Here’s our weekly roundup of significant recently decided cases involving complex bankruptcy disputes for the week ended 10/16/05.
In re Kreisler, (2005 WL 2436451) (Bankr. N.D. Ill., 10/4/05)
In re CK Liquidation Corp., (2005 WL 2436444) (D. Mass., 10/4/05)
In re Aldar Investments, Inc., (2005 WL 2429094) (Bankr. M.D. La., 9/30/05)
In re Onco Investment Co., (2005 WL 2401908) (D. Del., 9/29/05)
In re Millenium Seacarriers, Inc., (2005 WL 2398014) (S.D.N.Y., 9/28/05)
Argentinian Recovery Company, LLC v. Board of Directors of Multicanal, S.A., (2005 WL 2375074) (S.D.N.Y., 9/28/05)
IRS v. Harvard Secured Creditors Liquidation Trust, (2005 WL 2397224) (D.N.J., 9/28/05)
In re Insilco Technologies, Inc. (2005 WL 2371982) (Bankr. D. Del., 9/27/05)

Continue Reading Notable Reported Cases for the Week Ended 10/16/05

Something’s very wrong when an estimated 500,000 Americans felt compelled in the last week to file for bankruptcy in order to avoid the chance that if they do have to file in the future, they’ll regret not having done so now. As most know, these filings were precipitated by BAPCPA (the “Bankruptcy Reform and Consumer Protection Act of 2005″), which goes effective at midnight on October 17, 2005.
What a misnomer that Act is proving to be! Doubt any consumers who recently filed for bankruptcy relief would say the new law made them feel protected. Some have suggested that the new legislation should have been called BARF (Bankruptcy Abuse Reform Fiasco), not BAPCPA.
The unprecedented crush of pro se consumer filings in Chicago (where electronic filings are mandatory) was so great on Friday that it overwhelmed the servers, shutting them down until around midnight the next day. Stories from NY, Denver, DC, Fresno, and Montana show that no section of the country was spared from the onslaught of bankruptcy filings. Many creditors will feel pain too as hundreds of thousands of debtors walk from debts they may have paid absent the new law.
In the end, the new legislation has spawned a pathetic mess for poor and middle America, as well as for bankruptcy’s machinery, though I suppose some will benefit. I suspect that bankruptcy judges will show up a bit tired and ornery at this year’s NCBJ, rightly feeling overworked, underpaid, and ignored on policy and drafting issues. Ask, for example, Judge Robert Mark, Chief Bankruptcy Judge of the Bankruptcy Court for the Southern District of Florida, who opined last week in only the second reported BAPCPA opinon (where he categorically disagreed with the first reported BAPCPA opinion that reached an intuitively wrong result based on the “plain meaning” of one of BAPCPA’s raison d’etres, the provision purporting to eliminate the “Mansion Loophole” whereby the wealthy in states like Florida and Texas shirked their debts while keeping their mansions):

After reading the several hundred pages of text in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the “Reform Act”), one conclusion is inescapable. The new law is not a model of clarity. Implementing the changes will present a daunting challenge to judges, clerk’s offices, attorneys and the parties who seek relief in the bankruptcy court after October 17, 2005, the date most of the provisions become effective.

In re Kaplan (2005 WL 2508151) (Bankr. S.D. Fla., 10/6/05).
Not a good start for this legislation, and it sure looks downhill from here.
© Steve Jakubowski 2005

This New York Times story reports on the potential conflicts of interest at credit counseling firms, whose advice must (in all but emergency situations) be first sought by consumer debtors in advance of their filing for bankruptcy following BAPCPA’s October 17, 2005 effective date.
The NYT reports that “critics say that the new counseling requirement, part of the law that takes effect on Monday, increases the risk that people will be improperly steered away from the courts and into debt management plans, for which the counseling agency often receives part of any debts repaid.”
The story also quotes NYU’s Professor Karen Gross (who is also president of the Coalition for Consumer Bankruptcy Debtor Education) as saying, “Lots of people see the opportunity to make lots of money off the backs of consumer debtors, and that should make people extremely cautious about this.”
The Offices of the US Trustee for each district are responsible under BAPCPA for approving credit counseling agencies. We can only hope that they figure out how best to avoid this potential problem before it explodes in everyone’s face.
© Steve Jakubowski 2005

