Brief Fact Summary. Trimec, Inc. brought suit against Zale Corporation (Zale) and Aeroplex Stores Inc. (Aeroplex) for losses resulting from a joint venture with Aeroplex called Aeroplex O’Hare. Aeroplex and Zale filed a third-party complaint against the City of Chicago, (the “City”) with whom Aeroplex O’Hare had contracted. The City counterclaimed against Aeroplex, Trimec, Aeroplex O’Hare, Zale as a guarantor, and FIC as a surety. Aeroplex, Trimec, and Zale move to stay this case pending resolution of the City’s claim in Zale’s bankruptcy case.
Synopsis of Rule of Law. A stay is appropriate where 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 the judgment against the third-party defendant will in effect be a judgment or finding against the debtor.
The court held that there must be 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.View Full Point of Law
Issue. Whether a judgment in favor of the City in the instant action would serve as a judgment against Zale thus improperly defeating the purpose of the automatic stay invoked in Zale’s bankruptcy proceeding.
Held. Yes. A judgment in favor of the City in the instant action would serve as a judgment against Zale because it is a guarantor of Aeroplex O’Hare.
Discussion. Because Zale is Aeroplex O’Hare’s guarantor, it would be bound by a judgment in this case regardless of whether it was involved in the litigation and agreed to indemnify the other defendants. Such a result would be inequitable because Zale would not have had the opportunity to defend itself and a judgment in favor of the City would have a significant impact on Zale’s estate in its bankruptcy proceeding.