California Lawyers Association

Business Law Insolvency Law Committee

Updates from the BLS Insolvency Law Committee

The United States Court of Appeals for the Ninth Circuit (the “Circuit Court”) recently ruled that a default under an executory contract need not be material in order to trigger the application of § 365(b)(1) of the Bankruptcy Code when the contract is assumed by a Chapter 11 debtor, a ruling contrary to the decision of the bankruptcy court which allowed the assumption. Read more
On August 24, 2022, the U.S. Court of Appeals for the Second Circuit approved of a district court’s orders for garnishment of retirement accounts to satisfy a restitution order under the Mandatory Victims Restitution Act, notwithstanding the Consumer Credit Protection Act and the anti-alienation provisions of the Employee Retirement Income Security Act of 1974, but vacated and remanded for a determination of the impact of a potential 10% tax on early distributions.  United States v. Shkreli, 47 F4th 65 (2d Cir. 2022).  Read more
In Georgelas v. Desert Hill Ventures, Inc., 45 F. 4th 1193 (10th Cir. 2022) (“Georgelas”), the United States Tenth Circuit Court of Appeals (the “Tenth Circuit”), held that in granting the plaintiff summary judgment on her fraudulent conveyance claims the District Court incorrectly concluded that the administrator of an entity engaged in a Ponzi scheme did not give reasonably equivalent value for his salary because he was per se enabling the scheme and that the Ponzi scheme proprietor’s payment to a contractor to modify the administrator’s home to accommodate the health of the latter’s wife was a transfer for the benefit the administrator. Read more
The United States Court of Appeals for the Third Circuit (the Circuit) recently vacated and remanded a denied class certification motion pertaining to consumer requests for disclosures under the Fair Credit Reporting Act. Read more
The United States Bankruptcy Court for the Southern District of New York (the “Court”), In re Corinthian Communications, Inc., 2022 WL 3051570 (Bankr. S.D.N.Y. August 3, 2022) recently found cause to expand the Subchapter V trustee’s powers under bankruptcy code section 1183(b)(2) to include an investigation of the debtor, operation of the debtor’s business, and to make a determination about the desirability of the continuation of such business pending further consideration of removing the Subchapter V debtor from possession for cause under section 1185(a) before removing the debtor notwithstanding the statutory requirement to do so before expanding the trustee’s powers. Read more
In a recently published opinion, the United States Bankruptcy Appellate Panel for the Ninth Circuit (the BAP) held that the findings necessarily made by the Oregon state court in issuing a judgment for financial elder abuse against a debtor had issue preclusive effect in a nondischargeability proceeding brought in the bankruptcy court under § 523(a)(4) of the Bankruptcy Code (the Code), specifically as to larceny and embezzlement. Read more
The Sixth Circuit Court of Appeals held that in determining the reasonableness of professional fees under section 330(a)(3) of the bankruptcy code, the lodestar factors specifically codified by Congress do not preclude consideration of other relevant factors, including the “results obtained” by the professionals. Read more
In Ad Hoc Committee of Holders of Trade Claims v. Pacific Gas and Electric Company (In re PG&E Corp. (“PG&E”), 46 F.4th 1074, 2022 WL 3712478 (August 29, 2022), the United States Ninth Circuit Court of Appeals (the “Ninth Circuit”) held that in a solvent Chapter 11 case the debtor’s plan had to pay unimpaired unsecured creditors who were not allowed to vote postpetition interest at the contract or state law default rate rather than the federal judgment rate. Read more
The California Court of Appeal recently vacated an arbitration award which had been affirmed by the trial court because the award, which enforced a Late Fee provision in commercial loan documents, constituted an unlawful penalty in contravention of the public policy set forth in California Civil Code § 1671 (§ 1671).  Read more
On August 8, 2022, the U.S. Court of Appeals for the Third Circuit affirmed the dismissal of three actions brought under the Fair Credit Reporting Act (15 U.S.C. §§ 1681 through 1681x) (“FCRA”), adopting a “reasonable reader” standard and holding that delinquent “Pay Status” notations referring to closed accounts are historical information, not reflecting current delinquencies, which are accurate in light of other clarifying language in the credit reports. Read more

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