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Automatic Stay Lifted Despite Debtors' Arguments Over Lawsuit Location

Posted By admin || 3-Aug-2011

Automatic Stay Lifted Despite Debtors' Arguments Over Lawsuit Location

In the business bankruptcy of Jim's Maintenance & Sons, Inc. and Jim's Commercial Cleaning Ltd., the bankruptcy court ruled to lift the automatic stay for Target Corporation, allowing the creditor to pursue lawsuits against the debtors in both Texas and Oklahoma.  The debtors in the case argued that lifting the bankruptcy automatic stay for both lawsuits would unfairly burden them because they did not have an attorney willing to travel to Texas to represent them.

The details of the bankruptcy case:

In 2000, Target Corporation entered into contracts with Jim's Maintenance & Son's Inc. and Jim's Commercial Cleaning Ltd. (collectively "Jim's Maintenance" or "the debtors") in which Jim's Maintenance agreed to provide cleaning services for Target at certain stores. Target terminated its relationship with Jim's Maintenance in May 2006. That same year, former employees of Jim's Maintenance brought two separate lawsuits against the company and Target in the Southern District of Texas ("the Fuentes case") and the Western District of Texas ("the Iztep case"). The former employees asserted that Jim's Maintenance and Target were liable for failure to pay overtime and minimum wage in accordance with the Fair Labor Standards Act.

Target subsequently brought cross-claims against Jim's Maintenance for breach of contract and other claims in both Texas cases. In May 2008, Jim's Maintenance filed for bankruptcy protection and an automatic stay of all litigation against the debtors went into effect under 11 U.S.C. § 362(a). After filing for bankruptcy, Jim's Maintenance filed a civil action against Target in state court in Oklahoma, which was later removed to federal court in the Western District of Oklahoma ("the Oklahoma litigation"). Target subsequently moved the bankruptcy court for relief from the automatic stay to allow it to continue litigating its cross-claims in the Texas cases and to allow it to file comparable counterclaims in the Oklahoma litigation. In February 2009, the bankruptcy court lifted the automatic stay.

The debtors appealed the bankruptcy court's decision arguing that the Texas case should still fall under the automatic stay due to their inability to afford representation in the case. The bankruptcy court ruled against them saying that they will lift the automatic stay in both cases and that the debtors could move to have the Texas case moved to Oklahoma. The bankruptcy court also noted that the debtors never argued against the validity of lifting the automatic stay, only that the location of the second law suit would unduly burden them.

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