Residential Capital, LLC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
RESIDENTIAL CAPITAL, LLC, et al.
Debtors.
FOR PUBLICATION
Case No. 12-12020 (MG)
Jointly Administered
MEMORANDUM OPINION AND ORDER DENYING MOTION TO LIFT THE
AUTOMATIC STAY AND ENFORCING RELEASE OF CLAIMS AGAINST ALLY
FINANCIAL INC.
A P P E A R A N C E S:
YOSEF LE ROI MUSTAFANOS
Pro Se
5400 Railroad Street
Silver Springs, Nevada 89429
By: 	Yosef Le Roi Mustafanos
MORRISON & FOERSTER LLP
Counsel for the Liquidating Trust
1290 Avenue of the Americas
New York, New York 10104
By: 	Daniel J. Harris, Esq.
KIRKLAND & ELLIS LLP
Counsel for Ally Financial Inc.
655 15th Street, N.W., Ste. 1200
Washington, D.C. 20005
By: 	Judson D. Brown, Esq.
WILLIAMS KASTNER
Counsel for Ally Financial Inc.
888 SW Fifth Avenue, Ste. 600
Portland, Oregon 97204
By: 	Rachel A. Robinson, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Yosef Le Roi Mustafanos (“Mustafanos”), on behalf of the estate of his deceased father,
James Jackson Marshall (“Marshall”), wants to prosecute claims in an Oregon state court against
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Debtors GMAC Mortgage LLC (“GMACM”) and Residential Capital LLC (“ResCap”), and
against non-debtor Ally Financial Inc. (“AFI”). All claims against the Debtors (defined below),
except for claims that are allowed in Debtors’ chapter 11 cases, were discharged as part of the
Debtors’ confirmed chapter 11 Plan (defined below), which became effective on December 17,
2013. Mustafanos did not file any proof of claim in the bankruptcy case, and he is barred from
doing so now. The effect of the Plan is to bar Mustafanos from proceeding with claims against
GMACM and ResCap.
Furthermore, the confirmed Plan includes release and injunction provisions that bar
assertion of any covered claims against AFI. The third-party release and injunction provisions in
favor of AFI are enforceable against Mustafanos, and he will be enjoined from proceeding with
his claims against AFI.
I. 	BACKGROUND
A. 	The Pending Requests for Relief
Pending before the Court is the Ex Parte Motion of the Movant Yosef Le Roi Mustafanos
for an Order Shortening the Notice Period for Certain Emergency Relief from the Automatic
Stay (the “Motion,” ECF Doc. # 6535), which Mustafanos filed on behalf of Marshall, his
deceased father.1 Mustafanos seeks relief from the automatic stay to pursue foreclosure-related
claims against non-debtor AFI and Debtors GMACM and ResCap in a foreclosure action
commenced by non-debtor EverBank, Inc. (“EverBank”) in the District Court in Multnomah
County, Oregon (the “State Court”).
The ResCap Liquidating Trust (the “Liquidating Trust”) submitted a Statement of the
Liquidating Trust in Connection with Motion of Movant Yosef Le Roi Mustafanos for an Order
1 	Mustafanos also sought to have his Motion heard on shortened notice. The Court denied his request and
the Motion was scheduled for April 10, 2014—the next ResCap omnibus date that would allow Mustafanos time to
serve notice on the Debtors and AFI.
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Shortening Notice Period for Certain Emergency Relief from the Automatic Stay (the
“Statement,” ECF Doc. # 6747). In support of the Statement, the Liquidating Trust submitted
the Declaration of Lauren Graham Delehey (the “Delehey Decl.,” Statement Ex. 1). The
Liquidating Trust contends that there is no basis to grant Mustafanos relief from the automatic
stay because (1) GMACM acted only as servicer of Marshall’s loan and transferred the servicing
rights to Everhome Mortgage Company (“Everhome”) in 2008 and (2) neither GMACM nor
ResCap received notice of the state court proceeding.
AFI submitted Ally Financial Inc.’s Objection to Ex Parte Motion of the Movant Yosef Le
Roi Mustafanos for an Order Shortening the Notice Period for Certain Emergency Relief from
the Automatic Stay (the “Objection,” ECF Doc. # 6748, and together with the Statement, the
“Responses”). In support of the Objection, AFI submitted the Declaration of Rachel A.
