Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-00740/USCOURTS-azd-2_10-cv-00740-2/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1125 Trademark Infringement (Lanham Act)

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Best Western International, Inc., 

Plaintiff, 

vs.

Fish Creek Holdings, LLC, et al., 

Defendants.

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No. CV10-0740 PHX DGC

ORDER

On February 7, 2011, this Court denied Plaintiff’s motion for default judgment against

defendants without prejudice and ordered Plaintiff to file a memorandum showing cause why

the case should not be dismissed and the claims adjudicated in Defendant Martinsen’s

bankruptcy adversary action. Doc. 29. Plaintiff complied by filing a combined

memorandum and renewed motion for default judgment against Defendant Fish Creek

Holdings, LLC (“Fish Creek”) on February 11, 2011. Doc. 30.

Plaintiff concedes that its claims against Defendant Sue Martinsen should be

dismissed in light of the latter’s bankruptcy petition. Doc. 30 at 3:1-2. Good cause

appearing, Defendant Sue Martinsen will be dismissed from this case.

Plaintiff also moves anew for default judgment against Fish Creek. Doc. 30 at 6. In

its February 7 order (“the Order”), the Court noted that Plaintiff’s complaint identified Henry

Martinsen, Defendant Sue Martinsen’s husband, as the “owner” of Fish Creek. Doc. 29 at 1.

The Court observed that to the extent Fish Creek represents property of the Martinsen

bankruptcy estate, Plaintiff’s motion for default judgment runs counter to the automatic stay

Case 2:10-cv-00740-DGC Document 31 Filed 04/11/11 Page 1 of 4
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of 11 U.S.C. § 362(a). In its memorandum, Plaintiff argues for the first time that the

Martinsens’ bankruptcy petition does not disclose any ownership interest in Fish Creek

(Doc. 30 at 4), suggests that such disclosure failure may be an oversight (id. at 5:9), and

implies that its initial belief as to the ownership of Fish Creek could have been mistaken (id.

at 5:2). Plaintiff also asserts that Fish Creek was dissolved on January 7, 2011, that another

entity named Fish Creek Management, LLC was also dissolved on the same date, and that

the Martinsens had a 50% interest in the latter entity. Doc. 30 at 4. Finally, Plaintiff argues

that even if the Martinsens had an ownership interest in Defendant Fish Creek, the automatic

stay of § 362(a) would not preclude judgment against Fish Creek because the latter is not a

debtor. Doc. 30 at 2. Plaintiff cites for support to Groner v. Miller (In re Miller), 262 B.R.

499, 503-04 (B.A.P. 9th Cir. 2001), In re Chugach Forest Products, Inc., 23 F.3d 241, 246

(9th Cir. 1994), and In re Advanced Ribbons & Office Products, Inc., 125 B.R. 259, 263

(B.A.P. 9th Cir. 1991). Doc. 30 at 2, 5.

Moreover, Plaintiff’s contention that the bankruptcy stay would not apply against Fish

Creek even if bankruptcy-debtor Henry Martisen was the owner of Fish Creek is tenuous.

The Ninth Circuit has held, for example, that a debtor’s pre-foreclosure right to redeem a

note is property of the estate, and that a creditor who moves to lift the stay has the “burden

of proof on the question of a debtor’s lack of equity in property.” In re Bialac, 712 F.2d 426,

430-32 (9th Cir. 1983). The Bialac court recognized that even options or contingent interests

are “property of the bankruptcy estate.” Id. at 431. It follows, therefore, that a bankruptcydebtor’s significant interest in an LLC is property of the bankruptcy estate. See Segal v.

Rochelle, 382 U.S. 375, 379 (1966) (“The main thrust of [11 U.S.C. § 541] is to secure for

creditors everything of value the bankrupt may possess in alienable or leviable form when

he files his petition. To this end the term ‘property’ has been construed most

generously . . . .”). It also follows that to the extent a judgment against Fish Creek would

substantially reduce the value of the Martinsen bankruptcy estate, entertaining such a

judgment may run contrary to the principles of the automatic stay.

Out-of-circuit case law provides further persuasive considerations related to this point.

Case 2:10-cv-00740-DGC Document 31 Filed 04/11/11 Page 2 of 4
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The Fourth Circuit has held in A.H. Robins Co. v. Piccinin that an automatic stay may apply

to non-debtors in “unusual circumstances,” such as occur when “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 will in effect be a

judgment or finding against the debtor.” 788 F.2d 994, 999 (4th Cir. 1986). The Ninth

Circuit has declined to adopt this rule in cases where the rule was not dispositive, but it has

not completely closed the door on this principle. E.g., In re Chugach, 23 F.3d at 247.

The Court does not have before it sufficient facts to assess whether the “unusual

circumstances” rule would or would not apply with respect to Fish Creek. With regard to the

“identity between the debtor and the third-party defendant,” Plaintiff is ambiguous as to the

extent of bankruptcy debtors’ interest in Fish Creek. The complaint identifies Henry

Martinsen as the owner of Fish Creek (Doc. 1 ¶ 23), an allegation Defendant Sue Martinsen

admitted (Doc. 12 at 2). This would imply complete ownership by debtor Henry Martinsen

and could trigger the “unusual circumstances” rule. Plaintiff’s most recent memorandum is

ambivalent, as discussed above. Plaintiff could have conducted discovery to ascertain this

fact from debtors themselves. In re Miller, 262 B.R. 499, 507 (B.A.P. 9th Cir. 2001)

(holding that discovery subpoenas may issue to a bankruptcy debtor as a third-party witness

in a case against a non-debtor).

Plaintiff’s cited case law does not support a different conclusion. In re Advanced

Ribbons held that foreclosure of a shareholder’s interest in a debtor corporation does not

violate the bankruptcy stay. 125 B.R. at 264. In re Chugach held that an in rem seizure of

a vessel that did not belong to debtor but carried debtor’s cargo did not violate the automatic

stay against debtor’s estate because the vessel was not the property of the debtor, was a

distinct person-defendant in a maritime in rem action under admiralty law, and unloading of

debtor’s cargo was not possible after the vessel was arrested. 23 F.3d at 245-47. And In re

Miller concerned the issue of whether subpoenas to a debtor third-party witness in litigating

claims against a non-debtor violated the stay against debtor. 262 B.R. at 505-07. None of

the aforementioned cases address the issue and facts in this case.

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In sum, Plaintiff has failed to persuade the Court that default judgment against Fish

Creek is proper. The motion will be denied for the reasons stated above.

IT IS ORDERED:

1. Defendant Sue Martinsen is hereby dismissed from this case. The Clerk

shall update the docket accordingly.

2. Plaintiff’s motion for default judgment (Doc. 30) is denied.

3. Plaintiff shall, on or before May 2, 2011, file a memorandum advising the

Court of how it wishes to proceed in this case.

DATED this 11th day of April, 2011.

Case 2:10-cv-00740-DGC Document 31 Filed 04/11/11 Page 4 of 4