Can the co-liability requirement under section 502(e)(1)(B) of the New York State Code of Civil Procedure be interpreted to limit to instances where both the debtor and the claimant have been found liable in the underlying lawsuit?

MultiRegion, United States of America

The following excerpt is from In re Wedtech Corp., 85 BR 285 (Bankr. S.D.N.Y. 1988):

Nor can the co-liability requirement be interpreted to limit the section only to instances where both the debtor and the claimant have been found liable in the underlying lawsuit. Indemnification, as opposed to the common law right of contribution, has no such requirement. Rogers v. Dorchester Associates, 32 N.Y.2d 553, 347 N.Y.S.2d 22, 31-32, 300 N.E.2d 403 (1973). More importantly, to interpret 502(e)(1)(B) as requiring that a debtor be found liable in the underlying lawsuit would render it practically meaningless in light of 362(a)'s automatic stay of actions to recover on pre-petition claims. Thus, the co-liability requirement is to be interpreted to require a finding that the causes of action in the underlying lawsuit assert claims upon which, if proven, the debtor could be liable but for the automatic stay. It is thus to examination of each of the various complaints that we now turn.

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