Here’s an aggregation of some of my Twitter posts from May 25-31, 2018, with links to important cases, articles, and news briefs that restructuring professionals will find of interest. Don’t hesitate to reach out and contact me to discuss any posts. Thanks for reading!

BK RELATED CASES:

  • Midstream O&G Contracts – 2nd Cir. affirms the bankruptcy court’s decision in Sabine Oil, which authorized the rejection of midstream oil and gas contracts, stating: “Regarding the horizontal privity requirement, there is no meaningful legal distinction between the contract in Clear Lake & the one at issue here. Neither contract conveyed a property interest in subject land (in this case, the mineral estate). Accordingly, both fail to establish horizontal privity of estate and therefore both fail to create a real covenant.” In re Sabine Oil And Gas Corporation
  • Golden Shares – 5th Cir (1) “golden share” op. finds nothing worth mining, stating: “We decline to answer the BK Ct’s 1st certified question regarding the enforceability of “blocking provisions” & “golden shares” generally. That question is appropriately reserved for a case in which it is not hypothetical.” The rest of the 5th’s “Golden Share” opinion, however, is worth mining by private equity investors regarding when a person becomes a “minority controlling shareholder” under Delaware law (with the Court concluding here that “if Boketo is a controlling shareholder of FSNA, then the tail is wagging the dog.” In re Franchise Services of North America Inc.
  • Golden Shares – 5th Cir (2)Here’s a good analysis of the 5th Circuit’s “golden shares” decision in Franchise Services of N. America: Fifth Circuit Allows Shareholder-Creditor To Block Bankruptcy Filing, by Sarah Borders, Deff Dutson, and Sarah Primrose of King & Spalding
  • Standing – 9th:  Failure to attend noticed hearing on and to object to the Ch 7 trustee’s untimely motion to assume an executory contract were irrelevant to whether the assumption order directly & adversely affected pecuniary interests for standing purposes. Matter of Point Center Financial Inc 
  • Buying Avoidance Actions – D-AZ:  The 9th Cir permits a sale of the trustee’s avoiding powers, including to an affiliate of the defendant to the action, and the creditor who purchased those avoidance powers is not required to pursue those powers for the benefit of all creditors. SVP Financial Services Partners LLLP
  • Lease Assumption via §365(p) but Not Reaffirmed – SD-CA:  In a case of 1st impression, Ct examines whether a lease assumption agreement per Code §365(p) is enforceable after discharge if the lease assumption has not been reaffirmed per §524(c) and holds that reaffirmation is not required if the lease is assumed per Code section 365(p)(2). Bobka v Toyota Motor Credit Corporation
  • DOL Claims & Dischargeability – ED-VA US Dept of Labor claims for unpaid wages are not subject to §523(a)(7)’s discharge exception since liquidated damages award sought by the Secretary serves a compensatory purpose, not a penal purpose. Acosta v JM Osaka Inc
  • IP Rights Post-Rejection – BK-CT takes a bold step in support of a nondebtor’s IP rights post-rejection & “respectfully declines to follow the 1st Cir holding [in Tempnology] and similarly aligns with the plain language reading of Section 365(g) advanced by Judge Easterbrook in the 7th Circuit.” In re Sima International Inc 
  • Summary Judgment Denial as Non-Final Orders – BK-DE  compiles cases in ruling that denial of summary judgment motion is not a final order implicating the bankruptcy court’s authority as a non-Article III court to enter final judgments. In re Anderson News LLC
  • Claims Objections and Choice of Forum Clauses – BK-DE:  Objection to proof of claim is properly heard in the BK Ct despite “multiple challenges to Plaintiff’s choice of forum” and defendant’s request to dismiss, enforce a forum selection clause, abstain, or otherwise transfer the case to a NY court. In re Penson Worldwide
  • Mortgage Foreclosure and Offsetting Claims – BK-SD-FL:  FL 5-yr statute of limitations for mortgage foreclosures doesn’t reduce a lender’s secured claim by subtracting amounts that were contractually due, absent acceleration, more than five years prior to commencement of the bankruptcy case. In re BCML Holding LLC
  • Maritime LIens and BK Jurisdiction – BK-HI cleans up on remand post-9th Cir reversal & holds that the stay does not apply to Plaintiff’s maritime claims & that the BK Ct lacked jurisdiction to rule on plaintiff’s maritime lien or to authorize the trustee’s sale of the vessel free and clear of the lien. In re Sea Hawaii Rafting LLC
  • Insurer’s Duty of Disclosure in Settlement – BK-ND-IL won’t dismiss case alleging CNA fraudulently concealed documents relating to disputed insurance policies from the Debtor. Further because of the special relationship between CNA and the Debtor, CNA violated its duty to disclose the documents, which prompted the parties to enter into a settlement agreement, which is approved herein. In re Oakfabco Inc
  • Waiver of 5th Am. Privilege – BK-ND-IL:  In another well-cited opinion by Judge Thorne holds that because the 5th Amendment privilege was never raised in response to the discovery request, any such objection was waived. In re Wolf
  • FERC Proceedings and the Automatic Stay – BK-ND-OH enjoins FERC proceeding, saying it does not involve police powers, would interfere with the Court’s jurisdiction over executory contracts, and creates potential admin claims. In re FirstEnergy Solutions Corp
  • GM Ignition Switch MDL and related BK Appeals – SD-NY reviews 8 preceding opinions from the bankruptcy court and 2d Cir in issuing 11 rulings on appeals from bankruptcy court rulings as well as bellweather products liability trials in the GM MDL Litigation. In re Motors Liquidation Company
    • Court reverses BK Ct’s 2015 ruling on fraudulent concealment claims against New GM, holding that plaintiffs can proceed on breach of duty claims for not disclosing ignition defects & thus depriving plaintiffs of the ability to file timely proofs of claim, stating: “That is, the mere fact that they allege a form of injury relating to the bankruptcy proceedings does not mean that they allege a duty arising from those proceedings.”
    • Court further reverse BK Ct ruling that the claims of purchasers of used GM vehicles without the Ignition Switch Defect were barred by the Sale Order to the same extent as the claims of their predecessors in interest, stating: “Plaintiffs purchased GM vehicles & suffered accidents after the Closing Date, they fall squarely within the scope of the 2d Circuit’s holding that the Sale Order cannot be applied to those who ‘had no relation with Old GM prior to bankruptcy.’ “

