Petition for Writ of Certiorari — Paul Steelman, Individually and as Trustee of the Steelman Asset Protection Trust, et al., Petitioners v. Ernest Bock LLC

i

TABLE OF CONTENTS

Opinion of the United States Court of Appeals for

the Ninth Circuit, Ernest Bock, LLC v. Paul

Steelman, Individually and as Trustee of the

Steelman Asset Protection Trust (“SAPT”), the

Paul C. Steelman and Maryann T. Steelman

Revocable Living Trust (“RLT”), and the Paul

Steelman Gaming Asset Protection Trust;

Stephen Steelman, Suzanne Steelman-Taylor;

Maryann Steelman, Individually and as

Trustee of the SAPT and RLT; Competition

Interactive, LLC; Paul Steelman, Ltd; Steelman

Partners, LLP; Paul Steelman Design Group,

Inc; SAPT Holdings, LLC Series B; Keepsake,

Inc.; SMMR, LLC; SMMR, LLC Series A-Z;

SSSSS, LLC; SSSSS, LLC Series B;

Christiania, LLC; Christiania, LLC Series A-Z;

Jim Main, as Trustee of the SAPT; Aaron

Squires; Matthew Mahaney, No. 22-15466

(August 3, 2023) . . . . . . . . . . . . . . . . . . . . . . . . . 1a

Opinion of the United States District Court District

of Nevada, Ernest Bock, LLC v. Paul Steelman,

et al. Case No.: 2:19-cv-01065-JAD-EJY (March

2, 2022) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29a

Opinion of the Superior Court of New Jersey

Appellate Division, Ernest Bock, LLC v. Paul

Steelman and Maryann Steelman v. Anthony J.

Catanoso, Christine Catanoso, Charles T.

Catanoso, Jr., Nina Catanoso, William G.

Catanoso, Tina Catanoso, Edward J. Olwell,

Roberta Nevin, Cape Entertainment Associates,

ii

LLC, the Rocket, LLC, Hi Tech Thrills, LLC,

Atlantic Pier Amusements, Inc., and Steel Pier

Associates, LLC, Docket No. A-0469-19

(October 13, 2021) . . . . . . . . . . . . . . . . . . . . . . 37a

1a

APPENDIX A

United States Court of Appeals

for the Ninth Circuit

ERNEST BOCK, LLC,

Plaintiff-Appellant,

v.

PAUL STEELMAN, individually and as trustee of the

Steelman Asset Protection Trust (“SAPT”), the Paul

C. Steelman and Maryann T. Steelman Revocable

Living Trust (“RLT”), and the Paul Steelman

Gaming Asset Protection Trust; STEPHEN

STEELMAN, SUZANNE STEELMAN-TAYLOR;

MARYANN STEELMAN, individually and as trustee

of the SAPT and RLT; COMPETITION

INTERACTIVE, LLC; PAUL STEELMAN, LTD;

STEELMAN PARTNERS, LLP; PAUL STEELMAN

DESIGN GROUP, INC; SAPT HOLDINGS, LLC

SERIESB; KEEPSAKE, INC.; SMMR, LLC; SMMR,

LLC SERIES A-Z; SSSSS, LLC; SSSSS, LLC SERIES

B; CHRISTIANIA, LLC; CHRISTIANIA, LLC

SERIES A-Z; JIM MAIN, as trustee of the SAPT;

AARON SQUIRES; MATTHEW MAHANEY,

Defendants-Appellees.

No. 22-15466

D.C. No. 2:19-cv-01065-JAD-EJY

2a

Appeal from the United States District Court

for the District of Nevada

Jennifer A. Dorsey, District Judge, Presiding

Argued and Submitted March 6, 2023

Las Vegas, Nevada

Filed August 3, 2023

Before: Richard R. Clifton, Jay S. Bybee,

and Mark J. Bennett, Circuit Judges.

Opinion by Judge Bennett

OPINION

BENNETT, Circuit Judge:

Plaintiff-Appellant Ernest Bock, LLC (“Bock”)

initially obtained an $11.8 million judgment for breach

of contract against Defendants Paul and Maryann

Steelman (“the Steelmans”) in New Jersey state court.

Bock then filed this federal suit in the District of

Nevada, alleging that the Steelmans, assisted by other

named Defendants, engaged in an elaborate series of

allegedly improper asset transfers to insulate those

assets from the New Jersey judgment.1 But while the

1

Under Nevada’s version of the Uniform Fraudulent

Transfer Act, a “transfer” is “every mode, direct or indirect,

absolute or conditional, voluntary or involuntary, of disposing of or

parting with an asset or an interest in an asset, and includes

payment of money, release, lease and creation of a lien or other

encumbrance.” Nev. Rev. Stat. § 112.150(12).

3a

federal suit was pending, a New Jersey appellate court

vacated the underlying judgment and remanded for

further proceedings, including discovery, to determine

whether the Steelmans were liable to Bock.

The district court then stayed this case pursuant to

Colorado River Water Conservation District v. United

States (Colorado River), 424 U.S. 800 (1976).2 The

court first determined that both the state and federal

lawsuits turn on the same question of New Jersey law

—whether the Steelmans are liable for breach of

contract. The court then stayed the federal case, in part

because it would be inefficient for both suits to proceed

simultaneously.

We must decide whether a Colorado River stay was

proper. “Generally . . . the rule is that ‘the pendency of

an action in the state court is no bar to proceedings

concerning the same matter in the Federal court having

jurisdiction.’” Id. at 817 (quoting McClellan v. Carland,

217 U.S. 268, 282 (1910)). The Supreme Court has

made clear that a Colorado River stay is proper only in

“exceptional circumstances.” Id. at 813. Absent such

circumstances, federal courts have a “virtually

unflagging obligation . . . to exercise the jurisdiction

As relevant to Bock’s claims, that Act prohibits a debtor

from making a transfer “[w]ith actual intent to hinder, delay or

defraud any creditor of the debtor.” Id. § 112.180(1)(a). One of the

factors used to determine “actual intent” is whether “[b]efore the

transfer was made . . . the debtor had been sued or threatened with

suit.” Id. § 112.180(2)(d).

2

This type of stay is often referred to as Colorado River

abstention. See infra Section IV.A.

4a

given them.” Id. at 817. “Thus, the decision to invoke

Colorado River necessarily contemplates that the

federal court will have nothing further to do in resolving

any substantive part of the case.” Moses H. Cone Mem’l

Hosp. v. Mercury Constr. Corp. (Moses Cone), 460 U.S.

1, 28 (1983) (emphasis added).

First, we conclude that Bock has standing to bring its

federal court claims because it raised a question of fact

as to whether it is injured by the Steelmans’ asset

transfers. Next, we hold that a Colorado River stay

cannot issue when, as here, federal litigation will be

fully resolved only if parallel state court proceedings

end in one of several possible outcomes, though we

acknowledge conflicting authority on the question.

Finally, we reject Defendants’ alternative argument

that the district court’s inherent docket management

powers can justify a stay. Accordingly, we reverse the

district court’s order and remand for further

proceedings.

I. Background

In 2011, members of the Catanoso family3

approached Bock, a Philadelphia-based construction

company, seeking a loan to finance the purchase and

renovation of an amusement pier in Atlantic City. Bock

was initially skeptical about the Catanosos’ liquidity

and ability to post collateral. To resolve those concerns,

the Catanosos engaged Paul Steelman, an acclaimed

architect based in Las Vegas, to join the project.

Collectively, they formed Steel Pier Associates, LLC

3

The Catanosos are not parties in this case.

5a

(“SPA”).4 Bock agreed to make two loans to SPA in the

form of commercial mortgage notes, each secured by a

personal guarantee from Paul and his wife Maryann.5

It is undisputed that SPA was in default on both

loans at least by March 2014. In October 2015, Bock

filed suit against the Steelmans in New Jersey Superior

Court, seeking to enforce their guarantee of SPA’s

liability under the commercial mortgage notes. Bock

alleged that the Steelmans breached their contract by

failing to honor the terms of the guaranty agreements

and committed fraud by misrepresenting the net worth

of their assets. The Steelmans countered that Bock

breached an implied covenant of good faith and fair

dealing inherent in every contract subject to New

4

It appears that Paul and the Catanosos also formed Cape

Entertainment Associates, LLC (“CEA”). Bock’s operative federal

complaint alleges that CEA and SPA were both named borrowers

on the second loan, which the Steelmans personally guaranteed in

its entirety. For simplicity, we refer only to SPA as the parties do

in their briefing.

5

The notes provided that Bock could sue to enforce SPA’s

repayment obligations in the event of default. The notes defined

default in part as: (1) SPA’s “nonpayment when due of any amount

payable under this Note”; (2) failure “to observe or perform any

other existing or future agreement” between the parties; (3)

insolvency, corporate mergers, or dissolutions; and (4) attempts to

disclaim indebtedness.

The Steelmans’ guarantees, in turn, constituted

“guarantees as unconditional surety the prompt payment and

performance of all loans, advances, debts, liabilities, obligations,

covenants and duties owing by [SPA] to [Bock].” The guarantees

purport to be “absolute and unconditional irrespective of: (1) any

lack of validity or enforceability of any of the Loan Documents.”

6a

Jersey law, by encouraging SPA to take on risky

financial obligations that made repayment of the

original loans by SPA impossible.6 See Ernest Bock, LLC

v. Steelman (Ernest Bock), No. A-0469-19, 2021 WL

4771306, at *6–7 (N.J. Super. Ct. App. Div. Oct. 13,

2021). The Superior Court sided with Bock,

entering summary judgment against the Steelmans for

more than $11 million. The Steelmans appealed.

Bock alleges that the Steelmans then began

dispersing their assets through a complicated web of

trusts and corporate entities intending to shield their

wealth from the New Jersey judgment while also

retaining ultimate control over their assets.

