Delaware Bankruptcy Insider:
Be In The Know

About This Blog


The Delaware Bankruptcy Insider is a premier blog designed to bring its readers a comprehensive analysis of the latest Delaware corporate bankruptcy news and rulings.  Brought to you by Ashby & Geddes, P.A.

Get Updates By Email

Topics

Judges

Recent Posts

Helpful Links


Federal Courts App
 (iTunes)
Federal Courts App (Google Play)
The Bankruptcy Code
Delaware Bankruptcy Court                                                                          Delaware Bankruptcy Court - Local Rules and Orders
Delaware District Court
Third Circuit Court of Appeals
U.S. Supreme Court
The United States Courts
Office of the United States Trustee for the Third Circuit
Delaware Bankruptcy American Inn of Court

For more information


Karen B. Skomorucha Owens, Esq.
(302) 504-3725
kowens@ashby-geddes.com

Ashby & Geddes, P.A.
500 Delaware Avenue
P.O. Box 1150
Wilmington, Delaware 19899-1150
(302) 654-1888               

Bankruptcy Court Fails to Find Wholesaler-Debtor Constructively Received Goods Delivered to Third Parties Twenty Days Before Bankruptcy; 503(b)(9) Claim Reclassified

In re ADI Liquidation, Inc., No. 14-12092 (KJC), 2017 WL 2712287 (Bankr. D. Del. June 22, 2017)

In this Opinion, the Delaware Bankruptcy Court examined whether a debtor, formerly known as Associated Wholesalers, Inc. (“AWI”), constructively received goods that were ordered by and delivered to its customers from claimant, Bimbo Bakeries USA, Inc. (“BBU”) during the twenty day period prior to AWI’s petition date (the “Twenty Day Goods”).  While the goods were never in AWI’s physical possession, AWI’s customers remitted payment for the goods to AWI, which then remitted payment to BBU after retaining a percentage.  BBU filed a large section 503(b)(9) claim on account of the Twenty Day Goods, to which AWI objected.  The question for Judge Carey was whether AWI constructively received the Twenty-Day Goods given its substantial involvement in facilitating the sales transactions between BBU and AWI’s customers.  If the answer was yes, the Court would have expanded the meaning of constructive receipt beyond the customary situation in which a third party recipient is a bailee for the debtor.  The Court, however, answered no and in doing so, drew parallels to “drop-ship transactions.”  A “drop-ship transaction” is a transaction in which a buyer purchases goods from a middleman, who in turn forwards the purchase order to a third party, who then fulfills and ships the order directly to the buyer.  In these situations, courts have found that the middleman does not take constructive possession of the goods.  And while the Delaware Bankruptcy Court found the AWI-BBU transaction similar, it also found the situation a step further removed given that AWI’s customers ordered their goods directly from BBU.  Accordingly, AWI never received the goods nor made the sales.  For those reasons, the Bankruptcy Court sided with AWI and permitted the reclassification of BBU’s section 503(b)(9) claim to a general unsecured claim. Read More ›

Creditors Committee Suing on Behalf of Estates Is Unable to Invade Debtors’ Attorney-Client Privilege Without a Showing of Insolvency

Official Comm. of Unsecured Creditors of HH Liquidation, LLC v. Comvest Grp. Holdings, LLC (In re HH Liquidation, LLC), No. 16-51204 (KG), 2017 WL 1906585 (Bankr. D. Del. May 8, 2017)

This adversary proceeding was commenced derivatively by an Official Committee of Unsecured Creditors (the “Committee”) against the Haggen, Inc. debtors’ officers, directors, and non-debtor affiliates (collectively, the “Defendants”) for, among other things, fraud and fraudulent transfers.  During the course of discovery, the Committee filed a motion to compel production of over 2,000 documents withheld by the debtors and the Defendants based on attorney-client privilege (the “AC Privileged Documents”).  Importantly, one law firm jointly represented the debtors and the Defendants at the time of the communications.  While the Honorable Kevin Gross of the Delaware Bankruptcy Court recognized the odd scenario presented, one in which the Committee was suing non-debtor entities on behalf of the debtor but was without access to the very documents the debtor would use if pursuing the action, the Court would not compel the production of the AC Privileged Documents. Read More ›

Insider’s Scoop: An Rare Examination of Challenge Period and Release Provisions in a Final DIP Order

In re Outer Harbor Terminal, LLC, 16-10283 (LSS) (Bench Ruling, May 5, 2017)

