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.

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.

The Bankruptcy Appellate Panel of the Sixth Circuit recently held that the constructive notice provisions of section 1301.401 of the Ohio Revised Code do not limit a bankruptcy trustee’s avoidance powers as a hypothetical judgment lien creditor under section 544(a)(1) of the federal Bankruptcy Code.

A copy of the opinion is available at:  Link to Opinion.

Reversing the rulings of both the appellate and the trial courts, the Supreme Court of the State of Illinois recently held that the deadline to file a motion to quash service under the Illinois Mortgage Foreclosure Law (IMFL) did not run while the foreclosure action was dismissed for want of prosecution.

A copy of the opinion is available at:  Link to Opinion.

The U.S. Court of Appeals for the Tenth Circuit recently held that the Rooker-Feldman doctrine did not bar the trial court from considering the plaintiff’s claims because she was not challenging or seeking to set aside an underlying non-judicial mortgage foreclosure proceeding under Colorado law.

Accordingly, the Tenth Circuit remanded to the trial court to determine what effect, if any, the non-judicial proceeding had under the doctrines of issue and claim preclusion.

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.

The Appellate Court of Illinois, First District, recently dismissed a mortgagee’s “breach of mortgage contract” action as an impermissible second refiling following prior voluntary dismissals of a 2011 foreclosure complaint and 2013 action for breach of the promissory note based upon the same note and mortgage.

The District Court of Appeal of the State of Florida, Fourth District, recently reversed a trial court’s order denying two borrowers’ request for attorney’s fees and costs on judicial estoppel grounds.

In so ruling, the Fourth DCA held that the trial court improperly relied on a Fifth Circuit case and failed to apply Florida’s judicial estoppel doctrine when it concluded that the borrowers’ failure to disclose their attorney’s fee claim in their Chapter 11 bankruptcy schedules barred the fee claim.

Adding to the growing split of authority among California’s various state appellate courts, and among various federal courts in California, the Court of Appeal of the State of California, Third Appellate District, recently held that a loan servicer may owe a duty of care to a borrower through application of the “Biakanja” factors, even though its involvement in the loan does not exceed its conventional role.