1ST QTR 2007 HIGHLIGHTS
(click on link to view case summary)
In Chapter 11 cases, a bankruptcy court must consider whether a pre-plan settlement’s distribution structure complies with the Bankruptcy Code’s priority scheme in determining whether a pre-plan settlement is fair and equitable.
Time for filing brief on appeal is not triggered until the appeal has been docketed AND notice has been sent to the parties.
Nonparty to an action can have standing to appeal if it can establish that it has an interest that is plausibly affected by the judgment.
Collateral Estoppel can apply in nondischargeability action even when the debtor did not answer or actually appear in the state court action as long as the debtor had a full and fair opportunity to litigate in state court.
A claim against a Chapter 11 debtor by a former executive employee based on the debtor’s failure to issue common stock to the executive in exchange for his stock in another company pursuant to a termination agreement must be subordinated under Section 510(b) of the Bankruptcy Code.
Debtor and Union’s proposed settlement that guaranteed a 20% recovery to retirees did not violate Section 1114 of the Bankruptcy Code.
Effectiveness of Confirmation Order Stayed Pending Appeal.
Under New York law, a Court must dismiss a trustee’s claim against a third-party professional when the debtor itself participated in the alleged wrongdoing.
IRS’s failure to timely respond to debtor’s Section 505(b) of the Bankruptcy Code request results in discharge of tax liability.
Application to file late proof of claim denied when creditor could not establish excusable neglect.
Local Ordinance that restricted assignment of franchise agreements did not qualify as “applicable law” that would prevent assignment under Section 365(e) of the Bankruptcy Code.
Sub-Debt was properly cancelled under Plan of Reorganization because holders never paid cash or gave consideration for such Sub-Debt and such Sub-Debt was never validly issued.
Debtor’s former CEO held in civil contempt for violating court order prohibiting transfer of estate property.
Employee claims were released when employees signed general releases in exchange for severance payments.
Conversion of an involuntary Chapter 7 case to voluntary Chapter 11 constitutes an order for relief.
Trustee’s motion for summary judgment on preference claims granted.
Debtor met all of its obligations under Section 1113 of the Bankruptcy Code regarding negotiations with union sufficient to authorize rejection of collective bargaining agreement.
Government’s setoff rights were subject to the same automatic stay provisions as other creditors.
Bankruptcy Court denies motion to transfer venue.
Creditor’s sole recovery is pursuant to Plan of Reorganization and therefore is prohibited from taking any action to collect amounts owed by a debtor prior to effective date of Plan of Reorganization.
Court approved long-term incentive plan as complying with Section 503(c of the Bankruptcy Code).
Cash Collateral Order acknowledging validity of secured creditor’s liens did not prevent trustee’s claims against assignor of secured creditor.
United States Court of Appeals for the Second Circuit
In Chapter 11 cases, a bankruptcy court must consider whether a pre-plan settlement’s distribution structure complies with the Bankruptcy Code’s priority scheme in determining whether a pre-plan settlement is fair and equitable.
Motorola, Inc. v. Official Committee of Unsecured Creditors and JPMorgan Chase Bank (In re Iridium Operating LLC), 2007 WL 642590 (2d Cir. Mar. 5, 2007).
In Iridium the unsecured creditors’ committee and lenders sought approval of pre-plan settlement that would have paid the lenders on account of their liens and would leave the balance of proceeds to fund a trust that would be charged with bringing an action against the debtor’s former parent company. The parent company, which contended it was a priority creditor, objected on the grounds that the proposed settlement violated the absolute priority rule by providing a return to creditors junior to it without first satisfying its priority claim. The Second Circuit concluded that the proposed settlement apparently violated the absolute priority. The Court went on to hold that the settlement proponents failed to justify that aspect of the settlement providing for distribution of any balance left in a litigation trust to junior creditors. The case was remanded for the bankruptcy court to address whether there was a justification for the proposed distribution scheme.
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Time for filing brief on appeal is not triggered until the appeal has been docketed AND notice has been sent to the parties.
Glatzer v. Enron Corp. (In re Enron Corp.), 475 F.3d 131 (2d Cir. 2007).
