In art, Jerry Bruckheimer produced “Bad Boys” in 1995 and “Bad Boys II” in 2003, starring Will Smith and Martin Lawrence as bad boy Miami detectives. These likeable actors, however, failed to convey much of a bad boy image and critics panned the movies. Not deterred, a third installment, “Bad Boys III,” is scheduled for 2015, but it too (like "Die Hard 5") is likely to disappoint.

In life, John Alleman had become a Las Vegas sensation. Starting in about June 2011, he stood outside the Heart Attack Grill for nothing more than the love of the place (and some occasional free food) and colorfully pitched and cajoled people to sample such delicacies as Flatliner Fries, Butterfat Shakes, and the king-of-them-all, the Quadruple Bypass Burger (which holds the Guinness World Record for the “most calorific burger”). Late last year, this bad boy suffered a massive heart attack at a bus stop and died, thus ending his short—but glorious—reign as Sin City’s leading tempter of fate.

In the law, bad boys often find they pay a hefty and quite disproportionate price for their bad acts. Consider, for example, the case of Michael Turner. This bad boy received a $40,000 insurance settlement check three days before he filed bankruptcy and then cashed the check three days after he filed bankruptcy, using about one-quarter of the proceeds to pay down a mortgage while pocketing the rest.  His failure to disclose this asset in his bankruptcy schedules, as mandated by the Code, led a grand jury three years later to return a six-count indictment against him that eventually resulted in a bankruptcy fraud conviction and a 27 month jail sentence.  The 11th Circuit recently upheld his sentence as appropriate under today’s harsh federal sentencing guidelines. United States v. Turner, 2013 WL 510092 (11th Cir., Feb. 12, 2013) (PDF).

Some bad boys, however, manage to avoid the cudgel of the law by seizing onto a loophole that averts near certain doom. Consider, for example, bad boy Bernie Kurlemann, whose bank fraud conviction was reversed because the statute only criminalizes “false statements.”  Since he kept his mouth shut and told only half the truth, the court ruled, he couldn’t be convicted under a statute that does not criminalize “half-truths,” “material omissions,” or “concealments.”   United States v. Kurlemann, 2013 WL 513976 (6th Cir., Feb. 13, 2013) (PDF). True, Kurleman was still convicted on bankruptcy fraud charges, but that paled in comparison to the time he would have served had the bank fraud conviction been upheld.

Finally, consider so-called "bad boy" bank guaranties, where one’s personal liability to a lender is instantly multiplied from a fraction of the loan amount to the full indebtedness simply because one engaged in any one of various enumerated “bad acts” (such as waste, fraud, misappropriation, bankruptcy, receivership, violation of special purpose entity covenants, or incurrence of subordinate debt without the lender's consent). Here in Illinois, bad boy Laurance Freed, developer of the long-vacant “Block 37” on North State Street in Chicago, committed such a bad boy act when he had the temerity to contest the bank’s appointment of a receiver and file defenses to the bank’s foreclosure action. Though the ensuing delays were but a mere nuisance for the bank, that didn’t stop the Illinois Appellate Court from affirming that (i) Freed’s nominal challenges to the bank’s actions triggered the full $206 million recourse liability (up from $50 million) and (ii) the increase was not wholly disproportionate to the damages suffered by the bank from having to deal with the nuisance litigation and so was not an unenforceable penalty. In sum, the Court held, if you’re a “bad boy” under your own contractual definition of one, don’t expect a Court to bail you out of your own mess. Bank of America v. Freed, 2012 WL 6725894 (Ill. App. Ct., December 28, 2012) (PDF).

In conclusion, there’s a clear moral to this story:

Except perhaps in sports and art, being a bad boy can be hazardous to life (RIP Mr. Alleman), liberty (Turner / Kurlemann), and the pursuit of happiness (Freed)!

Thanks for reading!

Copyright Steve Jakubowski 2013

A 7^th Circuit opinion authored by Chief Judge Easterbrook last week had me again looking across the street at 203 North LaSalle and wondering whether the US Supreme Court will ever finally decide whether there is a “new value” exception to the absolute priority rule (which requires that when an unsecured creditor class objects to a plan of reorganization, it must be paid in full before junior claims or interests get anything). 

The question of whether there’s a “new value” exception to the absolute priority rule (i.e., whether old equity can contribute new capital and receive new equity interests in the reorganized entity) was expressly left open by the US Supreme Court in Bank of America National Trust & Savings Ass'n v. 203 North LaSalle Street Partnership, 526 U.S. 434 (1999).  Before the case went to the Supreme Court, the 7^th Circuit ruled in 203 N. LaSalle  that the oft-ignored decision in Case v. Los Angeles Lumber Products Co., 308 U.S. 106 (1938), provided the basis for the new value exception in cases where the equity interest holder contributes new value that is both reasonably equivalent to the value of the equity interest and necessary for the debtor’s successful reorganization.  In re 203 N. LaSalle St. P’ship, 126 F.3d 955 (7^th Cir. 1997).  While refusing to specifically endorse a new value exception or “corollary” to the absolute priority rule, the Supreme Court in 203 N. LaSalle held: “[A]ssuming a new value corollary [exists], [then] plans providing junior interest holders with exclusive opportunities free from competition and without benefit of market valuation” violate the absolute priority rule.”  203 N. LaSalle, 526 U.S. at 458.

In In re Castleton Plaza, No. 12–2639, 2013 WL 537269 (7^th Cir. Feb. 14, 2013), the 7th Circuit Court of Appeals faced an issue never before addressed by a Court of Appeals, that being whether “an equity investor can evade the competitive process by arranging for the new value to be contributed by (and the new equity to go to) an ‘insider’ [as defined in the Bankruptcy Code]”?  The 7^th Circuit found no difficulty in answering this question with a resounding “NO”!  Notably, instead of chopping through the bramble bush of nuanced statutory interpretation, the Court's opinion relied principally on broad bankruptcy policy objectives.  The Court stated:

In 203 North LaSalle the Court remarked on the danger that diverting assets to insiders can pose to the absolute-priority rule.  526 U.S. at 444.   It follows that plans giving insiders preferential access to investment opportunities in the reorganized debtor should be subject to the same opportunity for competition as plans in which existing claim-holders put up the new money….

Nor does the rationale of 203 North LaSalle depend on who proposes the plan. Competition helps prevent the funneling of value from lenders to insiders, no matter who proposes the plan or when.  An impaired lender who objects to any plan that leaves insiders holding equity is entitled to the benefit of competition.  If, as [the debtor and insiders] insist, their plan offers creditors the best deal, then they will prevail in the auction.  But if, as [the objecting secured lender] believes, the bankruptcy judge has underestimated the value of [the debtor’s] real estate, wiped out too much of the secured claim, and set the remaining loan's terms at below-market rates [via cramdown], then someone will pay more than $375,000 (perhaps a lot more) for the equity in the reorganized firm.

The judgment of the bankruptcy court is reversed and the case is remanded with directions to open the proposed plan of reorganization to competitive bidding.

But if the plan was confirmed, how is it that the direct appeal of the plan confirmation order to the 7^th Circuit did not get mooted out through substantial consummation of the plan?  Simple.  The parties in this motion stipulated to entry of this order by the Bankruptcy Court, thereby staying the effectiveness of the confirmation order pending resolution of the issue on appeal.  Of course, since the only major creditor in the case was the senior secured lender (with a large unsecured deficiency claim) who was objecting to the plan, it had a lot more flexibility in respect of the bonding requirement necessary to stay the effectiveness of the confirmation order pending appeal.  Indeed, as the Court-approved disclosure statement demonstrates, the secured lender appealing the decision was virtually the only creditor of significance in this single asset real estate case.  As such the lender here really didn’t have much to lose by appealing the order since obtaining a stay of the confirmation order pending appeal likely would not have required it to dig very deep to come up with the funds necessary to post a bond and obtain a stay pending appeal.

Is this decision significant?  You bet, and I expect it to reverberate loudly as time progresses.  Before this decision, creative lawyers could reach into their trick bag and try to evade 203 N. LaSalle’s competitive bidding requirements by arguing that the statute doesn’t apply to “new value” contributors who held no equity interests prepetition.  They then could solicit the support of senior secured creditors and propose a “new value” plan acceptable to the secured lender that would call for “new value” contributions from friendly sources and thereby squeeze value to which the intervening unsecured class would be entitled under the absolute priority rule.  And since unsecured creditors in more complex business reorganizations—unlike secured lenders in single asset real estate cases—generally lack the financial incentive or wherewithal to obtain a stay of a plan confirmation order pending appeal, they are swiftly mooted out in the process, leaving equity to walk away with the value while unsecureds are left “holding the bag” (as our founding fathers were wont to say).

Now, however, with the 7^th Circuit’s decision in the books, there’s no authority for filing such plans in the first place (at least in the 7^th Circuit, though I expect other Courts and Circuits will follow its lead).  Of course, there’s always the hope that the Supreme Court will take this case up on appeal given how rarely such issues wind their way through the appeals process without getting mooted out along the way.  That was a good reason for the Court to take upRadLAX and is an equally good reason to take up this decision too (particularly since, as the 7^th Circuit noted, “[b]ankruptcy judges have disagreed on the answer” to the question posed by the case).

Finally, it’s worth noting how a rather simple and seemingly straightforward Supreme Court decision like the one inRadLAX can never be underestimated.  To the 7^th Circuit, RadLAX established a policy directive of “protect[ing] creditors against plans that would give competing claimants too much for their new investments and thus dilute the creditors' interests.”  That’s the first time I’ve seen RadLAX being cited for such a broad policy objective.  It is a principle worth remembering, however, especially when responding to legal gimmickry that attempts to grind Bankruptcy Code provisions like trees in a wood chipper.  Such gimmicks simply won’t carry the day, regardless of their artfulness and basis in principles of statutory construction, where they undermine important policy objectives established in Supreme Court precedent.

Thanks for reading!

©  Steve Jakubowski  2013

Here's more in the continuing "Year in Review" series.  The inset photo is of the Senator Thad Cochran United States Bankruptcy Court in Aberdeen, Mississippi (pictures and story

·         B-NM wont apply changes in 2010 Technical Corrections Act retroactively bec literal applic of orig. BAPCPA isn't absurd http://www.bankruptcylitigationblog.com/uploads/file/JRHaleContracting-BK-D-NM-Starzynski-8-29-11.pdf …

·         B-NM: Ordin. cash div. isn't stock disposition so its not cash collateral per §552(a)/ (b)(1) of Bank w/lien on stock. http://www.bankruptcylitigationblog.com/uploads/file/Young-BK-D-NM-Jacobvitz-8-29-11.pdf …

·         B-NM: Proper value measure per §362d2A not what Bank could get in sale but what DIP/BK Ttee could realize in reas time. http://www.bankruptcylitigationblog.com/uploads/file/Young-BK-D-NM-Jacobvitz-8-29-11 …

·         B-NM: §362d1 focuses on harm to sec. cr. from decline in coll. value & §362d2 focuses on benefit of stay to other crs. http://www.bankruptcylitigationblog.com/uploads/file/Young-BK-D-NM-Jacobvitz-8-29-11.pdf …

·         B-NM: At least 4 reasons to deny sec.cr. adeq. prot. per §362(d)(1) by compensating it for coll. erosion w/postpet int. http://www.bankruptcylitigationblog.com/uploads/file/Young-BK-D-NM-Jacobvitz-8-29-11.pdf …

·         B-NM provides good review of wide variety of adequate protection cases dependent on case-by-case fact determinations. http://www.bankruptcylitigationblog.com/uploads/file/Young-BK-D-NM-Jacobvitz-8-29-11.pdf …

·         B-NM doesn't resolve if only type of "bad faith" cause for stay relief per §362(d)(1) is a bad faith filing of BK case. http://www.bankruptcylitigationblog.com/uploads/file/Young-BK-D-NM-Jacobvitz-8-29-11.pdf …

·         B-IL-Only a perverse Stern reading gives BK Ct JD over estate claim v cr not filing a claim but not vs cr w/filed claim http://www.bankruptcylitigationblog.com/uploads/file/EmeraldCasino-BK-ND-IL-Wedoff-8-26-11.pdf …

·         B-MD: Std for assessing SARE Dbtr's plan under §362(d)(3) is "more exacting than the standard under § 362(d)(2)." http://www.bankruptcylitigationblog.com/uploads/file/27Redwood-BK-D-MD-Alquist-8-26-11.pdf …