Robinson (the “Robinson Decl.,” Objection Ex. A). Also attached to the Objection are: (1) the
original counterclaim in the underlying state court action (the “Original Counterclaim,”
Objection Ex. 1); (2) the February 10, 2014 letter from AFI’s local counsel informing
Mustafanos of the Third Party Release and Plan Injunctions (defined below) (Objection Ex. 2);
(3) Mustafanos’ amended counterclaim in the state court action (the “Amended Counterclaim,”
Objection Ex. 3); (4) the February 14, 2014 letter from AFI’s local counsel to Mustafanos
regarding the Amended Counterclaim (Objection Ex. 4); and (5) the February 24, 2014 letter
from AFI’s counsel in these chapter 11 cases, Kirkland & Ellis LLP (“Kirkland”), again
informing Mustafanos of the Third Party Release and Plan Injunctions (Objection Ex. 5). While
styled as an objection to the Motion, the Court permitted AFI to request affirmative relief as part
of its Objection—specifically, enforcement of the Third Party Release and Plan Injunction (as
defined below). AFI contends that Mustafanos’ state court action against AFI is barred by the
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Court’s order confirming the Second Amended Joint Chapter 11 Plan Proposed by Residential
Capital, LLC, et al. and the Official Committee of Unsecured Creditors (the “Plan,” ECF Doc.
# 6065-1). The Plan released and enjoined the pursuit of claims against AFI “arising from or
related in any way to the Debtors.” (Plan Art. IX.D.) AFI timely served the Objection on
Mustafanos, and the Court considers the Objection as a cross-motion for relief seeking
enforcement of the Third Party Release and Injunction provisions of the Plan.
As explained below, Mustafanos’s Motion for relief from stay is DENIED and
Mustafanos is ENJOINED from proceeding against GMACM and ResCap. Furthermore, AFI’s
request for relief is GRANTED and Mustafanos is ENJOINED from prosecuting his claims
against AFI and he is ORDERED to dismiss with prejudice his claims against AFI in the State
Court no later than fourteen (14) days from the date of this Order. Should Mustafanos fail to
dismiss his claims, AFI may seek further relief from this Court with a motion to hold Mustafanos
in contempt under Bankruptcy Rule 9020. Nothing in the Court’s ruling affects the defenses to
foreclosure or counterclaims that Mustafanos may assert against parties other than GMACM,
ResCap and Ally; those issues are controlled by state law.
B. 	Marshall’s Mortgage Loan
On March 3, 2004, Marshall entered into a mortgage loan (the “Mortgage Loan”) with
Mortgage Investors Corporation. (Delehey Decl. ¶ 4.) GMACM serviced the Mortgage Loan
from March 3, 2004 until it transferred its servicing responsibilities to Everhome in November
2008. 2 (Id.)
2 	At the hearing on the Motion, the Liquidating Trust indicated that GMAC Corp., predecessor in interest to
GMACM, originally serviced the Mortgage Loan. (See Apr. 10, 2014 Tr. at 7:5–6.)
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On March 3, 2007, Mortgage Investors Corporation “funded a refinance” of the
mortgage. (Original Counterclaim ¶ 6; see also Robinson Decl. ¶ 5 (indicating that the mortgage
was refinanced in 2007).) Mortgage Investors Corporation is unrelated to the Debtors or Ally.
Mustafanos alleges that on March 3, 2004, GMACM “went to Mr. Marshall’s house[,] picked
him up[,] and [t]ransported him to the GMAC Mortgage office and had him sign the mortgage
deed of Trust without aid and attendance from his children.” (Motion ¶ 4.) At its office,
Mustafanos alleges, GMACM had Marshall replace a “first position loan” financed by Sierra
Pacific Mortgage at a five percent interest rate with an adjustable interest rate loan that “became
toxic, considering that Mr. Marshall was on a fixed income.” (Id. at 9.) Additionally,
Mustafanos argues that the loan note and adjustable rate rider agreement may not have been
signed on the same date “due to the absence of a notary Certification.” (Id. ¶ 4.) He appears to
allege that Marshall’s signature may have been copied and pasted into the relevant documents.
(Id.) Additionally, Mustafanos argues that GMACM “should have clearly noticed that Mr.
Marshall would hallucinate, was unable to hold his attention and would drift off into sleep.” (Id.
¶ 5.) Mustafanos further alleges that he “discovered senior abuse and fraud in the transactions
involving GMAC Mortgage and began a counterclaim against EverBank.” (Id. ¶ 13.) According
to the Debtors, however, GMACM did not act as broker for the Mortgage Loan, and after it
transferred its servicing duties in 2008, GMACM no longer had any involvement with Marshall
or the Mortgage Loan. (Delehey Decl. ¶ 4.) Mustafanos disputes this alleged fact, asserting that
GMACM “brokered” the refinance transaction. Because of the Court’s disposition of the
pending matters, this factual dispute is not material.
