Last month, the Fifth Circuit Court of Appeals ruled that a secured creditor’s claim survives bankruptcy where the secured creditor received notice of the case and was found to have not actively participated in it. Acceptance Loan Co. v. S. White Transp., Inc. (In re S. White Transp., Inc.), 2013 U.S. App. LEXIS 16181 (5th Cir. Aug. 5, 2013).

The U.S. Court of Appeals for the Second Circuit has upheld a bankruptcy court’s decision enforcing indenture language providing for the automatic acceleration, without make-whole premium, of secured American Airline, Inc.

Applying Pennsylvania law, the United States District Court for the Eastern District of Pennsylvania has held that an insured’s failure to notify its insurer of a potential claim violated the notice provision of the policy.  Pelagatti v. Minn. Lawyers Mut. Ins. Co., 2013 WL 3213796 (E.D. Pa. June 25, 2013).  In  so doing, the court held that the insurer was not required to show that it was prejudiced by the late notice and that whether the insured’s failure to provide timely notice negates coverage is determined under a “hybrid subjective/objective test.”

Under the Bankruptcy Code, a lawsuit to recover avoidable preference payments must be filed prior to the expiration of the statute of limitations. Specifically, such lawsuits must be commenced before the later of 1. two years after the commencement of the case or 2. one year after the appointment or election of the first Trustee, provided that the two-year period has not already expired.

The Ninth Circuit in In re Fitness Holdings Int’l, 2013 U.S. App. LEXIS 8729 (9th Cir. April 30, 2013) recently reversed precedent and established that bankruptcy courts in the Ninth Circuit have the power to determine whether a transaction creates a debt or equity interest for purposes of § 548 of the Bankruptcy Code. In doing so, the Ninth Circuit joins the Third, Fourth, Fifth, Sixth and Tenth Circuits in expressly recognizing bankruptcy courts’ ability to recharacterize claims in bankruptcy proceedings.

The United States District Court for the Middle District of Pennsylvania has held that an E&O policy issued to a now-bankrupt credit counseling company did not cover claims arising under unfair trade practices statutes, but did cover claims arising under fair debt collection statutes. Hrobuchak v. Fed. Ins. Co., 2013 WL 2291875 (M.D. Pa. May 24, 2013). The court also held that carve-outs from the policy’s definition of loss did not preclude coverage for statutory damages or damages representing the return of fees paid to the insured.

Buyers of assets through the bankruptcy court process seek comfort and solace in the entry of a sale order providing for the transfer of assets “free and clear” of all liabilities. Except for those liabilities expressly assumed by the buyer and new owner, the bankruptcy court order typically includes exacting and precise language transferring those assets, under the imprimatur of the United States Bankruptcy Court, free and clear of all liabilities.

The United States District Court for the Middle District of Pennsylvania has held that an E&O policy issued to a now-bankrupt credit counseling company did not cover claims arising under unfair trade practices statutes, but did cover claims arising under fair debt collection statutes. Hrobuchak v. Fed. Ins. Co., 2013 WL 2291875 (M.D. Pa. May 24, 2013). The court also held that carve-outs from the policy’s definition of loss did not preclude coverage for statutory damages or damages representing the return of fees paid to the insured.

The United States District Court for the Northern District of Georgia, applying Georgia law, has held that a default judgment against an insured in a rescission action precluded any subsequent recovery under the policy by a judgment creditor of the insured. Old Republic Nat’l Title Ins. Co. v. Hartford Accident & Indem. Co., 2013 WL 1943427 (N.D. Ga. May 9, 2013).

On April 29, 2013, the Supreme Court of the United States declined to hear an appeal of the Second Circuit's decision dismissing, as equitably moot, appeals arising out of the bankruptcy of Charter Communications and let stand the opinion in In re Charter Communications, Inc., 691 F.3d 476 (2d Cir. 2012). As a result, the application of the equitable mootness doctrine, as it applies to bankruptcy appeals, will continue to vary among jurisdictions.