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Financial Restructuring and Bankruptcy Financial Restructuring and Bankruptcy In PC P.R., LLC v. Empresas Martínez Valentín Corporation (In re: Empresas Practice Areas Martínez Valentín Corporation), the United States Court of Appeals for the Financial Restructuring and Bankruptcy First Circuit addressed whether a creditor’s appeal from a merits ruling by the bankruptcy court in an adversary proceeding was timely when the creditor only appealed after the bankruptcy court decided a long-pending motion for attorney’s fees and costs. The court dismissed the appeal because the time limit in which the appeal had to be made under Fed. R. App. P. 4 and Fed. R. Bankr. P. 8002(a)(1) starts running even if the lower court still has before it a request for attorney's fees or costs. (January 28, 2020) In In re: Financial Oversight & Management Board, the United States Court of Appeals for the First Circuit addressed whether bondholders had a valid claim on the assets of Puerto Rico’s public employee pension system. The court found that pension contributions are not a fee and that Puerto Rico's Employees Retirement System did not have a pre-bankruptcy right to them, and therefore post-bankruptcy contributions are shielded from bondholder claims. (January 30, 2020) In Ritzen Group, Inc. v. Jackson Masonry, LLC, the United States Supreme Court addressed the finality of a bankruptcy court order denying relief from an automatic stay on a creditor’s separate debt-collection case. The state court debt-collection litigation was put on hold by 11 U.S.C. §362(a), which provides that filing a bankruptcy petition automatically stays creditors’ debt-collection efforts outside the umbrella of the bankruptcy case. Reasoning that the automatic stay presents a discrete dispute qualifying as an independent “proceeding” under 28 U.S.C. §158(a), the Court held that a bankruptcy court’s order unreservedly denying relief from the automatic stay constitutes a final, immediately appealable order. (January 14, 2020) In HomeBanc Mortgage v. Bear Stearns, the United States Court of Appeals for the Third Circuit addressed the permissibility of a non- breaching party’s liquidation of defaulted mortgage-backed securities subject to repurchase agreements where the breaching party had declared bankruptcy. The court held that the liquidation was exempt from the automatic bankruptcy stay because the non-breaching party had not sought any legal claim for damages and had no excess proceeds from the liquidation. The court upheld the bankruptcy court’s finding that the non- breaching party acted in good faith in its post-default valuation of the securities through an auction. (December 24, 2019) WHITEANDWILLIAMS.COM Financial Restructuring and Bankruptcy | Continued In In re Tribune Company Fraudulent Conveyance Litigation, the United States Court of Appeals for the Second Circuit addressed whether a safe harbor provision codified in the Bankruptcy Code preempted creditors’ claims for constructive fraudulent transfer against former stockholders who had their shares purchased by the debtor in a pre-bankruptcy leveraged buyout. The court found that the safe harbor provision preempted the fraudulent transfer claims because the stock sale was made by a financial institution and concerned securities, namely the stocks. (December 19, 2019) In In re: Joy Denby-Peterson, the Third Circuit Court of Appeals addressed whether, upon notice of the debtor’s bankruptcy, a secured creditor’s failure to return collateral that was repossessed pre-bankruptcy petition is a violation of the automatic stay. The court held a secured creditor does not have an affirmative obligation under the automatic stay to return a debtor’s collateral to the bankruptcy estate immediately upon notice of the debtor’s bankruptcy because the failure does not constitute an act to exercise control over the property. (October 28, 2019) In Darr v. Dos Santos (In re TelexFree, LLC), the United States Court of Appeals for the First Circuit considered whether, in a bankruptcy involving a Ponzi scheme wherein some subscribers directly paid their membership fees and others paid it to the member who recruited them, the debtor had a property interest in the payments made by the new members to existing members. The court found that a property interest did exist because the membership fees were functionally equivalent to the fees paid directly to the debtor. (October 29, 2019) In Hackler v. Arianna Holdings Company, LLC, the United States Court of Appeals for the Third Circuit found that the transfer of real estate title under New Jersey’s tax foreclosure procedures may be voided as “preferential” under § 547(b) of the United States Bankruptcy Code. The court found the transfer was “preferential” as it was made for the benefit of the creditor defendant for an antecedent debt, while the plaintiff’s debtors were insolvent and within 90 days of their bankruptcy, and allowed