With the flood of debt-heavy capital structures created over the past decade, bankruptcy courts have been left to clean up the remnants of many failed transactions. Given the volume of debt provided, courts are likely to continue to be called upon to determine the relative rights of creditors that result from multi-tiered debt structures.

Introduction

Regional landline network operator Fairpoint Communications is finally poised to emerge from Chapter 11 bankruptcy as a result of the decision of the Vermont Public Safety Board (VPSB) to approve the company’s amended reorganization plan. Vermont had been the lone holdout among Maine, New Hampshire and 15 other states that had previously endorsed the plan. The reorganization was precipitated largely by the financial burden of FairPoint’s $2.3 billion purchase of New England landlines from Verizon Communications in 2008.

On December 29, 2010, the Honorable Mariana R. Pfaelzer denied a motion by Stichting Pensioenfonds ABP ("Plaintiff") to remand its claims against Countrywide and others to state court. Judge Pfaelzer concluded that the case was sufficiently related to a bankruptcy case to confer federal jurisdiction in light of contractual indemnification obligations of a bankrupt originator, American Home Mortgage Corp., to Countrywide. The Court also concluded that there were no equitable grounds meriting remand.

The Bankruptcy Appellate Panel for the Sixth Circuit (BAP) recently held that a mortgagee that held a collateral assignment of rents on property in which the debtor had no equity was not adequately protected by cash collateral orders entered by the bankruptcy court that granted the lender a "replacement lien" on post-petition rents.

A Bankruptcy Appellate Panel (BAP) of the Tenth Circuit recently upheld a bankruptcy court’s dismissal of an LLC’s Chapter 11 bankruptcy petition on the ground that the LLC’s operating agreement barred the LLC from filing for bankruptcy. DB Capital Holdings, LLC v. Aspen HH Ventures, LLC (In re DB Capital Holdings, LLC), No. CO-10-046, 2010 Bankr. LEXIS 4176 (B.A.P. 10th Cir., Dec. 6, 2010).

The United States Bankruptcy Court recently denied confirmation of a bankruptcy plan even though it found that the plan's global settlement was "fair and reasonable."1 Why? Because the plan's releases were too broad and "unreasonable" for many of the constituents. The case provides a pointed lesson to creditors and debtors alike — pay attention to the releases; overdoing it may sink the whole ship.

In Ransom v. FIA Card Servs., N.A., --- S.Ct. ----, 2011 WL 66438 (U.S. 2011), the United States Supreme Court took up the question of whether a Chapter 13 debtor who owns his or her vehicle outright (“free and clear”) may claim an allowance for car ownership costs and thereby reduce the amount that he or she will repay creditors. In her first opinion, Justice Kagan answered simply—no. The Ransom opinion has been seen as a victory for not only credit card companies like the one involved but other creditors, as well.

Rea v. Federated Investors, 2010 WL 5094250 (3d Cir., December 15, 2010) – The Third Circuit Court of Appeals has ruled that a provision in the Bankruptcy Code which prohibits private employers from “terminat[ing] the employment of, or discriminat[ing] with respect to employment” against an individual who had previously declared bankruptcy, doesnot create a cause of action against a private employer who declines to hire based upon an applicant’s previously declared bankruptcy. Analyzing the bankruptcy provision at issue, 11 U.S.C.

Granite Reinsurance Company won an award for unpaid premiums from Acceptance Insurance Company (in rehabilitation) in a bankruptcy adversary proceeding. The unpaid premiums amounted to $9 million on a $15 million dollar policy that was purchased to cover Acceptance for five years. The parties had agreed to a $3 million per year premium payment schedule, due at the beginning of each of the five years covered under the reinsurance agreement. However, a dispute arose as to the calculation of pre-judgment interest on the award.