MEMORANDUM OPINION AND ORDER

KIMBA M. WOOD, District Judge.

This case is before this court on appeal from a decision of the Hon. Prudence B. Abram of the United States Bankruptcy Court for the Southern District of New York. Appellants Morris Ehrlich, Preston Leschins and Irving Baum appeal a November 28, 1989 order of the Bankruptcy Court enjoining them from interfering with the implementation of an order approving the compromise and settlement of claims between the trustee and the debtor in In re: Carl H. Neuman, d/b/a/ Lydia E. Hall, Syosset Hospital and Long Island Food Company, holding them in contempt of court and imposing a fine of $1500.00 on attorney Leschins and litigant Baum, for violating the automatic stay imposed by Section 362 (a) of the Bankruptcy Code. Given that a Settlement between the debtor and trustee was effected on January 9, 1990, the only issues on appeal are the correctness of the order of contempt and the imposition of the $1,500 fine.

The District Court has jurisdiction to hear and determine the issues presented on this bankruptcy appeal by virtue of 28 U.S.C. § 158 (a) and 1334. A district court's appellate review of a bankruptcy court decision is governed by Fed.R.Bankr. 8013. A bankruptcy judge's conclusions of law are subject to de novo review and findings of fact shall not be set aside unless clearly erroneous.

FACTS

On December 11, 1984, Carl H. Neuman (debtor) filed a petition under Chapter 11. On March 18, 1986, James L. Garrity was appointed Chapter 11 Trustee. Various adversary proceedings were commenced, and after much litigation and antagonism, the attorneys for the trustee and the debtor negotiated a settlement agreement. In July 1989, Judge Abram heard testimony and argument on the application for approval of the proposed settlement. Among others, Mr. Ehrlich, a creditor, appeared and argued against the settlement. He argued primarily that the transaction was not favorable to the shareholders of the Sarah R. Neuman Foundation ("Foundation") and Continued Care Facilities ("CCF"). Mr. Baum, also a creditor, did not offer any opposition to the settlement. The settlement was approved by Judge Abram from the bench on July 21, 1989.

On August 14, 1989, before Judge Abram had signed an order approving the settlement, Irving Baum by his attorney Preston Leschins commenced a shareholder's derivative action in the Supreme Court of the State of New York, County of New York against CCF, Foundation, Rebco Insurance Exchange Limited ("Rebco") and Carl Neuman and Loretta Neuman. The complaint alleged numerous improprieties in the conduction of the corporate affairs of CCF and Rebco, and the failure of Carl Neuman and Loretta Neuman to fulfill the duties incumbent upon them as officers and directors of the corporations. It further stated that in the event Carl Neuman is permitted to continue to represent Foundation, Rebco and CCF and consummate the proposed settlement agreement, the shareholders of these corporations will be seriously and irreparably damaged. The complaint thus demanded that Carl Neuman and Loretta Neuman be removed as officers and directors of CCF, Foundation and Rebco, that Carl Neuman, Foundation, Rebco and CCF be enjoined from consummating the agreement with the Chapter 11 Trustee, that Carl Neuman and Loretta Neuman be enjoined from holding any office or directorship in CCF, Foundation and Rebco, that Loretta Neuman, Michael Goldberg and/or Carl Neuman individually and/or as trustees be enjoined from voting the stock of CCF at any meeting of CCF shareholders on their behalf or that of the trust beneficiaries, or from soliciting CCF shareholders rights to vote at any meeting of shareholders, and finally, that the court order a meeting of CCF shareholders for the purpose of electing a new board of directors and officers.

Simultaneous with the commencement of the state court action, Baum submitted an Order to Show Cause to the New York State Supreme Court requesting essentially the same relief as stated in the complaint. In response, Justice Santella ordered that CCF be enjoined and stayed from disposing of any CCF assets except in the normal course of business or pursuant to a direction of a court of competent jurisdiction, pending determination of the motion. The pending Bankruptcy Proceeding was mentioned in both the complaint and the affidavit in support of the order to show cause.

Subsequently, on August 17, 1989, Carl Neuman presented an order to show cause with a temporary restraining order to Judge Abram requesting that the court hold Morris Ehrlich and Irving Baum in contempt for violating the automatic stay provisions of Section 362 (a), awarding Carl Neuman actual damages including costs, attorney's fees and punitive damages, directing that Foundation has full authority to proceed with the settlement agreement notwithstanding the order of the state court, and enjoining Morris Ehrlich and Irving Baum and any one acting on their behalf from taking any action which would impede implementation of the Settlement Agreement.

