LOBSTER 207 LLC v. PETTEGROW et al

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
LOBSTER 207, LLC, 	)
)
Plaintiff, 	)
)
v. 	) 	No. 1:19-cv-00552-LEW
)
WARREN B. PETTEGROW, et al., 	)
)
Defendants 	)
PROCEDURAL ORDER
The matter is at present administratively closed. 	Plaintiff Lobster 207 requests
clarification why that is the case. Pls.’ Mot. for Clarification re.: Case Status and Readiness
for Trial (ECF No. 569). For reasons that follow, the request for clarification is granted,
the case is reopened, and all further proceedings are administratively stayed for a period of
up to 90 days, as set forth in the conclusion of this order.
P ROCEDURAL H ISTORY
The matter is before the court in an atypical procedural context. 	The Clerk
administratively closed the case upon receipt of a notice that the lead defendant, Warren
Pettegrow (hereafter, “Debtor”), filed a petition for relief in the United States Bankruptcy
Court for the Southern District of Florida (Case no. 24-12140). 	The matter arises on
Plaintiff Lobster 207’s request for clarification why the case would close in regard to
proceedings against the Debtor’s co-defendants, which request is coupled with advocacy
seeking a lifting of the administrative closure of the entire case. In response, Defendants
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Anthony and Josette Pettegrow and the Trenton Bridge Lobster Pound (hereafter, “Lobster
Pound Defendants” or “Non-Debtor Defendants”) counter that there are good reasons why
the court should extend the stay to them. 	Plaintiff has replied, taking issue with the
arguments made in response.
In effect, although the matter is not before the Court on a motion to extend the stay
to include the claims against the Lobster Pound Defendants or any other non-debtor
defendant, the parties have, nonetheless, been placed on notice and both Lobster 207 and
the Lobster Pound Defendants (the principal non-debtor defendants in this case) have been
heard on the matter of whether the stay should be so extended. 	Accordingly, this
procedural order will take up the issue although the briefing has proceeded contrary to
customary practice.
B ACKGROUND
In this action, Plaintiff Lobster 207 sues, among others, its former CEO, Warren
Pettegrow, Pettegrow’s parents, Anthony and Josette Pettegrow, and the parents’ business,
the Trenton Bridge Lobster Pound. The Lobster Pound Defendants sold to Lobster 207 the
lobster pound’s assets associated with its wholesale lobster sales operation, but not its local
retail or lobster buying operations. 	The transaction was papered by an Asset Purchase
Agreement, a Supply and Offtake Agreement, and a Noncompetition Agreement. Lobster
207 alleges that the Lobster Pound Defendants failed to live up to the promises set forth in
these contracts in various ways. Lobster 207 also alleges that its erstwhile CEO conspired
with his parents to undercut Lobster 207’s commercial interests in favor of their own by
engaging in a variety of schemes, all of which depended on Warren Pettegrow’s disregard
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of his fiduciary duties, defalcation in regard to corporate revenues and expenditures, and
fraud.
A portion of this action, specifically Lobster 207’s employment-related claims
against Warren Pettegrow, went to arbitration. 	The arbitrated claims alleged breach of
fiduciary duty (Count V) and breach of contract (Count VII). The arbitrator found in favor
of Lobster 207 on both counts, denied Pettegrow’s related arbitration claim for unpaid
wages, and awarded Lobster 207 damages in the amount of $1,021,000. See Final Award
(ECF No. 242-4). 	On December 10, 2021, I issued an order confirming the arbitration
award and denying Warren Pettegrow’s motion to vacate the award. See Order Concerning
Arbitration Award (ECF No. 269). On January 26, 2022, Final Judgment entered against
Warren Pettegrow and in favor of Lobster 207 on the identical counts pressed in this suit:
Counts V (breach of fiduciary duty) and VII (breach of contract).
Despite the entry of Final Judgment on Counts V and VII, Warren Pettegrow
remains a defendant, along with the Lobster Pound Defendants, on Count I (alleging
racketeering activity in violation of 18 U.S.C. § 1962(c) based on, among other things,
embezzlement and defalcation), Count II (conspiracy to engage in racketeering), Count III
(fraud), Count IV (conversion), Count VI (common law civil conspiracy), and Count IX
(unjust enrichment/constructive trust). 	In support of these claims, Lobster 207 alleges,
among other things:
The racketeering activity . . . was interrelated and continuous in that 1) the
Defendants 	themselves 	were 	interrelated 	through 	personal 	and 	family
relationships, business associations, and the continuing formal and informal
coordination of their activities; 2) the Defendants directly and indirectly
conducted and participated in the racketeering activities for the common
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purpose of benefiting the Pettegrow Lobster Enterprise through a series of
frauds and thefts . . . .
The 	Pettegrow 	Lobster 	Enterprise 	is 	an 	association-in-fact 	within 	the
meaning of 18 U.S.C. § 1961(4) consisting of 1) Defendants Warren
Pettegrow and Poseidon Charters, Inc.; 2) Defendants Anthony Pettegrow,
Josette Pettegrow, and Trenton Bridge, Inc., including their employees and
agents; 3) Defendant Stephen Peabody; . . . all of whom associated for the
common purpose of defrauding Lobster 207 of money, property, and
inventory belonging to Lobster 207 . . . .
Compl. ¶¶ 275, 279.
D ISCUSSION
The automatic stay provision of the Bankruptcy Code automatically stays this
proceeding insofar as any claim against Debtor is concerned. 	See 11 U.S.C. § 362(a)(1).
