Aberdeen Developers borrowed $41 million from MUFG Union Bank in 2018, secured by a mixed-use building in Chicago worth roughly $73 million. The loan eventually landed with LNR Partners as special servicer. When one of the building’s largest tenants filed for bankruptcy in January 2021, the servicer determined that a “Cash Sweep Event Period” arose under the Cash Management Agreement (CMA) and redirected all rental income and other building revenue into the Cash Management Account.

Key Contractual Provisions: As is common in CMBS loan agreements (though the defined terms differ), the CMA allowed the servicer to deposit “Excess Cash Flow” into a “Sweep Account,” which would stand “as additional security” for the loan. The CMA also dictated how LNR should apply the funds in the Cash Management Account during the Cash Sweep Event Period, specifically requiring it to disburse the funds in a certain order of priority by paying taxes, insurance, fees, and expenses before eventually holding the remainder in the Cash Management Account as extra security or giving it back to the borrower.

The operative language the Court focused on were Sections 3.4(i) and 3.4(j) of the CMA, which provided:

Section 3.4 Application of Cash Management Account Funds. Provided no Event of Default shall have occurred and is continuing, commencing on the first Business Day of each Collection Period following a Cash Sweep Trigger Event, Lender (or Servicer on behalf of Lender) shall apply all funds on deposit in the Cash Management Account in the following amounts and order of priority, or as otherwise directed:

(i) Ninth, all amounts then remaining after payments of items (a) though (h) (the “Excess Cash Flow”), shall be deposited into a separate subaccount (the “Sweep Account”) to be held by Lender as additional security for the Loan; and

(ii) Tenth, all Excess Cash Flow shall be disbursed to, or at the written direction of, Borrower.

Significantly, this “Tenth” order of priority is slightly different from comparable CMBS loan agreement provisions that preface the borrower’s right to receipt of such Excess Cash Flows during the period following a “Cash Sweep Trigger Event” with a provisio conditioning the borrower’s right to such excess cash upon the cure of that “Cash Sweep Trigger Event” so that the “Cash Trap Period” is no longer in effect.

As you can see, Section 3.4(j) lacked that condition. Comparable provisos, however, were contained in order sections of the borrower’s loan agreement. For example, Section 6.3(b) contemplated that “all proceeds” transferred to the Cash Management Account will be “held” in the Cash Management Account, which includes the Sweep Account, as “additional Collateral” “during the continuance of a Cash Sweep Trigger Event.”

The Dispute: LNR argued that Section 3.4(i) authorized retention of the Excess Cash Flow in the Sweep Account indefinitely until a “Cash Sweep Cure” occurred. The Borrower argued that Section 3.4(j) required return of those excess funds monthly. By the time of the litigation, the Sweep Account had grown to $2.3 million, was increasing by $150,000 per month, and was projected to hit an estimated $11.7 million by the time the loan matured in 2029.

The Seventh Circuit’s Ruling on LNR’s Motion to Dismiss: In reversing the district court’s dismissal of the borrower’s complaint, the Seventh Circuit held that under Illinois’ contract ambiguity doctrine, when two provisions in the same section of a contract point in opposite directions (here, Section 3.4(i) authorized the servicer to hold funds as additional security and Section 3.4(j) directed that the same funds be disbursed monthly to the borrower), with neither provision specifying how long the funds may be held, you have textbook ambiguity.

In so holding, the Court found plausible the borrower’s argument at the motion to dismiss stage, tied to a principle of law in Illinois that courts should construe contracts to avoid absurd results, that the parties “never intended for the Sweep Account to grow to over $11 million across the lifetime of the loan without speaking more clearly.” The Court found equally plausible LNR’s argument that the excess cash can be held as additional security for the loan until the “Cash Sweep Trigger Event was cured.”

With both sides’ explanation of a perceived contract ambiguity in the same section of the loan agreement deemed plausible, the Court held that the question was one of fact, not law, and therefore the complaint should not have been dismissed.

Practice Note: For those drafting CMBS loan agreements, be explicit about when and for how long excess cash can be retained after a cash sweep trigger event. Ambiguity between adjacent priority of payment provisions, even if seemingly reconciled in other sections of the loan agreement can lead to expensive and avoidable litigation. If the lender wants the servicer to hold swept funds indefinitely until a cure event, say so explicitly in the priority of payments section of the loan agreement.

Aberdeen Developers, LLC v. Wells Fargo Bank, N.A.*, No. 25-1667 (7th Cir. May 28, 2026) 2026 WL 1487434.

Secured creditor Agrifund filed a § 523 dischargeability complaint against Chapter 12 farm debtors. In response, the debtors brought various third-party cross-claims, which prompted Agrifund to assert its own cross-claims against those third parties for conversion, defalcation, larceny, embezzlement, and vicarious liability.

One third-party cross-claimant moved to dismiss Agrifund’s cross-claims, arguing that they lacked sufficient connection to the bankruptcy estate to support “related to” jurisdiction. The cross-claimant emphasized that Agrifund’s claim comprised only 11% of the secured debt and just 7% of total claims against the debtors, in effect urging the Court to impose a quantitative threshold on the Pacor “conceivable effect” test.

The Court rejected this argument, holding that if Agrifund recovers from the third-party claimant, its claim against the estate would decrease, thereby altering the distribution percentages for other creditors, which would have a “conceivable” effect on administration of the debtors’ estate. The Court distinguished this case from those involving more attenuated connections to the estate (such as equity interests in non-debtor affiliates or divested marital property), noting that Agrifund’s cross-claims (i) arose from the same auction transaction that was at issue in the dischargeability dispute and (ii) involved property subject to Agrifund’s security interest.

