The automatic stay is arguably the most important protection the Bankruptcy Code provides a debtor. Sophisticated creditors know that actions taken in violation of the stay can result in serious judicial sanctions. Most creditors are aware of the obvious stay violations such as trying to collect on a pre-petition debt, repossessing a debtor’s property and executing on a judgement against a debtor. But some creditors may not realize that interfering with a debtor’s external business relationships can also violate the automatic stay, a nuance that a recent Delaware bankruptcy court decision highlighted. In re Extraction Oil & Gas, Case No. 20-11548 (CSS) (Bankr. D. Del. 2020) (Docket No. 1250).demonstrates this nuance in the enforcement of the automatic stay.
The Extraction decision involved the bankruptcy of an “upstream” energy provider, which produced hydrocarbons (i.e., oil and gas) from land in Colorado. As a part of their operations, the debtors contracted with “midstream” service providers—in this instance, pipeline companies—which transport the debtors’ product to larger “downstream” pipelines for further processing and sale. The debtors were parties to certain transportation services agreements with a midstream pipeline operator, Platte River. Under those agreements, the debtors were required to ship a minimum amount of product from a “dedication area” of certain production sites using Platte River’s pipelines or pay a cash settlement if they failed to do so.
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