Recommendation of Bankruptcy Judge Regarding Motions To Withdraw The Reference in the United States Bankruptcy Court for the Northern District of California by U.S. Bankruptcy Judge Dennis Montali – Judge Montali issues his recommendation to the District Court against the motion of sixteen law firm defendants to withdraw of the reference under Stern v. Marshall. Plaintiff, liquidating debtor Heller Ehrman LLP, sued the defendant law firms for the value of profits received by them with respect to “unfinished business” that, at the time of Heller’s dissolution, was taken to those firms by former Heller partners. Heller seeks to avoid its pre-petition “Jewel Waiver” as an actual or constructive fraudulent transfer pursuant to Bankruptcy Code Sections 548 and 550, as well as under the California Civil Code. Declining to adopt an “unnecessary extension of the narrow holding in Stern“, Judge Montali concludes: “Stern is inapplicable and that these matters are core proceedings in which I can enter a final judgment. Even if it were not, I could handle all pre-trial matters and motions exactly as I have done in other non-core cases”.
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)
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.
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].”
09/26/2011 – JPMorgans Submission in Response to Case Management Order filed in the Lehman Brothers Holdings Inc. Adversary Proceedings by JPMorgan Chase Bank, N.A. before U.S. Bankruptcy Judge James M. Peck in the Southern District of New York (Manhattan) filed by Wachtell, Lipton, Rosen & Katz (New York, NY) attorney Paul Vizcarrondo, Jr., Of Counsel: Harold S. Novikoff; Amy R. Wolf; Douglas K. Mayer; Emil A. Kleinhaus; Alexander B. Lees.
On August 15, 2011, U.S. Bankruptcy Judge James M. Peck issued a Case Management Order in Relation to the Impact of Stern v. Marshall (the “Stern Order”). Both the Plaintiffs, Lehman Brothers Holdings Inc. and Official Committee of Unsecured Creditors of Lehman Brothers Holdings Inc. (“Lehman”) and Defendant JPMorgan Chase Bank, N.A. (“JPMorgan”) each were directed, inter alia, to address each count of the 49 count amended complaint separately in stating whether such court was susceptible to: a ruling by the Bankruptcy Court on the pending motion to dismiss; either final adjudication by the Bankruptcy Court; or issuance of a report and recommendation by the Bankruptcy Court. JPMorgan’s response to this directive from Judge Peck is set forth below. Whether ultimately determined to be a correct or incorrect analysis of Stern, the issue analysis and presentation of JPMorgan is impressive.
From September 15, 2011 to September 17, 2011, Yann Geron, as Chapter 7 Trustee in the bankruptcy of the former law firm Thelen LLC, filed 98 adversary proceeding complaints in the Southern District of New York against former Thelen partners and their new law firms and former Thelen clients. The Trustee sets the stage for each of these mass filing by describing Thelen’s rapid demise — from December 2006, when Thelen had 630 attorney’s, including 219 equity partners, to Thelen’s decision in October 2008 to dissolve the firm leaving $223 million in liabilities in excess of assets.
08/19/2011 – Defendant’s Memorandum of Law Concerning the Bankruptcy Courts Jurisdiction to Hear and Determine this Adversary Proceeding filed in the Coudert Brothers LLP Adversary Proceedings by Orrick Herrington & Sutcliffe LLP before U.S. Bankruptcy Judge Robert D. Drain in the Southern District of New York (Manhattan) filed by Holland & Knight LLP attorneys H. Barry Vasios and Barbra R. Parlin.
This memorandum is Defendant’s submission in response to the June 27, 2011 request from U.S. Bankruptcy Judge Robert D. Drain that the parties submit additional briefing on certain jurisdictional issues raised by the Supreme Court’s decision in Stern v. Marshall. Defendant provides a concise, three part formulation of the inquiry that a bankruptcy court must perform under Stern v. Marshall. Additionally, the Defendant addresses the impact of Stern in the context of the existing general order of reference. The Defendant concludes that Judge Drain is not authorized to finally determine any of the Plaintiff’s claims against Defendant.
Order, Report and Recommendation filed in the AFY, INC. Adversary Proceedings by Ainsworth Feed Yards, LLC before Chief, U.S. Bankruptcy Judge Thomas L. Saladino in the United States Bankruptcy Court for the District of Nebraska. Judge Saladino grants defendant’s motion for relief from a $4.5 million judgment based on the U.S. Supreme Court’s decision in Stern v. Marshall. The defendant moved to set aside the judgment entered in the proceeding on June 1, 2011. The Bankruptcy Court had granted the trustee’s motion for summary judgment on the trustee’s efforts to collect approximately $4.5 million on an account receivable allegedly owed to the debtor from defendant. Although not mentioned by Judge Saladino as a factor in his decision, the defendant had not filed a claim in the underlying bankruptcy case. Judge Saladino focused on the nature of the action, concluding “What the trustee is pursuing is a demand on an alleged debt, which is beyond the scope of § 542.”
08/18/2011 – Order, Report and Recommendation filed in the AFY, INC. Adversary Proceedings by Sears Cattle Co. et al before Chief, U.S. Bankruptcy Judge Thomas L. Saladino in the United States Bankruptcy Court for the District of Nebraska. Judge Saladino grants defendant’s motion to set aside a judgment entered on July 6, 2011, granting the trustee’s claim for collection of an account receivable in the amount of $291,937. Judge Saladino acknowledges that the claim falls within the scope of § 542(b). However, he characterizes the claim as a “collection action”. Applying, the Supreme Court’s decision of Stern v. Marshall, Judge Saldino holds that “[b]ecause this action does not arise under Title 11 or arise in the bankruptcy case itself, nor would it be resolved in the claims allowance process, it is not a core proceeding within the constitutional authority of the bankruptcy court to enter judgment.” The key portions of Judge Saladino’s decision follow.
08/18/2011 – Order filed in the AFY, INC. Adversary Proceedings by Sears before Chief, U.S. Bankruptcy Judge Thomas L. Saladino in the United States Bankruptcy Court for the District of Nebraska. Judge Saladino rules on the defendant’s one sentence motion to dismiss for “lack of subject matter jurisdiction” in light of Stern v. Marshall. In this turnover action under 28 U.S.C. § 157(b)(2)(E), the Court finds that the action is a core proceeding. Accordingly, the bankruptcy court “is not deprived of subject matter jurisdiction simply because resolution of the lawsuit may require the application of state law.”