Practice Note: Here, Judge Somers (Bankr. D. Kan.) did not require a pro rata impact analysis before exercising “related to” jurisdiction over cross-claims against non-debtors. Rather, he held, because the cross-claims arose from the same transaction as the core dispute and would reduce an allowed proof of claim in the case, the Court had “related to” jurisdiction over claims among non-debtor third parties.

Agrifund, LLC v. Patmon (In re Patmon), No. 25-7018 (Bankr. D. Kan. June 2, 2026) 2026 WL 1596832

In this long‑running Chapter 15 case, a foreign representative sought bank records from JPMorgan tied to a debtor’s principal now in the U.S. The principal had already produced those records—selectively redacted—and invoked the Fifth Amendment to justify both the redactions and to block JPMorgan from producing unredacted copies.

The court rejected both arguments.

The act‑of‑production privilege protects only the testimonial aspects of producing documents—admissions of existence, possession, and authenticity. It does not allow a party to produce documents with strategic redactions. As such, once the principal voluntarily produced the statements, those testimonial elements were conceded and nothing remained to protect.

Further, the Court held, the privilege cannot stop a third‑party bank from complying with a subpoena because the privilege is personal to the individual and does not extend to the bank/custodian.

Practice Note: The Fifth Amendment is a shield, not a scalpel. One can refuse to produce documents entirely, but one can’t produce them in redacted form or block a third party bank or custodian from producing the same records.

In re B.C.I. Finances Pty Ltd. (In Liquidation), et al., No. 17-11266 (SAB) (Bankr. S.D.N.Y. May 26, 2026) 2026 WL 1480366

This case highlights key pitfalls in bankruptcy appellate practice, particularly when seeking direct certification of an appeal to the federal circuit court.

Here, Genesis Healthcare and its affiliates filed for Chapter 11 on July 9, 2025. On October 7, 2025, the debtors moved for approval of mandatory claims procedures to resolve unliquidated personal injury and wrongful death claims through streamlined pre-litigation settlement and mediation procedures. The bankruptcy court granted the motion on November 6, 2025.

Certain personal injury and wrongful death claimants, including Estate of Alma Brown, filed a notice of appeal on November 20, 2025 and then moved in the district court for direct appeal certification to the Fifth Circuit on December 22, 2025. The debtors opposed and moved to dismiss the appeal.

District Judge Ada Brown dismissed the appeal for two reasons. First, under Bankruptcy Rule 8006(b), the appeal remained “pending” in the bankruptcy court for 30 days after the notice of appeal became effective. Because the 30th day (December 20, 2025) fell on a Saturday, the deadline extended to Monday, December 22—the same day appellants filed their certification request in the district court. Since the matter was still pending in the bankruptcy court, the district court lacked authority to consider certification. As the court noted:

Although application of Rule 8006 to the pending appeal may result in a surprising outcome (by requiring Appellants to have filed their certification request before the Bankruptcy Court), it is nevertheless the requirement of Rule 8006’s unambiguous language, and consistent with the legislative intent behind the revision’s enactment. See Fed. R. Bankr. P. 8006, advisory committee notes (noting that the “provision will in appropriate cases give the bankruptcy judge, who will be familiar with the matter being appealed, an opportunity to decide whether certification for direct review is appropriate”). The Court, therefore, finds that Appellants filed their certification request before the wrong court—an infirmity in Appellants’ request that warrants, without more, the denial of the pending Motion for Order Certifying Direct Appeal.

Second, because the Claims Procedures Order was interlocutory (i.e., it still could be modified by the bankruptcy court and no confirmation order had been entered), the appellants were required to file a motion for leave to appeal under Rule 8004(a)(2) with their notice of appeal. The Court, however, noted that Rule 8004(d) allows it to treat a notice of appeal as a motion for leave to appeal, and so applied the 28 U.S.C. Section 1292(b) standard (requiring a controlling question of law, substantial ground for difference of opinion, and material advancement of litigation) in finding that this was not an exceptional case warranting interlocutory review, thus depriving the Court of jurisdiction to hear the appeal of the interlocutory order.

Practice Note:

The 30-day window in Rule 8006(b) is not mere procedural garnish. Filing a certification request in the district court even one day too early—while the matter is still “pending” in the bankruptcy court—is fatal. Further, if appealing an interlocutory bankruptcy order, always file a motion for leave to appeal with the notice of appeal. Omitting this step risks dismissal, and asking the district court to treat your notice as a motion for leave is rarely successful under the demanding Section 1292(b) standard.

Estate of Alma Brown, et al. v. 1 Glen Hill Road Operations, LLC, et al. (In re Genesis Healthcare, Inc., et al.), No. 3:25-cv-3225-E, (N.D. Tex. May 28, 2026) 2026 WL 1593168

In music, you can always ask for another take. In bankruptcy, failing to list an asset may mean you’ve lost the right to take it at all. The Eleventh Circuit’s latest decision involving 2 Live Crew and the ownership rights to its music held by Lil’ Joe Records brings that distinction into sharp relief.

Background: The 11th Circuit’s 2007 Decision: Back in 2007, I wrote this post about a case in which the 11th Circuit Court of Appeals told JT Money, in no uncertain terms, that—to quote the rap group Souls of Mischief—”You got f***ed in the industry!” Though the lyrics were directed in part to the entertainment industry, that case proved that the bankruptcy industry is no great friend of struggling rappers either. There, the 11th Circuit held that the copyrights JT Money had transferred to Luke Records could be sold to Lil’ Joe Records in a bankruptcy 363 sale even though his royalty agreement was rejected as an executory contract. Rejection of that contract, the Court held, didn’t revest ownership in JT; rather, the copyrights remained with the bankruptcy estate of Luke Records and could be sold free and clear of JT Money’s interests.

