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The Supreme Court used a bankruptcy case to elucidate the standard of review when an appellate court confronts a mixed question of law and fact, according to an analysis from ABI Editor-at-Large Bill Rochelle. According to Justice Elena Kagan, who wrote the opinion yesterday for the unanimous Court in U.S. Bank National Association v. Village at Lakeridge (15-1509), clear error was the proper standard of review because the arm’s-length nature of the transaction was primarily factual in nature. In concurring opinions, four justices questioned whether the Ninth Circuit employed the proper legal test for non-statutory insider status. Implying that the dissenter in the Ninth Circuit was on the right track, they laid out a test for non-statutory insider status that would be more consonant with the statute and produce a different outcome.

In a closely watched law firm bankruptcy case, the California Supreme Court yesterday held that dissolved firms aren’t entitled to a portion of unfinished hourly fee matters that departing partners take with them to new firms, the American Lawyer reported. “Any expectation the law firm had in continuing the legal matters cannot be deemed sufficiently strong to constitute a property interest allowing it to have an ownership stake in fees earned by its former partners, now situated at new firms, working on what was formerly the dissolved firm’s cases,” wrote Justice Mariano-Florentino Cuéllar in a unanimous opinion. The underlying case stems from Heller Ehrman’s 2008 dissolution. The trustee charged with unwinding the Heller estate sued 16 law firms that recruited partners after the firm filed for bankruptcy, claiming that the estate was owed profits from ongoing hourly matters that partners took with them. All but four of the firms settled. The four remaining firms — Orrick, Herrington & Sutcliffe; Jones Day; Davis Wright Tremaine; and Foley & Lardner — won a ruling in 2014 from U.S. District Judge Charles Breyer of the Northern District of California, who found that attorneys and firms don’t have a property interest in ongoing client matters. In yesterday’s opinion, Justice Cuéllar wrote that the Heller estate was asking for an interest in matters that it didn’t work on and that, in fact, it couldn’t work on since it had ceased operation. “In doing so, it seeks remuneration for work that someone else now must undertake,” Cuéllar wrote. “Because such a view is unlikely to be shared by either reasonable clients or lawyers seeking to continue working on these legal matters at a client’s behest, Heller’s expectation is best understood as essentially unilateral.”

The Supreme Court on Feb. 27 ruled in Merit Management Group, LP v. FTI Consulting, Inc. (16-784) that the only relevant transfer for purposes of the §546(e) safe harbor is the transfer that the trustee seeks to avoid. ABI Editor-at-Large Bill Rochelle talks with Prof. Bruce Markell of the Northwestern Pritzker School of Law and Prof. Ralph Brubaker of the University of Illinois College of Law about their perspectives on the impact of the Supreme Court's ruling. Click here to listen.

Resolving a split of circuits, the Supreme Court ruled unanimously yesterday in Merit Management Group LP v. FTI Consulting Inc. that the so-called safe harbor under Section 546(e) only applies to “the transfer that the trustee seeks to avoid,” according to a special analysis from ABI's Bill Rochelle. In other words, using a bank as an escrow agent does not preclude a trustee from recovering a constructively fraudulent transfer under Section 548(a)(1)(B), when the trustee is seeking to recover from the ultimate recipient of the transfer but not from an intermediary bank. The Supreme Court had been asked to resolve a split of circuits and decide whether the safe harbor applies when a financial institution is only a “mere conduit.” Instead, the unanimous opinion by Justice Sonia Sotomayor decided the case on a different and broader ground. The opinion may lead to a rethinking of safe harbor cases and might open the door to suits that previously were believed to rest comfortably within the safe harbor.