The United States Court of Appeals for the First Circuit upheld a bankruptcy court’s ruling that, where subordination agreements lacked explicit provisions addressing the payment of post-petition interest on senior unsecured debt, the agreements were ambiguous, and an inquiry into the parties’ intent was required. After probing the facts and analyzing New York law, the bankruptcy court determined that the contracting parties did not intend to subordinate the junior unsecured debt to post-petition interest on the senior debt.

Background

On June 28, 2011, the Court of Appeals for the Seventh Circuit rejected the views of the Third Circuit and the Fifth Circuit and held that a reorganization plan which proposes the sale of encumbered assets free and clear of liens must honor the secured creditor’s right to credit bid its claim in order to be confirmed under the “fair and equitable” standard of the Bankruptcy Code. In the combined appeals of In re River Road Hotel Partners, LLC, et al. andIn re Radlax Gateway Hotel, LLC, et al.

On June 23rd, the First Circuit addressed the priority of claims asserted by senior noteholders and junior noteholders of debt issued by an insolvent bank. It affirmed the bankruptcy court's finding that the parties did not intend for the senior noteholders to receive post-petition interest payments prior to the junior noteholders receiving a distribution. In re: Bank of New England Corporation, Debtor.  

As revealed in a recent bankruptcy case, purchasers of contaminated property need to have a very clear understanding of their contractual remedies before proceeding with self-help. The case (In re Evans Industries, Inc., No.

In a decision that may create serious problems for bankruptcy case administration, the Supreme Court this morning invalidated part of the Bankruptcy Court jurisdictional scheme. Stern v. Marshall, No. 10-179, 564 U.S. ___ (June 23, 2011). Specifically, the Court held that the Bankruptcy Courts cannot issue final judgments on garden variety state law claims that are asserted as counterclaims by the debtor or trustee against creditors who have filed proofs of claim in the bankruptcy case.

On June 7th, Bloomberg reported that the FDIC, as receiver for Downey Savings & Loan Association, has sued Amerifund Financial Inc., a mortgage broker. The FDIC alleges that Amerifund altered or misstated borrowers' financial information while processing mortgage applications for Downey. Lawsuit.  

On June 7th, the Eleventh Circuit affirmed the entry of summary judgment dismissing Chapter 13 debtors' claims against Wells Fargo, which holds debtors' mortgages. Debtors alleged that Wells Fargo violated the Bankruptcy Code's automatic stay provisions by recording in its internal records the fees it incurred to file its proof of claim. The Eleventh Circuit held that Wells Fargo did not violate the automatic stay because it had not collected or attempt to collect those fees. Similarly, a claim based on Wells Fargo's failure to disclose the fees was not yet ripe for action.

On April 26, 2011, the Supreme Court of the United States adopted amended Federal Rule of Bankruptcy Procedure 2019 (“Rule 2019”). Rule 2019 governs disclosure requirements for groups and committees that consist of or represent multiple creditors or equity security holders, as well as lawyers and other entities that represent multiple creditors or equity security holders, acting in concert in a chapter 9 or chapter 11 bankruptcy case.

On April 21st, the Federal Reserve Board requested comment on two bankruptcy-related studies. The Dodd-Frank Act requires the Federal Reserve Board to study the resolution of financial companies under Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code. The Dodd-Frank Act also requires the Federal Reserve Board to study international coordination of the resolution of systemically important financial companies under the Bankruptcy Code and applicable foreign law.

On April 18th, the FDIC released a report examining how it could have structured an orderly resolution of Lehman Brothers Holdings Inc. under the orderly liquidation authority of the Dodd-Frank Act had that law been in effect at the time.