The Current Dispute: Effect of Bankruptcy on “Inalienable” Copyright Termination Rights: Nearly two decades later, the Eleventh Circuit revisited the Lil’ Joe Records/2 Live Crew copyright saga. This time, the issue was whether the inalienable statutory termination rights to copyright interests of a 2 Live Crew member (Mark Ross aka Brother Marquis) in five of the group’s albums recorded between 1986 and 1989 became property of his chapter 7 bankruptcy estate.

By way of background, 2 Live Crew recorded five albums under an agreement with Luke Records, which was owned by one of 2 Live Crew’s members, Luther Campbell (aka “Uncle Luke”). Both Luke Records and Uncle Luke went bankrupt and—as noted above—Luke Records sold all recording copyrights that it had received under the agreement to Lil’ Joe Records in a free and clear bankruptcy 363 sale.

In 2000, Brother Marquis filed for chapter 7, but he (and his lawyer) failed to list on his bankruptcy disclosure schedule his future termination interests under Section 203 of the Copyright Act, which gives artists a “termination interest” after a certain amount of time to reclaim the copyright in their works despite having granted it to a third party.

In 2020, Uncle Luke, Brother Marquis, and the heirs of Wong Won (aka Fresh Kid Ice) served a termination notice on Lil’ Joe, seeking to reclaim the copyrights. Lil’ Joe sued, arguing that Brother Marquis’ termination interests were still locked in his now dormant bankruptcy estate (the chapter 7 closed on Feb. 28, 2007). The district court disagreed, holding that such interests are too personal and inalienable to become property of the filer’s chapter 7 bankruptcy estate.

The 11th Cir. Ruling “at the Intersection of Copyright and Bankruptcy“: Stating that the appeal “presents a question of first impression at the intersection of copyright and bankruptcy,” the Court reversed and held that under Bankruptcy Code section 541(a)(1) and (c)(1)(A) “all legal or equitable interests of the debtor in property” become property of the estate upon the filing of the petition “notwithstanding any provision in applicable nonbankruptcy law” that restricts transfer, including Section 203(a)(5) of the Copyright Act. And because Brother Marquis never disclosed those termination interests in his chapter 7 bankruptcy case, these rights were never administered or abandoned. As such, the Court held, under Bankruptcy Code section 554(c) and (d), these interests remained estate property indefinitely and so Brother Marquis could not exercise his termination rights since they were still property of his bankruptcy estate.

And alas, once again, a rap star “got f***ed in the [bankruptcy] industry“

The Door Remains Open for the 2 Live Crew Majority, Though Ever So Slightly: The Court closed with some questions left open by its decision, stating:

Although we conclude that Ross’s termination interests were property of the bankruptcy estate at the time he purported to exercise them, our decision is limited. We do not address how termination interests should be treated in bankruptcy. And we do not decide today what Ross’s heirs need to do to exercise those interests in the light of his bankruptcy.

What Happens Next?: I expect Lil’ Joe Records will try to purchase those termination interests from the bankruptcy trustee in a 363 sale and work a deal with the trustee of the Luke Records estate to purchase those termination interests free and clear in a bankruptcy 363 sale. The heirs of Brother Marquis (Ross died on June 3, 2024), Uncle Luke, and the heirs of Fresh Kid Ice could attempt to outbid Lil’ Joe Records at auction, but if that fails, well…you know the rest.

Practical Lesson: If you’re an artist (or advising one), remember: In bankruptcy, you may well lose what you don’t disclose—even decades later.

Lil’ Joe Records, Inc. v. Ross, No. 24-13978 (11th Cir. June 2, 2026) 2026 WL 1549151

In October 2005, LexBlog went live with my Bankruptcy Litigation Blog, then the internet’s first bankruptcy-related blog and only the 16th blog that LexBlog had taken live.

The blog had a strong run, earning more than 1.5 million substantive hits, including from courts in every federal district as well as the United States Supreme Court. Each year, new friendships developed, many of which have stood the test of time.

Nine years after my last post, I’ve decided to restart the blog. The impulse is the same one I described when I launched the blog in 2005: a determination to stay current with the law as it develops, inspired by my mentor, Judge Diane Wood, while avoiding the all-too-common temptation to engage in pointless and incessant barking.

I won’t pretend to know how often I’ll post or how long this experiment will last, but I hope each post proves worthy of a few minutes of your time.

Here’s an aggregation of 28 of my Twitter posts from the beginning of July 2018, with links to cases, articles, and news briefs that restructuring professionals should find of interest. Thanks for reading!

LIFE, BUSINESS, AND THE WORLD GENERALLY:

BK RELATED CASES:

  • 363 Sales – Successor Liability – Statutory Tenants’ Rights (BK-SD-NY):  Debtor’s attempt to cut off Statutory Tenants’ rights under NY Loft Law via a §363(f) sale appears an issue of 1st impression, but cases involving rent-controlled apartments are analogous, and attempts to trump state housing laws via 363 sales have consistently failed, as they do here. In re Bridge Associates of Soho Inc
  • Accountant Malpractice – Statute of Limitations (5thCir.):  The 5th Circuit finds itself rather shocked at “inexplicabl[e]” actions of Firefighters’ Retirement System’s counsel in prosecuting action malpractice against Grant Thornton that resulted in dismissal on limitations grounds, saying: “At the absolute latest, Plaintiffs were aware of these potential claims on January 17, 2014, when they filed this lawsuit in state court. Once they were aware of the claim, they had one year [under Louisiana law] to file a written request for a review panel. Inexplicably, they waited more than three more years before filing their first request for panel review. . . . Because filing a lawsuit in state court does not suspend the peremptive period for accounting malpractice claims, Plaintiffs’ claims . . . were filed outside the peremptive period and are therefore extinguished.” Firefighters Retirement System v Grant Thornton LLP
  • Automatic Stay – Attorney’s Fees (BK-D-NJ):  Fee application for damages on account of a stay violation is found “excessive” and to meet the 3rd Circuit’s parameters and the lodestar analysis. “A fee application seeking three times the amount in controversy doesn’t bear any resemblance to proportionality” & were not reasonable for prosecution of the sanctions motion. In re Manley Toys Limited
  • Debtor’s Counsel – Fee Applications – Obligations to CRO (BK-D-CT):  Debtor’s law firm owed no fiduciary duty to the Debtor’s retained business manager to file a fee application on the business manager’s account. The CRO “could have filed its own fee app but failed to do so [and it] simply fails to allege that [Debtor’s counsel] was in control to the exclusion” of the CRO. In re Jackson
  • D&O Litigation – Indemnities (BK-SD-TX):  “Director’s costs of litigation, which accrued when the UGHS affiliates lost their corporate charters, may only be indemnified if an implied request to defend the affiliates existed which was sufficient to trigger indemnification. . . . The issue of whether a request for services may be implied across affiliates has yet to be directly addressed under Texas law. . . . The broad wording of these indemnification provisions and the lack of prerequisite acts as conditions to indemnification support the idea that Senior Living intended to allow indemnification even absent an explicit request for defense. “Court finds that the statutory requirements for “permissive indemnity” have been satisfied so the director is entitled to indemnification. In re UGHS Senior Living Inc
  • Jurisdiction – Prepetition Accounts Receivable (BK-D-DE):  Court has subject-matter jurisdiction over actions to recover disputed prepetition accounts receivable. Such actions by a Chapter 7 trustee, at least before discharge or close of a debtor’s liquidation, conceivably impacts a debtor’s estate, so non-core ‘related-to’ jurisdiction exists. In re PennySaver USA Publishing LLC
  • Proof of Claim – Affixing Client Signature Without Client Review (BK-D-ME):   Court denies motion for sanctions by the US Trustee against Resurgent for its practice of affixing an employee’s signature to a proof of claim and then filing the proof of claim, all without prior review of the proof of claim by that employee. In re Cushman
  • Retention Applications – Restructuring Managers (BK-D-DE):  A sigh of relief reverberates among restructuring managers after the Court holds that, as for Alvarez & Marsal and its designated interim CEO, Section 327(a) doesn’t apply, so they can be retained under Sec 363(b) to provide Debtors with an interim CEO & other personnel. In re Nine West Holdings Inc
  • Secured Claims – Default Interest – Attorney’s Fees Defending Claims Objection (BK-CD-CA):  Default interest due secured creditor is an unenforceable penalty that can’t be collected per CA Civ Code Sec.1671(b). Further, the Debtors is the prevailing party on claims objections, so not only are attorney’s fees in defending against the objections to claims are denied, but fees incurred in objecting are allowed. In re Altadena Lincoln Crossing LLC
  • Secured Claims – Judgment Liens  – Attorney’s Fees (8th Cir.): We disagree with any notion that the judgment liens are somehow not part of Starion’s secured claim. The judgment liens came about because of the Workout Agreement and confessions of judgment wherein Starion agreed to forebear on various other secured loan defaults…. Even though judgment liens under ND Law aren’t entitled to attorney’s fees, ‘these judgment liens did not simply come out of left field but were always part of the secured claim and arose from a workout, presumably to avoid what now seems was inevitable—bankruptcy.’ ” In re McCormick
  • Settlement Agreements – Breach – BK-D-NM:  Court examines busted settlements and whether the damages for breach are based on the original claim or the settled amount. In re WM Distribution Inc

BK RELATED NEWS & ARTICLES:

  • 363 Sales – Lease Rejection:  The following article, “Spanish Peaks’ Reinvigoration of the Precision Industries Debate: Rejection in the Context of a § 363 Sale Free and Clear of Commercial Leasehold Interests” won 3d place in the 10th Annual ABI Law Student Writing Competition.” Spanish Peaks: What Happens When Leases Collide with a Bankruptcy Sale?, by Nick Binder, Michigan State Univ. Law School, via ABI
  • Structured Dismissals – Exculpation – Estate Professionals:  “Judge Kevin Carey [BK-D-DE] ruled that a dismissal order in a bankruptcy case could provide for exculpation of the estate fiduciaries and their respective professionals. The ruling is a welcome result for all estate fiduciaries whose [] efforts during a complex bankruptcy case fail to culminate in an approved plan of reorganization.” Court Approves Exculpation in Structured Dismissal, by Raff Ferraioli, Andrew Kissner and Jennifer Marines of Morrison Foerster, via JD Supra
  • Veil-Piercing – Married Couples:  “Pennsylvania’s veil-piercing law recognizes a husband and wife as ‘one person,’ absent death or divorce. Therefore, to hold only one shareholder liable and not the other is ‘legally untenable’ under Pennsylvania law.” Biz Row Veil-Piercing Ignored Pa. Law, 3rd Circ. Says, by Jeannie O’Sullivan via Law360

LAW RELATED NEWS & ARTICLES:

  • Beats Electronics – Breach of Contract Trial:  Very interesting trial to follow. Law360 did a nice job on this, noting “[t]he thing the Beats parties and Lamar didn’t agree on, and still don’t, is who deserves how much credit for creating the popular line of headphones.” Susman Godfrey’s Brian Melton told Law360: “We decided to … make it clear we weren’t challenging what they had accomplished in their musical careers (and that we were even fans ourselves) but stress that this case was about the contract and whether Beats fulfilled its obligations.” Steve Morrissey of Susman Godfrey partner added: “The contract itself was both poorly drafted and the result of people who didn’t agree on some basic things deciding to punt key ambiguities like this down the road for a jury to decide if necessary.” Susman Says Beating Beats Was All About 3rd-Party Status, by RJ Vogt, via Law360
  • SEC Enforcement Power – Kokesh Impact:  “The rationale behind the Kokesh ruling is filtering down to lower courts as they consider whether other forms of relief that the SEC commonly pursues might also be subject to a five-year statute of limitations, such as injunctions and industry bars.” Kokesh Spread Could Pose Risk To SEC Enforcement Power, by Dunstan Prial via Law360
  • Social Media – Defamation – Unmasking Anonymous Accounts:  “Many high-level people in the industry have told [the plaintiff bringing the defamation action against the anonymous Instagram poster] that he will never work again unless he can publicly clear his name,” Hence the lawsuit. Instagram Account That Sought Harassment Tales May Be Unmasked, by Sapna Maheshwari at The New York Times

