Education Resources Institute, Inc. v. Concannon

540 On April 7, 2008, plaintiff filed a voluntary petition pursuant to chapter 11 of the Bankruptcy Code (11 USC). Thereafter, plaintiff commenced this action to recover amounts due pursuant to promissory note(s) (the notes) executed by defendant to guarantee educational loans. Defendant’s answer set forth affirmative defenses and two counterclaims. As the automatic stay provision of section 362 (a) of the Bankruptcy Code only applies to proceedings “against” the debtor (see Koolik v Markowitz, 40 F3d 567 [2d Cir 1994]), the automatic stay does not preclude defendant from presenting a defense to the action (see In re Merrick, 175 BR 333 [BAP 9th Cir 1994]; Martin-Trigona v Champion Fed. Sav. & Loan Assn., 892 F2d 575 [7th Cir 1989]). In contrast, counterclaims seeking affirmative relief against a debtor implicate the automatic stay (see Koolik v Markowitz, 40 F3d at 568; Drexel Burnham Lambert v Terex Corp., 184 AD2d 328 [1992], lv dismissed 80 NY2d 892 [1992]). Thus, the second counterclaim was properly stayed. However, as the first counterclaim merely sought a declaration that defendant was not in default and that any acceleration of the principal balance on the notes was invalid, the nature of the relief sought thereby was defensive and could have been pleaded as an affirmative defense, in which case it would not have been affected by the automatic stay. As such, given that leave to replead is to be “freely given upon such terms as may be just” (CPLR 3025 [b]), defendant is entitled to amend the answer so as to convert the allegations contained in the first counterclaim to the form of an affirmative defense(s). As plaintiff concedes, it is entitled to the adjudication of its claims (see Vasile v Dean Witter Reynolds Inc., 20 F Supp 2d 465, 499 [ED NY 1998], affd 205 F3d 1327 [2d Cir 2000]). Such adjudication necessarily includes defendant’s right to discovery. Concur—Mazzarelli, J.E, Sweeny, Moskowitz, Manzanet-Daniels and Román, JJ.