Does the Employer’s Bankruptcy Apply to the Employee?

If a commercial vehicle is in an accident and the company is later sued along with its employee-driver, but the company then files bankruptcy, can discovery still be pursued against the driver?  It is actually a scenario I encountered and I argued the stay against the company applied equally to the driver.

The Ninth Circuit considered a somewhat similar situation in Boucher v. Shaw and stated generally “the automatic stay protects only the debtor, property of the debtor or property of the estate.”[1]  There is an exception when the plaintiff’s claim is “being used as an alternative route to recoup property of the estate … such that it would be swept into the bankruptcy court’s jurisdiction under 28 U.S.C. § 1334(b).”[2]  Boucher concluded the stay did not extend to certain non-debtors.

Neither party has alleged that the estate would be diminished by any judgment in favor of the plaintiff, nor is there any indication in the record that the [bankrupt defendants] would be required to indemnify the individual managers for legal expenses or any judgment against them in this case.  However, if the liability of the non-debtor party were to affect the property of the bankruptcy estate, such as by a requirement that the debtor indemnify the non-debtor or by payment of the liability from a director’s and officer’s insurance policy, it may be necessary for the plaintiff in such a case to proceed against the non-debtor party through bankruptcy proceedings.[3]

Applied to my clients, there was no dispute the driver was within the course and scope of his employment with the company when the accident happened.  Consequently, if the driver was found negligent, NRS 41.130 passes the liability for satisfying that judgment to his employer.  So I argued the company’s bankruptcy stay also applied to the driver and prevented discovery against him. Maybe that’s right, maybe its not, but I’d rather not have a bankruptcy judge sanctioning me for breaching an automatic stay.

[1] 572 F.3d 1087, 1092 (9th Cir. 2009).
[2] Id. at 1093.
[3] Id.