A majority of the families whose daughters died in the Camp Mystic flooding last summer asked a bankruptcy judge this week to clarify whether the automatic stay of litigation that went into effect after the camp filed for bankruptcy impacts their ability to continue pursuing claims against certain individual defendants.
In an 11-page ad hoc motion filed Monday, 24 of the 27 families of the “Heaven’s 27” group asked U.S. Bankruptcy Judge Christopher M. Lopez to enter an order clarifying the scope of the stay. Camp Mystic filed for Chapter 11 bankruptcy protection June 24 in the Southern District of Texas.
The families have filed suit in state court against Camp Mystic as well as a handful of individuals who own and/or operate the camp: Willetta Eastland, Edward S. Eastland, Mary E. Eastland, William Neely Bonner III and George Albritton Eastland as the personal representative of the estate of Richard “Dick” Eastland.
“The [ad hoc group] acknowledges that the filing of these [C]hapter 11 cases stayed the commencement or continuation of all claims and causes of action against the debtors and does not, at this time, seek to modify or lift the automatic stay,” the motion reads. “Rather, the AHG seeks entry of an order confirming that the automatic stay does not extend to direct claims against the individual defendants, who have not filed for bankruptcy and are not debtors.”
The state court litigation brings claims for negligence, gross negligence, premises liability and wrongful death. The families told the court that the U.S. Court of Appeals for the Fifth Circuit has “squarely addressed this issue” in its 1983 opinion in Wedgeworth v. Fibreboard Corp. and determined the Bankruptcy Code protections that stay litigation against a debtor do not apply to codefendants.
“The court reasoned that the stay ‘clearly focuses on the insolvent party’ and that neither purpose of section 362 is advanced by application of the stay rule to non-debtor co-defendants,” the motion reads. “The court bolstered this conclusion by contrasting sections 1301(a) and 362(a) of the Bankruptcy Code, noting that [C]hapter 13 expressly extends the stay to non-debtors who are liable on the same consumer debt as the debtor, whereas section 362(a) provides no such protection.”
And in the 43 years since Wedgeworth, the families told the court, that principle has been reaffirmed by courts within the Southern District of Texas as well as by the Fifth Circuit, citing more than a half-dozen examples in support.
The families also argued an exception to that rule, called the identify-of-interest exception, does not apply to this case.
“Courts have recognized a narrow exception permitting extension of the stay to nondebtors where there exists ‘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,’” the motion reads, quoting the Fifth Circuit’s 2003 holding in Reliant Energy v. Enron Canada.
“The identity-of-interest exception does not apply here. Upon information and belief, there is no formal tie or contractual indemnification agreement between the individual defendants and the debtors that would create such an identity of interests.”
As of Friday afternoon, the court had not ruled on the motion. The court has a hearing scheduled for July 24 on another matter in the case.
The ad hoc group of families is represented by Jason S. Brookner and Lydia R. Webb of Gray Reed.
Camp Mystic is represented by Candice Carson, Martin Sosland, Jeff P. Prostok, Dierdre Brown, Emily S. Chou, Suzanne K. Rosen, Lynda L. Lankford and Mary Stanberry of Vartabedian Katz Hester & Haynes.
The U.S. Trustee is represented by Jayson Ruff, Janna Whitworth and Ha Nguyen of the Department of Justice.
The case number is 26-90621.