In another major development in a case that continues to redefine the standard procedures in asbestos-related bankruptcy proceedings, on January 13, 2015, Garlock Sealing Technologies LLC announced that it had reached an agreement with the representative for future asbestos claimants that would settle all present and future asbestos claims for $358 million. The current net present value of the settlement is reportedly $205 million – considerably higher than the bankruptcy court’s liability estimate of $125 million, but well below the $1.3 billion plaintiffs had been seeking.

In In re BGI, Inc. f/k/a/ Borders Group, Inc.,1 the Second Circuit recently held that the doctrine of equitable mootness — a doctrine that permits appellate courts to refrain from hearing bankruptcy appeals relating to plan confirmation when it would be “inequitable” to do so – applies in liquidations under Chapter 11 of the Bankruptcy Code. This ruling extends the doctrine from Chapter 11 reorganizations, in which it has traditionally been applied in the Second Circuit, to liquidations.

On September 29, 2014, the United States District Court for the District of Delaware affirmed an earlier decision of the Delaware Bankruptcy Court in In re Jevic Holding Corp.1 holding that a private equity sponsor was not liable for its portfolio company’s alleged violations of the WARN Act. The District Court ruling is good news for private equity funds and other investors with portfolio companies in distress.

On Monday, the Supreme Court confirmed¹ that bankruptcy courts may hear “Stern-type” matters (such as tortious interference counterclaims) that relate to bankruptcy proceedings, so long as a district court reviews the bankruptcy court’s proposed findings and renders the final decision. Other questions left in the wake of Stern v. Marshall,² however, remain unanswered and will continue to occupy the attention of parties to bankruptcy matters and courts alike.

BACKGROUND: IN THE WAKE OF STERN V. MARSHALL

Chapter 11 has long been used by companies to obtain relief from legacy tort liabilities. There has been a lingering question, however, as to whether chapter 11 can bar claims by tort litigants who were exposed to a hazardous material or defective product before bankruptcy but do not develop injuries until after the case is over. Some debtors have set up trusts and appointed representatives for so-called “future claimants”: this approach can be effective, but may add months or years to a bankruptcy case along with significant cost, business disruption and litigation.

In a recent opinion on an issue of first impression,¹ the United States Court of Appeals for the Second Circuit held that foreign entities seeking recognition under Chapter 15 of the Bankruptcy Code must, in addition to satisfying the requirements for recognition set forth in that chapter, have a residence, domicile, place of business or assets in the United States.

In the first appellate court decision on the issue, the Third Circuit Court of Appeals recently held that trade claims subject to disallowance under section 502(d) of the Bankruptcy Code are disallowable “no matter who holds them.”¹ In In re KB Toys Inc., the Third Circuit affirmed Bankruptcy and District Court decisions holding that trade claims subject to disallowance in the hands of an original claimant remain disallowable in the hands of a subsequent transferee.

On November 15, 2013, Judge Martin Glenn of the Bankruptcy Court for the Southern District of New York held that original issue discount (“OID”) created in a prepetition “fair market value” debt exchange is not disallowable in bankruptcy.¹ This noteworthy ruling provides important and long-awaited guidance for the investing community on the question left open by the Second Circuit’s 1992 ruling in LTV Corp. v. Valley Fidelity Bank & Trust Co. (In re Chateaugay Corp.).²

BACKGROUND

On September 12, 2013, the United States Court of Appeals for the Second Circuit held that American Airlines, Inc. (“American”) had the right to repay $1.3 billion in debt (“Notes”) without payment of a make-whole amount.¹ The Second Circuit dismissed all of the arguments raised by U.S. Bank Trust National Association (“U.S.

On April 22, 2013, Judge Kevin J. Carey of the Bankruptcy Court for the District of Delaware allowed a lender’s $23.7 million pre-petition make-whole claim, representing approximately 37% of the outstanding principal of the loan, in the Chapter 11 case of School Specialty, Inc. ¹ In a decision that will win cheers from the lending community, the court enforced the clear terms of the loan agreement over the objection of the Official Unsecured Creditors’ Committee, holding that the make-whole claim was enforceable under New York law.

BACKGROUND