Tabla de contenidos para July 2023 en ABI Journal

Supreme Court Holds that § 363‌(m) Does Not Create Jurisdictional Bar; Side-Steps Mootness Issue Under 11 U.S.C. § 363‌(m), absent a stay of an order approving a sale or lease of bankruptcy estate property, the reversal or modification of the order on appeal “does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith.” In MOAC Mall Holdings LLC v. Transform Holdco LLC,1 the U.S. Supreme Court resolved a circuit split by holding that this provision is not jurisdictional. Thus, the protections of § 363‌(m) may be forfeit through waiver, estoppel or other doctrines. The Court left to lower tribunals the task of determining whether the transfer of property out of the bankruptcy estate pursuant to…

Critical-vendor orders are back in retail, automotive and other cases (if they ever even left).1 Entry of these orders inspires immediate bravado by vendor clients who reflexively insist that they must be critical and cease providing the debtor with goods or services until they are rightfully so named and their pre-petition indebtedness is paid in full. And then they call you. Being designated a critical vendor requires more than the debtor’s dire need for a vendor’s product. Since Kmart2 and Jevic,3 the critical-vendor landscape has been littered with landmines for even the well-intentioned. This article maps the hazards and opportunities for vendors when financing is available to pay critical vendors. Authority for Critical-Vendor Orders Perhaps the comeback of critical-vendor orders should not be heralded, as they have been here in…

On March 31, 2023, Hon. Thomas L. Ambro, for a three-judge panel of the Third Circuit, authored an opinion in In re LTL Management LLC1 reversing the bankruptcy court’s denial of motions to dismiss Johnson & Johnson’s (J&J) divisional-merger bankruptcy, remanding with instructions to dismiss. The bankruptcy court dismissed four days after remand. J&J’s litigation-trust vehicle, LTL Management LLC, refiled hours after dismissal. This article focuses on the Third Circuit’s reasoning for dismissal and LTL’s second filing. LTL’s Initial Bankruptcy Filing2 Before October 2021, Johnson & Johnson Consumer Inc. (Old JJCI) was the wholly owned subsidiary of J&J responsible for the production and sale of Johnson’s Baby Powder. Beginning in 2010, J&J and Old JJCI saw a precipitous rise in the number of lawsuits alleging that the baby powder caused…

Potential acquirers of assets of a financially distressed seller, whether or not that seller is in bankruptcy, need to conduct their legal due diligence. One aspect of that diligence process is understanding whether the seller is complying with all applicable federal, state and non-U.S. data-privacy laws. This is particularly important for out-of-court sale transactions, which do not have the benefit of a “free and clear” § 363 sale order, as the acquirer may ultimately be required to spend significant money defending claims that the seller had violated applicable data-privacy laws before the sale. Understanding the seller’s compliance with applicable data-privacy laws is important, even if the seller disposes of its assets in a bankruptcy proceeding. There is always a risk that a potential claimant contends that it did not receive…

Like many rights in bankruptcy, a commercial tenant’s rights to recover assets held by a bankrupt landlord are primarily determined by the negotiated contractual rights under the lease and applicable state law. When representing commercial tenant-creditors, bankruptcy practitioners must adequately gauge avenues for maximizing recoveries. When negotiating commercial leases, real estate practitioners must likewise account for how the Bankruptcy Code’s application may impact the character and treatment of commercial-tenant security deposits when a landlord becomes insolvent. This article explores, in the context of a landlord bankruptcy, (1) the characterization, treatment and priority of commercial security deposits; (2) the role that state statutes might play in making such determinations; and (3) strategies for mitigating risks to the recovery of such assets held by nonresidential landlords. Unexpected Effects of Bankruptcy An example…