·         B-SDNY review concepts of "center of main interest" & "establishment" in determining eligibility in ch 15 proceeding. http://www.bankruptcylitigationblog.com/uploads/file/MillenniumGlobal-BK-SDNY-Gropper-8-26-11.pdf …

·         B-SDNY: Foreign representative in a ch 15 case is entitled to the extensions of the time periods provided for in §108. http://www.bankruptcylitigationblog.com/uploads/file/MillenniumGlobal-BK-SDNY-Gropper-8-26-11.pdf …

·         B-SDNY: Center of Main Interest test for ch. 15 eligibility shd be determined as of filing date of foreign proceeding. http://www.bankruptcylitigationblog.com/uploads/file/MillenniumGlobal-BK-SDNY-Gropper-8-26-11.pdf …

·         B-MD: §362(d)(3) SARE stds not same as strict confirmation stds, as reorg plans aren't static & are subject to change. http://www.bankruptcylitigationblog.com/uploads/file/27Redwood-BK-D-MD-Alquist-8-26-11.pdf …

·         NYT Poll: New Poll Finds a Deep Distrust of Government. "A remarkable sense of pessimism & skepticism." http://nyti.ms/v9Eb7z

·         "Prices Rising, for Better & Worse" Imagine if food & energy were included in the CPI! Whither monetary expansion? http://on.wsj.com/u2VnG3 @WSJ

·         3d Cir: Mere exchange of future credit information is not per se price-fixing or group boycott under antitrust laws. http://www.bankruptcylitigationblog.com/uploads/file/MilbergFactors-3d-Cir-Greenaway-10-24-11.pdf …

·         3d Cir-Antitrust cplt vs. factors dismissed per Twiqbal bec. no demonstr. parallel conduct in declining/limiting credit http://www.bankruptcylitigationblog.com/uploads/file/MilbergFactors-3d-Cir-Greenaway-10-24-11.pdf …

·         3d Cir-Exchange of credit info by factoring cos w/out direct/circumst evid of agr fails as antitrust case per Twiqbal. http://www.bankruptcylitigationblog.com/uploads/file/MilbergFactors-3d-Cir-Greenaway-10-24-11.pdf …

·         B-TX reviews TX law re whether claim for conversion of electr. data exists but wont dismiss conversion claim just yet. http://www.bankruptcylitigationblog.com/uploads/file/YazooPipeline-BK-SD-TX-Isgur-10-14-11.pdf …

·         B-TX: In pari delicto cant indep. defeat trustee's standing to raise a claim & may not even apply ag. ttee in 5th Cir. http://www.bankruptcylitigationblog.com/uploads/file/YazooPipeline-BK-SD-TX-Isgur-10-14-11.pdf …

·         B-TX: Stern restricts BK Ct's auth. to enter final order or jdgmt but not pretrial orders w/in its statutory jurisd. http://www.bankruptcylitigationblog.com/uploads/file/YazooPipeline-BK-SD-TX-Isgur-10-14-11.pdf …

·         B-SDNY: §105(a) injunctions are authorized by statute so need not comply with traditional requirements of FRCP 65. http://www.bankruptcylitigationblog.com/uploads/file/BLMISvMaxam-BK-SDNY-Lifland-10-12-11.pdf …

·         B-SDNY: Contract w/NY choice of law prov. is, per 2d Cir, "a significant factor in a personal jurisdiction analysis". http://www.bankruptcylitigationblog.com/uploads/file/BLMISvMaxam-BK-SDNY-Lifland-10-12-11.pdf …

·         B-SDNY: Foreign action for decl. relief from Picard's claim is act for control over estate prop & violates §362(a)(3). http://www.bankruptcylitigationblog.com/uploads/file/BLMISvMaxam-BK-SDNY-Lifland-10-12-11.pdf …

·         Candid & personal Judge Posner interview: Likes Suskind's book; gen. works from home; clerks call him by his 1st name. http://www.chicagotribune.com/business/ct-biz-1024-office-space-posner-20111024,0,1330242.story …

·         B-TX: Stay will be conditioned on removing Maaco identifying signs/TM, but Ct wont shut down biz bec of noncompete cov. http://www.bankruptcylitigationblog.com/uploads/file/MCCHumble-BK-SD-TX-Paul-8-25-11.pdf …

·         B-AZ:Apply single priority date-day labor commenced-for all mech. liens, even if arising under diff. contracts w/owner http://www.bankruptcylitigationblog.com/uploads/file/MortgagesLTD-BK-D-AZ-Haines-10-20-11.pdf …

·         B-AZ: Equitable subrog. requires intent to subrogate to prior bank's secured position & evid. here suggests otherwise. http://www.bankruptcylitigationblog.com/uploads/file/MortgagesLTD-BK-D-AZ-Haines-10-20-11.pdf …

·         B-IL: Wanton disregard for the Code's atty disclosure reqts despite ample opp. to cure warrants severe sanctions. Ouch! http://www.bankruptcylitigationblog.com/uploads/file/GluthBros-BK-ND-IL-Barbosa-10-19-11.pdf …

·         B-IL: Guarantee of fees by insider or cr., or prior representation of them, is not a per se reason to disqualify atty. http://www.bankruptcylitigationblog.com/uploads/file/GluthBros-BK-ND-IL-Barbosa-10-19-11.pdf …

·         B-IL: 7th Cir citation to Grabill suggests agreement w/ idea that "potential conflicts" is a "contradiction of terms." http://www.bankruptcylitigationblog.com/uploads/file/GluthBros-BK-ND-IL-Barbosa-10-19-11.pdf …

·         B-IL: Prior-not present-rep. of party w/adverse interest might justify disqualif. per §327(a) despite 2d Cir. auth. http://www.bankruptcylitigationblog.com/uploads/file/GluthBros-BK-ND-IL-Barbosa-10-19-11.pdf …

·         B-IL: "Connections" disclosure per FRBP 2014(a) is much broader than "disinterested" & "interest adverse to estate." http://www.bankruptcylitigationblog.com/uploads/file/GluthBros-BK-ND-IL-Barbosa-10-19-11.pdf …

·         B-IL: "Inconceivable" that attorney could read Section 329(a) & not realize that a guarantee of fees must be disclosed http://www.bankruptcylitigationblog.com/uploads/file/GluthBros-BK-ND-IL-Barbosa-10-19-11.pdf …

·         B-IL: Atty who fails to disclose guarantee (and payment) of postpetition fees does so at its peril.http://www.bankruptcylitigationblog.com/uploads/file/GluthBros-BK-ND-IL-Barbosa-10-19-11.pdf …

·         B-IL: Atty who fails to file official form for disclosure of compensation, Form B-203 does so at its peril.http://www.bankruptcylitigationblog.com/uploads/file/GluthBros-BK-ND-IL-Barbosa-10-19-11.pdf … 

Thanks for reading!

© Steve Jakubowski 2012

• B-FL: No admin. priority for severance pay arising from prepet. empl. agr. just bec employee was employed postpetition. http://www.bankruptcylitigationblog.com/uploads/file/RobbStuckyLtd-BK-MD-FL-Delano-9-7-11.doc …

• B-AZ: Legal mal. cplt. alleging attys knew of wrongdoing and took no actions to stop it adeq. alleges prox. causation. http://www.bankruptcylitigationblog.com/uploads/file/RadicalBunny-BK-D-AZ-Case-8-24-11.doc …

• B-AZ refuses to dismiss liq. trust legal mal claims vs. attys on in pari delicto grounds at motion to dismiss stage. http://www.bankruptcylitigationblog.com/uploads/file/RadicalBunny-BK-D-AZ-Case-8-24-11.doc …

• B-ID: Boise County didnt meet its burden of proving its insolvency per §109(c)(3) so it's not eligible under chapter 9. http://www.bankruptcylitigationblog.com/uploads/file/BoiseCounty-BK-D-ID-Myers-9-2-11.doc …

• SDNY: Madoff ttee lacks standing per Wagoner & in pari delicto to bring particip/aiding & abetting claims vs. banks. http://www.bankruptcylitigationblog.com/uploads/file/PicardvJPMChase-SDNY-McMahon-11-1-11.pdf …

• SDNY: Dbtr has the burden of proof on the issue of adequate assurance of payment per §366(c). http://www.bankruptcylitigationblog.com/uploads/file/GreatA-P-Tea-SDNY-Seibel-11-14-11.pdf …

• SDNY-§366(c) doesnt mandate that only the utility provider in the 1st instance sets the form & amount of adeq assurance http://www.bankruptcylitigationblog.com/uploads/file/GreatA-P-Tea-SDNY-Seibel-11-14-11.pdf …

• 11th: Ponzi payments to equity interests by insolv entity not fr. tsfs except to extent pymts exceeded invested funds. http://www.bankruptcylitigationblog.com/uploads/file/perkins-11th-Hodges-10-27-11.pdf …

• B-NJ: The Petition Date is the operative date for purposes of determining the threshhold amt per §1409(b). http://www.bankruptcylitigationblog.com/uploads/file/BambooAbbott-BK-D-NJ-Kaplan-10-24-11(1).pdf …

• B-NJ rejects application of §1409(b) to preference claims. http://www.bankruptcylitigationblog.com/uploads/file/BambooAbbott-BK-D-NJ-Kaplan-10-24-11(1).pdf …

• B-FL: Pleading eq. subord ag. non-insider/non-fiduc requires partic. allegs. of egregious conduct (eg fraud/spoliation) http://www.bankruptcylitigationblog.com/uploads/file/HarbourEastDevp2-BK-SD-FL-Cristol-10-27-11.pdf …

• B-MS: Venue tsf of BK denied bec case will be more efficiently & economically administered as affiliate to pending BK. http://www.bankruptcylitigationblog.com/uploads/file/RedDoorPyMgmt-BK-SD-MS-Samson-11-16-11.pdf …

• B-FL: Cr.'s eq. subord. & subrog. claims are solely BK issues not bound by State Ct holding that Bank owed Dbtr no duty http://www.bankruptcylitigationblog.com/uploads/file/HarbourEastDevp-BK-SD-FL-Cristol-10-27-11.pdf …

• B-MA: Failure to comply w/FRBP 2002(c)(3) for notice of plan injunction precludes confirmation w/injunctive provisions. http://www.bankruptcylitigationblog.com/uploads/file/QuincyMedicalCtr-BK-D-MA-Hoffman-11-16-11.pdf …

• B-MA: Plan's third party releases are limited to those who actually submitted ballots accepting the plan. http://www.bankruptcylitigationblog.com/uploads/file/QuincyMedicalCtr-BK-D-MA-Hoffman-11-16-11.pdf …

• B-MA: Release of nondbtrs approp. but identity of interests alone is insufficient to justify releases of dbtr's D&Os. http://www.bankruptcylitigationblog.com/uploads/file/QuincyMedicalCtr-BK-D-MA-Hoffman-11-16-11.pdf …

• B-MA follows majority that releases/exculp./injunc. for non-debtors may be approp per applic. of 5 factor BK-WD-MO test http://www.bankruptcylitigationblog.com/uploads/file/QuincyMedicalCtr-BK-D-MA-Hoffman-11-16-11.pdf …

• B-MA notes circuit split re plan provisions calling for expansive releases, exculpation and injunctions of non-debtors. http://www.bankruptcylitigationblog.com/uploads/file/QuincyMedicalCtr-BK-D-MA-Hoffman-11-16-11.pdf …

• D-SDNY: "Residual" waste, even if already cleaned up, can cause "ongoing pollution" per Chateaugay & not be discharged. http://www.bankruptcylitigationblog.com/uploads/file/MarkIV-SDNY-Scheindlin-9-28-11.pdf …

• D-SDNY: NM Env. Div. lack of a right to payment under Water Quality Act is dispositive that claim not discharged in BK. http://www.bankruptcylitigationblog.com/uploads/file/MarkIV-SDNY-Scheindlin-9-28-11.pdf …

• D-SDNY reviews law re extent to which an environmental cleanup obligation constitutes a dischargeable claim in BK. http://www.bankruptcylitigationblog.com/uploads/file/MarkIV-SDNY-Scheindlin-9-28-11.pdf …

• B-SDNY reminds that §1521(a)(4) may not authorize the "fishing expeditions" associated w/Rule 2004 exams. http://www.bankruptcylitigationblog.com/uploads/file/GlitnirBanki-BK-SDNY-Bernstein-8-19-11.pdf …

