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Bankruptcy Update Blog provides current news and analysis of key bankruptcy cases and developments in US and cross-border matters. Patterson Belknap’s Business Reorganization and Creditors’ Rights attorneys represent creditors’ committees, trade creditors, indenture trustees, and bankruptcy trustees and examiners in US and international insolvency cases. Our team includes highly skilled and experienced attorneys who represent clients in some of the most complex cases in courts throughout the US and elsewhere.

Another Gotcha for the Calendar: Section 365(d)(1)

Although it may be difficult to define precisely what an “executory contract” is (with the Bankruptcy Code providing no definition), I think most bankruptcy lawyers feel how the late Supreme Court Justice Potter Stewart famously felt about obscenity--we know one when we see it.  Determining that a patent license was executory in the first place was an issue in the Fifth Circuit’s recent decision in RPD Holdings, L.L.C. v. Tech Pharmacy Services (In re Provider Meds, L.L.C.),[1] but more interesting to this blogger was the issue, apparently decided by a Court of Appeals for the first time under the Code, of the effect of a timing provision that is unique in Chapter 7 cases.

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Trademark Licenses . . . Again (Update No. 5)

Our May 23, June 28, July 13, August 3 and September 11 posts discussed the First Circuit’s January 12 decision in Mission Product Holdings, Inc. v. Tempnology, LLC.[1] and, most recently, the pending petition for certiorari.  On October 26, the Supreme Court granted the petition, limited to the main question concerning the effect of the rejection of a trademark license. 

We continue to monitor developments in what could become one of the most consequential Supreme Court cases on bankruptcy in decades.


[1]  879 F.3d 389 (1st Cir. 2018), petition for cert. filed, No. 17-1657 (June 11, 2018). 

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Stern Challenge to Third-Party Plan Releases Fails in Delaware

In hindsight, it seems inevitable that constitutional and other jurisdictional problems would arise when Congress, in enacting the Bankruptcy Reform Act of 1978, created impressive new powers and responsibilities for the bankruptcy courts (along with a considerable degree of independence) but denied them the status of Article III courts under the Constitution (by denying its judges lifetime tenure, as Article III requires).  And it didn’t take long for the problems to arise.

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Trademark Licenses . . . Again (Update No. 4)

Our May 23, June 28, July 13 and August 3 posts discussed the First Circuit’s January 12 decision in Mission Product Holdings, Inc. v. Tempnology, LLC. and, most recently, the pending petition for certiorari.  Since our last post, the respondent filed its response to the petition in opposition to granting cert., giving several reasons why cert. should be denied.

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Trademark Licenses . . . Again (Update No. 3)

Our July 13 post stated that the deadline for the respondent in Mission Product Holdings, Inc. v. Tempnology, LLC, 879 F.3d 389 (1st Cir. 2018), petition for cert. filed, No. 17-1657 (June 11, 2018), to submit a reply to the petition for certiorari seeking reversal of the First Circuit’s 2-1 decision had been extended to August 8. The respondent sought an additional extension to September 7, and, on July 24, its request was granted. We continue to monitor developments in what could become one of the most consequential Supreme Court cases on bankruptcy in decades.

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The Assignment of Leases in Bankruptcy Free of Prohibitions, Restrictions and Conditions

In the era that preceded the Bankruptcy Reform Act of 1978 and its enactment of the Bankruptcy Code, bankruptcy estates often lost the value of leases and other contracts that could have been realized for creditors by use or sale as a result of termination provisions (either discretionary or ipso facto), limitations or outright prohibitions on assignment, and counterparty self-help. The Code sought to preserve that value for creditors by a skein of related provisions that (among other things) greatly strengthened the automatic stay, rendered bankruptcy termination provisions unenforceable, and constrained provisions that limit the assignment of contracts for value by bankruptcy estates.

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Trademark Licenses . . . Again (Update No. 2)

Our June 28 post discussed the petition for certiorari in the U.S. Supreme Court seeking review of the First Circuit’s January 12 decision in Mission Product Holdings, Inc. v. Tempnology, LLC.  We noted that the respondent’s response to the petition was due on July 12. 