This case was an appeal from an order of the Southern District of New York dismissing a bankruptcy appeal for failure to comply with Rule 8009 of the Federal Rules of Bankruptcy Procedure. The District Court determined that the docketing of a bankruptcy appeal by the District Court clerk alone was sufficient to trigger Bankruptcy Rule 8009’s fifteen-day time limit for the filing of the appellant’s brief. The Second Circuit disagreed and joined with the Third and Fourth Circuits in holding that the fifteen-day limit is only triggered once the appeal is docketed and notice that the appeal has been docketed is sent to the parties.
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Nonparty to an action can have standing to appeal if it can establish that it has an interest that is plausibly affected by the judgment.
Official Committee of Unsecured Creditors of Worldcom v. SEC, 467 F.3d 73 (2d Cir. 2006).
The Second Circuit held that the Official Committee of Unsecured Creditors of WorldCom Inc. had nonparty standing to appeal a lower court’s order approving a plan developed by the SEC for distribution of civil penalties, but it rejected the Committee’s claim that the lower court abused its discretion in approving that plan.
The SEC argued that the Committee did not have standing because it was not a party to the civil action and did not meet the requisites to appeal as a nonparty. The Second Circuit noted that there are two exceptions to the general rule prohibiting nonparty appeals: a nonparty may appeal a judgment by which it is bound; and a nonparty may appeal if it has an “interest affected by the . . . judgment.” The Second Circuit stated that it is sufficient that a nonparty prove it has an interest that has been plausibly affected by the judgment. The SEC argued that the Committee could not possibly have been affected by the judgment, because even were it successful on appeal, such success would only result in a reapportionment of a fixed amount of funds among the Committee’s constituents. However, citing the complexity of the SEC plan and the limited record before it, the Second Circuit stated it was unable to determine how a successful Committee appeal would affect distribution. Thus, the Second Circuit could not conclude that the Committee’s asserted interest was absolutely not affected. Accordingly, the Second Circuit held that the Committee had standing to appeal as a nonparty.
With regard to the Committee’s challenges to the SEC’s proposed distribution under the Fair Fund provisions of Sarbanes-Oxley, the Second Circuit reviewed the historical development of SEC disgorgement actions. The Second Circuit then noted that in reviewing decisions of the SEC regarding distribution of funds, the Second Circuit has typically deferred to the SEC’s experience and expertise. It also concluded that Sarbanes-Oxley did not limit the SEC’s role in distributing funds to injured investors, but actually expanded it. Thus, the Second Circuit held that the “fair and reasonable” standard that is applied to review the SEC’s distribution of disgorged profits also applies to the SEC’s distribution of civil penalties under Sarbanes-Oxley’s Fair Fund provisions. Accordingly, the Second Circuit’s review of the District Court’s decision was limited to whether the District Court had abused its discretion.
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Collateral Estoppel can apply in nondischargeability action even when the debtor did not answer or actually appear in the state court action as long as the debtor had a full and fair opportunity to litigate in state court.
Evans v. Ottimo, 469 F.3d 278 (2d Cir. 2006).
The Second Circuit held that a pre-petition state court default judgment that expressly found that a debtor had engaged in fraud bars relitigation in bankruptcy court of the fraudulent character of the debt. According to the Second Circuit, because the default judgment resolved all issues necessary to establish nondischargeability under Section 523(a)(2) of the Bankruptcy Code, Collateral Estoppel applies based on the issue in the state court being identical to the issue in the Bankruptcy Court. Based on Collateral Estoppel, the Second Circuit held that the debtor had a full and fair opportunity to litigate the issue in state court even though the debtor did not answer the complaint or actually appear in the state court proceeding.
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A claim against a Chapter 11 debtor by a former executive employee based on the debtor’s failure to issue common stock to the executive in exchange for his stock in another company pursuant to a termination agreement must be subordinated under Section 510(b) of the Bankruptcy Code.
Rombro v. Dufrayne (In re Med Diversified, Inc.), 461 F.3d 251 (2d Cir. 2006).