the defendant debt to recover more funds than it would have under a Chapter 7 proceeding. (September 12, 2019) In Wolfington v. Reconstructive Orthopaedic Associates II, P.C., the United States Court of Appeals for the Third Circuit addressed the requirements of the “written agreement” as delineated in Regulation Z, the implementing regulation of the Truth in Lending Act, 15 U.S.C. §1 et seq. The court found that Regulation Z does not necessarily require a written agreement meet all the formalities of a contractual agreement, but requires, at least, that the agreement be executed or signed by the customer. (August 20, 2019) In Taggart v. Lorenzen, Executor of the Estate of Brown, the United States Supreme Court held that a creditor may be held in civil contempt for violating a bankruptcy court’s discharge order if there is “no fair ground of doubt” as to whether the order barred the creditor’s conduct. This case centered on arguments over whether the debtor “returned to the fray” of pre-petition litigation which would thereby make him liable for attorneys’ fees. In the alternative, if the debtor had not “returned to the fray,” the creditor would be in violation of the bankruptcy court’s discharge order for attempting to collect such fees. The Court found that civil contempt sanctions are appropriate when there is “no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.” (June 3, 2019) WHITEANDWILLIAMS.COM Financial Restructuring and Bankruptcy | Continued In Mission Product Holdings, Inc. v. Tempnology, LLC, the United States Supreme Court addressed whether a bankrupt trademark licensor’s rejection of a trademark license terminates the licensee’s right to use the licensed mark. The Court held that a debtor’s rejection of an executory contract under the Bankruptcy Code has the same effect as a breach of that contract outside bankruptcy, and that such an act cannot rescind rights that the contract previously granted. (May 20, 2019) In Obduskey v. McCarthy & Holthus LLP, the United States Supreme Court addressed the meaning of a “debt collector” under the Fair Debt Collection Practices Act (FDCPA). The Court held that a business engaged in only a nonjudicial foreclosure proceeding is not a debt collector within the meaning of the FDCPA, except for the limited purpose of enforcing security interests as set forth in the FDCPA. (March 20, 2019) In Shearer v. Titus, the United States Court of Appeals for the Third Circuit addressed how courts should measure liability when faced with an account owned by spouses as tenants by the entireties that contain deposits consisting of both fraudulent wages and non-fraudulent other sources, and from which cash is spent on both permissible household necessities and impermissible expenditures. The court held that when an insolvent spouse’s wages are deposited into the entireties account, both spouses are fraudulent transferees. The court additionally determined that courts should generally presume that wage deposits were spent on non-necessary expenditures in proportion to the overall share of wages in the account as a whole instead of requiring a trustee to trace how wage deposits were expended. (February 20, 2019) In Vargas v. Deutsche Bank National Trust Company, the Supreme Court of New York, Appellate Division, 1st Department, considered whether there was any basis for finding that discontinuance of the prior foreclosure action constituted an affirmative act by the defendant to revoke the acceleration of the plaintiff’s debt. Here, the court concluded that in view of the defendant’s continued efforts to accelerate the plaintiff’s debt, including sending letters attempting to collect from the plaintiff the accelerated debt and stating that any payments made “will not be deemed a waiver of the acceleration of the plaintiff loan,” there was no basis to find that the defendant revoked the acceleration of the plaintiff’s debt. (January 31, 2019) In Schultz, Jr. v. Midland Credit Management, Inc. the United States Court of Appeals for the Third Circuit considered whether a statement in a debt collection letter—falsely indicating that debt forgiveness under $600 could be reported to the Internal Revenue Service (IRS)—violated the broad-sweeping Fair Debt Collection Practices Act (FDCPA). The FDCPA’s § 1692e states that “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” Under the low “least sophisticated debtor” objective standard, the court determined that the statement could present a false or misleading view of the law and be designed to scare or intimidate debtors to pay outstanding debts (even as the creditor knew that a forgiven debt under $600 could not be reported to the IRS). (September 24, 2018) In In Re Tribune Media Company, the United States Court of Appeals for the Third Circuit addressed whether the Bankruptcy Court has statutory and constitutional authority to decide a litigant’s employment discrimination claims.
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