The respondent’s response to the petition was not filed on July 12, and its time to do so has apparently been extended to August 8.  In the meantime, however, an amicus curiae brief in support of the petition was filed by the International Trademark Association (INTA) on July 11.  The INTA brief makes two major points--

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Trademark Licenses . . . Again (Update No. 1)

Our January 22 post discussed “a long-running issue concerning the treatment of trademark licenses in bankruptcy” and its resolution in the January 12 decision of the First Circuit in Mission Product Holdings, Inc. v. Tempnology, LLC.[1]  Mission Product Holdings filed a petition for certiorari in the Supreme Court on June 11.[2]

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Bankruptcy Remoteness Going to a Court of Appeals--Fifth Circuit Issues Speedy, Focused Affirmance of the Dismissal of the Petition

Our February 22 post (with updates on March 19, April 17 and April 25) reported on a bankruptcy court decision dismissing a voluntary corporate Chapter 11 petition that had not been approved by a preferred stockholder of the debtor whose approval was required by the debtor’s certificate of incorporation[1] that was on track for a direct and expedited appeal to the U.S. Court of Appeals for the Fifth Circuit, the first case squarely dealing with bankruptcy remoteness, in my memory, to reach a Court of Appeals on the merits.  Last night, about three weeks after oral argument, the Court issued its unanimous opinion--clear, careful, thorough, but materially more limited than the questions that were certified to it by the Bankruptcy Court--affirming the Bankruptcy Court’s dismissal of the voluntary petition.[2]

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Trademark Licenses . . . Again (Again)

Our January 22 post discussed “a long-running issue concerning the treatment of trademark licenses in bankruptcy” and its resolution in the January 12 decision of the First Circuit in Mission Product Holdings, Inc. v. Tempnology, LLC.[1]  On May 17, the U.S. Bankruptcy Court for the District of Connecticut came down on the Sunbeam[2] side of the issue and rejected the holding and reasoning of Tempnology.[3]  It may therefore become the vehicle for the Second Circuit to speak on the question upon which the First, Third, Fourth and Seventh Circuit Courts of Appeals have spoken.[4]

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Bankruptcy Remoteness Going to a Court of Appeals (Progress Report No. 3)

Our February 22 post reported that the Franchise Services of North America, Inc. decision of Bankruptcy Judge Edward Ellington of the Southern District of Mississippi dismissing a Chapter 11 petition because a shareholder had not approved the filing as required by the debtor’s charter was going directly to the U.S. Court of Appeals for the Fifth Circuit on an expedited basis.  It is the first case concerning the merits of contractual or structural bankruptcy-remoteness in my memory to reach a Court of Appeals since the adoption of the Bankruptcy Code in 1978.  We promised to report on developments as they occur and reported on the filing of the debtor-appellant’s brief on March 19 and the appellees’ brief on April 16.

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Bankruptcy Remoteness Going to a Court of Appeals (Progress Report No. 2)

Our February 22 post reported that the Franchise Services of North America, Inc. decision of Bankruptcy Judge Edward Ellington of the Southern District of Mississippi dismissing a Chapter 11 petition because a shareholder had not approved the filing as required by the debtor’s charter was going directly to the U.S. Court of Appeals for the Fifth Circuit on an expedited basis.  It is the first case concerning the merits of contractual or structural bankruptcy-remoteness in my memory to reach a Court of Appeals since the adoption of the Bankruptcy Code in 1978.  We promised to report on developments as they occur and reported on the filing of the debtor-appellant’s brief on March 19.

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Has Partial Substantive Consolidation Taken Off with Republic Airways Holdings?

Substantive consolidation is the ultimate disregard of the corporate separateness of a group of related debtors--it is “the effective merger of two or more legally distinct (albeit affiliated) entities into a single debtor with a common pool of assets and a common body of liabilities,”[1] but without the actual de jure merger of the debtors.  All of the assets of the several debtors are thrown into a single (metaphorical) pot, and all of the liabilities of the several debtors[2] are combined (with intercompany debts and multiple claims for the same underlying liability, such as parent or subsidiary guaranties, eliminated) against that pot of assets.  The substantive consolidation of entity debtors is not mentioned anywhere in the Bankruptcy Code[3] and rests entirely on judge-made law with its origins predating the adoption of the Code in 1978.[4]

