A New York bankruptcy court, on Dec. 12, 2013, issued a 166-page decision after a 34-day trial, concluding that the spin-off of a highly profitable energy business constituted a fraudulent transfer intended to shield the business from massive environmental liabilities, and awarding damages of up to approximately $14.5 billion.^[1]Tronox Inc. et al. v. Kerr McGee et al. (In re Tronox et al.) (Bankruptcy S.D.N.Y. Dec. 12, 2013) (J.

The United States Court of Appeals for the Eighth Circuit held on Aug. 3, 2012, that equitable considerations could not prevent a creditor's recouping amounts owed to it by a chapter 7 debtor. Terry v. Standard Ins. Co. (In re Terry), 2012 WL 3139364, *4 (8th Cir. Aug. 3, 2012). Reversing the bankruptcy court and the Bankruptcy Appellate Panel ("BAP"), the Eighth Circuit explained that "once a party meets the same-transaction test . . . a court should not impose an additional 'balancing of the equities' requirement" on the doctrine of recoupment. Id.

The U.S. Court of Appeals for the Fifth Circuit, on Oct. 19, 2010, corrected a bankruptcy court’s calculation of a secured lender group’s superpriority administrative claim more than two years after consummation of the debtor’s Chapter 11 reorganization plan. In re SCOPAC et al., F.3d__, 2010 WL 4069525, at *2-3, *5-6 (5th Cir. Oct. 19, 2010) (Jones, Ch.J.) [“Pacific Lumber II”]; see alsoIn re Pacific Lumber Co., 584 F.3d 229, 242 (5th Cir. 2009) [“Pacific Lumber I”] (plan “substantially consummated within weeks of confirmation”).

The Third Circuit recently affirmed the bankruptcy court's approved retention of the debtor's counsel ("S") when that "law firm dropped an existing client to avoid conflicts that would prevent it from taking on a more lucrative client [i.e., the debtor]." In re Boy Scouts of America, 2022 WL 1634643, *7 (3d Cir. May 24, 2022) (BSA). According to the court, there were "not enough facts to put [the so-called "hot potato" doctrine] into play" and disqualify S under the Rules of Professional Conduct. Id.

A bankruptcy court’s preliminary injunction was “not a final and immediately appealable order,” held the U.S. District Court for the District of Delaware on Dec. 10, 2019. In re Alcor Energy, LLC, 2019 WL 6716420, 4 (D. Del. Dec. 10, 2019). The court declined to “exercise [its] discretion” under 28 U.S.C. §158(a)(3) to hear the interlocutory appeal. Id., citing 16 Wright & Miller, Federal Practice and Procedure, §3926.1 (3d ed. 2017) (“There is no provision for appeal as of right from an injunction order of a bankruptcy judge to the district court.”).

A bankruptcy court decision recently detailed how courts applying Bankruptcy Code (“Code”) § 303(i) can sanction creditors who “abuse… the power given to [them]… to file an involuntary bankruptcy petition.” In re Anmuth Holdings LLC, 2019 WL 1421169, * 1 (Bankr. E.D.N.Y. Mar. 27, 2019).

“Federal law does not prevent a bona fide shareholder from exercising its right to vote against a bankruptcy petition just because it is also an unsecured creditor,” held the U.S. Court of Appeals for the Fifth Circuit on May 22, 2018. In re Franchise Services of North America Inc., 2018 WL 2325909, *1 (5th Cir. May 22, 2018). According to the court, applicable Delaware law would not “nullify the shareholder’s right to vote against the bankruptcy petition.” Id.

Relevance

A defendant bank (“Bank”) in a fraudulent transfer suit “could not prove” its “good faith” defense for loan repayments it received after its “investigator discovered [the] fraudulent past” of the Ponzi scheme debtor’s principal but “failed to disclose that past to [the Bank’s account] manager,” held the U.S. Court of Appeals for the Sixth Circuit on Feb. 8, 2017. Meoli v. Huntington Nat’l Bank, 2017 U.S. App. LEXIS 2248, *28 (6th Cir. Feb. 8, 2017).

A debtor’s pre-bankruptcy repurchase of its stock for $150 million was not a fraudulent transfer because the debtor “could have sold off enough of its assets or alternatively obtained sufficient credit to continue its business for the foreseeable future,” held the U.S. Court of Appeals for the Second Circuit on June 15, 2016. In re Adelphia Communications Corp., 2016 WL3315847, *2 (2d Cir. June 15, 2016). Affirming the lower courts, the Second Circuit stressed that “the issue of adequate capitalization,” the “sole issue presented on appeal ...

A terminated officer of a corporate debtor, who bargained for “18 months of severance ( … $375,000 … ) to ensure that his firing not disrupt [the debtor’s] negotiations for $80 million” of financing gave the debtor “reasonably equivalent value,” held the U.S. Court of Appeals for the Tenth Circuit on Oct. 15, 2015. In re Adam Aircraft Industries, Inc., 2015 U.S. App. LEXIS 17930, at *27 (10th Cir. Oct. 15, 2015).