When a Chapter 7 Trustee’s Failure to Plead a Preference Reaches Inexplicability

In a rare motion practice loss for a Chapter 7 Trustee, District of Delaware Bankruptcy Judge Brendan Linehan Shannon grants the motion of Defendant International Securities Exchange (“ISE”) to dismiss a bankruptcy preference avoidance complaint for failure to state a claim for relief.   Judge Shannon holds that the Chapter 7 trustee’s Section 547 preferential transfer count in its amended complaint fails to sufficiently identify the nature of the antecedent debt.  Giuliano v. International Securities Exchange, Adv. Proc. No. 12-50921 Dkt No. 48 (Bankr.D. Del. May 1, 2013).  Unfortunately, procedural posture and factual context dispel any comfort preference defendants might find in the holding.    

E.D. Kentucky District Court – No Application of Stern to Fraudulent Transfer, Preference Claims; Withdrawal of Reference Denied

Eastern District of Kentucky U.S. District Court Judge David L. Bunning holds that “[t]aking the specific facts and issues in [Stern v. Marshall, 564 U.S. —-, 131 S. Ct. 2594, 2605 (2011)] and [Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989)] into consideration, in addition to the Supreme Court’s deliberate attempt to limit the scope of its holdings in both cases, this Court cannot extend the holding of Stern to fraudulent conveyance and preference actions.” Official Committee Of Unsecured Creditors Of Appalachian Fuels, LLC v. Energy Coal Resources, Inc. et al., No. 11-00131-DLB Dkt No. 13 (E.D. Ky April 18, 2012)

Delaware Bankruptcy Court – Must Name Transferor in Two Debtor Bankruptcy; 502(d) Count Not Viable Before Preferential Transfer Judgment

District of Delaware Bankruptcy Judge Mary F. Walrath grants motion of Mitsubishi Digital Electronics America, Inc (“Mitsubishi”) to dismiss a bankruptcy preference avoidance complaint for failure to state a claim for relief. In her May 1, 2012 opinion, Judge Walrath holds that the Chapter 7 trustee’s Section 547 preferential transfer count fails to sufficiently identify which of the two associated debtors was the transferor.  Judge Walrath further concludes that the Trustee can not maintain a Section 502(d) count for disallowance of Mitsubishi’s claims until the trustee has obtained “any judicial determination of Mitsubishi’s liability”.  Giuliano v. Mitsubishi Digital Electronics America, Inc., Adv. Proc. No. 11-52663 Dkt No. 24 (Bankr.D. Del. May 1, 2012)

Delaware Bankruptcy Court – Stern No Avail in Avoidance Actions

District of Delaware Bankruptcy Judge Peter J. Walsh denies the motions of defendants (the “Defendants”) in 8 adversary proceedings that sought dismissal of avoidance and recovery claims based on Stern v. Marshall, — U.S. –-, 131 S.Ct. 2594 (2011).  In his opinion, Zazzali v. New West Paving et al, Adv. Proc. No. 10-54995 Dkt No. 47 (Bankr.D. April 12, 2012), Judge Walsh concludes that, after Stern, he still “can enter a final judgment on the core preference, post petition transfer, fraudulent transfer, and unjust enrichment claims and issue proposed findings of fact and conclusions of law on the non-core causes of action.”  Judge Walsh also addresses in dicta the “even if” scenario and erases any notion that, based on Stern, a dismissal is obtainable in a Chapter 5 avoidance proceeding in Delaware Bankruptcy Court.

Delaware Bankruptcy Judge Sontchi Rejects Trustees Argument that Defendant’s Refusal to Sign Critical Vendor Agreement Estopped Defendant from Kiwi Defense

The Honorable Christopher S. Sontchi, U.S. Bankruptcy Court Judge for the District of Delaware, grants the bankruptcy preference claim defendant’s motion for summary judgment holding that the supply agreement between the debtor and the defendant was both executory and properly assumed and assigned.  In the process, the Court rejected the trustee’s claim that the defendant’s refusal to sign a critical vendor agreement implicated a “nefarious intent to avoid preference liability”.

