Monthly Archives: March 2012

No State Sovereign Immunity Against Section 544 Avoidance Actions

On January 27, 2012, Judge Peter J. Walsh of the United States Bankruptcy Court for the District of Delaware held that states do not have sovereign immunity from fraudulent transfer actions brought by a liquidation trustee pursuant to section 544(b)(1) of the Bankruptcy Code and incorporated state laws. Zazzali v. Swenson (In re DBSI, Inc.), 463 B.R. 709 (Bankr. D. Del. 2012). This decision clarifies the application of the United States’ Supreme Court’s decision in Cent. Va. Cmty. Coll. v. Katz, 546 U.S. 356 (2006) to section 544 and the various state laws incorporated by a cause of action brought pursuant to that section. Continue reading

Second Circuit Resolves Choice of Law Rules for Bankruptcy Claims

On February 28, 2012, in a case of first impression, the U.S. Court of Appeals for the Second Circuit considered which choice of law rules should apply when a bankruptcy court sitting in one state is resolving a bankruptcy claim arising from a state-law action previously filed in another state. The Second Circuit held that where (1) a claim before the bankruptcy court is wholly derived from another legal claim pending in a parallel non-bankruptcy proceeding in another state, and (2) the pending original claim was filed in a court prior to the commencement of the bankruptcy case, the bankruptcy court must apply the choice of law rules of the state where the underlying prepetition claim was filed. Statek v. Development Specialists, Inc. (In re Coudert Brothers LLP), 2012 U.S. App. LEXIS 4019 (2d Cir. 2012). Continue reading

In re Lear: Litigants Enjoined from Pursuing Pre-Plan Effective Date Antitrust Claims

On February 10, 2012, Judge Allan L. Gropper of the U.S. Bankruptcy Court for the Southern District of New York held that certain plaintiffs alleging antitrust violations against Lear Corporation and its reorganized debtor affiliates (i) hold “claims” that are enjoined to the extent they arose before the effective date of the reorganized debtors’ plan, (ii) are entitled to pursue their alleged post-effective date claims against the reorganized debtors, and (iii) are not precluded from seeking permission to file late proofs of claims and to have those claims afforded class status. In re Lear Corp., No. 09-14326 (ALG), 2012 WL 443951 (Bankr. S.D.N.Y. Feb. 10, 2012). In addition to reaffirming the legal limits of a discharge under a confirmed plan of reorganization, this decision recognizes the (likely remote) possibility that class claims may proceed in the bankruptcy context. Continue reading

Jefferson County: To Save A Mockingbird

On March 4, 2012, Judge Thomas B. Bennett of the United States Bankruptcy Court for the Northern District of Alabama held that Alabama law specifically authorized Jefferson County to adjust its debts under Chapter 9 of the Bankruptcy Code. Through a detailed analysis of Alabama law, Judge Bennett demonstrated that while the barriers to Chapter 9 may be daunting, they are not insurmountable (at least not in Alabama). Continue reading

New Century: Bankruptcy Court Upholds Finality Of Bar Date Even Where Result Seems “Harsh”

The Delaware Bankruptcy Court recently reaffirmed the finality of the claims bar date and the extremely high bar a creditor seeking to file a claim after the bar date must meet. In In re New Century TRS Holdings, Inc. et al., 2012 Bankr. LEXIS 371 (Bank. D. Del 2012), Judge Kevin J. Carey disallowed and expunged a proof of claim filed four years after the bar date by an individual borrower that had obtained a mortgage from the debtors, notwithstanding that the Court recognized that “this result to a consumer borrower may seem harsh”. Id. at * 34. Continue reading

Dante’s Third Ring: Lehman Investors Bring Adversary Proceeding In SDNY Bankruptcy Court

The battle over the enforceability of priority flip clauses in CDO indentures has entered a new phase. On February 8, 2012, a group of investors led by Belmont Park Investments Pty Ltd. filed an adversary proceeding against Lehman Brothers Special Financing Inc. and BNY Mellon Corporate Trustee Services Ltd. in the U.S. Bankruptcy Court for the Southern District of New York. The Investors seek recognition of a judgment entered by the High Court of Justice in England and Wales in Belmont Park Inv. Pty Ltd. & Others v. BNY Corp. Trustee Servs. Ltd., and a declaration that, as a matter of English law, the Investors have priority over LBSF, as swap provider, with respect to shared collateral securing notes issued under Lehman Brothers’ “Dante Programme.” The Investors filed a concurrent motion to withdraw the reference, seeking to remove the adversary proceeding from the U.S. Bankruptcy Court to the U.S. District Court. Continue reading

Inference Alone Is Not Enough

That was the admonition that Judge Robert E. Gerber of the United States Bankruptcy Court delivered to a class of claimants seeking to partially revoke the confirmation order entered in Motors Liquidation Company’s bankruptcy cases on account of alleged fraud perpetuated on the Court. The Court held that (i) section 1144 of the Bankruptcy Code does not permit partial revocation of a confirmation order and (ii) the Plaintiffs “failed to allege facts that give rise to a strong inference of fraudulent intent.” Morgenstein v. Motors Liquidation Company (In re Motors Liquidation Company), Case No. 11-9409, 2012 WL 130740, at *7 (Bankr. S.D.N.Y. Jan. 18, 2012). Continue reading

MF Global: No Statutory Authority for Broker Customer Committee, Compensation from Estate, in SIPA Liquidation

Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York recently denied a motion filed by commodity broker customers of MF Global Inc. seeking the appointment of an official committee of commodity broker customers whose fees and expenses would be paid by the debtor’s estate. Judge Glenn held that he lacked statutory authority to appoint an official customer committee in a broker-dealer liquidation under the Securities Investor Protection Act, and could not pay a chapter 7 official committee from estate expenses. Further, Judge Glenn noted that customers’ interests were sufficiently protected by an experienced SIPA Trustee subject to significant oversight. In re MF Global Inc., 462 B.R. 36 (Bankr. S.D.N.Y. 2011). Continue reading

Seventh Circuit Affirms Secured Creditors’ Cramdown Rights

On Jan. 19, 2012, the U.S. Court of Appeals for the Seventh Circuit in an opinion penned by Judge Richard Posner affirmed a bankruptcy court’s dismissal of In re River East Plaza, LLC, a single asset real estate case, rejecting the debtor’s attempt to substitute the lender’s original collateral for another form of security and pay out the secured claim over time pursuant to the
“cramdown” provisions of the Bankruptcy Code. The court’s analysis was strongly pro-secured lender and hinged particularly on the question of whether the secured creditor should be entitled to the appreciation of future value of its original prepetition collateral. Continue reading

RadLAX Review: Supreme Court to Consider Validity of Plan Sale Without Credit Bidding in RadLAX Gateway Hotel

This spring the Supreme Court will consider a critical bankruptcy issue: whether a debtor may sell assets free and clear of liens without permitting a secured creditor to credit bid. Restructuring Review will be providing extensive ongoing coverage of this case: RadLAX Gateway Hotel, LLC v. Amalgamated Bank, No. 11-166. This first entry looks at Cadwalader’s prior coverage of key rulings along the road to the Supreme Court and the schedule of key upcoming dates. Continue reading