INTERESTING CASES FROM ILLINOIS COURTS:

  • Dog Bites – Landlord Responsibility (IL-AP-2d):   “Trial court did not err in dismissing the plaintiff’s complaint against the landlord because the landlord had not voluntarily assumed a duty to protect the plaintiff from their tenant’s dog.” Seyller v Rose Rakowski Declaration of Trust
  • Remedies – Legal vs. Equitable (IL-AP-1st):  “This case involves the intersection of law and equity and whether a legal remedy was adequate such that equitable relief was inappropriate. . . . [Here, the plaintiff] “obtained an adequate legal remedy on his breach-of-contract action, and thus he was barred, as a matter of law, from pursuing his equitable claim of rescission.” Horwitz v. Sonnenschein Nath and Rosenthal

©2018, Steve Jakubowski

Here’s an aggregation of 26 of my Twitter posts from the first week of July 2018, with links to cases, articles, and news briefs that restructuring professionals should find of interest. Thanks for reading!

BK RELATED CASES:

  • Asbestos Bankruptcy – Claims Procedure Order – BK-D-DE:   In approving claims procedure order options for handling asbestos claims (either mediated w/retired judge or lifting the stay to allow pursuit of insurance while waiving a right to distributions from the estate), the retired judge may consider debtor’s “relative culpability vis a vis other tortfeasors.” In re Hovensa LLC
  • Chapter 15 – Subpoena Compliance – Arbitration Clause Effect – SD-NY:  Court disagrees with CohnReznick’s motion for a stay pending appeal of a BK Ct order requiring compliance with a subpoena in a Chapter 15 proceeding, and in particular with the argument that an arbitration clause precludes discovery sought by the Liquidators. In re Platinum Partners Value Arbitrage Fund LP
  • Default Judgment – Foreign Defendants – BK-SD-NY:   Court holds it can enter a final default judgment against a foreign defendant that fails to respond to a summons & complaint personally served on it, and then to a motion for entry of default judgment served by US mail. In re Advance Watch Company Ltd
  • Jurisdiction – “Related-to” – BK-SD-FL:   Court rejects arguments of Simpson & Kasowitz that ‘related-to’ jurisdiction exists, finding “potentially inconsistent results is not a basis, alone, to find subject matter jursidiction” absent risk that collateral estoppel is present.  Court also rejects related to jurisdiction on the basis that testimony in the state court action of “former Patriot National officers, directors & employees will likely bind Pat. Natl., which would have a conceivable effect on the Patriot Natl estate.”  Mariano v Simpson Thacher And Bartlett LLP
  • Madoff BK – Derivative Fraudulent Transfer Claims – 2d Cir.:  “The facts alleged don’t state a colorable claim that Picower controlled BLMIS [suff. to sustain a Section 20(a) securities fraud claim]. The substance of the allegations, therefore, still amounts only to a derivative, fraudulent transfer claim.” In re Bernard L Madoff Investment Securities LLC
  • Preferences – Earmarking – BK-D-KS:   The circumstances where the earmarking doctrine may [be a valid] defense to preference are unclear [in the 10th Cir]. A footnote in the leading 10th cir. case, Davidson, noted: ‘The funds paid by Christiansen [a general contractor] to [a supplier of goods to Davidson, a subcontractor] by joint check are excluded from the bankruptcy estate under the doctrine of earmarking.” But the rule from this FN doesn’t apply here. In re WB Services LLC
  • Preferences – Statutory Minimum – Triangular Setoffs – BK-MD-PA:  One preference count for $1,403 against the IRS is dismissed for being less than the $6,425 statutory minimum to challenge a transfer under BK Code section 547(c)(9). Also, the IRS’s prepetition setoff claim against a $731K receivable due the debtor from the US Postal Service was not not invalidated for lack of mutuality. In re AEH Trucking Co LLC
  • Recoupment – Single Transaction Tests – BK-WD-WI:  “Circuits are split on the appropriate test for determining whether two debts arose out of one transaction [for recoupment purposes]. Courts apply either the logical relationship test or the stricter single integrated transaction test. . . . The Seventh Circuit has not expressly adopted either approach, but courts in the Circuit have generally applied the single integrated transaction test. . . . Here, the purchase order was a later order for cranberry purchases negotiated separately from the agreement that defines the terms for the original 7 loads and that prohibited the debtor from selling cranberries to certain others, so recoupment is denied. In re Cranberry Growers Cooperative
  • Secured Claims – Credit Bidding Participation – BK-D-DE:  Court rejects junior lender’s argument that the secured portion of senior creditor’s claim is determined by its last credit bid rather than the market price for the collateral as determined by the winning bid. In re Aerogroup International Inc

BK RELATED NEWS & ARTICLES:

