In a recent per curium opinion, the Fifth Circuit recommitted to its practice of dismissing claims against court-appointed fiduciaries when plaintiffs fail to obtain permission before bringing suit.  The court rested its decision on the Barton doctrine, which other courts, including the Eleventh Circuit, have found inapplicable in similar circumstances.  

The concept of “property of the estate” is important in bankruptcy because it determines what property can be used or distributed for the benefit of the debtor’s creditors. Defined by section 541 of the Bankruptcy Code, “property of the estate” broadly encompasses the debtor’s interests in property, with certain additions and exceptions provided for in the Code. See 11 U.S.C. § 541. Difficult questions can arise in a contractual relationship between a debtor and a counterparty about whether an entity actually owns a particular asset or merely has some contractual right. The question has high stakes in bankruptcy because a contractual right may simply entitle a counterparty to a general unsecured claim, with a recovery that may be only a fraction of the claim’s face value.

It’s often hard to persuade a bankruptcy court to grant a motion for substantial contribution.  Any attorney thinking about making a motion should first ask herself two questions.  First, has my work benefitted both my client and other creditors?  Second, did my work result in more than an incidental benefit to the bankruptcy estate?  If the answer to either question is no, then the attorney should forget about making the motion.  The time spent on it will be wasted, and the motion will be denied.

Another domino has fallen.  Earlier this year, we wrote about the challenges facing the crypto industry that resulted in the bankruptcy filings of Three Arrows Capital, Celsius Network, and Voyager Digital. We noted that other crypto entities could also end up in chapter 11, and that prediction has proven correct.

A U.S. bankruptcy court recently denied chapter 15 recognition to a case in the Isle of Man (IOM).  The court ruled that the foreign case was neither a foreign main proceeding nor a foreign non-main proceeding.  Although the court found that the IOM proceeding was a “foreign proceeding,” it also held that the debtor’s center of main interests wasn’t in the IOM and the debtor didn't have an establishment there.  In re Shimmin, No. 22-10039, 2022 LEXIS 2932 (Bankr. W.D. Okla. Oct. 14, 2022).

On September 15, President Biden announced a tentative deal with unions representing tens of thousands of railroad workers that helped narrowly avoid a strike that threatened to devastate the country’s delicate supply chains that have been strained since the beginning of the pandemic.  Now the country awaits the outcome of the union member votes (which we may not know until mid-November), but even if the members approve the deal, the retail sector will still face empty shelves, job vacancies and surging inflation.

The owners of an ambitious Hawaiian golf project in the Makaha Valley of Oahu said Aloha (hello) to new owners, and Aloha (goodbye) to old debt obligations.

In an adversary proceeding, the collective owners of the Makaha Valley Country Club, golf courses, surrounding undeveloped land, and other related assets (the “Owners”) avoided obligations undertaken in connection with a loan extension provided by Tianjin Dinghui Hongjun Equity Investment Partnership (the “Lenders”). The Bankruptcy Court for the District of Hawaii ruled that the extension was constructively fraudulent, and thus avoidable under Bankruptcy Code section 548.

It’s been a hard year for cryptocurrency.  The values of most cryptocurrencies, including major coins such as Bitcoin and Ethereum, have continued to tumble.  In fact, the price of one stablecoin, which is a form of cryptocurrency tied to another currency, commodity or financial instrument, de-pegged from its cryptocurrency token and entered into a downward spiral.  Ultimately, the stablecoin and the crypto token it was pegged to collapsed, erasing $18 billion of value with it.  In addition, one major cryptocurrency exchange platform recently warned investors that, in the event of bankruptcy, its users’ assets may be treated as property of the estate, which would leave users in the unfortunate position of being treated as unsecured creditors.  This revelation caused that entity’s stock to plummet. 

The doctrine of equitable mootness is in the news again.  The Supreme Court recently denied a cert. petition in a case where the petitioner wanted the doctrine ruled unconstitutional. KK-PB Financial LLC v. 160 Royal Palm LLC, Case No. 21-1197, 2021 WL 7247541 (petition), 2022 WL 1914118, (denying certiorari).

