## Facts

- SAS Overseas Consultants and Asia Trading & Contracting, Ltd. (SAS-ATAC) entered into a September 12, 1996 agreement with Offshore Consultants U.S.A., Ltd. (Offshore).
- SAS-ATAC sued Offshore in federal district court for breach of contract and damages.
- Offshore later sought Chapter 11 bankruptcy relief.
- The district court stayed SAS-ATAC’s contract action against Offshore pending resolution of the bankruptcy proceeding.
- About two weeks after Offshore’s bankruptcy filing, SAS-ATAC filed a separate federal action against Michael Benoit, Offshore’s president and controlling shareholder.
- In the Benoit suit, SAS-ATAC alleged (among other theories) that Benoit was Offshore’s alter ego and asked the court to pierce the corporate veil to hold Benoit personally liable for Offshore’s contractual obligations.
- Benoit moved to stay the action against him while Offshore’s Chapter 11 case proceeded.

## Issues

1. Whether the district court should stay an action against a nondebtor corporate officer/shareholder, where the debtor corporation is in Chapter 11 and the plaintiff alleges the officer is the debtor’s alter ego and seeks veil-piercing liability.
2. Whether the relationship between the debtor corporation and the nondebtor officer showed the kind of “unusual circumstances” or identity of interests that warrants extending bankruptcy-related stay protection to the nondebtor.

## Decision

- The court denied Benoit’s motion to stay.
- The action against Benoit was allowed to proceed notwithstanding Offshore’s pending Chapter 11 case.
- The court declined to extend bankruptcy-related stay protection to Benoit on the record presented.

## Legal Principles

- The automatic stay under 11 U.S.C. § 362(a) generally applies to actions against the bankruptcy debtor, not to suits against nondebtors such as officers, directors, or shareholders.
- A court may, in limited situations, restrain litigation against a nondebtor to protect the bankruptcy process (including through equitable authority associated with the bankruptcy case), but the party seeking such relief bears the burden of showing special circumstances.
- Allegations that a nondebtor is the debtor’s alter ego and should be liable under a veil-piercing theory do not, by themselves, make the nondebtor interchangeable with the debtor for purposes of stopping the litigation.
- When a plaintiff asserts personal liability theories against a nondebtor insider, the suit is not automatically treated as an end-run around the debtor’s bankruptcy; absent a concrete showing of harm to the bankruptcy case, the federal court may proceed with the nondebtor action.

## Conclusion

In *SAS Overseas Consultants and Asia Contracting, Ltd. v. Benoit*, the district court refused to stay a veil-piercing and alter-ego suit against the debtor corporation’s president and controlling shareholder, holding that Offshore’s Chapter 11 filing and the stay of the contract action against Offshore did not justify halting SAS-ATAC’s separate claims against the nondebtor officer on the showing made.


SAS Overseas Consultants and Asia Contracting, Ltd. v. Benoit, 2000 WL 140611 (2000)