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.
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.