Summary:
The Business Court addressed what happens when one party in multi-party commercial litigation files bankruptcy — here, Pine Gate Renewables’ Chapter 11 filing — while litigation continues between the remaining parties.
Judge Houston held:
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Claims against Pine Gate are stayed under §362.
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The stay does not extend to Meridian’s contract and tort claims against Birch Creek.
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The competing declaratory judgment claims are dismissed without prejudice, because deciding them would necessarily involve determining Pine Gate’s contractual rights while Pine Gate is frozen in bankruptcy.
Everything else proceeds.
Commentary:
This opinion is yet another reminder that the automatic stay is powerful — but it isn’t contagious.
§362 protects the debtor — not everyone standing near the debtor
North Carolina courts continue to follow the rule that unless there are extraordinary circumstances, the stay applies only to the debtor, not co-defendants trying to enjoy a free litigation vacation.
Birch Creek’s argument that everything should grind to a halt failed for the same familiar reason: joint obligors remain jointly liable, and North Carolina law expressly allows the plaintiff to proceed against one.
Why dismiss the declaratory judgment claims?
Because those claims weren’t really narrow clarifications — they were invitations to declare everyone’s rights under multi-party agreements, including Pine Gate’s. Issuing sweeping declarations while Pine Gate is barred from defending itself would risk prejudicing the debtor and potentially interfering with the administration of the bankruptcy estate.
So the Court wisely declined to play advisory bankruptcy court.
Where Chapter 11 complicates things more than people expect:
It’s especially important to read this opinion in light of the Supreme Court’s recent decision in the Purdue Pharma case.
There, SCOTUS made clear that bankruptcy courts cannot impose broad, non-consensual third-party releases that permanently protect non-debtors simply because a debtor filed a plan.
But — and this is where practitioners must be careful —
Chapter 11 plans can STILL contain negotiated provisions that, in practice, insulate or benefit third parties — especially if creditors consent or receive consideration.
Indemnification provisions, channeling injunctions tied to specific settlements, and claims procedures can all functionally limit litigation rights even if they don’t look like Purdue-style releases.
Translation:
If Pine Gate’s Chapter 11 plan ultimately includes provisions affecting litigation involving Birch Creek, Meridian, or the joint venture structure, those plan terms may later change the playing field.
That means:
💡 Reviewing the actual Chapter 11 plan — not merely relying on §362 — becomes critical.
Contrast: Chapter 13 is very different — and much stronger for co-debtors
This opinion also highlights something consumer bankruptcy lawyers already know:
The Bankruptcy Code can give far more protection to co-debtors in Chapter 13 than in Chapter 11.
Under 11 U.S.C. §1301, the automatic codebtor stay prevents creditors from pursuing a co-signer on a consumer debt while the Chapter 13 is pending — unless the bankruptcy court grants relief.
So whereas Birch Creek got no shelter from Pine Gate’s Chapter 11 filing:
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A mom who co-signed her son’s car note,
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A spouse on a joint credit card,
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A parent who co-signed student-style consumer financing,
would generally enjoy protection in a Chapter 13 filed by the primary debtor until the court says otherwise.
In other words:
✔ Chapter 11 → debtor-focused stay, limited extension to others
✔ Chapter 13 → explicit statutory shield for consumer co-debtors
The takeaway:
The Business Court struck the right balance:
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Protect the debtor where federal law requires,
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Keep commercial litigation moving otherwise,
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Avoid issuing declarations that might accidentally step on the bankruptcy court’s turf,
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And quietly remind practitioners that bankruptcy strategy doesn’t stop at the automatic stay — it runs through the plan.
And for consumer practitioners, the comparison underscores that Chapter 13 contains protections that simply don’t exist in commercial Chapter 11 practice.
To read a copy of the transcript, please see:
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