No. 95-1099

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

BARRON J. RUSSELL AND NANCY H. RUSSELL, 
PETITIONERS

v.

FEDERAL DEPOSIT INSURANCE CORPORATION

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

DREW S. DAYS, III
Solicitor General
Department of Justice
Washington, D.C. 20530
(202)514-2217

WILLIAM F. KROENER, III
General Counsel

ANN S. DUROSS
Assistant General Counsel

COLLEEN B BOMBARDIER
Senior Counsel

LAWRENCE H. RICHMOND
Counsel
Federal Deposit Insurance
Corporation
Washington, D.C. 20429
No. 95-1099

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IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

BARRON J. RUSSELL AND NANCY H. RUSSELL, 
PETITIONERS

v.

FEDERAL DEPOSIT INSURANCE CORPORATION

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

DREW S. DAYS, III
Solicitor General
Department of Justice
Washington, D.C. 20530
(202)514-2217

WILLIAM F. KROENER, III
General Counsel

ANN S. DUROSS
Assistant General Counsel

COLLEEN B BOMBARDIER
Senior Counsel

LAWRENCE H. RICHMOND
Counsel
Federal Deposit Insurance
Corporation
Washington, D.C. 20429

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     QUESTION PRESENTED

Whether the bankruptcy court acted within its dis-
cretion under 11 U.S.C. 362(d) in retroactively annul-
ling an automatic stay, where the debtor did not ob-
ject to annulment and annulling the stay would not
affect the debtor's estate.

(I)


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TABLE OF CONTENTS

                                Page
Opinions below . . . . 1
Jurisdiction . . . . 1
Statement . . . . 2
Argument . . . .4
Conclusion . . . . 7

TABLE OF AUTHORITIES

Case:
Albany Partners, Ltd., In re, 749 F.2d 670 (llth
Cir. 1984) . . . . 4-5
Franklin Savings Ass'n v. Office of Thrift Super-
vision, 31 F.3d 1020 (10th Cir. 1994) . . . . 5, 6
Otoe County Nat 'l Bank v. W & P Trucking, Inc.,
754 F.2d 881 (1Oth Cir. 1985) . . . . 6
Schwartz, In re, 954 F.2d 569 (9th Cir. 1992) . . . . 4
Siciliano, In re, 13 F.3d 748 (3d Cir. 1994) . . . . 4
Tulane Hotel Investors Ltd. Partnership, In re,
82 B.R. 826 (E.D. La. 1988) . . . . 6
Veeco Investment Co., In re, 157 B.R. 452 (.E.D.
Mo. 1993) . . . . 6
Wisniewski v. United States, 353 U.S. 901 (1957). . . . 5

Statutes:
Bankruptcy Code, 11 U.S.C. 101 et seq.:
Ch. 3, 11 U.S.C. 301 et seq.:
  11 U.S.C. 362 . . . .  3,4,6
Ch. 11, 11 U.S.C. 1101 et seq. . . . 2

Miscellaneous:
2 L. King, Collier on Bankruptcy (15th ed. 1995) . . . . 5

(III)

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In The Supreme Court of The United States
     OCTOBER TERM, 1995

No. 95-1099

BARRON J. RUSSELL AND NANCY H. RUSSELL,
     PETITIONERS

v.

FEDERAL DEPOSIT INSURANCE CORPORATION

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
   FOR THE ELEVENTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

      OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 3a-4a)
is unpublished, but the decision is noted at 62 F.3d 401
(Table). The order of the district court (Pet. App. 5a-
7a) is unreported. The memorandum and order of the
bankruptcy court (Pet. App. 8a-17a) are reported at
156 B.R. 347.

JURISDICTION

The judgment of the court of appeals was entered on
July 10, 1995. A petition for rehearing was denied on
September 6,1995. Pet. App. la-2a. On November 22,
1995, Justice Kennedy extended the time within
which to file a petition for a writ of certiorari to and

(1)

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 2

including January 5, 1996, and the petition was filed
on that date. The jurisdiction of this Court is invoked
under 28 U.S.C. 1254(1).

