Royal Truck & Trailer, Inc. v. Armadora Maritima Salvadorena, SA

Decision Date31 March 1981
Docket NumberNo. 79 C 4051.,79 C 4051.
Citation10 BR 488
CourtU.S. District Court — Northern District of Illinois
PartiesROYAL TRUCK & TRAILER, INC., Plaintiff, v. ARMADORA MARITIMA SALVADORENA, S.A., de C.V. & Uiterwyk Corporation, Defendants.

James E. Dahl, Edward T. Joyce, Stephen M. Margolin, Margolin & Brandwein, Chicago, Ill., for plaintiff.

Christopher A. Hansen, Robert E. Nord, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, John T. Rank, Baker & McKenzie, Chicago, Ill., for defendants.


ROSZKOWSKI, District Judge.

Before the court are the motions of plaintiff, Royal Truck & Trailer, Inc., to proceed against defendant, Uiterwyk Corporation only and for sanctions, and the motion of Uiterwyk to sever and transfer certain claims. For the reasons herein stated, plaintiff's motions to proceed and for sanctions are granted, and Uiterwyk's motion to sever and transfer is denied consistent with this opinion.

Two weeks before the due date for the filing of the final pre-trial order in this case defendant, Armadora Maritima Salvadorena, S.A. de C.V. ("Armasal") filed a reorganization petition under Chapter 11 of the Bankruptcy Act. As a result, this litigation, at least as to Armasal, has been stayed.

Plaintiff, Royal, nevertheless requests that this court grant them leave to proceed against defendant Uiterwyk, or in the alternative, to dismiss defendant Armasal and proceed solely against Uiterwyk.1

Plaintiff has filed a three Count complaint in this case. In Count I, Royal seeks damages against Armasal for Armasal's alleged breach of a written Lease Agreement, entered into between Royal and Armasal in March, 1978, whereby Royal agreed to lease to Armasal fifty refrigerated trailers.

In Count II, Royal has brought suit on a joint written guaranty to the Royal-Armasal Lease Agreement. The guarantee was entered into at Royal's request between Armasal and Uiterwyk, which was a general agent for Armasal.

In Count III, Royal has sued Armasal and Uiterwyk on a conversion theory.

Armasal and Uiterwyk have filed various affirmative defenses as to the claims asserted by Royal. Included among these defenses are defendants' claims that 1) Royal failed to mitigate its damages; 2) the Lease Agreement fails for lack of consideration; 3) Royal breached warranties; and 4) Royal gave a partial release on the guaranty.

Additionally, Uiterwyk has filed a two count counterclaim against Armasal seeking indemnification from Armasal under the guaranty and an accounting and judgment for sums advanced on behalf of Armasal by Uiterwyk pursuant to their agency agreement.

Armasal has also filed a counterclaim against Uiterwyk alleging that Uiterwyk breached both the general agency and management contracts.

Armasal, a foreign corporation, is a shipping line which operates ships to and from ports in the United States and Central America for the purpose of transporting various types of cargo.

Pursuant to a written general agency contract between Armasal and Uiterwyk dated June, 1973 and a Management Agreement between Armasal and Uiterwyk dated January 1, 1978, Uiterwyk acted as general agent for Armasal in the United States until around March 1, 1979 when Armasal terminated Uiterwyk as its general agent.2

After March, 1979, Smith and Johnson became Armasal's general agent in the United States and acted for Armasal for purposes of the Royal lease.

In March, 1978, Royal leased to Armasal for one year fifty used (1969) refrigerator trailers. Uiterwyk as Armasal's general agent guaranteed Armasal's obligation.

These trailers were delivered to defendants in mid-summer 1978 in New Orleans, Louisiana. Within a few months subsequent to delivery, the monthly rental payments due Royal ceased. Additionally, the trailers were not returned to Royal in Chicago at the end of the lease term as required under the agreement.

After filing this suit, Royal obtained possession of the trailers which were allegedly in a damaged condition and strewn across an unsecured dock area outside Uiterwyk's New Orleans wharf.

All parties are in agreement that Armsal's Chapter 11 filing operates to automatically stay any and all claims pending against Armasal in this case. See, 11 U.S.C. § 362(a).