Accordingly, Bock filed this lawsuit in the District of

Nevada against the Steelmans, the trusts and entities

in question, and several individuals who allegedly

helped facilitate the contested transfers (collectively,

“Defendants”). The lawsuit alleges that Defendants

violated Nevada and federal laws by: (1) creating trusts

with the intent to defraud creditors; (2) transferring

property, assets, and interests with the intent to

defraud creditors; (3) impermissibly using corporate

alter egos to shield personal liability; and (4) violating

and conspiring to violate the Racketeer Influenced and

Corrupt Organizations Act, 18 U.S.C. § 1961 et seq.

But while the federal suit was pending, the Appellate

Division of the New Jersey Superior Court vacated the

6

The Steelmans also alleged that this behavior constituted

“Tortious Interference with Prospective Financial Gain,” and as a

result, Bock’s loans should be “recharacterized” as a purchase of

an equity stake in SPA.

7a

underlying judgment. Ernest Bock, 2021 WL 4771306,

at *1. The court found that “summary judgment was

prematurely granted before . . . discovery [was]

completed,” id., because “if defendants prove that Bock

. . . improperly impeded the ability of [SPA] to pay the

loan debt, that improper conduct might excuse or

justify defendants’ non- payment of the guaranties,” id.

at *5. For this reason, the court “vacate[d] the trial

court’s grant of summary judgment and remand[ed] the

matter for continued discovery under the trial court’s

supervision.” Id. at *9. The New Jersey Supreme Court

declined to review the Appellate Division’s

determination. Ernest Bock, LLC v. Steelman, 270 A.3d

1084 (N.J. 2022).

As there was no longer a judgment, Bock was no

longer a judgment creditor of the Steelmans.

Accordingly, both the New Jersey litigation and the

federal suit were set to proceed in parallel. And both

cases turn on the same threshold question of New

Jersey state law: whether the Steelmans’ guarantees

are enforceable.7 For this reason, the Steelmans sought

to stay federal proceedings pending resolution of the

New Jersey litigation, arguing that allowing the suits to

proceed simultaneously would waste judicial resources

7

In the New Jersey action, the Steelmans cannot have

actionably breached the guarantees if the guarantees are

unenforceable. And in the federal action, the Steelmans’ asset

transfers can only be a fraudulent attempt to evade “creditor”

Bock, if the guarantees are enforceable by Bock (because if not,

Bock could not obtain a monetary judgment and become a

judgment creditor).

8a

and risk inconsistent judgments.8 Bock opposed the

stay, arguing that: (1) a stay could not be justified by

either the court’s docket management powers or the

Colorado River doctrine; and (2) pausing the federal

litigation would afford the Steelmans additional time to

hide assets and thus shield them from Bock. In the

alternative, Bock asked that if the district court were to

issue a stay, it should also require Defendants, as a

condition, to post $35.5 million bond. The district court

issued a stay under Colorado River and declined to

require a bond.

Bock timely appealed, arguing that this case does not

present the “exceptional circumstances” required for a

Colorado River stay. Defendants contend that: (1) a

Colorado River stay was proper; (2) even if not, the

district court had the inherent docket management

authority to issue a stay; and (3) without a valid New

Jersey judgment, Bock lacks standing to bring its

federal claims because it has not suffered an injury in

fact.

8

Initially, the Steelmans requested a stay pursuant to the

district court’s inherent docket management powers. The district

court found that Colorado River authorized the stay. As discussed

below, we find that neither supports a stay here.

9a

II. Jurisdiction & Standards of Review

We have jurisdiction under 28 U.S.C. § 1291.9

Although the district court did not make an Article III

standing determination, standing is a threshold

jurisdictional requirement and “may be raised at any

time during the proceedings, including on appeal.”

Wash. Env’t Council v. Bellon, 732 F.3d 1131, 1139 (9th

Cir. 2013) (citation omitted). Thus, we determine de

novo whether Bock has standing.

Our Colorado River analysis proceeds in two steps.

First, “[w]hether the facts of a particular case conform

to the requirements for a Colorado River stay . . . is a

question of law which we review de novo.” Smith v.

Cent. Ariz. Water Conservation District, 418 F.3d 1028,

1032 (9th Cir. 2005). Second, “[i]f we conclude that the

Colorado River requirements have been met, we then

review for abuse of discretion the district court’s

decision to stay . . . the action.” Seneca Ins. Co. v.

Strange Land, Inc. (Seneca), 862 F.3d 835, 840 (9th Cir.

2017) .. “[H]owever, this standard is stricter ‘than the

flexible abuse of discretion standard used in other areas

of law’ because ‘discretion must be exercised within the

narrow and specific limits prescribed by the Colorado

River doctrine.’” R.R. Street & Co. Inc. v. Transp. Ins.

Co. (R.R. Street), 656 F.3d 966, 973 (9th Cir. 2011)

(cleaned up) (quoting Holder v. Holder, 305 F.3d 854,

863 (9th Cir. 2002)).

9

Although a stay is generally not a final appealable order,

a stay issued under Colorado River is immediately appealable.

United States v. State Water Res. Control Bd., 988 F.3d 1194,

1201–02 (9th Cir. 2021).

10a

Finally, we review for abuse of discretion whether a

district court properly stayed an action pursuant to its

inherent docket management powers, “but this

standard is ‘somewhat less deferential’ than the abuse

of discretion standard used in other contexts.” Lockyer

v. Mirant Corp., 398 F.3d 1098, 1105 (9th Cir. 2005)

(quoting Yong v. INS, 208 F.3d 1116, 1119 (9th Cir.

2000)).

III. Standing

To establish standing, “a plaintiff must satisfy three

‘irreducible constitutional minimum’ requirements: (1)

he or she suffered an injury in fact that is concrete,

particularized, and actual or imminent; (2) the injury is

fairly traceable to the challenged conduct; and (3) the

injury is likely to be redressed by a favorable court

decision.” Bellon, 732 F.3d at 1139–40 (quoting Lujan

v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992)).

Defendants claim that without a New Jersey

judgment, Bock cannot establish an injury in fact

because the Steelmans are not legally obligated to pay

the guarantees. But plaintiffs need only establish each

element of standing “with the manner and degree of

evidence required at the successive stages of the

litigation.” Lujan, 504 U.S. at 561. “At the pleading

stage, general factual allegations of injury resulting

from the defendant’s conduct may suffice.” Id.10 Here,

10

“In response to a summary judgment motion, however,

the plaintiff can no longer rest on such ‘mere allegations,’ but must

‘set forth’ by affidavit or other evidence ‘specific facts,’ which for

purposes of the summary judgment motion will be taken to be

11a

Bock has at least raised a question of fact as to the

enforceability of the guarantees. See Ernest Bock, 2021

WL 4771306, at *8 (recognizing “material factual

disputes” as to enforceability). If the guarantees are

enforceable, Bock would be injured by any fraudulent

efforts to shield the Steelmans’ assets from Bock, which

would again become a judgment creditor. Thus, Bock

has sufficiently alleged an injury in fact at this stage of

the litigation.

IV. Colorado River

A. Standard

“Generally, as between state and federal courts, the

rule is that ‘the pendency of an action in the state court

is no bar to proceedings concerning the same matter in

the Federal court having jurisdiction.’” Colorado River,

424 U.S. at 817 (quoting McLellan, 217 U.S. at 282).

However, the Supreme Court has identified several

instances in which it is appropriate for a federal court

to abstain from exercising its jurisdiction. See, e.g., id.

at 813–17 (discussing traditional abstention doctrines).

As relevant here, in Colorado River, the Supreme Court

recognized that in “exceptional circumstances,” id. at

813, “considerations of ‘[w]ise judicial administration,

giving regard to conservation of judicial resources and

comprehensive disposition of litigation’” can support a

stay of federal litigation in favor of parallel state

proceedings, id. at 817 (alteration in original) (quoting

true.” Lujan, 504 U.S. at 561 (citation omitted) (quoting Fed. R.

Civ. P. 56(e)).

12a

Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S.

180, 183 (1952)).

The Court was careful to distinguish Colorado River

stays from traditional abstention doctrines. While

traditional forms of abstention rest on “considerations

of proper constitutional adjudication and regard for

federal-state relations,” Colorado River stays are based

on administrative concerns and prioritize efficient

“disposition of litigation” through the wise deployment

of “judicial resources,” id. (quoting Kerotest Mfg., 342

U.S. at 183).11 Following this distinction, we have

recognized that “Colorado River is not an abstention

doctrine, though it shares the qualities of one.” United

States v. State Water Res. Control Bd., 988 F.3d 1194,

1202 (9th Cir. 2021); see also Nakash v. Marciano, 882

F.2d 1411, 1415 & n.5 (9th Cir. 1989) (citation omitted)

11

See also Moses Cone, 460 U.S. at 14–15 (distinguishing

Colorado River from traditional abstention doctrines, which rest on

“considerations of state-federal comity or on avoidance of

constitutional decisions”). We note that scholars are divided as to

whether a distinction between federalism and administration is a

sensible basis for delineating forms of federal abstention. Compare

James C. Rehnquist, Taking Comity Seriously: How to Neutralize

the Abstention Doctrine, 46 Stan. L. Rev. 1049, 1094 (1994) (the

“dichotomy between administration and federalism wholly

overlooks the friction that inheres in duplication [of state and

federal proceedings] itself”), with Martin H. Redish, Intersystemic

Redundancy and Federal Court Power: Proposing a Zero Tolerance

Solution to the Duplicative Litigation Problem, 75 Notre Dame L.

Rev. 1347, 1374 (2000) (“[D]uplicative litigation is wasteful,

burdensome, inefficient, and often harassing . . . . No consideration

of litigant choice or judicial federalism should be allowed to

outweigh this overriding interest.”).

13a

(“Although [Colorado River is] commonly referred to as

an abstention doctrine, the Supreme Court has flatly

rejected this categorization.”).

No matter how the Colorado River doctrine is

formally characterized, however, one principle is clear:

a stay of federal litigation in favor of state court

proceedings “is the exception, not the rule.” Colorado

River, 424 U.S. at 813. “Only the clearest of

justifications will warrant” a stay, id. at 819, and the

circumstances justifying a stay are “exceedingly rare,”

Smith, 418 F.3d at 1033.

