IN RE R G FINANCIAL CORPORATION

is uncertain, he may be entitled to a preliminary injunction if he demonstrates a strong probability that he will be injured if the court fails to act. 11A Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 2948.3 at 189 194-195. To establish irreparable harm, the movant does not need to show that the injunctive relief will be fatal to the business, only that its legal remedies are inadequate. Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F. 3d 12, 15 (1 ^st Cir. 1996). "If the plaintiff suffers a substantial injury that is not accurately measurable or adequately compensable by money damages, irreparable harm is a natural sequel." Id. The Supreme Court has defined the concept of irreparable harm as follows, "[t]he key word in this consideration is irreparable. Mere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of a stay, are not enough. The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm." Sampson v. Murray, 415 U.S. at 90 (quoting Virginia Petroleum Jobbers Association v. FPC, 104 U.S. App. D.C. 106, 259 F. 2d 921 (D.C. Cir. 1958).

In the instant case this court finds that Debtor would sustain irreparable harm or injury if the continuation of proceedings against RGIC (a defunct entity with no assets) is not stayed, since as already explained herein, Debtor would be the entity legally and financially responsible in providing not only all the legal costs of RGIC's defense in the FINRA arbitration proceedings but also its limited managerial resources would also be diverted in assisting towards the preparation for such proceedings, meaning that its automatic stay protections under Section 362(a)(1) would in essence be violated. Moreover, at this juncture, the FINRA claimants have not requested from this court to lift the automatic stay with respect to the Debtor in order to proceed with the arbitration proceedings.

The second prong of the preliminary injunction test, "likelihood of success," has been defined for the purposes of an injunction in a bankruptcy case "as the probability of a successful reorganization." Lazarus Burman Assocs. v. National Westminster Bank USA (In re Lazarus Burman Assocs.), 161 B.R. 891, 901 (Bankr. E.D.N.Y. 1993). The second prong is related to the first prong, given that it would contravene the protections afforded to debtors under Section 362, namely to provide the same a breathing spell by halting all collection efforts and harassment by creditors while permitting the debtor to attempt a plan of reorganization. See H.R. Rep. No. 595, 95^th Cong., 1^st Sess. 340 (1977); S. Rep. No. 989, 95^th Cong. 2d Sess. 54-55 (1978), reprinted in App. Pt. 4(d)(i) and 4(e)(i) infra. ("The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy"). Thus, this court finds that Debtor meets the second prong of the preliminary injunction test because it would hamper its attempt for a successful reorganization if the protections of the automatic stay were not provided to Debtor.

The third prong of the preliminary injunction test, the relative harm to be suffered or the balance of relevant positions, is met by the Debtor because the degree of harm that would be imparted to the Debtor and its estate outweighs the harm that the FINRA claimants would face if a preliminary injunction were not issued, given that the preliminary injunction will not invalidate the alleged rights of the FINRA claimants but it will simply delay the enforcement of those rights. See In re Lazarus Burman Assocs., 161 B.R. at 901.

Lastly, the fourth prong of the test, the public interest in the context of a bankruptcy proceeding, consists in promoting a successful reorganization. Id at 901. This court concludes that the public interest is best protected if the Debtor continues to work in their reorganization rather than having to face immediate adverse economic consequences stemming from legal fees in the arbitration proceedings and the syphoning off of its limited managerial resources in such proceedings.

Exemption from the Automatic Stay under § 362(b)(6)

Section 362(b)(6) exempts from the automatic stay, ". . . the exercise by a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities clearing agency of any contractual right (as defined in section 555 or 556) under any security agreement or arrangement or other credit enhancement forming a part of or related to any commodity contract, forward contract or securities contract, or of any contractual right (as defined in section 555 or 556) to offset or net out any termination value, payment amount, or other transfer obligation arising under or in connection with 1 or more contracts, including any master agreement for such contracts." 11 U.S.C. § 362(b)(6). "The Financial Netting Improvements Act of 2006 clarifies that this stay exception includes the exercise by such entities of any contractual right (as defined in section 555 or 556) under any security agreement, arrangement or other credit enhancement in or related to any commodity contract, forward contract or securities contract." Alan N. Resnick and Henry J. Sommer, 3 Collier on Bankruptcy, ¶ 362.05[6] (16^th ed. 2010).

