COLUMBUS (LN) — U.S. District Judge J. Philip Calabrese of the Northern District of Ohio denied a motion to stay civil litigation involving a $75,000 surety claim, ruling that the automatic bankruptcy stay does not shield non-debtor management companies from contract liability.
Calabrese rejected arguments by defendant DMD Management Inc. that the stay under 11 U.S.C. § 362 should extend to it. The judge found that the lawsuit would not adversely impact the bankrupt estates of the ten limited liability companies DMD Management managed, noting that both the surety and DMD Management had already filed proofs of claim in the bankruptcy proceedings.
Capitol Indemnity Corp. sued DMD Management and defendant Campus Health Services Inc. after paying approximately $75,000 to utility companies on behalf of the nursing homes, which had defaulted on bills secured by bonds Capitol Indemnity issued in late 2024. The surety sought reimbursement under indemnity agreements signed by both defendants.
In August 2025, all ten limited liability companies managed by DMD Management filed for Chapter 7 bankruptcy. DMD Management argued that the management agreement’s indemnification clause entitled it to "absolute indemnity", creating an "unusual circumstance" that warranted stay protection.
Calabrese noted that while the Sixth Circuit recognizes "unusual circumstances" can sometimes extend the automatic stay to non-debtors, such protection under Section 362(a)(1) requires prior injunctive relief from the bankruptcy court, which DMD Management did not obtain.
The judge instead analyzed the claim under Section 362(a)(3), which prevents acts to obtain property of the estate. He concluded that because both Capitol Indemnity and DMD Management had already filed proofs of claim in the bankruptcy proceedings, the civil litigation would not disrupt the orderly liquidation or increase the debtors' total liability.
"The fact that both DMD Management and Capitol Indemnity filed proofs of claim in the bankruptcy proceedings suggests that this civil litigation and its outcome will not disrupt that liquidation process or have an adverse effect on the debtors’ estates," Calabrese wrote.
Defendants also requested a discretionary stay based on judicial economy, citing four other pending lawsuits against DMD Management for similar debts. They argued that pausing the case would avoid duplicative litigation while the bankruptcy process played out.
Calabrese dismissed the judicial economy argument, citing Sixth Circuit precedent that "duplicative or multiple litigation which may occur is a direct by-product of bankruptcy law" and is "congressionally created and sanctioned."
The court also granted Capitol Indemnity’s motion for judicial notice of a bankruptcy court decision that had previously declined to extend the automatic stay to non-debtors related to DMD Management.
The case proceeds in the Northern District of Ohio, where Capitol Indemnity seeks reimbursement for the utility payments, plus interest, court costs, and attorneys’ fees.