In A. H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986), an action against Robins, the manufacturer of the Dalkon Shield, was stayed by its bankruptcy filing. Plaintiffs sought to sever their action against Robins and proceed against codefendants who were entitled to indemnification from Robins. Id.
he Fourth Circuit Court of Appeals described the situation as one involving "unusual circumstances" which justified a stay of proceedings against the non-debtor codefendants. Id. at 999.
The court explained "unusual circumstances" exist 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." Id.
The court also explained 11 U.S.C. § 362(a)(3), see fn.1, stays any action against a debtor or third party to obtain possession or exercise control over property of the debtor. Piccinin, 788 F.2d at 1001.
The court said the debtor's insurance policies, which would be used to satisfy judgments against the non-debtor codefendants, were property of the estate and any action to diminish that property was subject to the automatic stay. Id.