Granting a Stay for Non-Debtors

(Excerpt) Under section 362 of title 11 of the United States Code (the "Bankruptcy Code"), the filing of a bankruptcy petition results in an automatic stay of actions against a debtor or its assets. While the automatic stay is primarily for the benefit of the debtor, courts have generally extended the stay to non-debtors. However, the Supreme Court disrupted this principle in Purdue by interpreting that the Bankruptcy Code does not authorize a release that effectively discharges a non-debtor’s obligations. Since then, courts have generally interpreted Purdue narrowly to avoid eliminating the ability to grant a stay for non-debtors. This article examines the court’s ability, in the aftermath of Purdue, to grant a non-debtor stay. Part I elaborates on the automatic stay and how courts have applied it to non-debtors. Part II discusses the standard a court applies to grant a preliminary injunction. Part III describes the facts and history of Purdue and the reasoning behind the Supreme Court’s holding. Part IV examines various post-Purdue decisions and how the bankruptcy courts have granted non-debtor stays when the timeframe for the relief is temporary.