STATEMENT

   1. In 1990, the Russell Corporation (Russell) filed
a petition for relief under Chapter 11 of the Bank-
ruptcy Code. Pet. App. 9a. At the time the petition
was filed, Russell owed to First American Savings
Bank, F.S.B. (First American) a debt that was se-
cured by a mortgage on property owned by Russell
and by the personal guaranty of petitioners. Ibid.
First American moved for relief from the automatic
stay. Ibid. As a result of that motion, a consent order
was entered that required strict compliance with
Russell's obligation to make payments to First Amer-
ican. Ibid. After Russell defaulted under the terms
of the consent order, the bankruptcy court entered an
order granting First American relief from the auto-
matic stay. That order provided, in pertinent part:
First American Savings is granted relief from
the automatic stay with respect to the property
securing its claim * * * to advertise, foreclose
upon and to exercise all other remedies with
respect to said property to which it is entitled
under applicable law.
Id. at 10a.
   2. On June 5, 1992, the Resolution Trust Corpor-
ation (RTC) was appointed receiver for First Amer-
ican and conservator for First American Federal
Savings Bank (First American Federal), the succes-
sor to First American. Gov't C.A. Br. 5 n.1. The
RTC foreclosed on Russell's property on December 1,
1992, and was the high bidder at the foreclosure sale.

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3

Pet. App. 10a. The RTC then filed an action to
confirm the sale in the Superior Court of Gwinnett
County, Georgia (the confirmation action). Ibid.1
The confirmation action named as respondents both
Russell and petitioners, but the RTC stated "that "it
had named Russell only in order. to comply with
Georgia law, and that it did not intend to seek a
deficiency judgment against the debtor. Id. at 10a.
Upon petitioners' objection, the state court stayed its
proceedings and directed the RTC to seek relief from
the automatic stay in the bankruptcy court. Id. at
10a. The RTC moved for relief from the stay, nunc
pro tunc, and the bankruptcy court allowed peti-
tioners to intervene in opposition. Id. at 9a, 12a.
   3. The bankruptcy court held that the filing of the
confirmation action violated the automatic stay. Pet.
App. 14a. The court went on to hold, however, that
11 U.S.C. 362 authorizes courts to grant retroactive
relief from the automatic stay, and that such relief
was appropriate in this case. Pet App. 14a.  The court
reasoned that the automatic stay was designed, not to .
benefit third parties like petitioners, but to protect
the debtor and the property of the estate. Ibid.
Because the RTC was not seeking a deficiency judg-
ment against the debtor, and because the debtor's
trustee did not object to the retroactive annulment of
the stay, the court found that only petitioners would
benefit from enforcement of the stay, by avoiding
their liability as guarantors. Id. at 15a. Concluding
that Section 362 was not intended to foster that
result, the court granted the RTC's motion" for retro-
active relief from the automatic stay. Pet App. 15a.

___________________(footnotes)

    1. Under Georgia law, a confirmation action is a prerequisite
to obtaining a deficiency judgment. See Pet. App. 13a.

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4

   4. The district court affirmed. Pet. App. 7a. The
court agreed that Section 362 permits retroactive
relief from the automatic stay. It further held that,
because Congress intended the automatic stay to
protect debtors, and not to allow solvent guarantors
to avoid their obligations, the relief granted by the
bankruptcy court. was appropriate. Pet App. 7a.
   5. The court of appeals affirmed in a per curiam
order for the reasons stated by the bankruptcy and
district courts. Pet. App 4a.

ARGUMENT

   Petitioners urge this Court (Pet. 5-7.) to grant
certiorari in order to resolve a conflict among the
circuits concerning whether actions taken in viola-
tion of the automatic stay provided in 11 U.S.C. 36.2
are void ab initio, or merely voidable. That question,
however, did not control the outcome in this case.
While courts have frequently articulated the general
proposition that actions violating the automatic stay
are "void," they have consistently gone on to hold that
bankruptcy courts have the discretion to validate
such actions, in appropriate cases, by retroactive
annulment of the stay. See, e.g., In re Siciliano, 13
F.3d 748, 751 (3d Cir. 1994) ("Pursuant to section
362(d), the bankruptcy court had authority to grant an
annulment of the stay. If it had done so, the post-
petition sheriff's sale would have been validated as an
exception to the void ab initio rule."); In re Schwartz,
954 F.2d 569,571-572 (9th Cir. 1992) (finding violations
of the automatic stay to be "void, not voidable/' but
concluding that "section 362 gives the bankruptcy
court wide latitude in crafting relief from the auto-
matic stay, including the power to grant retroactive
relief from the stay"); In re Albany Partners, Ltd.,