This court weighs eight factors to determine whether

a Colorado River stay is justified:

(1) which court first assumed jurisdiction over any

property at stake; (2) the inconvenience of the

federal forum; (3) the desire to avoid piecemeal

litigation; (4) the order in which the forums

obtained jurisdiction; (5) whether federal law or

state law provides the rule of decision on the

merits; (6) whether the state court proceedings

can adequately protect the rights of the federal

litigants; (7) the desire to avoid forum shopping;

and (8) whether the state court proceedings will

resolve all issues before the federal court.

R.R. Street, 656 F.3d at 978–79 (citing Holder, 305 F.3d

at 870). “The factors are not a ‘mechanical checklist.’

We apply the factors ‘in a pragmatic, flexible manner

with a view to the realities of the case at hand. The

weight to be given to any one factor may vary greatly

from case to case.’” State Water Res. Control Bd., 988

F.3d at 1203 (citations omitted) (quoting Moses Cone,

14a

460 U.S. at 16, 21). “Some factors may not apply in

some cases,” but in other cases, “a single factor may

decide whether a stay is permissible.” Id. (cleaned up).

“The underlying principle guiding this review is a

strong presumption against federal abstention.”

Seneca, 862 F.3d at 842 (emphasis added). “Any doubt

as to whether a factor exists should be resolved against

a stay, not in favor of one.” Travelers Indem. Co. v.

Madonna, 914 F.2d 1364, 1369 (9th Cir. 1990).

Our first task is to review de novo whether, in light

of the eight factors enumerated above, the facts here

“conform to the requirements for a Colorado River

stay.” Seneca, 862 F.3d. at 840 (quoting Smith, 418

F.3d at 1032). Here, the district court concluded that

factors three (piecemeal litigation), four (order of

obtaining jurisdiction), and eight (parallelism) “militate

decisively in favor of abstention.” The court weighed

factor seven (forum-shopping) “slightly in favor of

retaining federal jurisdiction,” and concluded that all

other factors were “neutral.”

B. Piecemeal Litigation & Order of

Obtaining Jurisdiction

We agree that the piecemeal litigation and order of

jurisdiction factors support a stay.12 Allowing both the

12

We also agree that factors one, two, five, six, and seven

are neutral or inconsequential. Neither the federal nor the state

court has exercised jurisdiction over property, and there is no

obvious forum shopping or reason to suspect that either court is

incapable of fairly adjudicating the issues before it. There is also no

indication that the federal forum is inconvenient. And while “[t]he

presence of federal-law issues must always be a major

15a

New Jersey state action and Nevada federal suit to

proceed simultaneously will duplicate judicial efforts to

resolve the common question of whether the Steelmans’

personal guarantees are enforceable. And there is a risk

that the courts will

reach

different

results.13

Accordingly, parallel proceedings could waste judicial

resources and cause confusion in the continuing

disputes between the parties. See R.R. Street, 656 F.3d

at 979–80 (identifying duplication of efforts and

possibility of differing results as the primary concerns

of the piecemeal litigation factor).14

consideration weighing against surrender’” of federal jurisdiction,

Moses Cone, 460 U.S. at 26 (emphasis added), the existence of a

common threshold issue of New Jersey state law in both the state

and federal proceedings renders factor five largely irrelevant.

13

We acknowledge that the decision of the New Jersey

court could have preclusive effect in federal court. But if the New

Jersey courts ultimately determine that the Steelmans’ guarantees

are enforceable, additional federal litigation will be required to

determine liability for fraudulent transfer whether or not the state

court’s decision is preclusive. See Intel Corp. v. Advanced Micro

Devices, Inc., 12 F.3d 908, 913 & n.5 (9th Cir. 1993). Accordingly,

preclusion doctrines do not eliminate the risk of continued

litigation in federal court.

14

Some of our cases have noted that the mere existence of

piecemeal litigation is not sufficient on its own to warrant a stay.

See, e.g., Seneca, 862 F.3d at 842–43 (“A general preference for

avoiding piecemeal litigation is insufficient to warrant abstention

. . . . Instead, there must be exceptional circumstances present

that demonstrate that piecemeal litigation would be particularly

problematic.”).

16a

Factor four requires us to consider “the order in

which the [state and federal] forums obtained

jurisdiction.” Id. at 978. But under this factor, “courts

are instructed not simply to compare filing dates, but to

analyze the progress made in each case.” Seneca, 862

F.3d at 843. Here, New Jersey courts have issued not

one, but two (differing) reasoned opinions on the

common issue of the enforceability of the Steelmans’

guarantees. See Ernest Bock, 2021 WL 4771306, at *2.

Most recently, the Appellate Division held that material

factual disputes precluded summary judgment for Bock,

at least without further discovery. Id. at *5–9. By

contrast, the federal district court has not yet even

entertained a summary judgment motion on the issue.

Thus, the New Jersey courts have made more progress

on resolving the common legal issue in this case.

C. Parallelism

We do not agree with the district court that the

parallelism factor supports a stay. To the contrary, we

find that because the federal and state proceedings are

not sufficiently parallel, a Colorado River stay may not

issue.

Parallelism is a threshold requirement for a Colorado

River stay:

When a district court decides to dismiss or stay

under Colorado River, it presumably concludes

that the parallel state-court litigation will be an

adequate vehicle for the complete and prompt

resolution of the issues between the parties. If

there is any substantial doubt as to this, it would

be a serious abuse of discretion to grant the stay

17a

or dismissal at all. Thus, the decision to invoke

Colorado River necessarily contemplates that the

federal court will have nothing further to do in

resolving any substantive part of the case,

whether it stays or dismisses.

Moses Cone, 460 U.S. at 28 (citations omitted). The

Court reiterated that “a district court normally would

expect the order granting the [Colorado River] stay to

settle the matter for all time.” Gulfstream Aerospace

Corp. v. Mayacamas Corp., 485 U.S. 271, 277 (1988).

“[T]he granting of a Colorado River [stay] necessarily

implies an expectation that the state court will resolve

the dispute.” Id. at 278. Applying these principles, we

have recognized that “[p]arallelism is necessary but not

sufficient to counsel in favor of abstention.” Seneca, 862

F.3d at 845. But “exact parallelism . . . is not required.

It is enough if the two proceedings are ‘substantially

similar.’” Nakash, 882 F.2d at 1416 (citations omitted).

Here, the question we face is whether state and

federal proceedings are sufficiently parallel when the

state court proceedings will fully resolve the federal

case only if the state court rules in one of two ways. As

discussed above, if the Steelmans’ guarantees are not

enforceable, then the federal claims are completely

barred, as there would be no New Jersey judgment for

Bock, and thus no fraudulent transfer of assets to avoid

that non-existent judgment.15 But if the guarantees are

15

We recognize that the district court may have authority

to grant injunctive or other relief to prevent the fraudulent

transfer of assets in anticipation of a potential judgment. But if

either the district court or New Jersey courts determine that the

18a

enforceable, the federal court must proceed to

determine whether Defendants fraudulently transferred

assets to avoid paying Bock on the valid guarantees.

We recognize that there is some tension in our

decisions under such circumstances. In Nakash, we

affirmed a Colorado River stay in a dispute between two

competing business families, the Nakashes and the

Marcianos. 882 F.2d at 1412–13. The Marcianos sued

the Nakashes in California state court, bringing a litany

of claims. Although the Nakashes filed a

cross-complaint in state court, they ultimately

dismissed it and brought an action in federal court

instead, seeking to enjoin further state proceedings.

Id.16 We affirmed a Colorado River stay of the federal

case, even after acknowledging that “[t]he state action

focuses on the Nakash[es’] wrongdoing while their

[federal] complaint alleges wrongdoing by the

Marcianos.” Id. at 1416; see also Montanore Mins. Corp.

v. Bakie, 867 F.3d 1160, 1170 (9th Cir. 2017) (citations

omitted) (“In Nakash . . . the suits were sufficiently

parallel because they concerned the same relevant

conduct and named the same pertinent parties. The

parallelism requirement was met even though

additional parties were named in the state suit, the

federal suit included additional claims, and the suits

arguably focused on different aspects of the dispute.”).

guarantees are unenforceable, then Bock’s federal court claims

necessarily fail.

16

The Nakashes withdrew their cross-complaint in state

court on the same day they filed their federal complaint. Nakash,

882 F.2d at 1413.

19a

Thus, we affirmed a Colorado River stay even after

implicitly recognizing that the state court proceedings

might not fully resolve the federal case.

Moreover, in Bakie, we reversed the district court’s

denial of a Colorado River stay when the parties

contested the validity of mining claims owned by the

defendant. 867 F.3d at 1163. In a Montana state court

lawsuit, a mining company sought a declaratory

judgment that the defendant’s claims were invalid,

which would have cleared the way for the company to

mine the land. Id. But after the state court upheld the

validity of the claims in a non-final interlocutory order,

id. at 1164, the company sued in federal court, “seeking

to condemn [the land] for public use easements and

rights of way,” allowing it to mine the land

notwithstanding defendant’s valid claims, id. at 1163.

The district court denied defendants’ motion to stay the

action pending final resolution of the Montana state

court proceedings, finding “that the state court

proceedings were not sufficiently parallel to the federal”

condemnation action. Id. at 1165. Instead, the district

court condemned the land and awarded the company a

public easement. Id.

We reversed, holding that the district court abused

its discretion by denying a Colorado River stay. Id. at

1163. When addressing the parallelism requirement,

we relied heavily on Nakash’s instruction that “exact

parallelism” is not required. Id. at 1170 (quoting

Nakash, 882 F.2d at 1416). We explained that the

federal condemnation and state validity proceedings

were sufficiently parallel “because they both concern

rights to the [same land], name the same pertinent

20a

parties, and attempt to accomplish the same goal

(namely extinguishing the Defendants’ rights to the

[land]).” Id. Although we did not explicitly make this

determination in Bakie, it appears at least possible that

if the Montana court entered a final order affirming the

validity of defendant’s claim, the district court would

still have had to make its condemnation determination.

Thus it is possible that, as here, the state court case

would have fully resolved the federal litigation only if

the state court reached one of two possible outcomes.