  • Charging Orders – LLC’s:  “Even though the bankruptcy succeeded in having the debtor’s financial obligations discharged, it did not erase the assignee status held by the bank with respect to the LLC. The LLC’s manager eventually sold LLC assets and liquidated the LLC, which entitled the bank to millions in liquidation proceeds. The bank is happy since that amount exceeded what the debtor otherwise owed the bank. The bank therefore profited from the LLC’s accumulated asset value and the debtor was never able to share in such value.” LLC Charging Order Protection Against Creditor Causes Debtor to Lose Even More Money: How Can That Be?, by Ed Brown of Greenspoon Marder LLP, via Lexology
  • Collateral Transfer – Pulling off a “J. Crew”:   “PetSmart sued Citibank, the agent on the company’s term loans, for refusing to bless the transfers of shares that puts them out of the reach of its lenders and within the grasp of its private-equity owner BC Partners. . . . The transfer of the 20% stake to PetSmart’s parent would give BC Partners control over the proceeds of any sale of those shares. At the same time, the company could pledge the other 16.5% stake to low-ranking debtholders in a debt swap.”  PetSmart Sues Citibank in Escalating Battle With Lenders: Transfer of shares in PetSmart’s Chewy.com e-commerce unit is cause of dispute, by Soma Biswas at The Wall Street Journal
  • Copyright Trolls in BK: Armageddon 2419:  Buck Rogers in the 25th century on the big screen? Armageddon 2419 coming to a theater near you (depending on how this all plays out in bankruptcy court). “Two and a half years later, Louise Geer and Dan Herman are still at it, using every trick in the book to keep a beloved tale out of the public domain, where it firmly belongs. Along the way the pair have stiffed multiple law firms, and currently are abusing a Bankruptcy Court in Pennsylvania in a Hail Mary effort to…well, it’s not exactly clear what they’re trying to do.” The continuing saga of Buck Rogers and the Copyright Trolls, by Rogers Anthony, via boing boing
  • Covenant-Lite – Subprime Auto:  “Given the lack of triggers and the growing popularity of B rated classes in subprime auto loan ABS, the market is bearing similarities to the speculative corporate bond market where covenant-lite structures are abounding.” Investors Dive Deep Into Riskiest Subprime Debt, via Bloomberg / Newsmax Finance
  • Dairy Farm Distress – Small Farmer Squeeze:   “Many of the Kentucky dairy farmers who sold their milk to Dean Foods have not yet found anyone else to buy it instead. They are just the latest of more than 42,000 dairy farmers who have gone out of business since 2000, casualties of an outdated business model, pricey farm loans and pressures from corporate agriculture. There were nearly 650,000 dairy farms in the U.S. in 1970, but just 40,219 remained at the end of 2017. . . . Walmart’s decision to build its own milk processing plant highlights another issue for farmers. In a trend extending to the 1970s but ramped up over the past decade, corporate agriculture is increasingly taking control of all stages of milk production. Best advice to U.S. dairy farmers? ‘Sell out as fast as you can’: Small-dairy farmers are getting squeezed out by corporate agriculture. “That is not what America is about,” a struggling farmer said, by Phil McCausland at NBC News
  • Yield Curve – Flattening Signal:  But fear not, the author concludes: “Yes a flattening yield curve is a bad sign, but remember it takes on avg ~18 mos from when the yield curve inverts to when the econ. actually goes into recession, w/stocks historically rising along the way.” The Flattening Yield Curve Spells Doom, by dkorth@finsum.com, via Nasdaq

LAW RELATED NEWS & ARTICLES:

LIFE, BUSINESS, AND THE WORLD GENERALLY:

©2018, Steve Jakubowski

Here’s an aggregation of 49 of my Twitter posts from the last week of June 2018, with links to important cases, articles, and news briefs that restructuring professionals should find of interest. Don’t hesitate to reach out and contact me to discuss any posts, and thank you for reading!

BK RELATED CASES:

  • 363 Sale – Successor Liability – Chrysler – BK-SD-NY:  Claim versus New Chrysler can proceed for “conduct-based negligence & failure to warn claims” based on a 2015 post-sale accident in a 2004 Durango manufactured pre-sale was not barred by the Sale Order and Amended Master Transaction Agreement (“MTA”). “The Motion mischaracterizes the [Sale Agreement] MTA and attempts to draw a distinction between ‘conduct-related’ liabilities and ‘product-related’ liabilities that is not supported by the language of the Amended MTA.” In re Old Carco LLC
  • 363 Sale – Successor Liability – Withdrawal Claims – ND-IL:  Court dismisses as moot under BK Code Sec. 363(m) an appeal of an unstayed 363 sale order where the sole objective of the appeal was to allow the appellant to assert successor withdrawal liability claims against the Buyer. In re Central Grocers Inc
  • Avoidance Actions – Fictitious Profits – Recap of the Law – BK-SD-NY:  Court provides a primer on the law in rejecting arguments from certain Madoff customers that they gave “value” within the meaning of BK Code Sec. 548(c) in exchange for their withdrawal of fictitious profits. Securities Investor Protection Corporation v Bernard L Madoff Investment Securities
  • Claims Purchases – Anti-Assignment Clause Effect – BK-D-DE:  Anti-assignment clause in promissory note was legally valid and so voided the note transfer. Further, Debtors’ breach of the Notes didn’t render anti-assignment clause unenforceable: a non-breaching party can’t emerge post-breach w/more rts than it had pre-breach. In re Woodbridge Group of Companies LLC
  • Claims Purchases – Standing – Timing of Transfer – 5th Cir:  Debtor’s owner, who purchased a claim in order to obtain standing after the BK Ct entered an order appointing special counsel that would pursue the owner on veil piecing theories, lacks standing to object on appeal. He can’t belatedly claim creditor status & get standing retroactively. In re Technicool Systems Incorporated
  • Mineral Leases – Prepetition Settlement – Protection Through 544(a) Powers – 5th Cir:  Debtor’s mineral lease, ratified in settlement prepetition, can’t be dissolved for nonpayment of amounts due under the settlement agreement since: the public record shows that the consideration had been fully paid; no 3d party was placed on notice of the remaining payments due; BK Code Sec. 544(a) vests in the debtor the rights of a third party as bona fide purchaser. Matter of Goodrich Petroleum Corporation
  • Removal – Party Requirement – Requirement of Service – BK-ED-NC:  If a debtor seeking removal hasn’t been formally served, then it’s not a “party” to the state court suit per 28 USC § 1452 and so removal is improper since the Court can’t permit circumvention of the requirement that only a proper “party” may remove a state action to federal court. Problem here was that although everyone knew the plaintiff meant to sue the debtor, the service was on a DE corp with the same name as the FL corp that should have been named and served. In re Providence Wireless LLC
  • Unjust Enrichment – Pleading Requirements – BK-SD-NY:  Unjust enrichment claim dismissed where the complaint fails to allege that the buyer under the APA received any benefits for which it didn’t pay, even though it purchased assets from the debtor and “goodwill” from the owners (which itself was a challenged transfer). In re The Moyer Group Inc