In a matter of first impression, the Second Circuit considered the scope of Section 510(b) of the Bankruptcy Code and interpreted Section 510(b) of the Bankruptcy Code broadly to require subordination of the former executive employee’s claim. Affirming the courts below, the Second Circuit concluded that the former executive’s claim “arose from” the purchase of the debtor’s stock within the meaning of Section 510(b) of the Bankruptcy Code. Although the claimant never actually received any shares in the debtor, his claim was properly subordinated because the claimant bargained to become a shareholder, not a creditor. According to the Second Circuit, Congress intended Section 510(b) of the Bankruptcy Code to allocate to shareholders the risk of bankruptcy because the shareholders receive the benefits of a profitable entity.
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United States District Court for the Southern District of New York
Debtor and Union’s proposed settlement that guaranteed a 20% recovery to retirees did not violate Section 1114 of the Bankruptcy Code.
Official Committee of Unsecured Creditors of Tower Automotive, et. al. v. Tower Automotive, Inc. (In re Tower Automotive, Inc.), 2006 WL 3751360 (S.D.N.Y. Oct. 15, 2006).
The Committee of Unsecured Creditors appealed from a decision of the Bankruptcy Court that approved proposed settlements of the debtor with the unions representing its employees and retirees and with the Committee of Retired Employees. The District Court for the Southern District of New York held that the settlements’ guarantee of 20 percent recovery on the debtor’s retirees’ unsecured claims did not impermissibly favor the retirees over other unsecured creditors. According to the District Court, the 20 percent guaranteed recovery is not itself an unsecured claim. The retirees have an unsecured claim for “lost benefits.” The 20 percent guaranteed recovery by definition cannot be considered a lost benefit. It is part of the retirees’ modified benefits. While this guaranteed recovery is tied to, or more accurately, requires reference to, the retiree’s unsecured claim recovery, it does not itself constitute an unsecured claim.
Thus, while the settlements do shift some of the risk of the debtor’s future economic under-performance away from the retirees to the possible detriment of unsecured creditors generally, this shift is permissible under Section 1114 of the Bankruptcy Code, which specifically provides retirees with rights not afforded general unsecured creditors. The presumption under Section 1114 of the Bankruptcy Code is that retiree benefits will continue to be paid in full, unless modified by agreement or court order. Therefore, the District Court held, the guaranteed 20 percent recovery, although due post-confirmation, was required to be made as part of the pre-confirmation settlement. It does not guarantee the value of the retirees’ unsecured claims; rather, it guarantees the minimum value of the modifications to the retirees’ benefits.
Furthermore, because the settlements do not dispose of all of the debtor’s assets, nor do they dispose of or release the claims of general unsecured creditors, or restrict their rights to vote on the eventual plan of reorganization, the settlements did not constitute a sub rosa plan of reorganization. Thus, the District Court held, the Bankruptcy Court did not err in approving the settlements of the debtor’s retirees’ unsecured claims.
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Effectiveness of Confirmation Order Stayed Pending Appeal.
In re Adelphia Communications Corp., 2007 WL 186796 (S.D.N.Y. Jan. 24, 2007).
On January 24, 2007, District Court Judge Scheindlin halted Adelphia’s confirmation hopes by granting the ACC Bondholder Group’s motion to stay the effectiveness of the confirmation order. The District Court’s opinion cited three main reasons for granting the stay. First, the District Court was concerned about fundamental due process. Absent a stay, the District Court held, the Bondholder’s will never be able to have meaningful appellate review of the rulings of the Bankruptcy Court, a non-Article III court, and in any event, a lower court. Second, Judge Scheindlin addressed the likelihood of success on the merits and noted that a substantial issue existed as to whether the approved settlement was fundamentally flawed, both procedurally and substantively.
