Author Archives: Timothy T Brown

Stockton: Bankruptcy Court Upholds Municipal Debtor’s Power to Impair Retiree Contracts

On August 6, 2012, Judge Christopher M. Klein of the Bankruptcy Court for the Eastern District of California dismissed a group of retirees’ adversary proceeding and held that under its pendency plan, a chapter 9 debtor has the power to … Continue reading

Jefferson County: Court Rejects Expansive Carve Out of “Net Operating Expenses” From Special Revenue Bond Payments

On June 29, 2012, Judge Thomas B. Bennett of the Bankruptcy Court for the Northern District of Alabama held that operating expenses as determined under Jefferson County’s sewer warrants indenture do not include (i) a reservation for depreciation, amortization or future expenditures or (ii) an estimate for professional fees and expenses and that the monies remaining in the sewer system’s revenue account after the payment of actual operating expense should be paid to the warrant holders in accordance with the Indenture. This decision represents an unequivocal win for special revenue lenders because it ensures that special revenue bonds will continue to be secured and serviced in accordance with the underlying indenture during a municipality’s Chapter 9 case. The Bank of New York Mellon v. Jefferson Co., Ala. (In re Jefferson Co., Ala.), Case No. 12-00016-TBB (Bankr. N.D. Ala. June 29, 2012). Continue reading

Just When I Thought I Was Out . . . Eleventh Circuit Rules in TOUSA that Refinanced Lenders Can Be “Pulled Back In” and Held Liable if a Replacement Loan is a Fraudulent Transfer

On May 15, 2012, the Eleventh Circuit Court of Appeals upheld a ruling by the Bankruptcy Court for the Southern District of Florida, which required certain lenders to return $403 million in prepetition payments they had received from TOUSA, Inc. because the new loan TOUSA obtained to make those payments was a fraudulent transfer. The Eleventh Circuit’s decision raises serious questions regarding whether lenders whose loans are paid off in a refinancing may be forced to disgorge or return funds to a debtor if the refinancing loan is later found to be avoidable under the bankruptcy code. Senior Transeastern Lenders v. Official Committee of Unsecured Creditors (In re TOUSA, Inc.), Case No. 11-11071 (11th Cir. May 15, 2012). Continue reading

Jefferson County: “Fear not each sudden sound and shock; Tis of the wave and not the rock”

On April 20, 2012, the Supreme Court of Alabama held that Ala. Cod. § 11-81-3 (1975) does not require that an Alabama municipality have prepetition bond indebtedness as a condition of eligibility to file for bankruptcy under Chapter 9. The Supreme Court of Alabama issued its decision in response to a certified question from the District Court for the Southern District of Alabama regarding whether the City of Prichard, Alabama was authorized to file for Chapter 9 under Alabama law. See City of Prichard v. Scott A. Balzer, Case No. 1:10-0622-KD-M (Ala. Apr. 4, 2012). 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

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

In re Thorpe Insulation Company: The Non-Settling Insurers Strike Back

On January 24, 2012, Judge Ronald M. Gould of the U.S. Court of Appeals for the Ninth Circuit held that an appeal filed by certain insurance companies with respect to a plan confirmation order was not moot and that such insurance companies had standing to object to the plan, notwithstanding the Debtors’ contention that the plan was “insurance neutral” because it did not affect insurer’s legal rights. The Ninth Circuit remanded the plan confirmation to the Bankruptcy Court for further consideration. This decision highlights the fact that a plan of reorganization can be reopened after confirmation, to deal with certain issues, including concerns raised by insurers. In re Thorpe Insulation Company, Case No. 10-56543 (9th Cir. 2012). Continue reading

Jefferson County: The Bankruptcy Court Always Wins

On January 6, 2012, Judge Thomas B. Bennett of the Bankruptcy Court for the Northern District of Alabama held that (i) the Alabama state receivership court lost possession and control over Jefferson County’s property interests in its sewer system immediately upon the filing of the County’s chapter 9 bankruptcy case and (ii) special revenue warrants are exempt from the automatic stay and must continue to be serviced during the course of a chapter 9 case. This decision highlights the loss of control that municipal bondholders face when a municipality files for bankruptcy relief under chapter 9 of the Bankruptcy Code and the special treatment afforded to special revenue bonds in chapter 9. Continue reading

Harrisburg: A Case Study in State Law Barriers to Chapter 9

On November 23, 2011, the Bankruptcy Court for the Middle District of Pennsylvania dismissed Harrisburg, Pennsylvania’s chapter 9 bankruptcy petition because Harrisburg was not specifically authorized to file for Chapter 9 as required by the Bankruptcy Code. Harrisburg’s failed attempt to remain in Chapter 9 highlights the political factors and state law constraints that municipalities must consider prior to seeking bankruptcy relief.[1] This article will discuss the origins of Harrisburg’s debt crisis, the Harrisburg City Council’s attempt to file for Chapter 9 without the Mayor’s approval, the legal obstacles placed in the path of the City Council’s bankruptcy filing, and the lessons that other distressed municipalities and creditors can learn from Harrisburg’s experience. Continue reading