Extending Automatic Stay to Non-Debtors

A bankruptcy lawyer’s overview for automatic stay for non-bankrupt parties


Bankruptcy courts have the authority to extend the automatic stay to non-bankrupt parties, under limited circumstances. Bankr.Code, 11 U.S.C.A. §§ 105(a), 362(a).  Section 105 (a) of the Bankruptcy Code states as follows:  “The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.   No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.” Procedurally, non-debtor parties may seek injunctive relief based on the court’s broad equitable powers under Section 105(a) of the Bankruptcy Code; however, these powers are not without limits.

Courts have typically considered the following four factors in determining whether to grant or deny a motion for preliminary injunction:  (1) the likelihood that movant will eventually prevail on the merits:  (2) whether the injunction will save the movant from irreparable injury; (3) whether the injunction would harm others; and (4) whether the public interest would be served by the injunction.  Unsecured Creditors’ Comm. v. DeLorean (In re DeLorean Motor Co.), 755 F.2d 1223, 1228 (6th Cir.1985).   Typically, courts have balanced the four aforementioned factors considered for the issuance of injunctions. There is authority to support the conclusion that irreparable harm to the plaintiff and harm to the defendant are the two most important components of this analysis.  Rum Creek Coal Sales, Inc. v. Caperton, 926 F.2d 353 (4th Cir.1991).

Essentially, however, it is incumbent upon the non-bankrupt party to establish that there is a unity of interest with a debtor so that the reorganization efforts of the debtor would be irreparably harmed by the continuation of the litigation. A.H. Robins Co., Inc. v. Piccinin (In re A.H. Robins Co., Inc.), 788 F.2d 994, 999 (4th Cir.1986), cert. denied 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986); Glassman v. Electronic Theatre Restaurants Corp. (In re Electronic Theatre Restaurants Corp.), 53 B.R. 458, 462 (D.N.D.Oh.1985); Ochs v. Lipson, et al. (In re First Central Financial Corp.), 238 B.R. 9, 19 (Bankr.E.D.N.Y.1999); American Imaging Services, Inc. v. Eagle–Picher Industries, Inc. (In re Eagle–Picher Industries, Inc.), 963 F.2d 855, 859–860 (6th Cir.1992); El Puerto de Liverpool S.A. de C.V. v. Servi Mundo Llantero, U.S.A., Inc. et al. (In re Kmart Corp.), 285 B.R. 679, 688 (Bankr.N.D.Ill.2002); Otero Mills, Inc. v. Security Bank & Trust (In re Otero Mills, Inc.), 25 B.R. 1018, 1021–1022 (D.N.M.1982). The Sixth Circuit continues to reaffirm the four aforementioned factors, Southern Milk Sales, Inc. v. Martin, et al., 924 F.2d 98 (6th Cir.1991)Friendship Materials, Inc. v. Michigan Brick, Inc., 679 F.2d 100, 102 (6th Cir.1982), and Dean Witter Reynolds, Inc. v. M.C. McCoy, et al., 995 F.2d 649 (6th Cir.1993).


By: Jamie L. Harris, Esq.


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