Early this spring, when BAPCPA bashing had become “so very smashing!” (culminating in this post about the latest BAPCPA bashing opinion), I returned to my desk one sunny afternoon and retrieved from my voice mail a message from someone identifying himself as Marvin Isgur, who wanted to know if I’d like to come down to Galveston, Texas in late June to speak before about 300 consumer bankruptcy lawyers at this conference on recent consumer bankruptcy case law developments.

My initial reactions to Judge Isgur’s voice message were much akin to those of Noah, as portrayed by Bill Cosby in this classic skit.  First, when I heard the message say “Steve, this is Marvin Isgur…,” I thought — like Noah — “what do you want, I’ve been good?”  Then when the message continued, and Judge Isgur said he’d like me to deliver the opening presentation on recent consumer bankruptcy law decisions, I thought — like Noah — “what’s an ark?” (i.e., what’s consumer bankruptcy law)?

Yet, having placed the “don’t mess with

Texas” label on Judge Isgur here (following his issuance of the first opinion clearly demonstrating BAPCPA’s harsh new world for consumers), I pretty much viewed his proposal as an “offer you can’t refuse.”

A few days after accepting, the organizers at University of Texas Law School’s Center for Continuing Legal Education made sure to let me know “the most popular event every year at the conference has been the opening presentation by Professor Elizabeth Warren from Harvard and by Professor Jay Westbrook of the

University of

Texas.”  In fact, they added, “the presentation is so popular each year that we thought that we would find an expert to try to fashion a comparable program on recent developments in Consumer Bankruptcy Law.”  As for preparing an outline on the topics you’ll be speaking about, attached you’ll find the 113 and 119 page outlines that Professors Warren and Westbrook, respectively, distributed at previous conferences.  Oh, and good luck!

It was then that I truly understood the perils of accepting the “offer you can’t refuse.”  As noted here, such career choices may well spell one’s doom.  Judge Isgur, however, encouraged me to have no fear, and that everything would turn out fine.

Well, many panic-driven, sleep-deprived days and nights later, I’ve now completed that “Great American Consumer Bankruptcy Outline,” a 90 page magnum opus encapsulating pretty much every consumer bankruptcy opinion worth reading (or not so worth reading) in the past 12 months.

So, for those of you who’ve wondered what happened to me these past couple of months, and why I have cut down on my blogging–well, now you know.

In the coming days and weeks, I’ll publish here periodic installments from each of the outline’s 17 sections.  Alternatively, you can get the glossy version by signing up for the conference (be sure to bring your Hawaiian garb, though).

Here’s the Table of Contents to the Outline:

Continue Reading The “Mother of All BAPCPA Consumer Bankruptcy Law Outlines,” Soon Available for Your Reading Pleasure

It’s hard as a bankruptcy lawyer not to focus on negative economic news, especially when it deals with the ability of common Americans to pay that last bastion of assumable debt — the mortgage.  Today’s front page article in Chicago’s Sunday Tribune, titled "Mortgage defaults on rise," informs of the following rather depressing facts:

  • Foreclosures on home mortgages are on the way up.
  • In Illinois during the first three months of 2006 nearly 13,700 properties entered foreclosure, up 32 percent from the fourth quarter of 2005.
  • The numbers are grimmer elsewhere in the Midwest, with Michigan and Ohio together recording 45,000 mortgages entering some stage of foreclosure in the first quarter of 2006, representing increases of 91 percent and 39 percent, respectively, compared with last year’s fourth quarter.
  • Nationally, foreclosures are up 38 percent, higher than in any quarter of last year.
  • Things could get far worse when $2.7 trillion in ARM’s reset over the next 18 months.

Recently, I came across this well-focused blog, The Foreclosure Report, which offers the following recent posts to show that the dramatically increasing trend in foreclosures is not limited to the midwest, but is affecting every region:

The prime culprit for all this pain:  loose lending, particularly at the subprime level (a problem discussed here).  The Tribune article cites to the Community Bank of Elmhurst’s own Bill Gooch, its CEO, who said he thought that lending policies are playing a role in the foreclosure trend as "some financial institutions, competing fiercely for business, are making mortgages available to marginal borrowers."  "People think they have to loosen their restrictions, their guidelines, their policies," he said.  Similar sentiments have been widely reported elsewhere.
 