Mustafanos additionally claims to have made various discoveries in February 2014
related to AFI that he believes impact his counterclaims. First, he purportedly discovered that
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AFI “settled and consented to the charges of fraud and unfair lending against the United States
consumers by its subsidiaries and daughter companies as well as GMAC Mortgage, Inc. and
settled for $25 billion dollars with the United States Attorneys General on April 4, 2012.” (Id.
¶ 17.) Second, he claims to have “discovered that Ally Financial, Inc. consented to permit
lawsuits and claims being brought against them by individuals, class action and associations for
injurious conduct inflicted by GMAC Mortgage, Residential Capital, Inc.” 3 (Id. ¶ 18.) Third, he
learned that GMACM and ResCap filed for bankruptcy on May 14, 2012. (Id. ¶ 19.) Finally, he
received a phone call from counsel for AFI “threatening to contact the bankruptcy court and have
Judge Glenn to hold him in contempt” if he failed to dismiss his claims against AFI with
prejudice. (Id. ¶ 20.)
Marshall died on March 20, 2010. (Motion ¶ 10.) After Marshall’s death, Mustafanos,
Marshall’s son and the representative of Marshall’s estate, was listed as the Successor of the
Estate. (See Original Counterclaim, Letter from Everhome Mortgage.) Mustafanos contacted
Everhome to request payment assistance in December 2010 and was approved for a permanent
loan modification. (Id.) But Mustafanos did not return the signed modification agreement to
Everhome, so Everhome closed his file on February 17, 2011. (Id.)
C. 	State Court Foreclosure Proceedings and Mustafanos’ Counterclaims
On May 10, 2012, EverBank filed a complaint for judicial foreclosure against Mustafanos
and others4 in the State Court. (Robinson Decl. ¶ 3.) The State Court entered a default order as
3 	As the Court noted at the April 10, 2014 hearing, some of Mr. Mustafanos’s “discoveries” are based on his
erroneous interpretation of the Consent Order settling the Federal Reserve Board investigation and the state
attorneys general action. See Apr. 10, 2014 Tr. 27:8–21.
4 	Though it is not entirely clear, the “others” presumably include those listed as defendants (in addition to
Mustafanos) in Mustafanos’ Original Counterclaim—Tonny D. Marshall, James M. Marshall, Don E. Marshall,
Cherry Bush Lane Homeowners’ Association, Inc., NW Professional Judgment Recovery, and occupants of the
premises. (See Original Counterclaim at 1.)
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to all named defendants except Mustafanos on August 28, 2012. (Id.) Mustafanos filed the
Original Counterclaim in March 2013. (Id. ¶ 4.) In the Original Counterclaim, Mustafanos
alleges that GMACM “is the mortgage broker who prepared all documents and shopped and
secured the Lender (Mortgage Investors Corporation)” for Marshall. (Original Counterclaim
¶ 6.) The majority of Mustafanos’s claims in the Original Counterclaim are related to the
origination of the Mortgage Loan. Mustafanos claims that his father was “incompetent” for
various reasons, including that he “suffered from: Type 2 Diabetes, High blood pressure,
obesity, cataracts, dementia, paranoid schitzophrenia [sic], obsessive compulsion [sic] disorder,
disorientation, fainting spells, kidney and liver dialysis dependency.” (Id. ¶ 14.)
On August 22, 2013, Mustafanos filed his first amended counterclaim,5 naming AFI as a
counterclaim defendant. 6 (Robinson Decl. ¶ 6.) AFI moved to dismiss the first amended
counterclaim on December 5, 2013, on the grounds that the first amended counterclaim did not
include specific allegations against AFI. (Id. ¶ 7.) The State Court granted AFI’s motion to
dismiss on January 28, 2014, but granted Mustafanos leave to amend his counterclaim to
describe the relationship between AFI and GMACM. (Id.)
AFI’s local counsel in Oregon sent Mustafanos a letter on February 10, 2014, informing
Mustafanos that this Court had confirmed the Plan, and providing Mustafanos with copies of the
Confirmation Order and the Plan. (Id.; see also Objection Ex. 2.) Mustafanos filed the
Amended Counterclaim on February 14, 2014, alleging that AFI “does business as” GMACM
5 	It appears that GMACM was never served with the first (or second) amended counterclaim(s). At the
hearing on April 10, 2014, Mustafanos indicated that he believed GMACM was “adequately served” because he had
served AFI’s agent, and believed AFI and GMACM share the same agent, “CT Corporation.” (See Apr. 10, 2014
Tr. 26:12–14.) The Court need not resolve this dispute. In any event, the Court was not provided a copy of the first
amended counterclaim.
6 	Although Mustafanos did not initially list AFI as a counterclaim defendant in the version of the first
amended counterclaim that he filed with the State Court, he did add AFI to the caption in the version that he served
on AFI in October 2013. (Robinson Decl. ¶ 6 n.1.)