INTERESTING CASES FROM ILLINOIS AND OTHER COURTS:

  • Standing and Remand Rights – 7th Cir:  Upon finding that patrons in action removed to federal court lacked Article III standing, the district court was required to remand the case back to state court rather than dismiss it. Collier v SP Plus Corporation
  • Takings Claims Arising from the Harvey Flooding in Houston – Fed. Cl. For those of you who like interesting taking cases, here’s one relating to the construction of dams that worked perfectly, but also flooded the land upstream in last year’s Houston floods. “The government’s argument based on preexistence fails. Palazzolo explicitly rejects the ‘sweeping[ ] rule’ that ‘[a] purchaser or a successive title holder … is deemed to have notice of an earlier-enacted restriction and is barred from claiming that it effects a taking. [Palazollo] explained that ‘[t]he State may not put so potent a Hobbesian stick into the Lockean bundle,’ thereby “put[ting] an expiration date on the Takings Clause,’ ‘strip[ping landowners] of the ability to transfer the interest which [they] possessed before the prior to the regulation,’ and ‘secur[ing] a windfall [to the State].’ [Palazzolo, 533 U.S.] at 627.”  In re Upstream Addicks and Barker (Texas) Flood-Control Reservoirs
  • Insurance Duty to Defend Mixed Claims – IL AP 1:  Legal malpractice claims alleging willful conduct throughout the complaint are excluded from insurance coverage and so there is no duty to defend. Illinois State Bar Association Mutual Insurance Company v Leighton Legal Group LLC

BK RELATED NEWS & ARTICLES:

  • Banking & Bankruptcy:  Prof. Steve Lubben concludes: “After nearly a decade of waffling between ‘special’ & ‘normal’ bankruptcies for banks, we are ready to build upon what we learned & take the necessary further step: stop feigning that bank insolvency can or should happen in BK Ct.” A Functional Analysis of Sifi Insolvency, via SSRN
  • Dairy Woes in VTExcellent raw video interviews with dairy farmers from Vermont. “Hinsdale said he tried for a year to sell the farm & found no buyers, even though it was priced less than the $2.5M the barn alone cost to build. Up to 800 people attended the auction, but only 300 bid. Farmers wanted to see what dairy assets are worth.” Says the farmer on the video, “If I gave them the farm, it wouldn’t cash flow; . . . the mantra is ‘get big or get our.’ ” Vermont dairy is in crisis: 4 years of bad prices take a toll even on industry leaders. Vermont dairy is in crisis: 4 years of bad prices take a toll even on industry leaders, via Burlington Free Press
  • Defeating Bankruptcy Law by Contract:  There’s a lot to digest in Professor Westbrook’s trailer for his 2018 remake of “The End of Bankruptcy,” the Baird & Rasmussen 2002 classic. The End of Bankruptcy, by Jay Lawrence Westbrook via Credit Slips Blog
  • Farm Bankruptcy:  This is a sad story. I wonder if the Chapter 7 trustee will pursue an avoidance action for the transfer of the farm to the joint debtors’ son 2 years before the filing. Maine organic farming icons file for bankruptcy, via BDN Business
  • Fiscal Expansion and BK:  Don’t expect bankruptcies for a while. “Larry Summers has described the US [programme of fiscal expansion and reform] (accurately) as ”the most rapid increase in the debt-to-GDP ratio during peak business cycle times that has ever been seen in peacetime’.” Consequences of the Great Fiscal Divergence: Policy is raising US bond yields but effects on the dollar are ambiguous, via FT
  • Franchisee Bankruptcy:  This dispute is worth following between Applebees & its 2nd largest franchisee, now in BK, involves the intersection of bankruptcy and franchise law. Copy of complaint here. Applebee’s Sues Franchisee In Ch. 11 Over Deal Breaches
  • Necco:  “The company’s treats include Mary Jane candies, Clark Bars, Squirrel Nut Zippers and Sweethearts, the heart-shaped Valentine’s Day candy bearing romantic messages such as ‘Kiss Me’ and ‘Be Mine.’ Necco wafers have been around since before the Civil War.” Maker of Necco Wafers Gets Sweet Reprieve at Bankruptcy Auction, via WSJ
  • Pension Withdrawal Liability Settlement:  “That obligation, valued at $95M, will be paid by the warehouse’s former owner, C&S Wholesale Grocers, which supplies Tops with about two-thirds of its merchandise. Tops already paid $29M of it. C&S will pay the remaining $65M due.” Pension Deal Removes Potential $180 Million Hurdle in Tops Bankruptcy, via The Buffalo News.
  • Retail:  “Perhaps retail’s death is more a misunderstanding of a sector adapting to demand not just from the internet, but also a lopsided societal structure; where affluent urbanites shop for in LCD lit stores, while the masses get by on Dunkin & Dollar General.” Retail is not dead, via FT
  • Valuation:  Profs Morrison & Ayotte examine BK Ct opinions on valuation disputes with the goals of (1) understanding how parties and expert witnesses justify opposing views and (2) guiding judges in resolving valuation disputes, especially the pervasive errors in expert discounted cash flow (DCF) testimony. Valuation Disputes in Corporate Bankruptcy, via SSRN

LAW RELATED NEWS & ARTICLES:

LIFE AND THE WORLD GENERALLY:

©2018, Steve Jakubowski

Here’s an aggregation of some of my Twitter posts from May 16-24, 2018, with links to important cases, articles, and news briefs that restructuring professionals will find of interest. Don’t hesitate to reach out and contact me to discuss any posts.  Thanks for reading!

