New Bankruptcy Opinion: In re Residential Capital, LLC (a/k/a ResCap), Bankr. S.D.N.Y., Case No. 12-12020, August 7, 2012 | Issue: Relief from the Automatic Stay to Proceed with Prepetition Claims for Damages in Actions Pending in California State Courts

New Bankruptcy Opinion: In re Residential Capital, LLC, Bankr. S.D.N.Y., Case No. 12-12020, August 7, 2012

Issue: Aurora Bank, FSB sought modification of the automatic stay pursuant to section 362(d) of the Bankruptcy Code, Rule 4001 of the Federal Rules of Bankruptcy Procedure, and Local Bankruptcy Rule 4001-1 to proceed with prepetition claims for damages (asserted in a complaint in one action and as counterclaims in another action) against Debtors GMAC Mortgage, LLC and Executive Trustee Services in two separate actions pending in California state courts. The cases are GMAC Mortgage, LLC, et al. v. Rogers, et al., No. PC200900603 (El Dorado Cnty. Super. Ct. filed Sept. 25, 2009) and Aurora Bank, FSB v. GMAC Mortgage, LLC, et al., No. 30-2012-00539541-CU-OR-CJC (Orange Cnty. Super. Ct. filed Apr. 26, 2012).

Outcome: The bankruptcy court denied Aurora Bank’s motion. However, the court also held that ResCap may not proceed with its claim for declaratory relief against Aurora, asserted in one of the California Actions, while the stay remains in effect barring Aurora from prosecuting its claims or counterclaims. In other words, the Court stated that it “will not permit the automatic stay to be used as both a sword and a shield.”

A copy of the opinion is embedded below.