By: Michael A. Battema

St. John’s University Law Student

American Bankruptcy Institute Law Review Staff

The Third Circuit, in In re Global Industrial Technologies, Inc.,[1] recently held that insurance companies had standing to challenge the terms of the debtors’ proposed plan of reorganization (the “Plan”) because they had legally protected interests therein.[2]  In 2002, Global Industrial Technologies (“GIT”) and its subsidiary company, A.P. Green Industries, Inc., (“APG” and collectively the “debtors”), filed for chapter 11 protection in response to thousands of separate asbestos and silica-related personal injury claims filed against APG.[3]  In the Plan, the debtors sought to create two separate trusts that would assess and resolve the various claims against APG.[4]  Under the Plan’s terms, the trusts were to be funded by the proceeds of certain assigned insurance policies, which the debtors believed would fully cover all liabilities.[5]  Hartford Accident and Indemnity Company, First State Insurance Company, Twin City Fire Insurance Company, Century Indemnity Company, and Westchester Fire Insurance Company (collectively the “Insurers”) were among the insurers whose polices were assigned to the debtors’ silica-related trust.[6]  On November 14, 2007, the bankruptcy court confirmed the debtors’ Plan over the Insurers’ objections because the court determined that the Insurers lacked standing to object to the Plan.[7]

By: Peter N. Chiaro

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The United States Bankruptcy Court for the Eastern District of Pennsylvania, in In re Brewery Park Associates, L.P.,[1] recently affirmed that the “absolute priority rule” is violated when a secured creditor receives more than the value of its claim under a chapter 11 plan.  Following the expiration of the debtor’s exclusivity, the Retirement Fund (“TRF”), a secured creditor, proposed its own chapter 11 plan.[2]  After failing to gain approval from all classes of impaired creditors, it sought to cramdown its proposed chapter 11 plan under section 1129(b).[3]  TRF’s plan allowed TRF to obtain a parcel of property that was worth, by its own estimate, between $5 million and $6 million in exchange for a credit bid of $2 million.[4]  Further, because TRF’s secured claim was roughly $5.2 million, TRF’s low credit bid would also give it deficiency claims against the loan guarantors.[5]  The court determined that TRF’s plan would likely overpay TRF’s allowed claim, and therefore the plan could not be confirmed because it was not fair and equitable.[6]

By: Brian P. King

St. John’s Law Student

American Bankruptcy Institute Law Review Staff    

Broadly interpreting the forward contracts definition, the District Court for the Eastern District of Louisiana, in Lightfoot v. MXEnergy, Inc.[1] held, for the first time, that a requirements contract to provide energy to a purchaser, absent a specific quantity, was a ‘forward’ contract.[2]  As a result, payments made under that contract were not avoidable as preferences pursuant to 11 U.S.C § 547[3] because they were deemed to be settlement payments[4] related to a forward contract.  The issue arose under an agreement between MBS Management Services, Inc. (“MBS” or the “Buyer”), a real-estate management company and MXEnergy, Inc. (“MX” or the “Supplier”) who agreed to supply all of the energy requirements for apartments managed by MBS.   Following MBS’s bankruptcy filing,[5] the court appointed trustee, Lightfoot, initiated an adversary proceeding to avoid payments made by the Buyer to the Supplier on the basis that those payments were preferences under 11 U.S.C § 547.[6]  The defendants asserted that, as a forward contract merchant,[7] the payments made by MBS were settlement payments made pursuant to a forward contract and, as such, they could not be avoided under section 547 based on the limitations set forth in 11 U.S.C § 546(e).[8]  The court agreed. 

