By: Daniel J. Carollo

St. John’s Law Student

 

Recently, the United States Bankruptcy Court for the Southern District of Texas in In re Energy Partner’s Ltd.[1] held that employment agreements for professionals and other agents in a bankruptcy re-organization under 11 U.S.C. § 328 are subject to a heightened reasonableness standard because once a fee is approved by the court it will not be subject to review absent unforeseeable circumstances.[2] Energy Partners Ltd., an offshore oil and gas exploration company, and its affiliates filed a petition for relief under chapter 11 in May of 2009.[3] Two creditors committees appointed by the United States Trustee filed applications under section 328 requesting court approval to employ investment banking firms to provide two separate valuation reports on the bankrupt debtor corporation.[4] Each investment banking firm had requested a non-refundable fee of $500,000, plus various other administrative fees.[5] The court rejected the applications to employ the investment banks because the court determined that neither firm would provide a material benefit to the estate.[6]

 

By: John P. Esposito

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

Recently, in a case of first impression, the Sixth Circuit was presented with the opportunity to address the interaction of the “mootness” provision of section 363(m)[1] and the power of a trustee under section 363(h) to sell “both the estate’s interest . . . and the interest of any co-owner in [estate] property.”[2] In In re Nashville Senior Living, LLC,[3] the Sixth Circuit held that a non-debtor co-owners’ failure to obtain a stay of the bankruptcy court’s order approving the sale of both the debtors’ interest and the interests of the co-owners in jointly-owned property rendered an appeal to undo the sale as moot.[4] The court rejected, as “an aberration in well-settled bankruptcy jurisprudence,”[5] the contrary reasoning of the Ninth Circuit in Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC)[6], which held that mootness could not apply to the “free and clear” aspect of a sale authorized under section 363(f). In essence, the Sixth Circuit interpreted section 363’s mootness provision expansively to cover sales under subsection (h),[7] despite the fact that 363(m) explicitly applies only to sales under sections 363(b)[8] or (c).[9]

By: Marissa Gross

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

Recently, in Midwest Holding # 7, LLC v. Anderson (In re Tanner Family, LLC),[1] the Eleventh Circuit held that a debt on a lease agreement is incurred at the time of signing and not when the rental payments become due. Under section 547(b) of the Code, a bankruptcy trustee can avoid “any transfer of an interest of the debtor in property” provided the transfer meets five elements.[2] Since one of those elements requires that the payment sought to be avoided must be “for or on account of an antecedent debt owed by the debtor before such transfer was made,” determining when a debt is incurred is essential to the analysis.[3]

 

By: Reshma Shah

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

In In re Century City Doctors Hospital, LLC (“Century City”), the Bankruptcy Court for the Central District of California held that the chapter 7 trustee who assumed control of the debtor’s business operations solely to liquidate assets was not required to abide by the Worker Adjustment and Retraining Notification (“WARN”) Act.[1] In Century City, a hospital with over one hundred employees, filed for chapter 7 relief and, within two hours of the hospital’s filing, the trustee assigned to wind down the hospital’s operations conducted a mass lay off of employees.[2] After the admitted patients had been transferred into appropriate health care facilities,[3] the remaining staff was also terminated.[4] None of the hospital’s employees received notice prior to being laid off.

 

By: Jenny J. Huang

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

In bankruptcy, “one of the most controversial and frequently litigated of the avoidance powers” is the debtor or trustee’s ability to recover preferential transfers under 11 U.S.C. § 547(b).[1] The twin purposes of section 547(b) are to “prevent[] individual creditors from dismembering the assets of the debtor in a manner that negatively impacts other creditors, and [to allow] all creditors to obtain a more equitable distribution of the assets of the debtor.”[2] Recently, in Parks v. FIA Card Services (In re Marshall), the Tenth Circuit addressed how courts should adhere to these twin purposes in a landscape where nearly instantaneous electronic transfers pose a new problem for the court’s analysis.[3] 

 

