Law Commons^™

Clarifying The Business Trust In Bankruptcy: A Proposed Restatement Test, Jared W. Speier

Pepperdine Law Review

When bankruptcy courts attempt to define the business trust, the “decisions are sharply, and perhaps hopelessly, divided.” The Bankruptcy Code, which guides the determinations of bankruptcy courts, specifically lists business trusts as eligible for protection. However, the Code does not define what a business trust is and does not list any criteria for determining when a trust is a business trust. The lack of a concrete definition has led many courts to formulate their own definitions of business trusts. While the courts hoped that they would eventually settle on a uniform test to tackle this issue, it has yet to …

What Bankruptcy Law Can And Cannot Do For Puerto Rico, John A. E. Pottow

Articles

This article is based on a February 2016 keynote address given at the University of Puerto Rico Law Review Symposium “Public Debt and the Future of Puerto Rico.” Thus, much of it remains written in the first person, and so the reader may imagine the joy of being in the audience. (Citations and footnotes have been inserted before publication ‒ sidebars that no reasonable person would ever have inflicted upon a live audience, even one interested in bankruptcy law. Rhetorical accuracy thus yields to scholarly pedantics.) The analysis explains how bankruptcy law not only can but will be required to …

Overcoming Hurdles In The Enforceability Of Make-Whole Provisions, Brian Patrick Mcbride

University of Miami Law Review

There have been recent conflicting decisions in U.S. district courts of New York, Delaware, and others states regarding to the enforceability of make-whole provisions in bankruptcy. The ambiguity created by the courts’ decisions has caused uncertainty for all parties involved in these kinds of loan documents. This comment is an analysis of the enforceability of make-whole provisions in the context of bankruptcy in light of the recent decisions. In order for a makewhole or a no-call provision to be upheld, a number of hurdles must be cleared. The provisions must be valid under both state law and bankruptcy law. Make-whole …

Up The Chute, Down The Ladder: Shifting Priorities Through Structured Dismissals In Bankruptcy, Bethany K. Smith

Fordham Law Review

In a structured dismissal of a Chapter 11 bankruptcy case, a bankruptcy court approves case dismissal alongside a stakeholder agreement as to the manner in which the estate is to be dealt with once the case has been dismissed. Such orders are controversial in that they are not explicitly authorized through the U.S. Bankruptcy Code (“the Code”) and are especially controversial where the accompanying agreement seeks to distribute estate property in contravention of the priority scheme laid out in § 507 of the Code. Where the agreement violates this so-called waterfall payment method, bankruptcy courts are faced with difficult questions: …

No Misrepresentation Needed: Excepting Discharge For Actual Fraud Under 11 U.S.C. § 523 Without Misrepresentation, Morgan Green

Fordham Law Review

Imagine buying a game from a seller and promising to repay him at a later date. However, instead of repayment, you decide to give the game to your friend, who in turn allows you to use it. Then your friend declares bankruptcy to discharge the price of the game from his debts, thus allowing you both to use it without paying. This repayment runaround is the issue that the First and Fifth Circuits were asked to decide in two recent cases. Specifically, the question was whether a debt incurred by “actual fraud” may be discharged by the recipient of the …

"No Harm, Still Foul": Unharmed Creditors And Avoidance Of A Debtor's Pre-Petition Transfer Of Exemptible Property, Alyssa Pompei

St. John's Law Review

(Excerpt)

This Note sides with the “no harm, no foul” approach in this debate, arguing that bankruptcy courts should not avoid prepetition transfers of otherwise exempt property under § 548 simply because an exemption was not actually taken and the transfer was instead the alternative path used to shield the property from collection. Part I of this Note explains the constructive fraud and exemption provisions of the Bankruptcy Code, including state opt-out provisions which are particularly applicable to this issue. Part I also discusses the legislative history of federal bankruptcy law with particular focus on the creation of the Bankruptcy …

Finding Common Ground: Resolving Assumption And Assignment Of Intellectual Property Licenses In Chapter 11 Bankruptcy Through Adoption Of The Actual Test, Courtney Marie Davis

Journal of Intellectual Property Law

No abstract provided.