• B-SDNY reminds that indiv. whose bank records are subpoenaed has standing to quash subpoena served on nonparty bank. http://www.bankruptcylitigationblog.com/uploads/file/GlitnirBanki-BK-SDNY-Bernstein-8-19-11.pdf …

• B-SDNY reviews "pending proceeding" rule & concerns of using Rule 2004 exam to circumvent rts. in pending litigation. http://www.bankruptcylitigationblog.com/uploads/file/GlitnirBanki-BK-SDNY-Bernstein-8-19-11.pdf …

• SDNY D-Cts & BK-Cts seem split on whether-and if so to what extent-§546(e) insulates Madoff ponzi pmts. Cases here: http://www.bankruptcylitigationblog.com/uploads/file/KeyMadoff546Cases-SDNY-2010-11.pdf …

• B-SDNY: Picard's common law non-fraud claims ag insiders for failure to supervise, etc, not preempted by NY Martin Act. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsMadoffs-BK-SDNY-Lifland-9-22-11.pdf …

• B-SDNY: Wagoner & in pari delicto rules don't apply to insiders so Picard has standing sue them for common law fraud. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsMadoffs-BK-SDNY-Lifland-9-22-11.pdf …

• B-SDNY: Failure to give modicum of specificity re §550 subseq tsfs so as to put Dfdts on notice warrants dismissal. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsMadoffs-BK-SDNY-Lifland-9-22-11.pdf …

• B-SDNY: §546(e) inapplicable to settlement pmts to Madoff insiders bec it's ag. 546(e) purposes & incompatible w/ SIPA. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsMadoffs-BK-SDNY-Lifland-9-22-11.pdf …

• B-SDNY: Constructive fr tsf claims need not satisfy heightened pleading standards of FRCP 9(b) under BK Code or NYDCL. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsMadoffs-BK-SDNY-Lifland-9-22-11.pdf …

• B-SDNY: Ttee suffic. pled applic. of discovery rule to maintain actual fr. tsf. case for pmts occurring > 6 yrs pre-BK. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsMadoffs-BK-SDNY-Lifland-9-22-11.pdf …

• B-SDNY: The "Ponzi scheme presumption" establishes the dbtrs' fraudulent intent as required under the BK Code & NYDCL. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsMadoffs-BK-SDNY-Lifland-9-22-11.pdf …

• B-SDNY: DCT-Wood-8-31-11 op "instructive & pertinent" re relev. factors in FRCP 12(b) motion to dismiss a Madoff cplt. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsMadoffs-BK-SDNY-Lifland-9-22-11.pdf …

• SDNY:§502(d) disallowance of claims by recipients of avoidable tsfs is overridden in SIPA trusteeship by SIPA §78fff-2. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsKatz-Wilpon-SDNY-Rakoff-9-27-11.pdf …

• SDNY: Wilpon buying fraud ins. & creating hedge fund to limit Madoff exposure suffic. pled wilful blindness to fraud. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsKatz-Wilpon-SDNY-Rakoff-9-27-11.pdf …

• SDNY: Lack of due diligence in suspicious circs (compared with "red flags") isnt lack of good faith in SIPA §548 cases. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsKatz-Wilpon-SDNY-Rakoff-9-27-11.pdf …

• SDNY: Madoff ponzi recipients can rebut §548 actual fr tsf for profits by proving they took in good faith & for value. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsKatz-Wilpon-SDNY-Rakoff-9-27-11.pdf …

• SDNY doesnt decide if Madoff Ttee can only avoid profits of §548 2 yr lookback or profits recv'd over whole investment. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsKatz-Wilpon-SDNY-Rakoff-9-27-11.pdf …

• SDNY: But §546(e) safe harbor protects recipients of Madoff ponzi pmts against §544(b) allegations of actual fr transf. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsKatz-Wilpon-SDNY-Rakoff-9-27-11.pdf …

• SDNY: §546(e) safe harbor protects recipients of Madoff Securities ponzi scheme transfers unless there's actual fraud. http://www.bankruptcylitigationblog.com/uploads/file/PicardvsKatz-Wilpon-SDNY-Rakoff-9-27-11.pdf …

• Law of Fraudulent Conveyances Outlined by Virginia Supreme Court http://bit.ly/pnvNJk

• B-NJ: Jr. noteholders can't contest an invol. petition filed by sr. noteholders that the debtor itself didn't contest. http://www.bankruptcylitigationblog.com/uploads/file/ZaisInv-BK-D-NJ-Lyons-8-26-11.pdf …

• B-IL: Ctcls. vs. secured cr. necessarily resolved in order to rule on cr.'s claim & parties consented to jdgmt anyway. http://www.bankruptcylitigationblog.com/uploads/file/OldePrairie-BK-ND-IL-Schmetterer-8-25-11.pdf …

• B-WI reviews when a forward contract matures in order to invoke the §546(e) safe harbor exception to avoidance actions. http://www.bankruptcylitigationblog.com/uploads/file/RenewEnergy-BK-WD-WI-Martin-8-24-11.pdf …

• B-WI: No SJ for either side on ord. course pref. defense where avg days late in pre-pref. & pref pds are 18 v 15 days. http://www.bankruptcylitigationblog.com/uploads/file/RenewEnergy-BK-WD-WI-Martin-8-24-11.pdf …

• D-TX: Inv. Bkr. fees altered per §328 bec circs. of retention "incapable of anticipation, not merely unanticipated." http://www.bankruptcylitigationblog.com/uploads/file/Asarco-SD-TX-Hanen-8-19-11.pdf …

• D-TX: Inv Bkr gets enhanced fees per §328 but not $2M success fee bec §330 factors dont apply to §328 fee arrangements. http://www.bankruptcylitigationblog.com/uploads/file/Asarco-SD-TX-Hanen-8-19-11.pdf …

• B-SDNY: Earlier ch 15 filing date is proper reference date in §553(b) action brought in subsequently filed ch 11 case. http://www.bankruptcylitigationblog.com/uploads/file/AwalBank-BK-SDNY-Gropper-8-4-11.pdf …

• B-SDNY applies plain meaning rule & holds that omission of §553(b) from §1521(a)(7) probably wasn't a drafting error. http://www.bankruptcylitigationblog.com/uploads/file/AwalBank-BK-SDNY-Gropper-8-4-11.pdf …
• B-SDNY: Ok for ch 15 dbtr that files ch 11 case so as to preserve avoidance actions to omit key claim info from sched. http://www.bankruptcylitigationblog.com/uploads/file/AwalBank-BK-SDNY-Gropper-8-4-11.pdf …

• B-TX: Applies Till to cramdown of apt complex lender using blend of sr./mezz/equity rates at diff. % collateral values. http://www.bankruptcylitigationblog.com/uploads/file/CampBowie-BK-ND-Tex-Lynn-8-4-11.pdf …

• REALLY REALLY bad complaints in the 7th Cir. like this one will get you sanctioned, suspended & referred to the ARDC. http://www.bankruptcylitigationblog.com/uploads/file/7th-Cir-Opinion-on-Horrible-Sanctionable-Writing.pdf …

• B-TX: Code doesn't prohibit "artificial impairment" by minimally impairing a cr. class to enable cramdown of others. http://www.bankruptcylitigationblog.com/uploads/file/CampBowie-BK-ND-Tex-Lynn-8-4-11.pdf …

• B-TX: Given Congr. obvious concern for fair treatment of equity, motive in plan to preserve equity isnt inappropriate. http://www.bankruptcylitigationblog.com/uploads/file/CampBowie-BK-ND-Tex-Lynn-8-4-11.pdf …

• B-DE grants bank motion to dismiss equitable subord claim bec alleging inequitable conduct is required for such claim. http://www.bankruptcylitigationblog.com/uploads/file/MollIndus-BK-D-Del-Walrath-8-3-11.pdf …

• B-DE grants banks' motion to dismiss recharacterization claims per review of 11 factors relevant to propriety of claim. http://www.bankruptcylitigationblog.com/uploads/file/MollIndus-BK-D-Del-Walrath-8-3-11.pdf …

• B-TN: New legal theory or claim for relief arising out of same transaction as orig. cplt ok after 2 yr. lim pd expires. http://www.bankruptcylitigationblog.com/uploads/file/AppalachianOilCo-BK-ED-TN-Parsons-8-25-11.pdf …

• B-MD: §366 adeq. assurance to utility doesn't include ordering special condo assessments to be assigned to the utility. http://www.bankruptcylitigationblog.com/uploads/file/BedfordTownCondo-BK-D-MD-Catliota-8-25-11.pdf …

• B-AR: Dbtrs' prop. interest in noncompete payments received per prepetition APA made their subseq tsf out preferential. http://www.bankruptcylitigationblog.com/uploads/file/Frankum-BK-ED-ARK-7-18-11.pdf …

• B-MA:Allonges dont give bank security int. in install. sale contracts bet consumers & dealers that bank wasnt party to. http://www.bankruptcylitigationblog.com/uploads/file/Inofin-BK-D-MA-Feeney-7-27-11.pdf …

Thanks for reading!  More to follow.

Each post in this Year in Review series features a different federal courthouse in each state of the Union. The inset photo is of the US Courthouse for the Bankruptcy Court for the Northern District of California in Oakland, California, which is home to Bankruptcy JudgesEfremsky, Hammond, and Lafferty.

• B-KY: A chief restructuring officer in a ch 11 case isn't a trustee so it has no quasi-judicial immunity from suit. http://www.bankruptcylitigationblog.com/uploads/file/BlackDiamond-BK-ED-KY-Scott-10-18-11.pdf …

• 8-BAP sides with view that a ch. 13 dbtr ineligible for discharge can strip off a wholly unsec lien on princip. resid. http://www.bankruptcylitigationblog.com/uploads/file/Fisette-8-BAP-Schermer-8-29-11.pdf …

• 8-BAP agrees w/all Cir. Cts: §1322(b)(2) doesnt bar ch 13 dbtr from stripping off wholly unsec lien on princip. resid. http://www.bankruptcylitigationblog.com/uploads/file/Fisette-8-BAP-Schermer-8-29-11.pdf …

• B-DE won't grant leave to amend cplt to add 39 tsfs that cant be reconciled to transactions in the original complaint. http://www.bankruptcylitigationblog.com/uploads/file/PowermateHolding-BK-D-Del-Gross-8-18-11.pdf …

• B-DE: Amended cplt alleging more pref. transfers may relate back if tsfs were part of a systematic series of payments. http://www.bankruptcylitigationblog.com/uploads/file/PowermateHolding-BK-D-Del-Gross-8-18-11.pdf …

• SDNY: Cir. split re whether landlord that didnt file claim could draw down an L/C for damages beyond §502(b) capped amt http://www.bankruptcylitigationblog.com/uploads/file/PowermateHolding-BK-D-Del-Gross-8-18-11.pdf …

• B-IL: Per 7th Cir, suit is frivolous and "forbidden" if the probability of its succeeding is very low. http://www.bankruptcylitigationblog.com/uploads/file/CMGT-BK-ND-IL-Squires-10-18-11.pdf …

• B-IL: FRBP 9011 sanctions motion cant be filed before opposing party given 21 days to withdraw the offending pleading. http://www.bankruptcylitigationblog.com/uploads/file/CMGT-BK-ND-IL-Squires-10-18-11.pdf …

• B-IL: Atty req'd to perform reas. investig of law/facts prefiling to avoid "improper purpose" clause of FRBP 9011(b)(1) http://www.bankruptcylitigationblog.com/uploads/file/CMGT-BK-ND-IL-Squires-10-18-11.pdf …

• B-TX: A plan injunction doesn't prevent a subseq. proceeding ag. debtor in name only to access available ins. coverage. http://www.bankruptcylitigationblog.com/uploads/file/SuperiorOffshore-BK-SD-TX-Isgur-10-19-11.pdf …

• B-SDNY: Dbtr cant use §363(f) to obviate compliance w/deed restrictions running w/ land requiring low-income housing. http://www.bankruptcylitigationblog.com/uploads/file/InwoodHeightsHousing-BK-SDNY-Glenn-8-25-11.pdf …

• B-PA reminds that a dbtr's discharge doesn't bar a suit vs the discharged dbtr as the nominal dfdt. for ins. purposes. http://www.bankruptcylitigationblog.com/uploads/file/salemBaptist-BK-ED-Pa-Coleman-8-25-11.pdf …

• B-PA: Dbtr's unmatured malpractice claim cant be leveraged into an interest in underlying ins. policy or its proceeds. http://www.bankruptcylitigationblog.com/uploads/file/salemBaptist-BK-ED-Pa-Coleman-8-25-11.pdf …