By: Lauren Kiss

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

Federal and state authority sometimes conflict with each other. This was illustrated in Stanley v. Trinchard (In re Hale), in which the Fifth Circuit held that 11 U.S.C. § 108(a), which grants a bankruptcy trustee a time extension to commence suit on behalf of the debtor, superseded Louisiana’s peremption period for legal malpractice claims.[1] In April 2002, Hale’s bankruptcy trustee filed suit in federal court in Louisiana against Trinchard, alleging that Trinchard had committed malpractice in its mishandling of the settlement negotiations. Trinchard argued the claim was time barred under Louisiana law.[2]  In 1991, Gerald Burge (“Burge”) filed a civil rights action against the St. Tammany Parish Sheriff, the former Sheriff’s Deputy Hale (“Hale”), and their insurer, Northwestern National Insurance Company of Milwaukee, Wisconsin (“NNIC”).  In May 1995, NNIC appointed Trinchard, Trinchard, & Trinchard LLC (“Trinchard”) to represent the sheriff and Hale.  In November 2000, a settlement was reached between Trinchard, NNIC’s counsel, and Burge’s counsel, which fully released NNIC from liability, but only partially released the sheriff and Hale from liability. In January 2001, Hale consented to the settlement.  In May 2001, judgment was entered against the sheriff and Hale in the amount of $4,075,000 on Burge’s remaining claims. In October 2001, Burge brought suit against Hale to collect the entire judgment in Mississippi and Hale was forced into bankruptcy on October 15, 2001.

 

 

 

By: Matthew S. Smith

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

Recently, the United States Bankruptcy Court for the Southern District of New York in In re Charter Commc’ns held that a creditor’s adversary proceeding for an alleged pre-petition breach of contract was one over which the bankruptcy court could exercise its “core” jurisdiction.[1] In deciding whether the creditor’s claims fell within its core jurisdiction, the court was guided by 28 U.S.C. § 157,[2] which provides a list of matters that are characterized as “core proceedings.”[3]  The creditor, JPMorgan, alleged that debtor, Charter, had committed non-curable, nonmonetary pre-petition defaults under a pre-petition contract, which would prevent Charter from being able to take additional loans as originally provided in their Credit Agreement.[4] Since JPMorgan refused to consent to adjudication in the bankruptcy court, the court focused on “the close interconnection between the adversary proceeding [at issue] and the bankruptcy process.”[5] The court found that the nature of plaintiff JPMorgan’s proceeding directly affected the confirmation of debtor Charter’s chapter 11 bankruptcy plan – a core administrative function of the bankruptcy court – and thus held that the matter came within the court’s core jurisdiction.[6]

 

­
By: Cameron Fee

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

Recently, the United States Bankruptcy Court for the Northern District of Texas, in In re Pilgrim’s Pride Corp., held that certain consulting agreements negotiated by chapter 11 debtors with former executives were not the type of insider compensation agreements proscribed by section 503(c).[1] After filing for chapter 11, Pilgrim’s Pride Corporation entered into resignation agreements with its CEO Rivers and COO Wright. The debtors filed a motion pursuant to section 503(c) for “court authority to purchase time-limited noncompetition agreements,” to prevent Rivers and Wright from soliciting the company’s customers.[2] The trustee argued that the proposed consulting agreements violated section 503(c)(1) because the payments were meant to induce Wright and Rivers to remain with the business. The court, however, found that the agreements were meant to induce Rivers and Wright not to work for a competitor for a limited time and therefore the consulting agreements did not implicate either section 503(c)(1)[3] or 503(c)(2).[4] The court also found—after determining an independent assessment of the circumstances was the appropriate standard of review—that the agreements did not violate section 503(c)(3) because they were justified given the facts and circumstances of the case.[5] 

By: Michael Ryan Diaz

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

In ASM Capital, LP v. Ames Department Stores, Inc. (In re Ames Department Stores, Inc.),[1] the Second Circuit held that section 502(d), which disallows claims of a party that has failed to return preferential transfers to the debtor,[2] does not bar payment for administrative expenses under section 503(b).[3] The debtor, Ames Department Stores, Inc. (“Ames”), filed a voluntary petition under chapter 11 of the Bankruptcy Code.[4] While in bankruptcy, Ames received a default judgment, for the recovery of preferential transfers,[5] against one of its suppliers, G & A Sales, Inc. (“G & A Sales”).[6] Also facing insolvency, G & A Sales filed a bankruptcy petition and transferred to other entities all of its assets, including two administrative claims against Ames for providing post-petition supplies.[7] These administrative claims were sold to ASM Capital, a distressed-debt investment firm. Meanwhile, Ames’ board of directors eventually decided that liquidation, rather than reorganization, would maximize value for the debtor’s estate.[8] In the midst of liquidation, Ames made distributions for administrative expenses to certain claimants, but withheld payment to ASM Capital on the ground that section 502(d) disallows administrative expense claims that were acquired from a party who had failed to return any preferential transfer or its equivalent value. ASM Capital responded by filing a motion in the bankruptcy court to order the debtor to pay ASM Capital its administrative expense claims. ASM Capital argued that section 502(d) does not apply to administrative expense claims, but the bankruptcy court rejected this argument and denied the motion.[9] Although the district court affirmed the bankruptcy court’s ruling,[10] the Second Circuit reversed and held that section 502(d) does not apply to administrative expense claims.[11]