INTERESTING CASES FROM ILLINOIS COURTS & THE UNITED STATES SUPREME COURT:

  • Chevron Deference Reconsidered – SCOTUS:  Concurring and dissenting ops by Justices Kennedy and Alito, respectively, show they are troubled by the impact of the Court’s decision in Pereira on the “now increasingly maligned” Chevron decision. Per Chevron, Justice Alito writes, “if a federal statute is ambiguous & the agency that is authorized to implement it offers a reasonable interpretation, then a Ct is supposed to accept that interpretation.” For his part, Justice Kennedy is troubled by Chevron’s “reflexive deference.” Pereira v Sessions
  • Extraterritoriality – US Statutes – SCOTUS:  The Court reviews the 2-step approach to deciding questions regarding the extraterritoriality of a statute. This is a significant case for attorneys representing a trustee seeking extraterritorial application of US BK laws in avoidance actions. WesternGeco LLC v ION Geophysical Corp
  • Infringement – Shotgun Litigation – ND-IL:  Litigation strategy of suing an alleged software patent infringer’s unsuspecting customer is stayed indefinitely until the main infringement case against the software developer is disposed of. Mantissa Corporation v Old Second Bancorp Inc
  • Prevailing Party – Fees and Costs Distinguished – IL-AP-2d:  Payment of court costs by a party seeking to voluntarily dismiss its claims is routine and was (i) uncontested by plaintiff and (ii) not a significant issue in the litigation between the parties. But to be a “prevailing party” for purposes of recovering fees, the party must have achieved success on a significant issue. Thus, the award of costs to the defendant does not show that it was the prevailing party in the litigation.  Tanna Farms LLC v Golfvisions Management Inc
  • Restraint of Trade – Credit Card Anti-Steering Provisions:  US failed to prove anticompetitive effects merely by showing an increase in merchant fees. Its focus on just one side of a two-sided market meant that it failed to show that prices as a whole were greater than expected in a competitive market. Ohio v American Express Co
  • Restrictive Covenants – Confidential Information:  Complaint for misappropriation by former employees of confidential information survives motion to dismiss, with the Court stating: “Whether restrictive covenants are enforceable depends on the specific facts and circumstances of the individual case, . . . including “the near permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions.” Apex Physical Therapy LLC v Ball
  • Stare Decisis – SCOTUS:  Wayfair is a very interesting read. The pillars of stare decisis are crumbling in the cyber age, with the Court stating: “When it decided Quill, the Court could not have envisioned a world in which the world’s largest retailer would be a remote seller.” South Dakota v Wayfair Inc
  • Statutory Interpretation – “Under” – SCOTUS:  “For purposes of statutory interpretation, the word ‘under’ is a chameleon that must draw its meaning from its context.” Here, under the Illegal Immigration Reform & Immigrant Responsibility Act of 1996, it means “in accordance with” or “according to.” Pereira v Sessions
  • Textualists vs. Contextualists – SCOTUS:  The philosophical battle between textualists and contextualists is in fully display here as Justices Gorsuch and Breyer respectfully snipe at the flaws in the other’s use of the “traditional tools of statutory interpretation.” Wisconsin Central Ltd v US
  • Tortious Interference – Injunctive Relief – ND-IL:  Preliminary injunction issued on a tortious interference claim asserting that Party “A” breached an agreement that that Party “B” induced the breach. “A” initially refused to sell Party “C”s sinks to “B” because another party had the rights to the sink. “B” was displeased with “A”s decision & insisted on getting the sinks whose design he had seen. “A” subsequently crafted a virtually-identical sink to sell to “B”. Empire Industries Inc v Winslyn Industries LLC

BK RELATED NEWS & ARTICLES:

LAW RELATED NEWS & ARTICLES:

LIFE, BUSINESS, AND THE WORLD GENERALLY:

©2018, Steve Jakubowski

Here’s an aggregation of 28 of my Twitter posts from mid-June 2018, with links to important cases, articles, and news briefs that restructuring professionals should find of interest. Don’t hesitate to reach out and contact me to discuss any posts, and thank you for reading!

