On June 23, 2011, the US Supreme Court issued a narrowly-divided decision in Stern v. Marshall, limiting Bankruptcy Court jurisdiction over certain types of claims. The Court found that while the Bankruptcy Court was statutorily authorized to enter final judgment on a tortious interference counterclaim (as a core proceeding under 28 U.S.C. § 157(b)(2)(C)), it was not constitutionally authorized to do so.

A bankrupt holding company has reportedly agreed to pay $8.7 million to settle nuisance claims brought by a number of California cities and counties alleging public health problems caused by lead paint in homes and buildings. The funds will apparently be used to remediate lead paint-related health issues. Other defendants include lead paint manufacturers and distributors; trial against them is expected in 2012. California prosecutors are seeking an order requiring the cleanup of lead-contaminated buildings and a monetary contribution for public health efforts. See Law360, June 24, 2011.

Introduction

This article is for non-bankruptcy attorneys who have clients that may become involved in a bankruptcy case because they sold goods to a party that subsequently filed bankruptcy (a “debtor”). Accordingly, this article discusses, among other things, factors influencing whether trade creditors should become actively involved in a bankruptcy and the remedies available to trade creditors in bankruptcy.

I. Who Is A Trade Creditor

The United States Supreme Court recently ruled in Stern v. Marshall1 that a bankruptcy court lacks constitutional authority to render a final judgment on a bankruptcy estate’s counterclaim against a creditor based on state common law, despite an express statutory grant of jurisdiction. This ruling is the most significant decision regarding bankruptcy court jurisdiction since the Court’s 1982 decision in Northern Pipeline v. Marathon2 and it could significantly affect the administration of bankruptcy cases.

Root of the Constitutional Problem

During her lifetime, Vickie Lynn Marshall, publicly known as Anna Nicole Smith (“Vickie”), was hardly a stranger to the prying eyes of the media. Today, the late Vickie is again the subject of media coverage, this time in the context of a fifteen-year legal saga that has twice reached the United States Supreme Court.

On June 28th, the Second Circuit held that payments made by Enron to redeem its commercial paper prior to maturity were not avoidable under the Bankruptcy Code. In doing so, the Court answers in the affirmative an issue of first impression among the appellate courts: whether the Bankruptcy Code's safe harbor, 11 U.S.C. Sec. 546(e), which shields settlement payments from avoidance in bankruptcy, extends to an issuer's payments to redeem its commercial paper prior to maturity.

On July 6, 2011 the Federal Deposit Insurance Corporation's ("FDIC's") Board of Directors met in open session, voting unanimously to approve a final rule addressing the claims process and other aspects of the FDIC's orderly liquidation authority under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank").  The Board also discussed the FDIC's progress in preparing final rules with respect to both resolution planning under Dodd-Frank and the FDIC's own proposal, issued prior to the enactment of Dodd-Frank, separately calling for certain large insured de

The US Court of Appeals for the Second Circuit recently held that redemptions of commercial paper made through the Depositary Trust Company (DTC) are entitled to the “safe harbor” protections afforded to settlement payments under Bankruptcy Code Section 546(e), and are, therefore, not preferential transfers, even though such payments were made prior to maturity.1 The Second Circuit is the first Circuit Court of Appeal to address the issue, which arises out of the Enron bankruptcy case.

Legal Framework

Since it was issued three years ago by the Ninth Circuit Bankruptcy Appellate Panel, the Clear Channel decision (Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. B.A.P. 2008)) has been widely criticized as “an aberration in well-settled bankruptcy jurisprudence.” Before Clear Channel, conventional wisdom (and what most people perceived to be the law) supported the notion that a bankruptcy sale order that contained a good faith finding under Section 363(m) could not be disturbed on appeal.