Recently, in Anderson v.
Claims trading has become increasingly commonplace in today’s bankruptcy cases, typically with little need for policing by the courts.
(Excerpted from “Retail Bankruptcies – Protections for Landlords,” Practical Law Journal, May 2018, by Lars Fuller)
Due to increasing competition from online sellers, recent years have seen a dramatic uptick in Chapter 11 bankruptcy filings by multistate brick-and-mortar retailers – some that have dozens, or even hundreds, of storefronts. These bankruptcies create challenges for the commercial landlords that own the shopping centers, malls and other establishments that those retailers rented.
The appellate courts are usually the last stop for parties in business bankruptcy cases. The courts issued at least three provocative, if not questionable, decisions in the past six months. Their decisions have not only created uncertainty, but will also generate further litigation over reorganization plan manipulation, arbitration of routine bankruptcy disputes and the treatment of trademark licenses in reorganization cases. Each decision apparently disposes of routine issues in business cases. A closer look at each case, though, reveals the sad truth: they are anything but routine.
In a case decided on March 28, 2018, the Ninth Circuit Court of Appeals held that a maritime lien on a vessel for the "maintenance and cure" of an injured seaman was not subject to the "automatic stay" that generally arises as the result of a bankruptcy filing by the owner of the vessel. In the case entitled Barnes v. Sea Hawaii Rafting, LLC, 886 F.3d 758, the Ninth Circuit Court of Appeals considered whether the special rules invoked by maritime law trumped the rules and equitable principles set out in the Bankruptcy Code, or whether bankruptcy law triumphed.
Are Trademark Licenses Protected in Bankruptcy? The Confusion Continues
Recently, the United States Bankruptcy Court for the District of Connecticut held that while a bankrupt licensor may reject a trademark licensing agreement, the trademark licensee may elect to retain its rights to the debtor’s trademark. The Bankruptcy Court noted that its ruling disagrees with a contrary decision issued by the First Circuit only a few months earlier.
Executory Contracts and the IP Exception
Recently, the United States Bankruptcy Court for the District of Connecticut held that while a bankrupt licensor may reject a trademark licensing agreement, the trademark licensee may elect to retain its rights to the debtor’s trademark. The Bankruptcy Court noted that its ruling disagrees with a contrary decision issued by the First Circuit only a few months earlier.
Executory Contracts and the IP Exception
A key consideration for investors in securities of bankrupt issuers is the extent to which the securities received upon consummation of a Chapter 11 plan will be freely transferable. While the trading restrictions may not change an investor’s determination to, for instance, participate in a backstop arrangement, or to receive an amount of securities that would result in potential affiliate status, the investor’s compliance and back-office functions will be responsible for monitoring reporting and implementing trades, and the potential slip-ups are many and varied.
As any financial or legal professional will advise, a promise, representation or agreement should be in writing. This sound advice applies equally in the bankruptcy context, as the Supreme Court recently held.[1] When extending credit to an individual who makes a statement about her financial condition—whether it be her overall financial status or as to a specific asset (such as using a tax refund to repay a debt)—the creditor must get that statement in writing.