In issuing this Bench Ruling, the Honorable Laurie Selber Silverstein of the Delaware Bankruptcy Court had the unusual opportunity to analyze and parse challenge period and lender release provisions contained in a final DIP order.  Examining the plain language of the provisions in light of the entire context of the DIP documents before it, the Court concluded that a creditors committee’s investigation period expired long before it was formed by the United States Trustee.  Her Honor also held that the general releases granted to the DIP lenders in all their capacities did not extend to claims the debtor may have against affiliates of the DIP lenders that were separate and apart from the DIP lender’s relationship with the debtor despite the fact that those affiliates were included as released parties. Read More ›

Battle Between Prepetition Lender and Consignor Over Inventory Continues – Bankruptcy Court Holds Parties Cannot Contract to Subject Relationship to UCC

TSA Stores, Inc. v. M J Soffe, LLC (In re TSAWD Holdings, Inc.), No. 16-50364 (MFW), 2017 WL 892329 (Bankr. D. Del. Mar. 6, 2017)

Prior to the petition date, consignment vendor M J Soffe, LLC (“Soffe”) sold approximately $5.4 million of goods to the Sports Authority debtors (the “Debtors”) pursuant to a Pay by Scan Agreement.  That agreement expressly provided that the arrangement between Soffe and the Debtors qualified as a “consignment” as such term is defined in section 9-102(a)(20) of the Uniform Commercial Code (“UCC”).  During the bankruptcy proceedings the Debtors sold the Disputed Goods, and litigation arose between Soffe and the Debtors’ prepetition secured creditor, Wilmington Savings Fund Society, FSB (“WSFS”), over entitlement to the proceeds.  On one hand, WSFS asserted that it had a superior security interest in the Disputed Goods under Article 9 of the UCC because Soffe failed to properly perfect a security interest.  On the other, Soffe argued that Article 9 of the UCC was inapplicable because the facts underlying the relationship between itself and the Debtors did not satisfy the definition of a “consignment” under section 9-102(a)(20) of the UCC and, in the absence of a governing UCC, applicable state law entitled it to the superior interest.  WSFS moved for partial judgment on the pleadings, relying in part on the express language of the Pay by Scan Agreement, but the Bankruptcy Court denied its motion, finding that a disputed issue existed as to the applicability of Article 9.  According to the Bankruptcy Court, the UCC expressly permits parties to opt-out of the UCC and vary the effect of its provisions by agreement but it does not permit parties to contract around defined terms.  Parties may limit their legal relationship but such limitations are not without their boundaries.  Changing the UCC’s definitions – i.e. changing the meaning of the statute’s terms – is only appropriate for legislatures.  And while WSFS argued that Soffe’s arguments should be estopped and that the Court’s holding would render the Pay by Scan Agreement’s UCC provision superfluous and thus inconsistent with contractual interpretation canons, the Court was not persuaded, noting that it cannot enforce a contractual term inconsistent with or prohibited by the UCC. Read More ›

Stern Requires More Than Subject Matter Jurisdiction, Bankruptcy Court Must Also Have Constitutional Adjudicatory Authority to Approve Nonconsensual Third-Party Releases in a Plan

Opt-Out Lenders v. Millennium Lab Holdings II, LLC, No. 16-110-LPS, --- F.Supp.3d ----, 2017 WL 1032992 (D. Del. Mar. 17, 2017) corrected and superseded by 2017 WL 1064997 (D. Del. Mar. 20, 2017)

In this Opinion, the United States District Court for the District of Delaware (the “District Court”) examines the bankruptcy court’s authority post-Stern v. Marshall, 131 S. Ct. 2594 (2011), to enter a final order releasing and permanently enjoining a non-debtor’s state law fraud and federal RICO claims against non-debtors absent consent.  Following two recent United States Supreme Court cases—Stern and Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015)—it is clear that parties have a constitutional right to have state law claims adjudicated by an Article III court.  “Despite the District Court’s general referral of bankruptcy matters to the Bankruptcy Court, the extent of the Bankruptcy Court’s adjudicatory authority depends on the type of proceeding before it and is subject to the bounds of [these] constitutional limitations . . . .”  Op. at 3.  For core proceedings (i.e., those that “arise under title 11” or “arise in a case” under title 11), bankruptcy judges can enter final orders.  When a matter is non-core (i.e., “related to” the bankruptcy case), however, absent consent of the parties, bankruptcy judges have authority only to hear the matter and submit proposed findings of fact and conclusions of law to the district court. Read More ›