The court granted the temporary relief on August 17, and held hearings on August 17, September 25, and November 28 to decide the motion. Although Mr. Leschins withdrew the order to show cause from the state court on August 22 and agreed to discontinue the state court action without prejudice, Judge Abram ordered that Morris Ehrlich and Baum be enjoined from interfering with implementation of the settlement agreement, that the motion for contempt be granted, that the Foundation had full authority to proceed with the settlement and that Irving Baum and Preston Leschins pay to Carl Neuman actual damages including costs and attorneys fees. As already noted, only the contempt order and fine are appealed.

DISCUSSION

To assess damages under section 362 (h), the bankruptcy court must find that there was an actual violation of the stay, and that this violation was "willful."

Appellants argue that the action commenced in state court was not one subject to the automatic stay because it was a shareholder's derivative action, it sought injunctive relief and not money damages, and was against the debtor is in his representative capacity of a corporation in which neither he nor the bankruptcy estate had an interest. They further argue that if the court finds that the action violated the stay, that it was not a willful violation as required by section 362 (h). Appellees argue that the suit's primary objective was to stop the debtor Neuman from proceeding with the bankruptcy settlement and that it was thus a blatant and willful violation of the stay.

As to whether a shareholder's derivative action violates the stay, at least one court has held that a shareholders' derivative action brought on behalf of a corporate debtor violates the stay. In re Interpictures, Inc., 86 B.R. 24 (Bankruptcy E.D.N. Y. 1988); see also Mitchell Excavators by Mitchell v. Mitchell, 734 F.2d 129 (2d Cir. 1984) (while normally the fiduciary obligation of officers, directors and shareholders is enforceable directly by the corporation or through a stockholder's derivative action, it is, in the event of bankruptcy of the corporation, enforceable by the trustee). In the case at hand, however, the corporation is not the debtor. The parties did not cite and this court could not find any case which addressed the specific issue whether a shareholder derivative action violates the automatic stay if the corporation is not the debtor, but only one closely related to the debtor.

It is well established that Section 362 (a) is not available for the benefit of nonbankrupt codefendants because such an extension of the stay does not promote the underlying purposes of the automatic stay, debtor/creditor protection. See e.g. Teachers Insurance and Annuity Association of America v. Butler, 803 F.2d 61, 65 (2d Cir. 1986); In re Garnett, 47 B.R. 170 (Bankr.E.D.N Y 1985). However, several courts have recognized that in very limited situations a Section 362 stay may apply to actions against nonbankrupt defendants. See Teachers Insurance, 803 F.2d at 65, Matter of S.I. Acquisition, Inc., 817 F.2d 1142, 1147 (5th Cir. 1987). These courts have reasoned that a nonbankrupt codefendant may be protected by the automatic stay if extension of the stay contributes to the debtor's efforts of rehabilitation or the debtor and nonbankrupt are closely related. One court has noted that:

in order for relief for such non-bankrupt defendants to be available under 362 (a)(1), there must be "unusual circumstances" and certainly "something more than the mere fact that one of the parties to the lawsuit has filed Chapter 11 bankruptcy must be shown. This unusual situation, it would seem, arises when there is such identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be judgment or finding against the debtor."

Given the relationship between CCF, Rebco, the Foundation and the Neumans, specifically that the Neumans own approximately 78% of the CCF stock and that Rebco and Foundation are wholly owned subsidiaries of CCF, it appears that there is such an identity between the entities as to render the state court suit in violation of the stay. This conclusion is supported by the fact that any relief in the state court would necessarily affect the settlement agreement approved by the Bankruptcy Court. It should also be noted that despite Ehrlich's and Baum's contentions to the contrary, the complaint names Carl Neuman both individually and as trustee. Thus, we agree with the Bankruptcy Court's determination that the state action did violate the stay.

The more difficult question is whether the violation was willful. The Second Circuit has held that any deliberate act taken in violation of a automatic stay that the violator knows be in existence, justifies an award of actual damages. In Re Crysen/Montenay Energy Co., 902 F.2d 1098, 1105 (2d Cir. 1990). An additional finding of maliciousness or bad faith on the part of the offending creditor warrants the further imposition of punitive damages pursuant to Section 362 (h). Id. As the court stated in In Re Crysen/Montenay Energy Co.: "[t]his standard encourages would-be violators to obtain declaratory judgments before seeking to vindicate their interests in violation of an automatic stay, and thereby protects debtors' estates from incurring potentially unnecessary legal expenses in prosecuting stay violations." Id. at 1105. However, that court, the first to establish a Second Circuit standard for willfulness, declined to apply that standard to the facts of the case. It reversed the award of sanctions imposed by the Bankruptcy Court, reasoning that the standard governing Section 362 (h) had theretofore been uncertain, and the parties could not have known at the time they commenced the action that, despite their good faith belief that the action did not violate the stay, they were subjecting themselves to sanctions by not first seeking a declaration from the Bankruptcy Court.