BK RELATED CASES:

  • 9th Cir.:  Tax-sale buyer & prior owner of contaminated property had a “contractual relationship” through the tax deed, so CERCLA’s 3d party defense to liability (which exempts facility owners from liability for contamination if a 3d party caused the contamination & as long as the owner did not have a contractual relationship with the third party) did not apply to a tax purchaser. California Department of Toxic Substances Control v Westside Delivery LLC
  • BAP-10: “The determination of the factors that justify separate classification of claims is a question of law reviewed de novo, but whether the requisite factors have been established is a question of fact reviewed for clear error.” In re Novinda Corp
  • CD-CA: Even if DHCS didn’t know the amt of its claim before BK filing, it could fairly contemplate the existence of its Hospital Quality Assurance quarterly fee. This is enough to satisfy the fair contemplation test, so the claim is not administrative. In re Gardens Regional Hospital and Medical Center Inc
  • D-IL:  A creditor’s judgment lien attaches to a debtor’s contingent future interests in property held as tenants by the entirety, but those contingent future interests—like the tenancy interests themselves—are exempt under § 522(b)(3). Jaffe v Williams
  • BK-DE:  Judge Shannon finds Till rate in Chapter 13 plan should be prime plus 2% for an auto loan, stating: “The Court is not persuaded by Ally’s arguments that a 3% adjustment is necessary due to a rapid depreciation rate of cars.” In re Burton
  • BK-ND-GA wades into the murky waters of alleged fraudulent transfers of LLC interests, examining the nature of the rights assigned, the timing of the transfer, and the value of the interests transferred. In re White
  • BK-ND-IL:  Judge Thorne holds that a same-sex couple with a “Certificate of Civil Union” under IL law, but not a certificate of marriage, were the substantive equivalent of married under IL law & so were “spouses,” eligible to file a joint Ch 13 petition. In re Simmons

INTERESTING CASES FROM ILLINOIS COURTS:

  • IL AP 1Future Chief Justice Neville of the Illinois Supreme Court presiding rules that if a general release references a specific claim, but there was a second claim known to one party and not the other, then the general release is limited to the specific claim referenced. Young v Meadows
  • IL AP 1A $210,000 charge for one day of surgery is “not reasonable under any definition of reasonable.” Illinois Neurospine Institute PC v Maczuga
  • IL AP 1A foreclosure buyer’s payment of condo assessments can occur after confirmation of the foreclosure sale, but should include assessments accruing the month following the foreclosure sale, not the sale’s confirmation. V And T Investment Corporation v West Columbia Place Condominium Association

LAW RELATED NEWS & ARTICLES:

LIFE AND THE WORLD GENERALLY:

 

©2018, Steve Jakubowski

Here’s an aggregation of some of my Twitter posts from May 10-15, 2018, with links to important cases, articles, and news briefs that restructuring professionals will find of interest. Don’t hesitate to reach out and contact me to discuss any posts.

May 10 – 15, 2018

BK RELATED CASES:

  • BK-ED-CA rules it has specific personal jurisdiction over Hong Kong resident whose only specific connection to the alleged ponzi scheme at a CA winery was buying a crapload of discount cases (a fr. transfer?) online from the comfort of his HK home. In re Fox Ortega Enterprises Inc
  • BK-ED-MIGood practice tip from ED-MI (Packard). When getting an order dismissing a BK case in favor of an existing state receivership proceeding, make sure the order of dismissal covers not only the debtor but “any other person.” This prevents involuntary petitions from being filed. In Re Packard Square LLC

INTERESTING CASES FROM THE UNITED STATES SUPREME COURT:

LAW RELATED NEWS & ARTICLES:

DISTRESSED INDUSTRY NEWS:

LIFE AND THE WORLD GENERALLY:

Thanks for reading!

©2018, Steve Jakubowski

Here’s an aggregation of some of my Twitter posts from May 7-10, 2018, with links to important cases, articles, and news briefs that restructuring professionals will find of interest. Don’t hesitate to reach out and contact me to discuss any posts.

May 7 – 10, 2018

BK RELATED CASES:

  • 9th Cir:  “We hold that the trustee’s adversary complaint contesting the basis for Lee’s exemptions qualified as an objection to those exemptions under Rule 4003.” In re Lee
  • BAP-9th analyzes UCC Section 2-501 and whether a special property interest exists in a “good” or a “future good” and concludes “that a good does not need to be complete in order to be an existing good.” In re Phoenix Heliparts Inc
  • D-ME in Lincoln Paper litigation by the Creditors’ Committee analyzes board duties under Delaware law, dismisses duty of loyalty claims, but sustains duty of care claims vs. board members even though they abstained from the vote that authorized distributions of insurance proceeds to shareholders. Official Committee of Unsecured Creditors v Meltzer
  • B-SD-CA dismisses involuntary petition for failure to prove Dbtr not paying debts as they gen. come due, but refuses to impose fees and costs because it was a close call.
  • B-ND-IL:  “[N]on-debtor substantive consolidation is not a remedy available to a court sitting in the 7th Cir., [but] even [it] could be considered, it is not clear every creditor of Defendants received notice of the Trustee’s request.” In re Concepts America Inc
  • B-MT:  “The Counterclaims [for postpetition breach of a ‘Bid Agr.’] are not ‘interests’ from which Movants were protected under 363(f) & the Sale Order.” Case provides an interesting analysis of successor liability “interests” and other claims. In re Mountain Divide LLC
  • B-SD-NY:  Environmental claimants are not like the ignition switch claimants and so due process rights weren’t violated. “This case is far more similar to Chemetron where, in the context of tort claims for damages arising out of exposure to toxic substances, the Ct found that the plaintiffs were unknown creditors because their identities were not reasonably ascertainable to the debtor.” In re Motors Liquidation Company
  • B-ED-PA:  While the Trustee’s criticism of the tax return as probative evidence is well taken, the document is nonetheless the only evidence in the record re Incare’s balance sheet position in 2010., so the trustee failed to meet its burden in this fraudulent transfer action. In re Incare LLC
  • B-SD-WV:  I like this quote: “The good faith standard also ‘protects the jurisdictional integrity of the bankruptcy courts by rendering their powerful equitable weapons (i.e., avoidance of liens, discharge of debts, marshaling and turnover of assets) available only to those debtors and creditors with clean hands.” Court ultimately refuses to dismiss ch 11, stating “the Court lacks any basis to peremptorily dismiss this case based on the current record.” In re Jade Investments LLC