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and EverBank. (Amended Counterclaim at 1, ¶ 6.) Also on February 14, 2014, AFI’s local
counsel sent Mustafanos a second letter, highlighting the Plan’s Third Party Release and
Injunction provisions. (Robinson Decl. ¶ 10; Objection Ex. 4.) Finally, after no response from
Mustafanos, Kirkland sent Mustafanos a third letter on February 24, 2014, explaining that the
Third Party Release bars Mustafanos’s claims against AFI and warning Mustafanos that if he did
not dismiss his claims against AFI with prejudice by March 3, 2014, AFI would seek relief in
this Court. (Objection Ex. 5 at 2.) Mustafanos has not dismissed his claims against AFI; instead,
after he received the letter from Kirkland, Mustafanos filed the instant Motion seeking to lift the
automatic stay.
D. 	ResCap Bankruptcy Plan Confirmation
ResCap and various related entities (the “Debtors”) filed chapter 11 bankruptcy petitions
on May 14, 2012 (the “Petition Date”). On August 29, 2012, the Court entered an order setting
the bar date of November 9, 2012 for filing non-governmental proofs of claim in the chapter 11
cases. (ECF Doc. # 1309.) The Court thereafter entered an Order Extending the Bar Date for
Filing Proofs of Claim to November 16, 2012 (the “Bar Date”). (ECF Doc. # 2093.) Mustafanos
did not file a proof of claim.
On December 11, 2013, the Court confirmed the Plan. (ECF Doc. # 6065.) Pursuant to
the Plan,
Except as otherwise agreed by the Debtors, the Liquidating Trust, or the
Borrower Claims Trust, as applicable, or ordered by the Bankruptcy
Court, any and all proofs of claim filed after the applicable Bar Date shall
be deemed disallowed, discharged, released, and expunged as of the
Effective Date without any further notice to or action, order, or approval
of the Bankruptcy Court, and holders of such Claims may not receive any
distributions on account of such Claims, unless such late proof of claim is
deemed timely filed by a final order of the Bankruptcy Court.
(Plan Art. VIII.B (formatting altered from original).)
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To define the term “Claim,” the Plan adopts the definition contained in Bankruptcy Code
section 101(5). (Plan Art. I.A.53.) Section 101(5), in turn, defines a “claim” as the “right to
payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.”
11 U.S.C. § 101(5).
The Plan also includes the release of the Debtors’ parent company AFI (the “Third Party
Release”) in exchange for a contribution from AFI of $2.1 billion to the Debtors’ estate (the
“AFI Contribution”). (See Plan Art. IV.A.) The Third Party Release extends to
any 	and 	all 	Causes 	of 	Action 	whatsoever, 	whether 	known 	or
unknown, asserted or unasserted, derivative or direct, foreseen or
unforeseen, 	existing 	or 	hereinafter 	arising, 	in 	law, 	equity, 	or
otherwise, whether for tort, fraud, contract, violations of federal or
state securities laws, veil piercing or alter-ego theories of liability,
contribution, indemnification, joint liability, or otherwise, arising
from or related in any way to the Debtors.
(Plan Art. IX.D.) 7 The Third Party Release further provides:
On and as of the Effective Date of the Plan . . ., the holders of Claims
and Equity Interests shall be deemed to provide a full and complete
discharge and release to the Ally Released Parties and their respective
property from any and all Causes of Action . . . arising from or
related in any way to the Debtors, including those in any way related
to RMBS issued and/or sold by the Debtors or their affiliates and/or
the Chapter 11 Cases or the Plan, the Consent Order, and the Order
of Assessment.
(Id.) A “Cause of Action” under the Plan is defined as:
any and all Claims, actions, causes of action, choses in action, rights,
demands, 	suits, 	claims, 	liabilities, 	encumbrances, 	lawsuits, 	adverse
consequences, 	debts, 	damages, 	dues, 	sums 	of 	money, 	accounts,
reckonings, deficiencies, bonds, bills, disbursements, expenses, losses,
specialties, 	covenants, 	contracts, 	controversies, 	agreements, 	promises,
variances, trespasses, judgments, remedies, rights of set-off, third-party
claims, subrogation claims, contribution claims, reimbursement claims,
7 	Capitalized terms used but not defined herein have the meanings given to such terms in the Plan.
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indemnity claims, counterclaims, and cross-claims (including those of the
Debtors, and/or the bankruptcy estate of any Debtor created pursuant to
sections 301 and 541 of the Bankruptcy Code upon the commencement of
the Chapter 11 Cases), including, without limitation, any claims, causes of
action, 	objections, 	rights, 	remedies 	arising 	under 	Chapter 	5 	of 	the
Bankruptcy Code pursuant to, among others, sections 502, 510, 542
through 545 and 547 through 553 or 558 thereof, whether known or
unknown, foreseen or unforeseen, suspected or unsuspected, liquidated or
unliquidated, fixed or contingent, matured or unmatured, disputed or
undisputed, whether held in a personal or representative capacity, that are
or may be pending as of the date hereof or instituted hereafter against any
entity, based in law or equity, including under the Bankruptcy Code,
whether direct, indirect, derivative, or otherwise and whether asserted or
unasserted as of the date hereof.