In the 1990s, English common law, and the jurisdictions inspired and influenced by it, were at the forefront of promoting the concept of what is widely referred to as “modified universalism” in insolvency and restructuring law. British judges were well placed to influence the trajectory of common law through the jurisdiction of the Judicial Committee of the Privy Council (hereinafter referred to simply as the “Privy Council”) — the tribunal of last resort for a number of Commonwealth jurisdictions — and the normative effect of their judgments through the wider corpus of common law jurisdictions. Lord Hoffmann Lord Leonard “Lennie” Hoffmann, a member of the House of Lords (precursor to the Supreme Court) and the Privy Council, was responsible for several judgments and decisions that shaped this area of the…

The Consumer Bankruptcy Reform Act (CBRA), originally introduced in December 2020, was reintroduced in September 2022 by Sen. Elizabeth Warren (D-Mass.) and Rep. Jerrold Nadler (D-N.Y.).1 This previously rejected bill is once again causing bankruptcy lawyers and scholars alike to contemplate what a re-envisioned consumer bankruptcy system could look like. The bill aims to streamline and update the bankruptcy process, making it easier for those who must file for bankruptcy to be able to reach financial stability without enduring avoidable expenses and hardship.2 Essentially, the CBRA would repeal current chapter 13 in its entirety and prohibit individuals from filing under chapter 7, replacing these options for consumer debtors with what the CBRA calls “chapter 10.”3 Section 103 of the proposed CBRA repeals chapter 13. The CBRA does not contain a…

Editor’s Note: ABI’s newly formed Subchapter V Task Force is seeking input from those who have had experience working with subchapter V. To participate in a survey on subchapter V, please visit abi.org/subvsurvey. I n an amendment to the Bankruptcy Code, the Small Business Reorganization Act of 2019 (SBRA) amended § 547‌(b) to add an explicit requirement for a bankruptcy trustee or debtor in possession to conduct “reasonable due diligence” before filing a preference action.1 Because Congress did not provide legislative history regarding the new language’s purpose or application, a host of questions have arisen as to the rule’s proper application. Commentators and practitioners have surmised that the new language is intended to curtail certain chapter 7 trustees and chapter 11 liquidating trusts from bringing preference actions against all recipients of…

The Bankruptcy Code provides a fresh start to the honest-but-unfortunate debtor.1 An “honest debtor” is one who accurately discloses necessary information and abides by the Code.2 However, after the U.S. Supreme Court’s ruling in Bartenwerfer v. Buckley, an honest business partner, obligor, spouse, friend or any other similarly situated individual in a relationship involving a shared obligation is at risk of the wrongdoer’s actions being imputed on the innocent. Thus, this article briefly discusses the Court’s Bartenwerfer decision and its potential effects on honest debtors, and discusses two recent bankruptcy court opinions analyzing the decision. The Bartenwerfer Decision The Supreme Court in Bartenwerfer was faced with the question of whether to declare the creditor’s claim against the debtor dischargeable under § 523‌(a)‌(2)‌(A) for her husband’s fraud.3 The debtor and her…

Once again, there are tremors in the world of financial institutions, and somehow, Fannie Mae, Freddie Mac and home mortgages are involved. Fifteen years ago, housing finance was at the center of a global financial crisis and an enormous rescue effort by the Treasury Department. Today, headlines cry out everywhere for answers: Are we facing another housing crisis? Is this 2008 all over again? Or worse, is it 1929? In September 2008, the two government-sponsored enterprises (GSEs) at the center of the nation’s housing finance system — the Federal National Mortgage Association and Federal Home Loan Mortgage Corp., commonly known as Fannie Mae and Freddie Mac — were placed into conservatorship, and the Treasury Department entered into senior preferred stock agreements (PSPAs) with them. Credit markets had seized up, bringing…

Bloomberg reported that the largest Catholicaffiliated university in the U.S., DePaul University in Chicago, is facing a $56 million budget gap, and that higher-education institutions across the nation, particularly small private schools, are facing similar financial strains.2 At least 35 public or nonprofit colleges have closed, merged or announced closures or mergers since March 2020, and more are expected.3 This article provides a primer on the unique issues with insolvent educational institutions. Educational Institution Assets An early step in formulating advice for insolvency professionals involves reviewing financial information. The financial information of nonprofit entities differs from for-profit businesses. Balance sheets report “net assets” instead of equity and categorize assets as either “without donor restrictions” or “with donor restrictions.”4 This difference is crucial to understanding the level of financial distress. The…

