Payne v. U.S. Airways, No. S0596-02 CnC (Norton, J., July 20, 2005) 

[The text of this Vermont trial court opinion is unofficial. It has been 

reformatted from the original. The accuracy of the text and the 

accompanying data included in the Vermont trial court opinion database is 

not guaranteed.] 

STATE OF VERMONT SUPERIOR COURT 

Chittenden County, ss.: Docket No. S0596-02 CnC 

PAYNE 

v. 

U.S. AIRWAYS 

ENTRY 

 This case is about the scope of an automatic stay under the United 

States Bankruptcy Code for non-debtor parties. Plaintiff Kimberly Payne 

who has agreed to previous stays in this case has removed defendant U.S. 

Airways, the sole party in bankruptcy, in an attempt to jumpstart her stalled 

litigation. The remaining individual defendants move, nevertheless, to stay 

any further litigation because they claim that an indemnity issue unites their 

identity with debtor party, U.S. Airways. Thus, they argue, the automatic 

stay of 11 U.S.C. § 362 should be extended to them. 
 The general rule is that an automatic stay under 11 U.S.C. § 362 

applies only to the debtor and not to any co-defendants. A.H. Robins Co. v. 

Piccinin, 788 F.2d 994, 999 (4th Cir. 1986); see also Note, Expanding the 

Automatic Stay: Protecting Nondebtors in Single Asset Bankruptcies, 2 

Am. Bankr. Inst. L. Rev. 453, 457–58 (1994) (noting that chapters 12 and 

13, unlike chapter 11, have stay provisions that explicitly extend to nondebtor parties). There are two significant reasons behind this statutory 

provision. The primary purpose is to give the debtor “breathing room” and 

a chance to re-organize and consolidate the estate. Id. This avoids a form 

of death-by-a-thousand-cuts where creditors take the debtor apart piece by 

piece while the debtor is trying to put its fiscal house in order. J. Hargrove, 

Relief from Stay Compendium for State Court Judges, 27 Cal. Bnkr. J. 30, 

30 (2003). But, the other major purpose of § 362 is to protect creditors. By 

freezing access to the debtor’s estate, § 362 forces all creditors to get in line 

according to the rules of bankruptcy and the security of their interest. 

Algemene Bank Nederland, N.V. v. Hallwood Industries, Inc., 133 B.R. 

176, 179 (W.D.Pa. 1991); see also Seybolt v. Bio-Energy of Lincoln, Inc., 

38 B.R. 123, 127 (D.Mass. 1984) (granting stay where litigation would lead 

to inequality amongst same class of creditors to a debtor partnership). 

Neither of these policies implicate co-defendants. Thus, the chapter 11 

stays do not apply to them. 

 Because of the importance of these policies, courts apply an 

exception to § 362's limitations for “unusual circumstances” that require 

extending the automatic stay to non-debtor co-defendants. This is done 

primarily to preserve the function of § 362 by protecting the debtor’s estate 

from indirect attacks. As the Fourth Circuit Court of Appeals explained in 

the seminal Robins case, 
This ‘unusual situation,’ it would seem, arises when there is such 

identity between the debtor and the third-party defendant that the 

debtor may be said to be the real party defendant and that a 

judgment against the third-party defendant will in effect be a 

judgment or finding against the debtor. . . . To refuse application of 

the statutory stay in that case would defeat the very purpose and 

intent of the statute. 

Id. Many of the federal circuits and state courts have accepted the 

reasoning of Robins and its progeny, but this acceptance has not been 

universal or to the extent that Robins’ broad language might suggest. See, 

e.g., Credit Alliance Corp. v. Williams, 851 F.2d 119, 121 (4th Cir.1988) 

(reaffirming the general principle that § 362 stays only apply to debtors); 

Teachers Ins. Annuity Ass'n v. Butler, 803 F.2d 61, 65 (2d Cir.1986) (predating Robins but still regarded as a valid statement of the 2d Circuit’s 

position), cited by Superpumper, Inc. v. Nerland Oil, Inc., 620 N.W.2d 159, 

162–63 (N.D. 2000); see also Algemene Bank, 133 B.R. at 180 (criticizing 

and distinguishing Robins). Still, Robins has been generally recognized by 

the federal circuits, and state courts have applied its standard when 

considering motions by non-debtor co-defendants for stays. E.g., 

Superpumper, 620 N.W.2d at 163; but see In re Gruntz, 202 F.3d 1074, 

1082–83 (9th Cir. 2000) (noting that although the state courts may 

determine whether an exception to the automatic stay applies, such findings 

are subject to review by the bankruptcy court). 

 Before discussing the specific facts of Plaintiff’s case, it is worth 

noting how the “unusual circumstances” exception to § 362 functions. In 

Robins, a case involving a class action against manufacturers of the Dalkon 

Shield, the court extended § 362's stay to a non-debtor insurer, whose 

policies were nevertheless a large part of the debtor’s estate. Robbins, 788 

F.2d at 996, 999. Other cases have extended the exception to cover co-
defendant companies owned by the debtor (In re Neuman, 128 B.R. 333, 

336–37 (S.D.N.Y.1991)); spouses who share business assets (Marroquin v.. 