(Id. Art. I.A.50.) Thus, Claims or Causes of Action asserted against AFI “arising from or related
in any way related to the Debtors” are “Released Claims” under the Plan. (See id. Art. I.A.242;
see also id. IX.D.)
The Plan “permanently enjoin[s] and preclude[s]” all parties
who have held, hold or may hold Claims, . . . [or] Causes of Action . . .
that constitute Released Claims . . . from and after the effective date of
the Plan, from: 	(a) commencing or continuing in any manner or
action or other proceeding of any kind against any Released Party
whether directly, derivatively or otherwise, on account of or in
connection with or with respect to any Released Claims; . . . [and] (e)
commencing 	or 	continuing 	in 	any 	manner 	or 	action 	or 	other
proceeding of any kind against any Released Party on account of or in
connection with or respect to any Released Claims . . .
(Id. Art. IX.I.)
The Plan became effective on December 17, 2013 (the “Effective Date”). (See ECF Doc.
# 6137.)
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II. 	DISCUSSION
A. 	The Debtors’ Discharge Under the Plan
Section 1141 of the Bankruptcy Code, titled “Effect of Confirmation,” generally provides
that a plan of reorganization is binding upon a broad list of entities once it is confirmed. See 8
COLLIER ON BANKRUPTCY ¶ 1141.02 (16th ed. rev. 2013).
Under [section 1141], subject to compliance with the requirements of due
process under the Fifth Amendment, a confirmed plan of reorganization is
binding upon every entity that holds a claim against or interest in the
debtor even though a holder of a claim or interest is not scheduled, has not
filed a claim, does not receive a distribution under the plan or is not
entitled to retain an interest under such plan. In other words, a confirmed
plan precludes parties from raising claims or issues that could have or
should have been raised before confirmation but were not.
Id. (emphasis added) (footnotes omitted).
Section 1141(d)(1)(A) provides:
(1) Except as otherwise provided in this subsection, in the plan, or
in the order confirming the plan, the confirmation of a plan—
(A) discharges the debtor from any debt that arose before
the date of such confirmation, and any debt of a kind
specified in section 502(g), 502(h), or 502(i) of this title,
whether or not—
(i) a proof of the claim based on such debt is filed or
deemed filed under section 501 of this title;
(ii) such claim is allowed under section 502 of this
title; or
(iii) the holder of such claim has accepted the plan.
11 U.S.C. § 1141(d)(1)(A) (emphasis added).
Confirmation of a plan operates as a final judgment for res judicata purposes. See First
Union Commercial Corp. v. Nelson, Mullins, Riley & Scarborough (In re Varat Enters., Inc.), 81
F.3d 1310, 1315 (4th Cir. 1996). “Under the doctrine [of res judicata], questions concerning the
treatment of any creditor under the plan, discharge of liabilities, or disposition of property, may
no longer be raised after plan confirmation. These issues must be raised in the context of
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objections to confirmation of the plan.” 8 COLLIER ON BANKRUPTCY ¶ 1141.02[4] (footnotes
omitted).
Since he is asserting a right of payment, Mustafanos is a holder of a “Claim” pursuant to
the Plan and the Bankruptcy Code. See 11 U.S.C. § 101(5); 8 COLLIER ON BANKRUPTCY
¶ 1141.02 n.2. Mustafanos did not file a proof of claim in these chapter 11 cases, and did not
object to confirmation.
The Plan clearly provides that
Any and all proofs of claim filed after the applicable Bar Date shall be
deemed disallowed, discharged, released, and expunged as of the Effective
Date without any further notice to or action, order, or approval of the
Bankruptcy Court, and holders of such Claims may not receive any
distributions on account of such Claims, unless such late proof of claim is
deemed timely filed by a final order of the Bankruptcy Court.
(Plan Art. VIII.B (formatting altered from original).)