Both Nakash and Bakie then, could be read as

suggesting that a Colorado River stay may issue even if

parallel state proceedings may not fully resolve a federal

case.

However, in another line of cases, we have expressly

held that a “substantial doubt” about whether

continued federal litigation would be necessary after

resolution of state proceedings precludes a stay. See

Intel Corp. v. Advanced Micro Devices, Inc., 12 F.3d

908, 912–13 (9th Cir. 1993). In Intel, the parties were

engaged in a copyright infringement dispute over

intellectual property. Id. at 910–12. The district court

stayed federal proceedings under Colorado River

pending resolution of a state court action reviewing the

propriety of an arbitrator’s award of a license to use the

disputed intellectual property. Id. We reversed,

explaining that the “concurrent state court proceedings

w[ould] resolve all the issues in [the federal case] only

if the arbitration award [was] confirmed.” Id. at 913 &

n.5. “In contrast, if the state court overturn[ed] the

arbitration award, then the case w[ould] return to

federal court for the adjudication of the underlying

21a

copyright claims.” Id. at 913 & n.6. Applying Moses

Cone, we found a “substantial doubt as to whether the

state proceedings w[ould] resolve the federal action.”

Id. We found such a “substantial doubt” to be

“dispositive,” concluding that it was “sufficient to

preclude a Colorado River stay.” Id. Thus, we found

that where one of two possible state court rulings would

necessitate additional litigation in a parallel federal

case, a Colorado River stay could not issue.

Although few of our subsequent cases appear to

confront these exact factual circumstances, we have

repeatedly affirmed Intel’s logic. See, e.g., State Water

Res. Control Bd., 988 F.3d at 1204 (“We have

repeatedly emphasized that a Colorado River stay is

inappropriate when the state court proceedings will not

resolve the entire case before the federal court.”);

Holder, 305 F.3d at 859 (“In this Circuit, the narrow

Colorado River doctrine requires that the pending state

court proceeding resolve all issues in the federal suit.”);

Smith, 418 F.3d at 1033 (same); cf. R.R. Street, 656

F.3d at 982 (affirming Colorado River stay when all

parties agreed that a state case would “resolve all issues

raised in the Federal Action”).17

17

We acknowledge that when a case is “controlled by

contradictory precedents . . . the appropriate mechanism for

resolving an irreconcilable conflict is . . . [a] call for en banc

review.” Atonio v. Wards Cove Packing Co., Inc., 810 F.2d 1477,

1478–79 (9th Cir. 1987) (en banc). But “[i]t is our obligation,

nonetheless, to reconcile [conflicting precedents], if possible, so as

to avoid an intracircuit conflict necessitating en banc

consideration.” Edwards v. Marin Park, Inc., 356 F.3d 1058, 1065

(9th Cir. 2004) (citation omitted).

22a

Other circuits have also

adopted disparate

approaches. For example, the Third Circuit has

explained that:

As the Supreme Court pointed out in Moses H.

Cone, the Colorado River doctrine applies only if

there is parallel state court litigation involving the

same parties and issues that will completely and

finally resolve the issues between the parties . . . .

In other words, because of the requirement of a

parallel state court proceeding, stays entered

under the authority of Colorado River will

normally have the effect of putting the plaintiff

‘effectively out of federal court’ and surrendering

jurisdiction to the state tribunal.

Marcus v. Abington, 38 F.3d 1367, 1371–72 (3d Cir.

1994) (citations omitted).18 In another case, a

We cannot say that the tension between Intel, Nakash, Bakie,

and their progeny is irreconcilable as applied here. First, unlike

this case, it is not clear that the state court proceedings in Bakie

and Nakash could result only in binary outcomes, one of which

would require federal litigation. Second, the panels in Nakash and

Bakie did not find a “substantial doubt” that state proceedings

would fail to resolve all federal issues. Because we find such a

“substantial doubt” in this case, Moses Cone precludes a stay. See

Intel, 12 F.3d at 912–13. Finally, because Colorado River requires

balancing several non-exclusive factors, Nakash and Bakie would

not control the outcome of this case even if we found that the

parallelism factor did not preclude a stay. Thus, any tension

between our precedents does not definitively control the outcome

of this case.

18

In Marcus, the Third Circuit ultimately dismissed the

appeal for lack of jurisdiction after concluding that the district

23a

Colorado River dismissal was improper when a party

“may at some point still be entitled to a federal forum

for its diversity action” if the state court ruled in a

certain way. Ingersoll-Rand Fin. Corp. v. Callison, 844

F.2d 133, 134 (3d Cir. 1988).19

But the Seventh Circuit is more permissive. In one

recent case, that court summarized two prior decisions

in which a “plaintiff in concurrent state and federal

actions raised claims in the federal court that would

have been fully resolved if the state court ruled one

way, but only partially addressed if the state court ruled

in the other direction. Nevertheless, [the Seventh

Circuit] held that the state and federal actions were

parallel” such that a Colorado River stay could issue.

Loughran v. Wells Fargo Bank, N.A., 2 F.4th 640, 649

(7th Cir. 2021) (discussing Freed v. JP Morgan Chase

Bank, N.A., 756 F.3d 1013 (7th Cir. 2014) and Lumen

Constr., Inc. v. Brant Constr., Co., 780 F.2d 691 (7th

court’s stay merely “delay[ed] the federal adjudication” rather than

“deprived the federal plaintiff of a federal adjudication to which he

or she may be entitled.” 38 F.3d at 1372. But that case is

procedurally distinct from this one because the court previously

explained that federal litigation would remain no matter how the

state court ruled. See id. at 1370–71 (“Once the stay is lifted, the

state court’s disposition of the criminal proceeding will have a

negligible impact on the subsequent federal adjudication . . . .

[N]either side will be foreclosed by collateral estoppel with respect

to the federal issues.”).

19

The Callison court ultimately agreed that a Colorado

River stay, rather than dismissal, was proper, but only because

Congress evinced a clear policy preference to litigate certain

parallel securities law issues in state court. 844 F.2d at 136–37.

24a

Cir. 1985)). The court declined to “read Moses Cone as

establishing rigid criteria for stay orders.” Id. at 646.

In the context of this case, we conclude that the Intel

and the Third Circuit approach is most consistent with

the Supreme Court’s instruction in Moses Cone that “it

would be a serious abuse of discretion to grant [a

Colorado River] stay” if there is “any substantial

doubt” as to whether “parallel state-court litigation will

be an adequate vehicle for the complete and prompt

resolution of the issues between the parties.” 460 U.S.

at 28 (emphasis added). Indeed, the Court explained

that a Colorado River stay “necessarily contemplates

that the federal court will have nothing further to do in

resolving any substantive part of the case.” Id.; see also

Gulfstream Aerospace Corp., 485 U.S. at 278 (“[T]he

granting of a Colorado River [stay] necessarily implies

an expectation that the state court will resolve the

dispute. . . .”). When one possible outcome of parallel

state court proceedings is continued federal litigation,

we find a “substantial doubt” that the state court action

will provide a “complete and prompt resolution of the

issues,” because the federal court may well have

something “further to do.” Moses Cone, 460 U.S. at 28.

Here, because additional federal litigation would be

necessary if the New Jersey courts enforce the

Steelmans’ guarantees, we have a “substantial doubt as

to whether the state proceedings will resolve the federal

action.” Intel, 12 F.3d at 913 (relying on Moses Cone,

460 U.S. at 28). As both the Supreme Court and our

25a

court have held, such a doubt “precludes the granting

of a stay” under Colorado River. Id.20

Although we are sympathetic to the prudential

concerns that the district court weighed in favor of a

stay,21 we conclude that the federal and state

20

We note that our holding is consistent with the general

rule that “exact parallelism . . . is not required.” See Nakash, 882

F.2d at 1416. The issues and parties in parallel state proceedings

need not be identical so long as they are “substantially similar.” Id.

For example, a Colorado River stay could still be warranted if

parallel state proceedings involve additional parties or claims, as

long as the state court will necessarily resolve all issues between

parties in the federal action. See R.R. Street, 656 F.3d at 982–83

(finding sufficient parallelism even where parallel cases did not

involve identical parties because the parties in the federal suit

agreed that the state action would “resolve all issues raised in the

Federal Action”). We simply find a substantial doubt in this case

that New Jersey state proceedings will completely resolve the

federal action.

21

At oral argument, counsel discussed alternatives to a stay

that might resolve some of these concerns. See Oral Arg. at

8:20–9:05, 21:50– 26:30. For example: (1) Defendants could post a

bond to ameliorate concerns about asset transfers; (2) the district

court might have authority to enjoin future asset transfers; or (3)

the parties could stipulate to jurisdiction and venue over the

federal claims in New Jersey state court, ensuring resolution of all

disputes in one court. On remand, we encourage the parties and

the district court to explore these and other alternatives that could

resolve or ameliorate the administrative concerns identified by the

district court. However, we find that these concerns are not

sufficient to set aside the district court’s “virtually unflagging

obligation” to exercise jurisdiction. Colorado River, 424 U.S. at

817.

26a

proceedings are not sufficiently parallel to justify

abdication of federal jurisdiction.22

V. Docket Management Stay

Finally, Defendants argue that even if the Colorado

River stay was improper, the district court had the

inherent authority to stay federal proceedings pursuant

to its docket management powers. The Supreme Court

first recognized this authority in Landis v. North

American Co., 299 U.S. 248 (1936), explaining that “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.” Id. at 254. We have

since identified three non-exclusive factors courts must

weigh when deciding whether to issue a docket

management stay: (1) “the possible damage which may

result from the granting of a stay”; (2) “the hardship or

inequity which a party may suffer in being required to

go forward”; and (3) “the orderly course of justice

measured in terms of the simplifying or complicating of

issues, proof, and questions of law.” Lockyer v. Mirant

Corp., 398 F.3d 1098, 1110 (9th Cir. 2005) (quoting

CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962)).

Here, the parties contest whether these factors

support a stay. But as the district court recognized,

“because this case involves simultaneous and related

federal and state actions, the proper analysis is under

22

Because we conclude that the district court’s error in

applying the Colorado River factors is dispositive, we need not

proceed to abuse of discretion review. See Seneca, 862 F.3d at 840.

