Residential Capital, LLC v. Federal Housing Finance Agency

Appellant Residential Capital, LLC, and various related entities (collectively, “Res-Cap”), appeal from the July 17, 2012, order of the United States District Court for the Southern District of New York (Cote, /.), denying ResCap’s motion to stay a lawsuit brought by the Federal Housing Finance Agency (“FHFA”), as conservator for the Federal Home Loan Mortgage Corporation (“Freddie Mac”), against ResCap’s corporate parents and affiliate. We assume the parties’ familiarity with the underlying facts, the procedural history, and the issues presented for review. In denying ResCap’s motion to stay the lawsuit that has been brought by the FHFA against ResCap’s corporate parents and affiliate, the district court concluded that the Bankruptcy Code’s automatic stay provision, 11 U.S.C. § 362(a), could not extend to ResCap’s corporate parents and affiliate because they were not debtors in bankruptcy. The district court also denied ResCap’s request for a discretionary stay of the lawsuit under Section 105(a) of the Bankruptcy Code. Section 362(a)(1) provides that a bankruptcy petition “operates as a stay” of “the commencement or continuation ... of a judicial, administrative, or other action or proceeding against the debtor.” 11 U.S.C. § 362(a)(1). Additionally, Section 362(a)(3) will stay “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” Id. § 362(a)(3). Res-Cap relies on both of these provisions to support application of the automatic stay to the non-debtor entities. “The automatic stay can apply to non-debtors, but normally does so only when a claim against the *71 non-debtor will have an immediate adverse economic consequence for the debtor’s estate.” Queenie, Ltd. v. Nygard Int’l, 321 F.3d 282, 287 (2d Cir.2003). In Queenie, for example, this Court held that the automatic stay applied to proceedings against a debtor’s wholly owned corporation. Id. at 287. Here, the district court denied application of Section 362(a)’s automatic stay to the non-debtor entities as a categorical matter, without factual findings as to whether the lawsuit against those entities would have had “immediate adverse economic consequencefs]” on ResCap’s estate. The district court did examine some of ResCap’s arguments regarding the adverse consequences of the lawsuit in the context of ResCap’s request for a stay under Section 105(a), but there are no explicit findings with regard to ResCap’s request under Section 362(a). Because Section 362(a)’s automatic stay may apply to non-debtors in some limited circumstances, we remand the case pursuant to the procedure outlined in United States v. Jacobson, 15 F.3d 19, 22 (2d Cir.1994), for the district court to supplement the record and determine whether Section 362(a)’s automatic stay applies to the non-debtor entities. It may be that the anti-injunction provision in the Housing and Economic Recovery Act of 2008, 12 U.S.C. § 4617(f), bars application of Section 362(a)’s automatic stay, but we do not have to reach that question until the district court has determined whether the automatic stay applies in the first instance. The panel retains jurisdiction to hear ResCap’s appeal once the district court has made its determination. Given ResCap’s ongoing bankruptcy proceedings, we invite the district court to act with celerity, at the latest within sixty calendar days of the date of this decision. For the foregoing reasons, we hereby REMAND the case to the district court. After the district court has made its determination, either party may restore jurisdiction to this Court by filing with the Clerk a letter (along with a copy of the relevant order or transcript) advising the Clerk that jurisdiction should be restored. The returned appeal will be assigned to this panel and an additional notice of appeal will not be needed.