Now Updating
In re Carol Engen

Summarizing by Bradley Pearce

Ritchie Capital Management, L.L.C. v. Jeffries

Citation:
United States Court of Appeals for the Eighth Circuit, No. 10-2568
Tag(s):
Ruling:
The court held that a purportedly secured lender's claims against non-debtor insiders of the borrower entity, which had been placed in federal court receivership, were not barred by the anti-suit injunction contained in the receivership order. The court futher held that "unusual circumstances" did not exist to warrant the court's exercise of its equitable powers to enjoin the lender's action.
Procedural context:
The Eighth Circuit reversed the district court's order finding that the applicable receivership order barred the secured lender's claims against the borrower's insiders and remanded for further proceedings.
Facts:
Ritchie Capital Management, LLC ("Ritchie") and other investment funds, alleged that they had loaned over $100 million to Petters Group World Wide, LLC ("PGW"). Ritchie further alleged that that certain officers of PGW and a subsidiary company (the "Officers") had conspired with PGW's principal, Thomas J. Petters, to fraudulently induce Ritchie to make the loan by representing that the loan would be adequately secured by Polaroid Corporation ("Polaroid"), a subsidiary of PGW. The government subsequently commenced an action pursuant to the Fraud Injunction Statute and, by the parties' stipulation, a preliminary injunction was entered freezing the assets of PGW and other related entitites and appointing a receiver. The receivership order contained an anti-suit provision ("Anti-Suit Provision") under which the receivership court retained exclusive jurisdiction of the matter for all purposes and enjoined "[a]ny and all actions that would interfere with the exclusive jurisdiction of this Court over the assets or documents of Defendants." Subsequently, the receiver put Polaroid in a chapter 11 proceeding in which the bankruptcy court authorized the sale of Polaroid's assets. Unable to intervene in the receivership action and not having much success in the bankrupy court, Ritchie commenced this separate action alleging RICO violations, common law fraud, and tortious interference with contract against the Officers. The Officers moved to dismiss the case claiming, among other things, that the Anti-Suit Provision barred Ritchie's action. The court found that the Anti-Suit Provision prohibited physical interference with the documents in the receiver's possession, but that it did not prohibit the interpretation of such documents. For this reason and given that none of the receivership defendants were named in Ritchie's suit, the court held that Ritchie's suit against the Officers was not foreclosed by the Anti-Suit Provision of the receivership order. The court also considered the alternative argument that the receivership court had the equitable power to preempt all actions calling for the interpretation of "documents subject to this Receivership." The court observed that such equitable powers do not reach cases that pose no threat to the assets of the receivership and that, in this respect, the receivership court's equitable powers are similar to the powers of the bankruptcy court to impose an automatic stay pursuant to 11 U.S.C. 362(a). The court acknowledged that the bankruptcy court can stay actions against any party, including non-debtors, whenever the objective of the action is to obtain possession or exercise control over the debtor's property. The court emphasized, hwoever, that unless a case involves unusual circumstances, the bankruptcy court cannot halt litigation against non-debtors, "even if they are in similar legal or factual nexus with the debtor." According to the court, the automatic stay will apply to non-debtors only in the rare case where "a claim against the non-debtor will have an immediate adverse economic consequence for the debtor's estate." The court conlcuded that the unusual-circumstance exception was not implicated in this case because the litigation against the Officers had no potential impact on the entities in receivership. Thus, the receivership court had no power to prevent Ritchie's suit against the non-debtor Officers from going forward.
Judge(s):
Wollman, Bye, and Shepherd

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