27a

Colorado River, not Landis.” We have held that “[a]

district court may, in its discretion, stay or dismiss a

federal case in favor of related state proceedings” in

only two circumstances: “(1) when an action seeks only

declaratory relief, or (2) when exceptional

circumstances exist [under Colorado River].” Scotts Co.

LLC v. Seeds, Inc., 688 F.3d 1154, 1158 (9th Cir. 2012)

(internal citations omitted). We suggested that to

expand the scope of permissible stays beyond these

contexts would “undermin[e] the Colorado River

doctrine.” Id.

Following this principle, we join other circuits to

expressly hold that the Colorado River factors control

whether a stay can issue in favor of parallel state

proceedings. See, e.g., Cottrell v. Duke, 737 F.3d 1238,

1249 (8th Cir. 2013) (“To permit a district court to rely

solely on its inherent power to control its docket, when

the effect of the district court’s order is to accomplish

the same result contemplated by Colorado River, would

allow a court to bypass the rigorous test set out by the

Supreme Court.”); Evans Transp. Co. v. Scullin Steel

Co., 693 F.2d 715, 717 (7th Cir. 1982) (“[I]t is not

enough, to justify abstention, that a failure to stay the

federal suit may result in judicial diseconomy—in

having two active lawsuits instead of one.”).23 A docket

management stay may not issue in favor of parallel

state proceedings if the Colorado River factors do not

23

See also AIIRAM LLC v. KB Home, No.

19-CV-00269-LHK, 2019 WL 3779185, at *6 (N.D. Cal. Aug. 12,

2019) (reaching the same result but noting that “the Ninth Circuit

has not spoken to th[is] precise question”).

28a

support a stay. See Scotts Co. LLC, 688 F.3d at 1158.

Because Colorado River does not support a stay, neither

can the district court’s docket management authority.

VI. Conclusion

Following the Supreme Court’s instruction in Moses

Cone, we cannot uphold a stay as the New Jersey

proceeding may not fully resolve the issues pending

before the district court.

REVERSED and REMANDED.24

24

The parties shall bear their own costs on appeal.

29a

APPENDIX B

United States District Court

District of Nevada

Ernest Bock, LLC

Plaintiff,

v.

Paul Steelman, et al.

Defendants.

Case No.: 2:19-cv-01065-JAD-EJY

Order Staying Proceedings under

Colorado River and Denying without

Prejudice Motions to Dismiss

[ECF Nos. 171, 201, 202, 210, 211, 214, 225]

Ernest Bock, LLC sues the Steelman family, as

individuals and trustees, for fraudulently transferring

assets into various trusts in an effort to prevent Bock

from recovering on an $11 million New Jersey

state-court judgment it obtained against them. Last

year, I granted Bock leave to file a fourth-amended

complaint to add new defendants and new claims,

including violations of the federal Racketeer Influenced

and Corrupt Organizations (RICO) Act. A few months

ago, a New Jersey appellate court vacated the judgment

and damage award that undergird all of Bock’s claims

in this action, and the parties have begun to relitigate

30a

that issue there. Numerous defendants now move to

dismiss the complaint, and still others move to stay this

case pending the final outcome of those New Jersey

proceedings. Bock countermoves to condition any stay

on the posting of a bond three times the value of the

now-vacated state-court judgment. Because I find that

exceptional circumstances warrant a stay of this action

under the abstention doctrine articulated by the

Supreme Court in Colorado River Water Conservation

District v. United States,1 I stay this case, deny the

countermotion, and deny without prejudice all pending

motions to dismiss.

Discussion2

“In exceptional circumstances, a federal court may

decline to exercise its ‘virtually unflagging obligation’

to exercise federal jurisdiction, in deference to pending,

1

Colorado River Water Conservation Dist. v. United States,

424 U.S. 800 (1976).

2

Defendants’ requests for a stay are premised on a parallel

doctrine the Supreme Court recognized in Landis v. North

American Company, which provides that district courts have the

inherent power to stay cases to control their dockets and promote

the efficient use of judicial resources. See ECF No. 201; ECF No.

210; Landis v. N. Am. Co., 299 U.S. 248, 254–55 (1936). But

because this case involves simultaneous and related federal and

state actions, the proper analysis is under Colorado River, not

Landis. See Nakash v. Marciano, 882 F.2d 1411, 1416–17 (9th Cir.

1989) (citations omitted). Because Bock raised Colorado River in

its response brief to the stay motions and defendants replied to its

arguments, I find that the issue has been sufficiently briefed.

31a

parallel state proceedings.”3 Such a decision “rest[s] on

considerations of wise judicial administration, giving

regard to conservation of judicial resources and

comprehensive disposition of litigation.”4 The Ninth

Circuit directs courts to consider eight factors when

deciding whether to stay or dismiss under Colorado

River:

(1) which court first assumed jurisdiction over any

property at stake; (2) the inconvenience of the

federal forum; (3) the desire to avoid piecemeal

litigation; (4) the order in which the forums

obtained jurisdiction; (5) whether federal law or

state law provides the rule of decision on the

merits; (6) whether the state court proceedings

can adequately protect the rights of the federal

litigants; (7) the desire to avoid forum shopping;

and (8) whether state court proceedings will

resolve all issues before the federal court.5

The decision to abstain under Colorado River “does not

rest on a mechanical checklist”; it instead requires “a

careful balancing of the important factors as they apply

in a given case, with the balance heavily weighted in

3

Montanore Mins. Corp. v. Bakie, 867 F.3d 1160, 1165 (9th

Cir. 2017) (quoting Colorado River, 424 U.S. at 817).

4

5

Colorado River, 424 U.S. at 817 (cleaned up).

R.R. Street & Co. Inc. v. Transp. Ins. Co., 656 F.3d 966,

978–79 (9th Cir. 2011).

32a

favor of the exercise of jurisdiction.”6 On balance, these

factors

weigh in favor of staying, though not

dismissing, Bock’s federal suit during the pendency of

its state suit.

Factor one is generally “dispositive” and focuses on

whether the state or federal court has custody over any

property at issue.7 In this case, this factor is neutral.

Especially absent the reinstatement of the now-vacated

state-court damages award, neither this court nor the

New Jersey state court has assumed jurisdiction over

specific property.

Bock is correct that its

fraudulent-transfer claims in this action involve

property,8 but that is not enough to give this court

custody over the property in dispute here. Rather, for

it to be so, the claim must be brought under the court’s

in rem jurisdiction.9 And although fraudulent transfer

may implicate a property’s ownership, it is an in

personam claim against the alleged fraudster.10

6

Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 560

U.S. 1, 16 (1983).

7

40235 Wash. Street Corp. v. Lusardi, 976 F.2d 587, 588

(9th Cir. 1992).

8

ECF No. 225 at 12.

9

Colorado River, 424 U.S. at 818 (citing Donovan v. City

of Dallas, 377 U.S. 408, 412 (1964)).

10

See SuVicMon Dev., Inc. v. Morrison, 991 F.3d 1213, 1222

(11th Cir. 2021) (a “fraudulent transfer action is not an execution

proceeding” and “does not necessarily confer a property interest on

the creditor; rather, any in rem effect of the action is a matter of”

post-judgment remedies).

33a

Factors two, five, and six are also neutral. The

parties have been litigating the claims in the federal

and state actions in both New Jersey and Nevada for

years.11 While Bock’s federal claims entirely depend on

the resolution of the state claims, the claims in each

case are largely distinct from one another, and the

relevant witnesses and evidence for each are present in

the respective state. Federal and Nevada law provide

the rules of decision for Bock’s claims in this case,12 but

those considerations are irrelevant without the state

court’s damage award, which is premised on New

Jersey law.13 And the state-court proceedings needn’t

fully protect Bock’s rights to federal relief, because the

claims aren’t identical; and if the New Jersey action

goes Bock’s way, this court will reassume jurisdiction

and resolve its remaining claims.

While factor seven weighs slightly in favor of

retaining federal jurisdiction, factors three, four, and

eight militate decisively in favor of abstention. The

New Jersey case was instituted first14—indeed, without

it, this case could not exist. And the threat of piecemeal

litigation looms large over such a complicated case.

Piecemeal litigation “occurs when different tribunals

11

The state-court case was filed in October 2015 and the

federal-court case was filed in June 2019. See ECF No. 1; ECF No.

133 at ¶ 54.

12

See generally ECF No. 133 at ¶¶ 93–783.

13

Id. at ¶ 54.

14

See supra note 11.

34a

consider the same issue, thereby duplicating efforts and

possibly reaching different results.”15 Bock’s “state case

has progressed far beyond [its federal] case”16 and

involves similar issues and claims. Should the New

Jersey action result in the solidification of the status

quo, with Bock lacking a state-court judgment upon

which to base its federal claims, any progress made in

this litigation in the interim will have been for naught.

Given that possibility, the state-court proceedings could

completely moot this case. Thus, “it would be highly

inefficient to allow the federal litigation to proceed.”17

In Nakash v. Marciano, the Ninth Circuit held that

“exact parallelism” between the state and federal

actions “is not required” to warrant abstention; “it is

enough if the two proceedings are substantially

similar.”18 When the “federal action is but a spin-off of

more comprehensive state litigation,” courts should be

“particularly reluctant to find that the actions are not

parallel.”19 Bock accurately points out that its federal

15

Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 1369

(9th Cir. 1990) (cleaned up).

16

Nakash, 882 F.2d at 1415; see also Madonna, 914 F.2d at

1369 (reasoning that a Colorado River stay may be appropriate

where there is a “‘vastly more comprehensive’ state action that

23 can adjudicate the rights of many parties or the disposition of

much property”).

17

Nakash, 882 F.2d at 1415.

18

Id. at 1416 (cleaned up).

19

Id. at 1417 (cleaned up).