Uiterwyk contends, however, and Royal disagrees that the bankruptcy petition filed by Armasal should effect a stay against Uiterwyk as well. Nothing, however, in the Bankruptcy Code would support Uiterwyk's contention. In fact, the language of the Code makes it quite clear that, in Chapter 11, the protections afforded the bankrupt are designed for the debtor-bankrupt only. See e.g. 11 U.S.C. § 362(a); House Committee on the Judiciary House Report No. 95-595, 11 U.S.C.A. p. 419, U.S. Code Cong. & Admin. News 1978, p. 5787, and Collier on Bankruptcy § 326.011, 2.

The Notes of the Committee on the Judiciary specifically explain that:

The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.

See, Notes, 11 U.S.C. § 362; and Teledyne Industries, Inc. v. Eon Corporation, 401 F.Supp. 729, 734 (S.D.N.Y.1975).

Under the former Bankruptcy Act, it was well settled that bankruptcy proceedings under Chapter 11 did not require termination of every suit to which the bankrupt was a party. See, Connell v. Walker, 291 U.S. 1, 5, 54 S.Ct. 257, 258, 78 L.Ed. 613 (1934); Donald F. Duncan, Inc. v. Royal Tops Manufacturing Company, 381 F.2d 879, 882 (7th Cir. 1967).

There seems to be no compelling reason for a different result to obtain under Chapter 11 of the New Bankruptcy Code and neither party has provided us with any reason for modifying this principle under the New Code.

Moreover, the interpretation that the automatic stay provisions of Chapter 11 under the New Code operate for the benefit of the bankrupt only is further supported by reference to Chapter 13 proceedings. 11 U.S.C. § 1301 et seq.

Chapter 13, unlike Chapter 11, specifically provides for the stay of an action against a codebtor. 11 U.S.C. § 1301(a) states in pertinent part:

Except as provided in subsections (b) and (c) of this section, after the order for relief under this chapter, a creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor, or that secured such debt, unless — (1) such individual became liable on or secured such debt in the ordinary course of such individuals business . . .

The Notes of the Committee on the Judiciary Report No. 95-595, U.S. Code Cong. & Admin. News 1978, p. 6381, explains that this section,

. . . is designed to protect a debtor operating under a Chapter 13 individual repayment plan case by insulating him from indirect pressures from his creditors exerted through his friends or relatives that may have cosigned an obligation of the debtor.

Interestingly, although not necessary to the decision in this case, a reading of § 1301(a) would appear to require the result in the instant case, if Armasal had filed or was able to file a Chapter 13 petition, that Uiterwyk's co-obligation be specifically excepted from the provision of a stay against codebtors as the debt here appears to have been incurred in the ordinary course of Uiterwyk's business.

In this court's opinion, Congress' decision to specifically provide for stays against co-debtors under the New Code's Chapter 13 provisions and Congress' apparent decision to not provide for similar relief under Chapter 11 lends further support to this court's conclusion that the automatic stay provisions in § 362(a) operated in favor of the bankrupt Armasal only and not in favor of a co-debtor such as Uiterwyk.

Consequently, in this court's opinion, something more than the mere fact that one of the parties to this lawsuit has filed a Chapter 11 bankruptcy petition must be shown in order that proceedings be stayed against non-bankrupt parties. See, e.g. Teledyne Industries, Inc. v. Eon Corp., supra, 401 F.Supp. at 734.

Defendant, Uiterwyk, contends that a stay of the proceedings is necessary because Armasal is an indispensable party under Rule 19 of the Federal Rules of Civil Procedure. This court disagrees.

Rule 19(a) in pertinent part provides:

A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.

Rule 19(b), however, specifically allows the court, where a person described in subdivision (a)(1)-(2) cannot be made a party, to "determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable."

Initially, this court notes that it appears undisputed that Armasal falls within the category of persons who, under § 19(a), should be "joined if feasible." This action asserts a breach of a lease agreement by Armasal and recovery against Armasal and Uiterwyk as joint obligors of that lease agreement.

Consequently, Armasal can be said to have, in all probability, an interest in the subject matter of the action. Nevertheless, Armasal is unable to proceed with this...

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