BK RELATED CASES:

  • Avoidance Actions – Heightened Pleading Standards – BK-WD-MI:  “The Complaint’s allegation that the ‘Debtors’ made an aggregate amount or series of transfers over time to unidentified transferees, without further detail, doesn’t satisfy the heightened pleading standard for actual fraudulent transfer claims. In re Great Lakes Comnet Inc
  • Bank Holding Co. – Tax Allocation Agreement – 10th Cir:  A tax allocation agreement creates an agency between the bank holding company and the bank so that the agreement’s treatment of tax refunds doesn’t differ from the general rule that a refund in a joint return belongs to the loss generator. Consequently, the FDIC, as receiver, gets the bank’s $4.8M refund. In re United Western Bancorp Inc
  • Collateral – 506(c) Surcharge – BK-ND-WV:  Court refuses to surcharge lender’s collateral for unpaid chapter 11 attorney’s fees since they were not incurred primarily to protect or preserve the collateral, didn’t provide the lender with a direct & quantifiable benefit, & were not reasonable and necessary to preserve or dispose of the collateral. In re Tara Retail Group Inc
  • Commercial Leases – Expiration – BK-ED_MI:  When has a non-residential real property lease “been terminated by the expiration of the stated term of the lease” per 362(b)(10)? Court here holds not if lease was terminated early based on lessor’s right to terminate it if the debtor-lessee defaults. In re Indiana Hotel Equities LLC
  • Conversion – Intangible Rights – BK-ND-IL:  In recounting sordid facts as few can, Judge Cox notes that Illinois court don’t recognize an action for conversion of intangible rights. Conversion of commercial paper, however, is an exception to the general rule on the theory that the intangible right associated with commercial paper is merged into the specific document. In re Santilli
  • Disclosure Statement – Unconfirmable Plan – Retention of Equity – BK-ED-NC:  Court refuses to approve disclosure statement where plan, on its face, is not confirmable in light of its proposal that the owner retain his equity interest in the Debtor without adding “new value” to the Debtor. In re CHL LLC
  • Fiduciary Duties – LLC Managers to Members – BK-ED-TX:  Under Texas law, “a formal fiduciary relationship does not exist between managers and members. As such, a fiduciary relationship, if any, must exist via an informal relationship.” Higher Perpetual Energy LLC v Higher Power Energy LLC
  • Fraudulent Transfer – Collapsing Transactions – Resultant Situs of Transfer as Domestic or Foreign – BK-SD-NY:  “The Court is not aware of any case considering the implications of collapsing a multi-step transaction on a determination of the situs of an alleged fraudulent transfer. However, it is clear that in directing courts analyzing fraudulent transfer claims to consider the “composite implications” in collapsing a multi-step transfer, the Second Circuit did not limit that review only to the implications for assessing reasonably equivalent value.” In re CIL Limited
  • Liquor Licenses – Security Interests – BK-D-AK:  Case here proves that maintaining security interests or priorities to proceeds from the sale of a liquor license requires much care and consideration. In re Aqua Pesca LLC
  • Structured Dismissal – Effect on Pending Adversaries – BK-D-NM:  A bankruptcy court can retain jurisdiction after case dismissal over non-core, related proceedings commenced before dismissal, though ordinarily non-core, related-to proceedings are also dismissed upon dismissal of the underlying bankruptcy  case. “In a structured dismissal where a plan is not confirmed, claims to unclaimed funds only arise after the case is dismissed and are not governed by any provision of the BK Code. As such, claims to unclaimed funds do not arise in or arise under and so are non-core.” In re Dees FoodService ABQ Inc
  • Turnover Motions – Procedural Requirements – BK-CD-CA:  Fed. R. Bankr. P. 7001 requires an adversary to recover money or property from third parties who are not the debtor. Thus, a 542 turnover motion is procedurally deficient to recover property in which tenants are living and rents that they’re withholding. In re Grand View Financial LLC
  • Unjust Enrichment – Pleading Standards – BK-WD-MI:  “[T]he law operates to imply a contract in order to prevent unjust enrichment, and . . . this will not occur if there is already an express contract on the same subject matter. . . . In order to state a claim for unjust enrichment, the Trustee must plead some benefit was derived separate & apart from the [contract between the parties].” In re Great Lakes Comnet Inc

INTERESTING CASES FROM ILLINOIS COURTS & THE UNITED STATES SUPREME COURT:

  • Power Purchase Agreements – Thorny Contractual Provisions Dissected – ND-IL:  Court holds that the PPAs unambiguously require NIPSCO to pay the “cost to cover.” Court also dissects thorny contractual provisions regarding “metered output,” “unexcused failure to take,” “force majeure,” “voluntary curtailments” in NIPSO’s battle with Iberdrola, the second largest wind power company. Barton Windpower LLC v Northern Indiana Public Service Company
  • Veil Piercing – Summary Judgment – IL-AP-1st:  “Plaintiffs failed to establish any genuine issue of material fact on plaintiffs’ corporate veil-piercing claim as to whether adhering to the corporate fiction would promote an injustice.” Buckley v Abuzir

LAW RELATED NEWS & ARTICLES:

  • Athletic Injuries – Premises Liability:  The results in Bush’s and Ryan’s suits could cause the NFL owners try to expand the scope of the collective bargaining agreement to further prevent these sorts of lawsuits. Jenner’s Nelson says: “I am not sure they will be successful,” he said. “But given now that you have had two lawsuits, I suspect they will want to nip it in the bud.” Reggie Bush Injury Award Likely To Spur Pro-Athlete PI Suits, by Zachary Zagger at Law360
  • Collateral Transfers – Lender Response to a Debtor’s “Pulling a J. Crew”:  Resignation comes as PetSmart’s lenders challenge the company’s transfer of more than 1/3 of the equity in Chewy.com to separate entities, putting it beyond creditor reach. A lender instructed Citigroup not to release the liens & guarantees on the Chewy stake. Citigroup Resigns as PetSmart’s Term Loan Agent, by Katherine Doherty and Eliza Ronalds-Hannon at Bloomberg
  • Sandbagging – Delaware:  Dealmakers may be surprised at the doubts cast in recent judicial comments on the “pro-sandbagging” reputation of Delaware. Parties may wish to account for comments by the Delaware Supreme Court in negotiating sandbagging-related purchase agreement provisions. Sandbagging in Delaware, by Daniel Wolf of Kirkland & Ellis, via Harvard Law School Forum on Corporate Governance and Financial Regulation

LIFE, BUSINESS, AND THE WORLD GENERALLY:

©2018, Steve Jakubowski