The Education Resources Institute, Inc., Plaintiff-Respondent, v. Timothy Concannon, Defendant-Appellant. (2010)

_

Order, Supreme Court, New York County (Milton A. Tingling, J.), entered December 23, 2008, which, to the extent appealed from, as limited by the briefs, granted plaintiff's motion to stay and/or dismiss defendant's counterclaims and affirmative defenses and denied defendant's cross motion to compel discovery and for leave to amend his answer, unanimously modified, on the law, to reinstate the affirmative defenses, clarify that the second counterclaim is stayed, grant defendant leave to amend his answer to assert the first counterclaim as an affirmative defense, and compel plaintiff to serve a bill of particulars and documentary discovery requested by defendant, and otherwise affirmed, without costs.

On April 7, 2008, plaintiff filed a voluntary petition pursuant to Chapter 11 of the Bankruptcy Code. Thereafter, plaintiff commenced this action to recover amounts due pursuant to promissory note(s) (the notes) executed by defendant to guarantee educational loans.   Defendant's answer set forth affirmative defenses and two counterclaims.

As the automatic stay provision of Section 362(a) of the Bankruptcy Code only applies to proceedings “against” the debtor (see Koolik v. Markowitz, 40 F3d 567 [2d Cir1994] ), the automatic stay does not preclude defendant from presenting a defense to the action (see In re Merrick, 175 BR 333 [9th Cir BAP 1994];  Martin-Trigona v Champion Fed. Sav. & Loan Assn., 892 F.2d 575 [7th Cir1989] ).   In contrast, counterclaims seeking affirmative relief against a debtor implicate the automatic stay (see Koolik v. Markowitz, 40 F3d at 568;  Drexel Burnham Lambert v. Terex Corp., 184 A.D.2d 328 [1992], lv dismissed 80 N.Y.2d 892 [1992] ).   Thus, the second counterclaim was properly stayed.   However, as the first counterclaim merely sought a declaration that defendant was not in default and that any acceleration of the principal balance on the notes was invalid, the nature of the relief sought thereby was defensive and could have been pleaded as an affirmative defense, in which case it would not have been affected by the automatic stay.   As such, given that leave to replead is to be “freely given upon such terms as may be just” (CPLR 3025[b] ), defendant is entitled to amend the answer so as to convert the allegations contained in the first counterclaim to the form of an affirmative defense(s).

As plaintiff concedes, it is entitled to the adjudication of its claims (see Vasile v. Dean Witter Reynolds Inc., 20 F Supp 2d 465, 499 [ED N.Y.1998], affd 205 F3d 1327 [2nd Cir2000] ).   Such adjudication necessarily includes defendant's right to discovery.

THIS CONSTITUTES THE DECISION AND ORDER

OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

_

CLERK