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Showing 13 posts recarding Judge Mary F. Walrath.

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 ›

Satisfaction of a Prepetition Loan by a DIP Loan Does Not Extinguish Vendor’s Reclamation Rights Under Section 546(c)

In re Reichhold Holdings US, Inc., No. 14-12237 (MFW), 2016 WL 4479286 (Bankr. D. Del. Aug. 24, 2016)

In this Memorandum Opinion, the Court overruled a limited reclamation claims objection asserted by a liquidating trustee, who argued that a creditor’s reclamation rights were cut-off by a postpetition loan that refinanced a prior perfected prepetition loan.  In doing so, the Court sided with the Sixth Circuit Court of Appeals and rejected a line of cases from the Bankruptcy Court for the Southern District of New York. Read More ›

Stock-Based Compensation “Fits Squarely Within” the Bankruptcy Code’s Definition of “Equity Security”

GSE Envtl., Inc. v. Sorrentino (In re GSE Envtl., Inc.), No. 16-50377 (MFW), 2016 WL 3963978 (Bankr. D. Del. July 18, 2016)

In this Opinion, Judge Walrath ruled that stock-based compensation owed to the former chief executive officer (the “Defendant”) of GSE Environmental, Inc. and GSE Holding, Inc. (the “Debtors”) under his employment agreement constitutes an “equity security”, as that term is defined under the Bankruptcy Code.  See Op. at *5; 11 U.S.C. § 101(16). Read More ›

Practice Point: Substance Matters – Recent Rulings Confirm and Clarify Pleading Standards under Section 547

THQ, Inc. v. Starcom Worldwide, Inc. (In re THQ, Inc.), No. 14-51079 (MFW), 2016 WL 1599798 (Bankr. D. Del. Apr. 18, 2016).

Giuliano v. Haskett, (In re MCG Ltd. P’ship), No. 14-50536 (CSS), 545 B.R. 74 (Bankr. D. Del. Jan. 28, 2016).

Two recent rulings by the Delaware Bankruptcy Court confirm the well-known pleading standards that a preference complaint must do more than “merely parrot[] the language of section 547” to survive a motion to dismiss.  The cases also clarify the type of particularized facts that must be alleged to state a claim under section 547. Read More ›

Fee Defense Provisions Held Impermissible for Estate Professionals Under Section 328; Argument for Contract Based Exception to ASARCO Rejected

In re Boomerang Tube, Inc.,Case No. 15-11247 (MFW), 2016 WL 385933 (Bankr. D. Del. Jan. 29, 2016)

In this case, the Delaware Bankruptcy Court addressed a question remaining in the wake of the Supreme Court’s ASARCO opinion:  Although fees incurred by debtors’ attorneys in defending challenges to their fees are generally not permitted under section 330 of the Bankruptcy Code, may such fees be approved if they are provided in the attorneys’ retention application under section 328(a)?  See Baker Botts LLP v. ASARCO LLC, 135 S.Ct. 2158 (2015).  In a succinct Opinion, Judge Mary F. Walrath ruled that they may not.  After ASARCO, Her Honor held no “contract exception” remains for fee defense provisions under section 328 even if such provisions would have previously been permitted under Third Circuit precedent. Read More ›

No “Related to” Jurisdiction Despite Stipulation and Bankruptcy Court Order Governing the Non-Debtor Parties’ Rights and Responsibilities

Seagate Tech. (US) Holdings, Inc. v. Global Kato HG, LLC (In re Solyndra, LLC), 2015 WL 6125246 (MFW) (Bankr. D. Del. Oct. 16, 2015).

