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By: Amanda Tersigni

St. John’s Law Student

American Bankruptcy Institute Law Review, Staff

Section 546(e) of the Bankruptcy Code generally provides that a trustee may not avoid a “settlement payment” as a preference or a fraudulent transfer.[1] This so-called “safe harbor,” a defense to a trustee’s avoidance power, is designed to avoid uncertainty in security trading and to prevent an ultimate instability in the financial markets.[2] The United States Bankruptcy Court for the Southern District of New York in Picard v. Avellino (In re Bernard L. Madoff Inv. Sec. LLC),[3] held that having actual knowledge of fraudulent nature of a security trading precluded a defendant from using the safe harbor defense under Section 546(e).[4]

By: Michael DeRosa

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In In re AMC Investors, the Delaware district court reversed the bankruptcy court’s decision granting summary judgment in favor of the officers and directors (“Defendants”) of AMC (the “Company”) because[1] Eugenia, as the sole creditor, was granted derivative standing to file suit on behalf of the debtors of the Company.[2] Prior to being granted derivative standing, Eugenia filed involuntary Chapter 7 bankruptcy petitions against the debtors in 2009.[3] The bankruptcy court granted summary judgment in favor of the Defendants, which was based on Defendants’ statute of limitation defense.[4] Eugenia and the debtors (collectively “Plaintiffs”) appealed summary judgment.

By: Courtney Sokol

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The United States District Court for the Northern District of Alabama concluded that the Bankruptcy Court had jurisdiction and entered a valid termination of retirement benefits pursuant to Section 1114 of the Bankruptcy Code. Moreover, according to the District Court, it lacked jurisdiction to consider the Appellants' challenge to the Bankruptcy Court's ruling under Section 1113. This ruling allows Walter Energy to terminate collective bargaining agreements with retired coal miners, thus allowing the “necessary” reorganization of the debtor. This suit was an effort by the United Mine Workers of America to preserve the retirement plans of covered employees of Walter Energy, a company seeking a protection under Chapter 11 of the Bankruptcy Code. If retiree benefits were not halted the proposed purchaser, Warrior Met Coal, LLC, would not acquire Walter Energy.

By: Louis Calabro

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In In re Gunboat International, Ltd., the United States Bankruptcy Court for the Eastern District of North Carolina held that section 363(m) of the Bankruptcy Code, which protects a good faith purchaser from a reversal of an order approving a bankruptcy sale, does not apply to collateral attacks on a sale order under Rule 60(b) of the Federal Rules of Civil Procedure (“FRCP”). In that case, the debtor (“Gunboat”) agreed to sell its interest in the G4—a sailboat model contracted between the debtor and two other parties—to a third party, Mr. Chen. In the months leading up to the sale, The Holland Companies (“Holland”), which held certain exclusive manufacturing and usage rights over the G4, had been negotiating a settlement agreement to buy Gunboat’s interest in the G4. Holland was unaware that Gunboat was attempting to sell Gunboat’s G4 interest to another party and believed that Gunboat should have given Holland an opportunity to make a more attractive offer considering its ongoing attempts to settle. On May 10, 2016, the court entered a final order approving the sale of Gunboat’s assets to Mr. Chen. Thereafter, Holland filed a motion to reconsider with the court under FRCP Rule 60(b); in response, Gunboat opposed.

By: Sumaya Restagno

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Congress imposed strict limitations on payments made specifically to retain key employees of companies in chapter 11 bankruptcy and narrowed the circumstances under which these payments could be made through the addition of section 503(c). Under section 503(c)(1), chapter 11 debtors may pay a bonus to certain employees under a Key Employee Retention Plan (“KERP”) upon approval of the court and after a showing that certain required factors have been satisfied. Under section 503(c)(3), chapter 11 debtors may pay a bonus under a Key Employee Incentive Plan (“KEIP”) to certain employees after they attain certain measurable, difficult-to-reach milestones. Payments under a KEIP are described as being outside the ordinary course of business and are statutorily prohibited unless justified by the facts and circumstances of the case. Many courts have held this standard to be synonymous with the “business judgment” standard that governed KERPS prior to the BAPCPA which is not as strict as the test under 503(c)(1).

