Gibson v. McClaffertyGibson v. McClafferty
- Reporters:
- ,
- Before:
- Robert A. Molloy
MICHAEL L. SHEESLEY, ESQ.
MICHAEL L. SHEESLEY LLC
SAN JUAN, PUERTO RICO
FOR PLAINTIFF ALEX GIBSON
CHRISTOPHER ALLEN KROBLIN, ESQ.
MARJORIE B. WHALEN, ESQ.
KELLERHALS FERGUSON KROBLIN PLLC
ST. THOMAS, U.S. VIRGIN ISLANDS
FOR DEFENDANTS B. MATTHEW MCCLAFFERTY, MAC PRIVATE EQUITY, INC., AND MPE CLEARING & HOLDINGS, INC.
MEMORANDUM OPINION
MOLLOY, Chief Judge.
BEFORE THE COURT is Defendants B. Matthew McClafferty, Mac Private Equity, Inc., and MPE Clearing & Holdings, Inc.’s (collectively, “Defendants“) Suggestion of Bankruptcy (Chapter 7), filed on March 5, 2025. (ECF No. 66.) Defendants informed the Court that a petition for Chapter 7 bankruptcy was filed on March 4, 2025, by Defendant Mac Private Equity, Inc. (“Mac Equity“) in the United States Bankruptcy Court for the District of Delaware. Id. The petition listed Co-defendants B. Matthew McClafferty (“McClafferty“) and MPE Clearing & Holdings, Inc. (“MPE“) as co-debtors. Id.
I. BACKGROUND
Gibson, a resident and citizen of Puerto Rico, filed the instant action alleging that he had been duped by Defendants through a “Ponzi Scheme.”1 (See generally ECF No. 5.) Co-defendant McClafferty is a resident of the U.S. Virgin Islands. Id. at ¶2. Co-defendant Mac Equity is a Delaware corporation and Co-defendant MPE is a U.S. Virgin Islands corporation. Id. at ¶¶3, 4. The parties had presumably settled their disputes in October 2024 with a consent judgment and a stipulation for dismissal addressing all counts of Gibson’s complaint. (See ECF Nos. 39, 42, respectively.) However, the judgment languished unsatisfied, and then, on March 4, 2025, Mac Equity filed for Chapter 7 bankruptcy. (See ECF No. 66.)
Events unfolded as follows: McClafferty, as President of Mac Equity, signed a promissory note and lending agreement with Gibson on August 10, 2022, for which Gibson provided $50,000.00 to McClafferty. (ECF No. 5 ¶¶15,16). On November 7, 2022, a second promissory note and lending agreement was signed between the same parties, for which Gibson provided McClafferty an additional $20,000.00. Id. at ¶¶ 24, 26.
In early April 2024, when repayment of the funds was not forthcoming as agreed upon, Gibson initiated this action for damages against Defendants alleging five causes of action, namely, breach of agreement, breach of contract, debt, fraudulent misrepresentation, and breach of covenant of good faith and fair dealing. (ECF No. 1.) Gibson filed a first amended complaint on April 5, 2024, alleging the same five causes of action plus three more:
By the end of October 2024, it appeared that the parties had completely resolved all their disputes. A mediation report was signed on October 29, 2024, by mediator Carl A. Beckstedt, Esq.2 (ECF No. 44.) The parties had reached an agreement on three of the counts and motioned the Court to approve the consent judgment on October 30, 2024. (ECF No. 39.). That same day the Court approved and granted the parties’ consent judgment. (ECF No. 40). The consent judgment awarded Gibson final judgment on Counts Two, Three, and Five of the First Amended Complaint in the amount of $215,000.00 as follows:
- Judgment against McClafferty in the amount of $110,000.00.
- Judgment against Mac Equity and MPE in the total amount of $105,000.00, “which judgment amount shall be jointly and severally attributable to both defendants.”
Id.