Baum's and Leschins' state court action was instituted in August 1989, several months before the Second Circuit decided In Re Crysen/Montenay Energy Co. and so clarified the standard for willfulness under section 362 (h). Thus, if we find that Baum and Leschins had a good faith belief that their efforts did not violate the stay, we' should reverse the Bankruptcy Court's award of sanctions.

In assessing the good faith of Baum and Leschins, several points are clear. First, it is undisputed that Baum and Leschins knew of the bankruptcy petition and were aware of the stay. The record indicates that as soon as Judge Abram ordered a stay of the state court proceedings, Leschins and Baum consented to the stay and immediately complied with it. They immediately withdrew from the state court the motion for an order restraining the debtor from acting on behalf of the corporation and prepared a stipulation to discontinue the state court action without prejudice. This stipulation was offered to appellees who refused to sign it unless appellants discontinued the action with prejudice. Baum and Leschins also informed the state court in both the complaint and affidavit in support of the order to show cause that there was a proceeding in Bankruptcy Court.

Also relevant in assessing good faith on the part of Leschins and Baum is the lack of clarity of the law regarding shareholder's derivative actions brought against corporations related to the debtor. Judge Abram herself stated on the record that "[t]here is a possibility that under 362, in an individual chapter 11 case, that that action was not subject to the 362 stay. There is a possibility of that." Transcript at 16. However, she went on to say, "I do not believe that you [Mr. Leschins] or Mr. Ehrlich undertook to do any particularly sophisticated research into the bankruptcy cases on that issue, and therefore, I don't really believe that either one of you particularly could articulate to me the theories under which it is not a 362 violation. . . There is little doubt that that action was taken for the precise purpose of doing by indirection something which you could have done by direction." Transcript at 18.

Aside from this conclusory remark, there is no evidence in the record to indicate that the sole reason for the action was to circumvent the Bankruptcy Court's authority. In fact, after reiterating to the court that their state court action was not meant as any offense to Judge Abram's orders, Mr. Leschins stated on the record that he believed that some of the allegations in the state court complaint could be maintained after the Bankruptcy Court proceedings had been concluded. Transcript at 18. Although Judge Abram responded to his remarks by saying that "You don't know enough about bankruptcy to know what you are talking about," it is not clear that the issues were within the sole jurisdiction of the Bankruptcy Court, particularly given that CCF, Foundation and Rebco were not debtors and were subject to the Bankruptcy Court's jurisdiction only by virtue of an adversary proceeding brought against them by the trustee.

Finally, it should be noted that nowhere in the record did the Bankruptcy Court make a specific finding of willfulness. There is also no indication that any evidence was offered in support of the damages requested and awarded. Appellee's attorney stated only that "in light of the fact that I think maybe an hour's worth of research could have avoided three court appearances that were made solely for this purpose, I am requesting some form of sanctions. . .," transcript at 40, there was no evidence of attorney's hours, fees or costs, or the reasonableness of such fees and costs. It should also be noted that attorney Leschins' name was substituted on the order awarding sanctions and holding the parties in contempt for that of Ehrlich just before the order was signed. Mr. Leschins was not at the particular hearing at which the order was signed and did not have an opportunity to defend himself. He had submitted an affidavit of actual engagement to the court via Mr. Ehrlich and it appears from the record that the affidavit was effectively ignored.

In conclusion, the Court finds that there is no evidence in the record of bad faith on the part of Leschins and Baum that would enable the court to award sanctions under Section 362 (h) for an action brought before the Second Circuit's clarification of the law in In Re Crysen/Montenay Energy Co. We thereby reverse the Bankruptcy Court's award of sanctions against Leschins and Baum.

As to the Court's order holding appellants in contempt, we first note that a Bankruptcy Court's power to hold a party in contempt is unclear and the subject of much dispute. We also note that it is unclear from the record or Judge Abram's order on what basis Judge Abram found the parties in contempt or even whether she found them in civil or criminal contempt.

Assuming that Judge Abram held the appellants in contempt for violating the automatic stay, we decline to address the broader question of her constitutional authority to issue the contempt order and rest our decision on the well established proposition that "where the violation of the stay is inadvertent, contempt is not an appropriate remedy." 2 Collier on Bankruptcy, 362.11, In re Smith Corset Shops, Inc., 696 F.2d 971 (1st Cir. 1982); Smith v. First America Bank, N.A., 876 F.2d 524 (6th Cir. 1989). Finding inadequate evidence in the record that the parties acted willfully and in bad faith, we conclude that their actions were inadvertent. We thus reverse the Bankruptcy Judge's order of contempt.

SO ORDERED.