Bankruptcy judges may be the ultimate finders of fact. However, the trial of personal-injury tort and wrongful-death claims (collectively, “PI claims”) are not one of the tasks that Congress delegated to them. Notwithstanding this jurisdictional limitation, a bankruptcy judge may be asked to estimate a PI claim in order to facilitate the administration of a case. In doing so, the parties asking for or opposing estimation should keep in mind three key considerations: purpose, authority and practicalities. What Is a PI Claim? The U.S. Code provides that “[t]‌he district court shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending, or in the district court in the district in which the claim arose, as determined by…

Two attorneys with Brooks, Pierce, McLendon, Humphrey & Leonard, LLP in Greensboro, N.C., have been named 2023 “Legal Elites” by Business North Carolina. Jeffrey E. Oleynik has been an ABI member since 1996. John H. Small has been an ABI member since 1999. Hon. Arthur I. Harris of the U.S. Bankruptcy Court for the Northern District of Ohio (Cleveland) announced that he has retired. He has been an ABI member since 2003. Yvette R. Austin Smith has joined Compass Lexecon as senior managing director, chair of its Global Finance Practice and head of its New York office. She has been an ABI member since 2010. Kevin J. O’Brien of King & Spalding LLP (Atlanta) has been promoted to counsel. He has been an ABI member since 2021. Phyllis A. Ulrich…

February (partial list) Romeu Scarioli, Jr. San Marino, Calif. Beth Ann Schenz The Huntington National Bank Akron, Ohio Gary I. Selinger Independent Equipment Co. New York Mark D. Sherrill Eversheds Sutherland (US) LLP Houston Justin Simms New York University School of Law New York Debra Sinclair Willkie Farr & Gallagher LLP New York Maria Sountas-Argiropoulos KTBS Law LLP Los Angeles Paul Spagnoli St. John’s University School of Law Thornwood, N.Y. Carissa Sterling Carmody MacDonald PC St. Louis Daniel Tavera U.S. Bankruptcy Court (N.D. Ohio) Perrysburg, Ohio Lawrence R. Thomas, III Blank Rome LLP Wilmington, Del. Krystal M. Thorp Hochwalt & Schiff, LLC Kettering, Ohio Nicholas Trautwein SC&H Capital Sparks Glencoe, Md. James M. Truett LSU Paul M. Hebert Law Center River Ridge, La. Khyati Tuli New York University New York…

Awaiting Decision of Supreme Court, Biden Vetoes Measure to Cancel Student Debt Relief President Joe Biden on June 7 vetoed a legislative measure (House Joint Resolution 45) that would have canceled his plan to forgive student debt, leaving the relief plan in the hands of the U.S. Supreme Court. The measure was brought up as a joint resolution under the Congressional Review Act, which allows Congress to nullify newly placed rules and regulations. Such measures are not subject to the filibuster, so Democrats in the Senate could not block the measure, and a super-majority of 60 votes was not required to advance it.1 The joint resolution had been pushed by Republicans, but it also garnered a handful of Democratic votes in the Senate. The measure to block the plan passed…

Silicon Valley Bank (SVB) disclosed on March 8, 2023, that it completed the sale of $21 billion in assets, incurring a loss of $1.8 billion on the transaction. In an attempt to raise additional equity capital, SVB also announced that it was conducting a secondary offering of common stock. Within 48 hours, SVB’s clients struggled to withdraw more than $140 billion (or 80 percent) of deposits, and the bank collapsed under the pressure. Two days later, SVB was closed by its regulators and placed under the administration of the Federal Deposit Insurance Corp. In the process, more than $15 billion of shareholder value was wiped out.1 SVB’s sudden and dramatic demise has sparked intense scrutiny and questions about what went wrong and whether relevant risks had been adequately disclosed to…