• D-CA won't w/draw ref. of FDIC's $48M capital maintenance claim per §365(o) bec signif. non-BK laws aren't implicated. http://www.bankruptcylitigationblog.com/uploads/file/ImperialBancorp-SD-CA-Burns-10-14-11.pdf …

• B-SDNY applies Portrait Corp factors in abstaining from enforcing 363 order despite continuing jurisdic. over matter. http://www.bankruptcylitigationblog.com/uploads/file/MotorsLiqCo-BK-SDNY-Gerber-8-23-11.pdf …

• B-MT disregards lower expert appraisal of condo complex as apt complex just bec unsold units are rented pending sale http://www.bankruptcylitigationblog.com/uploads/file/CanyonHoldings-BK-D-Mont-Kirscher-8-23-11.pdf …

• B-MT: "New debtor syndrome" (tsf of prop to dbtr shortly before filing) establ prima facie case of bad faith dismissal. http://www.bankruptcylitigationblog.com/uploads/file/CanyonHoldings-BK-D-Mont-Kirscher-8-23-11.pdf …

• B-SDNY: Security interest in proceeds of an FCC license may be perfected prior to license's sale so not barred by §552. http://www.bankruptcylitigationblog.com/uploads/file/Terrastar-BK-SDNY-Lane-8-19-11.pdf …

• B-SDNY rejects interp of FCC rulings that would direct adjudication of FCC license liens rights outside of the BK Ct. http://www.bankruptcylitigationblog.com/uploads/file/Terrastar-BK-SDNY-Lane-8-19-11.pdf …

• B-SDNY: Lender can obtain a lien on the economic value of an FCC license, but not on the license itself. http://www.bankruptcylitigationblog.com/uploads/file/Terrastar-BK-SDNY-Lane-8-19-11.pdf …

• B-IL: §544(b) avoidance pd. extended to 10 yrs IRS limitation if IRS files claim or trustee files claim on IRS' behalf. http://www.bankruptcylitigationblog.com/uploads/file/RepublicWindows-BK-ND-IL-Cox-10-12-11(1).pdf …

• B-IL: §544(b) avoidance pd. in IL may be > 4 yrs; subject to any statute of lim. available to any cr on BK filing date. http://www.bankruptcylitigationblog.com/uploads/file/RepublicWindows-BK-ND-IL-Cox-10-12-11(1).pdf

• B-NV: "Tolerance of banal transgressions sends the wrong message to others that such slipshod practices are acceptable" http://www.bankruptcylitigationblog.com/uploads/file/Schivo-BK-D-NV-Markell-10-13-11.pdf …

• B-DE: Fact that resolution of dispute requires interpretation of a plan document doesn't alone provide postconfirm jd. http://www.bankruptcylitigationblog.com/uploads/file/Acands-BK-D-Del-Fitzgerald-8-8-11.pdf …

• B-MA: §547 insolv. can be proven w/proof of no signif. change in assets & liabs between tsf. & filing of BK schedules. http://www.bankruptcylitigationblog.com/uploads/file/Mustaq-BK-D-MA-Bailey-8-10-11.pdf …

• D-MD: Insolv. Ch 7 dbtr lacks standing to challenge case admin. bec it lacks pecuniary int. in outcome, incl 363 sales. http://www.bankruptcylitigationblog.com/uploads/file/Miller-D-MD-Titus-8-24-11.pdf …

• D-NC: Gen. unsec. cr. has standing to assert eq. subord. claim by showing a particul. injury different from other crs. http://www.bankruptcylitigationblog.com/uploads/file/BlackPalmDevp-WDNC-Reidinger-10-13-11.pdf …

• B-SDNY: Dgs. for Chrysler's breach of tax exemption agr. are not priority tax claims bec. agr. doesn't call them taxes. http://www.bankruptcylitigationblog.com/uploads/file/OldCarco-BK-SDNY-Gonzalez-7-25-11.pdf …

• B-IL: Breach of duty claim vs IL dir. for prolonging Dbtr's life when it should have ceased operating fail per Twiqbal. http://www.bankruptcylitigationblog.com/uploads/file/RepublicWindows-BK-ND-IL-Cox-10-12-11.pdf …

• B-IL: Breach of duty claims vs IL dir. based on failure to take action upon discovery of impropriety fail per Twiqbal. http://www.bankruptcylitigationblog.com/uploads/file/RepublicWindows-BK-ND-IL-Cox-10-12-11.pdf …

• 8th: DIP's ordin. course liab. for admin. exp. not limited to day-to-day exp. & includes any failure to perform obligs. http://www.bankruptcylitigationblog.com/uploads/file/SanchezvNorthwestAir-8th-Bye-10-14-11.pdf …

• 8th reminds that per SCOTUS' Reading case, costs incident to bs. operation qualify for admin. priority under § 503(b). http://www.bankruptcylitigationblog.com/uploads/file/SanchezvNorthwestAir-8th-Bye-10-14-11.pdf …

• SDNY: Mere possession of claimant's property w/out actual use by debtor isn't enough to warrant an admin. claim. http://www.bankruptcylitigationblog.com/uploads/file/KollelMatehEfraim-SDNY-Batts-8-2-11.pdf …

• SDNY: §503(b)(1)(A) admin. claim under "benefit to the estate test" depends on actual estate benefit not creditor loss. http://www.bankruptcylitigationblog.com/uploads/file/KollelMatehEfraim-SDNY-Batts-8-2-11.pdf …

• B-SDNY: Contractual setoff/netting rts. (triang. setoff) among mult. affil. not even protected per §561(a) safe harbor. http://www.bankruptcylitigationblog.com/uploads/file/LehmanBrosInc-BK-SDNY-10-4-11-Peck.pdf …

• B-SDNY: Contractual setoff/netting rts. (triang. setoff) among multiple affiliates outside of BK not enforceable in BK. http://www.bankruptcylitigationblog.com/uploads/file/LehmanBrosInc-BK-SDNY-10-4-11-Peck.pdf …

• B-NY: Stern inapplic. despite fact that dfdt's concession that matter was core occurred well before Stern was decided. http://www.bankruptcylitigationblog.com/uploads/file/Citron-BK-EDNY-Rosenthal-10-6-11.pdf …

• B-CA analyzes what Stern held & didnt hold, concluding its narrow & that fr. tsf actions remain core under §§548 & 544. http://www.bankruptcylitigationblog.com/uploads/file/HellerEhrman-BK-ND-CA-Montali-9-28-11.pdf …

• D-TX: Per Stern, BK Ct can't dismiss nondbtr intervenor (& BK Claimant) allegations of fr. inducement in dbtr's BK acq. http://www.bankruptcylitigationblog.com/uploads/file/AIHAcquisitions-ND-TX-McBryde-9-7-11.pdf …

• SDNY: No mand. abstention vs GT per §1334(c)(2) also bec suppl. JD exists over claims based on pending sec. fraud case. http://www.bankruptcylitigationblog.com/uploads/file/Parmalat-SDNY-Kaplan-8-31-11.pdf …

• SDNY: No mand. abstention vs GT per §1334(c)(2) bec case can't be timely adjudicated in IL "at the present time". http://www.bankruptcylitigationblog.com/uploads/file/Parmalat-SDNY-Kaplan-8-31-11.pdf …

• SDNY holds on remand from 2d Cir: Parmalat ttee's case vs Grant Thorn not subject to mand. abstention per §1334(c)(2). http://www.bankruptcylitigationblog.com/uploads/file/Parmalat-SDNY-Kaplan-8-31-11.pdf …

• B-OH: No SJ re if ben. to ttee from sale per §363(h) of single fam. resid. whose partition is imprac. > harm to owner. http://www.bankruptcylitigationblog.com/uploads/file/Laurie-BK-ND-OH-Morgenstern-Clarren-8-31-11.doc …

• B-KY: Post-Stern, odd to think BK Ct can do more in a supplemental state-law claim than could do in a related-to case. http://www.bankruptcylitigationblog.com/uploads/file/BlackDiamondMining-BK-ED-KY-Scott-9-21-11.pdf …

• B-KY: Post-Stern, BK-Cts lack suppl jd. over claims that are unrelated to BK itself but related to pending case/action. http://www.bankruptcylitigationblog.com/uploads/file/BlackDiamondMining-BK-ED-KY-Scott-9-21-11.pdf …

• B-SDNY: Liq trust rts arise under §544 & by assignmt from Bank, so it's not bound by arbitration prov. of consign. agr. http://www.bankruptcylitigationblog.com/uploads/file/SalanderGalleries-BK-SDNY-Morris-7-18-11.pdf …

• B-SDNY: Stern allows denial of stay relief if underlying substance of case dramatically affects BK claim resolution. http://www.bankruptcylitigationblog.com/uploads/file/SalanderGalleries-BK-SDNY-Morris-7-18-11.pdf …

• B-MS: Stern's converse is true: where claim & ctcl. are inextricably tied, the ctcl could conceivably still be core. http://www.bankruptcylitigationblog.com/uploads/file/OxfordExpositions-BK-ND-MS-Houston-9-13-11.pdf …

• B-WA: Stern doesnt stop BK Ct. from issuing final ruling on subst. consolidation; it's core & arises under/in title 11. http://www.bankruptcylitigationblog.com/uploads/file/LLSAmerica-BK-ED-WA-Williams-9-8-11.pdf …

• B-OH: Post-Stern, abstention on fraud/negl/conspir claims that predate BK better than sending proposed findings to DCt. http://www.bankruptcylitigationblog.com/uploads/file/SouthwestSports-BK-ND-OH-Harris-9-6-11.pdf …

• Read the second installment at the Weil Bankruptcy Blog of cases dealing with the effects of Stern v. Marshall http://business-finance-restructuring.weil.com/jurisdiction/the-stern-files-second-edition/siness-finance-restructuring.weil.com/jurisdiction/t… …

Thanks for reading!  More to follow soon.

Here's more in the continuing "Year in Review" series, catching up on more of my backlog of twitter posts of case developments in the past 12 months.

Each post in this Year in Review series features a different federal courthouse in each state of the Union. The inset photo is of the US Courthouse for the Bankruptcy Court for the Eastern District of California in Fresno, California, where 28 dairies have filed chapter 11 in 2012, and which is home to Bankruptcy Judges Clement, Ford, Lee, and Rimel.

·         B-UT: $121K fee app. denied entirely for failure to disclose retainer, payments received from major creditor/insider. http://bit.ly/yNNT4u

·         6-BAP affirms dismissal of ttee's complaint seeking avoidance & recovery of prepet noncompensatory penalty pymts to IRS http://bit.ly/xFnxua

·         1-BAP: Silence is implied consent sufficient to satisfy the consent requirement for approving a sale under § 363(f)(2). http://bit.ly/wcfEPB

·         3d: Foreign pension fund protection proceedings don't meet pecuniary or public policy tests for police power exception. http://bit.ly/A9WJiQ

·         7th: Appellate jd over unstayed 363 sale order limited to narrow issue of whether property sold to good faith purchaser http://bit.ly/zcaFVG

·         7th: Challenge to a good-faith purchaser's status is the sole ground per §363(m) to modify sale terms absent a stay. http://bit.ly/zcaFVG

·         7th: Even if Bk Ct shouldn't have stripped away Debtor's interests in property sold, §363(m) prevents its resurrection. http://bit.ly/zcaFVG

·         4th vacates plan's nondebtor releases as "meaningless [without] specific factual findings explaining" essential nature. http://bit.ly/xuhEB3

·         B-PR reviews comprehensive discussions as to the general concept & requirements of PMSIs. http://bit.ly/zqNvDC

·         D-IL: 2 yr limitations period for sec. fraud begins when reas. investor doing timely investig. would uncover violation http://bit.ly/zEGg7A

·         D-IL: Doctrine of Inquiry notice overruled by SCOTUS for statute of limitations analysis in sec. fraud cases. http://bit.ly/zEGg7A

·         D-IL: Per 7th, the more complex the case & more costly the anticip. discovery, the more detail req'd for plausibility. http://bit.ly/wDkM64

·         D-IL: 7th Cir applies "sliding scale approach to plausibility" for Twiqbal purposes. http://bit.ly/wDkM64

·         B-DE: 3d Cir say "new value" is a defense to a pref. if it's unpaid as of BK filing date, even if subseq. paid in case. http://bit.ly/wYRNLv