With respect to the fundamental flaws, the District Court noted that the ACC Bondholder Group never approved the settlement, and because the procedural ground rules established in the negotiations leading to the Plan forbade the debtor or the Creditors’ Committee from attempting to cram a settlement upon the Bondholders, it was impossible to say that a settlement had been reached absent the Bondholder’s consent. Furthermore, since no true settlement existed, there was technically nothing for the Bankruptcy Court to approve under Bankruptcy Rule 9019. Next, Judge Scheindlin also identified serious flaws in the Plan provisions that provided for the substantive consolidation of various debtor entities, especially since the Bankruptcy Court found that substantive consolidation would be a highly unlikely result under the Second Circuit’s rigorous standards for permitting substantive consolidation of affiliated debtors. Judge Scheindlin also questioned whether the plan unfairly discriminated against the non-accepting ACC Bondholder Group. Finally, Judge Scheindlin challenged the chapter 7 liquidation analysis of the debtor’s expert, suggesting that it was flawed. Judge Scheindlin also questioned Judge Gerber’s exclusion of the testimony and reports of the ACC Bondholders’ experts as to why a chapter 7 trustee would not adopt the settlement reflected in the Plan.
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Under New York law, a Court must dismiss a trustee’s claim against a third-party professional when the debtor itself participated in the alleged wrongdoing.
Food Holdings Ltd. V. Bank of America Corp. (In re Parmalat Securities Litigation), Case No. 04-MD-1653 (S.D.N.Y. Feb. 28, 2007).
Multiple lawsuits were filed after the collapse and scandal regarding Parmalat Finanziaria S.p.A. One such lawsuit claimed that Parmalat and certain other defendants created several special purpose vehicles as a part of a fraudulent scheme to inflate Parmalat’s balance sheet. Included among the defendants were Parmalat’s auditors. The district court found that under the Second Circuit’s opinion in Shearson Lehman Hutton, Inc. v. Wagoner, a trustee does not have standing to sue third-party professionals for alleged wrongdoing when the company itself participated in the alleged wrongdoing. Accordingly, in Parmalat, the District Court determined that Parmalat had participated in the alleged wrongdoing committed by its auditors and therefore the claims against the companies’ auditors were barred.
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United States Bankruptcy Court for the Eastern District
of New York
IRS’s failure to timely respond to debtor’s Section 505(b) of the Bankruptcy Code request results in discharge of tax liability.
In re PT-1 Communications, Inc. et al, 2006 WL 3541733 (Bankr. E.D.N.Y. Dec. 7, 2006) (Craig, J.).
The trustee of a liquidating trust established under a debtor’s confirmed Chapter 11 plan moved to expunge a proof of claim filed by the Internal Revenue Service (“IRS”). The IRS’s proof of claim sought taxes, interest and penalties for the period of March 9, 2001 through December 31, 2002 and for the tax year ending December 31, 2002. The trustee’s motion was granted as it related to the 2002 tax year. The Bankruptcy Court reserved decision with respect to the 2001 period. The Bankruptcy Court found that the authority granted to the trustee to make a request for a determination that any unpaid liability of the estate for taxes incurred during the administration of the bankruptcy case belongs to Chapter 11 debtor in possession. Furthermore, the Bankruptcy Court found that the debtor in possession’s request for determination of liability of the estate for federal income taxes incurred during the administration of the bankruptcy case was properly sent, along with income tax returns for that same tax year, to the appropriate IRS processing center; and as a result of the IRS’s failure to timely respond to the debtor’s request, when the 60-day statutory period under Section 505(b) of the Bankruptcy Code expired, the debtors were discharged of tax liability for the 2002 tax year, and such discharge applied to the trustee.
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United States Bankruptcy Court for the Southern District
of New York
Application to file late proof of claim denied when creditor could not establish excusable neglect.
In re Musicland Holding Corp., 356 B.R. 603 (Bankr. S.D.N.Y. 2006) (Bernstein, J.).
