Beneficiaries of a Ponzi scheme who were subsequently found liable to cheated investors under state securities laws could not discharge this liability under Chapter 7 of the Bankruptcy Code, the U.S. District Court for the Western District of Oklahoma ruled.

The U.S. Bankruptcy Court for the Southern District of Texas issued a stern warning to professional services providers regarding “tail fees,” establishing a presumption of unreasonableness against contract terms requiring fees not attached to tangible, identifiable and material benefits to the debtor’s estate.

On January 15, 2010, in In re Reliant Energy Channelview LP, the Third Circuit Court of Appeals affirmed the decision of the U.S. Bankruptcy Court for the District of Delaware denying payment of a $15 million break-up fee to the initial bidder of a power plant in conjunction with the debtor’s Section 363 bankruptcy asset sale. The Court based its ruling on the fact that it did not consider the fee necessary to preserve the value of the bankruptcy estate.

On January 25, Judge Peck of the U.S. Bankruptcy Court for the Southern District of New York entered a declaratory judgment in favor of Lehman Brothers Special Financing Inc. (LBSF) in a case examining a collateralized debt obligation (CDO) transaction and concerning the effect of event of default provisions on the payment priorities of LBSF as swap counterparty under certain swap agreements and the holders of certain credit-linked synthetic portfolio notes. The payment waterfalls (Priority Provisions) of most CDO transactions give priority to swap counterparties over noteholders.

The Commodity Futures Trading Commission is proposing to amend its Bankruptcy Rules to permit the trustee for a bankrupt futures commission merchant to continue to operate the business of the commodity broker in the ordinary course for a limited period of time.

Rather than immediately commencing foreclosure proceedings, lenders and servicers (acting on behalf of the lender) are seeking the judicial appointment of receivers with greater frequency when commercial real estate workout negotiations fail to produve the desired results and the borrower is not otherwise prepared to "turn over the keys."

In Dumont v. Ford Motor Credit Company, the Ninth Circuit Court of Appeals confirms the Bankruptcy Code does not protect a debtor’s personal property collateral if the debtor fails to commit to redeem, reaffirm or assume the underlying loan—even if the debtor continues timely to make loan payments.

The Bankruptcy Court for the District of Delaware has issued a decision concluding that company-paid medical coverage offered as part of an employee severance package is a “retiree benefit” that cannot be unilaterally modified by the company in bankruptcy, except as provided under Section 1114 of the Bankruptcy Code.

The Federal Deposit Insurance Corporation (FDIC) announced that Residential Credit Solutions was the winning bidder in a pilot sale of receivership assets conducted to test the funding mechanism for the Legacy Loans Program. The FDIC, as a receiver of Franklin Bank, SSB, owns a portfolio of residential mortgage loans with an unpaid principal balance of approximately $1.3 billion, which the FDIC will convey to a limited liability company. Residential Credit Solutions will pay $64,215,000 in cash for a 50% stake in the limited liability company using 6-to-1 leverage.

The Seventh Circuit U.S. Court of Appeals recently ruled that an environmental clean-up obligation under the Resource Conservation and Recovery Act (“RCRA”) is not dischargeable in bankruptcy, even when the debtor no longer has any internal clean-up operations and would have to contract a third party to provide such services at significant cost.