The U.S. Court of Appeals for the First Circuit recently ruled in the Puerto Rico bankruptcy case that Fifth Amendment takings claims cannot be discharged or impaired by a bankruptcy plan. As a matter of first impression in that circuit, the Court disagreed with the Ninth Circuit and held that former property owners affected by prepetition takings must be paid in full.

In re Fin. Oversight & Mgmt. Bd., 41 F.4th 29 (1st Cir. 2022)

Fifth Circuit finds that make-whole premiums should be considered unmatured interest subject to disallowance under Section 502(b)(2) of the Bankruptcy Code to the extent designed to compensate for future interest payments.

Overview

Possible application of Section 101(22)(A) to safe harbor’s covered entity requirement raises important questions for future transferee defendants.

Key Points:

• Merit Management raises the possibility that customers of “financial institutions” may qualify for protection under Section 546(e) safe harbor even if they would not otherwise meet Section 546(e)’s covered entity requirement.

• Treating customers of “financial institutions” as covered entities could broaden the scope of safe harbor.

In re Madoff Securities Extends Morrison Framework to Prevent Avoidance of Purely Foreign Transfers under SIPA and the Bankruptcy Code