Meanwhile, we learned on Friday that the University of Michigan’s Survey of Consumers reported that its index of consumer confidence fell to 79.1 in May from 87.4 in April, the biggest drop since Hurricanes Katrina and Rita hit last year.  As the site’s charts and tables show, that’s about as low as it gets.  The squeeze continues.
 
Good luck all, and have a safe holiday.
 
 
© Steve Jakubowski 2006

A bankruptcy examiner is appointed by the court in a bankruptcy case pursuant to Code section 1104(c) to "conduct such an investigation of the debtor as is appropriate, including an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor." 

This simple grant of authority has led to the issuance of  reports that, when stacked together, surely validate former Fed chairman Alan Greenspan’s conclusion in 2002 — in pre-Sarbannes-Oxley testimony before the Senate — that:

  • The stock boom of the 1990’s created "an outsized increase in opportunites for avarice," in which "[a]n infectious greed seemed to grip much of our business community.  Our historical guardians of financial information were overwhelmed."
  • "It is not that humans became any more greedy than in generations past.  It is that the avenues to express greed had grown so enormously."

Historians of future generations need only look at examiner’s reports in some of the more spectacular bankruptcies of the recent past to confirm Mr. Greenspan’s conclusory observations.  (See, e.g., Enron, WorldCom-1&2 , Spiegel, Fibermark, and Gitto Global-1, 2, 3, 4).  Perhaps, though, they’ll just conclude, like King Solomon, that "there’s nothing new under the sun."

Another damning examiner’s report, this one issued by Dan Harrow, the Court-appointed examiner in the Fruehauf Trailer Corp. case, has recently been the subject of considerable controversy, as these articles from the LA Times relate.  According to today’s story:

What otherwise promised to be a low-key race for Orange County treasurer/tax collector has been anything but, with one candidate stung by allegations that he mismanaged the assets of a bankrupt trailer company, resulting in a district attorney’s investigation….

After bankruptcy was granted in 1998, Street took over a successor company formed to liquidate Fruehauf’s remaining assets as well as its pension plan. He resigned in August 2005, replaced by a new trustee, Daniel Harrow.

On March 15, five days after Street filed his candidacy papers to run for Moorlach’s seat, Harrow filed a 63-page statement with the Bankruptcy Court in Delaware accusing Street of "mismanagement, conflicts of interest and greed" while in charge of the trust.

Street said the statement was rife with falsehoods. He defended his actions, saying that creditors had recouped their money and that he had shored up the company’s ailing pension fund.

When the federal Pension Benefit Guaranty Corp. announced its takeover of the fund in 2004, its news release said that a $7-million deficit would be covered by insurance.

In April, Street filed a defamation and conspiracy lawsuit against Harrow and a union official who criticized Street before Orange County supervisors.

Street’s "shoot the messenger" defamation suit likely won’t go far given that private trustees like Harrow have, according to the 9th Circuit, quasi-judicial immunity for "actions that are functionally comparable to those of judges, (i.e., those functions that involve discretionary judgment)."  Curry v. Castillo (In re Castillo), 297 F.3d 940, 947 (9th Cir. 2002) (pdf). 

Street’s failure to obtain a protective order under Code section 107(b)(2) to "protect [him] with respect to scandalous or defamatory matter contained in a paper filed [with the Court]" may also bar him on claim preclusion grounds from attempting to raise this issue again in another related proceeding.  Cf., Gitto v. Worcester Telegram & Gazette Corp. (In re Gitto), 422 F.3d 1 (1st Cir. 2005) (pdf) (contents of examiner’s report only "defamatory" for purposes of Code section 107(b)(2) if material would cause a reasonable person to alter its opinion of the person in question and either (i) the material is untrue or (ii) the material is potentially untrue and irrelevant or included within a bankruptcy filing for an improper end).

