* Automatic stay in bankruptcy cannot be invoked
* FHFA sued Ally over $6 bln securities sold to Freddie Mac
Aug 12 The Federal Housing Finance Agency may
pursue a fraud lawsuit against Ally Financial Inc even though
Ally's Residential Capital LLC mortgage unit is in bankruptcy, a
federal judge said on Monday.
Judge Denise Cote, of U.S. District Court in Manhattan, said
the lawsuit is unlikely to have an "immediate adverse economic
consequence" for ResCap's estate, such that it would be subject
to an automatic stay under the U.S. Bankruptcy Code.
Bankrupt debtors typically invoke the automatic stay to halt
litigation, which could interfere with their reorganizations.
Lawyers for ResCap did not immediately respond to requests
Ally is among 18 defendants that the FHFA sued in 2011 for
allegedly making false or misleading statements in documents
relating to residential mortgage-backed securities bought by
Fannie Mae, Freddie Mac or both.
FHFA, the conservator for both Fannie and Freddie, sued Ally
to recoup losses on the sale of more than $6 billion of
securities to Freddie Mac between September 2005 and May 2007.
Fourteen of the 15 pending FHFA lawsuits are before Cote.
Three others ended in settlements, including a $885 million
accord last month with Swiss bank UBS AG.
ResCap had argued to halt the lawsuit against Ally because
it shares an insurance policy with Ally; it would be required to
indemnify Ally for liabilities; and because claims against
ResCap and Ally were "inextricably intertwined."
Cote noted that ResCap expects to emerge from Chapter 11
protection in October, 15 months before a scheduled January 2015
trial in the FHFA case against Ally.
"The court concludes that ResCap is not suffering 'immediate
adverse economic consequences' as a result of the Ally action,"
Cote's ruling came three weeks after the 2nd U.S. Circuit
Court of Appeals ordered her to make further factual findings.
The case is Residential Capital LLC et al v. Federal Housing
Finance Agency, U.S. District Court, Southern District of New
York, No. 12-05116.