George L. Miller, Chapter 7 Trustee for the Estate of HomeBanc Corp. v. Bear Stearns & Co., Inc., et al.

In times of acute economic distress, the automatic stay of the Bankruptcy Code functions as a critical circuit breaker: it backstops a vulnerable financial system by slowing collateral grabs to protect the creditors of reorganizing or liquidating bankruptcy estates. Borne of the last financial crisis, this case is the canary in the coal mine for the current one. As the next wave of bankruptcies sweeps in, this appeal presents an opportunity to protect the financial system before mountains of collateral are swept away. The 2007-2008 Financial Crisis was fueled by a run on collateral underlying short-term lending facilities known as repurchase agreements, in which securities are sold with an agreement to repurchase them at a specified date and price. The Third Circuit decision below ignored express limitations in the safe harbor provisions of the Bankruptcy Code relating to repo financing and sanctioned the out-of-court liquidation of $90 million of cash-flowing financial assets to satisfy an $8 million prepetition debt. The Third Circuit’s decision will have an outsized national impact on a financial system spinning out of control as courts nationwide look to the Delaware bankruptcy court for guidance. In this appeal, the Court is asked to decide whether the Bankruptcy Code’s safe harbor language of limitation should be enforced as written or the statute interpreted as though the language of limitation does not exist? (i)