Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_17-cv-00091/USCOURTS-casd-3_17-cv-00091-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity Action

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

BMO HARRIS BANK N.A., a national 

banking association,

Plaintiff,

v.

MARKEN ENTERPRISE, LLC, an 

Arizona limited liability company, AND 

GARY MARKEN, an individual,

Defendants.

Case No.: 3:17-cv-00091-GPC-NLS

ORDER 

(1) STAYING CASE PENDING 

RESOLUTION OF AUTOMATIC 

STAY RE: GARY MARKEN

(2) DENYING MOTION FOR 

DEFAULT JUDGMENT WITHOUT 

PREJUDICE

[ECF No. 7.]

On July 31, 2017, Plaintiff BMO Harris Bank N.A. filed a motion for default 

judgment against Defendants Marken Enterprise, LLC and Gary Marken. (Dkt. No. 7.) 

A hearing has been scheduled for October 6, 2017 at 1:30 p.m. On August 21, 2017, 

Plaintiff filed a Notice of Automatic Stay Pursuant to 11 U.S.C. § 362 to inform the court 

that Gary Marken (“Debtor”) had filed a voluntary petition under Chapter 7 of the United 

States Bankruptcy Code (“Petition”). (Dkt. No. 8.) This Petition is currently pending in 

the United States Bankruptcy Court for the District of Arizona in Case Number 2:17-bk08563-MCW. 

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Pursuant to 11 U.S.C. § 362(a), an automatic stay is applicable to actions and legal 

proceedings against the Debtor, including in this instant case, until further order from the 

Bankruptcy Court. An automatic stay precludes the “commencement or continuation, 

including the issuance or employment of process, of a judicial, administrative, or other 

action or proceeding against the debtor that was or could have been commenced before 

the commence of the case under [the Bankruptcy title], or to recover a claim against the 

debtor that arose before the commencement of the case under this title.” Once a 

discharge is granted in a Chapter 7 bankruptcy, a stay issued pursuant to § 362(a) is 

lifted. 11 U.S.C. § 362(c)(2)(C). 

Pursuant to 11 U.S.C. § 362, the filing of the bankruptcy petition operates as an 

automatic stay only as to Defendant Gary Marken. See 11 U.S.C. § 901(a). Section 362 

does not stay this action as to the non-bankrupt defendant, Marken Enterprise, LLC. See 

Ingersoll-Rand Financial Corp. v. Miller Mining Co. Inc., 817 F.2d 1424, 1427 (9th Cir. 

1987) (“In the absence of special circumstances, stays pursuant to section 362(a) are 

limited to debtors and do not include non-bankrupt co-defendants.”) Plaintiff has not 

expressed a view as to whether the stay should apply to Marken Enterprise, LLC. See

(Dkt. No. 8.)

Courts have found that the automatic stay may apply to non-debtor entities under 

the “unusual circumstances” exception. See Zurich Amer. Ins. Co. v. Trans Cal 

Associates, 2011 WL 6329959, at *2–3 (E.D.Cal. Dec.16, 2011) (explaining the “unusual 

circumstances” exception and ultimately staying the action as to non-bankrupt codefendants pursuant to the court's inherent authority). “The courts have carved out 

limited exceptions [to the general rule that stays pursuant to § 362(a) are limited to 

debtors and do not include non-bankrupt co-defendants] where: (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 will in effect be a 

judgment or finding against the debtor,’ or (2) extending the stay against codefendants 

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‘contributes to the debtor's efforts of rehabilitation.’” United States v. Dos Cabezas 

Corp., 995 F.2d 1486, 1491 n. 3 (9th Cir.1993). See also Queenie, Ltd. V. Nygard Int’l, 

321 F.3d 282, 287 (2d Cir.2003) (staying the proceedings as to non-debtor corporation 

co-defendant that was wholly owned by debtor because the “claim against the non-debtor 

will have an immediate adverse economic consequence for the debtor's estate”). The 