Ethics For Examiners, Daniel J. Bussel

Fordham Law Review

The inquisitorial bankruptcy examiner is sui generis in our system. He faces unique ethical quandaries and considerations, which require a code of ethics tailored to his role if he is to achieve fully the promise of improving Chapter 11 through the introduction of inquisitorial investigative methods. This Article attempts to point the way toward guidelines that will regulate the conduct of examiners to mitigate real, potential, and perceived abuses.

Whether Section 327 Professional Persons’ Legal Fees Are The Cost Of Doing Business In A Chapter 11 Bankruptcy, Christopher Atlee F. Arcitio

Bankruptcy Research Library

(Excerpt)

When a debtor attempts to reorganize under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), the debtor typically remains “in possession” and retains all the rights of the trustee, including the right to administer the bankruptcy estate “as a fiduciary for the estate’s creditors” in a chapter 11 bankruptcy case.

Importantly, a debtor-in-possession and a trustee are empowered to employ third parties to carry out their duties. Section 327 of the Bankruptcy Code deems these individuals “professional persons.” A professional person may be compensated upon submission of a fee application to the court. The …

Whether The Debtor Or Bankruptcy Estate Owns Malpractice Claims That Accrue During A Chapter 11 Bankruptcy, Anna Chen

Bankruptcy Research Library

(Excerpt)

When a debtor files for chapter 11 bankruptcy, three different time periods become important to determine whether the debtor or the estate holds certain rights and interests. The first time period is before a debtor files for bankruptcy. The second time period is after filing for bankruptcy but before conversion. The third time period is post-conversion.

If the misconduct that gives rise to the legal malpractice claim occurs after the filing of a chapter 11 case but before the conversion to a chapter 7 case, the cause of action belongs to the bankruptcy estate. In that situation, the trustee, …

Delaware Bankruptcy Court Trumps An Automatic Stay By Allowing Suit To Terminate A Trademark Licensing Agreement, Olivia Cheung

Bankruptcy Research Library

(Excerpt)

Trademark licensees that file for bankruptcy protection may encounter difficulties and uncertainties regarding their continued use of trademarks that are critical for their businesses. An issue that remains unsettled with courts is whether a licensee can assume a trademark license without the licensor’s consent. Circuits are divided on whether Section 365(c)(1) of title 11 of the United States Code (the “Bankruptcy Code”) prohibits a debtor from assuming an intellectual property license without the consent of the licensor. Courts on one side of the issue apply the “actual test,” which permits a debtor to assume a license as long as …

Procedural Due Process Requirements In Bankruptcy Cases, Bryant Churbuck

Bankruptcy Research Library

(Excerpt)

The Fifth Amendment of the United States Constitution guarantees that an individual will not be deprived “of life, liberty, or property without due process of law.” In the context of bankruptcy, procedural due process requirements are especially important because although bankruptcy tries to ensure that rights that exist outside of bankruptcy are maintained in bankruptcy, title 11 of the United States Code (the “Bankruptcy Code”) or other federal laws may require a different result. Given that the rights of an individual can be altered in bankruptcy proceedings, the adequacy of notice of the bankruptcy proceeding is of great importance. …

Whether Foreign Avoidance Claims May Be Asserted Under Chapter 15, Peter I. Collorafi

Bankruptcy Research Library

(Excerpt)

Chapter 15 was added to title 11 of the Bankruptcy Code in 2005, replacing former Section 304 as the Bankruptcy Code’s operative provision for dealing with cross-border insolvencies. Chapter 15 may be utilized by a foreign representative seeking assistance in U.S. courts in connection with a foreign proceeding. A foreign representative commences a chapter 15 case by filing a petition for recognition of the foreign proceeding in which the representative has been appointed.