The FINRA claimants argue that they are exempted from the automatic stay pursuant to the provisions of Section 362(b)(6), but their reliance is misplaced given that such section allows for setoffs, which involve mutual debts and claims, which in turn originate from short-term contracts (such as securities and commodities contracts which involve margin calls) and entered into by certain entities described in said section. The court in the instant case, is simply not before this type of scenario (transaction), rather the FINRA claimants causes of actions arise from alleged violations of securities laws which occurred with respect to RGIC before the same was liquidated on June 29, 2007.

The FINRA claimants citing In re Coachworks Holdings, Inc., 418 B.R. 490 (Bankr. M.D. Ga. 2009) and Smith v. Tricare Rehabilitation Sys. (In re Tricare Rehabilitation), 181 B.R. 569 (Bankr. N.D. Ala. 1994) argue that the existence of pending litigation against the debtor in a non-bankruptcy case may constitute case for lifting the automatic stay. The court in both of these cases was presented with motions for relief from the automatic stay pursuant to Section 362(d)(1). This issue is simply not before the court, given that the FINRA claimants have not filed before the court a motion requesting relief from the automatic stay pursuant to Section 362(d)(1) and (g).

Mandatory Arbitration under FINRA Rules

FINRA claimants argue that FINRA Rule 13200 establishes mandatory application of arbitration proceedings. FINRA Rule 13200 must be employed in conformity with the Code of Arbitration Procedure for Industry Disputes. FINRA Rule 13200 provides,

"(a) Except as otherwise provided in the Code, a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among: Members; Members and Associated Persons; or Associated Persons.

(b) Disputes arising out of the insurance business activities of a member that is also an insurance company are not required to arbitrate under the Code." FINRA Rule 13200.

FINRA Rule 13100 defines the following terms:

"(f) Code — The term `Code' means the Code of Arbitration Procedure for Industry Disputes. For disputes involving customers, see the FINRA Code of Arbitration Procedure for Customer Disputes.

(o) Member — For purposes of the Code, the term `member' means any broker or dealer admitted to membership in FINRA, whether or not the membership has been terminated or cancelled, and any broker or dealer admitted to membership in a self-regulatory organization that, with FINRA consent, has required its members to arbitrate pursuant to the Code and/or to be treated as members of FINRA for purposes of the Code, whether or not the membership has been terminated or cancelled.

(a) Associated Person — The term `associated person' or `associated person of a member' means a person associated with a member, as that term is defined in paragraph (r).

(r) Person Associated with a Member — The term `person associated with a member' means:

(1) A natural Person who is registered or has applied for registration under Rules of FINRA; or

(2) A sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with FINRA under the By-Laws or the Rules of FINRA." FINRA Rule 13100(a), (f), (o) and (r).

In the instant case, the FINRA claimants are citing FINRA Rule 13200 which is used for industry disputes amongst members of FINRA or persons that are associated with a FINRA member. The dispute in this case is between RGIC (a former FINRA member) and the FINRA claimants which are not FINRA members. Thus, the applicable FINRA Rules would be those in conformity with Code of Arbitration Procedure for Customer Disputes. FINRA Rule 12200 provides the following:

"Parties must arbitrate a dispute under the Code if: Arbitration under the Code is either:

(1) Required by a written agreement, or

(2) Requested by the customer

The dispute is between a customer and a member or associated person of a member; and

The dispute arises in connection with the business activities of the member or the associated person, except disputes involving the insurance business activities of a member that is also an insurance company." FINRA Rule 12200.

RGIC is a defunct entity which was duly dissolved on August 14, 2007. FINRA Rule 12202 provides the following regarding claims against inactive members:

However, without making any factual findings the court assumes that RGIC's membership with FINRA terminated or the same withdrew its application with FINRA on June 26, 2007 pursuant to an online FINRA BrokerCheck Report.

"[a] claim by or against a member in one of the following categories is ineligible for arbitration under the Code unless the customer agrees in writing to arbitrate after the claim arises:

A member whose membership is terminated, suspended, cancelled or revoked;

A member that has been expelled from FINRA; or

A member that is otherwise defunct."

In the instant case, the entity that would be incurring in the costs of legally representing RGIC in the arbitration proceedings would be RGFC, because RGIC has no assets since it was liquidated on June 29, 2007. RGFC is not a former or a current FINRA member, or a natural person associated with a member. Thus, FINRA may not oblige RGFC to arbitrate in said arbitration proceedings.