·         B-DE: No ord. course of biz bec. of tightening credit terms & modified communications & pymt delivery in 90 days pre-BK http://bit.ly/wYRNLv  

·         B-DE: No SJ for dfdts bec. 17 checks for 68 invoices in 11 mo. is insufficient evid of existence of ord. course of bus. http://bit.ly/wYRNLv

·         B-CO: §502(b)(6) cap is based on 15% of remaining TERM of the lease not 15% of the remaining CASH due under the lease. http://bit.ly/wkqkuU

·         B-TX dismisses ch 11 law firm case where no business operations & sole matters are 2 ongoing pieces of litigation. http://bit.ly/yg6DiE

·         B-PA: Bec 363 sale closed, only option given D-PA reversal is to allow out-of-money junior lien to remain on property http://bit.ly/wtdrkh

·         D-PA: Agrees w/PW LLC that no stay of 363 sale is req'd to preserve rights of one whose lien was improperly stripped. http://bit.ly/wtdrkh

·         D-NV: UST can't conduct Rule 2004 into BANA's nationwide policies, procedures & conduct unrelated to specific dbtr case http://bit.ly/zW4kGH

·         D-NV: US Trustee is a “party in interest” under FRBP 2004 & has authority to conduct a Rule 2004 exam. http://bit.ly/zW4kGH

·         7th: Stern prevents B-Ct final jdgmt on dbtr's counterclaim that health care records improp revealed in proofs of claim http://bit.ly/w8bFXf

·         Another outstanding Weil BK Blog post: Aggressive Creditors: Go Overboard, And You May Find Yourself Walking the Plank http://bit.ly/wN3SWR

·         Jones Day: "Universal" Rule--Trademark licenses not assignable in bankruptcy except with express consent of the owner. http://www.bankruptcylitigationblog.com/uploads/file/JonesDay-UniversalRule.pdf …

·         B-DE: §510(b) subordination inapplicable to MBS certificates that weren't securities of the Debtors or their affiliates http://www.bankruptcylitigationblog.com/uploads/file/WAMU-BK-D-DEL-Walrath-12-20-11.docx …

·         B-DE: Claim subord. can be resolved in claim obj. bec. adversary only required if subord. isn't provided in ch 11 plan. http://www.bankruptcylitigationblog.com/uploads/file/WAMU-BK-D-DEL-Walrath-12-20-11.docx …

·         B-DE: Cplt satisfies Twiqbal that WaMu parent controlled MBS-issuing subs for control person liab. per securities laws. http://www.bankruptcylitigationblog.com/uploads/file/WAMU-BK-D-DEL-Walrath-12-20-11.docx …

·         B-DE: Absent offers, settlements, NOLs, or other assets to fund reorg, lender entitled to stay relief per §362(d)(2). http://www.bankruptcylitigationblog.com/uploads/file/JER-JamesonMezz-BK-D-DEL-Walrath-12-22-11.docx …

·         B-DE disagrees with blanket claim that BK not available to conduct orderly liquidation instead of piecemeal foreclosure http://www.bankruptcylitigationblog.com/uploads/file/JER-JamesonMezz-BK-D-DEL-Walrath-12-22-11.docx …

·         B-DE notes split re whether in determining if equity cushion exists per §362(d)(2), all or only senior liens considered http://www.bankruptcylitigationblog.com/uploads/file/JER-JamesonMezz-BK-D-DEL-Walrath-12-22-11.docx …

·         B-DE: "Good faith" filing reqt encompasses several, distinct equitable limitations to deter illegitimate filings. http://www.bankruptcylitigationblog.com/uploads/file/JER-JamesonMezz-BK-D-DEL-Walrath-12-22-11.docx …

·         B-DE compares different standards in 2d & 3d Cirs for dismissal of ch 11 petitions under subjective v. objective stds. http://www.bankruptcylitigationblog.com/uploads/file/JER-JamesonMezz-BK-D-DEL-Walrath-12-22-11.docx …

·         B-KS notes early split re whether Stern has "wide implications" or "should be interpreted narrowly." http://www.bankruptcylitigationblog.com/uploads/file/BrookeCorp-BK-D-Kan-Somers-12-16-11.docx …

·         B-KS: Nothing in §550(a)(1) suggests that liability follows ownership of the obligation on which payment was made. http://www.bankruptcylitigationblog.com/uploads/file/BrookeCorp-BK-D-Kan-Somers-12-19-11.docx …

·         B-KS: Assignee of claim from one receiving preference isn't subject to preference liability since it didn't get funds. http://www.bankruptcylitigationblog.com/uploads/file/BrookeCorp-BK-D-Kan-Somers-12-19-11.docx …

·         B-SDNY: Employee's nonperf of condition precedent to damages under an employment contract can vitiate rejection damages http://www.bankruptcylitigationblog.com/uploads/file/VertisHoldings-BK-SDNY-Gropper-12-21-11.docx …

·         B-SDNY: Severance claim capped per §502(b)(7) disallowed unless CEO signs release provided for in employment agreement. http://www.bankruptcylitigationblog.com/uploads/file/VertisHoldings-BK-SDNY-Gropper-12-21-11.docx …

·         Judge Shadur on the importance of filing removal petitions early so defects flagged before 30 day jurisdictional bar. http://www.bankruptcylitigationblog.com/uploads/file/ZebraTechnologies-ND-IL-Shadur-12-20-11.docx …

·         B-IL: “Cause” under § 363(k) to bar secured creditor from credit bidding when lien is in dispute is inapplicable here. http://www.bankruptcylitigationblog.com/uploads/file/OldePrairieBlock-BK-ND-IL-Schmetterer-12-22-11.docx …

·         B-IL: Sale-not recap-occurs where title to Dbtr's property wont change but control of the Dbtr transfers to new entity. http://www.bankruptcylitigationblog.com/uploads/file/OldePrairieBlock-BK-ND-IL-Schmetterer-12-22-11.docx …

·         B-IL: §1129(b)(2)(A)(ii) is only way a Debtor can cram down a plan that effectuates a sale of a lender's collateral. http://www.bankruptcylitigationblog.com/uploads/file/OldePrairieBlock-BK-ND-IL-Schmetterer-12-22-11.docx …

·         B-IL: Dbtr cant partially strip lien in exchange for cash per § 1129(b)(2)(A)(i) bec parcel once so valued at cash amt. http://www.bankruptcylitigationblog.com/uploads/file/OldePrairieBlock-BK-ND-IL-Schmetterer-12-22-11.docx …

·         B-IL: Single asset real estate plan cant be confirmed over objection of secured under any of § 1129(b)(2)(A)'s 3 prongs http://www.bankruptcylitigationblog.com/uploads/file/OldePrairieBlock-BK-ND-IL-Schmetterer-12-22-11.docx …

·         From Jones Day: WAMU Confirmation denied: Interest Rates, Equitable disallowance and Insider Trading http://www.bankruptcylitigationblog.com/uploads/file/JonesDay-WAMUConfirmationDenied.pdf …

·         From Jones Day: Prepetition severance rights subject to Code section 507(a)(4) priority http://www.bankruptcylitigationblog.com/uploads/file/JonesDay-507a4.pdf …

·         From Jones Day: 2d Cir Settles Meaning of Bankruptcy Code section 546(e) http://www.bankruptcylitigationblog.com/uploads/file/JonesDay-546e.pdf …

·         From Jones Day: Another Blow to Triangular Setoff: Synthetic Mutuality No Substitute for the Real Thing http://www.bankruptcylitigationblog.com/uploads/file/triangularsetoff.pdf …

·         B-DE reminds of the significance of the "grammatical rule of the last antecedent" in contract & statutory interp. http://www.bankruptcylitigationblog.com/uploads/file/Tribune-BK-D-DEL-Carey-12-29-11(1).docx …

·         B-DE: Fr. tsf claims aren't assets of the dbtr even if the Code empowers a dbtr to pursue them for benefit of creditors http://www.bankruptcylitigationblog.com/uploads/file/Tribune-BK-D-DEL-Carey-12-29-11(1).docx …

·         B-DE reverses itself: Broad contractual subord provisions prevent jr. claimants from sharing w/sr. in fr tsf recoveries http://www.bankruptcylitigationblog.com/uploads/file/Tribune-BK-D-DEL-Carey-12-29-11(1).docx …

·         SDNY wonders if a corporate parent owes fiduciary duties to its wholly-owned subsid. once that sub becomes insolvent. http://www.bankruptcylitigationblog.com/uploads/file/BHSandB-SDNY-Kaplan-9-6-11.pdf …

Thanks for reading!  More to follow.

Here's more in the continuing "Year in Review" series, catching up on more of my backlog of twitter posts of case developments in the past 12 months.

Each post in this Year in Review series will feature a different federal courthouse in each state of the Union. The inset photo is of the US Courthouse for the Bankruptcy Court for the Eastern District of Arkansas in Little Rock, home to Bankruptcy Judges Evans, Mixon and Taylor.

·         B-DE suggests w/drawal of reference to let D-Ct. decide if adversary should be transferred based on diversity grounds http://www.bankruptcylitigationblog.com/uploads/file/IMMC-BK-D-Del-Carey-2-14-12.pdf …

·         B-DE: BK trustee has standing under SCOTUS Navarro decision to bring diversity case bec. liq. trust itself isnt pltf. http://www.bankruptcylitigationblog.com/uploads/file/IMMC-BK-D-Del-Carey-2-14-12.pdf …

·         B-DE doubts rt. to transfer cases per 28 USC §1631, despite 3d Cir dicta, bec. BK Cts. not w/in 28 USC §610 def. of cts http://www.bankruptcylitigationblog.com/uploads/file/IMMC-BK-D-Del-Carey-2-14-12.pdf …

·         B-DE: Discl st or plan that didn't identify expected post-confirm. non-ch. 5 avoidance litig. deprives Ct of jurisd. http://www.bankruptcylitigationblog.com/uploads/file/IMMC-BK-D-Del-Carey-12-29-11.pdf …

·         B-OR: If a state ct case is successfully removed to fed. ct, no mand. abstention bec no other related proceeding exists http://www.bankruptcylitigationblog.com/uploads/file/SequoiaVillage-BK-D-Or-Alley-2-14-12.pdf …

·         B-TX: No direct appeal to Circuit Ct per §158(d)(2) pre-BAPCPA BK cases, even if adversary proc. not filed until 2006 http://www.bankruptcylitigationblog.com/uploads/file/HeritageOrg-BK-ND-TX-Houser-2-14-12.pdf …

·         B-MA: Admin. exp. priority for severance pay limited exclusively to that portion attributable to postpetition services. http://www.bankruptcylitigationblog.com/uploads/file/QuincyMedical-BK-D-MA-Hoffman-2-13-12.pdf …

·         B-MA: Severance pay gets admin priority only to extent it's tied to length of service so it's part of employee's comp http://www.bankruptcylitigationblog.com/uploads/file/QuincyMedical-BK-D-MA-Hoffman-2-13-12.pdf …

·         B-NC: Dbtr's assgnmt to creditor of money it's entitled to receive from 3d party is perfected & complete when executed http://www.bankruptcylitigationblog.com/uploads/file/Helms-BK-WD-NC-Whitley-2-14-12.pdf …

·         D-OH analyzes at length why ch 13 age discrim claimant is judicially estopped from pursuing claim not in BK schedules http://www.bankruptcylitigationblog.com/uploads/file/Harrah-D-OH-Nugent-2-9-12.pdf… 

·         D-NJ: Rooker-Feldman doesnt apply to ttee action to determineextent & validity of Dbtr's property ownership interests http://www.bankruptcylitigationblog.com/uploads/file/Sheehan-D-NJ-Wolfson-2-9-12.pdf … 

·         D-NJ: Stern inapplic. to Ttee's adversary to determine extent & validity of Dbtr's property ownership interests http://www.bankruptcylitigationblog.com/uploads/file/Sheehan-D-NJ-Wolfson-2-9-12.pdf … 

·         B-SDNY: Ch 15 dbtr adversarys not stayed indef. bec. Fed. Maritime Comm. lacks excl. or prim. JD over affirm. defenses http://www.bankruptcylitigationblog.com/uploads/file/ContainershipCo-BK-SDNY-Lane-2-10-12.pdf … 

·         B-SDNY: BK signif. changes balance of factors in deciding whether to allow a class action, which may be less desirable http://www.bankruptcylitigationblog.com/uploads/file/Lear-BK-SDNY-Gropper-2-10-12.pdf … 