You have to check out JibJab’s new movie, Big Box Mart. Another JibJab classic. Get there early, because if the past is any guide, the servers are going to be overwhelmed with traffic.
This short clip makes you laugh at Middle America’s squeeze, but the reality is, it’s no laughing matter. With the US auto industry in peril (see, e.g., Delphi, GM, Ford, Visteon), hundreds of thousands of jobs are in jeopardy, and individual dislocations will be severe as union workers and middle management bear the brunt of the industry’s assault on costs. Present and future bankruptcy courts can be expected to enter orders in the next 5 years terminating pension plans and modifying collective bargaining agreements. With BAPCPA’s legislation about to go effective, these squeezed workers and retirees will find that bankruptcy isn’t the “home court” it once was for new debtors.
JibJab picked up on the coming squeeze of the middle class (with BAPCPA’s onerous provisions supplying some additional squeeze), and has created another gem.
© Steve Jakubowski 2005

dog blog.jpgBaseball fever is running strong in Chicago if you’re a White Sox fan. Finally, the White Sox, winners last Friday of the first post-season anything in my–and my mother’s–lifetime, have given us long-deprived fans reason to gloat.

For us at The Bankruptcy Litigation Blog, however, it feels like opening day. First pitch honors go to Lexblog’s Kevin O’Keefe, who was instrumental in getting the show on the road sooner rather than later. Thanks much, Kevin! Great toss!

Today, with a month-long preseason finally behind us, we leave the friendly confines of Lexblog’s servers, with a few at-bats under our belt, now of record for all to see.

So how did this blog start? Well, many know of my personal obsession (spurred on by my legal learning role models Judge Diane Wood and All Star DH Attorney Dick (the “Mick”–and I’ve got the knees to prove it) Dannenberg) with staying current with developing case law. During this past summer’s dog days, as the “blog-o-sphere” gradually enveloped me, I decided that the world actually needed another blog–one that kept people current on complex bankruptcy litigation case law developments. So now, as cartoonist Alex Gregory aptly penned, instead of pointless, incessant barking, I’m blogging.

On this opening day, when hope springs eternal, I can only hope and pray that the good and merciful L-rd grants us at The Bankruptcy Litigation Blog the strength to keep the blog fresh, humorous, and informative for what looks to be a very long and challenging season ahead.

Thanks for taking the time to visit the site. If you decide to subscribe through email or RSS Feed, please don’t hesitate to try and boo me off the field, when deserved. As every Chicago fan knows only too well, that’s baseball!

All the best to you and yours,

© Steve Jakubowski 2005

Here’s our weekly roundup of significant recently decided cases involving complex bankruptcy disputes.
In re Pro Page Partners, LLC, (2005 WL 2470831) (6th Cir., 10/6/05, subject to Circuit Rule 28(g) citation limitations)
In re Medical Wind Down Holdings III, Inc., (2005 WL 2456261) (Bankr. D. Del., 10/5/05)
In re EToys, Inc., (2005 WL 2456255) (Bankr. D. Del., 10/4/05)
In re The Bridge to Life, Inc., (2005 WL 2429730) (Bankr. E.D.N.Y., 9/30/05)
In re Stoll, (2005 WL 2420356) (Bankr. S.D.N.Y., 9/30/05)
In re Adelphia Communications Corp., (2005 WL 2414852) (S.D.N.Y., 9/29/05)
In re FV Steel and Wire Co., 2005 WL 2401636 (Bankr. E.D. Wis, 9/27/05)
In re PRS Insurance Group, Inc. (2005 WL 2333649) (Bankr. D. Del., 9/23/05)

