Rutgers Law School’s Professor Keith Sharfman, an outspoken critic of “creditor derivative standing” in bankruptcy (see Sharfman, Derivative Suits in Bankruptcy, 10 Stan. J. L. Bus. & Fin. 1 (2004)), took note in a recent guest blog post on Ideoblog of a case from the Fourth Circuit, Scott v. National Century Financial Enterprises, Inc. (In re Baltimore Emergency Services II, Corp.), 2005 WL 3470039 (4th Cir., 12/20/05), which “denied creditors standing in the particular case and cast doubt on whether creditor standing could ever be available.” Given the proliferation of litigation being commenced in bankruptcy courts “for the benefit of” and “on behalf of” aggrieved creditors left holding the bag, and the diverse decisions of courts across the land, the question of a plaintiff’s standing to commence adversary litigation in the bankruptcy context has gained increased importance in the past several years.
The Baltimore Emergency Services II case is a worthwhile read. In it, the Fourth Circuit actually ruled very narrowly, holding that the plaintiffs lacked standing to seek a preliminary injunction against the chapter 11 debtor’s former CEO who “oversaw the debtors’ business operations, guided them into bankruptcy, and then abruptly jumped ship [by seeking] to undermine the debtors by securing for himself their workforce and their most valuable contracts.” If any case cried out for a court’s acceptance of creditor standing (with or without the debtor’s consent), it is this one (which had the support of the lead secured creditor and the creditors’ committee, whose aggregate claims against the debtor exceeded $430 million).
The opinion in Baltimore Emergency Services II begins by first examining the doctrine of “derivative standing,” which itself — according to the Court — encompasses two situations: first, when the trustee or debtor-in-possession refuses to bring suit on its own; second, when the trustee or debtor-in-possession grants consent. The Court stated:

Continue Reading Creditor Derivative Standing: Some Recent Cases Explore the Contours of the Doctrine and Split Among the Circuits

University of Illinois Law School Professor Charles Jordan Tabb has made available at the Social Science Research Network a working paper entitled The Top Twenty Issues in the History of Consumer Bankruptcy. The article’s abstract on SSRN provides:

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 dramatically altered the system of consumer bankruptcy in the United States. In the wake of that landmark legislation, this article seeks to provide an historical context and perspective. The article identifies and highlights the “top twenty” consumer bankruptcy issues in the development of the Anglo-American bankruptcy tradition. These issues are grouped into the following broad categories: (1) who is eligible for bankruptcy relief; (2) what assets does the debtor get to keep; (3) what future income is shielded; and (4) who decides and how. Finally, the paper looks briefly at the moral aspect of consumer bankruptcy, viewed through an historical lens.

This is a great article for those interested in the development of consumer bankruptcy law in America. The article also includes a four page bibliography with citations to many classics in legal scholarship on the history of bankruptcy law.
© Steve Jakubowski 2006

The following nine bankruptcy-related working papers can be downloaded from the Social Science Research Network:
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Columbia Business School’s Kenneth Ayotte and Stav Gaon, Asset-Backed Securities: Costs and Benefits of Bankruptcy Remoteness
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Yale School of Management’s Arturo Bris, Ivo Welch and Ning Zhu: The Costs of Bankruptcy
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Purdue University Business School’s Diane K. Denis and NYU’s Business School’s Kimberly J. Rodgers, Chapter 11: Duration, Outcome, and Post-Reorganization Performance
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Quinnipiac University Law School’s Stephen G. Gilles, The Judgment-Proof Society
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Independent Consultant Michael Nwogugu, Decision-making, Risk and Corprate Governance: A Critique of Bankruptcy/Recovery Prediction Models
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Duke University’s Steven L. Schwarcz, The Easy Case for the Priority of Secured Claims in Bankruptcy
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Lawyer Michael St. James, Why Bad Things Happen in Large Chapter 11 Cases: Some Thoughts about Courting Failure
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Wisconsin Law School’s Bernard Trujillo, Patterns in a Complex System: An Empirical Study of Valuation in Business Bankruptcy Cases
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Boston College Law School’s Catharine P. Wells, Who Owns the Local Church? A Pressing Issue for Dioceses in Bankruptcy
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Abstracts for each of these working papers follow:

Continue Reading Nine Bankruptcy-Related Working Papers Available for Downloading from SSRN

The case of Penthouse Media Group v. Guccione (In re General Media, Inc.), 2005 WL 3529148 (Bankr. S.D.N.Y., 12/27/05), involves an adversary proceeding filed by the reorganized debtor against Bob Guccione, the debtor’s former Chairman and CEO. Mr. Guccione is best known for having founded Penthouse Magazine, as well as such quality, trend-setting publications as Spin Magazine and Omni Magazine. Unquestionably, however, his absolutely worst legacy shall always be the movie Caligula, which cost a whopping $20 million in 1979 and is often cited, to this day, as possibly the worst film ever made.
For me, the case has special sentimental value because 25 years ago, while cooling my heels in New York City between college and law school, I spent two hours a week as private tutor to Mr. Guccione’s youngest son at Mr. Guccione’s very posh E. 67th Street townhouse (reportedly NY’s largest residence), which was at the heart of the dispute in this case.
Anyway, in this case, the reorganized debtor filed a five count complaint against Mr. Guccione. The first three counts sought turnover of certain intellectual property, as well as 10 unnamed items of property still in the townhouse, which he was now renting from a third-party owner. The final two counts alleged conversion and breach of fiduciary duty for a certain transaction involving possible self-dealing. [NB: In fact, the 10 items likely were imported statutes and other antiques or antiquities of immense weight and value, as to which there were pre-confirmation disputes over whether the items were fixtures of personal property under applicable non-bankruptcy law. Imagine, though, what fun David Letterman would have with this “top ten” list!]
Guccione moved to dismiss for lack of subject matter jurisdiction and for failure to state a claim on which relief can be granted. The Court summarized the positions of the parties on these issues as follows:

Guccione argues, in the main, that the Court lacks subject matter jurisdiction. In addition, he contends that a turnover action will not lie post-confirmation because there is no trustee and no estate. Next, he maintains that the Plan released him from liability based on pre-petition conduct other than conduct that was fraudulent, willful or grossly negligent. Finally, he asserts that the plaintiff should be estopped from asserting the claims because they were not raised during the bankruptcy case or disclosed to the creditors, and the plaintiff procured Guccione’s support for confirmation without disclosing its intention to bring this action.
The plaintiff counters that (1) the Court retained jurisdiction over these claims in the Plan, (2) the plaintiff acquired the right to pursue these claims as consideration for PET’s funding of the Plan, and (3) the turnover claims were preserved under the Plan. Furthermore, the Townhouse Property was the subject of a prior Court order, which the First Cause of Action seeks to enforce. Lastly, some of the damage claims are clearly within the statute of limitations, and the release defense, which excludes intentional wrongs, cannot be decided on a motion to dismiss.

In dismissing the action based on lack of subject matter jurisdiction, the Court noted that “a party invoking the bankruptcy court’s post-confirmation jurisdiction must satisfy two requirements”:

Continue Reading New York Bankruptcy Court Finds No Post-Confirmation Jurisdiction Exists to Support Reorganized Debtor’s Case Against Penthouse Magazine Founder