Law Commons^™

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 …

May A Bankruptcy Court May Permanently Disbar An Attorney From Practicing Before Its District?, Maurice W. Sayeh

Bankruptcy Research Library

(Excerpt)

In most matters, the local bar association governs attorney discipline. Depending on the offense by the attorney, discipline can range from a private or public reprimand to a suspension or even disbarment. However, in special circumstances and when the court believes it must protect the general public from attorneys it finds unfit to practice, a bankruptcy court, as well as other courts, may permanently disbar an attorney from practicing before it. However this exercise of authority requires cautious judicial discretion.

Bankruptcy courts, in particular, may find the authority to discipline attorneys through multiple federal statutes, the Federal Rules of …

Can A Consumer Debtor Voluntarily Dismiss Own Chapter 7 Bankruptcy Case?, Shane P. Walsh

Bankruptcy Research Library

(Excerpt)

Under Section 707(a) of title 11 of the United States Code (the “Bankruptcy Code”), a court may dismiss a chapter 7 bankruptcy case for cause. Section 707(a) provides a list of examples of conduct that constitutes cause to guide the court in making its determination. A chapter 7 consumer debtor has the right to voluntarily dismiss his own chapter 7 case, however, that right is not absolute. When a consumer debtor seeks to voluntarily dismiss his chapter 7 case he must establish cause for dismissal under section 707(a). The court will determine whether the debtor’s voluntary motion to dismiss …

Creditor And Debtor Burdens When Confirming A Chapter 11 Reorganization Plan, Corey Trail

Bankruptcy Research Library

(Excerpt)

In Chapter 11 bankruptcy, after a debtor has submitted a reorganization plan, the creditor has the right to vote on that plan. However, the right to vote on that plan is grounded in the understanding that the creditor will not vote against a debtor’s reorganization plan in bad faith. If a court finds that the creditor rejected the plan in bad faith, the court may “designate” the votes of the creditor that voted against the plan. But the issue of good faith does not solely lie with the creditor’s behavior. Reorganization under Chapter 11 also demands that the debtor …

Duty To Advise Of The Legal Risks From Business Transactions, Nicole Strout

Bankruptcy Research Library

(Excerpt)

Lawyers owe specific duties to their clients, mainly with respect to reasonable legal advice. If reasonable care is not exercised by an attorney when providing legal advice and services, there is a potential for a malpractice claim against that attorney. For attorneys that represent businesses, however, legal advice can sometimes be blurred with business advice. It is important to note that lawyers are not business consultants and do not specifically owe a duty to their clients to protect them from poor business decisions. The problem occurs when it is hard to distinguish between the legal and business advice. These …

The Sherlock Holmes Canon, Anita S. Krishnakumar

Faculty Publications

Many of the Supreme Court’s statutory interpretation cases infer meaning from Congress’s failure to comment in the legislative record. Colorfully referred to as the “dog that did not bark” canon, after a Sherlock Holmes story involving a watchdog that failed to bark while a racehorse was being stolen, the interpretive presumption holds as follows: if a new law or statutory amendment would significantly change the existing legal landscape, Congress can be expected to comment on that change in the legislative record; thus, a lack of congressional comment regarding a significant change can be taken as evidence that Congress did not …

How We Prosecute The Police, Kate Levine

Faculty Publications

Police brutality is at the center of a growing national conversation on state power, race, and our problematic law enforcement culture. Focus on police conduct, in particular when and whether it should be criminal, is on the minds of scholars and political actors like never before. Yet this new focus has brought up a host of undertheorized questions about how the police are treated when they become the subject of criminal prosecutions.

This Article is part of a larger project wherein I examine the ways in which criminal procedure is different for the police than other suspects. Here, my focus …

Challenging Boardroom Homogeneity, Cheryl L. Wade

Faculty Publications

(Excerpt)

Over the past two years, US citizens have heard a great deal about diversity as it relates to race in general, and African Americans in particular. A string of deaths of unarmed African American men at the hands of white police officers has galvanized the nation’s attention. When Michael Brown was shot and killed in Ferguson, Missouri in August, 2014, there was a considerable amount of discussion about the gross underrepresentation of African Americans on the police force and among local politicians. Many observers believed that a racially-homogenous police force and the homogeneity among political leaders partially explained the …

Corporate Wrongdoing: Interactions Of Legal Mandates And Corporate Culture, Vincent Dilorenzo

Faculty Publications

In recent years, enforcement officials have imposed billions of dollars in sanctions on all major U.S. financial institutions and many major financial institutions abroad. Similar sanctions have been imposed on nonfinancial institutions. The sanctions are the result of findings of recurrent violations of law, as well as recidivism. Why have existing regulatory standards and enforcement policies led to repeated violations of law? Will the recent billion dollar sanctions deter future wrongdoing?

This article explores these issues by examining the philosophy motivating regulatory policy and action in the United States and United Kingdom, using financial regulators as a case study. This …