In this Memorandum Opinion, Judge Mary Walrath of Delaware’s Bankruptcy Court granted a motion to dismiss an adversary proceeding between two non-debtor parties based on lack of subject matter jurisdiction, and also remanded similar litigation between the parties back to California state court.  Among other things, the Court concluded that an order issued by the Bankruptcy Court approving a stipulation did not confer subject matter jurisdiction over a proceeding between two non-debtors alleging state law claims, where a state court could easily interpret and give effect to it. Read More ›

Court Addresses Standards for Insolvency, Piercing the Corporate Veil Under Delaware Law, Avoiding Alleged Fraudulent Transfers, and More

Burtch v. Opus, LLC (In re Opus East, LLC), Adv. Proc. No. 11-52423 (MFW), 2015 WL 1404959 (Bankr. D. Del. March 23, 2015)

In this Opinion, Judge Mary F. Walrath addressed 67 counts brought by a chapter 7 trustee (the “Trustee”) against former fiduciaries of the debtor and related business entities.  The Trustee alleged theories of piercing the corporate veil, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, successor liability, avoidance of fraudulent and preferential transfers, unjust enrichment, disallowance and equitable subordination of claims, revocation of certificate of dissolution, imposition of constructive trust, tortious interference with contract, conversion and conspiracy to commit conversion.  After trial on the merits, Judge Walrath granted partial judgment and pre-judgment interest in favor of the Trustee on certain fraudulent transfer and preferential transfer counts against two defendants, and granted related relief to allow the Trustee to revoke a certificate of dissolution against one of the affected defendants, and to disallow the claims of both affected defendants pursuant to section 502(d) and (j) of the Bankruptcy Code pending return of the avoided transfers. Judge Walrath granted judgment to defendants on the remaining counts. Read More ›

Amid Unforeseeable Failed Sale, Debtor Gave Employees Enough WARNing For Layoffs

Varela v. Eclipse Aviation Corp. (In re AE Liquidation, Inc.), Adv. No. 09-50265 (MFW), 2014 WL 6460805 (Bankr. D. Del. Nov. 18, 2014)

Eclipse Aviation Corporation (“Eclipse”) engineered, manufactured, and sold jet aircrafts.  In 2008, Eclipse defaulted on its secured notes.  Its board of directors contemplated liquidation, but eventually decided on a sale as a going-concern through Bankruptcy Code section 363 to Eclipse’s largest shareholder, European Technology and Investment Research Center (“ETIRC”).  ETIRC funded the Eclipse bankruptcy with $20 million in debtor-in-possession financing.  ETIRC later emerged as the stalking horse bidder, financed through a Russian state-owned bank.  On January 23, 2009, the Court entered an order approving the sale to ETIRC.  However, despite repeated assurances from ETIRC, the Russian financing never came through and the sale did not close.  On February 24, 2009, upon the filing of a motion by the senior secured creditors, the Court entered an order converting the case to chapter 7.  Eclipse contacted its employees that same day and gave them the bad news.  Thereafter, former employees (the “Plaintiffs”) filed a class action lawsuit alleging a violation of the federal Worker Adjustment and Retraining Notification Act (the “WARN Act”).  For general background on the WARN Act as analyzed in another case, click here. Read More ›

Merely Labeling A Claim “Turnover” Under Bankruptcy Code Section 542 Does Not Always Yield A “Core” Claim

IPC Int’l Corp. v. Milwaukee Golf Shopping Center LLC (In re IPC Int’l Corp.), Adv. No. 14-50333 (MFW), 2014 WL 5544692 (Bankr. D. Del. Nov. 3, 2014)

In this adversary proceeding, Judge Walrath granted a motion to transfer venue, holding that all alleged claims (including a claim for turnover under Bankruptcy Code section 542) were non-core and that the interests of justice and convenience of the parties weighed in favor of transfer. Read More ›

Bankruptcy Court Allows Sale Free and Clear of Successor Liability Claims

In re Ormet Corp., No. 13-10334 (MFW), 2014 WL 3542133 (Bankr. D. Del. July 17, 2014)

In this Memorandum Opinion, Judge Walrath overruled an objection to a sale of the debtors’ assets free and clear of the objector’s successor liability claim, and granted a stay waiver under Bankruptcy Rules 6004(h) and 6006(d) to allow the sale to close immediately.  In reaching its conclusion, the Court emphasized the integral nature of Bankruptcy Code section 363(f) to the bankruptcy process, enabling debtors to sell assets free and clear of any claims—something not available outside of the bankruptcy context. Read More ›