The next day, on October 31, 2024, the parties stipulated to and agreed to the dismissal of the remaining claims— Counts One, Four, Six, Seven, and Eight, of the First Amended Complaint, ECF No. 5, and any asserted counterclaims, with prejudice. (ECF No. 42.) The Court acknowledged the parties’ stipulation of partial dismissal and dismissed the counterclaims with prejudice. (See ECF No. 43.)
On December 12, 2024, Gibson motioned the Court to schedule a judgment debtor examination ordering McClafferty to provide testimony under oath concerning his assets and property that are not exempt from execution. (ECF No. 48.) McClafferty did not file a response. The Court granted the motion and scheduled a judgment debtor examination hearing for March 24, 2025. (ECF No. 65.) Two days later, Defendants filed their Suggestion of Bankruptcy, notifying the Court that Mac Equity filed a Petition for Bankruptcy in the United States Bankruptcy Court for the District of Delaware, “Case #25-10386, listing B. Matthew McClafferty and MPE Clearing & Holdings, Inc. as Co-Debtors.” (ECF No. 66.) Pending evaluation as to whether the petition for bankruptcy and automatic stay applies to
Defendants argue that co-defendant co-debtors MPE and McClafferty should be treated as real parties in interest in the instant suit, that MPE is property of Mac Equity’s bankruptcy estate as a wholly owned subsidiary of Mac Equity, and that even if it is not, the automatic stay should nevertheless apply to all three parties. Gibson, of course, disagrees. The Court addresses these arguments in turn.
II. LEGAL STANDARD
Once a Chapter 7 bankruptcy petition is filed, an automatic stay goes into effect, prohibiting the commencement or continuation of any action or proceeding against the debtor.
While the scope of the automatic stay is broad, it is limited to claims against the debtor. The clear language of section 362(a) indicates that it stays enforcement or proceedings only against a ‘debtor’—the term used by the statute itself. Mar. Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1204 (3d Cir. 1991); accord ACandS, Inc. v. Travelers Cas. & Sur. Co., 435 F.3d 252, 259 (3d Cir. 2006); see also Fortier v. Dona Anna Plaza Partners, 747 F.2d 1324, 1330 (10th Cir. 1984) (“There is nothing in the statute [11 U.S.C. §362] which purports to extend the stay to causes of action against solvent co-defendants of the debtor.“).
“The automatic stay functions as one of the Bankruptcy Code‘s fundamental protections, providing the honest but unfortunate debtor with a breathing spell from their creditors.” Usoroh v. Koger (In re Koger), Nos. 24-21081-GLT, 33, 41, 2024 Bankr. LEXIS 2086, at *4 (Bankr. W.D. Pa. Sep. 9, 2024) (citations omitted); accord JELD-WEN, Inc. v. Van Brunt In re Grossman‘s Inc., 607 F.3d 114, 122 (3d Cir. 2010). “That insulation, however, belongs exclusively to the ‘debtor’ in bankruptcy.” Williford v. Armstrong World Indus., Inc., 715 F.2d 124, 125 (4th Cir. 1983). “It would make no sense to extend the automatic stay protections to solvent co-defendants. They don‘t need it, and at the same time it would work a hardship on
That being said, there are certain situations, however, where courts have applied the automatic stay protection to non-debtor co-defendants in accordance with
The “unusual circumstances” test adopted by the Third Circuit is whether: (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) “stay protection is essential to the debtor‘s efforts of reorganization.” Sussino v. Work Out World, Inc., Civil Action No. 3:15-cv-05881 (PGS)(TJB), 2021 U.S. Dist. LEXIS 263945, at *6 (D.N.J. Oct. 25, 2021) (citations omitted). Section 362 (a)(1) stays “actions against the debtor and arguably against those whose interests are so intimately intertwined with those of the debtor that the latter may be said to be the real party in interest.” A.H. Robins, 788 F.2d at 1001. “An illustration of
III. DISCUSSION
Gibson presents verification of an unsatisfied consent judgment against Defendants Mac Equity, McClafferty and MPE, and argues that because only Mac Equity filed a voluntary petition for chapter 7 bankruptcy, the automatic stay applies only to Mac Equity. (ECF No. 67 at 1.)
