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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.

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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 Mar. 17, 2017) corrected and superseded by 2017 WL 1064997 (D. Del.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 ›

Executoriness for Purposes of Kiwi Defense to Preference Action Determined on a Contract by Contract Basis; Purchase Orders Issued under Master Agreement Were Separate Divisible Contracts

PIRINATE Consulting Grp., LLC v. C.R. Meyer & Sons Co. (In re NewPage Corp.), No. 13-52429 (KG), 2017 WL 571478 (Bankr. D. Del. Feb. 13, 2017)

The Litigation Trustee (“Trustee”) of the NP Creditor Litigation Trust brought this adversary proceeding against C.R. Meyer & Sons Co. (“CRM”) seeking to avoid and recover over $2.3 million in alleged preferential transfers.  NewPage Corporation (“NewPage”) and its affiliates (collectively, “Debtors”) operated paper mills throughout the United States, and CRM handled maintenance and construction at the Escanaba, Michigan and Duluth, Minnesota mills.  Prior to the Debtors’ bankruptcy filing, the parties entered into a Master Construction Agreement (“Master Agreement”) pursuant to which CRM would provide services and items necessary to complete the work described in purchase orders to be issued from time to time under the agreement.  The Master Agreement refers to each purchase order issued by NewPage as a separate contract, and the purchase orders either reference the Master Agreement directly or through another purchase order.  In the course of the parties’ dealing, the purchase orders served to document work and facilitate payment. Read More ›

Delaware Bankruptcy Court Finds Debtor Did Not Properly Terminate Contract, Faces Significant Breach of Contract Damages

In re Outer Harbor Terminal, LLC, No. 16-10283 (LSS), 2017 WL 696676 (Bankr. D. Del. Feb. 21, 2017)

In the context of a claims objection, the Court adhered to unambiguous contract language in determining that the presence of a termination triggering event did not automatically terminate a contract, opening the door for potentially significant damages.  This matter will now proceed to the damages phase, where the non-debtor contract counterparty has alleged in its proof of claim an approximate $13.3 million in, among other things, breach of contract damages. Read More ›

Delaware Bankruptcy Court Sidesteps Decision on “Novel” Bar to Joinder Doctrine; Movant Failed to Demonstrate Bad Faith For Involuntary Chapter 7 Petition

In re Luxeyard, Inc., 556 B.R. 627 (Bankr. D. Del. 2016)

Declining to opine upon the “bar to joinder doctrine,” the Delaware Bankruptcy Court in this Opinion applied the Third Circuit’s “totality of the circumstances” bad faith test to deny a motion to bar the joinder of additional petitioners to an involuntary petition under Section 303(c) of the Bankruptcy Code.  Simply put, the Debtor did not carry its burden to show there was a bad faith filing, and therefore, the Court need not consider the bar to joinder doctrine. Read More ›

Trustee’s Claims Against Insiders For Their Action (or Inaction) in the Face of Insolvency Survives Motion to Dismiss Despite Exculpation, Business Judgement, and Deeping Insolvency Defenses

Stanziale v. Versa Capital Mgmt., LLC (In re Simplexity, LLC), Case No. 14-10569 (KG), 2017 WL 65069 (Bankr. D. Del. Jan. 5, 2017)

According to the Chapter 7 Trustee of Simplexity, LLC (“Simplexity” and together with its affiliated debtors, the “Debtors”), numerous insiders of Simplexity (the “Defendants”) breached their fiduciary duties by refusing to seek bankruptcy protection for Simplexity when faced with actions by Simplexity’s lender, including the threat to sweep all available funds, thereby failing to preserve the value of the Debtors and exposing Simplexity to employment related claims.  In this Memorandum Opinion, the Delaware Bankruptcy Court resisted the Defendants’ arguments to dismiss the Trustee’s claims. Read More ›