rk e d v , . a M r a e t p su re sh su it m a e E d le s c e . p In a d ra u t s e . C a o n . d distinct entities from their parent corpor ations.”); , 811 F. Supp. 1061, 1063 (M.D. Pa. 1993). Because as a corporation Mac Equity is a distinct separate legal entity, a judgment against MPE, a subsidiary corporation, does not necessarily impose an obligation or liability on Mac Equity. The Court recognizes that Mac Equity does have an interest in MPE and this interest in the subsidiary corporation may form part of Mac Equity’s bankruptcy estate. assets See Koken v. Pension However, the fact that a parent corporation has an ownership interest in a subsidiary, does Benefit Guar. Corp. not give the parent any direct interest in the of the subsidiary. , 383 F. Supp. 2d 712, 719-20 (E.D. Pa. 2005)(“A corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary; and, it follows with even greater force, the parent does not own or have legal title to the subsidiaries of the subsidiary. This is so because subsidiaries, even if wholly owned, are pr s e e s e u a m ls e o d K s r e e p is a l r e a r t e v. a G n o d l d d b is e t r i g nct entities from their par ent corpora tions.”) (citations omitted); , 478 F.3d 209, 213 (4th Cir. 2007) (“It is a fundamental precept of corporate law that each corporation is a separate legal entity with its own debts and assets, even when such corporation is wholly owned by another corporate entity.”). MPE and Mac Equity are separate corporations. An action to obtain possession or exercise control over MPE’s property is not necessarily an action to obtain possession or exercise control over property of Mac Equity’s bankruptcy estate. Here too, the record before the Court is shy on evidence to support what material effect—if any—action against MPE has on MBa. cP Erqoupiteyr’tsy e ostfa Btea nask rau cpotr pEosrtaattieon.
Subsection 362 (a)(1) of the Bankruptcy Code is “not the only part of section 362 whether against the debtor or third-parties providing for an automatic stay of proceedings. Subsection (a)(3) directs stays of any action, , to obtain possession or to exercise control over Case No. 3:24-cv-0020 Memorandum Opinion Page 13 of 14 A.H. Robins Co.
10 property of the debtor.” , 788 F.2d at 1001; 11 U.S.C. §362 (a)(3). For a claim to fall within the scope of section 362(a)(3), Defendants must also show that the claims See ACandS, Inc. against MPE and McClafferty constitute an act to obtain possession of Mac Equity’s “property Id. of estate.” , 435 F.3d at 260 (3d Cir. 2006). The interests classified as Cuffee v. Atl. Bus. & Cmty. Dev. Corp In re Atl. Bus. & Cmty. Corp "property of the estate" protected by § 362(a)(3) are defined by 11 U.S.C. § 541. (citing . ( .), 901 F.2d 325, 328 (3d Cir. 1990)). This property of the estate “is interpreted broadly to include all interests the debtor has in property, both tangible and intangible, legal and equitable. Federal law defines what types of property are part of the estate while state law determines what interest a debtor In re CII Parent, Inc. has in the property. Any operative documents as well as relevant state laws inform the A.H. Robins at determination.” , No. 22-11345 (LSS), 2023 Bankr. LEXIS 1003, at *10 (Bankr. D. Del. Apr. 12, 2023); 1001. (“[11 U.S.C. § 541] provides that the estate is comprised of all the following property, wherever located . . . all legal or equitable interests any of the debtor in property as of the commencement of the case.’”). Defendants essentially assert that claims against MPE and McClafferty in effect “amount to competing claims against estate assets” of Mac Equity. (ECF No. 70 at 3.) However, absent unusual circumstances, “references in section 362 to ‘property of the estate’ is read as references to property of the debtor.” 6 Collier on Bankruptcy P 901.04. Defendants provide no evidence to support their assertions under Section 362 concerning Mac Equity’s estate. IV. CONCLUSION Williford “The party seeking a stay must justify it by clear and convincing circumstances outweighing potential harm to the party against whom it is operative.” , 715 F.2d at A.H. Robins 10 Robins In addition to �inding ground for relief under 362(a)(1), the court in also found grounds to promote nondebtor relief undeprr soepcetritoyn o 3f6 t2h(ea e)s(t3a)t oe,f the Bankruptcyt hCeo mdeo. sTt hime portan tc oaussret td oeft ethrme dineebdto, br.ased upon legislative history and prior case law, that insurance policies which wouuldn qbuee ustsieodn atob lsyatisfy judgments against the non-debtorsI dw.ere and, arguably, The court found that "any action . . . which . . . may diminish this 'important asset' is subject to a stay under this subsection." at 1001 (citing omitted). "[A]ctions ‘related to' the bankruptcy proceedings agIadin.st the insurer or against officers or employees of the debtor who may be entitled to indemnification under such policy or who qualify as additional insureds under the policy are to be stayed under section 362(a)(3)." at Case No. 3:24-cv-0020 Memorandum Opinion Page 14 of 14
125. The Court finds that such a showing has not been made here. For reasons discussed above, the Court finds that the automatic stay of Section 362 against Mac Equity does not operate to prevent Plaintiff Alex Gibson from proceeding on the merits against the remaining solvent co-defendants in this matter. An appropriate Order follows. Dated: Robert A. Molloy ROBERT A. MOLLOY Septem ber 15 , 2025 /Csh/ief Judge