Defendants, on the other hand, contend that two “unusual circumstances” exist to warrant extending the automatic stay to McClafferty and MPE. First, Defendants argue that the three entities are so closely related to Mac Equity, that the bankruptcy debtor is “in essence the real party in interest” for any claim against McClafferty or MPE. (ECF No. 70 at 3.) MPE is a wholly owned subsidiary of Mac Equity, and McClafferty is the president and sole owner of Mac Equity. (ECF No. 70 at 2.) Second, Defendants argue that Gibson’s claims against McClafferty and MPE “amount to competing claims against the estate assets” of Mac Equity. (ECF No. 70 at 3.) Specifically, Defendants argue that MPE is an asset of Mac Equity, and to the extent the settlement agreement of the parties is enforced against the co-defendants, any payment “could potentially” impact the bankruptcy estate of Mac Equity.4 (ECF No. 70 at 3.)
Although, the power of the district courts to grant automatic stays is well recognized, it is not without limitation. “Proper use of this authority calls for the exercise of judgment that must weigh competing interests and maintain an even balance.” Williford, 715 F.2d at 124. “[T]he suppliant for a stay must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to someone else.” Landis v. N. Am. Co., 299 U.S. 248 (1936); see also Residential Capital, LLC v. Fed. Hous. Fin. Agency (In re Residential Capital, LLC), 529 F. App‘x 69, 70-71 (2d Cir. 2013) (concluding that an automatic stay does not apply to non-debtor entities “as a
A. Real Parties in Interest
Because Mac Equity filed Chapter 7 bankruptcy, which does not involve reorganization, we focus only on whether a judgment against co-defendant co-debtors MPE and McClafferty would “in effect” be a judgment against Mac Equity, the bankruptcy debtor.5
Defendants rely on McCartney v. Integra Nat‘l Bank N., 106 F.3d 506 (3d Cir. 1997), a not-so-straightforward case. McCartney was an appeal of a bankruptcy court decision denying the discharge of a bankruptcy debt. The appeals court affirmed the debt along with the bankruptcy court’s decision to extend the automatic stay to the debtor’s wholly-owned corporation because it found that the debtor was “in essence, the real party in interest.” Id. at 511.
Unlike the instant scenario, the initial automatic stay in McCartney was in place against the bankruptcy debtor in his individual capacity, and the bankruptcy debtor in McCartney did not want an automatic stay extended to his corporation, Lamar’s Restaurant & Lounge, Inc. (“Lamar’s“). Id. at 510. The matter of the stay was addressed in the context of a creditor’s obligations under the Pennsylvania Deficiency Judgment Act (“DJA“)—a state statute—governing circumstances where a creditor forces real estate to be sold in an execution sale. In a nutshell, the question boiled down to fair market value of property sold.
The appellee creditor in McCartney had extended a loan to appellant debtor‘s corporation, Lamar’s, which was secured by a mortgage on its property that had been guaranteed by the debtor. Id. at 508. After the debtor filed for Chapter 13 bankruptcy and moved to sell the corporate property, the creditor obtained the property through a sheriff‘s sale for costs and taxes, re-sold it, and then filed a proof of claim in the debtor’s bankruptcy
In McCartney, the debtor—as guarantor—was secondarily liable for any deficiency entered against his corporation, Lamar‘s, and following the foreclosure and sheriff‘s sale, Lamar’s had no assets. Id. at 511. Therefore, the debtor would have been the real party defendant in a deficiency judgment action by the creditor against Lamar‘s. Id. Accordingly, the Court extended the automatic stay to Lamar’s and the creditor was stayed from pursuing a deficiency judgment action against Lamar‘s because the debtor was, “in essence, the real party in interest.” Id.