However, this issue does not control the outcome because this court has ordered the provisions of the automatic stay to be extended to RGIC. Moreover, even if RGFC were obligated by the FINRA Rules to participate in said arbitration proceedings, the FINRA claimants would have had to file a motion to compel arbitration before this court, and they have not as of this date.

The Federal Arbitration Act Bankruptcy

The parties do not dispute that the FAA applies to arbitration proceedings brought before FINRA.

The Federal Arbitration Act ("FAA"), 9 U.S.C.S. § 1 et seq., requires federal courts to enforce arbitration agreements and to stay litigation that contravenes it. See 9 U.S.C. §§ 2 3; Burns v. New York Life Ins. Co., 202 F. 3d 616, 620 (2d Cir. 2000). The FAA represents a "congressional declaration of a liberal federal policy favoring arbitration agreements," and "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 23, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983). However, "like any statutory directive, the Arbitration Act's mandate may be overridden by a contrary congressional command."Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 226, 96 L. Ed. 2d 185, 107 S. Ct. 2332 (1987).

A bankruptcy court presented with a motion to compel arbitration must apply a four (4) prong test which consists of the following: (i) whether the parties agreed to arbitrate; (ii) the scope of the agreement; (iii) if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and (iv) if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then decide whether to stay the balance of the proceedings pending arbitration. Togut v. RBC Dain Correspondent Servs. (In re S.W. Bach Co.), 425 B.R. 78, 87 (Bankr. S.D.N.Y. 2010) (citing Bethlehem Steel Corp. v. Moran Towing Corp. (In re Bethlehem Steel Corp.), 390 B.R. 784,789) (Bankr. S.D.N.Y. 2008) (quoting Oldroyd v. Elmira Sav. Bank, FSB, 134 F. 3d 72, 75-76 (2d Cir. 1998).

In the instant case, the court has not been presented with a motion to compel arbitration by the FINRA claimants, thus it would be premature for the court to enter into the four prong test analysis and make a determination as to whether the FINRA claimants' claims are core or non-core, and whether the same are arbitrable or non-arbitrable.

Conclusion

In view of the foregoing, the court finds and concludes as follows: (1) RGFC, as RGIC's sole stockholder in conformity with the General Corporations Law of 2009, as amended of the Commonwealth of Puerto Rico, is statutorily the only party that may be potentially liable to the FINRA claimants depending on the outcome of their respective claims. Thus, the arbitration proceedings against RGIC are essentially and statutorily against the Debtor, given that RGFC as its sole stockholder, and as the real party in interest will be ultimately liable to the FINRA claimants; (2) the "unusual circumstances" to extend to RGIC the protection of the automatic stay pursuant to Section 362(a) are present in the instant case; (3) the exemption from the automatic stay provided by Section 362(b)(6) is simply inapplicable because this particular section allows for setoffs, that involve mutual debts and claims, which in turn originate from short-term contracts (such as securities and commodities contracts which involve margin calls) and entered into by certain entities described in said section. The court is not before this type of transaction, rather the FINRA claimants causes of actions arise from alleged violations of securities laws which occurred prior to the June 29, 2007 liquidation date of RGIC; (4) furthermore, this court finds that the FINRA claimants' argument regarding that the existence of pending litigation against a debtor in a non-bankruptcy forum may constitute cause for lifting the automatic stay is misplaced. The FINRA claimants have not filed before this court a motion requesting relief from the automatic stay pursuant to Section 362(d)(1) and (g); (5) in the instant case, FINRA pursuant to either the Code of Arbitration Procedure for Industry Disputes or the Code of Arbitration Procedure for Customer Disputes may not oblige RGFC to appear in the arbitration proceedings because they have not as of this date filed a motion to compel arbitration before this court; and (6) given that the FINRA claimants have not presented to this court a motion to compel arbitration, it would be premature for this court to enter into the four (4) prong test analysis to determine whether the FINRA claimants' claims are core or non-core and whether the same are arbitrable or non-arbitrable.

In summary, this court concludes that Debtor has satisfied the requirements pursuant to Sections 362(a) and 105(a) for the extension of the automatic stay to be extended to its duly dissolved subsidiary, namely RGIC. Consequently, the Debtor's motion requesting the provisions of the automatic stay to be extended to RGIC is hereby GRANTED.

In San Juan, Puerto Rico, this 17^h day of November 2010.