 

© Steve Jakubowski 2006

Catherine E. Vance, DSI’s research and policy guru, is as steeped in the legislative history of BAPCPA as you’ll find. During BAPCPA’s most formative and “tumultuous years,” starting in 1998, Cathy viewed BAPCPA’s development from the unique vantage point of legal writer, analyst, and national education coordinator for the Commercial Law League of America. Clearly then, given BAPCPA’s well-known flaws, when Cathy decides to look into the history of BAPCPA’s incongruous new Code section 1102(b)(3) (which requires a creditors’ committee to “(A) provide access to information for creditors who hold [like] claims” and “(B) solicit and receive comments from [such] creditors”), it’s worth reflecting on her comments.
Cathy’s latest work, entitled The Origin of Information Sharing Under New § 1102(b)(3) (pdf), however, is not about “the legal problems with these § 1102(b)(3) orders and the motions that underlie them – most notably the absence of a case or controversy and insufficient notice.” Rather, she starkly notes, the purpose is “to dispel a myth that permeates them all: that we know nothing about the origin or purpose of § 1102(b)(3).”
So what should we know about the origins of Section 1102(b)(3)? Well, for starters, it’s origins were quite inauspicious, resting on a short statement from Representative Nydia Velasquez, then the ranking democratic member of the House Small Business Committee, who “[o]n May 5 … offered House Amendment 57, making her intention clear: Vel�zquez had small business creditors on her mind, especially those whose claims are large from the creditor’s perspective, but small from the debtor’s.”
Cathy quotes directly from Representative Velasquez’s passionate statement in support of the amendment (reported in the Congressional record), where Representative Velasquez said:

Mr. Chairman, while H.R. 833 provides a plan for overhauling our Nation’s bankruptcy law, there is one issue that, while seemingly small, will have a great impact on this Nation’s small businesses. That is the way that the bankruptcy process leaves small businesses who are creditors on the outside looking in.
To solve this problem, I am offering an amendment that will quickly and fairly address the issue by ensuring more small business involvement and greater communication in the bankruptcy process. My amendment will make two simple changes.
First, it would allow a small business involved as a creditor in a Chapter 11 bankruptcy case to be added to the creditor committee by the court. The court could make such an appointment by comparing the amount of the claim as a proportion of the business’ gross annual revenue, thus showing that a business is disproportionately affected.
Second, my amendment will ensure that those small businesses not included on the creditor committee will have access to critical information regarding the credit [sic] committee’s actions. This could be achieved by simply making the committee open to comments from and required to provide additional information to those small businesses not included on the committee but who will nonetheless be affected by the outcome.

Cathy notes that no further changes were proposed, and the provision sailed through without much further ado, “save for some unhelpful information included in the various House reports.”
To Cathy, however, there is no need to engage in protracted mental anguish in every chapter 11 case over how to handle the most basic of chapter 11 duties (i.e., the sharing of information between the debtor and the committee). In effect, Cathy seems to argue, do what others have done with BAPCPA’s more enigmatic provisions — first, try to limit them; and if that doesn’t work, ignore them. She writes:

Continue Reading Everything Starts Somewhere: DSI’s Catherine Vance Unlocks the Mystery Behind the Origin of BAPCPA’s Section 1102(b)(3), Which Requires a Creditors’ Committee to Provide Creditors with Access to Information and a Ready Ear – Part I

Part II of our continuing post-mortem analysis of the US Supreme Court’s anti-climactic 9-0 ruling takes a look at the other grounds for reversal argued by Pierce Marshall in his brief to the 9th Circuit. (Sorry, only We$tlaw version available at present). Given the US Supreme Court’s remand of the case “for further proceedings consistent with this opinion,” rest assured that Anna’s and Pierce’s respective legal teams are dusting off their arguments to the 9th Circuit from three years ago. There, in addition to Pierce’s now discredited challenge based on the so-called “probate exception” to federal court jurisdiction, Pierce raised the following issues on appeal:

  • Whether the Probate Court’s prior final judgment holding, among other things, that J. Howard did not intend to give Vickie any gift, precluded the District Court’s judgment on grounds of claim preclusion, issue preclusion, and the Rooker-Feldman doctrine.
  • Whether Texas law recognizes Vickie’s alleged cause of action of “tortious interference” with an “expectancy of an inter vivos gift” and, if so, what are the elements and parameters of her novel cause of action and has Vickie met those elements.
  • Whether the District Court denied Pierce due process of law by refusing to permit him to call percipient witnesses, by substituting its judgment for that of the Texas judge and jury through collateral review of the Texas probate proceedings, by finding J. Howard’s principal estate planning instrument to be invalid, in part, on the hearsay statements of witnesses who did not testify and were not subjected to cross-examination, and by improperly handing over to Vickie all of Pierce’s documents, including privileged documents.
  • Whether the District Court erred in basing its judgment (including compensatory and punitive damages) on speculative inferences and conjecture, nonexistent or insufficient evidence, and presumed facts.

More on Pierce’s answers to these questions later. For this post, however, I want to focus on Pierce’s 71 page opening statement of facts to the 9th Circuit, which refers extensively to the relationship between Anna and J. Howard Marshall. As you’ll see, it’s far from what one would call a true “courtship” (as Justice Ginsburg did in her opinion). Instead, I am reminded of Howard Bashman’s memorable interview of Judge Easterbrook, who remarked that one reason he enjoys being a federal appeals judge is that he’s often “served up [with] facts that were proposed as soap opera scripts and rejected as too implausible.”
Here are direct quotes of some of Pierce’s saucier allegations, which — given the characters and stakes involved — surely rank this case as a leader among ones with a “too implausible,” but probably true, “soap opera script”:

Continue Reading The “Courtship” of Anna Nicole Smith – Part II: Pierce Marshall’s Appellate Arguments Reviewed

After today’s widely reported win by Anna Nicole Smith before the US Supreme Court (stories here and here), Pierce Marshall vowed that the only thing “Anna and her lawyers can take to the bank” from this win is a “continue[d] fight to clear [his] name in California federal court.” His lawyer, Eric Brunstad, echoing arguments he advanced to the Supreme Court, remarked that Anna will lose Round 2 before the 9th Circuit because she “can’t get a second bite at the apple” (a quote that reminded me, given the circumstances, of this great movie). Anna’s lawyer, Kent Richland, retorted: “We are confident that the 9th Circuit will have no problem in ruling in our favor on the issues that remain.” Round 2 of appellate review sure is shaping into another good ole’-fashioned Texas-style “hully-gully slopfest.”
Now to the decision, Marshall v. Marshall, 2006 WL 1131904, where Justice Ruth Bader Ginsberg, writing for a unanimous Court, swept aside “misty understandings of English legal history” and held, in no uncertain terms, that “the Ninth Circuit had no warrant from Congress, or from decisions of this Court, for its sweeping extension of the probate exception.” (p.2) Notably, Justice Ginsberg did not wipe away the “probate exception,” as Anna’s lawyers had urged and as Justice Stevens advocated in his concurring opinion (extolled here). Instead, she ruled narrowly, holding “that the instant case does not fall within the ambit of the narrow exception recognized by our decisions.” (p.8) (However, in marked contrast to Pierce’s portrayal of Anna here, the Court’s framing of events leading to the marriage as a “courtship” (p.2) suggests that Anna’s front-row teardrops during oral argument were not perceived by the Court as quite the crocodile tears some would have us believe.) [NB: But see here]
So what, then, is the “ambit of the narrow exception recognized by our decisions”? To Justice Ginsberg, the answer is found in the Court’s decision in Markham v. Allen, 326 U.S. 490 (1946), which she described as “the Court’s most recent and pathmarking pronouncement on the probate exception.” (p.11) This decision stated, in a quite “misty” and “mythograph[ic]” way (pp. 1-2), that “the equity jurisdiction conferred by the Judiciary Act of 1789…, which is that of the English Court of Chancery in 1789, did not extend to probate matters.” (p.11)
Justice Ginsberg noted that Markham is “enigmatic,” to be sure, but it remains good law. She wrote:

[I]t has been established by a long series of decisions of this Court that federal courts of equity have jurisdiction to entertain suits ‘in favor of creditors, legatees and heirs’ and other claimants against a decedent’s estate ‘to establish their claims’ so long as the federal court does not interfere with the probate proceedings or assume general jurisdiction of the probate or control of the property in the custody of the state court.” 326 U.S., at 494. (Emphasis in original). (pp. 13-14)

As regards how the term “interfere” should be construed, Justice Ginsberg wrote:

[W]e comprehend the “interference” language in Markham as essentially a reiteration of the general principle that, when one court is exercising in rem jurisdiction over a res, a second court will not assume in rem jurisdiction over the same res. (Citations omitted). Thus, the probate exception reserves to state probate courts the probate or annulment of a will and the administration of a decedent’s estate; it also precludes federal courts from endeavoring to dispose of property that is in the custody of a state probate court. But it does not bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction. (p.14)

In analyzing Anna’s case in light of the foregoing principles, Justice Ginsberg concluded that Anna wins because her claim does not — quoting Markham — “involve the administration of an estate, the probate of a will, or any other purely probate matter.” (p.15) Rather, Justice Ginsberg wrote:

Provoked by Pierce’s claim in the bankruptcy proceedings, Vickie’s claim … alleges a widely recognized tort. Vickie seeks an in personam judgment against Pierce, not the probate or annulment of a will. Nor does she seek to reach a res in the custody of a state court. Furthermore, no “sound policy considerations” militate in favor of extending the probate exception to cover the case at hand. Trial courts, both federal and state, often address conduct of the kind Vickie alleges. State probate courts possess no “special proficiency *** in handling [such] issues.” (Citations omitted). (p.15)

So Anna wins, and the judgment of the 9th Circuit is reversed, with instructions “for futher proceedings consistent with this opinion.”
Part II, coming soon, will focus on the two issues that the 9th Circuit hoped to avoid having to wrestle with by dismissing the case on jurisdictional grounds, but now will have to address head on. (So don’t be surprised to see this case back in Justice Ginsberg’s lap a year or two from now.)
The first issue is whether Anna’s counterclaim against Pierce (who clearly never should have submitted to the jurisdiction of the bankruptcy court by filing a proof of claim in Anna’s bankruptcy case) was a “core” or “non-core” proceeding. Given that the bankruptcy court found Pierce liable for almost $500 million, whereas the district court tagged Pierce for just under $100 million, Pierce’s fortune (or misfortune) may well hinge on the answer to this seemingly innocuous question, as the following very telling exchange at oral argument illustrates:

Continue Reading Pierce Marshall Readies for Another Assault on Anna Nicole Smith After the US Supreme Court Throws Her a Lifeline – Part I

The famed early English jurist Henry De Bracton (1210-1268), cited in Alden v. Maine, 527 U.S. 706, 764 nn.3-4 (1999) as the “earliest source for the common law immunity of the King,” is also the first to have said, “An ounce of prevention is worth a pound of cure.”
Bracton’s well-worn phrase springs to mind when perusing a new treatise, Attorney Liability in Bankruptcy, co-edited (and co-authored in significant part) by Corrine Cooper and Catherine Vance. Their basic conclusion: there are more hidden traps in BAPCPA than in an Indiana Jones movie. A few of the traps reviewed in the treatise are also previewed here (§ 707(b)(4)), here (§ 521), and here (“9 Traps and One Slap”).
Based on this recent decision from the 4th Circuit, it’s looking like statutes whose acronyms end with the letters “CPA” portend dark days for attorneys dealing with consumer debtors. As recently explained at length in this blog post by Holland & Knight’s Rob Glenn, the Fourth Circuit has recently held (in yet another split decision) that lawyers handling mortgage foreclosures are “debt collectors” who must comply with the provisions of the Fair Debt Collection Practices Act (FDCPA). Wilson v. Draper & Goldberg, 2006 WL 861429 (4th Cir., 4/5/06).
Best of luck to all practicing in BAPCPA’s and FDCPA’s “bramble bush.”
© Steve Jakubowski 2006