35a

claims in this court are distinct from those in the state

court action,20 but its federal claims arise from and turn

entirely on whether the defendants owe it

breach-of-contract damages. That issue is currently

before the New Jersey Supreme Court in the form of a

petition for certification,21 and if that results in a denial

or an eventual affirmance of the appellate court’s

vacatur, it may head to trial in state court. If it instead

results in reversal, or that trial ends with a similar

damage award, this court will have jurisdiction to

decide the remaining disputes. Thus, holding these

claims in abeyance pending state-court adjudication

serves efficient and just judicial administration. So this

case is stayed.

Bock requests that, if I grant a stay, I condition it on

the Steelmans posting a $35 million bond with the

court. Beyond “alleviat[ing] some” of the general

insecurity Bock has about defendants’ ability to pay the

original New Jersey judgment and any judgment in its

favor in this case,22 such a bond would not serve a

legitimate purpose, especially when the state-court

judgment stands vacated. So Bock’s countermotion is

denied and no condition is imposed upon the stay.

20

ECF No. 225 at 14–15.

21

ECF No. 201-3; ECF No. 222-3.

22

ECF No. 225 at 24–25.

36a

Conclusion

IT IS THEREFORE ORDERED that the defendants’

motions to stay [ECF Nos. 201, 210] are GRANTED

and this case is STAYED. Once the New Jersey

state-court proceedings have concluded, any party may

move to lift this stay. Ernest Bock, LLC’s

countermotion for a condition on the stay [ECF No.

225] is DENIED.

IT IS FURTHER ORDERED that the pending

motions to dismiss [ECF Nos. 171, 202, 211, 214] are

DENIED without prejudice to their refiling within

20 days of the order lifting the stay. The Clerk of the

Court is directed to ADMINISTRATIVELY

CLOSE this case.

/s/ Jennifer A. Dorsey

U.S. District Judge Jennifer A. Dorsey

March 2, 2022

37a

APPENDIX C

SUPERIOR COURT OF

NEW JERSEY APPELLATE DIVISION

DOCKET NO. A-0469-19

ERNEST BOCK, LLC,

Plaintiff-Respondent,

v.

PAUL STEELMAN and MARYANN STEELMAN,

Defendants-Appellants/Third-Party Plaintiffs,

v.

ANTHONY J. CATANOSO, CHRISTINE

CATANOSO, CHARLES T. CATANOSO, JR., NINA

CATANOSO, WILLIAM G. CATANOSO, TINA

CATANOSO, EDWARD J. OLWELL, ROBERTA

NEVIN, CAPE ENTERTAINMENT ASSOCIATES,

LLC, THE ROCKET, LLC, HI TECH THRILLS, LLC,

ATLANTIC PIER AMUSEMENTS, INC.,

and STEEL PIER ASSOCIATES, LLC,

Third-Party Defendants-Respondents.

Argued September 20, 2021

Decided October 13, 2021

Before Judges Sabatino, Mayer, and Natali.

On appeal from the Superior Court of New Jersey,

Law Division, Atlantic County, Docket No. L-2294-15.

38a

PER CURIAM

This appeal stems from an order granting summary

judgment to a lender on commercial loan guaranties of

approximately $12 million, and various other associated

rulings of the trial court.

For the reasons that follow, we conclude summary

judgment was prematurely granted before depositions

of key witnesses and other pertinent discovery were

completed. In addition, the trial court did not afford

defendants a fair opportunity to litigate their

contentions that the plaintiff lender breached the

implied covenant of good faith and fair dealing.

Specifically, defendants allege that the plaintiff lender

engaged in transactions for its own benefit, which

impeded the flow of revenues that might otherwise have

been used to pay down the loan balances. Consistent

with case law, including National Westminster Bank

N.J. v. Lomker, we conclude the parties’ guaranty

agreements “do not expressly waive the defenses of bad

faith . . . [.]” 277 N.J. Super. 491, 499 (App. Div. 1994).

We likewise revive defendants’ claims that the lender

tortiously interfered with their reasonable expectations

of economic advantage.

We consequently vacate the entry of summary

judgment and remand for the completion of discovery,

without prejudice to further substantive motion

practice being pursued thereafter.

I.

The parties are surely familiar with the complicated

factual and procedural background of this case, and

39a

there is no need for this opinion to discuss those details

comprehensively. In addition, we are mindful that

discovery is ongoing and that additional or competing

facts may emerge. We therefore precede our analysis

with the following abbreviated synopsis.

Defendant Paul Steelman, a developer from Las

Vegas, was a member of Steel Pier Associates, LLC

(“SPA”), an entity that owned real estate known as the

Steel Pier (“the Pier”) on the Atlantic City boardwalk.

Steelman and his wife Maryann (the “Steelmans”)

guaranteed two loans on behalf of SPA. The loans were

extended to SPA and a related entity, Cape

Entertainment Associates, LLC (“Cape”), by plaintiff

Ernest Bock, LLC (“Bock”), a company which did

construction work on the Pier.1 The Steelmans had

non-controlling ownership interests in both SPA and

Cape.

SPA defaulted on the loans. Bock did not pursue

foreclosure on the property or sue SPA. Instead, Bock

sought payment from the Steelmans as guarantors on

the loans. After the Steelmans declined to pay the

amounts due, Bock filed a complaint against them in

October 2015 for breach of the guaranty agreements.

In May 2016, the Steelmans filed an amended answer

and affirmative defenses to Bock’s complaint. In that

same pleading, the Steelmans asserted a counterclaim

against Bock, contending Bock breached the implied

1

We shall refer to the LLC as “Bock”, unless we specify

that we are referring to Thomas Bock, the President of the LLC.

40a

covenant of good faith and fair dealing and also

tortiously interfered with their prospective economic

advantage. The Steelmans simultaneously filed a

third-party complaint against Anthony T. Catanoso, the

managing principal of SPA, and other parties,2 making

parallel allegations of engaging in improper conduct

with Bock. Anthony Catanoso, a number of his relatives

(collectively “the Catanosos”), and several other

third-party defendants are also co-guarantors of the

loans.

The May 2016 version of the counterclaim and

third-party complaint focused upon an amusement ride

on the boardwalk known as the Wheel. Defendants

charged that “[t]he Catanosos have denied Steelman

the opportunity to share in the financial upside

projected to be derived from the Wheel, opting instead

to take the business opportunity from the Primary

Owners of [the] Pier and enter into a secret agreement

with Bock for development of the Wheel on adjacent

land . . . [.]” That conduct, defendants alleged,

“depriv[ed] the Primary Owners and Steelman the

opportunity to gain from the potential financial upside

projected to be realized from the Wheel.”

Over a year later, in August 2017, Bock moved for

summary judgment against defendants, seeking a final

judgment on the outstanding loans they had

2

The other third-party defendants are Christine Catanoso,

Charles T. Catanoso, Jr., Nina Catanoso, William G. Catanoso,

Tina Catanoso, Edward J. Olwell, Roberta Nevin, Cape, The

Rocket, L.L.C., High Tech Thrills, L.L.C., Atlantic Pier

Amusements, Inc., and SPA. None of them are participating in this

appeal.

41a

co-guaranteed. Defendants opposed the motion and also

cross-moved for various forms of relief. In particular,

defendants moved for leave to amend their

counterclaim and third-party complaint by amplifying

their allegations of bad faith, unfair dealing, and

tortious interference. Those amplified allegations

specified improper conduct in connection with: project

funding in August 2011 and September 2011; loans

from the Casino Redevelopment Authority (“CRDA”) in

2012 and 2014; the Wheel; and alleged mismanagement

of SPA that caused it to become undercapitalized.

Again, defendants asserted that Bock, aided by the

third-party defendants, breached the covenant of good

faith and fair dealing. These allegations continued a

theme already previewed in defendants’ counterclaim

over a year earlier, and surely were no surprise to Bock.

Defendants further alleged in their proposed

amended pleading that Bock induced or conspired with

the Catanosos “to enter into an undisclosed agreement

regarding the purchase and/or development of the

Wheel[,] [and] induc[ed] SPA to make loans in the

amount of $3.2 million” to Domeinac, LLC, an entity

controlled by Anthony Catanoso, “when those funds

could have and should have been used to satisfy the

Bock Funding” to SPA.

In addition, defendants alleged Bock directed other

transactions that were “designed to impair the

Companies’ ability to borrow without Tom Bock’s

consent and/or involvement[.]” They alleged Bock

diverted revenues that could have been used to repay

the SPA loans, and instead were used to fund other

ventures of his or entities under his control “for the

42a

benefit of DOMEINAC’s development of the Wheel.”

According to defendants, these transactions and

activities tortiously interfered with their prospective

economic advantage.

In the third count of the proposed amended

counterclaim, defendants requested that the court

“equitably recharacterize” the SPA loans as a capital

contribution to the enterprise. Defendants also sought

leave to plead claims (1) for indemnification and

contribution, and (2) alleging the fraudulent transfer of

funds. Defendants further sought the appointment of a

receiver or a statutory custodian for SPA and Cape.

In opposing summary judgment on the guaranties,

defendants expressly argued under Rule 4:46 that such

final relief in Bock’s favor was inappropriate because

discovery was incomplete. Defendants maintained in

this regard that Bock had not turned over certain

relevant financial records that could aid them in

opposing summary judgment. They further urged they

needed the depositions of Thomas Bock and the

Catanosos before the summary judgment motion could

be fairly adjudicated.

After hearing oral argument, the trial court rejected

defendants’ arguments and granted summary judgment

in favor of Bock on the unpaid notes. The court issued

two companion written opinions conveying its reasons

on September 17, 2018.

The trial court was unpersuaded that the loans

should be recharacterized as capital contributions.

Although not explicitly saying so in its written opinions,

the court appeared to adopt Bock’s position that the

43a

terms of the guaranty agreements permitted Bock to

pursue defendants as guarantors of the loans without

first seeking payment from the borrowers or the other

co- guarantors. The court also seemingly agreed with

Bock that, under the language of the guaranties,

defendants waived the right to object to the lender

foregoing or impairing the collateral on the notes.