Unlike the instant scenario, the appellant bankruptcy debtor in McCartney was a private individual. Here, the bankruptcy debtor—Mac Equity—is a corporation. Co-defendant McClafferty is apparently solvent as the sole owner of the bankruptcy debtor Mac Equity, and Defendants present no evidence demonstrating the existence of a guarantor relationship as was the case in McCartney.
Defendants also rely on Queenie, Ltd. v. Nygard Int‘l, 321 F.3d 282 (2d Cir. 2003). According to Queenie,, an automatic stay “can apply to non-debtors but normally does so only when a claim against the non-debtor will have an immediate adverse economic consequence
The court in Queenie considered whether the automatic stay—which required a stay of the appeal with respect to the appellant debtor—would also apply to the appeals of three other co-appellants. The appeal addressed an amended District Court judgment awarding attorney’s fees and damages.7 Id. at 283. The bankruptcy debtor defendant in Queenie was a private individual who was president of the solvent co-debtor corporation Queenie. He wholly owned it. The bankruptcy debtor wanted the stay on his behalf to apply not only to himself, but to his corporation Queenie and to the remaining other two co-defendants. Queenie and the other co-defendants either took no position or were silent on the issue. Id. at 287. The court concluded that the stay of appeal would apply to Queenie and not to the other co-defendants in accordance with the principle that such identity existed between the owner bankruptcy debtor and the third-party defendant Queenie “that the debtor may be said to be the real party defendant.” Id. at 288. The Court found that adjudication of the claim against Queenie—as a wholly-owned corporation of the debtor—would have had immediate adverse economic impact on the owner debtor. Id.
Unlike Queenie, here it is the wholly-owned corporation Mac Equity that filed for Chapter 7 bankruptcy—not its owner—and Defendants do not demonstrate how adjudication of the claims against MPE and McClafferty “will have an immediate adverse economic consequence for the debtor‘s estate.” Id. “Although the automatic stay can be extended to situations involving non-debtors, courts are careful to reserve such power to the
1. The automatic stay does not apply to co-defendant McClafferty
The Court is not convinced that “unusual circumstances” exist here based on identities of the parties alone. McClafferty argues that the automatic stay in place for Mac Equity should extend to McClafferty because he is the sole owner of Mac Equity. However, the primary reason many business owners choose the structure of a corporation is to limit their own risks. The existence of the corporate structure cannot simply be disregarded so that an owner may escape its drawbacks. See Terry v. Yancey, 344 F.2d 789, 790 (4th Cir. 1965) (explaining that “where an individual creates a corporation as a means of carrying out his business purposes, he may not ignore the existence of the corporation in order to avoid its disadvantages“); see also Rich v. Witt O‘Brien‘s, USVI, LLC, No. 1:19-cv-00022-RAM-EAH, 2024 U.S. Dist. LEXIS 75523, at *24 n.9 (D.V.I. Apr. 25, 2024) (“The corporate form should not be disregarded lightly. . . .The Virgin Islands, as in other jurisdictions, will respect corporate separateness unless presented with a compelling reason to disregard such a well-entrenched concept.“) (citing Cesar Castillo, Inc. v. Healthcare Enterprises, L.L.C., No. 12-cv-0108, 2016 U.S. Dist. LEXIS 132281, 2016 WL 5660437, at *3 (D.V.I. Sept. 27, 2016)) (internal quotation marks, citations, and alterations omitted). The stay generally only applies to the debtor and its property and does not extend to third parties such as a debtor‘s affiliates, officers and principals, or co-defendants. See McCartney, 106 F.3d at 509-10 (stating that “’it is universally acknowledged that an automatic stay of proceedings accorded by section 362 may not be invoked by entities such as sureties, guarantors, co-obligors, or others with a similar legal or factual nexus to the . . . debtor’” (quoting Lynch v. Johns-Manville Sales Corp., 710 F.2d 1194, 1196-97 (6th Cir. 1983))); accord Teachers. Ins. & Annuity Ass‘n v. Butler, 803 F.2d 61, 65 (2d Cir. 1986); Nev. Power Co. v. Calpine Corp. (In re Calpine Corp.), 365 B.R. 401, 408 (S.D.N.Y. 2007); Diocese of Rochester v. AB 100 Doe (In re Diocese of Rochester), Nos. 19-20905-PRW, 22-02075-PRW, 2022 LX 86497 (Bankr. W.D.N.Y. May 23, 2022); see also
As mentioned earlier, courts in this Circuit allow extension for an automatic stay to a non-debtor co-defendant in one of two situations, the relevant one here being when a judgment against the co-defendant will in effect be a judgment or finding against the debtor.9 This exception applies when the debtor is “forced to indemnify its co-defendants in the event of an adverse verdict.” Int‘l Union of Painters & Allied Trades Dist. Council No. 21 Health & Welfare Fund v. Serv. Painting, Inc., No. 18-3480, 2019 U.S. Dist. LEXIS 83446, at *16 (E.D. Pa. May 16, 2019) (citations omitted). Here the Court is not convinced that either co-defendant here is forced to indemnify bankruptcy debtor Mac Equity. The record is short on evidence to support what material effect—if any—action against McClafferty will have on Mac Equity’s estate as a corporation.
2. The automatic stay does not apply to co-defendant MPE
Because MPE is a subsidiary of Mac Equity, Defendants argue that MPE is an asset of Mac Equity, and therefore enforcement of the parties’ settlement agreement against MPE will potentially have impact upon Mac Equity’s estate. (ECF No. 70 at 3.) Again, based on the record, the Court is unpersuaded. In general, “holding companies and their subsidiaries are considered to be separate legal entities. Corporate entities as holding companies are separate and distinct from the corporate entities of the subsidiaries which they own.”
Because as a corporation Mac Equity is a distinct separate legal entity, a judgment against MPE, a subsidiary corporation, does not necessarily impose an obligation or liability on Mac Equity. The Court recognizes that Mac Equity does have an interest in MPE and this interest in the subsidiary corporation may form part of Mac Equity’s bankruptcy estate. However, the fact that a parent corporation has an ownership interest in a subsidiary, does not give the parent any direct interest in the assets of the subsidiary. See Koken v. Pension Benefit Guar. Corp., 383 F. Supp. 2d 712, 719-20 (E.D. Pa. 2005) (“A corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary; and, it follows with even greater force, the parent does not own or have legal title to the subsidiaries of the subsidiary. This is so because subsidiaries, even if wholly owned, are presumed separate and distinct entities from their parent corporations.“) (citations omitted); see also Kreisler v. Goldberg, 478 F.3d 209, 213 (4th Cir. 2007) (“It is a fundamental precept of corporate law that each corporation is a separate legal entity with its own debts and assets, even when such corporation is wholly owned by another corporate entity.“).
MPE and Mac Equity are separate corporations. An action to obtain possession or exercise control over MPE’s property is not necessarily an action to obtain possession or exercise control over property of Mac Equity’s bankruptcy estate. Here too, the record before the Court is shy on evidence to support what material effect—if any—action against MPE has on Mac Equity’s estate as a corporation.
B. Property of Bankrupt Estate
Subsection 362 (a)(1) of the Bankruptcy Code is “not the only part of section 362 providing for an automatic stay of proceedings. Subsection (a)(3) directs stays of any action, whether against the debtor or third-parties, to obtain possession or to exercise control over
Defendants essentially assert that any claims against MPE and McClafferty in effect “amount to competing claims against estate assets” of Mac Equity. (ECF No. 70 at 3.) However, absent unusual circumstances, “references in section 362 to ‘property of the estate’ is read as references to property of the debtor.” 6 Collier on Bankruptcy P 901.04. Defendants provide no evidence to support their assertions under Section 362 concerning Mac Equity’s estate.
IV. CONCLUSION
“The party seeking a stay must justify it by clear and convincing circumstances outweighing potential harm to the party against whom it is operative.” Williford, 715 F.2d at
Dated: September 15, 2025
/s/ Robert A. Molloy
ROBERT A. MOLLOY
Chief Judge