The U.S. Supreme Court handed down three bankruptcy rulings to finish the Term ended in July 2024. The decisions address the validity of nonconsensual third-party releases in chapter 11 plans, the standing of insurance companies to object to "insurance neutral" chapter 11 plans, and the remedy for overpayment of administrative fees in chapter 11 cases to the Office of the U.S. Trustee. We discuss each of them below.

U.S. Supreme Court Bars Nonconsensual Third-Party Releases in Chapter 11 Plans

Since May 2023, the U.S. Supreme Court has issued three decisions addressing or potentially impacting issues of bankruptcy law. These included rulings concerning the abrogation of sovereign immunity for Native American tribes under the Bankruptcy Code, and for instrumentalities of Puerto Rico under a similar statute enacted in 2016 allowing the Commonwealth to restructure its debts. The Court also handed down an opinion concerning a homeowner's entitlement to the surplus proceeds of a real estate tax foreclosure sale.

Exception from Discharge of Debts for Fraud Committed by Business Partner

On February 22, 2023, the U.S. Supreme Court handed down its ruling in Bartenwerfer v. Buckley, No. 21-908, 2023 WL 214441 (U.S. Feb. 22, 2023), where it resolved a circuit split in ruling that a debt based on fraud committed by, or a false representation made by, the debtor's partner or agent is nondischargeable in the debtor's bankruptcy case.

On January 14, 2021, the U.S. Supreme Court held in City of Chicago v. Fulton, 592 U.S. __ (2021), that a creditor in possession of a debtor's property does not violate the automatic stay, specifically section 362(a)(3) of the Bankruptcy Code, by retaining the property after the filing of a bankruptcy petition. The Court's decision provides important guidance to bankruptcy courts, practitioners, and parties on the scope of the automatic stay's requirements.

On January 14, 2021, the U.S. Supreme Court held in City of Chicago v. Fulton, 592 U.S. __ (2021), that a creditor in possession of a debtor's property does not violate the automatic stay, specifically section 362(a)(3) of the Bankruptcy Code, by retaining the property after the filing of a bankruptcy petition. The Court's decision provides important guidance to bankruptcy courts, practitioners, and parties on the scope of the automatic stay's requirements.

In Short

The Situation: Circuit courts were split on whether mere retention by a creditor of estate property violates the Bankruptcy Code's automatic stay, under 11 U.S.C. § 362(a)(3). The U.S. Supreme Court considered the question inCity of Chicago v. Fulton, in which the City of Chicago had refused to return debtors' vehicles after they filed Chapter 13 bankruptcy petitions.

In Short

The Situation. In Ritzen Group, Inc. v. Jackson Masonry, LLC, the U.S. Supreme Court considered whether bankruptcy court orders conclusively denying relief from the Bankruptcy Code's automatic stay are immediately appealable.

The Result. On January 14, 2020, the Court unanimously ruled that an order conclusively resolving a motion for relief from the automatic stay was immediately appealable, such that a later-filed appeal was untimely and must be dismissed.

In Clark’s Crystal Springs Ranch, LLC v. Gugino (In re Clark), 692 Fed. Appx. 946, 2017 BL 240043 (9th Cir. July 12, 2017), the U.S. Court of Appeals for the Ninth Circuit ruled that: (i) the remedy of "substantive consolidation" is governed by federal bankruptcy law, not state law; and (ii) because the Bankruptcy Code does not expressly forbid the substantive consolidation of debtors and nondebtors, the U.S. Supreme Court’s decision in Law v. Siegel, 134 S. Ct. 1188 (2014), does not bar bankruptcy courts from ordering the remedy.

With its landmark ruling in Deutsche Bank Trust Co. Ams. v. Large Private Beneficial Owners (In re Tribune Co. Fraudulent Conveyance Litig.), 818 F.3d 98 (2d Cir. 2016) ("Tribune 1"), the U.S. Court of Appeals for the Second Circuit held that claims asserted by creditors of the Tribune Co. ("Tribune") seeking to avoid payments to shareholders during a 2007 leveraged buyout ("LBO") as constructive fraudulent transfers were preempted by the "safe harbor" under section 546(e) of the Bankruptcy Code.

On June 9, 2016, the New York State Court of Appeals, in Ambac Assur. Corp. v. Countrywide Home Loans, 2016 BL 184648 (N.Y. June 9, 2016), reversed a lower court decision, consistent with the overwhelming majority of federal court decisions, that the common interest doctrine under New York law is not limited to communications made in connection with pending or reasonably anticipated litigation.