Despite the fact that Mustafanos did not file a claim before the Bar Date, he later sought
to bring a claim against the Debtors and AFI in the form of counterclaims to the foreclosure
action—initiated by EverBank, a non-debtor that is unrelated to any of the Debtors or AFI—
raising allegations of misconduct related to the origination, securitization, servicing, and
foreclosure of the Mortgage Loan, and seeking to recover monetary damages for the alleged
misconduct. A review of the Amended Counterclaim makes clear that Mustafanos seeks to
sidestep the confirmed chapter 11 Plan to pursue his claim in another forum. If Mustafanos had
a claim, he should have timely filed it in these bankruptcy cases; he did not do so, and it is too
late to do so now. Any unasserted claims Mustafanos had against the Debtors’ estate were
discharged pursuant to the Plan. Consequently, for the reasons explained in the next section, his
Motion for relief from the automatic stay is DENIED; the relief he seeks from GMACM and
ResCap in the State Court is precluded under the Plan.
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B. 	Mustafanos Has Not Established Cause to Lift the Automatic Stay
Mustafanos has not established cause to lift the stay. Section 362(a)(1) of the Bankruptcy
Code provides that the filing of a bankruptcy petition automatically stays
the commencement or continuation, including the issuance of employment
of process, of a judicial, administrative, or other action or proceeding
against the debtor that was or could have been commenced before the
commencement of the case under this title, or to recover a claim against
the debtor that arose before the commencement of the case under this title.
11 U.S.C. § 362(a)(1).
The automatic stay affords “one of the fundamental debtor protections provided by the
bankruptcy laws.” Midlantic Nat’l Bank v. New Jersey Dep’t of Evntl. Prot., 474 U.S. 494, 503
(1986). The stay maintains the status quo and protects the debtor’s ability to formulate a plan for
the sale or other disposition of property of the estate. 3 COLLIER ON BANKRUPTCY ¶ 362.03.
Section 362(d)(1) of the Bankruptcy Code provides that “[o]n request of a party in
interest and after notice and a hearing, the court shall grant relief from the stay . . . (1) for cause,
including the lack of adequate protection of an interest in property of such party in interest . . . .”
11 U.S.C. § 362(d)(1). The Bankruptcy Code does not, however, define the phrase “for cause.”
In determining whether “cause” exists to lift the stay for prepetition litigation, courts consider the
so-called “Sonnax Factors.” See Sonnax Indus., Inc. v. Tri Component Prods. Corp. (In re
Sonnax Indus., Inc.), 907 F.2d 1280, 1286 (2d Cir. 1990); In re Residential Capital, LLC, 501
B.R. 624, 643 (Bankr. S.D.N.Y. 2013); In re New York Medical Grp., PC, 265 B.R. 408, 413
(Bankr. S.D.N.Y. 2001).
Not all of the Sonnax Factors are relevant in every case, and “cause” is a broad and
flexible concept that must be determined on a case-by-case basis. Spencer v. Bogdanovich (In re
Bogdanovich), 292 F.3d 104, 110 (2d Cir. 2002) (citing Mazzeo v. Lenhart (In re Mazzeo), 167
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F.3d 139, 143 (2d Cir. 1999)). The moving party bears the initial burden to demonstrate that
“cause” exists to lift the stay. See Sonnax, 907 F.2d at 1285; Capital Comm. Fed. Credit Union
v. Boodrow (In re Boodrow), 126 F.3d 43, 48 (2d Cir. 1997) (“We have emphasized that a
bankruptcy court should deny relief from the stay if the movant fails to make an initial showing
of cause.”) (internal quotation marks omitted). “If the movant is an unsecured creditor, the
policies of the automatic stay weigh against granting the relief requested. [T]he general rule is
that claims that are not viewed as secured in the context of § 362(d)(1) should not be granted
relief from the stay unless extraordinary circumstances are established to justify such relief.”
Residential Capital, 501 B.R. at 643–44 (alteration in original) (internal quotation marks
omitted). Under section 362(d)(1), Mustafanos bears the initial burden of showing “cause” to lift
the stay. See id. at 1285 (“If the movant fails to make an initial showing of cause, however, the
court should deny relief without requiring any showing from the debtor that it is entitled to
continued protection.”).
Since the claims Mustafanos seeks to assert against GMACM and ResCap are barred and
discharged by the Plan, Mustafanos cannot establish cause to lift the stay—litigating those claims
in any forum would be futile. Therefore, Mustafanos’s Motion to lift the stay is DENIED. This
ruling does not prevent Mustafanos from asserting any equitable or legal defenses or
counterclaims he may have in the foreclosure action against EverBank, or against any of the
other non-debtor defendants, except for AFI. What he cannot do is drag GMACM or ResCap
into the foreclosure action in support of his defenses to foreclosure. And as explained below, he
also cannot assert any counterclaims against AFI.