INTERESTING CASES FROM ILLINOIS COURTS & UNITED STATES SUPREME COURT:

  • SCOTUS: The SCOTUS Opinion in Oil States reminds that the unconstitutional conditions doctrine “prevent[s] the Government from using conditions to produce a result which it could not command directly.” Oil States Energy Services LLC v Greenes Energy Group LLC
  • 7th Cir:  “At oral argument, HH described its claim as a ‘content-based, prior restraint, as-applied claim.’ Combining these various terms from First Amendment jurisprudence into a single claim requires some unpacking.  We begin with the framework for analyzing zoning regulations of sexually oriented adult businesses under the First Amendment. . . .  A zoning measure can be consistent with the First Amendment if it is likely to cause a significant decrease in secondary effects and a trivial decrease in the quantity of speech.”HH-Indianapolis LLC v Consolidated City of Indianapolis and County of Marion Ind

LAW RELATED ARTICLES:

DISTRESSED iNDUSTRY NEWS:

LIFE:

Thanks for reading!

©2018, Steve Jakubowski

Here’s an aggregation of some of my Twitter posts from May 1-6, 2018, with links to important cases, articles, and news briefs that restructuring professionals will find of interest. Don’t hesitate to reach out and contact me to discuss any posts.

May 1 – 6, 2018

BK RELATED CASES:

  • 3d Cir:  “The BK Ct didn’t consider the faster payment rate in isolation. Rather, it considered the 19 day difference in the context of the parties’ relationship, similarity of transactions, the manner in which payment was tendered, [the creditor’s new and unusual collection efforts during the Preference Period, and [the creditor’s] actions after learning of [Debtor’s] hardship. We agree w/the BK Ct analysis that, taken as a whole, [the creditor’s] conduct in the Preference Pd. deviated from the parties’ ordinary course of business practices.” In re AE Liquidation Inc
  • 8th Cir The “weak presumption that property purchased with entirety funds takes on the character of entirety property” fails to meet the higher evidentiary threshold necessary to establish the existence of a partnership. Cutcliff v Reuter
  • 9th Cir:  In a move you don’t see often, the 9th Cir. concisely summarizes Caremark and duty of care claims under Delaware Law. In re KSL Media Inc
  • BAP-6If the Debtors’ interest in certain real property was only a nontransferable equitable interest, as opposed to a transferrable legal interest, the trustee could not use, sell, or lease that interest and it would have no consequential value to the trustee. While the trust holds legal title to the property, the trust provisions allow the Debtors (and then others) to occupy it for the duration of their lives. Nothing in the document conveys legal title to the Debtors. Therefore, the Debtors’ interest is equitable in nature (and the parties agreed that if the Panel were to affirm the bankruptcy court’s determination that the Debtors’ interest was an equitable life estate that it would not be subject to turnover). In re Blasingame
  • D-CT:  Interesting litigation over an attorney opinion letter that opined as to the company’s corporate authority and due authorization to enter into the transaction. Court holds that “[t]he Opinion Letter is not a contract” and “Plantiffs do not have a claim as 3d party beneficiary.” Hence the breach of contract claim fails. UC Funding I LP Trustee v Berkowitz Trager And Trager LLC
  • B-ND-IL:  Judge Goldgar in Caesars rejects an agreed protective order because “the proposed order would have had the court find there had been ‘good cause shown,’ and no such showing had been made.” In re Caesars Entertainment Operating Co Inc
  • ND-IL:  “In sum, no precedent saves UPB’s counterclaim for equitable estoppel from § 1821(j)’s sweeping ouster of the courts’ power to grant equitable remedies.” FDIC, as Receiver for Seaway Bank v. Urban
  • ND-IL Court denies assignee for benefit of creditor’s motion to dismiss Lubrizol’s action against it for breach of fiduciary duty action for misdirecting payments that should have gone to the debtor’s former parent (Delta) but was accidentally sent to the debtor/assignor. “If the Court accepts as true the allegation by Lubrizol that the Trustee knew that the Delta payments did not actually belong to [the debtor/assignor], that would certainly infer a lack of good faith in the management of matters relating to the trust and would not comport with the terms of the Trust Agreement.” Lubrizol Corporation v Olympic Oil Ltd
  • MD-NC:  Court examines the record in detail in determining whether the BK Ct was right to dismiss a second voluntary petition filed the day after the same judge dismissed the first one. In re Rain Tree Healthcare of Winston-Salem LLC
  • B-WD-OK:  “The Court finds it incredulous that [the atty w/30 years of experience] would pay himself $348,404 in fees related to the bankruptcy over a two year period and not deem it appropriate to make any disclosure of the same before being ordered to do so by the Court.” In re Stewart
  • B-WD-PA:  The Stipulated Order did not extend the time for the Debtor to remove property  (i.e., the Mirrors) from the business premises, nor did it restrict the previous authorization granted to Landlord to exercise self-help remedies after vacation date.  Debtor’s motion for turnover and unjust enrichment against landlord to recover mirrors seized after vacation date denied. In re Flabeg Solar US Corporation
  • ED-PA:  Applying collateral estoppel would foreclose the possibility that the involuntary bankruptcy petitions against NMI were properly motivated, but that the filing against Rosenberg was not. . . . That result would not be warranted given the differences between the two proceedings and the underlying facts. Thus, the Court concludes that there is not sufficient identity of issues to permit offensive collateral estoppel.” National Medical Imaging LLC v US Bank NA

Interesting Non-Bankruptcy Cases from Illinois Courts:

  • 7th Cir:  Illinois recognizes three exceptions to economic loss rule: for personal injuries or property damage resulting from sudden or dangerous occurrences, for fraud, and for negligent misrepresentations by professional business advisors. Community Bank of Trenton v Schnuck Markets Inc
  • ND-IL:  “Taking all reas. inferences in ATG’s favor, the Ct can’t find the Agreement’s non-competition is geographically unreasonable as a matter of law at this stage, esp. in light of ATG’s assertions about its biz & the relatively short duration of the clause.” American Transport Group v. Power

 

LAW RELATED ARTICLES:

 

NEWS:

 

LIFE:

 

Thanks for reading!

