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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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Showing 80 posts by Karen Skomorucha Owens.

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 ›

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 ›

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 ›

Delaware Bankruptcy Court Tackles Challenges to Email Privacy

In re Irish Bank Resolution Corp. (In Special Liquidation), 559 B.R. 627 (Bankr. D. Del. 2016)

Late last year, the foreign representatives (the “Foreign Representatives”) of chapter 15 debtor Irish Bank Resolution Corporation Limited (“IBRC”) were forced to get creative after their more traditional efforts to obtain discovery from a Yahoo! email account failed.  In connection with IBRC’s liquidation, significant international litigation is on-going related to the repayment evasion of billions in loans advanced by IBRC to companies owned or controlled by the Quinn Family.  In the course of that litigation, the Foreign Representatives discovered various email accounts believed to be connected to the Quinn Family and their attempts to conceal assets, including a Yahoo! email account maintained by a mysterious “Abdulla Rasimov” (the “Rasimov Account”).  The whereabouts of Mr. Rasimov are unknown, service of process has gone unacknowledged, and the Rasimov Account was closed during the proceedings described herein.  Accordingly, when their attempts to obtain the contents of the Rasimov Account through a Bankruptcy Rule 2004 order and an order to compel failed, the Foreign Representatives obtained from the Delaware Bankruptcy Court an order making them the “subscriber” of the account (the “Subscriber Order”).  With the Subscriber Order in hand, the Foreign Representatives then sought turnover of the account’s contents under sections 542(a) and 542(e) of the Bankruptcy Code from Yahoo! Inc. (“Yahoo”).  A maneuver Yahoo opposed. Read More ›

Applying New York Law, Third Circuit Holds That Acceleration Clauses Do Not Negate Make-Whole Redemption Provisions Absent Clear Contractual Language

Delaware Trust Co. v. Energy Future Intermediate Holding Co. (In re Energy Future Holdings Corp.), 842 F.3d 247 (3d Cir. 2016)

Disagreeing with the United States Bankruptcy Court for the Southern District of New York, the Court of Appeals for the Third Circuit held in this Opinion that New York law requires the Energy Future debtors (“EFIH”) to pay redemption premiums (or a “make-whole”) to their first and second lien noteholders under the terms of governing indentures.  In doing so, the Court reversed the district court decision affirming the Delaware Bankruptcy Court’s ruling (discussed here) that the make-whole payments were not due. Read More ›

Commencing an Involuntary Just Got Riskier – Petitioning Creditors May Face State Law Damages in Addition to Those Under Bankruptcy Code Section 303(i)

Rosenberg v. DVI Receivables XVII, LLC, No. 15-2622, 2016 WL 4501675 (3d Cir. Aug. 29, 2016) 

In this federal preemption Opinion, the Third Circuit Court of Appeals held that section 303(i) of the Bankruptcy Code does not preempt state law claims by non-debtors for damages based on the filing of an involuntary bankruptcy petition.  The Court did not, however, opine on whether section 303(i) preempts state law claims brought by debtors. Read More ›

Insider’s Scoop: Judge Sontchi’s Decision to Confirm Horsehead’s Plan Was One of His Honor’s Most Difficult and Closest Calls in Ten Years on the Bench

In re Horsehead Holding Corp., No. 16-10287 (CSS) (Bankr. D. Del. Sept. 2, 2016) [Transcript Ruling]

Following a three day confirmation trial, which attracted scores of shareholders and running commentary via live tweets from the courtroom, Judge Sontchi confirmed the second amended plan of reorganization (the “Plan”) proposed by Horsehead Holding Corp. and its affiliated debtors (“Horsehead”) over the objection of the official committee of equity holders (the “Equity Committee”), holding that the Plan was proposed in good faith and satisfied the absolute priority rule.  His Honor described the decision as one of the most difficult and closest calls that he has had to make during his time on the bench. Read More ›

Delaware Bankruptcy Court Holds Section 546(e) Safe Harbor Does Not Bar a Litigation Trust, as a Creditor-Assignee, From Asserting State Law Constructive Fraudulent Transfer Claims

PAH Litig. Trust v. Water Street Healthcare Partners, L.P. (In re Physiotherapy Holdings, Inc.), No. 15-51238 (KG), 2016 WL 3611831 (Bankr. D. Del. June 20, 2016)

In rendering this Opinion and permitting a post-confirmation trust to pursue state law constructive fraudulent transfer claims against two former shareholders of debtor Physiotherapy Holdings, Inc. (“Physiotherapy”), the Honorable Kevin Gross of the Delaware Bankruptcy Court eschewed the recent holding of the Court of Appeals for the Second Circuit that section 546(e) of the Bankruptcy Code preempts not only state law fraudulent transfer claims brought by trustees in bankruptcy, but also those brought by creditors. Read More ›

Delaware District Court’s Amended Local Rules Become Effective August 1, 2016

On August 1, 2016, the newly amended Local Rules of Civil Practice and Procedure of the United States District Court for the District of Delaware will go into effect.  Of particular importance to bankruptcy practitioners, the Delaware District Court has made it clear through the local rule amendments that bankruptcy appeals are not subject to Local Rules 7.1.2 (setting forth, among other things, the timetable for motion practice), 7.1.3 (prescribing the form and contents of briefing and appendices filed with the Delaware District Court), 7.1.4 (governing oral argument), and 7.1.5 (governing reargument requests). Read More ›

Unsecured Creditor Not Entitled to Postpetition Attorney’s Fees Provided For Under Enforceable Prepetition Contract

In re Tribune Media Co., No. 08-13141 (KJC), 2015 WL 7307305 (Bankr. D. Del. Nov. 19, 2015)

This Memorandum from the Honorable Kevin J. Carey of the Delaware Bankruptcy Court arose from a dispute over a $30 million unsecured claim for postpetition attorney’s fees and costs (the “Fee Claim”) submitted by an indenture trustee (the “Indenture Trustee”) for certain unsecured subordinated securities issued prepetition by debtor Tribune Company.  According to the Indenture Trustee, its Fee Claim should be allowed under the express terms of the governing indenture as well as the United States Supreme Court decision Travelers Casualty & Surety Company of America v. Pacific Gas & Electric Company, 549 U.S. 443, 452 (2007) (holding that “claims enforceable under applicable state law will be allowed in bankruptcy unless they are expressly disallowed”).  In tackling whether the Fee Claim should be allowed, the Bankruptcy Court acknowledged that the issue presented remains undecided by the Third Circuit Court of Appeals and is one over which courts “have long been divided”.  Op. at *5. Read More ›