A discharge in bankruptcy usually discharges a debtor from the debtor’s liabilities.  Section 523 of the Bankruptcy Code, however, sets forth certain exceptions to this policy, including for “any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud. . . .”  11 U.S.C. § 523(a)(2)(A).  (We have previously written about this provision in the context of statements respecting a debtor’s financial condition.)  There is a split among the courts of appeal as to whether this provision applies only to a debtor who has some level of knowledge of the fraud, or whether the bar on discharge applies also when the debtor is liable only by imputation for a fraud committed by an agent or partner of the debtor.  On May 2, the Supreme Court granted a petition for certiorari in Bartenwerfer v. Buckley, No. 21-908, a case presenting this question.

The Fifth Circuit recently dismissed an appeal of a confirmation order as equitably moot.  The decision was based on three key factors: the appellant hadn’t obtained a stay pending appeal, the plan had been substantially consummated, and practical relief couldn’t be fashioned if the plan was unwound.  Talarico v. Ultra Petro. Corp. (In re Ultra Petro. Corp.), Case No. 21-20049, 2022 U.S. App. LEXIS 8941 (5th Cir. Apr. 1, 2022).  

Article I, Section 8 of the United States Constitution gives Congress the power to “establish . . .  uniform Laws on the subject of Bankruptcies throughout the United States.”  While Congress has general authority to establish a bankruptcy system, bankruptcy laws must be “uniform.”  But not every aspect of the bankruptcy system is the same across every judicial district.  For instance, while most judicial districts have United States Trustees, which are funded by a special fee charged to debtors, the judicial districts of Alabama and North Carolina instead have Bankruptcy Administrators, which are funded by general appropriations to the judiciary.  These different funding systems have sometimes resulted in differences in fees imposed on debtors between different judicial districts, raising the question of whether different fee obligations for debtors in different judicial districts is consistent with the uniformity requirement.  In Siegel v. Fitzgerald, No. 21-441, the Supreme Court has agreed to consider this question.

A recent decision applied the ordinary course of business defense to a preferential transfer claim where the parties had engaged in only two transactions.  In re Reagor Dykes Motors, LP, Case No. 18-50214, Adv. No. 20-05031, 2022 LEXIS 70 (Bankr. N.D. Tex. Jan. 11, 2022).  The court took a practical approach to the defense, given the absence of a detailed history of invoicing and payments between the parties.

In many chapter 11 cases, creditors’ committees play a vital role in maximizing the recoveries of unsecured creditors. But the powers of creditors’ committees are circumscribed by both the Bankruptcy Code and case law.

One way committees try to enhance recoveries is by seeking “derivative standing” to commence adversary proceedings challenging the validity of a secured lender’s pre-petition liens. A recent decision shows how one court analyzed if a committee had standing to bring such actions.  In re Platinum Corral, LLC, No. 21-00833-5-JNC, 2021 WL 4695327 (Bankr. E.D.N.C. Oct. 7, 2021).

In a recent decision, a district court reversed the decision of the bankruptcy court and clarified the independent obligation of the Bankruptcy Court to ensure that a Chapter 13 Plan satisfies the necessary requirements of the Bankruptcy Code, irrespective of the parties’ conduct.  In re: BRUCE D. PERRY, Debtor. KRISTA PREUSS, Standing Chapter 13 Tr., SDNY, Appellant, v. BRUCE D. PERRY, Appellee., No. 20-CV-4617 (CS), 2021 WL 4298192 (S.D.N.Y. Sept. 21, 2021)

Judge Stacey Jernigan did not mince words in a recent opinion sanctioning the former CEO of Highland Capital Management, LP.  Entities related to the former CEO brought suit against Highland (the debtor in a Chapter 11 bankruptcy proceeding), and sought leave from the district court to add Highland’s replacement CEO as a defendant.  In Judge Jernigan’s view, such conduct violated her “gatekeeping” orders that required the bankruptcy court’s approval before “pursuing” actions against the new CEO. 