The court did not allow defendants leave to amend

their counterclaims. In this regard, the court stated

Bock “has sufficiently established that there is no

genuine issue of material fact for the above stated

reasons in [Bock’s] Reply[.]” As the court wrote, the

counterclaims for breach of the implied covenant of

good faith and fair dealing and tortious interference

must be dismissed “because the [c]ourt finds that the

money was a loan rather than equitable funding.” The

court added that the breach of implied covenant claims

were not tenable because the loan notes were from SPA

and Cape to Bock, and consequently “there are no legal

obligations between the individual members of the two

entities to each other individually.”

Pursuant to Rule 4:42-2 and Rule 4:59, the court

certified its summary judgment order as final for

purposes of appeal, even though other issues in the case

(such as the third-party complaint) had yet to be

adjudicated. The amount of the final judgment,

inclusive of interest as of the date of its entry, was

$11,831,365.32. 3

3

We presume post-judgment interest since that time has

substantially increased the present amount due.

44a

Defendants moved for reconsideration, which the

court denied in another set of written opinions on

March 19, 2019. The court found it had already

sufficiently addressed and dispensed with defendants’

arguments, and there were no grounds for revisiting or

altering its decisions.

Defendants now appeal. A central aspect of their

arguments is that the trial court prematurely granted

summary judgment before discovery was completed. In

addition, they argue the trial court’s reasoning was

flawed, particularly with respect to the dismissal of

their claims of breach of the implied covenant and

tortious interference.

Bock, meanwhile, first argues at length in its brief

that defendants’ appeal is procedurally defective for a

number of reasons. As to the merits, Bock maintains

there are ample grounds to uphold the entry of

summary judgment against defendants as co-guarantors

of the loans.

Among other things, Bock alleges defendants waived

through the guaranty agreements any right to complain

that Bock elected not to sue the primary obligors and

pursue relief from them instead. Bock emphasizes that

the guaranty documents contain a waiver of the right to

assert impairment of the collateral for the loan, i.e., the

Pier. Moreover, Bock contends that since SPA received

the promised benefits of the loan agreements in the

form of the borrowed funds, there is no basis for relief

under alternative theories of lender liability.

45a

II.

Before we delve into the substance of the issues, we

briefly address Bock’s procedural arguments, none of

which are persuasive.

In particular, Bock argues defendants’ appeal was

filed too late and should be dismissed as untimely.

Alternatively, Bock asserts that defendants have

improperly challenged interlocutory orders that were

not sufficiently identified in their Notice of Appeal and

appellate Case Information Statement (“CIS”).4 We

reject those contentions.

As we noted earlier, the trial court certified the

summary judgment order on the loans as final under

the special jurisdictional provision in Rule 4:42-2.

That Rule provides:

If an order would be subject to process to enforce

a judgment pursuant to R. 4:59 if it were final and

if the trial court certifies that there is no just

reason for delay of such enforcement, the trial

court may direct the entry of final judgment upon

fewer than all the claims as to all parties, but only

in the following circumstances: (1) upon a

complete adjudication of a separate claim; or (2)

upon complete adjudication of all the rights and

4

Bock did not file a cross-appeal, but reiterates arguments

made in its January 2020 motion to dismiss the appeal and strike

the amended CIS. We denied that motion, and continue to

maintain that disposition here.

46a

liabilities asserted in the litigation as to any party;

or (3) where a partial summary judgment or other

order for payment of part of a claim is awarded.

[R. 4:42-2.]

To be certified as final under Rule 4:42-2, an order

must fall within one of the Rule’s sub-parts and must

also be subject to process to enforce a judgment

pursuant to Rule 4:59. Janicky v. Point Bay Fuel, Inc.,

396 N.J. Super. 545, 550 (App. Div. 2007) (citations

omitted). Rule 4:59, in turn, requires a money judgment

that is enforceable through ordinary collection

procedures. See Newstead Blrds., Inc. v. First Merch.

Nat’l Bank, 146 N.J. Super. 295, 296 (App. Div. 1977)

(holding that a judgment or order will not “constitute

a lien or be otherwise susceptible to execution unless

final and for a sum certain[]”) (emphasis added).

Here, the court certified as final its grant of

summary judgment on the unpaid loans. That ruling

constituted the adjudication of a separate claim

pursuant to Rule 4:42-2, i.e., defendants’ breach of the

guaranty agreements. In addition, the money

judgment—for a sum of nearly $12 million—was subject

to enforcement pursuant to Rule 4:59. This is true even

though defendants filed a third-party complaint against

their co-guarantors, because according to the guaranty

agreements, each signatory was jointly and severally

liable. Thus, any determination the court eventually

makes regarding the third-party complaint would

presumably not affect defendants’ own liability

pursuant to the guaranty agreements.

47a

We are satisfied the court’s grant of summary

judgment was properly certified as final and was

appealable pursuant to Rule 4:42-2. The orders on

appeal include the court’s grant of summary judgment,

the determination making that order final, and the

denial of the motions for reconsideration of those

orders.

Bock argues defendants are improperly going beyond

that and appealing interlocutory orders, including: (1)

the September 17, 2018 order granting summary

judgment; (2) the September 17, 2018 order permitting

Bock to amend its pleading to add a count for fraud, and

denying defendants’ request to amend their third-party

complaint; (3) the March 19, 2019 order denying

reconsideration of the grant of summary judgment and

granting Bock’s motion to enter final judgment; and (4)

the March 19, 2019 order denying reconsideration of

the court’s denial of defendants’ motion to amend their

third- party complaint.

As we have already noted, the September 2018 order

granting summary judgment and the March 2019 order

denying reconsideration of the grant of summary

judgment, making it final, are properly before us on

appeal in compliance with Rule 4:42-2.

The trial court’s decisions dismissing the

counterclaim5 and denying defendants’ requests to

5

Part of the confusion here results from the fact that the

same order that denied defendants’ request to amend their

third-party complaint does not mention the counterclaim. There is

no written order that explicitly dismisses the counterclaim or

48a

amend it, as well as its denial of leave to amend the

third-party complaint are enmeshed with its decision to

grant Bock summary judgment on the loan guaranties.

As we will discuss, infra, if defendants prove that Bock

or the third-party defendants improperly impeded the

ability of the borrowers to pay the loan debt, that

improper conduct might excuse or justify defendants’

non-payment of the guaranties. The issues are so

closely connected that the present appeal fairly and

logically should encompass the rulings about the

counterclaim and third-party complaint. And, as we

noted above, we decline to rescind our previous order

denying Bock’s motion to strike appellants’ amendment

of the CIS form. Indeed, the original CIS form expressly

mentions the counterclaim.

Bock further argues that defendants’ appeal was

untimely because it should have been filed within

forty-five days after the entry of the court’s final order

of judgment on March 19, 2019. See R. 2:4-1(a). This

timing argument has no merit. Defendants timely filed

their motion for reconsideration on April 8, 2019,

nineteen days after the entry of the March 19 order.

That action began to toll the period for filing the appeal.

See R. 2:4-3(b). The court denied reconsideration on

September 10, 2019, and defendants filed their appeal

twenty days later on October 1, 2019.

denies defendants’ request to amend it. However, those rulings as

to the counterclaim are expressly stated in the court’s September

17, 2018 written opinion, granting Bock’s motion for summary

judgment.

49a

When the grounds for a motion judge’s ruling on

summary judgment and reconsideration are essentially

the same, an appeal solely from the denial of

reconsideration may be sufficient for appellate review

of the merits of the case. Fusco v. Bd. of Educ. of City of

Newark, 349 N.J. Super. 455, 461 (App. Div. 2002). This

is especially true when the CIS makes clear that the

court’s order on reconsideration implicates the

substantive issues in the underlying ruling. Ibid.;

accord Tara Enters., Inc. v. Daribar Mgmt. Corp., 369

N.J. Super. 45, 60 (App. Div. 2004). Also, “in the

interests of justice,” an order not specifically listed on

the CIS may be considered on appeal. Innes v.

Marzano-Lesnevich, 435 N.J. Super. 198, 211 n.6 (App.

Div. 2014), aff’d as modified, 224 N.J. 584 (2016).

Taking into account the tolling period, defendants’

filing of their appeal on October 1, 2019 occurred a total

of thirty-nine “countable” days after the initial March

19 orders, and thus within the forty-five-day time frame

required by the Rules. They later amended their CIS to

clarify exactly which of the orders of March 19, 2019

were on appeal. It was clear from the original notice of

appeal and CIS that defendants were appealing the

rulings underlying the court’s March 19, 2019 denial of

reconsideration of the grant of summary judgment and

the entry of final judgment. No manifest prejudice

resulted to Bock from defendants’ amending their CIS,

because their notice of appeal was timely and stated

50a

that the March 2019 order denying reconsideration and

entering final judgment was on appeal.6

In sum, we reject Bock’s procedural arguments and

therefore proceed to the merits of the issues.

III.

The main issue before us is whether the trial court

improvidently granted summary judgment to Bock and

enforced defendants’ guaranties, without first allowing

defendants to complete depositions and other discovery.

Part and parcel of that determination is whether

defendants’ non-payment of the guaranties could be

justified as a matter of law because of alleged wrongful

conduct by Bock or the third-party defendants that

impeded the ability of the primary borrowers to pay the

loan amounts.

Bock relies heavily on the fact that the guaranty

agreements contain language granting it full discretion

on whether to foreclose on the collateral, which the

guarantors waived any right to oppose. In this regard,

the guaranty agreements stated, in pertinent part, as

follows:

Guaranty Absolute and Unconditional. The

liability of the Guarantor under this Guaranty is

absolute and unconditional irrespective of:

6

Foreshadowing a main argument in their appellate briefs,

defendants’ notice of appeal expressly stated that the court’s

September 2018 grant of summary judgment was premature

because discovery was not completed.

51a

1. any lack of validity or enforceability of any of

the Loan Documents;

2. any change in the time, manner, place or

amount of payment or in any other term of all or

any of the Indebtedness, or any other amendment

or waiver of or any consent to departure from any

of the terms of the Indebtedness;

3. any exchange, release or non-perfection of any

collateral or lien securing all or any part of the

Indebtedness, which exchange, release or nonperfection the Guarantor expressly agrees will not

be deemed an unjustifiable impairment of the

collateral;

4. any release or amendment or waiver of or

consent to departure from any other guaranty, for

all or any part of the Indebtedness;

5. any settlement or compromise with any

Borrower or any other person relating to the

Indebtedness; or

6. any other circumstances which might otherwise

constitute a defense available to, or a discharge of,

any Borrower, any guarantor or other obligor in

respect of the Indebtedness or the Guarantor in

respect of this Guaranty.