·         B-SDNY: Ord. recourse of cr. alleging lack of adeq. notice of bar date is to request right to file late proof of claim http://www.bankruptcylitigationblog.com/uploads/file/Lear-BK-SDNY-Gropper-2-10-12.pdf … 

·         B-SDNY: BK Ct. will decide BK issues on scope of discharge in plan & confirm. order but abstain on antitrust issues http://www.bankruptcylitigationblog.com/uploads/file/Lear-BK-SDNY-Gropper-2-10-12.pdf … 

·         B-SDNY: Broad postconfirm jurisdiction to enforce discharge isn't exclusive to BK Ct, which still has non-excl. jurisd http://www.bankruptcylitigationblog.com/uploads/file/Lear-BK-SDNY-Gropper-2-10-12.pdf … 

·         B-NC: Only minority of cts permit plan discrimination ag. unsec. crs. in favor of long-term nondischargeable debt http://www.bankruptcylitigationblog.com/uploads/file/Sutton-BK-ED-NC-Doub-2-9-12.pdf … 

·         B-NC: 2 basic elements to unfair discrim. per §1129(b)(1) are reasonableness & necessity in light of basis for discrim http://www.bankruptcylitigationblog.com/uploads/file/Sutton-BK-ED-NC-Doub-2-9-12.pdf … 

·         B-NC analyzes unfair discrim. test per §1129(b)(1) as interpreted by many courts and commentators. http://www.bankruptcylitigationblog.com/uploads/file/Sutton-BK-ED-NC-Doub-2-9-12.pdf … 

·         D-MS: Ch 13 dbtr has duty to disclose postconfirm. claims but it'd be inequitable to bar claims per judicial estoppel http://www.bankruptcylitigationblog.com/uploads/file/Wyeth-SD-MS-Lee-2-15-12.pdf … 

·         D-MS: 4 Cir. Cts have taken separate approaches to determine the proper disposition of ch 13 dbtr's post-confirm assets http://www.bankruptcylitigationblog.com/uploads/file/Wyeth-SD-MS-Lee-2-15-12.pdf … 

·         D-TX affirms denial of BK class cert. for WARN Act claimants: lack of numerosity & not superior method" of adjudication http://www.bankruptcylitigationblog.com/uploads/file/TWLCorp-ED-TX-Gilstrap-2-14-12.pdf … 

·         D-IL agrees that parties may waive Stern-based objections bec it's not a s-m jurisd. issue that can be raised anytime http://www.bankruptcylitigationblog.com/uploads/file/Sharifeh-ND-IL-Leinenweber-2-10-12.pdf … 

·         B-NY: Dbtr w/multiple parcels is single asset real estate dbtr per "single project" test; tenants' activity irrelevant http://www.bankruptcylitigationblog.com/uploads/file/JJMMCorp-BK-EDNY-Trust-2-15-12.pdf … 

·         7th: Plan that tries to squeeze a modified §1129(b)(2)(A)(i) cramdown in a §1129(b)(2)(A)(iii) indubit equiv plan fails http://www.bankruptcylitigationblog.com/uploads/file/RiverEast-7th-Posner-1-19-12(1).pdf … 

·         7th: Zero-coupon T-bills @ 3% paying $38 million on §1111(b) sec. claim isnt indubit equiv. of retaining lien on bldg. http://www.bankruptcylitigationblog.com/uploads/file/RiverEast-7th-Posner-1-19-12(1).pdf … 

·         7th: Cramdown of oversecured cr. permits collat. substit as indubit equiv if risk of becoming undersecured doesnt go up http://www.bankruptcylitigationblog.com/uploads/file/RiverEast-7th-Posner-1-19-12(1).pdf … 

·         7th: Collateral substitution in a secured cramdown impermissible as indubitable equiv. if the creditor is undersecured. http://www.bankruptcylitigationblog.com/uploads/file/RiverEast-7th-Posner-1-19-12(1).pdf … 

·         Important 7th Cir opinion by Judge Posner on cramdown standards generally and in the single asset real estate context. http://www.bankruptcylitigationblog.com/uploads/file/RiverEast-7th-Posner-1-19-12.pdf … 

·         D-KS: Only one distinguishable case dismissed a pref. cplt on a motion to dismiss based on ord. course of bus. defense http://www.bankruptcylitigationblog.com/uploads/file/Brooke-D-KS-Lungstrum-1-13-12(1).pdf … 

·         D-KS: Cplt that sweeps in large #'s of innocent pymts doesnt state a plausible claim that any partic. pymt was fr. tsf. http://www.bankruptcylitigationblog.com/uploads/file/Brooke-D-KS-Lungstrum-1-13-12.pdf … 

·         D-KS won't adopt a per se rule by which any payment for an antecedent debt constitutes reasonably equivalent value. http://www.bankruptcylitigationblog.com/uploads/file/Brooke-D-KS-Lungstrum-1-13-12.pdf … 

·         B-IL: Severance pymts are prop. of estate & not exempt per IL Wage Deduc. Act, but may be per IL Unempl. Ben. Exemption http://www.bankruptcylitigationblog.com/uploads/file/Jokiel-BK-ND-IL-Barbosa-1-5-12.pdf … 

·         SDNY examines interplay bet. §1509 & §1524, and grants comity to Mex. BK case order that stays US action ag. guarantors http://www.bankruptcylitigationblog.com/uploads/file/CTInvestment-SDNY-Sweet-1-11-12.pdf … 

·         B-DE: Cplt ag. insiders for breach of fiduc. duty & duty of loyalty & for aiding/abetting survives a motion to dismiss. http://www.bankruptcylitigationblog.com/uploads/file/DirectResponseMedia-BK-D-DEL-Gross-1-12-12.pdf … 

·         B-DE reminds that §102(b)(7) exculpation defense is an affirmative one & viability shdn't be decided at dismissal stage http://www.bankruptcylitigationblog.com/uploads/file/DirectResponseMedia-BK-D-DEL-Gross-1-12-12.pdf … 

·         B-DE reminds that permissive abstention is an "extraordinary & narrow exception... [that] rarely should be invoked." http://www.bankruptcylitigationblog.com/uploads/file/DirectResponseMedia-BK-D-DEL-Gross-1-12-12.pdf … 

·         B-DE: In pari delicto doctrine is inapplicable when the action is brought against insiders of a debtor. http://www.bankruptcylitigationblog.com/uploads/file/DirectResponseMedia-BK-D-DEL-Gross-1-12-12.pdf … 

·         B-DE: Judge Gross compares broad & narrow interpretations of Stern's applicability & sides w/the narrow view. http://www.bankruptcylitigationblog.com/uploads/file/DirectResponseMedia-BK-D-DEL-Gross-1-12-12.pdf … 

·         B-DE: Judge Gross takes a crack at applying Stern to typical multi-count avoidance/breach of duty cplt ag. insiders. http://www.bankruptcylitigationblog.com/uploads/file/DirectResponseMedia-BK-D-DEL-Gross-1-12-12.pdf … 

·         B-DE: Walsh, J agrees w/Refco that §544(b)(1) actions are core proceedings that BK Ct can constit enter final orders on http://www.bankruptcylitigationblog.com/uploads/file/DBSI-BK-D-DEL-Walsh-1-13-12.pdf … 

·         B-NC: Filed proof of claim let BK Ct constit. decide per Stern actions for breach of credit agr. it otherwise couldn't http://www.bankruptcylitigationblog.com/uploads/file/FreewayFoods-BK-WD-NC-Waldrep-1-13-12.pdf … 

·         B-NC: Waldrep J. analyzes Stern's application to multi-count cplt involving Waffle House takeovers of Freeway Foods. http://www.bankruptcylitigationblog.com/uploads/file/FreewayFoods-BK-WD-NC-Waldrep-1-13-12.pdf … 

·         B-PA:Harrisburg loses appeal rights by filing notice of appeal based on date of entry of opinion, not the order itself. http://www.bankruptcylitigationblog.com/uploads/file/Harrisburg-BK-MD-PA-France-12-13-11.pdf … 

·         B-AL:Jefferson Cty Ch. 9 BK stays pending receivership & motion to abstain or lift stay in favor of receivership denied http://www.bankruptcylitigationblog.com/uploads/file/JeffersonCtyAL-BK-ND-AL-Bennett-1-6-12.pdf … 

·         5th: In pari delicto defense loses its sting when the person who is in pari delicto is eliminated & receiver appointed. http://www.bankruptcylitigationblog.com/uploads/file/JonesvWFB-5th-PerCuriam-1-9-12.pdf … 

·         5th:Applying in pari delicto in receivership wd undermine-& thus be inconsistent with-a primary purpose of the doctrine http://www.bankruptcylitigationblog.com/uploads/file/JonesvWFB-5th-PerCuriam-1-9-12.pdf … 

·         5th: While BK law/§541(a)(1) permits applic. of in pari delicto doctrine against BK trustees, receivership law doesn't. http://www.bankruptcylitigationblog.com/uploads/file/JonesvWFB-5th-PerCuriam-1-9-12.pdf … 

·         B-TX:Prefs. w/in public rts bec of SCOTUS ops in Thomas & Katz, & close integ. of pref actions to claims adjud. process http://bit.ly/Agy7y7  

·         B-TX: BK clause in constit. was very political: stability of dbtr-cred. rel. was closely linked to republic's vitality http://bit.ly/Agy7y7  

·         B-TX: Isgur, J provides handy chart summarizing major SCOTUS cases directly or indirectly addressing preference actions http://bit.ly/Agy7y7  

·         B-TX: Isgur, J provides deep historical review of authority post-Stern for a BK Ct to decide a BK preference case. http://bit.ly/Agy7y7  

·         7th: Expert's regression had as many bloody wounds as Julius Caesar when he was stabbed 23 times by the Roman Senators. http://bit.ly/zVDZ1t  

·         7th: If party's own atty cant understand expert, the Ct should not allow the expert to testify http://bit.ly/zVDZ1t  

·         7th Cir reviews indefinite/unenforceable contracts & promissory estoppel doctrine in high stakes suit bet. ATA & Fed Ex http://bit.ly/zVDZ1t  

·         7th:No Ct approval needed for nondebtor's allocation of proceeds in ch 7 settlmnt whack-up to pre-ch 11 conversion atty http://bit.ly/xTevUD  

·         7th: Entites found part of Dbtr's BK estate were necessarily under "common control" to establ. MPPAA w/drawal liability http://bit.ly/xcTbQV

 Thanks for reading!  More to follow soon.

• SDNY: Stern concerns aside, withdrawal at this pre-trial stage would cause significant inefficiencies & be inapprop. http://www.bankruptcylitigationblog.com/uploads/file/LYONDELL-DC-SD-NY-COTE-3-29-12.pdf …

• SDNY: No room in Stern for fr tsf claim that is a private right in 7th Am context but a public right in Art III context http://www.bankruptcylitigationblog.com/uploads/file/LYONDELL-DC-SD-NY-COTE-3-29-12.pdf …

• SDNY consensus post-Stern is BK Cts cant enter final jdgmt in fr tsf actions unless tied to proof of claim ruling. http://www.bankruptcylitigationblog.com/uploads/file/LYONDELL-DC-SD-NY-COTE-3-29-12.pdf …

• SDNY: Post-Stern, core/non-core distinction may not remain relevant to district ct's withdrawal of reference for cause http://www.bankruptcylitigationblog.com/uploads/file/LYONDELL-DC-SD-NY-COTE-3-29-12.pdf …

• SDNY: Pre-Stern, threshold inquiry in permissive withdrawal was whether the claim was core or non-core http://www.bankruptcylitigationblog.com/uploads/file/LYONDELL-DC-SD-NY-COTE-3-29-12.pdf …

• D-IL: Cts are skeptical that a BK trustee can be a class rep. absent potentially substantial class member recoveries. http://www.bankruptcylitigationblog.com/uploads/file/PRIME-DC-SD-IL-STIEHL-9-26-11.pdf …

• 7th: Can't circumvent Rooker-Feldman by recasting review as a cplt about civil rights, due process, conspiracy, or RICO http://www.bankruptcylitigationblog.com/uploads/file/WALLIS-APP-SEVENTH-CIRCUIT-CUDAHY-9-21-11.pdf …

• 9th: Common law right of public access to judicial documents displaced by BK Code §107 in the bankruptcy context. http://www.bankruptcylitigationblog.com/uploads/file/ROMAN-APP-NINTH-CIRCUIT-IKUTA-9-21-11.pdf …

• 9-BAP reviews split re if BK exemptions, incl. tenancy by entirety, are subject to §544(a) avoidance & says they are. http://www.bankruptcylitigationblog.com/uploads/file/DUFFIN-BK-TENTH-BROWN-9-19-11.pdf …

• D-IL: Claims of ch 7 ttee & crs. v. 3d parties are so closely related that the BK Ct properly enjoined creditor action. http://www.bankruptcylitigationblog.com/uploads/file/IFC-DC-ND-IL-MAROVICH-9-14-11.pdf …

• D-IL:Corp vol. petition not signed by atty isnt void ab initio but can be freely amended per FRBP 1009 to correct it http://www.bankruptcylitigationblog.com/uploads/file/IFC-DC-ND-IL-MAROVICH-9-14-11.pdf …

• D-OH: Dishonesty exclusion in D&O policy applies to liq. ttee bec sole actor rule overrides adverse interest exception. http://www.bankruptcylitigationblog.com/uploads/file/UNENCUMBERED-DC-SD-OH-GRAHAM-9-16-11.pdf …

• D&O carrier may have waived its right to rescind policy based on fraudulent reps by accepting tail coverage premium. http://www.bankruptcylitigationblog.com/uploads/file/UNENCUMBERED-DC-SD-OH-GRAHAM-9-16-11.pdf …

The inset photo is of the Federal Courthouse for the Bankruptcy Court for the Northern District of Alabama, Eastern Division, in Anniston, Alabama, where Judge James E. Robinson presides.