By: Dylan Coyne

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In In re Alpha Natural Resources, Inc., a Virginia bankruptcy court allowed a coal mining company to reject its collective bargaining agreements thereby permitting the company to sell its revenue generating assets. Alpha Natural Resources, Inc. (“Alpha”) is the largest coal producing company by volume in the United States and began to sustain severe financial difficulties after the coal industry began to decline in 2011. In an effort to stay afloat, Alpha began to cut costs by freezing wages, laying off employees and reducing benefits for non-union employees in 2013. In its Chapter 11 case, Alpha explored selling its core revenue generating assets to its prepetition lenders (the “Bidders”), who served as a stalking horse for the sale. The Bidders, however, were not willing to assume Alpha’s liabilities to Alpha’s unions as required under the collective bargaining agreement or under the Coal Industry Retiree Health Benefit Act of 1992 (the “Coal Act”). Accordingly, Alpha filed a motion for an order rejecting the collective bargaining agreements. Alpha’s unions objected to the request, arguing that §§ 1113 and 1114 of the Bankruptcy Code do not apply to Alpha since Alpha is liquidating and those sections address reorganization, and further that Alpha had not satisfied the elements of those same statutes.

By: Lauren Gross

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In Music Mix Mobile, LLC v. Newman (In re Stage Presence, Inc.), the United States Bankruptcy Court for the Southern District of New York held that the plaintiffs’ alter ego allegations were sufficient to withstand a defendant’s motion to dismiss. Plaintiffs, Music Mix Mobile, LLC, et al., alleged they were not paid by Stage Presence Incorporated (a chapter 11 debtor), One for Each Island Ltd. (“OFEI”) and three individual producers of the benefit program: Newman, Weiner, and Marquette for audio, editing, teleprompter, music mixing and other services they provided in connection with the Childhelp program. Among other theories of contract liability against defendants, the plaintiffs asserted that OFEI, Newman, Weiner, and Marquette should jointly share in the contract liabilities of Stage Presence on “alter ego” grounds.

By: Sara Brenner

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In In re Murray, chapter 13 debtor Mr. Murray (the “Debtor”), sued Revenue Management Corporation and Donald Aucoin (“Defendants”), alleging that the Defendants violated the Fair Debt Collection Practices Act (“FDCPA”). According to the Debtor, the Defendants violated the FDCPA by including a reference to purported litigation as reflected by inserting a “vs” between the Defendants’ names and the Debtor in the top right corner of a collection letter.

By: Dean Katsionis

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Section 546(c) of the Bankruptcy Code preserves a vendor’s right to reclaim goods sold to an insolvent debtor within forty-five days of the debtor’s bankruptcy filing.[1] Courts have had to address whether a post-petition lender’s subsequently perfected security interest defeats the vendor’s reclamation rights when a post-petition loan is used to repay the debtor’s prepetition secured loan, which are generally subject to reclamation rights.[2] In In re Reichold Holdings US, Inc., the United States Bankruptcy Court for the District of Delaware overruled a liquidating trustee’s objection to a vendor’s reclamation claim, holding that the vendor’s reclamation rights arose before a post-petition DIP lender’s liens attached, and as such, those liens were subject to the prior reclamation rights of the vendor.[3]

By: J. Tyler Mills

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In Rosenberg v. DVI Receivables XVII, LLC,[1] the Third Circuit held that an award of damages after the dismissal of an involuntary bankruptcy petition does not preempt a claim for tortious interference with contracts and business relationships brought against the petitioning creditors by injured parties who were not alleged debtors.[2] There, an involuntary bankruptcy was brought against a medical imaging company to collect on leases for various medical equipment.[3] After the involuntary petition was dismissed, the alleged debtor sued the petitioning creditors to recover costs, attorney’s fees, and damages for the bad faith filing of the involuntary petition.[4] The jury awarded the alleged debtor $1.1 million in compensatory damages and $5 million in punitive damages.[5]