The New York Court of Appeals, on July 1, 2014, in response to questions certified by the U.S. Court of Appeals for the Second Circuit, held that “pending hourly fee matters are not [a dissolved law firm’s] ‘property’ or ‘unfinished business’” under New York’s Partnership Law. In re Thelen LLP, __ N.Y.3d __, slip op. at 2 (July 1, 2014); see In re Thelen LLP, 213 F.3d 213, 216 (2d Cir. 2013).

The U.S. Court of Appeals for the Fifth Circuit held on June 23, 2014 that an oversecured lender’s legal fees were subject to the bankruptcy court’s review for reasonableness despite a court-ordered non-judicial foreclosure sale of the lender’s collateral. In re 804 Congress, LLC, ­­__ F.3d ­­__, 2014 WL 2816521 (5th Cir. June 23, 2014). Affirming the bankruptcy court’s power and reversing the district court, the Fifth Circuit found the lender’s utter failure to detail its legal fees with any documentary support to be fatal.

Facts

In 2011, the Supreme Court decided Stern v. Marshall, 564 U.S. ___, 131 S. Ct. 2594 (2011), which gave voice to the Court’s grave concerns about the constitutional limits of bankruptcy court jurisdiction and raised several questions that have confounded courts and lawyers for three years. Last week, the Supreme Court issued its first follow-up ruling, answering some of those questions and clarifying how bankruptcy courts are to handle so-called Stern claims. Despite that guidance, the opinion leaves several important questions unanswered.

As expected (and predicted), the bankruptcy judge in Dallas, Texas granted Mt. Gox’s request for an order of “recognition” that the debtor’s Tokyo insolvency action was a “foreign main proceeding.” She will also allow Mt. Gox’s bankruptcy trustee, Nobuaki Kobayahsi, to act as the “foreign representative” of the debtor in connection with whatever relief it might seek in the Chapter 15 case.

The United States Supreme Court, on June 9, 2014, unanimously held that certain “core” proceedings (e.g., fraudulent transfer suits ) could still be litigated in the bankruptcy court, but only if that court’s proposed fact findings and legal conclusions are subject to de novo review by the district court. Executive Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency), 2014 WL 2560461 (U.S. Sup. Court, June 9, 2014).

On June 18, 2014, the U.S. Bankruptcy Court in Dallas will consider whether to grant recognition to the insolvency case pending in Tokyo. Based on the pleadings filed last week, it is a virtual certainty that the court will enter an order granting recognition.

On May 21, the bankruptcy trustee for Mt. Gox advised depositors that the bankruptcy case in Tokyo was proceeding.  The information contained in the email was limited in scope, guarded and of little use in understanding the trustee’s view of how the bankruptcy ultimately may resolve. 

The U.S. District Court for the Southern District of New York, on April 27, 2014, issued a decision directing the bankruptcy court to dismiss fraudulent transfer complaints brought by the Madoff Securities Investor Protection Act of 1970 (“SIPA”) trustee against investment funds, their customers and individuals when the trustee failed “plausibly [to] allege that defendant[s] did not act in good faith.” SIPC v. Bernard L. Madoff Inv. Sec. LLC, 2014 WL 1651952, at *5 (S.D.N.Y. April 27, 2014).

The U.S. District Court for the Western District of Washington recently construed the terms of a customary loan agreement to preclude certain hedge funds viewed as “acquir[ing] distressed debt and engag[ing] in predatory lending” from voting on a debtor’s plan of reorganization. Meridian Sunrise Village, LLC v. NB Distressed Debt Investment Fund Ltd. (In re Meridian Sunrise Village, LLC), 2014 WL 909219 (W.D. Wash. Mar. 7, 2014).

The English Cases —Further Extension of UK Scheme of Arrangement for the Benefit of Foreign Companies