Thanks for reading!  More to follow.

The chart is taken from an 8/24/12 post entitledThe Older You Are, The More Important You Consider The iPad To Be from the Business Insider's "Chart of the Day" series.

• B-AL: Truck lease w/ "Terminal Rental Adjustment Clause" (TRAC) is "true lease" and not lease intended as security. http://www.bankruptcylitigationblog.com/uploads/file/HB-BK-ND-AL-CADDELL-9-29-11.pdf …

• B-MA limits §550 damages to avoiding the mortgage (not value of mortgage too) bec. no value extracted through mortgage. http://www.bankruptcylitigationblog.com/uploads/file/RUEL-BK-D-MA-BAILEY-10-12-11.pdf …

• B-MA reject "no harm, no foul" defense to preference liability where property transferred would have been exempt in BK. http://www.bankruptcylitigationblog.com/uploads/file/RUEL-BK-D-MA-BAILEY-10-12-11.pdf …

• 8th BAP rejects "no harm, no foul" per se rule that exempt property can be fraudulently transfered. http://www.bankruptcylitigationblog.com/uploads/file/LUMBAR-APP-EIGHTH-CIRCUIT-FEDERMAN-10-12-11.pdf …

• B-MT: Contract rejection doesnt cancel/repudiate/rescind/terminate contr., it only relieves estate from contr. obligs. http://www.bankruptcylitigationblog.com/uploads/file/YELLOWSTONE-BK-D-MT-KIRSCHER-10-12-11.pdf …

• B-SDNY: Contingent claims must be disallowed as a §503(b) admin. expense if they're contingent at time of allowance. http://www.bankruptcylitigationblog.com/uploads/file/ROCK-BK-SD-NY-GONZALEZ-10-7-11.pdf …

• B-SDNY: §502(e)(1)(B) disallowance doesn't apply to administrative claims, which arise under §503, not §502. http://www.bankruptcylitigationblog.com/uploads/file/ROCK-BK-SD-NY-GONZALEZ-10-7-11.pdf …

• B-MT reviews "classic" adequate protection as compens. for loss of value & as check on aggressive Dbtr/Ttee remedies. http://www.bankruptcylitigationblog.com/uploads/file/NOVAK-BK-D-MT-KIRSCHER-10-11-11.pdf …
• B-TX: Fin. consultant/expert denied fees bec plan on which it testified wasnt confirmed & no other tang. benefit shown. http://www.bankruptcylitigationblog.com/uploads/file/IRH-BK-SD-TX-BOHM-9-6-11.pdf …
• B-FL: Dbtrs ineligible for ch 13 discharge cant use ch 13 to strip wholly unsec jr mortg liens on principal residences http://www.bankruptcylitigationblog.com/uploads/file/QUIROS-BK-SD-FL-OLSON-9-19-11.pdf …

• B-CT: No §553(a) mutuality bec dfdt's sec loan to dbtr & dbtr's tortious intf jdgmt ag dfdt "aren't of the same right." http://www.bankruptcylitigationblog.com/uploads/file/BOLIN-BK-D-CT-SHIFF-9-21-11.pdf …

• B-CT: Postpet tortious intf jdgmt rooted in prepet acts not "arise" prepet so cant setoff ag prepet claim per §553(a). http://www.bankruptcylitigationblog.com/uploads/file/BOLIN-BK-D-CT-SHIFF-9-21-11.pdf …

 Thanks for reading!  Lots more to follow.

As I noted three years ago in my "What's Bothering Ruthie?" post on Justice Ginsburg's one-liner that stopped the Chrysler sale dead in its tracks, today's Supreme Court oral argument in RadLAX Gateway Hotel, LLC v. Amalgamated Bank (transcript) left no doubt about what's bothering the Supreme Court Justices in approaching the question of whether a debtor can cram a chapter 11 plan down a secured lender by selling its collateral at auction without allowing it to credit bid in its claim.  And while lenders viscerally support the Seventh Circuit's ruling below (as the protest board paraded before the Court leaves no doubt), the final result is no "roll" for them (as one seasoned advocate opined). 

So what's bothering the Justices in this case?  Here are questions they asked, grouped by category:

• Indubitable Equivalence:  What is indubitable equivalence?  (Ginsburg at 2.)  Justice Roberts said that "indubitable equivalent" means "doubtless equivalent."  (Roberts at 26.)  But what is it measured by?  Current market conditions or some premium tacked on based on an assumed increase in value over time?  (Id.)  Isn't allowing the lender to credit bid the "best way" to give it the indubitable equivalent?  (Breyer at 11.)  "[O]ne thing is to say that if you fit into (ii), that's it, you don't go to (iii).  Another is to say, well you can go to (iii), but it's most unlikely that there would be the indubitable equivalent of allowing credit bidding."  (Ginsburg at 41.)  But if the judge finds that the purchaser must bridge the gap to provide indubitable equivalence, "that assumes that you can just pull out a wad of cash from your back pocket, but mostly the debtors are not in that position[,] [s]o it just seems like a gigantic waste of time."  (Kagan at 54.)

• Fear of Judicial Undervaluation:  But more fundamentally, isn't the real issue who is going to decide something is really the indubitable equivalent (the bankruptcy judge or the secured creditor via a credit bid)?  (Alito at 6.)  Isn't the lender's real fear that the bankruptcy judge will not "indubitably provide the indubitable equivalent."  (Id.)  But to avoid that risk, can't the judge just open every sale to credit bidding and to be sure that the indubitable equivalent is provided in every instance?  (Scalia at 8.)  Isn't "the heart of [the lender's] argument ... that the real value of this property is greater than the value that you think the Bankruptcy Court would assign to it if this were done under subsection (iii)? ...  Why do you have that fear?"  (Alito at 30.)  "But doesn't clause (i) depend upon a judicial valuation? ... And isn't subsection (iii) "where it talks about substitute collateral ... completely a judicial valuation.?"  (Kagan at 30, 32.)  "[W]hat is it about the auction process that [the lender] think[s] is likely to produce ... a valuation that is too low?"  (Alito at 32.)  "Of course, valuing property is what bankruptcy judges do all the time, right?"  (Roberts at 51.)  "What you just said is so long as they come in with some appraisals that are above what the property sold at for cash, then it's not the indubitable equivalent?  Because you've got to have at least one appraiser who says it's worth more. Is that all it takes?"  (Scalia at 53.)  "What happens if you go to the judge and the judge says: There is one higher bid, so I can't say it's indubitable?  Then what happens?"  (Scalia at 54.) 

• Honoring the Secured Creditor's Bargain:  Doesn't allowing credit bidding in all instances give the lender "what he bargained for when he insisted upon security before giving the loan" ... and avoid "depriving [it] of the opportunity to hold on to the asset because he thinks it is ... unreasonably devalued?"  (Roberts at 7.)  Doesn't the Code just "help the debtor a little without mucking up the secured creditor's collateral."  (Breyer at 10.)  People until now "didn't think they could do [avoid credit bidding] in plan sales. So why should we upset the expectation?"  "What's the business value for upsetting the norm?"  (Sotomayor at 56.)

• Maximizing Value:  Doesn't the "maximum value" in an undersecured credit "always ha[ve] to be the value of the credit.  (Sotomayor at 8.)  "[I]t doesn't take a genius to figure out that if you allow people to bid for cash or for credit, you are going to get more bids and higher bids than if you allow them to bid for cash only."  (Scalia at 21.)  Won't the lender allow bidders who bid more than the lender thinks it's worth, but not allow them if it thinks it's worth more in its own hands?  (Breyer at 21.)  What's the purpose of going through the sale at all if you permit credit bidding?  "Why don't you just turn over the property under (iii)?  Why do you go through the sham of a sale?"  (Sotomayor at 36.) 

• Who Benefits from Denying Credit Bids in Cram Down Auctions?:  How would junior creditors receive anything in this cram down situation, anyway?  (Kagan at 12.)  Is the debtor here just asking for permission to use the property to pay other debts, which is precisely what a secured interest prevented.  "[W]hy isn't the secured creditor entitled to all of the proceeds from the property?"  (Sotomayor at 14-15.)  

• Statutory Construction Exercises: How is it a "sensible statute" to allow credit bidding in clause 1129(b)(2)(A)(ii) and then saying in clause (iii) "you can have this sale not subject to credit bidding?"  (Scalia at 14.)   Is Amalgamated "just kind of elid[ing] the fact that the statute says 'or'?"  (Roberts at 27.)  "What's wrong with the debtor's reading that clause (ii) is procedural and clause (iii) is substantive?"  (Roberts at 29.)  "The Petitioner suggests that the usual rule that the specific governs rather than the general provision doesn't apply in this case because the specific is not a subset of the general.  What's your view about that?"  (Kagan at 42.)  "It seems if they are not a subset, then they are alternatives.  I don't see how the whole doctrine makes any sense if the specific is not a subset of the general?"  (Roberts at 43.)  "So when we say our doctrine says the specific controls over the general, the specific is a subset of the general?"  (Roberts at 44.)

• Protecting Governmental Interests:  Doesn't the debtor "feel sorry for the United States [which] is often [a] creditor [and] cannot come up with cash?  (Scalia at 18.)  Isn't there a "whole cadre of U.S. trustees that presumably can look out for the interests of the poor United States."  (Roberts at 46.) 

• Understanding the Practicalities:  If a creditor can't credit bid but thinks the property is worth more than the amount bid at the auction, "what happens" under the debtor's scenario?  (Kagan at 19.)  "How often does a buyer other than the stalking horse obtain the property?"  (Alito at 23.)

• Insider Disincentives:  Doesn't the debtor's approach encourage insiders to encourage low stalking horse bids to keep the creditor out?  (Breyer at 22.) 

• Significance of Bankruptcy Code Policy:  Isn't a good reason to permit cram down without credit bidding, "consistent with the policy of the Bankruptcy Code, ... to look out for other creditors as well.  And if the secured creditor is getting indubitably the value of this security, why don't you weigh in the balance at least the interests of the other creditors ... [especially since] we are asked to issue a ruling that is going to apply in every case?"  (Roberts at 33.)

So where do all these questions leave us?  With anything but a slam dunk for the lenders, to be sure.  BAPCPA stripped bankruptcy judges of much discretion and the Justices here will grapple with whether Congress in 1978 also intended to likewise limit judicial discretion in cramdowns of secured creditors.

Notably, there was an empty chair in the Court, with Justice Kennedy having recused himself from the deliberations.  Someone suggested that Justice Kennedy recused himself because he or a friend once stayed at the Radisson LAX and so disliked it that he could no longer be objective.  As a result, however, I have some concern that we'll witness another Marathon-ish vacuum from a 4-4 split on an opinion of critical importance to the bankruptcy world.  Yet I doubt Justice Roberts--who showed the most even hand at oral argument today--will let that happen.  He certainly didn't appear to have made his mind up yet, but when he does, I expect a majority of the Court will follow suit. 