A liquor license can be an extremely valuable asset of a business. In states that allow for liens to be attached to a liquor license, creditors lending to entities or individuals that control liquor licenses should take steps to attain a security interest in the license in the event the debtor fails to make payments on the loan or otherwise defaults. A liquor license is a legal authorization to serve alcohol and is therefore not easily defined collateral. Accordingly, perfecting and executing a lien on a liquor license is often a complicated and difficult exercise. When creditors seek to secure an obligation with a liquor license as collateral, the threshold inquiry is whether the state in which the license was issued allows for a lien to attach to such liquor…

The effects of recent macroeconomic and environmental conditions (e.g., higher interest rates, spiking commodity prices and El Nino effects, among others), as well as changing legislative and industry conditions (e.g., the move to decarbonization and the shortage of transmission assets), have created challenging conditions across many global energy markets, but none more so than in Latin America, particularly in Chile. Stakeholders in businesses stressed by these conditions often ask whether chapter 11 can be used as a tool to effectuate a balance-sheet restructuring — leaving the operations of their business intact while right-sizing their financial obligations. While chapter 11 can be a highly efficient means of accomplishing a restructuring for energy companies located outside of the U.S., it also presents a unique set of challenges relating to the treatment of…

The battlefields of modern chapter 11 practice are evolving faster than the Bankruptcy Code can keep up. In the era of LTL1 and other mass-tort bankruptcies, parties have begun launching early-case attacks on the validity of the underlying filing itself rather than only attacking treatment under the plan. The validity of the filings is based on good faith — a not-well-defined standard that itself does not appear in the Code as a requirement to file for chapter 11. Nonetheless, “good faith” has been added as a requirement to file for chapter 11 by courts of appeals.2 Many of these good-faith requirements originated many years ago, long before the onset of new litigation strategies such as the divisive merger (or, pejoratively, the Texas Two-Step). With the advent of divisive-merger cases, the…

Subchapter V Task Force We can use all your help! Consistent with my primary initiative announced at my installation at the Annual Spring Meeting in April, the Subchapter V Task Force is off to the races (not the Kentucky Derby, I might add!). A review of the Small Business Reorganization Act (SBRA) is the centerpiece of my initiatives for my term, which will make a difference for the future of small businesses’ fresh starts. Commendations go to Co-Chairs Hon. Michelle M. Harner of the U.S. Bankruptcy Court for the District of Maryland (Baltimore) and Megan W. Murray of Underwood Murray, PA (Tampa, Fla.), and Reporter Prof. Alexandra Everhart Sickler of the University of North Dakota School of Law (Grand Forks, N.D.), for leading and motivating all the task force members.…

ABI Board of Directors Executive Committee Members Chair Robert P. Reynolds Reynolds, Reynolds & Little, LLC; Tuscaloosa, Ala. Immediate Past President Hon. Kevin J. Carey (ret.) Hogan Lovells US LLP; Philadelphia President Soneet R. Kapila KapilaMukamal, LLP; Fort Lauderdale, Fla. President-Elect Christopher A. Ward Polsinelli; Wilmington, Del. Vice President-Research Grants Hon. Hannah L. Blumenstiel U.S. Bankruptcy Court (N.D. Cal.); San Francisco Vice President-Education Hon. Michelle M. Harner U.S. Bankruptcy Court (D. Md.); Baltimore Vice President-Communications & Information Technology Hon. Bruce A. Harwood U.S. Bankruptcy Court (D. N.H.); Concord Vice President-Diversity & Inclusion Eve H. Karasik Levene, Neale, Bender, Yoo & Golubchik, LLP; Los Angeles Vice President-Publications Paul D. Leake Skadden, Arps, Slate, Meagher & Flom LLP; New York Vice President-International Affairs Stephen D. Lerner Squire Patton Boggs; Cincinnati Vice President-Membership…