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C. 	Enforcement of Third Party Release and Plan Injunction
The Court considers AFI’s Objection as a cross-motion for relief under the Third Party
Release and Injunction provisions of the Plan. Mustafanos received fair notice of AFI’s
requested relief and it is properly before the Court even though Mustafanos initiated the current
Motion.
1. 	The Third Party Release and Plan Injunction are Appropriate in these
Cases
In the Second Circuit, non-debtor releases are permissible under certain circumstances.
“[A] bankruptcy court only has jurisdiction to enjoin third party non-debtor claims that directly
affect the res of the bankruptcy estate.” In re Johns-Manville Corp., 600 F.3d 135, 152 (2d Cir.
2010) (citation omitted). Because AFI filed proofs of claim for indemnification against the
Debtors, and because AFI and the Debtors shared insurance policies, third-party claims such as
the ones asserted by Mustafanos would affect the res of the estate, satisfying the jurisdictional
underpinnings for the third-party release approved by the Court.
In In re Drexel Burnham Lambert Grp., Inc., 960 F.2d 285, 293 (2d Cir. 1992), the
Second Circuit noted that “[i]n bankruptcy cases, a court may enjoin a creditor from suing a third
party, provided the injunction plays an important part in the debtor’s reorganization plan.” In its
decision in In re Metromedia Fiber Network Inc., 416 F.3d 136 (2d Cir. 2005), the Second
Circuit further clarified the standard under which it is appropriate to grant non-debtor releases.
The court identified two factors that are necessary for court approval of a non-debtor release:
(1) the release must itself be important to the plan; and (2) the scope of the release must be
necessary to the plan. Id. at 143. Thus, a non-debtor release is not justifiable simply on the
ground that it was offered in exchange for a monetary contribution. Id.
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During the Plan confirmation hearing, the Court considered all of the factors under
Metromedia and Johns-Manville and their progeny and determined that the Court had the
jurisdiction to enter the third party non-debtor release in favor of AFI. (See ECF Doc. # 6065,
Order Confirming Second Amended Joint Chapter 11 Plan Proposed by Residential Capital,
LLC, et al. and the Official Committee of Unsecured Creditors (the “Confirmation Order”),
¶ UU.) The Court found that the Metromedia factors, which establish a high burden before a
court will grant non-debtor releases, were satisfied in this case. The AFI Contribution was the
“lynchpin of the Plan, without which the cases would devolve into endless litigation, the Plan
would not be confirmable or feasible, and the recoveries currently contemplated by the Plan
would not exist.” (Id. ¶ RR.) As stated in the Plan, the Third Party Release was “an essential
component and critical to the success of the Plan.” (Plan Art. IX.D.) The Court found that
“[t]hese facts are unprecedented and justify the approval of the Third Party Releases.”
(Confirmation Order ¶ RR.)
2. 	The Court Has Authority to Enforce the Third Party Release and Plan
Injunction Against Mustafanos
“All courts retain the jurisdiction to interpret and enforce their own orders.” In re
Charter Commc’ns, No. 09-11435, 2010 WL 502764, at *4 (Bankr. S.D.N.Y. Feb. 8, 2010); see
also Travelers Indem. Co. v. Bailey, 557 U.S. 137, 151 (2009) (“[A]s the Second Circuit
recognized . . . the Bankruptcy Court plainly had jurisdiction to interpret and enforce its own
prior orders.”). While a bankruptcy court’s jurisdiction diminishes in importance following plan
confirmation, In re Gen. Media, Inc., 335 B.R. 66 (S.D.N.Y. 2005), the action in this case is
“sufficiently close in time to confirmation of the Plan and sufficiently critical to the integrity of
the Plan’s structure that it is proper for this Court to take firm control and decide” the Motion.
Charter Commc’ns, 2010 WL 502764, at *4.
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As the court explained in Charter Communications, where a motion seeks to “prevent the
prosecution of causes of action expressly prohibited by the confirmation order,” it would be
“difficult to identify judicial acts that are any more critical to the orderly functioning of the
bankruptcy process or more closely tethered to core bankruptcy jurisdiction.” Id. (citing In re
Petrie Retail, Inc., 304 F.3d 223, 230 (2d Cir. 2002) (finding that bankruptcy court retained core
jurisdiction post-confirmation “to interpret and enforce its own orders, particularly when disputes
arise over a bankruptcy plan of reorganization”)).8
The $2.1 billion AFI Contribution to the successful Plan in this case was a significant
factor to achieving Plan confirmation and a global resolution of the Debtors’ bankruptcies. A
key component of Ally’s willingness to provide the Contribution was the Plan Injunction and
Third Party Release. The Court carefully considered the record and weighed the relevant factors.
