Suppliers of good and services (“trade creditors”) generally have no duty to determine whether their customers are operating an illegal enterprise. However a recent Fifth Circuit opinion presents an unprecedented “claw-back” risk facing trade creditors who unknowingly provide goods and services to a “Ponzi-scheme” enterprise.

The Janvey Opinion

“Bad news comes in threes.” “Third time’s the charm.” “Three strikes and you’re out.”

One of these three adages may come to characterize the outcome of a case of significant import argued before the US Supreme Court this week. The Supreme Court heard arguments on Wellness Int’l Network, Ltd. v. Sharif. The case is the third in a trilogy including Stern v. Marshall and Executive Benefits Ins. Agency v. Arkison, which examine the scope of the constitutional exercise of judicial power by bankruptcy courts.

In bankruptcy proceedings involving the US retailer Crumbs Bake Shop Inc (Crumbs), the US trustee has opposed the sale of Crumbs’ customer lists on the basis that this would violate Crumbs’ privacy policy. The privacy policy allows personal data held by Crumbs to be transferred only where this is required by government authorities, needed to provide services or following customer consent.

To a business litigator, the bankruptcy debtor’s most effective weapon is often the automatic stay, which is commonly used – or abused, depending on the perspective – to, inter alia, stay all pending litigation against the debtor and keep him in sole control of an asset, despite seeming abuses of that control.

On February 7, 2011, the Court of Appeals for the Second Circuit issued a highly significant opinion in two consolidated appeals from the order of the United States District Court for the Southern District of New York affirming the bankruptcy court’s confirmation of a chapter 11 plan of reorganization for DBSD North America and its subsidiaries (DBSD).

On September 17, 2009 Judge Peck of the United States Bankruptcy Court for the Southern District of New York issued two orders that may significantly impact parties who held, or still currently hold, derivative contracts with Lehman Brothers Special Financing Inc. (LBSF) or any of the other debtors in the Lehman Brothers bankruptcy cases (the Debtors).

In a decision last month in Whyte v. SemGroup Litig. Trust (In re Semcrude L.P.), No. 14-4356, 2016 U.S. App. LEXIS 7690 (3d Cir. Apr. 28, 2016), the United States Court of Appeals for the Third Circuit held that proving that a debtor was left with unreasonably small capital will not turn on either hindsight or a “speculative exercise” based on what might have happened if certain things were known at the time.

We all know that courts want to read contracts as a whole to effectuate the intent of the parties.  This case provides a textbook illustration of the principle.

Is a debtor required to pay default rate interest when it reinstates a loan under a plan of reorganization? According to a recent Eleventh Circuit Court of Appeals decision, In re Sagamore Partners, Ltd., 2015 U.S. App. LEXIS 15382 (Aug. 31, 2015), the answer depends upon the underlying loan documents and applicable non-bankruptcy law.

Section 510(b) of the Bankruptcy Code permits the subordination of certain claims to all claims or interests senior or equal to the security on which the claim is based. A recent Fifth Circuit opinion delineates the scope of mandatory subordination under Section 510(b).