## Facts

- The Singer Company N.V. and affiliates, including Singer B.V. and Singer do Brasil Indústria e Comércio Ltda. (Singer Brasil), filed Chapter 11 petitions in September 1999.
- Singer Germany previously transferred specialized needle-making equipment and a needle design to Singer Brasil; Singer Brasil manufactured the needle for years and Dyno Corporation (Dyno) distributed it in the United States.
- Groz Beckert KG (Groz) later acquired certain Singer Germany assets, including a U.S. patent covering the needle.
- During the Chapter 11 cases and before the plan effective date, Groz filed a patent infringement action against Dyno seeking to stop Dyno’s sales of the needles.
- Groz did not sue Singer Brasil (the manufacturer and a debtor), and the requested relief in the infringement action ran against Dyno.
- The bankruptcy court confirmed the joint plan in August 2000; the plan provided that the automatic stay would remain in effect until the effective date in September 2000.
- Singer B.V. and Singer Brasil commenced an adversary proceeding seeking declaratory relief that Groz’s infringement action violated the automatic stay, and the matter was presented on cross-motions for summary judgment.

## Issues

1. Whether 11 U.S.C. § 362(a) stays a patent infringement action against a nondebtor distributor when the allegedly infringing product is manufactured by a debtor and the suit may impair the debtor’s sales.
2. Whether suing the distributor only is, in substance, an action “against the debtor” or an act to “exercise control” over property of the estate under § 362(a)(1)–(3).
3. Whether plan language continuing the stay until the plan’s effective date changes the analysis of the stay’s substantive scope.

## Decision

- The court held that § 362 did not bar Groz from prosecuting the patent infringement action against Dyno.
- The court concluded the Dyno litigation was not an action “against the debtor” and did not seek possession or control of estate property within § 362(a)(1)–(3).
- The court rejected the argument that indirect economic harm to the debtor or pressure on the debtor’s business converts third-party litigation into a stayed action.
- The court determined the plan’s continuation of the stay until the effective date affected duration only and did not expand the stay’s substantive reach.
- The court denied the debtors’ requested declaration of a stay violation and granted summary judgment for Groz on the stay question, permitting the nonbankruptcy litigation to proceed.

## Legal Principles

- The automatic stay generally applies to proceedings against the debtor and acts against property of the estate; it does not automatically extend to suits against nondebtors.
- An indirect economic impact on a debtor from litigation against a customer, distributor, or other third party is insufficient, without more, to trigger § 362(a).
- Litigation against a nondebtor may be restrained only in limited circumstances where there is a strong identity of interests or other exceptional conditions; ordinary commercial interdependence does not qualify.
- An “exercise of control” over estate property under § 362(a)(3) requires a direct attempt to obtain, possess, or control estate property, not merely a downstream restriction on a nondebtor’s sales.
- Plan provisions can extend the time period during which the automatic stay remains in place, but they do not expand the statutory categories of conduct covered by § 362(a).

## Conclusion

The court held that a patent infringement suit against a nondebtor distributor was not stayed under § 362 merely because the distributor sold a debtor-manufactured product and the litigation could reduce the debtor’s revenues; the stay’s scope turned on whether the action targeted the debtor or estate property, not on indirect commercial consequences.


In re Singer Co., N.V., 262 B.R. 257 (Bankr. S.D.N.Y. 2001)