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The automatic stay protects a "debtor," and the definition of a "debtor" is "a person or municipality concerning which a case under [the Bankruptcy Code] has been commenced." 11 U.S.C. § 101(13).
In 1994 Appellant Duncan (Duncan) bought a mobile home, and received a loan for the purchase from Conseco Finance Corporation, Inc. (Conseco). Conseco later filed for reorganization under Chapter 11 of the federal Bankruptcy Code. CFN investment Holdings, LLC purchased all of Conseco's servicing contracts in the bankruptcy proceeding, including Conseco's contract with Duncan. The bankruptcy court's order approving the sale states that CFN purchased the assets free of any prior claims against Conseco. CFN later became Appellee Green Tree Servicing, LLC (Green Tree). The present action began when Green Tree filed a repossession action against Duncan in the Shiprock District Court (District Court). Duncan filed a timely answer, counterclaims, and a motion for a jury trial. Duncan alleges in her counterclaims that "the Plaintiffs" committed fraud, intentional and emotional distress by harassment, and assault. Answer, Index Listing 9, at 2. The District Court denied the motion for a jury trial, and Duncan sought a writ of mandamus from this Court. This Court issued the writ to compel the District Court to conduct a jury trial. While the parties prepared for trial, Green Tree filed a motion to dismiss and informed the District Court of Conseco's bankruptcy proceedings. The court dismissed Duncan's counterclaims, concluding that Green Tree was "a party to a federal bankruptcy proceeding," Order of Dismissal at 8, and therefore the court lacked jurisdiction due to the automatic stay provision of the federal Bankruptcy Code, 11 U.S.C. § 362(a). Duncan filed an appeal with this Court. In its brief, Green Tree brought up several grounds for upholding the dismissal not relied upon by the District Court, including that an arbitration clause in the financing contract barred Duncan's claims. After oral argument, the Court asked the parties to file supplemental briefs on whether the arbitration clause was enforceable. The Court also invited amicus briefs on the issue. New Mexico Legal Aid, DNA People's Legal Services and James Zion filed amicus briefs, all arguing that the arbitration clause was unenforceable under Navajo law.
Did the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362(a), bar Duncan's counterclaims?
The Court held that it did not need to even consider the automatic stay provision at all, as Green Tree is not the debtor. The automatic stay protects a "debtor," and the definition of a "debtor" is "a person or municipality concerning which a case under [the Bankruptcy Code] has been commenced." 11 U.S.C. § 101(13). Green Tree Servicing did not file the bankruptcy petition, and the bankruptcy proceeding did not concern Green Tree. Instead Green Tree purchased Conseco's assets in the bankruptcy proceeding. Conseco, not Green Tree, is the debtor. That fact, in itself, is enough to reverse the District Court's decision. A purchaser of a debtor's assets does not purchase the debtor's right to a stay. Thus, the District Court erred when it dismissed the counterclaims based on the automatic stay.