In addition, the guaranty agreements included

language that waived the guarantors’ defense of

impairment of collateral. The agreements further

authorized Bock to release its interest in the collateral:

52a

Waiver. . . . . This Guaranty will not be affected by

any surrender, exchange, acceptance, compromise

or release by the Lender of any other party, or any

other guaranty or any security held by it for any of

the Obligations, by any failure of the Lender to

take any steps to perfect or maintain its lien or

security interest in or to preserve its rights to any

security or other collateral for any of the

Obligations or any guaranty, or by any

irregularity, unenforceability or invalidity of any

of the Obligations or any part thereof or any

security or other guaranty thereof. The

Guarantor’s obligations hereunder shall not be

affected, modified or impaired by any

counterclaim, set-off, deduction or defense based

upon any claim the Guarantor may have against

the Borrower or the Lender, except payment or

performance of the Obligations.

The agreement continued:

The Guarantor hereby waives . . . . (f) any

requirement that the Lender protect, secure, perfect or

insure any security interest or lien or any property

subject thereto or exhaust any right or take any action

against the Borrower, the Guarantor, any other person

or any collateral; . . .

(emphasis added).

Finally, the guaranty agreements included an

indemnity clause, whereby the guarantors agreed to

indemnify the lender (Bock) from any claims and

damages asserted against the lender, so long as those

53a

claims were not “solely attributable” to the lender’s

“gross negligence or willful misconduct.”

Nevertheless, the guaranty agreements contained no

express language waiving the guarantors’ ability to

argue that their payment obligations are excused or

diminished by proof of a breach of the implied covenant

of good faith and fair dealing. This is a critically

important omission.

As this court held in Lomker, 277 N.J. at 496–97:

Every contract contains an implied covenant of

good faith and fair dealing. Onderdonk v.

Presbyterian Homes of N.J., 85 N.J. 171, 182

(1981); Palisades Properties Inc. v. Brunetti, 44

N.J. 117, 130 (1965); N.J.S.A. 12A:1–203. Good

faith is defined by the Uniform Commercial Code

as “honesty in fact in the conduct or transaction

concerned.” N.J.S.A. 12A:1–201(19). In the

context of commercial loans, we have recently

recognized that this good faith requirement does

not impose upon a lender obligations that alter

the terms of its deal or preclude it from exercising

its bargained-for rights. Glenfed Financial Corp.,

etc. v. Penick Corp., et al., 276 N.J. Super. 163, 175

(App. Div. 1994) (lender’s bad faith or lack of

“honesty in fact” which would constitute a viable

debtor’s defense does not arise from lender’s

refusal to exercise greater forbearance). But a

debtor may defend against enforcement of lender’s

rights where the lender has engaged in bad faith,

misconduct or the like. See Ramapo Bank v.

Bechtel, 224 N.J. Super. 191, 198 (App.Div.1988)

54a

(possibility of a concealed pre-transaction

agreement not to pursue a co-guarantor in the

event of default sufficient to overcome lender’s

motion for summary judgment).

....

Related to this obligation is the requirement that

a lender not “unjustifiably impair” any collateral.

N.J.S.A. 12A:3–606. See Langeveld v. L.R.Z.H.

Corporation, 74 N.J. 45, 50 (1977); Lenape State

Bank v. Winslow Corp., [216 N.J. Super. 115,

124–25 (App. Div. 1987)]. Equitable in nature and

characterized as “probably the most important

provision in the Code to the surety [or

guarantor],” the defense of impairment of

collateral is available to a guarantor just as much

as to the debtor. Langeveld, [] 74 N.J. at 51-52. No

less can be said for the defenses of lender bad faith

and misconduct.

[Id. at 496–97 (emphasis added).]

In Lomker, the lender sued the guarantor of a real

estate loan because the debtor defaulted. 277 N.J.

Super. at 493-95. The guarantor argued the lender

engaged in bad faith with respect to the collateral. Ibid.

The alleged bad faith consisted of the lender leaking

information to a potential buyer that the bank would

soon be foreclosing on the collateral property. Ibid.

That leak resulted in the sale not going through, but

the buyer ultimately purchased the collateral property

from the lender for a price below market value. Ibid.

55a

In Lomker, we reversed the trial court’s grant of

summary judgment on the guarantor’s claim that the

lender had violated the implied covenant of good faith

and fair dealing. We found no waiver of that claim had

occurred. We instructed there must be “unequivocal

language” in the contract to effectuate a valid waiver of

the defense of impairment of collateral, even when the

language of the guaranties gave “virtually unlimited

power to [the lender] to dispose of and deal with the

collateral.” Id. at 497-98. In this regard, we cited

Langeveld v. L.R.Z.H. Corp., 74 N.J. 45, 53-54 (1977),

for the proposition that the “right [to the defense of

impairment of collateral] does not originate in contract,

and [] cannot lightly be destroyed by contract.” Id. at

498.

Most importantly for purposes of the present case, we

extended our holding in Lomker regarding the

impairment-of-collateral defense to any defense of “bad

faith and other misconduct,” stating that “[i]n order to

waive those lender liability defenses, a guaranty must

do so expressly.” Ibid. (emphasis added). We noted “this

result logically flows from the maxim strictissimi juris

(according to strict law) that applies to guaranties. Max

v. Schlenger, 109 N.J.L. 298, 301 (E. & A. 1932).” We

added that “a guarantor cannot be held liable beyond

the strict terms of the guaranty.” Ibid. (citations

omitted).

Consistent with these principles, we held in Lomker

that the “conspiring” conduct and “‘inside’ dealing”

that culminated in the lender making “a better deal for

the same property” amounted to “wrongful and

56a

intentional conduct not waived by the language in the

guaranties.” Id. at 499. (emphasis added).

Hence, Lomker is clear precedent that, absent

express language, a guarantor does not waive the

implied covenant of good faith and fair dealing, even in

a case where a contract otherwise gives the lender

broad powers over the collateral. It also signifies the

provision of a loan in and of itself does not insulate a

lender from a claim of engaging in bad faith conduct

during the loan repayment period.

Here, the guaranty agreements we have quoted above

did grant Bock extensive power over the collateral, and

also expressly waived the defense of impairment of

collateral. Nevertheless, the agreements did not contain

language that expressly waived the implied covenant of

good faith and fair dealing. Also, the guaranty

agreements were not enforceable to the extent the

lender engaged in gross negligence or willful

misconduct.

Because the guaranties do not contain an express

waiver of the implied covenant, and because there are

material factual disputes as to whether Bock violated

the covenant, the trial court should not have granted

summary judgment on the guaranties. Nor should the

trial court have rejected, out of hand, defendants’

associated counterclaims, and denied the motion to

amplify them along with the related third-party

complaint.7

7

In this regard, we also permit defendants to pursue their

allied claims of tortious interference with prospective economic

57a

Bock cites Glenfed Financial Corp., Commercial

Finance Division v. Penick Corp. for the notion that a

lender has not violated the implied covenant when it

enforces its rights under a guaranty contract. 276 N.J.

Super. 163, 178- 79 (App. Div. 1994). Bock’s argument

overreads Glenfed, and elides our later holding in

Lomker.

In Glenfed, the defendant corporation experienced

severe financial distress and attempted to raise funds,

but the lender withheld its consent when asked to

forego protections contained in the guaranty contract.

Id. at 169-72. Ultimately, the corporation diverted

funds it was supposed to be holding to repay the loan;

the lender discovered this and accelerated the due date

of the loan. Ibid.

We held in Glenfed that the implied covenant of good

faith and fair dealing “may not be invoked by a

commercial debtor to preclude a creditor from

exercising its bargained-for rights under a loan

agreement.” Id. at 175. There is no breach of the

covenant “when a party simply stands on its rights to

require performance of a contract according to its

terms.” Id. at 176 (citations omitted).

However, Glenfed may be readily distinguished

because we found no evidence in that case of the

lender’s bad faith, lack of honesty, or personal malice,

“or that [the lender] was pursuing its own economic

interests unrelated to obtaining the repayment of the

advantage, which are based upon similar allegations of unfair

dealing.

58a

loan[.]” Id. at 178. But here, significantly, defendants

have presented some evidence—which they anticipate

developing through the completion of discovery—that

Bock pursued its own selfish economic interests

unrelated to repayment of the loan by acquiring the

Wheel, releasing security interests in obtaining the

collateral, and assuming obligations relating to

significant funding from the CRDA for the benefit of

Domeinac.

The record reflects, at least in its present incomplete

state, material factual disputes regarding whether Bock

violated the implied covenant. Viewing the present

record, as we must, in a light most favorable to

defendants, summary judgment should not have been

granted. Brill v. Guardian Life Ins. Co. of Am.,142 N.J.

520, 523 (1995).

At the very least, defendants should have been

afforded the opportunity to complete discovery that

could shed light on these transactions and activities,

including the depositions of Thomas Bock and other

material witnesses. R. 4:46-5. We are acutely mindful

that discovery has carried on for a long period of time.

Even so, we discern no imperative to deprive the

defense of the time to finish discovery that bears upon

its asserted justifications for non-payment, particularly

given the impact the COVID-19 pandemic has had on

the civil trial calendar overall.

For these reasons we vacate the trial court’s grant of

summary judgment and remand the matter for

continued discovery under the trial court’s supervision.

We also reverse the dismissal of defendants’

59a

counterclaims and the denial of leave to amend those

counterclaims and their third-party complaint. We do so

without prejudice to Bock’s ability to renew a motion

for summary judgment after discovery is finally

completed. Our restoration of the case should not be

viewed as any advisory opinion on whether defendants’

contentions will ultimately be substantiated.

All other arguments raised by the parties lack

sufficient merit to warrant discussion in this opinion. R.

2:11-3(e)(1)(E).

Vacated and remanded.