Business Law Insolvency Law Committee

Summary: A bankruptcy court in Illinois has held that a financing statement that did not describe the collateral but instead simply referred to a security agreement was inadequate because that security agreement was not attached and the creditor failed to use a "supergeneric" collateral description. [In re I80 Equipment, LLC, 2018 Westlaw 4006294 (Bankr. C.D. Ill.).] Read more

Summary: A district court in New York has held that a liquidation trustee was not precluded by the doctrine of "in pari delicto" from asserting a breach of fiduciary duty claim against a group of corporate looters. [In re FKF 3, LLC, 2018 Westlaw 5292131 (S.D.N.Y.).] Read more

The New York Court of Appeals has held that an "accrual clause" contained in a residential mortgage-backed securities agreement was not a condition precedent to the accrual of the purchaser's warranty claim against the originator; therefore, the plaintiff's claim was time-barred. Further, any contractual attempt by the parties to delay the commencement of the statute of limitations was void as against public policy. [Deutsche Bank N.T. Co. vs. Flagstar Capital Markets Corp., 2018 Westlaw 4976777 (N.Y.).] Read more

Summary: In Daff v. Good (In re Swintek), 906 F.3d 1100 (9th Cir. 2018), the United States Court of Appeals for the Ninth Circuit held that Bankruptcy Code section 108(c) applies to afford a prepetition judgment creditor an additional 30 days after termination of the automatic stay of Bankruptcy Code section 362(a) to preserve a lien created prepetition under California law upon the service of an order for appearance and examination (an “ORAP”), which lien otherwise would have lapsed during the bankruptcy proceedings a year after its creation unless renewed by the California court. Read more

In CMBS Lenders v. JD Holdings, LLC, and John Q. Hammons Fall 2006, LLC, et al. (In re John Q. Hammons Fall 2006, LLC, et al.), Nos. KS-18-032 and KS-18-069, (10th Cir. BAP Aug. 1, 2018) (Docket No. 37) (“JD Holdings”), the U.S. Bankruptcy Appellate for the Tenth Circuit (the “BAP”) denied the appeals of multiple trustees of commercial mortgage-backed securities (“Appellants”) on the ground of equitable mootness. Appellants held security interests in a number of hotels that were the subject of confirmed chapter 11 bankruptcy plans. They appealed a number of orders, including the plan confirmation orders, on the grounds, among other things, that the plans: (1) did not require the immediate payment of the disputed portion of Appellants’ claims (including default interest), (2) did not require the escrow of sums required to pay the disputed claims; and (3) effected an impermissible substantive consolidation of the chapter 11 debtors. In dismissing the appeals on the ground of equitable mootness, the BAP ruled that reversal would create “nightmarish situation” for creditors who relied on the finality of the confirmed plans and would inevitably postpone reorganization while plan assets and claims would concurrently diminish. A copy of the opinion is available through PACER. Read more

Summary: In Hunsaker v. United States, 902 F.3d 963 (9th Cir. 2018), the United States Court of Appeals for the Ninth Circuit held that the sovereign immunity waiver of 11 U.S.C. § 106 does not preclude liability for emotional distress damages in connection with a willful violation of the automatic stay by the IRS. Read more

The U.S. Court of Appeals for the Ninth Circuit held that the value of a debtor’s homestead exemption is fixed at the date of the filing of the bankruptcy petition, regardless if the debtor was claiming federal or state law exemptions. Wilson v. Rigby (In re Wilson), 909 F.3d 306 (9th Cir. 2018). The Ninth Circuit affirmed rulings by the United States District Court and Bankruptcy Court for the District of Washington, both holding that the debtor’s exemption was limited to the amount she is entitled to under Washington state law as of the petition date. Read more

Summary: A Georgia appellate court has held that a recourse provision contained in a nonrecourse loan and guarantee agreement was not triggered by the lender's petition for an involuntary receivership, despite the guarantor's consent to the petition. [Bowers vs. Today’s Bank, 2018 Westlaw 4998236 (Ga. App.).] Read more

Summary: A bankruptcy court in Delaware has held that a broadly-worded release contained in a confirmed Chapter 11 plan insulated a group of LBO participants from fraudulent transfer liability, since the potential defendants were not expressly carved out from the scope of the release. [In re Samson Resources Corp., 2018 Westlaw 4182447 (Bankr. D. Del.).] Read more

Summary: A bankruptcy court in Washington has held that after a creditor assisted a bankruptcy trustee's prosecution of a fraudulent transfer claim against a bank, the creditor was entitled to seek an award of administrative expenses for its "substantial contributions" to the Chapter 7 estate. [In re Maust Transport, Inc., 2018 Westlaw 4488712 (Bankr. W.D. Wash.).] Read more