After obtaining recognition, a foreign representative has the right to sue and be sued in the United States and may apply directly to a U.S. court …

The “Prudent Person” Standard In Esop Breach Of Duty Of Care Claims, Zien Halwani

Bankruptcy Research Library

(Excerpt)

Employee stock ownership plans (ESOPs) are a form of statutory pension program designed to invest employee retirement assets in the stock of the employer. Under the Employment Retirement and Income Securities Act of 1974 (“ERISA”), ESOP fiduciaries must discharge their duties “with the care, skill, prudence and diligence under the circumstances prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” This is to say that under ERISA, ESOP fiduciaries are liable for breaches of duty of care, …

Debt Discharge, Intent And Good Faith, Arielle Cummings

Bankruptcy Research Library

(Excerpt)

Discharge is of singular importance to the individual in a Chapter 7 case. Discharge enables the debtor to begin a new financial life, and it provides the debtor with a fresh start. In order for this to happen, among other effects, section 524 of title 11 of the United States Code (the “Bankruptcy Code”), which addresses the effects of discharge, voids any judgment against the debtor subject to the discharge. Section 524 also provides a statutory injunction against the continued prosecution of any action that would lead to liability on the claim subject to discharge. Section 727 of the …

The Permissibility Of Bringing An Action Against Johns-Manville’S Insurers Despite Injunctive Orders, Amanda Hoffman

Bankruptcy Research Library

(Excerpt)

It is well known that bankruptcy courts have jurisdiction over all of the property of the debtor’s estate, no matter where the estate is located. Bankruptcy courts have the power to preserve that jurisdiction by enjoining proceedings that would remove property from the bankrupt estate. Title 11 of the United States Code (the “Bankruptcy Code”) has broadly defined property of the estate as “all legal or equitable interests of the debtor in property as of the commencement of the case.” Section 541(a)(1) of the Bankruptcy Code has been defined broadly to include “all kinds of property, including tangible or …

Protecting Patients Or Protecting Government Agencies: Bankruptcy Involvement In Medicare/Medicaid Termination, Anthony J. Ienna

Bankruptcy Research Library

(Excerpt)

Through Chapter 11 bankruptcy, a struggling business can preserve essential property needed to remain operational. However, when a healthcare institution is in financial disarray and becomes noncompliant with federal regulatory standards, courts may block rehabilitation through bankruptcy. Healthcare institutions such as nursing homes, which are in the process curing deficiencies, must stay in compliance with the federal regulations in order to continue to receive Medicare and Medicaid funds. Nursing homes must make the necessary changes before funds are terminated or they will be forced to abruptly close. Courts often scrutinize nursing homes’ ability to care for their patients because …

Section 510 (B) Of The Bankruptcy Code Is To Be Interpreted Broadly, James M. Kerins

Bankruptcy Research Library

(Excerpt)

One of the cornerstone principles of Chapter 11 under title 11 of the United States Code (“the Bankruptcy Code”) is section 510 (b). Under section 510 (b), a fraud claim by a purchaser of stock in a corporation that subsequently files a petition for relief under the Bankruptcy Code must be subordinated to general unsecured creditors. Although the application of section 510 (b) may seem straightforward, courts have struggled interpreting the ambiguous language of section 510 (b).

Prior to Congress enacting section 510 (b), there was significant confusion throughout the bankruptcy community regarding what claims must be subordinated. Many …

Notice Of Bar Date To Employees Of A Multinational Corporation May Be Satisfied By Publication, Naffie Lamin

Bankruptcy Research Library

(Excerpt)

Courts have frequently held that notice to employees of the final day to file a proof of claim (the “bar date”), for purposes of satisfying constitutional due process requirements, may be satisfied by publication. To determine whether proper notice was served, bankruptcy courts distinguish between known and unknown creditors. While a known creditor must be provided with actual notice of a bar date, notice to an unknown creditor is satisfied by constructive notice, for example publication in a newspaper. In the context of the employer-employee relationship, it may seem counterintuitive that a creditor-employee would constitute an “unknown” creditor but …