 By: Joshua L. Eisenson

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

By: Jonathan Weiss

St. John’s Law Student

American Bankruptcy Institute Law Review Staff 

In S. White Transportation, Inc.,[1]the Bankruptcy Court for the Southern District of Mississippi held that secured creditor had “participated” in the chapter 11 case and was bound by a plan voiding its lien because it received notice, even though it had not appeared or taken any action in the case.[2] The debtor, S. White Transportation, Inc. (“SWT”), had challenged the validity of a Deed of Trust with the creditor, Acceptance Loan Company, Inc. (“Acceptance”) in state court on the basis that the individuals who had signed the Deed of Trust on behalf of SWT did not have the authority to do so.[3]  Consistent with its claims in state court, SWT’s proposed chapter 11 plan classified Acceptance’s lien as a disputed claim on which no payment would be made.[4] Two weeks after SWT’s chapter 11 plan was confirmed, Acceptance objected to the plan, requesting that the court find that its lien survived the confirmation unaffected.[5] The court held that the plan voided the lien and denied motions for relief and modification of the plan, and reaffirmed the old adage that litigants must not “sleep on their rights”.[6]

By: Jessica E. Stukonis

St. John’s Law Student

American Bankruptcy Institute Law Review Staff 

An attorney who signed a proof of claim on his client’s behalf narrowly avoided disqualification in In re Duke Investments.[1] In Duke, the court refused to disqualify the attorney from representing his creditor-client in the chapter 11 case because the attorney was not a “necessary witness” despite his role in preparing, signing, and filing a creditor’s proof of claim.[2] The creditor’s attorney compiled the proof of claim based on information received from the creditor’s officers.[3]  The court denied the debtor’s motion to disqualify the creditor’s attorney because the debtor failed to demonstrate that the attorney was a necessary witness. The attorney was not a necessary witness because he lacked “exclusive knowledge or understanding of the [proof of claim]. . . . [and the attorney’s] testimony would [not] be the sole source of information pertaining to the [proof of claim]”.[4]  Moreover, even if the attorney was a “necessary witness,” he would not be disqualified because the debtor failed to demonstrate that his testimony would “substantially conflict” with Amergy’s testimony,[5] and Amergy consented to the attorney’s continued representation.[6]

 By: Heather Hili

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In re XMH Corp.,[1] the Seventh Circuit added trademark licenses to the types of intellectual property that cannot be assigned in bankruptcy without the licensor’s permission.[2] In 2009, XMH Corporation (“XMH”) and some of its subsidiaries sought relief under chapter 11 of the Bankruptcy Code (“the Code”).[3] Blue, a debtor subsidiary of XMH, attempted to sell its assets to purchasers, Emerisque Brands and SKNL, including a trademark license agreement with Western Glove Works (“Western”).[4] The bankruptcy court refused to allow Blue to assign its trademark license agreement to the purchasers because Western would not consent to the assignment, and trademark law prohibits the non-consensual assignment of a trademark.[5]

By: Jonathan Abramovitz

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In re Two Gales, Inc.,[1] the United States Bankruptcy Appellate Panel for the Sixth Circuit (the “Panel”) held that 11 U.S.C. § 726(b) is not intended to serve as a basis for denying a claim for attorney’s fees, but rather serves as a priority scheme for dealing with distributions on allowed claims.[2] The law firm of Cupps & Garrison, LLC (“C & G”) represented Two Gales, Inc. (the “Debtor”) as its bankruptcy counsel before the case was converted from chapter 11 to chapter 7.[3] The bankruptcy court ordered C & G to disgorge its $10,000 retainer because the Debtor was administratively insolvent and, under section 726(b), chapter 7 administrative expenses are entitled to priority in proceedings converted from chapter 11 to chapter 7 where the debtor is administratively insolvent.[4] The Panel reversed, holding that before ordering disgorgement of C & G’s retainer, the lower court should have determined whether C & G had a properly perfected lien on its prepetition retainer under state law.[5]

 By: Linda C. Attreed

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Adopting a narrow view of the section 362(b)(4)[1] “police and regulatory power” exception to the automatic stay, the Bankruptcy Court for the Western District of Texas, in In re Reyes,[2] held that Josie Jones (“Jones”) and her attorney Robert Wilson (“Wilson”) violated the automatic stay provision by reporting the debtors to the Texas Real Estate Commission (“the TREC”).[3]  The court determined that Jones and Wilson had intentionally prosecuted the TREC complaint “to punish the debtor for filing, and to exert pressure on the debtor in order to collect on the judgment.”[4]  The court noted that Jones and Wilson filed the TREC action against the debtors approximately two months after seeking to lift the stay, and held that this was sufficient to support a finding of civil contempt.[5]