Tuesday, October 02, 2007, 9:13 AM

Split COA Refuses Stay Pending Bankruptcy

Today the Court of Appeals (COA), in yet another split decision, rejected a stay pending a defendant's bankruptcy proceeding. The case is Park East Sales, LLC v. Clark-Langley, Inc.

After one of defendants filed for bankruptcy and instituted an adversary proceeding in the Bankruptcy Court, other defendants in the state court action moved the trial court per N.C.G.S. 1-75.12 to stay further proceedings pending final disposition in the bankruptcy action. (Section 1-75.12 authorizes a trial judge to stay an action to avoid substantial injustice.) When the trial court denied the stay, defendants appealed. In a majority opinion by Judge Tyson, the COA rejected the appeal on the ground that, under 1-75.12's text, review of a stay denial may be had only by petition for writ of certiorari. Defendants hadn't filed a cert petition, but instead a notice of appeal. The majority refused to treat the appeal as a petition for a writ of certiorari.

Chief Judge Martin dissented. He would exercise discretion to treat defendants' assignment of error as a cert petition. He added that the trial court abused its discretion in denying the stay because the bankrupt party was a necessary party whose rights and obligations were at the center of the state court action, and because the bankruptcy court was a more convenient and efficient forum since all parties already had been joined in the adversary proceeding there. The majority responded that Judge Martin's position would set a "dangerous precedent" that would "compel a stay to be entered in any pending multi-party state action where only one party later files bankruptcy." Judge Martin deemed that an overstatement of his position.

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