A Showing Of Gross Recklessness Satisfies Section 523(A)(2)(A): Denying Deceivers The Ability To Discharge Debts Related To Fraudulently Obtained Funds, Megan Kuzniewski

Bankruptcy Research Library

(Excerpt)

11 U.S.C. Section 523(a) lists certain debts that may not be discharged through a debtor’s bankruptcy. In particular, section 523(a)(2)(A) provides that a debtor who files bankruptcy will not be discharged of debts that were obtained by “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” False representations, such as those described in section 523(a)(2)(A), carry a scienter requirement which requires that it be shown that an individual knowingly made false statements or representations. This requirement carries a heavy burden, as trying to prove that a person had …

Filing For Bankruptcy And Untying The Knot? Not Without Strings Attached, Justin A. Klingenberg

Bankruptcy Research Library

(Excerpt)

Substantive consolidation is an equitable remedy used sparingly by bankruptcy courts to consolidate the bankruptcy estates of two debtors. Although it originated in the corporate context, consolidating the estates of two corporate entities or a corporate entity and an individual debtor, its application has extended to consumer bankruptcy. The consolidation of the bankruptcy estates of two debtor spouses has been addressed and recognized by the Second, Third, Fourth, Sixth, Eighth, and Eleventh Circuit Courts.

Part I of this article briefly examines the authority legitimizing substantive consolidation. Part II analyzes the remedy’s corporate origins and the differing approaches taken by …

Whose Claim Is It Anyway?—Direct And Derivative Claims In The Context Of Bankruptcy Litigation, Kristen M. Lasak

Bankruptcy Research Library

(Excerpt)

In bankruptcy litigation, the line between direct and derivative claims may be a thin one, and courts are often entrusted with the task of determining whether the claims creditors set forth are actually derivative of claims owned by the bankruptcy estate. Companies entering into bankruptcy proceedings have the option of creating litigation trusts, which are authorized to pursue any claims the bankruptcy estate may own. A release of claims is often part of any settlement agreement, and such an agreement combined with the ownership of claims by the bankruptcy estate, often controlled through a litigation trust, can leave defrauded …

A Sublessee’S Rights In The Face Of A Debtor-Sublessor’S Rejection Of An Unexpired Lease Under Chapter 11, Adam K. Lau

Bankruptcy Research Library

(Excerpt)

Whether or not rejection of a lease constitutes termination is of great concern to interested parties in a chapter 11 bankruptcy proceeding. This determination can alter the remedies available for injured parties. Section 365 of the Bankruptcy Code establishes the general rule that rejection does not constitute termination, and sets forth the circumstances where exceptions to the general rule apply.

In In re Overseas Shipholding Group, Inc., a Delaware Bankruptcy Court held that the rejection of a lease constitutes a prepetition breach of the lease under section 365(g) of the Bankruptcy Code. The court determined the amount of …

Conflict In The Bankruptcy Code: Ramification Of A Trustee’S 363(F) Right To Sell Property “Free And Clear” On The Lessee’S 365(H) Right To Retain Property, Aaron Leaf

Bankruptcy Research Library

(Excerpt)

Section 363(f) of title 11 of the United States Code (the “Bankruptcy Code”) allows a trustee to sell property “free and clear of any interest in such property” that a third party might have if certain conditions are met. Section 365(h) of the Bankruptcy Code allows the lessee of a rejected lease to either retain the property with all rights appurtenant to the estate, or treat such lease as terminated and sue for damages. Courts are split on if these sections of the Bankruptcy Code are compatible. The majority of courts have found these sections are not compatible, and …

When A Priority Is Not A Priority: Structured Dismissals And The Priority Rules, Lindsay Lersner

Bankruptcy Research Library

(Excerpt)