©2018, Steve Jakubowski

Here’s an aggregation of some of my Twitter posts from April 23-30, 2018, with links to important cases, articles, and news briefs that restructuring professionals will find of interest. Don’t hesitate to reach out and contact me to discuss any posts.

 APRIL 23 – 30, 2018

BK CASES:

  • US Supreme Court:  Citing Marathon and Stern – “This Ct has not ‘definitively explained’ the distinction between public and private rights, and its precedents applying the public-rights doctrine have ‘not been entirely consistent.’ This case doesn’t require adding to the ‘various formulations’ of the public-rights doctrine. …  Our precedents have recognized that the doctrine covers matters ‘which arise between the Govt & persons subject to its authority in connection with the performance of the constitutional functions of the executive or legislative departments.’ …   In other words, the public-rights doctrine applies to matters ‘arising between the government and others, which from their nature do not require judicial determination and yet are susceptible of it.’ ” Oil States Energy Services LLC v Greenes Energy Group LLC
  • 2d:  New York’s internal affairs doctrine does not apply to in pari delicto. “Since we conclude that New York law applies to DLA’s in pari delicto defense based on an interest analysis, we need not reach the question of whether, under NY law, the law governing an affirmative defense to a claim is the same as the law governing the claim itself.” In re ICP Strategic Income Fund Ltd
  • 6th:  The Bk Ct correctly concluded that the assignment of “all the right, title and interest of [BOA] in, to, and under the Loan Docs,” did not include any “non-contract claims (including for breach of fiduciary duty) predating the Assignment. In re Modern Plastics Corporation
  • 8th The authority of BK Ct to issue “necessary or appropriate” orders did not allow it to order substantive consolidation of archdiocese estate with non-debtor parishes/parish schools even though these parishes and schools held the majority of archdiocese’s property and were supervised by the Archdiocese.  Also, there was no contention that parishes and schools were archdiocese’s alter egos, and isolated incidents of lack of corporate formality or commingling of assets did not overcome these barriers to substantive consolidation. In re Archdiocese of Saint Paul and Minneapolis
  • WD-WABK Ct properly followed the majority of courts in applying the accrual approach to the landlord’s administrative rent claim. In re Door to Door Storage Inc
  • B-ED-AR:  Good analysis by the Court in rejecting the creditor’s ordinary course defense to a preference action after a trial on the merits. In re Turner Grain Merchandising
  • B-MD-FLCourt takes a hatchet to an oversecured lender’s attorney’s fees. In re Unnerstall
  • B-SD-FL:  It isn’t accurate to say the 11th Cir in Edwards rejected the analysis of the 7th Circuit in Scholes. “The 11th Cir rejected only the argument that app’t of a BK trustee should be given the same effect as app’t of a receiver, automatically terminating the in pari delico defense. . . . .At the time the debtors filed their BK petitions, they had been cleansed of the bad actors and were no longer subject to the in pari delicto defense. As a result, under the holding in Edwards, the trustee is also free from the in pari delicto defense.” In re Palm Beach Finance Partners LP
  • B-ND-IL:  “The Barton doctrine does not apply to this matter as the Kraft Parties are not seeking to sue the Trustee in another court. Nothing in Barton or Linton or any of the foregoing stands for the proposition that a party cannot sue a trustee in BK Ct.” In re World Marketing Chicago LLC
  • B-ND-IL:  Ch 13 step-up plan providing for higher payments on secured car loan after admin. claims are paid violated the “equal monthly payment” requirement and could not be confirmed over the secured creditor’s objection. In re Williams
  • B-SD-NY:  Court reexamines whether claims are derivative or individual, complicated by the fact that Cayman law doesn’t authorize shareholder derivative actions. In re CIL Limited
  • B-SD-TX“A substantial majority of the 19 relevant factors” indicate that the truck drivers are independent contractors. Thus, individuals who have driven the Debtor’s trucks are not employees of the Debtor but rather are independent contractors. In re Pioneer Carriers LLC

Interesting Non-Bankruptcy Cases from Illinois Courts:

  • ND-IL:  “The Non-Compete Covenant clearly would prevent the employee from taking any number of plausible roles at another industry player, no matter how far removed from actual competition with Medix. Such a prohibition is unenforceable.” Medix Staffing Solutions Inc v Dumrauf

LAW RELATED ARTICLES:

  • Injunctive ReliefProfessor Cass Sunstein in “Irreparability and Irreversibility” provides very valuable insights for those seeking injunctive relief and arguing irreparable harm.

NEWS:

LIFE:

Thanks for reading!

©2018, Steve Jakubowski

Here’s an aggregation of my daily Twitter posts from April 13-22, 2018,  linking to important cases, articles, and news briefs that restructuring professionals will find of interest. Don’t hesitate to reach out and contact me to discuss any posts.