Memorandum Decision Granting Reconsideration, and Denying Leave to File Late Proof of Claim. The Bankruptcy Court granted the motion for reconsideration, but ultimately the reconsideration resulted in the same holding as the original ruling, which was to deny the applicant leave to file a late proof of claim. According to the Bankruptcy Court, determination of whether to allow a late proof of claim is an equitable one that takes account of all of the surrounding circumstances, including the Pioneer factors of danger of prejudice to the debtor, length of the creditor’s delay and its potential impact on the judicial proceedings, as well as the reason for delay and whether it was within reasonable control of the creditor, and whether the creditor acted in good faith. Here, the Bankruptcy Court held the facts did not support a finding of “excusable neglect,” as required to permit the filing of the untimely proof of claim. Specifically, excusable neglect did not exist due to inattention and lack of supervision by the creditor’s attorney in failing to ensure that the proof of claim, which was timely prepared well in advance of the claims bar date, was actually filed by members of the attorney’s staff, by either not including an acknowledgement of filing with the proof of claim or not checking to see whether that acknowledgement had been returned, in making no follow-up calls to the court, and in not using the court’s electronic case filing system to confirm that the proof of claim had been filed.
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Local Ordinance that restricted assignment of franchise agreements did not qualify as “applicable law” that would prevent assignment under Section 365(e) of the Bankruptcy Code.
In re Adelphia Communications Corp., 2007 WL 64128 (Bankr. S.D.N.Y. Jan. 11, 2007) (Gerber, J.).
Local franchising authorities objected to the assumption and assignment of the debtor’s franchise agreements based on local ordinances that restricted assignment of such contracts. The Bankruptcy Court held that whatever right the local franchising authorities had to object to the assignment of the debtor’s franchise agreements had no effect on whether the executory contracts could be assumed in bankruptcy. Furthermore, the Bankruptcy Court considered whether the ordinances at issue were enacted under state statutes authorizing local legislative bodies to enact ordinances for regulation of cable service providers, qualified as “applicable laws,” of the kind which, to the extent that they restricted the debtor’s ability to assign its franchise agreements, were generally enforceable against a debtor in possession. In deciding whether local ordinances prohibiting the debtor from assigning its franchise agreements qualified as “applicable law,” capable of being enforced against the Chapter 11 debtor in possession, the Bankruptcy Court considered the following factors: (1) whether state had authorized counties or municipalities to enact legislation in the area; (2) whether the ordinance was enacted for protection of the public or for other traditional police power purposes, as opposed to the locality’s own economic benefit; (3) whether the ordinance was of general application and not linked to particular contractual relationship; and (4) whether the purpose or effect of the ordinance was more than merely to adjust economic rights as between local franchising authority and cable operator, or to otherwise confer an economic advantage on the former. Here, the Bankruptcy Court held, the ordinance which, while worded in general terms, indicated on its cover page that it related to provision of cable television service to city residents only by debtor, a bankrupt cable operator, was not law of general application and did not qualify as “applicable law,” of kind which could be enforced against debtor in possession to prevent debtor in possession from assigning to third-party purchaser its franchise agreement with city.
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Sub-Debt was properly cancelled under Plan of Reorganization because holders never paid cash or gave consideration for such Sub-Debt and such Sub-Debt was never validly issued.
In re Adelphia Communications Corp., Case No. 02-41729 (Bankr. S.D.N.Y. Jan. 03, 2007) (Gerber, J.).
The Bankruptcy Court considered the validity of certain Sub-Debt under Adelphia’s Plan of Reorganization. The Plan cancelled $567 Million of Sub-Debt purportedly purchased by the Rigases and forfeited to the Government under the debtor’s court approved settlement with the Department of Justice. The Sub-Debt class in the Plan covers bonafide third party holders of Sub-Debt, but specifically excludes the Rigas Sub-Debt. The Bankruptcy Court found that there was no issue of fact because the Rigases never paid cash or gave any other consideration for the Sub-Debt. The Bankruptcy Court ruled that the Rigas Sub-Debt was never validly issued, and was not (nor could be) the subject of an allowed claim. The Bankruptcy Court further found that the Rigas Sub-Debt was not subject to subordination provisions that would make it subject to turnover to more senior debt. Thus, the Rigas Sub-Debt was properly cancelled under the Plan, and was not subject to a turnover to holders of Senior Notes.
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Debtor’s former CEO held in civil contempt for violating court order prohibiting transfer of estate property.
