A recent North Carolina Business Court decision clarified how bankruptcy’s automatic stay affects ongoing multi-party lawsuits. In a dispute where Meridian Renewable Energy sued Birch Creek Development for unpaid consulting fees under contracts also involving Pine Gate Renewables, Pine Gate’s Chapter 11 bankruptcy filing triggered an automatic stay protecting only Pine Gate. Birch Creek argued this stay should halt the entire case, but the court ruled otherwise. Because the contracts imposed joint and several liability, Meridian could pursue Birch Creek independently for the full amount owed, and Birch Creek’s counterclaims against Meridian did not require Pine Gate’s involvement. Thus, claims between Meridian and Birch Creek proceeded, while claims involving Pine Gate were stayed.

The court also dismissed declaratory judgment claims concerning Pine Gate’s rights, as those issues could not be resolved without Pine Gate’s participation and were duplicative of breach of contract claims. This ruling underscores that while bankruptcy’s automatic stay is powerful, it only protects the debtor, not co-defendants or related parties unless extraordinary circumstances exist. Creditors can typically pursue non-bankrupt joint obligors without waiting for bankruptcy resolution, but if a lawsuit hinges on the debtor’s rights, the stay likely applies. Parties unsure about stay applicability should seek bankruptcy court guidance to avoid sanctions.