The culmination of a chapter 11 case is typically a plan that provides for payment to creditors in accordance with the priority rules of the title 11 of the United States Code (the “Bankruptcy Code”). In In re Jevic Holding Corp., the Third Circuit held that in certain rare circumstances, bankruptcy courts have the discretion to approve structured dismissals which do not comply with section 507 and section 1129 - the priority rules - of the Bankruptcy Code. This holding highlights several issues with which courts have been grappling. The initial issue is whether structured dismissals themselves are …

Whether Sovereign Immunity Is A Defense For States In Bankruptcy Cases, Melanie Lee

Bankruptcy Research Library

(Excerpt)

Sovereign immunity, generally, prohibits suit against a sovereign without the sovereign’s consent. The defense of sovereign immunity may not be asserted by any state, or arm of the state, in any bankruptcy proceeding. The prohibition of asserting sovereign immunity in a bankruptcy case has been common practice, almost continuously, since the states agreed to such a waiver in the Constitutional Convention. Moreover, this waiver of sovereign immunity, has since been codified in Section 106 of title 11 of the United States Code (the “Bankruptcy Code”). As a result, a state involved in a bankruptcy case will typically be treated …

Application Of The Automatic Stay To A Non-Debtor Corporation, Joanna Matuza

Bankruptcy Research Library

(Excerpt)

When a corporation files for bankruptcy, it is entitled to an automatic stay of any action that has been filed against it pursuant to section 362(a)(1) of title 11 of the United States Code (the “Bankruptcy Code”). But today, litigation is often complex and involves more than one defendant. For example, I may commence an action against corporations X, Y and Z. Corporation X then files for bankruptcy and is entitled to an automatic stay. The question in these cases is whether the automatic stay applicable to the debtor corporation (Corporation X) also applies to the non-debtor corporations (Corporations …

Smoke & Mirrors: Bankruptcy Relief Remains Elusive For Marijuana Businesses And Their Creditors, Todd Plummer

Bankruptcy Research Library

(Excerpt)

Today, twenty-three states and the District of Columbia allow marijuana for medical purposes, and four of those states and the District of Columbia have legalized the drug’s recreational use. Despite this tidal shift in state laws and public opinion, marijuana remains a Schedule I substance under the Controlled Substances Act (“CSA”), meaning the federal government does not recognize its use in medical treatment, classifies the drug as having a high potential for abuse, and that no prescriptions may be written for it. Moreover, the CSA specifically makes it illegal to “rent, lease, profit from or make available for use” …

May A Foreign Company Liquidate Under The U.S. Bankruptcy Code?, Micaela D. Manley

Bankruptcy Research Library

(Excerpt)

This article discusses the ability of a foreign debtor to liquidate or reorganize under title 11 of the United States Code (the “Bankruptcy Code”). Foreign companies can address their debt in a bankruptcy case under the Bankruptcy Code if it satisfies the eligibility requirements set forth in section 109 of the Bankruptcy Code. A court may dismiss a foreign company’s bankruptcy case under section 3052 or section 1112 of the Bankruptcy Code. Part I of this article discusses the eligibility requirements under section 109 of the Bankruptcy Code. Part II analyzes the possibility of dismissal for “cause” under section …

Whether Puerto Rico’S Exclusion From Chapter 9 Is Non-Uniform Within The Meaning Of The Bankruptcy Clause Of The United States Constitution, Matthew T. Repetto

Bankruptcy Research Library

(Excerpt)

Amid the most serious fiscal crisis in its history, Puerto Rico’s public utilities are currently insolvent or at risk of becoming insolvent. In 2013, several distressed Puerto Rican public corporations had a combined deficit that totaled $800 million, and a combined debt reaching $20 billion. One avenue for Puerto Rico’s public utilities to restructure their debt, and perhaps the only avenue, is municipal bankruptcy relief. Unlike States, Puerto Rico “may not authorize its municipalities to seek Chapter 9 municipal bankruptcy relief” under title 11 of the United States Code (the “Bankruptcy Code”). An amendment to the Bankruptcy Code in …