Bankruptcy Court Finds “Close Nexus” Between Adversary Proceeding and Plan Necessary to Exercise Post-Confirmation, “Related to” Jurisdiction

Emerald Capital Advisors Corp. v. Karma Auto. LLC (In re FAH Liquidating Corp.), Adv. No. 16-51528 (KG), 2017 WL 663521 (Bankr. D. Del. Feb. 16, 2017)

In denying the motion to dismiss filed by Wanxiang Clean Energy USA LLC (“Wanxiang”) and Karma Automotive LLC (“Karma” and together with Wanxiang, “Defendants”), the Bankruptcy Court found that it has both “arising in” and “related to” jurisdiction to hear an adversary proceeding filed by the Trustee for the FAH Liquidating Trust (“Trustee”) over two years after confirmation. Read More ›

The Supreme Court’s Answer is Simply “No”—Structured Dismissals Cannot Deviate From the Code’s Priority Rules Without Consent of Affected Creditors

Czyzewski v. Jevic Holding Corp., 580 U.S. ___ (2017)

In Official Comm. of Unsecured Creditors v. CIT Group/Business Credit, Inc. (In re Jevic Holding Corp.), 787 F.3d 173 (3d Cir. May 21, 2015), the Third Circuit Court of Appeals examined structured dismissals and whether the distributions provided for therein can deviate from the Bankruptcy Code’s priority distribution scheme.  It held that they could but only in the “rare case.”  Almost two years later, the Supreme Court has weighed in on the issue, disagreeing with the Third Circuit and holding that a bankruptcy court cannot approve a structured dismissal that provides for distributions deviating from the ordinary priority rules established by the Bankruptcy Code without affected creditors’ consent.  Op. at 11. Read More ›

Delaware Bankruptcy Court Refuses to Enforce an Employee Arbitration Agreement with a Class Action Waiver Despite Its Opt-out Provision

Chan v. Fresh & Easy, LLC (In Fresh & Easy, LLC), No. 15-51897 (BLS), 2016 WL 5922292 (Bankr. D. Del. Oct. 11, 2016)

In this motion to compel arbitration Opinion, the Bankruptcy Court for the District of Delaware ruled on two issues of first impression in Delaware:  (i) whether a class action waiver provision in an arbitration agreement violates the National Labor Relations Act (the “NLRA”); and if so, (ii) whether the agreement remains enforceable if it allows an employee to opt-out.  The Court found that the class action waiver was unenforceable because it violated the NLRA.  The Court then held that the opt-out provision in the agreement did not save the class action waiver. Read More ›

Tribal Sovereign Immunity Bars Preference Claims Against Casinos Subject to Recoupment Rights

Casino Caribbean, LLC v. Money Ctrs. of Am., Inc. (In re Money Ctrs. of Am., Inc.), Adv. Nos. 14-50437 (CSS), 16-50410 (CSS), 2017 WL 775780 (Bankr. D. Del. Feb. 28, 2017)

In this Opinion, the Delaware Bankruptcy Court addressed for the first time whether tribal sovereign immunity bars preference actions against casinos operated by (or on behalf of) Indian tribes.  After considering split authority from other jurisdictions, the Court ruled that it does, although the right to use preference liability defensively in support of a recoupment claim may still be preserved. Read More ›

Delaware Bankruptcy Court Permits Attorneys’ Fees in Fee Defense, Distinguishing ASARCO and Boomerang Tube

In re Nortel Networks Inc., No. 09-10138 (KG), 2016 WL 932947 (Bankr. D. Del. Mar. 8, 2017)

In the Nortel family of cases, the Delaware Bankruptcy Court sustained, in part, an objection to the attorneys’ fees sought by the Nortel Networks Capital Corporation Bonds Indenture Trustee (the “Indenture Trustee”), slashing its attorneys’ fee request by almost one million dollars.  However, the more noteworthy ruling came when Judge Gross permitted the Indenture Trustee’s attorneys’ fees for defending their fees, distinguishing the Supreme Court’s ruling in ASARCO and the Delaware Bankruptcy Court’s recent ruling in Boomerang Tube.  The Court held that the indenture explicitly provides for the payment of the Indenture Trustee’s attorneys’ fees, and clearly falls outside the circumstances of ASARCO and Boomerang Tube. Read More ›