The United States Supreme Court will hand down its decision in the next few weeks in the case of Wellness Int’l Network, Ltd. v. Sharif (“Wellness”), 727 F.3d 751 (7th Cir. 2013) regarding bankruptcy courts’ jurisdiction. The jurisdictional quagmire is a major and growing virus in the bankruptcy courts, increasing exponentially the costs of bankruptcy litigation. Hopefully the Wellness decision will eventually provide a belated prescription on bankruptcy courts’ jurisdiction, and make us all feel just peachy.
A little background:
Commercial landlords should take notice. Within the last several months, one women’s clothing retailer after another has gone out of business. On Dec. 4, 2014, Philadelphia-based Deb Shops filed Chapter 11. Next came Delia’s, based in New York, which filed bankruptcy only four days later. On Jan. 9, 2015, Body Central, based in Florida, a chain with 265 stores, announced that it was closing all of its stores by way of an assignment for the benefit of creditors, an alternative to federal bankruptcy. On Jan.
The economy is humming along and bankruptcy filings are at historic lows. http://www.prweb.com/releases/2015/01/prweb12432257.htm. Nevertheless, a recent trend in retail may suggest that the times, they are a changing.
Baker Botts L.L.P. et al. v. ASARCO L.L.C., currently pending before the Supreme Court of the United States, is of particular interest to bankruptcy practitioners because this decision will have far-reaching effects regarding attorney’s fees in bankruptcy. Specifically, the Supreme Court will determine whether Section 330(a) of the Bankruptcy Code grants bankruptcy judges the discretion to award compensation for the defense of fee applications.
Bankruptcy Judge Dennis Montali in San Francisco said last week that he will allow a direct appeal to the Ninth Circuit from one of his rulings in the bankruptcy of Howrey LLP, skipping an intermediate appeal to the U.S. District Court. The judge relied on Jewel v. Boxer — a California state law case which holds that profit earned on unfinished business after dissolution belongs to the “old” firm, not to a newly-formed firm that completed the work.
Shareholders of financially troubled S corporations may now be able to avoid the flow-through of taxes when the S corporation or its subsidiary files bankruptcy. In In re Majestic Star Casino, LLC, 716 F.3d 736 (3rd Cir. 2013), the Third Circuit Court of Appeals ruled that an S corporation shareholder, who may have received the benefit of years of flow-through income tax treatment from the S corporation, may avoid the flow-through of taxable gain or income in bankruptcy simply by revoking the S corporation election.
As we all know, on June 9 of this year, the Supreme Court issued its long awaited decision in Executive Benefits Ins. Agency vs. Arkison, 134 S. Ct. 2165, 189 L. Ed. 2d 83 (2014), which we had hoped would resolve the open questions arising from Stern v. Marshall, 131 S. Ct. 2594, 180 L.Ed 2d 475 (2011).
Intellectual property (“IP”) can act as collateral to be pledged to secure an extension of credit. For example, a company that borrows money from a bank can pledge its patents as collateral for the loan. The bank (referred to as the “secured creditor”) in this case will of course want to make sure that its security interest in the IP can be enforced against the borrower if the borrower defaults on the loan.
What Happens to Your Security Interest in a Debtor’s Intellectual Property in Bankruptcy?