I also expect the decision will follow through on (i) the Court's reasoning in Ransom where an 8-1 majority looked to the "text, context, and purpose of the statutory provision at issue" to interpret a Bankruptcy Code provision and (ii) the Court's reasoning in Howard Delivery which showed the "plain meaning" doctrine to have its own bankruptcy ocular.

Finally, don't forget to sign up for the first post-RadLAX argument webinar at 12:30 eastern on April 24 to discuss the RadLAX oral argument, sponsored by Wilmer Hale and LSTA, and featuring LSTA's Elliot Ganz and WilmerHale Partners Craig Goldblatt and Danielle Spinelli (all of whom were on an amicus brief filed with the Court for a number of leading financial industry trade associations).  Here is the link to the webinar.  Here's the SCOTUS Blog page linking to all briefs filed in the case.

Thanks for reading!

[Part I here]

Chicago bankruptcy professionals descended on the US Supreme Court to catch the final chapter in the RadLAX bankruptcy saga, one that had a remarkably swift journey to the highest court of the land.  The case started as the neglected stepchild of Amalgamated Bank, the trustee of the deeply undersecured Longview Ultra I Construction Loan Investment Fund (having about $100 million of collateral to support a $300 million original investment). 

Following Chief Judge Black's rejection of RadLAX's sister debtor's (River Road) attempt to jam Amalgamated with a plan that sold the hotel while denying the Bank its proclaimed right to credit bid its claim at auction, Amalgamated proposed its own plan (which was confirmed last July with the Bank effectively "buying" the Debtor's assets through credit bid, thus mooting out any appeal of Chief Judge Black's denial of River Road's original cram down plan).  For whatever reason, however, the Bank in the RadLAX sister case had no interest in confirming its own credit bid plan, thereby leaving the RadLAX debtor to its own devices, which ultimately meant a trip to the Seventh Circuit.  The Seventh Circuit sided with Amalgamated, and the Supreme Court agreed to hear the appeal in order to resolve a split in the federal appellate courts as to whether a debtor can ever propose a cram down plan that offers the lender's collateral for sale at auction without concurrently giving the lender the right to credit bid in its claims at the auction.

Unlike the lender, which had the support in amicus briefs of some of the most notable bankruptcy professors and scholars to grace a classroom (Lieb, Klee, Baird, Sharfman, Kuney, to name a few), the RadLAX debtor had no official support today--other than the down and out debtor hunched on the sidewalk in front of the Supreme Court succinctly imploring the Justices to "Stop Predatory Credit Bidding Now"!

The oral argument, which started at 10:02 am sharp and lasted 59 minutes, had more Chicago bankruptcy professionals in the room than were probably in Chicago bankruptcy court today (given the dearth of active commercial cases these days).  These included:

• Chicago's Chief Bankruptcy Judge Bruce Black (who, as noted above, started the ball rolling);

• Perkins Coie's David Neff (argued) and Brian Audette (second chair) (pictured right), along with partners Dan Zazove and Deborah Gutfeld (representing the Debtor);

• Katten's John Sieger (representing US Bank);

• US DOJ's newly minted appellate practice lawyer (and former DOJ counsel to the US Trustee in Chicago) Cameron Gulden;

• Jones Day's Brad Erens; and

• Me.

Other bankruptcy professionals in attendance included Craig Goldblatt, Prof. Eric Brunstad, fellow bloggers Peter Friedman and Doug Mintz of Cadwalader, Gary Holzer, and of course, Adam Lewis and Norm Rosenbaum for Amalgamated, and many others.

Part II of this post will focus on what's bothering the Justices (there's always something bothering them!) as gleaned from the key points around which the Justices' questions continually revolved.

Meanwhile, don't forget to sign up for tomorrow's first webinar (April 24) to discuss today's arguments at the Court, sponsored by Wilmer Hale and LSTA, and featuring LSTA's Elliot Ganz and WilmerHale Partners Craig Goldblatt and Danielle Spinelli (all of whom were on an amicus brief filed with the Court for a number of leading financial industry trade associations).  Here is the link to the webinar.

Thanks for reading!

[4/24 Update:  Part II here]

Peterson v. McGladry & Pullen, LLP,

The Trustee asks us to knock out the pari delicto defense altogether, so that the culpability of a corporate manager never would bar recovery against a negligent auditor.  Holland v. Arthur Andersen & Co., 127 Ill.App.3d 854, 82 Ill.Dec. 885, 469 N.E.2d 419 (1984), shows that Illinois would allow the defense if a receiver for the Funds were suing under state law, but the Trustee contends that federal law prevents its application once a firm enters bankruptcy and a trustee is appointed.  The National Association of Bankruptcy Trustees has filed a brief as amicus curiae supporting this position. Illinois has limited the defense on public-policy grounds in some circumstances as a matter of its domestic law.  See McRaith v. BDO Seidman, LLP, 391 Ill.App.3d 565, 330 Ill.Dec. 597, 909 N.E.2d 310 (2009) (in pari delicto does not apply to insurance liquidator's claims against auditors); Albers v. Continental Illinois Bank & Trust Co., 296 Ill.App. 596, 17 N.E.2d 67 (1938) (in pari delicto inapplicable to bank receiver).  But the Trustee and the Association pitch their argument on federal bankruptcy law.  They use McRaith and Albers to support the proposition that McGladrey can be liable if Bell was negligent but did not commit fraud, but that's different from the question whether federal law supersedes state law when the state would allow a pari delicto defense.

Section 541(a) provides that an estate in bankruptcy includes all of the debtor's “property”, a word that comprises legal claims such as the one against McGladrey.  “Property” normally is defined by state law—and in Illinois a claim for damages is limited by defenses such as in pari delicto.  The Trustee and the Association want us to hold that a bankruptcy estate includes rights of recovery, stripped of their defenses.  If in pari delicto is out, presumably the statute of limitations would be out too, or maybe even the defense of accord and satisfaction.  As the Trustee and the Association see things, “public policy” favors greater recoveries for estates in bankruptcy, so that more money is available for distribution and so that wrongdoing by a corporation's “gatekeepers” (the accountants as well as Bell) may be deterred more effectively.

This is not a new argument.  It was advanced and rejected in Butner v. United States, 99 S.Ct. 914 (1979).  The Court held that state law defines the “property” that enters the bankruptcy estate, unless a provision in the Bankruptcy Code displaces state law. Butner did not deal with § 541 or the pari delicto defense, but its principle is general.  See, e.g., Raleigh v. Illinois Department of Revenue, 120 S. Ct. 1951 (2000) (“The ‘basic federal rule’ in bankruptcy is that state law governs the substance of claims, Butner, supra, Congress having ‘generally left the determination of property rights in the assets of a bankrupt's estate to state law.’”).  Bankruptcy is a means of administering claims that are defined by tort, contract, and other generally applicable bodies of law.  Congress has modified these claims in some respects, and changed some distribution priorities, but unless the Code makes such an alteration the job of the bankruptcy court is to gather all of the debtor's assets, as state law defines those assets, and distribute them according to the creditors' rights under state law. In the main, bankruptcy law is designed to provide a single forum for resolving competing claims to assets defined by other bodies of law.

Neither the Trustee nor the Association identifies any provision of the Code that overrides state-law limits on the legal claims created by state law against the debtor's auditors. “Public policy” is not a ground on which the federal judiciary may create such a limit—not unless the Supreme Court first overrules Butner, Raleigh, and similar decisions. We therefore agree with the conclusion of every other court of appeals that has addressed this subject and hold that a person sued by a trustee in bankruptcy may assert the defense of in pari delicto, if the jurisdiction whose law creates the claim permits such a defense outside of bankruptcy. See Official Committee of Unsecured Creditors of PSA, Inc. v. Edwards, 437 F.3d 1145, 1152 (11th Cir.2006); Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., 267 F.3d 340, 357 (3d Cir.2001); In re Hedged–Investments Associates, Inc., 84 F.3d 1281, 1285 (10th Cir.1996).

According to the Trustee, Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir.1995), commits this court to a contrary position.  Like today's case, Scholes arises from a Ponzi scheme.  The Securities and Exchange Commission appointed a receiver to marshal the assets of one participant in the scheme.  The receiver sought to recover some payments as fraudulent conveyances—for one aspect of a Ponzi scheme is handsome but unearned payments to early investors, who then drum up pigeons with promises of hefty and risk-free profits.  Some recipients of these payments invoked an equitable defense, observing that the principal fault lay with the scheme's mastermind, to which we replied that, although recovery would indeed have been inequitable while the crook was running the show, recovery of fraudulent transfers is entirely appropriate once the crook is gone and the recovery will benefit duped investors.  We added: “Put differently, the defense of in pari delicto loses its sting when the person who is in pari delicto is eliminated.”

That sentence is dictum; Scholes did not entail a pari delicto defense.  It has nothing to do with § 541 of the Bankruptcy Code, Scholes was not a bankruptcy proceeding.  And it does not stand for the proposition that federal law overrides state-law defenses; Scholes was decided under Illinois law, which, as we have observed, puts the pari delicto defense out of bounds in some situations. The state statute involved in Scholes was replaced in 1990 when Illinois enacted the Uniform Fraudulent Transfer Act, 740 ILCS 160. More importantly, the law of fraudulent conveyances—both in Illinois and under the Bankruptcy Code, see 11 U.S.C. §§ 547-50—is one of those bodies that does supersede private-law definitions of legal entitlements.  The recipient of a fraudulent or preferential transfer usually has a right to the money as a matter of contract, but when the transfer injures other creditors it can be recouped for their benefit.  Scholes should not be generalized beyond the law of fraudulent conveyances and preferential transfers.  Scholes did not mention Cenco, which applied Illinois law to block a corporation's action against an auditor when the fraud that the auditor failed to catch had been engineered by the client's managers.  By the time suit began in Cenco, the fraudsters were long gone, but that did not clear the way for collection from the deep pockets of an auditor that had been taken in by the client's former managers.

As noted in Matt Daneman's article this week in the Rochester Democrat & Chronicle (quoting me, thanks Matt!), a Creditors’ Committee was recently formed, with the U.S. Pension Benefit Guaranty Corp. and trustees of its UK pension plan representing two of its seven members.  The Committee appointed Milbank Tweed as its bankruptcy counsel. 

Kodak’s CFO, Antoinette McCorvey, submitted a first-day supporting affidavit which is selectively long on history and short on prospects for the future.  In the 8 years preceding the bankruptcy filing, Kodak shed 50,000 jobs and closed 13 of 15 film plants and 130 photo labs.  It also exercised unilateral rights to reduce or eliminate some retiree benefits to its 65,000 retirees worldwide, resulting in about $100 million of savings annually, but retiree benefits still consumed about $250 million of cash in 2011.  Silver commodity prices also are an astounding 200% higher than 2008 (thank you Chairman Bernanke!).  Bankruptcy provides Kodak with an opportunity to accomplish many cost cutting objectives, including its behemoth $2.5 billion in legacy costs.

Notably absent from the affidavit is Kodak's staggering losses in the past decade.  Buried deep in the affidavit is a balance sheet from which one can derive that Kodak lost about $700 million in the nine months ended September 30, 2011, but nowhere in the affidavit can you find that Kodak lost another $1.5 billion in the 4 preceding years!  And the two years before that were anything but banner, too ($1.9 billion loss in 2005 & 2006 - p.60).

Kodak is like a Rubik’s Cube.  Its corporate chart shows 120 foreign and domestic subsidiaries.  It has three gargantuan business segments, R&D activities averaging $300-500 million per year in expense, 13,000 foreign patents and trademarks and pending registrations in 160 countries, and 8,900 U.S. patent and trademark registrations and applications.  This case is about not only whether the sum of the parts are worth more than the whole, but whether some of the parts have any tangible value at all. 

Trying to predict the value of nearly 23,000 patent and trademark registrations and applications is a monumental—if not entirely unfeasible—task in a chapter 11, particularly given the right of licensees to compel specific performance (see my IP in Bankruptcy Outline).  And given Kodak’s accelerating losses through the past decade, one has to wonder whether a real buyer will ever emerge for Kodak or whether the patent trolls will pick it apart like rabid Orcs.  In sum, Kodak’s footing in this chapter 11 seems as unsure as that of a Mississippi lawyer running to a Rochester court on a winter day. 

Alas, in the end, we reminisce over Paul Simon's all-too-prescient Kodachrome, but view Kodak’s chapter 11 as a Bridge Over Troubled Water.  Time will tell whether those waters will wash out the bridge.