D & N Funding Inc., 943 S.W.2d 112, 115 (Tex.App.1997)); or parties that 

are “closely related” through intertwined relationships (Superpumper, 620 

N.W.2d at 163). See generally G. Ishii-Chang, Litigation and Bankruptcy: 

the Dilemma of the Codefendant Stay, 63 Am. Bankr. L.J. 257 (1989). 

 Despite the factual disparity and the varying approaches courts have 

taken, these cases have several unifying features that can be drawn out as 

consistent concepts involved int this type of stay. First, the cases have by 

and large involved significant portions of the debtor’s estate. This does not 

mean large sums of money but rather percentages, how much of the 

debtor’s estate is threatened by the action. E.g., In re Neuman, 128 B.R. at 

336–37. Second, the debtors and non-debtors have shared a close 

relationship, either as insurer–insured or director–corporation. E.g., 

Robbins, 778 F.2d at 996, 999. Mere employment with a bankrupt 

company has not been held in any of the cases as enough to create this type 

of “identity of interest.” Third and finally, the relationship has been one 

that was well-defined. Whether by contract or by law, these parties, debtor 

and non-debtor, were obligated to one another in a very specific and 

enforceable manner. E.g., Seybolt v. Bio-Energy of Lincoln, Inc., 38 B.R. 

123, 127–28 (D. Mass. 1984); see also P.Glassman, Third-party Injunctions 

in Partnership Bankruptcy Cases, 49 Bus. Law. 1081, 1089–90 (1994). 

Each of these three commonalities corresponds directly back to the dual 

policies of § 362 to shelter the debtor’s estate and to keep creditors from 

cutting in line. By focusing on these issues, a court can look not only to the 

language of § 362 and cases within the “unusual circumstances” exception 

but to the policies behind them. 
 Ms. Payne’s case is a civil rights case. She claims that the individual 

defendants, all employees of U.S. Airways and acting in that capacity, 

harassed her and drove her away from her job following her workers’ 

compensation claim. Ms. Payne originally brought her suit in 2002 but 

voluntarily stayed it for all defendants while U.S. Airways went through its 

first bankruptcy. This led to a partial settlement with U.S. Airways in 

accordance with the bankruptcy court. After U.S. Airways emerged from 

bankruptcy, Ms. Payne attempted to reignite her litigation, but U.S. 

Airways soon re-filed for chapter 11 bankruptcy. In response, Ms. Payne 

has dropped her claims against U.S. Airway and is attempting to kick-start 

her case against the individual defendant employees. 

 It is these co-defendants that now seek to retain the judicial inertia 

through a further extension of the § 362 stay. They base their claim for a 

stay on two grounds. The first is that U.S. Airways has promised to 

indemnify and cover all litigation expenses for the co-defendants. This 

promise does not come from any contract or pre-existing agreement but 

comes from an internal review that the company conducted where it 

determined that the co-defendants acted in the best interests of the company 

and in a manner that U.S. Airways believes did not violate Ms. Payne’s 

rights. As a result, U.S. Airways has promised through affidavits to 

indemnify and defend these individuals. The second ground that the codefendants argue is the employment relationship with debtor U.S. Airways 

is a close relationship triggering § 362's exception. Co-defendants note that 

all of Ms. Payne’s claims against them come from their alleged 

mistreatment of her in the workplace where they were also employed. They 

remain employed with U.S. Airways and argue that their liability stems not 

from their individual actions but their formal roles as supervisors and coworkers to Ms. Payne and is, thus, more about U.S. Airways. 
 Neither of these grounds meet the standard of an exception to § 362. 

To begin with the second ground, Ms. Payne has raised independent claims 

against the individual co-defendants that are separate from the debtor. As 

she notes, each of her claims have a factual and legal basis against the 

employee co-defendants separate and apart from U.S. Airways. These are 

claims based on their individual and personal actions. That these actions 

took place on the debtor’s premises while the co-defendants were in its 

employ is irrelevant. Since it has been removed as a party, U.S. Airways is 

not directly implicated by these claims and is not subject to liability as a 

joint tortfeasor. The co-defendants’ relationship to U.S. Airways can be 

separated from their actions, and the liability at issue here is not so 

intertwined as to raise serious questions of bringing the debtor back into the 

litigation. 