As for extension of the stay to apply to claims between other parties, “the power to stay
proceedings is incidental to the power inherent in every court to control the disposition of
the causes on its docket with economy of time and effort for itself, for counsel, and for
litigants.” Landis v. N. Am. Co., 299 U.S. 248, 254–55 (1936); see also City of Bangor v.
Citizens Commc’ns Co., 532 F.3d 70, 99 (1st Cir. 2008).
Although it is rarely the case that a district court should extend a bankruptcy stay to
claims against non-debtor co-defendants, when the stayed claims against the debtor are
intertwined factually with claims against the non-debtor co-defendants, the district court
(or the bankruptcy court) may extend the bankruptcy stay to the claims against the non-
debtor co-defendants provided that doing so serves the objectives of the automatic stay.
Raudonis as trustee for Walter J. Raudonis 2016 Revocable Tr. v. RealtyShares, Inc., 507
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F. Supp. 3d 378, 381 (D. Mass. 2020); Mardice v. Ebony Media Operations, LLC, No. 19-
CV-8910, 2021 WL 146358, at *3 (S.D.N.Y. Jan. 15, 2021).
For example, where there is an identity of interest between the debtor and the co-
defendant so that relief against the co-defendant will impede the administration of the
bankruptcy estate by placing in jeopardy as asset of the estate, then generally the extension
of the stay to the co-defendant would be proper. 	Raudonis, 507 F. Supp. at 381–82;
Mardice, 2021 WL 146358, at *3. 	In this case, the claims against the Lobster Pound
Defendants do not jeopardize an asset of the estate. However, the claims against Defendant
Poseidon Charters do jeopardize an asset of the estate because Poseidon Charters is a
corporate entity wholly owned by Debtor and, therefore, it and any property it owns are
part of the Debtor’s estate. 	Given this context, the administrative stay of the case is
appropriately extended to Poseidon Charters. That alone, however, would not militate in
favor of a broader stay for the Lobster Pound Defendants or for Defendant Peabody. This
matter could proceed effectively to judgment against them without the participation of
Poseidon Charters.
Another circumstance that would justify an extension of the stay is one where the
action would proceed against non-debtor defendants who, though lacking an identity of
interest with the debtor and merely jointly and severally liable with the debtor, are subject
to claims that, when reduced to judgment, would effectively operate as a finding or
judgment against the debtor. 	McCartney v. Integra Nat. Bank N., 106 F.3d 506, 510 (3d
Cir. 1997); A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986), cert.
denied, 479 U.S. 876 (1986). Though rare, such a scenario might arise where the liability
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of the non-debtor defendants depends not wholly on their independent alleged malfeasance
but also on the alleged malfeasance of the debtor.1 	Raudonis, 507 F. Supp. 3d at 383
(“Because the operations and alleged malfeasance of the defendants were ‘interrelated,
intertwined and intermingled,’ . . . extension of the stay in this case appears to be
appropriate.” (citation omitted, quoting Villafane-Colon v. B Open Enterprises, Inc., 932
F. Supp. 2d 274, 281 (D.P.R. 2013))); In re Purdue Pharm. L.P., 619 B.R. 38, 50 (S.D.N.Y.
2020) (“[A] trial on harms alleged to have been caused in whole or in part by the debtor is
‘related to’ the bankruptcy, whether or not they are named as a defendant, because
a judgment implicating the debtor’s conduct could conceivably ‘alter the debtor’s rights,
liability, options, or freedom of action.’” (quoting SPV Osus Ltd. v. UBS AG, 882 F.3d 333,
340 (2d Cir. 2018))). 	Such legal entanglements may in some cases warrant an extension
of the stay to non-debtor co-defendants, minimally on a temporary basis so that there is an
opportunity for the bankruptcy court to consider the matter and, potentially, extend the stay
of its own accord or else lift the stay altogether as to the district court litigation so that the
claim(s) against the debtor’s estate can proceed to judgment. See generally Mardice, 2021
WL 146358, at *3–4.2
1 The Bankruptcy Code withholds the discharge for debts arising from “fraud or defalcation while acting in
a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C. § 523(a)(4). Particularly concerning, therefore,
might be the adjudication of claims against non-debtor defendants that contemplate a finding as to the
debtor’s alleged fraud or defalcation while acting as a fiduciary.
2 Plaintiff may wish to petition the bankruptcy court for relief from the automatic stay to see if this litigation
can proceed to trial against all defendants, as the bankruptcy court might lift the stay in order to liquidate
the remaining claims against Debtor.
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Finally, in exercising discretion on the question of a stay, a district court may
consider judicial resources and the interest of having a litigation proceed entire rather than
piecemeal. Yiming Wang v. Xinyi Liu, 584 B.R. 427, 434 (D. Mass. 2018).
Based on the foregoing background facts and legal authorities, I conclude that,
minimally, a temporary stay is in order as to the entire litigation because it is in the interest
of judicial economy to avoid piecemeal litigation, the core of the action presents fraud and
racketeering allegations that place the Debtor in the eye of the storm even as to the liability
of the non-debtor defendants, and the bankruptcy court should be permitted some time to
consider the propriety of extending or lifting the stay.
C ONCLUSION
The administrative closure of the case is lifted. However, the Court hereby STAYS
ALL PROCEEDINGS for a period of 90 days, absent further order of the court lifting the
stay. 	The parties will provide the Court with a status report on or before July 8, 2024,
concerning proceedings in the bankruptcy court.
SO ORDERED.
Dated this 10th day of April, 2024
/s/ Lance E. Walker
Chief U.S. District Judge
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