April 13 – 22, 2018

BK CASES:

  • BAP-9BAP-9 (Fitzhugh): BK court erred in applying the elements of § 727(d)(1) & (d)(2) bec Trustee had to prove, under both statutes, that he was unaware of the alleged fraud at the time the discharge was entered, not just at the time of the discharge bar date. In re Fitzhugh
  • BAP-6The sad story of this great hockey player continues, with the BAP-6 affirming his chapter 11 plan, premised upon a $5M five-yr contract. In re Johnson.  For further background, see How Jack Johnson’s Parents Screwed Him And Left Him Millions In Debt, from Deadspin
  • ND-IL:  Blixseth and others’ suits against Cushman and Wakefield for inflated appraisals are defended by the ins. carrier under a reservation of rights. Court court now begins untangling those rights, granting summary judgment on some claims and setting others for trial. Cushman And Wakefield Inc v Illinois Nat’i Ins. Co.
  • ND-IL:  State court foreclosure judgment & sale are “final judgments” for purposes of applying Rooker-Feldman notwithstanding the interlocutory character of the judgment of foreclosure under state law. Kyles v Federal Home Loan Mortgage Corp
  • B-ID:  Court doesn’t believe debtors no longer have the debtor-wife’s $46K diamond/platinum wedding ring given that a week before meeting with a bankruptcy attorney, and less than 2 months before filing for BK, the debtor-wife discovered that her debtor-hubby was having affair, and promptly threw ring into lake behind the home. Cutcliff v Reuter
  • B-ND-IL:  Judge Thorne disembowels Geraci Law and Semrad Law, while providing a good historical narrative on the law regarding attorneys fees in BK: “The court begins with the question as to whether or not the attorneys have violated any fiduciary obligations they owe to their clients in seeking payment of fees on an accelerated basis in their ch 13’s plans with the disclosures that were given in these cases. The court concludes that in these cases, since the cases are consumer chapter 13 cases where the attorney is to be paid at least partly over time pursuant to the chapter 13 plan, the attorneys had a minimum duty to disclose the negative ramifications of an early dismissal on the interests of the debtor prior to or simultaneously with entering into the retention agreement.” In re Carr
  • B-ED-LADebtor’s CEO is personally liable for the debtor’s admin. claims, not as alter ego, but for failing to perform maintenance and post-rejection turnover of the lenders’ aircraft collateral. In re FlyGLO Inc
  • B-MAEmploying a “multi-factor” approach, a Court will uphold contractual provisions waiving protections of the automatic stay when they are incorporated in court orders approving settlement agreements or orders confirming Chapter 11 plans. In re A Hirsch Realty LLC
  • B-ND-TX:  Single petitioning creditor gets order for relief entered with finding that the alleged debtors only have 11 creditors, which was really cutting it close given the court’s declaring a law firm with a questionable claim to be a non-creditor. In re Acis Capital Management LP
  • B-ED-WIWhen is a breach of contract case actionable as a 542 turnover claim? Court here denies Univ. of WI’s summary judgment motion against a claim it failed to fund a biodigester’s deficits & construction costs, ruling that the claim survives summary judgment because the action was brought as a 542 turnover claim. In re University of Wisconsin Oshkosh Foundation Inc

Interesting Non-Bankruptcy Cases from Illinois Courts:

  • IL-AP (5th):  Settling parties failed to meet their burden to make a preliminary showing that the mass tort environmental settlement was legally valid and that the terms of the Settlement Agreement satisfied the “equitable apportionment policy” underlying the Contribution Act. Custer v Cerro Flow Products Inc
  • ND-IL “For Motorola, none of this matters, because – its lawyers assure us, with absolutely no evidentiary support – that the email was the necessary first step in the obtaining legal advice. Unfortunately saying so doesn’t make it so. It cannot be too often repeated or too strongly emphasized that while a particular communication may be privileged, the underlying facts are not.” Motorola Solutions Inc v Hytera Communications Corp
  • ND-IL:  Neptun’s clearest articulation of the alleged harm is that “[d]esiring & selecting a more expensive & poorly-performing product in advance of any bidding, & irrespective of performance is anticompetitive.” That theory has no recognition in the law, for good reason. Neptun Light Inc v City of Chicago
  • ND-IL:  Court reviews various types of website “consent to terms” agreements, including “clickwrap,” “browsewrap,” and hybrid or “sign-in wrap” agreements and rules that personal jurisdiction over a defendant cannot be based on an electronic forum selection clause merely based on having clicked an “I agree to terms and conditions” box as a condition to completing site’s application process. TopstepTrader LLC v OneUp Trader LLC
  • ND-IL:  “The Non-Compete Covenant clearly would prevent the employee from taking any number of plausible roles at another industry player, no matter how far removed from actual competition with Medix. Such a prohibition is unenforceable.” Medix Staffing Solutions Inc v Dumrauf

LAW RELATED ARTICLES:

BK NEWS:

  • Weinstein BKCan a license agreement related to the Hotel Mumbai movie that was rescinded by virtue of an uncontested letter sent to The Weinstein Co prepetition still be sold in the 363 Sale. This adversary complaint seeks that answer.   Adv. Cplt. No. 18-50397, Hotel Mumbai Pty Ltd. v. TWC LLC.

LIFE:

Thanks for reading!

©2018, Steve Jakubowski

Here’s the second installment of My Twitter Feeds for Restructuring Professionals from April 2018.  Part 1 is here.

APRIL 10-12, 2018

BK CASES:

  • B-SDNY: “The issue in chapter 15 cases then is whether to recognize and enforce the foreign court order based on comity. Well-settled case law in the UK expressly authorizes third-party releases in scheme proceedings, particularly the release of affiliate-guarantees. The UK Court sanctioned the Avanti Scheme, and the Court concludes that the Avanti Scheme should be recognized and enforced in the US. Although no objections . . . were filed–and Court has already entered an order enforcing the Avanti Scheme –the Court believes that an explanation of the reasons for its ruling is appropriate.” In re Avanti Communications Group PLC
  • B-PA finds LLC’s voluntary petition was ultra vires in violation of the operating agreement, and then appoints a chapter 11 trustee instead of dismissing the case. In re Advanced Vascular Resources of Johnstown LLC
  • B-DE orders Richard, Layton can keep $75K retainer for chapter 7 case post-sale of all assets since “even if returned, [it]would not be property of the estate pursuant to the APA & thus the Trustee does not have standing to pursue this cause of action” In re EP Liquidation LLC
  • B-NC: “Individual shared responsibility payment” imposed for failure to obtain health insurance under the Affordable Care Act, 26 U.S.C. § 5000 is a penalty, not a tax, for priority purposes under 11 U.S.C. § 507(a). In re Parrish
  • B-TX: Postpetition interest that accrues on DSO claims under applicable nonbankruptcy law must be paid through Chapter 13 plans. In re Randall
  • B-TN: Any back child support payable to debtor on date that her bankruptcy petition was filed was held by debtor in constructive trust for benefit of any minor children over whom she had custody.  In re Rush
  • B-MI: property deeded to debtor and her husband as tenants by the entirety did not provide trustee with longer one-year period for objecting to debtor’s claim of exemption in property as fraudulently asserted. In re Rosich
  • D-MN: US prop assessor’s opinion testimony re FMV in quiet title action was expert opinion, so US’s failure to disclose him as expert precluded Court’s consideration in action seeking to remove federal tax lien
  • D-MN examines when a default judgment should be given preclusive effect in a nondischargeability proceeding. Seibert v Cedar Rapids Lodge And Suites LLC
  • BAP-9Case of first impression for any appellate court regarding the application of Barnhill to Section 549(a) transfers, prompting the Court to say “[t]his case brings to mind the adage: “No good deed goes unpunished.” In re Cresta Technology Corporation
  • D-FL: “Many courts have held that service of a subpoena can be proper under Rule 45, absent personal service, because there is no explicit requirement in the rule itself on the method of delivery” In re MTS Bank
  • B-AL: Transferee’s mere conclusory statements that it continued providing services until the filing of the petition were insufficient to support “subsequent new vale defense” absent factual allegations that services had value to the debtor. In re SpecAlloy Corporation

Interesting Non-Bankruptcy Cases from Illinois Courts:

  • D-IL: Gross negligence is insufficient to support a finding of intent as required under Rule 37(e)(2), but the lesser sanction under Rule 37(e)(1) is appropriate. . . . To address the prejudice resulting from Defendant’s spoliation of evidence, the Ct recommends that the parties shall be allowed to present evidence to the jury regarding the spoliated evidence & the likely relevance of the lost information.” Schmalz v Village of North Riverside
  • D-IL: Court cannot conclude that Taylor’s possibly “heavy-handed” control of Root constituted impermissibly “oppressive” conduct warranting his removal as an officer [per ILCS §§ 5/12.56(a)(3), (4)].” Root Consulting Inc v Insull
  • D-IL: “A corporate officer who personally negotiated the terms of a contract that gave rise to a tortious interference claim had ‘participated’ in the claim” and so can be sued in his personal capacity. CSX Transportation Inc v Five Star Enterprise of Illinois Inc
  • 7th Cir: Central issue is whether Illinois or Missouri tort law offers a remedy to card-holders’ banks against a retail merchant who suffered a data breach, and beyond the remedies provided by the network of contracts that link merchants, card-processors, banks and card brands to enable electronic card payments. The plaintiff banks assert claims under the common law as well as Illinois consumer protection statutes. Our role as a federal court applying state law is to predict how the states’ supreme courts would likely resolve these issues. We predict that both states would reject the plaintiff banks’ search for a remedy beyond those established under the applicable networks of contracts. Accordingly, we affirm the district court’s dismissal of the banks’ complaint. Community Bank of Trenton v Schnuck Markets Inc

ARTICLES:

NEWS:

LIFE:

Thanks for reading!

©2018, Steve Jakubowski

Thanks in large part to inspiration from the Seventh Circuit’s Chief Judge Diane Wood, it has been my habit since 2003 to review bankruptcy cases decided anywhere in the US sent to me via daily WESTLAW alerts. By 2013, however, with bankruptcy blogs proliferating, my 4 kids in grade school, junior high, and college, respectively, and everyone’s attention span narrowing as time demands multiplied exponentially, I found myself increasingly drawn to Twitter. 

It’s on Twitter that I transitioned from blogging to tweeting, often citing daily to cases, figuring that restructuring professionals can figure out the significance of a case for themselves without me having to explain it to them in a blog post. And even if they can’t, it’s likely at least one person has already written about it.

The problem with Twitter, however, is that it’s hard to find my professionally relevant posts since several of my tweets are not restructuring related. As such, the only way to find these posts is to scroll down through my posted tweets, which at 7,500 and counting is virtually impossible.

So starting today, I’ll be aggregating my old (and current) Twitter feeds here, working backwards through time. It’s a pretty good refresher course too for those who have followed me for a while.

You’ll also easily be able to find cases or articles of relevance to you by doing a search on this blog site alone. Given that this blog’s been around for over 12 years and has lots of uploads and posts, all searchable through this site, you never know what you’ll find! And with historical twitter posts continually being added along with the new, even more hits relevant to your practice may appear in your searches.

Thanks for reading both here and on my Twitter feed!

APRIL 1-9, 2018

CASES:

  • IL AP 2d – plaintiff’s atty waited until less than 2 minutes before deadline to electronically file motion & was unable to upload it in time, & since deadline was jurisdictional, the trial ct lacked authority to consider the untimely motion to reconsider Peraino v County of Winnebago
  • 2d Cir: “It is axiomatic that judicial estoppel—an equitable doctrine—is to be construed in light of eq. principles. It seems equally evident…the balance of equities tips overwhelmingly in favor of debtor yet the D-CT found judicial estoppel. What went wrong? Judicial estoppel cannot extend to the ‘unusual case’ in which a debtor’s nondisclosure had at most a ‘de minimis effect’ on a prior bankruptcy proceeding.”Clark v AII Acquisition LLC
  • 5th Cir: In valuing, for cramdown purposes, collateral of creditor making 1111(b)(2) election, bankruptcy court had flexibility to select appropriate valuation date, while subtracting from collateral value the value of media-rights costs that would never be paid under reorg plan because they were waived, and since this would not benefit creditors it was in the nature of an impermissible surcharge. Matter of Houston Regional Sports Network LP
  • BK MD FL issues administrative order providing blanket confirmation that the automatic stay does not prohibit Florida Tax Collectors from selling tax certificates relating to property of a debtor in bankruptcy or a bankruptcy estate. In re Administrative Order Regarding Sale of Tax Certificates by Florida Tax Col
  • 11th Cir: Attorney violates Section 526(a)(4) if he instructs a client to pay his bankruptcy-related legal fees using a credit card. Cadwell v Kaufman Englett And Lynd PLLC
  • BK ND IL in Direct Media finds contempt for blatant violations of several cash collateral orders and permits damages measured by “reasonable attorneys’ fees on matters directly related to the actions in question.” In re Direct Media Power Inc
  • BK MD FL: A party may recover prevailing party fees for an improper invol. BK filing by post-trial motion, except-per Rule 7054-when substantive law requires the fees be proven at trial, thus post-trial fees not proven are disallowed. In re Kraz LLC
  • SDNY: Creditor that, per carve-out provision in amended plan, could opt into or out of the treatment that it would receive as result of decision to substantively consolidate Ch 11 estates of holding co wasn’t harmed by decision, so has no standing to appeal it. In re Republic Airways Holdings Inc
  • BK ND IL allows payment of attorney’s fees of assignee for benefit of creditors over objection of chapter 7 trustee. In re Stainless Sales Corporation

ARTICLES:

NEWS:

LIFE:

Copyright 2018, Steve Jakubowski

This case should sufficiently concern private equity investors who extend secured credit, appoint a board member, are granted an option to purchase the business, and then foreclose and take over the business when the debtor–predictably–defaults.

In this 12/8/17 decision (In re Comprehensive Power, Inc., 2017 WL 6327192, Bankr. D. Mass), Judge Panos notes that the lender (“Moog”) moved to dismiss the Chapter 7 Trustee’s recharacterization / fraudulent transfer complaint because “it is merely a non-insider creditor that extended a loan to the Debtor after the parties executed financing documents memorializing the transaction, which included a security agreement granting Moog a security interest in substantially all assets of the Debtor.”

All Moog did, it argued, was enforce its rights as a secured creditor post-default under the transaction documents by accepting surrender of the collateral through a strict foreclosure and then credit bidding about 1/3 of its $6 million loan at a UCC sale. And sure, its board designee was funneling confidential information, but don’t private equity lenders always designate a board member precisely to ensure they get confidential information given the amount of the lender’s capital that is at risk? What’s wrong with that?

Well, Judge Panos found enough wrong with it to sustain all of the Trustee’s counts against the lender except for equitable subordination.  He sustained the Trustee’s recharacterization count because 6 of 11 AutoStyle factors were present, stating:

Here, drawing reasonable inferences in his favor, the Trustee has pleaded sufficient facts in support of at least six of the recharacterization factors, sufficiently stating a plausible claim for recharacterization of Moog’s debt. While the Trustee admits that the names given to the documents align with traditional naming constructs for financial instruments, he argues that, overall, there were components of the transaction that revealed its true nature to be equity rather than debt. With respect to the recharacterization factors, the Trustee points to allegations relating to the presence or absence of a fixed maturity date and schedule of payments and the presence or absence of a fixed rate of interest and interest payments to support his contention that the terms of the instruments and circumstances of the transaction were “atypical.”

Specifically, the Trustee alleges: (i) Moog’s standard practice was to engage in acquisitions, not provide loans, thereby indicating that Moog was implementing a unique “loan-to-own” transaction rather than establishing a true lender-borrower relationship; (ii) monthly interest payments were outside of the norm; (iii) the Debtor could extend maturity if the option was not exercised by Moog in connection with the Option Agreement; and (iv) Moog obtained substantive rights in the context of the transaction which are not typically given to traditional lenders, such as the right to appoint a representative to the Debtor’s Board and an option to acquire the Debtor’s assets or stock. Compl. ¶¶ 24–26, 50.

With respect to the source of repayments, the Trustee alleges that parties contemplated that the Moog financing could be repaid through Moog’s acquisition of the Debtor’s assets or stock, which could potentially support a claim for recharacterization. Id. Exs. A–B. As to the adequacy or inadequacy of capitalization, the Trustee alleges that the Debtor was undercapitalized and/or insolvent during relevant times, including at the time of the Surrender Agreement. Id. ¶¶ 32–34. The Trustee supports the allegation that the Debtor was undercapitalized and/or insolvent by further alleging that the Debtor (i) suffered losses in 2012 and 2013 that would have bankrupted the Debtor if it did not receive cash advances; (ii) encountered cash flow problems just months after receiving “advances” from Becana and others; (iii) had “trouble keeping pace with payments owed to employees, vendors and others”; (iv) depleted the $6 million in funding received from Moog in just a few months; and (v) defaulted on obligations to Moog less than ten months after the financing transaction. Id. ¶ 49. Whether evidence supporting these allegations could contradict the Trustee’s theories regarding the value of the Debtor’s business at the time of the transactions with Moog is a consideration that is more appropriately addressed when the record has been developed.

Regarding the Debtor’s ability to obtain financing from outside lending institutions, the Trustee alleges that the Debtor encountered cash flow problems and required further cash only months after receiving $6 million from Moog, suggesting the Debtor would be unlikely to obtain a traditional loan because of its cash flow issues. Id. ¶¶ 49, 51. The Trustee further alleges that no sinking fund was available to the Debtor to provide repayments, which Moog acknowledges, but argues is a “neutral” factor with respect to recharacterization. Mot. ¶ 61.

In sum, taken together, the factual allegations and the inferences drawn in favor of the Trustee are sufficient to state a plausible recharacterization claim.

In sustaining the actual fraudulent transfer claims against the lender, he stated: