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M.E.S., Inc. v. M.J. Favorito Electric

March 15, 2010

M.E.S., INC., PLAINTIFF,
v.
M.J. FAVORITO ELECTRIC, INC., INTEGRATED LIGHTING, LLC, MARK FAVORITO AND LIBERTY MUTUAL INSURANCE COMPANY, DEFENDANTS.
LIBERTY MUTUAL INSURANCE CO., DEFENDANT-THIRD-PARTY PLAINTIFF,
v.
TAMATHA FAVORITO, HARIS HOT, ALBERT HOT, LAURA HOT, SUZANA HOT, THIRD-PARTY DEFENDANTS.
UNITED STATES OF AMERICA, FOR THE USE AND BENEFIT OF M.J. FAVORITO ELECTRIC, INC., AND M.J. FAVORITO ELECTRIC, INC., DEFENDANT-THIRD-PARTY PLAINTIFF
v.
HIRANI ENGINERRING & LAND SURVEYING, P.C., AND SAFECO INSURANCE COMPANY OF AMERICA, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: John Gleeson, United States District Judge

MEMORANDUM

This memorandum explains my earlier decision to grant the application by plaintiff MES, Inc. ("MES") for an order staying these proceedings. For the reasons explained below, this litigation is stayed in its entirety as a result of Mark and Tamatha Favorito's petition for bankruptcy protection.

BACKGROUND

The nub of these complicated proceedings is a dispute over a construction contract between MES and MJ Favorito Electric, Inc. ("MJFE"). MES contracted with the U.S. Army to build a High Energy Propellant Formulation Facility at Picatinny Arsenal in Dover, New Jersey. In turn, MES entered into two subcontracts with MJFE, under which MJFE agreed to do electrical and telecommunications work for the new facility. MES contends that MJFE failed to live up to its contractual duties; MJFE counters that MES breached its own obligations and wrongfully terminated the subcontracts. The dispute has spawned four complaints before me:

Complaint #1: MES brought a state-court action for breach of contract and unjust enrichment against four defendants: MJFE, Mark Favorito (MJFE's President and owner), Integrated Lighting, LLC (another company owned and controlled by Mark Favorito), and Liberty Mutual Insurance Co. (the guarantor of MJFE's performance under the subcontracts). The defendants removed MES's action to this Court based on diversity jurisdiction.

Complaint #2: After removal, MJFE filed its own action in this Court,*fn1 counterclaiming against MES, Inc., and naming as third-party defendants Hirani Engineering & Land Surveying, P.C. (MES's joint venture partner), and Safeco Insurance Company of America (the guarantor of MES's payment under the subcontracts). MJFE demands payment for work done under the subcontracts and damages for wrongful termination.

Complaint #3: In addition, defendant Liberty Mutual filed its own complaint, seeking indemnity in the event that Liberty Mutual is held liable to MES. Liberty Mutual asserted cross-claims against MJFE and Mark Favorito, and impleaded Tamatha Favorito (Mark's wife), Albert Hot, Laura Hot, Haris Hot, and Suzanna Hot ("the Hots"), each of whom signed an agreement to indemnify Liberty Mutual for its liability on the performance bond.

Complaint #4: The pleadings skirmish was not yet over. In a fourth complaint, the seven parties sued by Liberty Mutual in Complaint #3 (MFJE, Mark Favorito, Tamatha Favorito, and the Hots) brought an action against MES and Hirani for contribution in the event that any of them was required to indemnify Liberty Mutual.

Each of these four complaints was answered, and the parties entered discovery. On consent, Judge Azrack referred the case to mediation.

On October 19, 2008, Mark Favorito and Tamatha Favorito filed a joint voluntary petition for relief under Chapter 13 of the Bankruptcy Code in New Jersey. Though the Favoritos' counsel informed Judge Azrack of the petition in a letter filed on November 10, 2008, MES waited almost a year to seek a declaration that the action was stayed.

MES contends that the bankruptcy petition requires a stay of the entire litigation. After MES filed its motion for a stay, I asked any party opposing a stay of the whole case to submit objections in writing. MJFE (whose counsel also represents Mark Favorito, Tamatha Favorito, the Hots, and Integrated Lighting LLC) responded by contending that the action is stayed only to the extent that a party seeks relief against Mark and Tamatha Favorito personally. The Favoritos, through their bankruptcy attorney, concurred. Safeco Insurance took no position as to whether the action is stayed, but suggested that the Favoritos' bankruptcy trustee be joined in this litigation as a necessary party.

DISCUSSION

The Bankruptcy Code's automatic stay provision provides that a bankruptcy petition "operates as a stay, applicable to all entities, of . the commencement or continuation . of a judicial . proceeding against the debtor." 11 U.S.C. § 362(a). It is indisputable, and undisputed, that the statute stays the litigation to the extent that no action against Mark Favorito or Tamatha Favorito may proceed. The parties, however, disagree as to whether the rest of the litigation is or should be stayed. In the interests of clarity, I consider the effect of the Favoritos' bankruptcy petition on each of the complaints filed in this action.

Complaint #1: MES's complaint is, of course, stayed insofar as it asserts any cause of action against Mark Favorito. MFJE and the Favoritos, however, contend that the action may proceed against Mark Favorito's co-defendants: ...


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