Current Month (October 2025)
Recent Decisions Regarding the Automatic Stay, Nondischargeability, and Appealability of Bankruptcy Orders
By Rose Dreizen, Columbia Law School
This piece is part of a series of summaries of the leading cases decided in the last year on bankruptcy.
The following three cases address important procedural and substantive issues in bankruptcy law, including the automatic stay, the standard for nondischargeability of debts, and the appealability of bankruptcy court orders. Two of the cases were decided by the United States Court of Appeals for the Ninth Circuit or its Bankruptcy Appellate Panel (“BAP”). In Intl. Petroleum Products, the Ninth Circuit held that (1) a later reversal of a denial of recognition does not retroactively trigger the stay under 11 U.S.C. § 1520 to the date when the petition for recognition was denied, and (2) the automatic stay, once triggered, does not encompass a creditor’s alter ego claim against a foreign debtor’s sole owners. In In re Rosario, the BAP for the Ninth Circuit affirmed the bankruptcy court’s dismissal of the appellant’s complaint without leave to amend, holding that vicarious liability could not, as a matter of law, constitute willful and malicious injury by the debtors under § 523(a)(6). The third case, decided by the BAP for the Eighth Circuit, held that bankruptcy court orders regarding the employment of professionals are not final orders under 28 U.S.C. § 158(a)(1).
Intl. Petroleum Prods. & Additives Co. v. Black Gold S.A.R.L., 115 F.4th 1202 (9th Cir. 2024)
Statute/Issue: 11 U.S.C. § 1520
After the plaintiff won a $1 million arbitration award against the debtor, a limited liability company headquartered in the Principality of Monaco, it initiated discovery of assets. Those efforts were halted when the debtor filed for bankruptcy in Monaco and petitioned the U.S. Bankruptcy Court for the Northern District of California for recognition of the Monaco proceedings under Chapter 15 of the Bankruptcy Code. The court provisionally stayed all ongoing actions against the debtor, including the plaintiff’s enforcement efforts, pending resolution of the Chapter 15 petition.
On March 15, 2021, the bankruptcy court denied the petition, finding it was a “sham” designed to prevent the plaintiff (“IPAC”) from collecting its arbitration award. The debtor appealed to the BAP for the Ninth Circuit, but neither the debtor nor Lorenzo Napoleoni, who was the CEO and 50 percent shareholder, moved for a stay of the denial pending appeal. As a result, the provisional stay was lifted, and the plaintiff resumed collection efforts in the district court.
The plaintiff then moved to add Napoleoni and his wife as judgment debtors under an alter ego theory. The district court ultimately found that the Napoleonis were the debtors’ alter ego under both California and Monaco law and added them to the final judgment. This debtor appealed.
While the appeal was pending, the BAP reversed the bankruptcy court’s order and found that the Chapter 15 petition should have been granted. Although the BAP agreed the insolvency proceedings were a “sham,” it concluded that recognition should be given if the petition meets the statutory threshold and is not manifestly contrary to U.S. public policy. The plaintiff did not appeal the BAP’s decision, so it became final and triggered the automatic stay by granting the debtor’s Chapter 15 petition for recognition.
The Napoleonis then moved the Ninth Circuit to remand the case to district court, but they were denied leave to do so unless they argued the automatic stay extended to the plaintiff’s alter ego claim. They failed to make that argument and instead claimed that the plaintiff’s alter ego claim was subject to the automatic bankruptcy stay, an argument the district court ultimately rejected. The Napoleonis appealed to the Ninth Circuit.
The Ninth Circuit resolved two issues under 11 U.S.C. § 1520: (1) when the automatic stay begins, and (2) what actions it covers and whom it protects. The Ninth Circuit affirmed the district court’s judgment, holding that (1) a later reversal of a denial of recognition does not retroactively trigger the stay under Section 1520 to the date when the petition for recognition was denied, and (2) the automatic stay, once triggered, does not “encompass a creditor’s garden-variety alter ego claim against the foreign debtor’s sole owners.”
In re Western Robidoux, Inc., 663 B.R. 731 (B.A.P. 8th Cir. 2024)
Statute/Issue: 28 U.S.C. § 158(a)(1)
After filing for Chapter 11 bankruptcy, the debtor and members of the family who operated it sought approval to employ attorney Daniel Blegen and his former firm as special counsel under Section 327(e), given their prior representation in federal litigation. The application was opposed by the appellants (entities controlled by another family member) but approved by the bankruptcy court. The debtor largely prevailed in the federal litigation; the appellants appealed, and the debtor filed a cross-appeal.