In re Chief Executive Officers Clubs, Inc., Case No. 02-14829 (Bankr. S.D.N.Y. Jan. 31, 2007) (Glenn, J.).
Written Opinion Regarding Trustee’s Motion Seeking to Hold Joseph Mancuso in Civil Contempt. The trustee argued that Mr. Mancuso, the former Chief Executive Officer of the debtor, had violated an order of the Bankruptcy Court which prohibited the transfer of estate property by (1) transferring money from the debtor’s account to an affiliate, (2) signing and endorsing a check made payable to cash by Mr. Mancuso, (3) signing a check made payable to Mr. Mancuso’s daughter with the legend “repay loan” handwritten on the check and (4) signing a check payable to a bank. (The trustee also raised two payroll checks for salary to Mr. Mancuso and his wife, but the Bankruptcy Court concluded that those transfers were not properly before the Bankruptcy Court as they were first raised at the contempt hearing.) The Court found that the language of a prior order was clear and unambiguous in prohibiting Mr. Mancuso from transferring or diverting estate property. Additionally, the Bankruptcy Court found that the trustee had established by clear and convincing evidence that Mr. Mancuso had back dated the check to the bank and that when Mr. Mancuso did so he was in violation of the order. Mr. Mancuso was found to not be in violation of the order with respect to the other three transfers because the other two checks were issued prior to the entry of the order and there was no showing that Mr. Mancuso had taken any affirmative action to cause the wire transfer to occur. As such, the Court held that Mr. Mancuso was in civil contempt and ordered Mr. Mancuso to repay the estate the amount of the check to the bank and, if Mr. Mancuso failed to do so, appear back before the Bankruptcy Court to show cause as to why he should not be immediately jailed until he repaid the trustee.
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Employee claims were released when employees signed general releases in exchange for severance payments.
In re Worldcom, Inc., Case No. 02-13533 (Bankr. S.D.N.Y. Jan. 26, 2007) (Gonzalez, J.).
Opinion granting in part and denying in part the debtors’ motion for summary judgment with respect to the 22nd omnibus claim objection. Before the Bankruptcy Court was the debtor’s motion for summary judgment with respect to certain proofs of claim asserted by former employees of the debtors. The debtors argued that these claims were previously released when the employees signed general release agreements in exchange for severance payments, and that they should therefore be disallowed and expunged. The Bankruptcy Court granted the debtors’ motion with respect to all but one of the relevant proofs of claim. When executing his general release agreement one Claimant amended the release to include the following language “Nothing in this agreement shall affect any claims filed with the bankruptcy court.” The Claimant initialed the amendment and returned the amended general release agreement to the debtors. The debtors executed the amended general release agreement, though without likewise initialing the amendment, and during the proceedings claimed that they were unaware of the amendment. As such, the Bankruptcy Court concluded that with respect to that Claimant’s claim, there was no meeting of the minds and no agreement was formed when the general release agreement was executed by both the debtors and the Claimant, thus the Bankruptcy Court rescinded the general release agreement.
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Conversion of an involuntary Chapter 7 case to voluntary Chapter 11 constitutes an order for relief.
In re Source Enterprises, Inc., Case No. 06-11707 (Bankr. S.D.N.Y. Nov. 8, 2006) (Gonzalez, J.).
Opinion regarding the proposed order for relief. The issues before the Bankruptcy Court were (i) whether the filing of an involuntary petition commences a case for purposes of Section 348 of the Bankruptcy Code; (ii) whether the motion to convert an involuntary Chapter 7 case to a voluntary Chapter 11 case is a responsive pleading to the involuntary petition; (iii) whether the conversion of a case from a Chapter 7 to Chapter 11 under Section 348 of the Bankruptcy Code constitutes an order for relief; (iv) whether, absent the entry of a separate order for relief, a decretal paragraph in the Section 348 of the Bankruptcy Code conversion order specifically granting an order for relief is necessary to effectuate an order for relief; and (v) whether the date of the entry of the conversion order under Section 348 of the Bankruptcy Code is the appropriate date of the order for relief, when no prior order for relief was entered in the previous chapter. The Bankruptcy Court found that (i) upon the filing of the involuntary petition, a bankruptcy case was commenced; (ii) a motion to convert an involuntary Chapter 7 case to a voluntary Chapter 11 case was a responsive pleading to the involuntary petition; (iii) the conversion constituted an order for relief under Section 348(a) of the Bankruptcy Code; and (iv) the date of the entry of the conversion order is the date of the order for relief, where no prior order for relief was entered.
