Commercial Division Blog

Posted: November 30, 2014 / Categories Commercial, Court Rules/Procedures, Bankruptcy, Forum Selection Clause

Court Declines to Stay Action in Favor of Pending Bankruptcy

On November 10, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Stonehill Institutional Partners, L.P. v. Frac Diamond Aggregates LLC, 2014 NY Slip Op. 32977(U), refusing to stay an "an enforcement action to obtain an order of reference, to confirm sale, and to determine the amount of a deficiency judgment."

In Stonehill Institutional Partners, the defendants sought to dismiss based on (1) the automatic bankruptcy stay, (2) lack of ripeness and (3) the existence of a prior pending action. The court rejected all three arguments. This post focuses on the argument that the action "should be stayed pursuant to CPLR 2201, pending the resolution of" a related bankruptcy.

[T]he parties' intent with respect to jurisdiction is ultimately controlling. Since the parties agreed to submit to the exclusive jurisdiction of, and venue in, any state court located in the City and County of New York, in the forum selection clause of their guaranty agreements, it is clear that this court is the proper forum for resolution of this case.

When considering whether a stay should be issued in favor of federal proceedings, a court must ask (1) which forum is better suited to resolve all the issues, and (2) which forum has the greater expertise in the trial of such issues. Here, the law to be applied is the New York Real Property Actions and Proceedings Law, as determined by the agreed upon terms of the Credit Agreement and guaranty agreements signed by all the parties. It is not important for these purposes that the real property sits in Mississippi. The cases that Defendants cite in support of that proposition do not address a situation in which a contract between the parties selects a forum other than that where the real property sits, which take precedence over the location of the property. Additionally, Defendants' argument that the issues should be tried in a court that possesses familiarity and expertise with the trial of such issues, actually militates against submitting this issue to the Bankruptcy Court. The motion that Plaintiffs seek is not a Bankruptcy Court issue, but a real property law issue that concerns the Guarantor Defendants, and not the party in bankruptcy.

(Internal quotations and citations omitted).