After Blegen joined a new firm, Spencer Fane LLP, the debtor filed an application with the bankruptcy court to employ him, along with Spencer Fane, as special counsel to defend the judgment on appeal. The court approved the application. The case was later converted to Chapter 7, and a trustee was appointed. The trustee confirmed with the court that Blegen could continue his employment, which received no objections. Later, the trustee filed an amended application to employ Spencer Fane, as it was unclear whether the prior orders authorizing the employment of special counsel allowed the firm to represent the bankruptcy estate in all appeals related to the federal litigation. The court granted the amended application over the appellant’s objections because the bankruptcy estate’s interests aligned with those of the family, and the alleged conflicts raised by the appellants were based on conjecture. The appellants appealed.
The BAP for the Eighth Circuit has jurisdiction over appeals from final judgments, orders, and decrees, as well as from certain interlocutory orders, with the court’s leave. When determining whether a bankruptcy order is final, the appellate court must consider whether it conclusively resolves a discrete segment of the bankruptcy proceeding that is a relevant unit of the proceeding. The Eighth Circuit had never expressly ruled on whether bankruptcy orders regarding the employment of professionals were final for an appeal. The court found that the court order approving the employment of Spencer Fane as special counsel did not resolve a discrete segment of the bankruptcy proceeding and was therefore not a final order under 28 U.S.C. § 158(a)(1), leading the court to dismiss the case for lack of jurisdiction.
The BAP provided three reasons: (1) the bankruptcy court retained ongoing oversight of Spencer Fane’s employment, meaning the order did not resolve a discrete segment of the case; (2) deferring appellate review would not prevent effective relief and would reduce piecemeal litigation; and (3) a reversal on the issue of Spencer Fane’s employment would not require recommencement of either the bankruptcy case or the federal litigation. For these reasons, the appeal was dismissed.
In re Rosario, B.A.P. No. CC-24-1163-SGL (B.A.P. 9th Cir. May 2, 2025)
Statute/Issue: 11 U.S.C. § 523(a)(6)
In state court, the appellant, a minor, sued a minor and his parents for battery and intentional infliction of emotional distress. The appellant alleged that while he was a thirteen-year-old-student, after he got up from his seat to turn in his homework, another student “positioned a pen on the seat of his chair such that he sat on the pen when he returned to his desk and suffered bodily injury and severe emotional distress as a result.” The appellant obtained a default judgment, which was silent on the basis of the parents’ liability. After the parents (the debtors) filed for Chapter 7 bankruptcy, the appellant filed a nondischargeability complaint to except this judgment debt from discharge under 11 U.S.C. § 523(a)(6). The appellant argued that the debt was based on the debtor’s vicarious liability for their child’s willful and malicious conduct. The debtors moved to dismiss the nondischargeability complaint, arguing § 523(a)(6) did not apply because the appellant “failed to allege that the debtors themselves committed any tortious conduct or acted willfully and maliciously within the meaning of the statute.” Appellants opposed the dismissal motion.
The bankruptcy court dismissed the appellant’s complaint without leave to amend, holding that vicarious liability could not, as a matter of law, constitute willful and malicious injury by the debtors under § 523(a)(6).
On appeal, the BAP of the Ninth Circuit affirmed. It addressed whether § 523(a)(6) covers debts arising from the tortious conduct of another for which the debtor is vicariously liable.
The appellant relied on Bartenwerfer v. Buckley, 598 U.S. 69 (2023), to argue that a debtor’s vicarious liability under state law for another’s misconduct is treated as establishing their misconduct for purposes of excepting all the resulting debts from discharge under § 523(a)(6). However, the court found that Bartenwerfer’s statutory analysis reflects that a creditor must prove that its claim arises from willful and malicious actions by the debtor to except a debt from discharge under § 523(a)(6), and here the debtor’s child and not the debtors themselves committed the tortious acts giving rise to liability.
The appellant also relied on Impulsora Del Territorio Sur, S.A. v. Cecchini (In re Cecchini), 780 F.2d 1440 (9th Cir. 1986), but the court found this argument unconvincing since “Bartenwerfer’s emphasis on the presence or absence of the phrase ‘by the debtor’ seem[ed] to preclude Cecchini’s holding applying § 523(a)(6) to except from discharge the vicarious liability of an innocent partner for another partner’s intentional tort other than fraud.” Finally, the BAP held that neither the nondischargeability complaint nor the state court default judgment supported the claim that the state court “conclusively determined for issue preclusion purposes that debtors were directly liable for battery and intentional infliction of emotional distress.”
