ResCap Seeks to Block MBS Suits Against Affiliates, Execs

Dow Jones reported that Residential Capital LLC, the bankrupt mortgage subsidiary of Ally Financial Inc., was seeking to delay mortgage-securities litigation against its parent company, several affiliated businesses and former executives. ResCap filed suit against several financial services firms, arguing those firms’ claims should be put on hold during the ResCap bankruptcy.

“Bankruptcy courts often will grant stays for litigation pending against company executives and affiliated businesses if such matters could distract a debtor or deplete the value of its estate, said Madlyn Primoff, a Bankruptcy and Restructuring Partner with the law firm Kaye Scholer.

“However, the court is unlikely to agree to put litigation against non-debtor affiliates on hold for the duration of a bankruptcy at the beginning of a case. Such a delay may be viewed as too ‘aggressive’ by the plaintiffs in pending litigation,” Primoff added.