Here we go again – proposed bankruptcy venue legislation is back after previous “reform” efforts came up empty. For those seeking legislative action, what are the chances for venue reform now?

Should a claim for appraisal rights brought by a former shareholder of a Chapter 11 debtor be subordinated under Section 510(b) of the Bankruptcy Code? According to the Bankruptcy Court for the District of Delaware, the answer is yes. See In re: RTI Holding Co., LLC, No. 20-12456, 2021 WL 3409802 (Bankr. D. Del. Aug. 4, 2021).

Background

In 2020, bankruptcy court doors continued to be shut to cannabis companies. Perhaps most troubling is the continued bar for companies that are only tangentially involved in the state-legalized cannabis industry. Although outlier cases exist, and even though courts have hinted that bankruptcy may be appropriate for some cannabis-related individuals and companies in some situations, there is a consensus now that bankruptcy is generally not available to individuals and companies engaged, directly or indirectly, in the cannabis industry.

In a recent decision, the Court of Appeals for the Sixth Circuit held that the election of a tenant, under Section 365(h) of the Bankruptcy Code, to remain in possession of real property governed by a rejected lease causes a third-party guaranty on another rejected agreement to remain in effect, to the extent such agreement and the lease are part of an integrated transaction.

Analyzing the inner workings of the elements required for the securities contract “safe harbor” protection under Section 546(e) of the Bankruptcy Code, the Bankruptcy Court for the SDNY dismissed a complaint seeking to recover approximately US$1 billion in allegedly fraudulent transfers brought against various transferees as part of the Boston Generating Chapter 11 case.

It is well established that by filing a proof of claim in bankruptcy, a creditor submits itself to the equitable jurisdiction of the bankruptcy court and waives any right it would otherwise have to a jury trial with respect to any issue that “bears directly on the allowance of its claim.” Such a waiver normally applies in fraudulent transfer actions, since under Section 502(d) of the Bankruptcy Code the court must disallow a claim of any entity that received an avoidable transfer.

Two courts recently answered “yes,” finding that environmental claims brought against reorganized debtors by government entities were discharged under confirmed Chapter 11 plans of reorganization. In In re Exide Techs., 613 B.R. 79 (D. Del. 2020), the District of Delaware held that pre-petition, non-compensatory air quality penalties imposed on a Chapter 11 debtor by a state regulator were subject to discharge in bankruptcy. And in In re Peabody Energy Corp.

I.Exide Techs.: the Bankruptcy Code’s Exceptions to Dischargeability

Disagreeing with the much-critiqued SDNY opinion in Enron, the SDNY bankruptcy court disallowed claims brought by secondary transferees because the original claimants allegedly received millions of dollars in fraudulent transfers and preferences from the Debtors that have not been repaid. Deepening the district spilt on the nature of Section 502(d) of the Bankruptcy Code, the Court held that the defense barring fraudulent transfer-tainted claims focuses on claims—not claimants—and cannot be “washed clean” by a subsequent transfer in the secondary market.

The nearly $350 billion loan program made available to small businesses by the Coronavirus Aid, Relief, and Economic Security (CARES) Act was tapped out in less than two weeks. In response to this overwhelming demand, on Friday, April 24, 2020, an additional $320 billion was funded into the loan program, and the second round of applications for small businesses requesting these loans will open on Monday, April 27, 2020.

We are in unprecedented times. The current COVID-19 pandemic will not only have an impact on the physical health of our country, but the economic health of our country as well. Increased bankruptcy filings are a virtually certainty and this raises concerns of many, including licensors and licensees of intellectual property. What should these parties be thinking about given the coming uptick in bankruptcies?

From the Licensee’s Perspective