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5

  749 F.2d 670, 675(11th Cir. 1984) ("It is true that acts
  taken in violation of the automatic stay are generally
  deemed void and without effect. Nonetheless,  362(d)
  expressly grants bankruptcy courts the option, in
  fashioning appropriate relief, of `annulling' the auto-'
  matic stay, in addition to merely `terminating' it.")
  (citations omitted)? See also 2 L. King, Collier on
 Bankruptcy 362.07 (15th ed. 1995). Because the
 bankruptcy court granted retroactive annulment in
  this case, the relevant question is whether the court
  of appeals properly affirmed the bankruptcy court's
  exercise of its discretion.
     Petitioners are correct in suggesting (Pet. 7-8, 10)
  that the most commonly cited basis for annulment-a
  creditor's lack of awareness of the automatic stay-is
  absent here. They are mistaken, however, in con-
  tending (Pet. 8-11) that no other equitable basis
  supports the decision below, The bankruptcy court
  invoked its equitable powers to grant relief, nunc pro
  tune, in this case because retroactive annulment
  would not affect the debtor's estate, and because
  enforcing the stay would have served only to relieve
  petitioners of their guaranty obligations. Pet. App.
  15a.3 Petitioners cite no case, and we are aware of
             
___________________(footnotes)

    2. Petitioners' contention (Pet. 5) that the decision below is
inconsistent with the Eleventh Circuit's prior decision in
Albany Partners does not merit further review, See Wisniew-
ski v. United States, 353 U.S. 901, 902 (1957) (intracircuit
conflict does not generally warrant Supreme Court review be-
cause "[i]t is primarily the task of a Court of Appeals to
reconcile its internal difficulties").
    3. Petitioners' reliance (Pet. 9) on Franklin Savings Ass`n v.
Office of Thrift Supervision, 31 F.3d 1020 (lOth Cir. 1994), is
misplaced. In Franklin Savings Ass'n, the creditor sought re-
lief from the automatic stay in order to pursue a claim of court

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6

none, in which a court has concluded that such con-
siderations cannot support annulment of an automatic
stay. 
   Petitioners demand, in essence, that the RTC's
rights against them be denied as a sanction for
violating the stay. Pet. 10. The district court cor-
rectly rejected that argument, holding that "[peti-
tioners'] nebulous allegations of RTC misconduct do
not undermine the logic" of the bankruptcy court's
decision. Pet. App. 7a. Petitioners have no right to
the protection of the automatic stay because their
claim for relief lies far outside the zone of interests
that Congress intended Section 362 to protect. See,
e.g., Otoe County Nat'1 Bank v. W & P Trucking, Inc.,
754 F.2d 881,883 (10th Cir. 1985) (automatic stay does
not extend to guarantor of debtor); In re Veeco
Investment Co., 157 B.R. 452 (E.D. Mo. 1993) (bank-
ruptcy court would not use its equitable powers to
benefit guarantor of debtor); In re Tulane Hotel
Investors Ltd. Partnership, 82 B.R. 826, 828 (E.D. La.
1988) (stay provisions are for benefit of debtor nulli-
fication of state court judgment would neither benefit
debtor's estate nor further purposes of Bankruptcy
Code).

___________________(footnotes)
      
costs against the debtor. Id. at 1022. Thus, unlike in this case,
retroactive relief from the automatic stay would have ad-
versely affected the debtor's estate.

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7

CONCLUSION

  The petition for a writ of certiorari should be
denied.
  Respectfully submitted.

                                   Drew S. Days, II
		        Solicitor General

WILLIAM F. KROENER, III
  General Counsel

ANN S. DUROSS
  Assistant General Counsel

COLLEEN B. BOMBARDIER
  Senior Counsel

LAWRENCE H. RICHMOND
  Counsel
  Federal Deposit Insurance
     Corporation

APRIL 1996