Court observes that the instant case is a prime candidate for the “unusual circumstances” 

exception because (1) there is significant identity between the Debtor and co-defendant 

and because (2) Debtor serves as a guarantor for the loan undertaken by Marken 

Enterprise LLC that is the subject of this instant action and the claim against the LLC will 

have an “adverse economic consequence” for his estate. See Compl. ¶ 2-3 (stating that 

Marken Enterprise LLC’s sole and Managing Member is Gary Marken and that Marken 

is the guarantor of the obligations owed by Marken Enterprise LLC in this lawsuit); 

Queenie, Ltd. v. Nygard Int'l, 321 F.3d 282, 287 (2d Cir. 2003) (finding that claims that 

“establish an obligation of which the debtor is a guarantor” constitute unusual 

circumstances to warrant an extension of automatic stay to a non-debtor).

However, even if such an exception applied, the weight of authority holds that the 

bankruptcy court must extend the automatic stay, not the district court. See Zurich, 2011 

WL 6329959, at *2 (citing Placido v. Prudential Ins. Co. of Am., No. c09-00668-WHA, 

2010 WL 334744, at *1 (N.D. Cal. Jan. 22, 2010). See also Boucher v. Shaw, 572 F.3d 

1087, 1093 n.3 (9th Cir. 2009). Consequently, the Court will not and cannot stay the 

instant action as to Marken Enterprise LLC pursuant to the automatic stay provisions of 

Section 362. 

However, the court will stay the action against Marken Enterprise LLC under its 

inherent authority since doing so would be judicially efficient and the fairest course for 

the parties. District courts faced with similar situations have pursued a similar course and 

exercised their inherent authority to stay matters as to a non-debtor party. See J&J Sports 

Products Inc. v. Brar, No. 2:09-cv-3394-GEB-EFB, 2012 WL 4755037, at *2 (E.D. Cal. 

Oct. 3, 2012) (ordering a stay as to claims against the debtor’s LLC pursuant to inherent 

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authority pending resolution of the debtor’s bankruptcy petition); Zurich, 2011 WL 

6329959, at *2-3 (staying case against non-bankrupt co-defendants pursuant to inherent 

authority). In J&J Sports, Judge Brennan explained that default judgment should not be 

entered until the case is finally adjudicated as to all claims and all parties. J&J, 2012 WL 

4755037, at *2. By permitting plaintiff to proceed against only the LLC, a “later trial of 

the claims against the individual defendant could involve the relitigation of most if not all 

of the issues litigated in the first proceeding against [the] LLC.” Id. These same 

concerns of judicial economy and fairness to the parties are present in this instant case. 

The Court concludes that a stay of Plaintiff’s claims are appropriate, in the interest 

of judicial economy, and is permissible under the Court’s inherent authority to manage its 

cases. See SCI Northbay Commerce Fund 4, LLC v. SCI Real Estate Invs., LLC, 2011 

WL 1133898, at *1 (M.D. Fla. Mar.28, 2011). The court will therefore deny plaintiff’s 

motion for default judgment without prejudice. 

Accordingly it is HEREBY ORDERED that:

1. Plaintiff’s Motion for Default Judgment is DENIED without prejudice as to its 

reassertion upon termination of the bankruptcy proceeding or an order granting 

relief from the automatic stay. The Court vacates the hearing set for October 6, 

2017 at 1:30 p.m. 

2. This action is stayed pending resolution of Defendant Gary Marken’s bankruptcy 

petition, case number 2:17-bk-08563-MCW, filed July 25, 2017

3. The parties shall notify the court within fourteen days of the resolution of the 

bankruptcy proceeding

4. The Clerk of Court is instructed to administratively close this case, to be reopened 

after the conclusion of the bankruptcy proceedings upon written request and 

application of the parties and order of this court.

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IT IS SO ORDERED.

Dated: September 14, 2017

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