PricewaterhouseCoopers LLC (PwC) won another victory in the MF Global litigation when the Second Circuit Court of Appeals affirmed the dismissal of claims brought by former commodities customers (the “Customers”) of MF Global Inc. (“MFGI”). This holding is important for its clear affirmation of the in pari delicto doctrine and as a visible limitation on claims by parties not in privity.

Compensation to be paid to a bankruptcy estate professional is many times subject to intense dispute. In the case of a bankruptcy trustee, section 326 of the Bankruptcy Code provides for a tiered system of compensation based upon the amount of money distributed by the trustee to parties in interest. However, as demonstrated by the recent decision in In re Virgin Offshore U.S.A., Inc., 2015 Bankr. LEXIS 233 (Bankr. E.D. La. Jan.

On January 7, the Bankruptcy Court for the District of Delaware issued an opinion that may have far reaching effects on cases involving asbestos liability.  Companies with potential asbestos liability, and actual and potential asbestos claimants, would be well advised to consider the Court’s opinion.

Imagine: you are a lender that has loaned substantial sums of money to an individual, secured by real property owned by the borrower. After the borrower defaults and negotiations fail, you seek and obtain the appointment of a receiver. But now litigation ensues—about the loan documents, about contract defaults, about interest rates, about foreign law. After a substantial investment of time and money, your trial date draws closer. At some point during this odyssey, your borrower secretly transfers the real property collateral to a newly-created, single-member LLC.

Affirming the bankruptcy court below in a case of first impression, in In re Caviata Attached Homes, LLC, 481 B.R. 34 (B.A.P. 9th Cir. 2012), a Ninth Circuit bankruptcy appellate panel held that a relapse into economic recession following a chapter 11 debtor’s emergence from bankruptcy was not an “extraordinary circumstance” that would justify the filing of a new chapter 11 case for the purpose of modifying the debtor’s previously confirmed plan of reorganization.

Modification of a Confirmed Chapter 11 Plan

In the first circuit-level opinion on the issue, the Fourth Circuit Court of Appeals in Matson v. Alarcon, 651 F.3d 404 (4th Cir. 2011), held that, for purposes of establishing priority under section 507(a)(4) of the Bankruptcy Code, an employee's severance pay was "earned" entirely upon termination of employment, even though the severance amount was determined by the employee's length of service with the employer.

Section 507(a)(4)

On October 21, 2010, the New York Court of Appeals (the Appeals Court), New York’s highest appellate court, addressed two appeals, and then issued an important ruling regarding the parameters of the affirmative defense of in pari delicto in suits against outside auditors, holding that the doctrines of in pari delicto and imputation are a complete bar to recovery when the corporate wrongdoer’s actions are imputed to the company.

The Doctrines of In Pari Delicto and Imputation

The Bankruptcy Code treats insiders with increased scrutiny, from longer preference periods to rigorous equitable subordination principles, denial of chapter 7 trustee voting rights, disqualification in some cases of votes on a cram-down chapter 11 plan, and restrictions on postpetition key-employee compensation packages. The treatment of claims by insiders for prebankruptcy services is no exception to this general policy: section 502(b)(4) disallows insider claims for services to the extent the claim exceeds the "reasonable value" of such services.