A bankruptcy court properly denied a bank’s motion to compel arbitration of a debtor’s asserted violation of the court’s discharge injunction, held the U.S. Court of Appeals for the Second Circuit on March 7, 2018. In re Anderson, 2018 U.S. App. LEXIS 5703, *20 (2d Cir. March 7, 2018).

Fifth Circuit Rejects Breach of Fiduciary Duty and Fraudulent Transfer Claims

By Michael L. Cook*

THE BANKING LAW JOURNAL

First Circuit Affirms Dismissal of Fraudulent Transfer and Fiduciary Duty Claims

Michael L. Cook* This article discusses a recent U.S. Court of Appeals for the First Circuit decision holding that the debt-financed purchase of a business was not a fraudulent transfer and did not violate the fiduciary duty of the company's directors.

In a noteworthy decision, the Bankruptcy Appellate Panel for the Ninth Circuit overturned a dismissal of a bankruptcy case, which the lower court had dismissed based on its belief that the landlord debtor was receiving rental income from a marijuana dispensary. The decision is significant because it holds that a bankruptcy cannot be dismissed simply because of the mere presence of a marijuana business or related proceeds in the case.

Is your guaranty restricted or continuing? A continuing guaranty gives rise to divisible individual transactions, while a restricted guaranty—one that concerns a contemplated and specified extension of credit—arises upon execution of the guaranty. In bankruptcy, as in life, timing is everything. A debtor’s liability under a prepetition guaranty agreement for a post-petition advance of credit may depend on the distinction between restricted and continuing, and the distinction may be subtle.

The securities safe harbor protection of Bankruptcy Code (“Code”) § 546(e) does not protect allegedly fraudulent “transfers in which financial institutions served as mere conduits,” held the U.S. Supreme Court on Feb. 27, 2018. Merit Management Group LP v. FTI Consulting Inc., 2018 WL 1054879, *7 (2018). Affirming the Seventh Circuit’s reinstatement of the bankruptcy trustee’s complaint alleging the insolvent debtor’s overpayment for a stock interest, the Court found the payment not covered by §546(e) and thus recoverable. The district court had dismissed the trustee’s claim.

A super-priority debtor-in-possession (“DIP”) lender with a lien on all of the debtor’s assets has no “better claim” to a Chapter 11’s debtor’s leased property than the lessor, held the U.S. Court of Appeals for the Seventh Circuit on Jan. 11, 2018.Banco Panamericano, Inc. v. City of Peoria, 2018 U.S. App. LEXIS 738, *12 (7th Cir. Jan. 11, 2018). According to the court, the “lease between [the debtor] and [the lessor] gave [the debtor] no post-termination property interest” in “installations or structures” on the debtor’s property.Id.

“[T]he largely debt-financed purchase of a family-owned [business] was not a fraudulent [transfer] and did not amount to a violation of the fiduciary duty of the company’s directors,” held the U.S. Court of Appeals for the First Circuit on Dec. 4, 2017. In re Irving Tanning Co., 2017 W.L. 5988834, *1 (1st Cir. Dec. 4, 2017).

“[T]he Bankruptcy Code does not permit [an undersecured] creditor . . . to advance an unsecured claim for post-[bankruptcy] attorneys’ fees,” held the U.S. District Court for the Eastern District of North Carolina on Nov. 27, 2017. Summitbridge Nat’l Invs. Iii v. Faison, 2017 U.S. Dist. LEXIS 195267, *8 (E.D. N. C. Nov. 27, 2017). Affirming the bankruptcy court, the district court agreed that “the Code is most properly interpreted to allow only oversecured creditors to add post-[bankruptcy] attorneys’ fees.” Id., at *10.

“[B]ankruptcy does not constitute a per se breach of contract and does not excuse performance by the other party in the absence of some further indication that the [debtor] either cannot, or does not, intend to perform,” held the Supreme Court of Connecticut in a lengthy opinion on Nov. 21, 2017. CCT Communications, Inc. v. Zone Telecom, Inc., 2017 WL 5477540, *13 (Ct. Nov. 21, 2017) (en banc), superseding 324 Conn. 654, 153 A.3d 1249 (2017). Reversing the trial court, granting the plaintiff’s motion for en banc reconsideration of its earlier Feb.