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Trustee’s motion for summary judgment on preference claims granted.
Buchwald Capital Advisors LLC v. Metl-Span I, Ltd (In re Buchwald Capital Advisors LLC), Adv. Pro. No. 05-01970 (Bankr. S.D.N.Y. Nov. 22, 2006) (Gropper, J.).
Trustee for the Debtors brought an adversary proceeding against Metl-Span seeking the avoidance and recovery, pursuant to Sections 547-550 of the Bankruptcy Code, of a transfer made by the debtors to MetlSpan. MetlSpan asserted that the following exceptions to a preferential transfer were applicable to the case: (i) contemporaneous transfer for new value under Section 547(c)(1) of the Bankruptcy Code; and (ii) new value to or for the benefit of the debtor under Section 547(c)(4) of the Bankruptcy Code. Additionally, MetlSpan relied, for the first time, on the ordinary course of business exception under Section 547(c)(2) of the Bankruptcy Code in its response to the trustee’s summary judgment papers. The Bankruptcy Court found that with respect to the trustee’s motion, MetlSpan admitted that: (i) the transfer was made to a creditor of the debtor; (ii) the transfer was made on account of an antecedent debt; (iii) plaintiff was entitled to a presumption of insolvency; and (iv) the transfer was made within 90 days of the debtor’s petition date. The Bankruptcy Court found that because MetlSpan’s other defenses were insufficient and the trustee had sufficiently established the elements of its affirmative case under Section 547 of the Bankruptcy Code, the trustee’s motion for summary judgment on its preference claim was granted. Further, the Bankruptcy Court granted the trustee’s request for prejudgment interest to be awarded at the Federal rate from the date of the complaint.
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Debtor met all of its obligations under Section 1113 of the Bankruptcy Code regarding negotiations with union sufficient to authorize rejection of collective bargaining agreement.
In re Delta Air Lines, Inc. Case No. 05-17923 (Bankr. S.D.N.Y. Dec. 21, 2006) (Hardin, J.).
Decision on Motion to reject Comair Pilots’ Collective Bargaining Agreement. The debtor, in an attempt to reduce its pilot costs, had signed letters of agreement with the union. The debtor, however, was unable to expand its business and, as such, pilot costs were scheduled to increase substantially unless a new agreement was reached or the pilot agreement was rejected. The court held that (1) debtor’s proof on the issue of necessity under Section 1113(b)(1)(A) of the Bankruptcy Code was overwhelming; (2) the debtor’s proposal, by asking that the pilots meet their fair and proportional contribution to the debtor’s reorganization, fully met the “fairly and equitably” requirement of Section 1113(b)(1)(A) of the Bankruptcy Code; (3) the debtor had complied with its statutory obligation to “confer in good faith”; (4) the Bankruptcy Court could not conclude that the union had “good cause” to reject the debtor’s proposal; and (5) the balance of the equities required rejection of the pilot agreement pursuant to Section 1113(c) of the Bankruptcy Code. The Bankruptcy Court granted debtor’s motion to reject the pilot agreement.
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Government’s setoff rights were subject to the same automatic stay provisions as other creditors.
Delta Air Lines, Inc. v. Bibb (In re Delta Air Lines, Inc.), Adv. Pro. No. 06-01259 (Bankr. S.D.N.Y. Nov. 3, 2006) (Hardin, J.).
Decision on right to offset. The debtors claimed the automatic stay barred that the Government’s deductions for pre-petition overpayments. Government asserted that 31 U.S.C. § 3726 of the Transportation Act allowed the Government to offset the pre-petition liability from the post-petition payments. The Bankruptcy Court disagreed and rejected the Government’s comparison to the mandatory statutory payment provisions under the Medicare statute. The Government’s setoff rights were subject to the same constraints set forth in Section 362(a)(3) and (6) and Section 533 of the Bankruptcy Code as were the rights of any other creditor.