 As to the U.S. Airways’ indemnity agreement, this is too weak a 

connection to implicate the debtor’s estate. U.S. Airways’ promise does 

not represent a contractual obligation that directly threatens its assets. This 

obligation, while commendable, is entirely voluntary on U.S. Airways 

behalf and is a gratuitous promise that it made after entering into 

bankruptcy without any consideration. While U.S. Airways’ unequivocal 

nature in asserting this promise may create reliance and estoppel issues that 

the co-defendants could use to enforce it, this only obliges U.S. Airways to 

further litigation—from which it could have a legitimate § 362 stay—rather 

than any direct contractual connections. Cf. Robins, 788 F.2d at 996, 999 

(insurance company contractually obliged to indemnify and this policy, 

which plaintiffs sought was a substantial portion of debtor’s estate). A 

mere gratuitous promise to indemnify simply cannot support going beyond 

§ 362 extending the stay to non-debtors. 
 In a similar vein, the tenuous nature of Ms. Payne’s claim and the 

lack of any judgment make U.S. Airway’s dire predictions implausible. At 

this stage in the litigation, it is unclear what liability, if any, U.S. Airways 

actually faces. As little or no discovery has been conducted, it is 

impossible to see how viable Ms. Payne’s claims are. Certainly, U.S. 

Airways believes that Ms. Payne’s claims are less than credible as it is 

standing by its employees and promising to defend and indemnify them 

against any judgments. This is probably not from altruistic tendencies but a 

firm belief, based on evidence, that the co-defendants are not liable for the 

wrong Ms. Payne alleges. To stay litigation indefinitely, based on such 

speculative liability does not further this case or the bankruptcy 

reorganization. Algemene Bank, 133 B.R. at 180 (“If anything, allowance 

of judgment against Hallwood now might assist RAC’s reorganization by 

replacing the claims of Algemene, a clearly hostile creditor, with 

Hallwood’s claim for indemnification.”). 

 Under this argument, the co-defendants also claim that the promise 

to pay for the litigation is a drain on the U.S. Airways’ bankruptcy estate 

that must be stopped by a stay in the litigation. This argument fails on two 

points. First, the litigation expenses at this stage of the case are hardly a 

substantial drain on the debtor’s assets. U.S. Airways is a multi-billion 

dollar corporation. This litigation cannot represent even a minute, 

fractional percentage of that estate. As noted earlier, “unusual 

circumstances” almost always involve at lest a substantial percentage of the 

debtor’s estate. E.g., Neuman, 128 B.R. at 337 (debtor’s major assets were 

78% of the stock of non-debtor co-defendant its wholly-owned subsidiary). 

These expenses simply do not rise to that level or trigger any particular 

concerns about U.S. Airways’ assets. 
 More importantly, these litigation expenses should not be consider 

as the same type of threat that a judgment would be to the debtor’s assets. 

These are ultimately business expenses, obligations that the debtor has 

taken on in the course of business. In this case, U.S. Airways is paying to 

protect what it considers good employees from work-related liabilities. 

While a judgment in this case may be an obligation against its asset, the 

litigation expenses are an on-going benefit to its employees. Looking at 

these litigation expenses otherwise leads to the illogical conclusion that 

U.S. Airways’ health insurance premiums and worker-safety equipment 

should also be subject to the same type of stay as these litigation expenses. 

Naturally, such business expenses are not subject to a stay as they are the 

costs that U.S. Airways must incur to keep its planes in the air and its 

employees happy. As the purpose of § 362 and its exception do not apply 

to such business expenses—costs that keep revenue coming into the 

company—it cannot extend a stay to non-debtors for similar expenses. By 

extension, it does not create the type of intimate relationship that touches 

and concerns the policies of § 362. Therefore, extending a stay to codefendants under § 362 would be inappropriate. 

 It is the general conclusion of this court that a § 362 stay would be 

inappropriate given the lack of any intimate relationship between U.S. 

Airways and the co-defendants that would qualify as an “unusual 

circumstance” under Robins. The employment and voluntary indemnity 

relationships as well as Ms. Payne’s renewed litigation against codefendants does not trigger any of the concerns behind § 362. U.S. 

Airways’ bankruptcy estate is simply not threatened by this litigation at this 

time. 
 It is also entirely possible that the situation may change with further 

discovery and litigation. Yet, it is fair to say that this court’s primary 

concern is with the litigation of Ms. Payne’s claims and not the rules of 

bankruptcy or U.S. Airway’s chapter 11 filings. While the court has the 

power to make such determinations, it is really the purview of the 

bankruptcy court, which also has the final say about the extent and scope of 

a § 362 stay or any other stay under the bankruptcy code. In re Gruntz, 202 

F.3d at 1082–83. Under that court’s plenary power, it can also assess other 

potential grounds for a stay under § 105 of the bankruptcy code and the 

parties’ equitable positions. Furthermore, it has the resources and 

information about the debtor’s assets and liabilities to make a better 

assessment. 

 Co-defendants acknowledge that their questions are more properly 

raised in a bankruptcy court. They have asked in the alternative to granting 

a § 362 stay that this court grant at least a temporary stay so that they can 

apply to the bankruptcy court The court declines such a request. There is 

no reason evident through this court’s admittedly limited knowledge of 

bankruptcy law to understand how co-defendants are eligible for the limited 

stays under chapter 11. Co-defendants are welcome to make such an 

appeal, but it would be improper to grant temporary stay for what may be 

either a fool’s or a knight’s errand. 

 Based on the foregoing, Defendants’ Motion to Stay is Denied. 

 Dated at Burlington, Vermont________________, 2005.