Continue Reading Notable Reported Cases for the Week Ended 10/09/05

There’s plenty of yarns spun in bankruptcy litigation, but rarely do you see one involving a bankrupt yarn spinner. The case of Active Wear, Inc. v. Parkdale Mills, Inc., (2005 WL 2453102) (W.D.Va., 10/4/2005) provides such a tale.
In this case, the defendant provided the debtor with much yarn to be spun into whole cloth. When the debtor could spin no more, and ceased operations, it still had significant quantities of the defendant’s unspun yarn in inventory. It also owed the defendant $2 million in unpaid bills. The defendant promptly made a reclamation claim for return of certain unused yarn, the value of which was determined to be $11,428.88. The defendant subsequently picked up all the unused yarn held by the debtor, who reduced the outstanding debt owed to the defendant by $134,849.50.
Within 90 days of the yarn’s being reclaimed by the defendant, an involuntary Chapter 7 bankruptcy was filed against the debtor, which was not contested. The debtor subsequently brought a preference action against the defendant seeking to recover as preferential the value of the property transferred within 90 days of the petition date.
The Bankruptcy Court held that the debtor could recover, as a preferential transfer, the liquidation value of certain yarn returned, valued at $27,459.00. On appeal, the debtor argued that the yarn should have been valued at fair market value (or the “price which Parkdale could realize from re-selling the yarn”). The Court held:

Active Wear [the debtor] may be correct that the term “value,” in 11 U.S.C. § 550 refers to “fair market value;” however, the appellant’s assertion that “fair market value” is determined by the value of the property to the creditor is misplaced. Instead, “fair market value” refers to the value that the debtor/bankrupt could receive for the property in a liquidation sale….
Case law and statutory law demand that the value which must be assigned to the yarn in this case is the fair market value that could be obtained for the yarn in a liquidation sale held by Active Wear. Furthermore, to give Active Wear credit for the fair market value that could be realized by Parkdale after the return of the yarn, would require giving Active Wear the benefit of Parkdale’s expense in employing its expertise, time, good will, and advertising to re-sell the yarn to another of its customers. Such a result is not supported by case law, statutory law, or common sense.

It’s not clear what would have happened in this case had Active Wear not ceased operations but had remained an operating entity, and whether in such instance the court would have allowed for a “going concern” type valuation of the returned inventory. The stark language of this case, however, doesn’t seem to support such a spin.
© Steve Jakubowski 2005

A recent case from Chicago’s bankruptcy court in the Florsheim Group bankruptcy, (2005 WL 2461145) (Bankr. N.D. Ill., 9/30/05), examines the extraterritorial reach of preference actions, in this case against a Taiwanese company that voluntarily contracted with the debtor to deliver goods in the United States, but otherwise had no connection with the US. With the parties wisely stipulating to the relevant facts, resolving certain defenses, and agreeing to the amount of judgment if the debtor should prevail, three related issues remained for resolution by the Court:
© Steve Jakubowski 2005

1) whether the preferential transfers occurred in the United States or abroad;
2) if the transfers occurred abroad, whether Congress intended §§ 547 and 550 of the Bankruptcy Code to apply extraterritorially; and
3) in any event, whether principles of international comity weigh against applying § 547 to the transfers.

After careful review, the court concluded that the preferential transfers occurred primarily in the United States, and that it therefore didn’t have to consider the most interesting question–that is, whether Congress intended to apply § 547 extraterritorially. The court concluded that principles of international comity don’t apply either since there was no parallel proceeding in any other country that competed with the bankruptcy case, and entered judgment in favor of the debtor in the amount agreed between the parties.
This case is a quick and worthwhile read for those of you involved in preference litigation that raises extraterritoriality concerns.
Steven Jakubowski

The Ninth Circuit has issued an opinion, titled In re Complaint of Judicial Misconduct, addressing a judicial misconduct complaint filed against a district judge, Manuel Real, in February 2003. The case, covered extensively by the L.A. Times , was initiated by a complaint alleging that Judge Real acted for inappropriate personal reasons in placing a “comely” female criminal defendant on probation “to himself, personally,” and in withdrawing the reference in the bankruptcy proceeding of this probationer in order to “benefit an attractive female.” The claim asserted in the complaint was that the judge “acted inappropriately to benefit an attractive female” and requested that “this matter be appropriately investigated to determine, among other things, the actual relationship” between the probationer and the judge.
In dismissing the complaint as “entirely unfounded,” the Ninth Circuit opined:

Continue Reading A Complaint of Judicial Misconduct: Sua Sponte Withdrawal of Reference Brings Trouble for District Court Judge