United States District Court, N.D. Mississippi, Aberdeen Division
before this Court is Plaintiff LM Insurance Corporation's
("Liberty Mutual") motion to sever . Having
considered the matter, the Court finds the motion should be
granted in part and denied in part.
Rockhill Investment Trust (the "Trust") is an
investment trust company whose trustee is Rodney Dial. The
Trust owns Swift Staffing Holdings which in turn owns
Defendants Swift Staffing Alabama, LLC, Swift Staffing
Georgia, LLC, Swift Staffing Mississippi, LLC. (collectively
the "bankrupt Defendants" or the "Swift
Staffing Defendants"). Rodney Dial also owns, together
with Marshal Dial, Defendant Rockhill Staffing Mississippi
separately from the Trust.
Mutual is a workers' compensation insurance provider.
Defendants, through statutorily created assigned risk plans,
were provided workers' compensation insurance through
three different policies issued by Liberty Mutual: one issued
to the Trust, Swift Staffing Alabama, and Swift Staffing
Georgia (Policy No. 544009); a second issued to the Trust and
Swift Staffing Mississippi (Policy No. 544036); and a third
issued to and Rockhill Staffing Mississippi alone (Policy No.
Mutual filed their complaint against the Defendants in March
2016. The complaint alleges that the policies issued to
Defendants required them to keep accurate records of their
staffing assignments so that Liberty Mutual could accurately
determine premiums, and to submit to a final audit once the
policy ended to determine a final premium. Policy Nos. 544009
and 544036 were canceled for nonpayment of premiums. Liberty
Mutual alleges that after those policies were canceled, The
Trust and the Swift Staffing Defendants failed to cooperate
with Liberty Mutual to complete the final audit. Liberty
Mutual then canceled Policy No. 545373, which insured
Rockhill Staffing Mississippi, claiming that the other
Defendants' failure to cooperate with Liberty MutuaPs
audit attempts related to their policies made Rockhill
Staffing Mississippi ineligible for coverage. The complaint
further alleges that Rockhill Staffing Mississippi also
failed to cooperate with a final audit concerning that
default judgment was entered against the Defendants, but that
entry was eventually set aside in March 2017. In February
2018, while discovery was ongoing, Swift Staffing Alabama,
Swift Staffing Georgia, and Swift Staffing Mississippi, filed
bankruptcy petitions in the United States Bankruptcy Court
for the Northern District of Mississippi.
time, Defendants stated that they anticipated the two
remaining Defendants, Rockhill Staffing Mississippi, and the
Trust to soon file bankruptcy petitions as well. To date,
that has not occurred. On April 23, 2018, this Court allowed
counsel for all Defendants to withdraw as counsel, and
informed Defendants they had 30 days to obtain new counsel.
They have not done so. Liberty Mutual now moves to sever
their claims against the non-bankrupt Defendants-the Trust
and Rockhill Staffing Mississippi.
Mutual asks this Court to sever its claims against the Trust
and Rockhill Staffing Mississippi. Alternatively, it asks
this Court to clarify that the bankruptcy stay does not
extend to those Defendants, and clarify that it may proceed
on its claims against them.
automatic bankruptcy stay provisions of 11 U.S.C. § 362
"neither apply to co-defendants nor preclude
severance." Wedgeworth v. Fibreboard Corp., 706
F.2d 541, 544 (5th Cir.1983). That fact that the claims arise
from the same factual basis is insufficient to warrant an
extension of the automatic stay to non-bankrupt
co-defendants. Id. Rather there must be an actual
"identity of interests, such that a judgment against the
non-bankrupt parties would in fact be a judgment against the
bankrupt party." Beran v. World Telemetry,
Inc., 747 F.Supp.2d 719, 724 (S.D. Tex. 2010). Mere
ownership of a subsidiary is not enough-there must be some
evidence that the non-bankrupt codefendants possess a legal
obligation to pay the judgments of the bankrupt defendants.
Arnold v. Garlock, Inc., 278 F.3d 426, 436 (5th Cir.
