ALI v. DeMADDIS (2006)

Plaintiff, Angela Ali, moves, by Notice of Motion (motion sequence number 002) for an Order, pursuant to CPLR § 603, severing plaintiff's tort action against defendant Louis DeMaddis, in order to allow the plaintiff to proceed against co-defendant, Cheryl A. DeMaddis.   The action against Louis DeMaddis is stayed under the Bankruptcy Code, 11 U.S.C. § 362(a), since that defendant filed a Chapter 7 proceeding in the United States Bankruptcy Court for the Eastern District of Pennsylvania on October 16, 2006, the very date that this Court had set down for inquest against the defendants on damages, pursuant to its decision and order dated August 14, 2006.

 Plaintiff claims that the automatic stay provisions of the Bankruptcy Code do not apply to non-filing co-defendants, citing Rosenbaum v. Dane & Murphy, 189 A.D.2d 760, 592 N.Y.S.2d 391 (2d Dep't 1993).   That case held that it is in the State trial Court's discretion to grant a severance under such circumstances, since the balance of the equities lies with the plaintiff.   Where, as in that action, a stay would prevent action against a non-filing co-defendant, and such results in undue hardship for the injured plaintiff, the courts do not favor extension of the Bankruptcy stay to cover the entire State action.

 Counsel for the non-filing defendant, Cheryl DeMaddis, opposes the motion to sever, arguing that because the major asset of the parties is a home, which they own as tenants by the entireties, the Bankruptcy stay should, as a matter of law, extend to the entire State action and that only the Bankruptcy Court can lift the stay.   In any case, he asserts that he intends to move, upon lifting of such stay, to vacate the Default Judgment against his client.

 Whether the stay imposed by 11 U.S.C. § 362(a) applies to a nonfiling spouse when a State action is pending against both parties, requires analysis of State and Federal law.   The parties appear to agree that the defendants' major asset, a home, is owned by the defendants as a tenancy by the entireties.   Under New York Law, this means that each spouse owns the entire property and has full title to it, unless there is a provision in the conveyance to the contrary (see, EPTL § 6-2.2[b] ).  While each co-tenant by the entireties can convey his/her possessory and survivorship interest, neither can separately encumber the entire property or exclude the other from its use.  (Hiles v. Fisher, 144 N.Y. 306, 312, 39 N.E. 337 [1895].)   Under the Bankruptcy Code, a debtor's interest in the entireties property becomes part of the bankruptcy estate and passes ultimately to the Trustee. (See, 11 U.S.C. § 541.)   While the stay provisions of the Bankruptcy Code do automatically stay all proceedings against the debtor, they do not apply to non-filing parties, even a spouse who may be jointly liable on a debt with the debtor-filer. (See, In Re Lyons, 177 B.R. 767 [N.D.N.Y. 1994].)

Applying the above principles to the case at Bar, this Court grants plaintiff's motion to sever the stayed action from plaintiff's action against the non-filing defendant, Cheryl DeMaddis.

The Court sets down the matter for inquest against Cheryl DeMaddis on Monday, February 5, 2006 at 9:30 a.m.   This also provides counsel for such defendant ample time to make a motion to set aside the Default, should he wish to do so.

This constitutes the decision and order of the Court.

EMILY PINES, J.