Author Archives: Michael A Stevens

In re Hostess Brands, Inc.: Southern District of New York Bankruptcy Court Refuses to Send Cash Collateral Dispute to Arbitration

On January 7, 2013, the Judge Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York held that a dispute concerning the debtors’ use of cash collateral was not subject to arbitration, notwithstanding a broad arbitration clause in the parties’ underlying agreement, because the decision to allow a debtor to use cash collateral constituted a “core” issue and was a fundamental aspect of the bankruptcy process. In re Hostess Brands, Inc., No. 12-22052 (RDD), 2013 WL 82914 (Bankr. S.D.N.Y. Jan. 7, 2013). Continue reading

Stern v. Marshall Update – Ninth Circuit Holds That Bankruptcy Courts Lack Constitutional Authority To Finally Determine Fraudulent Transfer Claims Against Non-Claimants

On December 4, 2012, the United States Court of Appeals for the Ninth Circuit added to the growing body of case law delineating the extent of bankruptcy courts’ jurisdiction in the wake the Supreme Court’s decision in Stern v. Marshall. In In re Bellingham Insurance Agency, Inc., the Ninth Circuit held that (i) non-Article III courts lack the Constitutional authority to enter final judgments in fraudulent transfer actions against non-claimants, (ii) bankruptcy courts may hear and enter findings of fact and conclusions of law in fraudulent transfer actions, and (iii) a defendant may waive its Constitutional right to be heard before an Article III court. Continue reading

So You Want to Sell (or Buy) A Company Under Section 363? Here’s How

With companies facing significant distress due to vast over-leverage, debtors have increasingly turned to asset sales under Section 363 of the Bankruptcy Code, rather than Chapter 11 plans, to dispose of their assets quickly and begin the process of winding down their estates. According to the UCLA-LoPucki Bankruptcy Research Database, less than 4 percent of all large, public company bankruptcies were resolved by substantial asset sales from 1990-2000. However, in the period from 2001-2010, that figure rose to nearly 20 percent – peaking in 2011 when 43 percent of large public cases were resolved by an asset sale. Continue reading

Third Circuit Reiterates Narrow Application of Equitable Mootness Doctrine

The United States Court of Appeals for the Third Circuit recently reiterated its position that the doctrine of equitable mootness should only apply if granting relief on appeal would undermine a consummated bankruptcy plan. In In re Philadelphia Newspapers, LLC, the Third Circuit held that the United States District Court for the Eastern District of Pennsylvania abused its discretion when summarily finding that the appeal at issue was equitably moot simply because the appellants failed to seek a stay and the debtors’ plan had been substantially consummated. Upon a more careful review of the equitable mootness test enunciated by the Third Circuit en banc in In re Continental Airlines, 91 F.3d 553 (3d Cir. 1996), the Philadelphia Newspapers court found that the appeal should proceed. However, it ultimately affirmed the ruling of the district court that managers of a charter school were not entitled to an administrative expense claim for the debtors’ postpetition internet publication of an article that linked to other allegedly defamatory articles that the debtors published prepetition. See In re Philadelphia Newspapers, LLC, 2012 WL 3038578 (3d Cir. July 26, 2012). Continue reading

In re Ashapura: Southern District of New York Holds that Proceeding Under Repealed Foreign Law is Entitled to Chapter 15 Recognition

On June 28, 2012, Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York affirmed the order of the United States Bankruptcy Court for the Southern District of New York granting Ahapura Minechem Ltd.’s petition for recognition of its Indian insolvency proceeding as a foreign main proceeding under chapter 15 of the Bankruptcy Code. Armada v. Shah (In re Ashapura Minechem Ltd.), 2012 WL 2478467 (S.D.N.Y. June 28, 2012). In so holding, the District Court approved the recognition of a proceeding governed by a statute, The Sick Industrial Companies Act (“SICA”), that Indian legal scholars have sharply criticized and that the Indian legislature actually repealed in 2003. Continue reading

What’s Yours is Mine, and What’s Mine is Mine? SDNY Expands the “Unfinished Business” Doctrine to Include Non-Contingency Client Matters In Possible Dewey Preview

The recent chapter 11 case of the storied New York law firm, Dewey & LeBoeuf LLP, will raise a host of issues attendant to the dissolution of a modern day “big law” firm partnership. Chief among these issues is likely to be whether the profits earned by former Dewey partners in completing Dewey’s open client matters belong to Dewey or the former Dewey partners. Continue reading

District Court for the Southern District of New York Reaffirms Extraterritorial Effect of the Automatic Stay

On May 4, 2012, Judge J. Paul Oetken of the United States District Court of the Southern District of New York held that the Bankruptcy Court has the injunctive power to enforce the automatic stay against entities falling within the Bankruptcy Court’s in personam jurisdiction, and that, in this case, the enforcement of the automatic stay did not violate interests of comity. Sec. Investor Prot. Corp v. Bernard L. Madoff Inv. Sec., LLC (In re Bernard L. Madoff Inv. Sec., LLC), No. 11 Civ. 8629 (JPO), 2012 WL 1570859 (S.D.N.Y. May 4, 2012). Continue reading

The Ninth Circuit Affirms Inflexible Standard of Finality for Purposes of District Court Appeals

On March 6, 2012, the United States Court of Appeals for the Ninth Circuit held that the flexible standard for finality generally applied in bankruptcy cases does not apply to appeals from orders of a district court sitting in bankruptcy. Klesdadt & Winters, LLP v. Cangelosi, 642 F.3d 809 (9th Cir. 2012). In so holding, the Ninth Circuit reaffirmed its position as the only circuit that applies less flexible jurisdictional standards to appeals from district courts sitting in bankruptcy as compared with appeals from bankruptcy courts. Continue reading

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

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