Initially, the U.S. Trustee, which rigorously enforces the law with respect to third party non-
debtor releases, had objected to the Third Party Release. That objection was withdrawn. By the
time of confirmation, there were no objections to the non-debtor release included in the Plan.
After considering the applicable case law and the U.S. Trustee’s withdrawal of its objection, the
Court approved the Plan, which included the Third Party Release and Injunction.
Mustafanos did not name AFI as a counter-defendant in his foreclosure proceeding until
August 22, 2013; he did not serve AFI with the Amended Counterclaim until October 2013. He
did not object to the Third Party Release or Injunction contained in the Plan.
8 	While both this Court and the Oregon state court are competent to rule on the Plan Injunction and Third
Party Release, the “bankruptcy court is more closely connected to the current dispute and is the proper forum to rule
with respect to” enforcement of third party releases pursuant to the Plan. Charter Commc’ns, 2010 WL 502764, at
*3 (explaining that the bankruptcy court was the appropriate court to interpret the plan releases in that case, for
reasons that apply equally here: (1) the bankruptcy court had natural familiarity with the full record of the
confirmation hearing and process; and (2) if the bankruptcy court interprets the plan confirmation order, there is a
much smaller risk of erosion of its provisions and the injunction due to inconsistent interpretations across courts).
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Mustafanos’s claims against AFI in the Amended Counterclaim relate to the origination
of the Mortgage Loan, the assignment of the recorded mortgage, the securitization of the
Mortgage Loan, the servicing of the Loan, and attempts to foreclose upon the Loan and the
secured real property. Mustafanos names AFI as a counter-defendant in the case, describing AFI
as “doing Business as GMAC Mortgage Corporation”; he uses “Ally” and “GMAC Mortgage”
interchangeably in his pleadings. (Amended Counterclaim ¶ 6 (emphasis added).) The asserted
bases for AFI’s purported liability are derivative of the alleged misconduct of GMACM and
ResCap. Mustafanos does not allege any independent actions taken by AFI or its non-debtor
subsidiaries.9 Such claims fall squarely within the Plan’s Third Party Release, which releases
AFI from claims “arising from or related in any way to the Debtors.” (Plan Art. IX.D.)
Consequently, Mustafanos is bound by the Third Party Release and is therefore
“permanently enjoin[ed] and preclude[ed]” from continuing his lawsuit against AFI. (See Plan
Art. IX.I (enjoining all entities who hold “Claims . . . from: (a) commencing or continuing in
any manner or action or other proceeding of any kind against any Released Party whether
directly, derivatively or otherwise, on account of or in connection with or with respect to any
Released Claims; . . . [and] (e) commencing or continuing in any manner or action or other
proceeding of any kind against any Released Party on account of or in connection with or with
respect to any Released Claims”).)
After Mustafanos filed the Amended Counterclaim, AFI’s counsel served him with
copies of the Plan and Confirmation Order, as well as letters explaining the Plan’s Third Party
9 	At the hearing on April 10, 2014, Mustafanos alleged that AFI had “confessed” to acting in collusion with
its subsidiaries, apparently including GMACM, as well as to fraud and racketeering, in July 2012. As the Court
explained on the record, to the extent Mustafanos is basing his action against AFI on these allegations, he is
mistaken in his interpretation of the agreement AFI signed at the conclusion of the Attorney General’s investigation.
See Apr. 10, 2014 Tr. 27:8–21. However, it is not necessary for the Court to consider the merits of these allegations
to resolve the Motion or AFI’s request for relief.
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Release and Injunction. Mustafanos has failed to dismiss his counterclaims against AFI.
Instead, he filed the current Motion. Mustafanos is bound by the Third Party Release since he is
a “holder[] of [a] Claim[] . . . arising from or related in any way to the Debtors.”
The Court hereby ORDERS Mustafanos to dismiss his claims against AFI with prejudice
no later than fourteen (14) days from the date of this Order. If Mustafanos fails to do so, AFI
may file a motion seeking to hold Mustafanos in contempt.
III. 	CONCLUSION
For the foregoing reasons, the Court DENIES the Motion to lift the stay, and ENJOINS
Mustafanos from pursuing claims in the State Court against GMACM and ResCap.
Additionally, Mustafanos is ENJOINED from prosecuting his claims against AFI. The Court
also ORDERS that Mustafanos shall dismiss his claims in the State Court against AFI with
prejudice no later than fourteen (14) days from the date of this Order. As noted above, the
Court’s ruling does not affect the defenses to foreclosure or claims against other parties that
Mustafanos may be permitted to assert; such issues are controlled by state law.
IT IS SO ORDERED.
Dated: April 21, 2014
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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