2001). Mississippi law provides that the debts and
obligations of a limited liability company belong to the
company and not any members. See Miss. Code. Ann.
§ 79-29-311. Thus, the fact that the Trust owns Swift
Staffing Alabama, Swift Staffing Georgia, and Swift Staffing
Mississippi is insufficient by itself to justify finding that
the automatic stay extends to the Trust. Nor is there
evidence of some formal or contractual indemnity arrangement
between the bankrupt Defendants and Rockhill Staffing
Mississippi that justifies the extension of the automatic
stay to it.
may nonetheless provide the non-bankrupt parties with a
discretionary stay, "in the interests of justice and in
control of their dockets." Wedgeworth, 706 F.2d
at 545; see also Gulf Coast Hotel-Motel Ass'n
v. Miss. Gulf Coast Golf Course Ass'n,
Civil No. 1:08-CV1430-HSO-JMR, 2010 WL
972248, at *3 (S.D.Miss. Mar. 12, 2010) (finding that a
district court may issue a discretionary stay even when a
§ 362 is inappropriate). The district court should issue
the stay when "there is a clear inequity to the
suppliant who is required to defend while another action
remains unresolved and if the order granting a stay can be
framed to contain reasonable limits on its duration."
GATXAircraft Corp. v. M/VCourtney Leigh, 768 F.2d
711, 716 (5th Cir. 1985).
Court finds that a discretionary stay should extend to
Rockhill Investment Trust for the breach of contract claims
based on Policy Nos. Policies 544009 and 544036. While
legally distinct entities, the trustee of the Trust, Rodney
Dial, is also an officer and manager of the staffing
companies. See List of Equity Security Holders
[131-1]. The Trust and the staffing companies have the same
addresses. Until their counsel withdrew in this case, they
were all represented by the same attorney. To require
Rockhill Investment Trust to defend against the alleged
breaches of Policies Nos. 5440049 and 5440036, would, in
effect, require the bankrupt Defendants to defend those
claims as well. The claims against the Trust and the bankrupt
Defendants are "inextricably interwoven, presenting
common questions of law and fact" and thus ought to be
resolved in one proceeding. Fed. Life Ins. Co.
(Mut.) v. First Fin. Grp. of Texas, Inc., 3 B.R. 375,
376 (S.D. Tex. 1980); see also GATX, 768
F.2d at 716 (confirming Fed. Life's holding that
a court may stay and refuse to allow plaintiff to sever
claims against non-debtor defendants that are inextricably
interwoven with claims against debtor defendants).
the Court finds no reason why the stay should extend to the
breach of contract claim against Rockhill Staffing
Mississippi, based on Policy No. 545737. Because Rockhill
Staffing is not owned by the Trust, and because the Trust and
the bankrupt Defendants and are not parties to Policy No.
545373, the bankrupt Defendants will not be prejudiced if
Liberty Mutual pursues its claim against Rockhill Staffing
Mississippi. At this point, this case is over two years old.
The parties have conducted a significant amount of discovery,
and have made mediation attempts before the Magistrate Judge.
The time to resolve this matter, to the extent the Court is
able in accordance with the bankruptcy stay, is fast
Court next turns to whether it should sever the claims
against Rockhill Staffing Mississippi into a new action under
Rule 21. Plaintiffs are not required to sever claims against
a defendant whenever a co-defendant files for bankruptcy.
GTAX, 768 F.2d at 715-16. "[W]hile the stay
protects the debtor who has filed a bankruptcy petition,
litigation can proceed against other co-defendants."
Id. at 16. As alternative relief, Liberty Mutual
asks this Court to clarify that the automatic stay does not
enjoin proceeding against the non-debtor Defendants. As
stated above, the claims against Rockhill Staffing
Mississippi are subject to neither an automatic or
discretionary stay. Therefore, the Court will grant that
motion to the extent it seeks recognition that the automatic
stay does not prevent Liberty Mutual from proceeding against
Rockhill Staffing Mississippi, although Liberty Mutual is
enjoined from proceeding against the Trust ...