On March 31, 2025, Justice Chan of the New York County Commercial Division issued a decision in Ragab v. SHR Capital Partners LLC, 2025 NY Slip Op. 31157(U), holding that the bankruptcy stay does not bar proceedings against non-debtor defendants, explaining:
[U]nder federal bankruptcy law, an automatic applies only to the debtor entity and does not extend to non-debtor defendants. Thus, as a general rule, the filing of a bankruptcy petition by one defendant stays the action only as to that defendant, not the others. For this reason, bankruptcy stays typically do
not prevent a plaintiff from proceeding on causes of action against nonbankrupt Individual defendants, which do not involve the bankrupt’s property. Here, the bankruptcy stay applies only to SHR and does not extend to the individual defendants, who are not debtors in the bankruptcy proceeding. Because plaintiffs’ claims against the individual defendants do not involve SHR’s property or seek to impose liability on the debtor, the stay does not bar the proposed amendments.To avoid this conclusion, the individual defendants heavily rely on the Bankruptcy Court’s decision in Kirschenbaum v Fed Ins. Co., 505 BR 126 [EDNY 2014] as support. Such reliance is misplaced. In Kirschenbaum, the Bankruptcy Court granted limited relief from the automatic stay, allowing creditors to pursue default judgments and inquests against the debtor, EMS Financial Services, LLC. However, when a defendant in a related adversary proceeding sought to amend its answer to assert cross-claims seeking a determination of EMS’s liability, the District Court denied the request finding it would improperly circumvent the stay. Critically, however, Kirschenbaum involved claims asserted directly against the bankruptcy debtor. Here, by contrast, the proposed SAC asserts claims that are solely against the non-debtor individual defendants. Accordingly, there is no basis to conclude that plaintiffs’ claims for breach of fiduciary duties are barred by the SHR bankruptcy stay.
(Internal citations omitted).