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Bankruptcy Court denies motion to transfer venue.
In re Spiegel, Inc., Case No. 03-11540 (Bankr. S.D.N.Y. Jan. 23, 2007) (Lifland, J.).
Decision denying motion to transfer venue. The Bankruptcy Court denied the motion of a creditor to transfer venue of the proceedings relating to its claim against one of the debtors to the District Court of Minnesota. The Bankruptcy Court found that there was no “learning curve” because the case dealt with Minnesota law, and that the Bankruptcy Court could hear the case as quickly as the District Court of Minnesota.
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Creditor’s sole recovery is pursuant to Plan of Reorganization and therefore is prohibited from taking any action to collect amounts owed by a debtor prior to effective date of Plan of Reorganization.
In re Spiegel, Inc., Case No. 03-11540 (Bankr. S.D.N.Y. Jan. 23, 2007) (Lifland, J.).
Decision enforcing plan injunction. Local taxing authority took action for against debtor’s real property on account of taxes addressed in debtor’s Plan of Reorganization. The local taxing authority failed to file a proof claim notwithstanding being served with a bar date order. Pursuant to the debtor’s Plan, the failure to file a proof of claim resulted in the taxing authorities pre-petition claim being treated as a general unsecured claim and was discharged under the debtor’s Plan. The Bankruptcy Court found that a creditor’s sole recovery must be according to the Plan, and that the creditor was enjoined from taking any actions against any of the relevant property for amounts owed prior to the effective date of the Plan.
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Court approved long-term incentive plan as complying with Section 503(c of the Bankruptcy Code).
In re Dana Corp., Case No. 06-10354 (Bankr. S.D.N.Y. Nov. 30, 2006) (Lifland, J.).
Opinion approving, in part, debtors’ motion for authorization to assume employment agreements and for approval of a long term incentive plan. The Bankruptcy Court found that the debtors established that Section 503(c)(1) of the Bankruptcy Code did not apply to the executive compensation motion, that the debtors satisfactorily established that none of the payments proposed violated Section 503(c)(2) of the Bankruptcy Code, and that the executive compensation motion specifically limited “severance” payments. Thus, pursuant to Section 503(c)(3), 363(b) and 365 of the Bankruptcy Code, the debtors presented the Bankruptcy Court with evidence that the requested relief was fair reasonable and well within the debtors’ business judgment. (The Court’s granting of the motion was conditioned on the submission of an order including an appropriate ceiling or cap on the total level of yearly compensation to be earned by the CEO and senior executives during the course of the bankruptcy proceeding.)
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Cash Collateral Order acknowledging validity of secured creditor’s liens did not prevent trustee’s claims against assignor of secured creditor.
Geltzer v. Gametech Investors LLC (In re Broadway City, LLC), Adv. Pro. No. 05-02365 (Bankr. S.D.N.Y. Jan. 25, 2007) (Peck, J.).
Decision denying the defendant’s motion for summary judgment. The question presented was whether the Chapter 7 trustee lost the right to bring avoidance claims against Gametech and should be precluded from pursuing the litigation as a result of a “Cash Collateral Order”, which included an acknowledgement as to the validity of the liens held by Gametech’s assignee and language confirming that these liens are deemed valid if not challenged by the trustee within a stipulated period of time after conversion of the case to a case under Chapter 7. This adversary proceeding was not commenced until after expiration of the stipulated period after conversion for the trustee to object to the security interest. The Bankruptcy Court denied Gametech’s motion for summary judgment finding that a determination pursuant to a Cash Collateral Order that an assignee’s lien is deemed valid is not equivalent to a determination that such lien may not be avoided in subsequent litigation brought by the trustee against the assignor. The trustee brought an action against Gametech on account of the redemption transaction that resulted in Gametech being issued the secured debt that was subsequently assigned to the counter-party to the Cash Collateral Order.
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