With eyes glued to the daily happenings in Houston’s trial of the century, surprisingly little attention has been given to the $12.5 million success fee recently granted to Stephen Forbes Cooper, LLC, by Judge Arthur Gonzalez (former 13 year veteran schoolteacher in New York’s public schools who won the equivalent of the “Bankruptcy Judge Lottery” by having been randomly selected to be the presiding judge — at the same time — over the two largest bankruptcies of all time: Enron and Worldcom). In re Enron Corp., 2006 WL 1030421 (Bankr. S.D.N.Y. 4/12/06) (pdf).
Back in September 2004 when Mr. Cooper first requested (motion here) a $25 million success fee for his firm (Stephen Forbes Cooper, LLC), the W$J and others suggested that Enron’s “feed trough” had become a “fee bonanza” for those, like Cooper’s firm, who could get the work.
Fourteen months later, on the eve of an 11/15/05 hearing on the fee request, Mr. Cooper submitted a reply brief (parts 1 and 2) and affidavit (with exhibits A-1 [retention order], A-2 [engagement agreement], A-3 [conflicts affidavit], B-1 [revised engagement agreement], B-2 [duty of loyalty agreement], C [retention order], and D [fascinating comparative analysis of success fees awards in 22 mega-cases]) in support of his firm’s success fee request.
The Department of Justice, through the Office of the US Trustee, jumped into the fray with both feet, advising the Court at the November 15, 2005 hearing (313 page transcript here) that it had “undert[aken] an investigation that uncovered billing practices and billing irregularities unacceptable to the U.S. Trustee, which the U.S. Trustee maintains were not disclosed to the bankruptcy court.” (pdf)
After much legal wrangling, the parties resolved their differences with the help of Bankruptcy Judge Burton R. Lifland (the famed judge of the Johns-Manville, Calpine, and Dana bankruptcies and upcoming recipient of the NY Inst. of Credit’s 1st Annual Conrad B. Duberstein Memorial Award For Excellence and Compassion in the Bankruptcy Judiciary). As reflected in this stipulated settlement with the U.S. Trustee, Cooper’s firm agreed to slice its requested success fee request in half, to $12.5 million.
For its part, the Court had this to say about how to define — and price — “success” in bankruptcy:

Continue Reading The Price of Success: Enron’s Bankruptcy Court Approves $12.5 Million Success Fee for Stephen Forbes Cooper, LLC

Once upon a time, bankruptcy courts — like the one overseeing Kmart’s chapter 11 case in late 2002 — routinely entered orders (like these) granting the debtor “open-ended permission to pay any debt to any vendor deemed ‘critical’ in the exercise of unilateral discretion, provided that the vendor agreed to furnish goods on ‘customary trade terms’ for the next [several] years.”
This preference of one creditor group over another (in Kmart’s case amounting to over $300 million in preferential postpetition payments to about 2330 so-called “critical” vendors) irked one small band of excluded vendors and creditors enough that they appealed the bankruptcy court’s decision…and won! In re Kmart Corp., 359 F.2d 866 (7th Cir. 2004) (pdf).
In striking down these payments, the 7th Circuit’s Judge Easterbrook took direct aim at the use of Bankruptcy Code section 105(a) (which allows a bankruptcy to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of” the Bankruptcy Code) to justify such preferential payments through incorporation of the old “necessity” doctrine. He wrote:

[Bankruptcy Code section 105] does not create discretion to set aside the Code’s rules about priority and distribution; the power conferred by § 105(a) is one to implement rather than override. Every circuit that has considered the question has held that this statute does not allow a bankruptcy judge to authorize full payment of any unsecured debt, unless all unsecured creditors in the class are paid in full. We agree with this view of § 105. “The fact that a [bankruptcy] proceeding is equitable does not give the judge a free-floating discretion to redistribute rights in accordance with his personal views of justice and fairness, however enlightened those views may be.” [Citation omitted.]
A “doctrine of necessity” is just a fancy name for a power to depart from the Code. Although courts in the days before bankruptcy law was codified wielded power to reorder priorities and pay particular creditors in the name of “necessity”-today it is the Code rather than the norms of nineteenth century railroad reorganizations that must prevail. [Those court decisions] predate the first general effort at codification, the Bankruptcy Act of 1898. Today the Bankruptcy Code of 1978 supplies the rules. Congress did not in terms scuttle old common-law doctrines, because it did not need to; the Act curtailed, and then the Code replaced, the entire apparatus. Answers to contemporary issues must be found within the Code (or legislative halls). Older doctrines may survive as glosses on ambiguous language enacted in 1978 or later, but not as freestanding entitlements to trump the text. (Citations omitted)

Even before the 7th Circuit issued its decision upholding the district court’s reversal (pdf) of Judge Sonderby’s “first-day” order approving the “critical vendor” payments, Kmart filed a host of short, nearly identical two-count complaints (like this) against hundreds of entities that received the challenged payments. Count I of these complaints sought avoidance of the payments under Code sections 549 (dealing with avoidable postpetition transfers) and 550. Alternatively, Count II sought recovery under Section 105, the bankruptcy lawyer’s refuge of last resort.
In a wide-ranging, 62 page unpublished opinion, Judge Sonderby denied the creditors’ motion to dismiss Count I, but granted the motion to dismiss Count II. In so doing, the opinion —

  • details the complex procedural history of the case, including the quick thinking employed by the litigants when the district court’s bombshell reversal came down a mere two days before the start of Kmart’s confirmation hearing (pp. 2-13);
  • rejects the movants’ “plain meaning” arguments that recovery should be denied under Code section 549 because the Court had previously authorized such payments (pp. 13-24);
  • notes the banishment by the 7th Circuit of the term “equitable mootness” from the local lexicon (pp. 20-21);
  • dissects when a “private right of action” arises in the bankruptcy context (such as “in connection with alleged violations of the discharge injunction and the filing of inflated secured claims”), and concludes that no such “separate and independent action exists under §105(a)” (pp. 24-33);
  • reviews at length the doctrine of judicial estoppel and its inapplicability to this case, finding not only that Kmart was not “exploiting” the 7th Circuit’s reversal of the critical vendor order, but that “application of the doctrine under the circumstances of this case would itself amount to [] a perversion [of the doctrine of judicial estoppel]” (pp. 33-48);
  • affirms the adequacy of provisions in the confirmed plan purporting to retain these avoidance actions, even though the pre-confirmation plan modifications were made without attempting to resolicit votes on the plan (pp. 48-58);

    • and

  • punts the remaining arguments, including detrimental reliance, equitable estoppel, and recoupment, as “fact-intensive defenses inappropriate for disposition at this time” (pp. 58-61).

Judge Sonderby obviously has long ruminated about the mess spawned by the reversal of her “critical vendor” order. Now, in an unpublished decision, she has given us much to ruminate about too.
© Steve Jakubowski 2006

Ran across a great publication recently, the Preference Quarterly Law Journal, an Atlanta-based email publication of Alston & Bird’s Mark Duedall (who also is an editor of Norton’s Bankruptcy Law and Practice, former FSU law professor, and diehard FSU fan) and Nelson Mullins Riley & Scarborough’s Byron Starcher.
© Steve Jakubowski 2006
There’s much to ponder in this latest publication alone, the 2nd of the Journal’s 2nd publishing season. If you want to subscribe, send an email to preferencequarterly@nelsonmullins.com and ask to be added to the list.
Best of luck, guys! Let’s hope we’re all around to celebrate the Journal’s 50th anniversary!
While you’re browsing for preference-related publications, be sure to grab another great resource that’s hot off the press: The Preference Defense Handbook: The Circuits Compared, an ABI publication written by Barnes & Thornburg’s Debbie Thorne and Moore & Van Allen’s David Wheeler.