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Bankruptcy Remoteness Going to a Court of Appeals (Progress Report No. 1)

Our February 22 post reported that the Franchise Services of North America, Inc. decision of Bankruptcy Judge Edward Ellington of the Southern District of Mississippi dismissing a Chapter 11 petition because a holder of “golden share” stock had not approved the petition as required by the debtor’s charter was going directly to the U.S. Court of Appeals for the Fifth Circuit on an expedited basis.  It is the first case concerning the merits of contractual or structural bankruptcy-remoteness in my memory to reach a Court of Appeals since the adoption of the Bankruptcy Code in 1978.  We promised to report on developments as they occur.

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Major Section 546(c) Safe Harbor Issue Resolved by the Supreme Court

Our post last year concerning “[t]he long-running litigation spawned by the leveraged buyout of Tribune Company . . . and the subsequent bankruptcy case” described a case--FTI v. Merit--that was then pending in the Supreme Court.  In that case, the Court of Appeals for the Seventh Circuit had construed the safe harbor provided in Section 546(e) of the Bankruptcy Code in conflict with its construction by the Second and Third Circuits (among others).  On February 27, the Supreme Court announced its unanimous decision affirming the Seventh Circuit.

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Bankruptcy Remoteness Going to a Court of Appeals

Back in the day--say, the last two decades of the twentieth century--we bankruptcy lawyers took it largely on faith that the right structural and contractual provisions purporting to confer bankruptcy-remoteness were enforceable and likely to be successful in preventing an entity from becoming, voluntarily or involuntarily, a debtor under the Bankruptcy Code.  During the latter part of the first decade of the twenty-first century, however, that faith began to erode as bankruptcy court case law began to accumulate which denied motions to dismiss petitions based upon remoteness provisions. 

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Trademark Licenses . . . Again

A long-running issue concerning the treatment of trademark licenses in bankruptcy has seen a new milestone with the January 12 decision of the First Circuit in Mission Product Holdings, Inc. v. Tempnology, LLC.

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Litigation Funders’ Collateral Did Not Include Malpractice Claims

When the fallout from failed intellectual-property litigation collides with bankruptcy, the complexities may be dizzying enough, but when the emerging practices and imperatives of litigation financing are imposed on those complexities, the situation might be likened to three-dimensional chess.  But in the court of one veteran bankruptcy judge, the complexities were penetrated to reveal that elementary errors and oversights can have decisive effects.

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Second Circuit Addresses Key Chapter 11 Plan Issue

It is a unique characteristic of debt restructuring under Chapter 11 of the Bankruptcy Code that a majority of a class of creditors can accept a modification of the terms of the debts owed to the class members, as provided in a plan of reorganization, and thereby bind non-accepting class members.  The ordinary route to confirming a Chapter 11 plan is to obtain its acceptance by a majority of every impaired class of creditors and equity holders.

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Ninth Circuit Opens the Door A Bit Wider for Recoveries from the IRS

Avoiding a fraudulent transfer to the Internal Revenue Service (“IRS”) in bankruptcy has become easier, or at least clearer, as a result of a recent unanimous decision by a panel of the Court of Appeals for the Ninth Circuit, Zazzali v. United States (In re DBSI, Inc.), 2017 U.S. App. LEXIS 16817 (9th Cir. Aug. 31, 2017).

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Something New Under the Sun?

The long-running litigation spawned by the leveraged buyout of Tribune Company, which closed in December 2007, and the subsequent bankruptcy case commenced on December 8, 2008 has challenged the maxim that “there’s nothing new under the sun” even for this writer with four decades of bankruptcy practice behind him.

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Non-Monetary Preferences

Most everyone who has been around the business and legal worlds for even a little while is familiar with the clawback by bankruptcy trustees of money that was paid by the debtor to creditors on the eve of bankruptcy.  We bankruptcy lawyers know this as the avoidance of preferential payments under Section 547 of the Bankruptcy Code.  Good credit and collection folks at our clients have developed an aversion to the word “preference” because they think the Code was deliberately designed to punish the diligent and reward the lazy (and, in a sense, they’re right).

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