Some courts permit debtors to designate vendors crucial to their business as “critical vendors.”  These are vendors that supply debtors with necessary goods or services.  With court permission, debtors are allowed to pay critical vendors amounts owing when a bankruptcy case is filed.  Accordingly, critical vendors often recover more on their pre-petition claims than other unsecured creditors.  In other words, critical vendors could receive a full recovery, while other creditors only receive a fraction of what they are owed.

A recent case before bankruptcy judge Karen B. Owens of the United States Bankruptcy Court for the District of Delaware, In re Dura Auto. Sys., LLC, No. 19-12378 (KBO), 2021 WL 2456944 (Bankr. D. Del. June 16, 2021), provides a cautionary reminder that the Third Circuit does not recognize the doctrine of implied assumption (i.e., assumptions implied through a course of conduct as opposed to those that are assumed pursuant to a motion and court order).

On Monday, the United States Supreme Court denied Thelma McCoy’s petition for a writ of certiorari to the United States Court of Appeals for the Fifth Circuit, passing up a golden opportunity to bring uniformity to the “important and recurring question” of how to determine the sort of “undue hardship” that qualifies a debtor for a discharge of student loans under 11 U.S.C. § 523(a)(8).

At stake in a recent decision by the First Circuit was this:  when a bankruptcy matter is before a federal district court based on non-core, “related to” jurisdiction, should the court apply the Federal Rules of Bankruptcy Procedure or the Federal Rules of Civil Procedure?  The First Circuit ruled that the former apply, and in so doing joined three other circuits that have also considered this issue.  Roy v. Canadian Pac. Ry. Co. (In re Lac-Megantic Train Derailment Litig.), No. 17-1108, 2021 U.S. App. LEXIS 16428 (1st Cir. June 2, 2021).[i]

In 2018, the liquidating trustee for Venoco, LLC and its affiliated debtors (collectively, the “Debtors”) commenced an action in the United States Bankruptcy Court for the District of Delaware seeking monetary damages from the State of California and its Lands Commission (collectively, the “State”) as compensation for the alleged taking of a refinery (the “Onshore Facility”) that belonged to the Debtors (the “Adversary Proceeding”).  The State moved to dismiss, claiming, among other things, sovereign immunity.  The Bankruptcy Court denied the motion to dismiss, and the District Court affirmed the denial.  The State appealed to the Third Circuit, and the Third Circuit affirmed.

In recognition of the 15th anniversary of the passage of chapter 15 of the Bankruptcy Code, the New York City Bar Association’s Bankruptcy & Corporate Reorganization Committee hosted a webinar on May 12, 2021 to discuss the current state of chapter 15 cases and potential, corresponding and significant future developments. Several dozen participants joined a panel of distinguished leaders in the field: the Honorable Allan Gropper, former United States Bankruptcy Judge for the Southern District of New York; Professor Jay L. Westbrook, Benno C. Schmidt Chair of Business Law, The University of Texas at Austin School of Law; Professor Edward Morrison, Charles Evans Gerber Professor of Law, Columbia Law School; and practitioners Rick Antonoff and Christine Okike.

A recent case shows how even late payments can be used to satisfy the ordinary course of business defense in a preference avoidance action. Baumgart v. Savani Props Ltd. (In re Murphy), Case No. 20-11873, Adv. Pro. No. 20-1070, 2021 Bankr. LEXIS 1035 (Bankr. N.D. Ohio Apr. 19, 2021).

In March, we reported on a brief filed by the Solicitor General recommending denial of a petition for certiorari filed by Tribune creditors seeking Supreme Court review of the Second Circuit ruling dismissing their state-law fraudulent transfer claims.  This morning, the Supreme Court denied the petition, letting the Second Circuit decision stand.