Delaware Bankruptcy Court Limits Section 546(e) in Denial of Citibank’s Motion to Dismiss in Qimonda

District of Delaware Bankruptcy Judge Mary F. Walrath denies motion of Citibank National Association (“Citibank”) to dismiss the bankruptcy preference avoidance complaint for failure to state a claim for relief.  In her March 26, 2012 opinion, Judge Walrath holds that Citibank failed to establish that the transfers sought to be avoided were “settlement payments” protected by section 546(e).  Distinguishing the recent decision in Official Comm. of Unsecured Creditors of Quebecor World (USA) Inc. v. Am. United Life Ins. Co. (In re Quebecor), 453 B.R. 201 (Bankr. S.D.N.Y. 2011), Judge Walrath finds that the transfers were to “collateralize Citibank’s exposure under a [letter of credit]” issued to secure payment of industrial revenue bonds.  Although the transfers to Citibank were used to retire these industrial revenue bonds, the transfers to Citibank were not solely for the purpose of completing a securities transaction but also had the purpose of fulfilling an “obligation independent from any securities transaction”.

Delaware Bankruptcy Judge Sontchi Holds Subsequent New Value Defense Not Reduced by Post Petition Payments

In a case of apparent first impression, U.S. Bankruptcy Judge Christopher S. Sontchi considers whether post-petition “critical vendor” payments of pre-petition claims reduced “new value”. Judge Sontchi holds that such post petition payments do not reduce the amounts available for the subsequent new value defense under 11 U.S.C. § 547(c)(4).  [The decision is currently on appeal to the United States Third Circuit Court of Appeals in In re Friedman’s Inc. Appeal Docket No. 13-1712.   Briefing before the Court of Appeals is complete and oral argument is scheduled for October 17, 2013.]

N.Y. Bankrutpcy Judge Peck Rejects Contract Exception to Mutuality Requirement for Sec. 553 Setoff

10/04/2011 – Memorandum Decision Enforcing the Automatic Stay filed in the Lehman Brothers Inc. Securities Investor Protection Act proceedings before U.S. Bankruptcy Judge James M. Peck in the United States Bankruptcy Court for the Southern District of New York.

Southern District of New York Bankruptcy Judge James M. Peck grants the motion of James W. Giddens, as Trustee (the “SIPA Trustee”) of Lehman Brothers Inc. (“LBI”) and orders UBS AG (“UBS”) to turn over $23 million of “excess collateral” under a terminated swap agreement.  Judge Peck rejects UBS argument that a setoff right created by contract, either renders inapplicable or satisfies the mutuality requirement specified in 11 U.S.C. § 553(a). Judge Peck holds that “a contractual right of setoff that permits netting by multiple affiliated members of the same corporate family outside of bankruptcy may no longer be enforced after commencement of a [bankruptcy case].”  ).

Northern District of California Bankruptcy Judge – Post Stern, Business as Usual in Hearing “Jewel Waiver” Fraudulent Conveyance Claims

09/28/2011 – Recommendation of Bankruptcy Judge Regarding Motions To Withdraw The Reference filed in the Heller Ehrman LLP Adversary Proceedings by Arnold and Porter, LLP before U.S. Bankruptcy Judge Dennis Montali in the United States Bankruptcy Court for the Northern District of California.

U.S. Bankruptcy Judge Dennis Montali minces no words in his recommendation to the District Court against the motions of sixteen law firm defendants[FN1] to withdraw of the reference under Stern v. Marshall, 131 S.Ct. 2594 (2011).  The adversary proceedings were filed by the law firm Heller Ehrman LLP (“Heller”) as liquidating debtor.  Heller seeks avoidance of a California “Jewel Waiver” as an actual and fraudulent conveyance and recovery of the value of “unfinished business” taken to the defendant law firms by former Heller partners.  Judge Montali refuses find any applicability of Stern beyond its narrow holding.  He concludes that “given that Heller’s claims do arise from bankruptcy law (11 U.S.C. §§ 544(b) & 548) and would not exist but for the bankruptcy (unlike the counterclaims in Stern), … Stern may not limit [the bankruptcy court's] power to enter a final judgment on [Heller's claims].”

Delaware Bankruptcy Judge Walsh Rejects Substantive Consolidation Retroactivity by Implication

District of Delaware, United States Bankruptcy Judge Peter J. Walsh issues his opinion in Giuliano v. Shorenstein Company LLC (In re Sunset Aviation, Inc. ), Adv. Proc. No. 11-50965 (Bankr. D. Del.  September 7, 2011)   holding that an order for substantive consolidation is not retroactively effective when it fails to expressly provide that it is nunc pro tunc.  Based on this holding, Judge Walsh dismisses, with prejudice, the bankruptcy preference count of the complaint by Alfred T. Giuliano, Chapter 7 Trustee for the Bankruptcy Estates of Sunset Aviation (the “Trustee”). Fundamentally, Judge Walsh rejected the Trustee’s urging for the Court to perfunctorily use a substantive consolidation order to rewrite Section 547 of the Bankruptcy Code.

Next Entries »||