BERNARD A. FRIEDMAN, District Judge.
Syncora Guarantee Inc. and Syncora Capital Assurance Inc. ("Syncora") appeal from an August 28, 2013, order of the bankruptcy court, which determined that certain casino tax revenues are property of the bankruptcy estate and, therefore, subject to the automatic stay provided in 11 U.S.C. § 362(a)(3). Syncora filed a brief in support of the appeal [docket entry 3]. The City of Detroit ("the City") filed a brief in response [docket entry 5] and Syncora filed a reply [docket entry 6].
In granting Syncora's petition for a writ of mandamus, the Sixth Circuit Court of Appeals ordered this Court to vacate the stay it had earlier imposed in this case [docket entry 7] and decide the merits of the appeal.
The Court has appellate jurisdiction pursuant to 28 U.S.C. § 158 and reviews a bankruptcy court's factual findings for clear error and its conclusions of law de novo.
On appeal, Syncora contends that the casino tax revenues are not the property of the bankruptcy estate because the "lockbox" procedure, whereby the City deposited its swap obligation payments into one third-party custodial account in exchange for the release of the casino tax revenues deposited into another such account, is akin to an escrow arrangement that merely endowed the City with a contingent right to receive the deposited revenues. Syncora also maintains that the casino tax revenues are exempt from the automatic stay pursuant to 11 U.S.C. § 922(d).
With respect to the first argument, the bankruptcy court properly determined that the "lockbox" mechanism does not constitute an escrow arrangement. Under New York law,
Regarding the second argument, the bankruptcy court correctly held that the automatic stay exemption found in 11 U.S.C. § 922(d) is inapplicable. Section 922(d) provides that the filing of a chapter 9 municipal bankruptcy petition "does not operate as a stay of application of pledged special revenues . . . to payment of indebtedness secured by such revenues." Assuming, without deciding, that Syncora possesses the requisite standing to invoke section 922(d) (which the Court strongly doubts), the statute has no bearing on the use of the casino tax revenues to secure the City's swap obligation payments. This is because one of the main purposes of section 922(d) is to ensure "the protection in chapter 9 cases of a pledge of special revenues under revenue bonds," 6 Collier on Bankruptcy ¶ 922.05[1] (Alan N. Resnick & Henry J. Sommer eds., 16th ed.), and the City's swap obligation was not a form of indebtedness issued to either the swap counterparties or the swap insurer, Syncora.
Accordingly,
IT IS ORDERED that the stay imposed in this matter is hereby vacated.
IT IS FURTHER ORDERED that the bankruptcy court's August 28, 2013, order is affirmed.