When entering into secured transactions, most secured lenders long assumed that, even in a bankruptcy, their borrowers would not be able to sell encumbered assets free and clear of the lenders’ liens without the lenders’ consent or, without at least providing the lenders the opportunity to bid their secured debt at an auction.

The Bottom Line:

In a decision that is expected to have wide-ranging implications for secured lenders and reorganization plan sales nationwide, the Seventh Circuit’s June 28, 2011 opinion in In re River Road1 marks a jurisdictional split on the contours of credit bidding in bankruptcy. While this decision is squarely at odds with decisions of the Courts of Appeals for the Third and Fifth Circuits, its holding is in many respects a validation of Judge Ambro’s robust dissent in Philadelphia News,2 and is arguably more aligned with mainstream bankruptcy thinking on credit bidding issues.

Last month, Jeoffrey Burtch, the Chapter 7 Trustee (the "Trustee") in the Opus East bankruptcy filed approximately 90 preference actions against various defendants.  As stated in his complaints, the Trustee "seeks to avoid and recover ... all preferential transfers of property made for or on account of an antecedent debt made to or for the benefit of the Defendant by the Debtor during the ninety-day period prior to the filing of the Debtor's bankruptcy petition under 11 U.S.C. sec.

REEDSBURG UTILITY COMMISSION v. GREDE FOUNDRIES (July 13, 2011)

On June 28, 2011, in In re Enron Creditors Recovery Corp. v. Alfa,1 the Second Circuit Court of Appeals held that Enron’s redemption of its commercial paper prior to maturity fell within the definition of a “settlement payment” and was protected from avoidance under § 546(e)’s safe harbor provision in Title 11 of the United States Code.2

While 90 percent of life may be just showing up, showing up late may be just as bad as never showing up at all. Just ask two creditors who were told for the second time they cannot file claims in the Lehman Brothers bankruptcy case because they filed their claims too late.

Kary Brown collided with a car while he was driving a truck for Koetter Woodworking. Melvin Kimbrell, a passenger in the car, suffered injuries. Kimbrell brought a personal injury action against both Brown and Smith in October of 2008, although he did not serve process until June of 2009. When Brown advised the district court that he had filed a bankruptcy petition in February 2008, the court stayed the proceeding as to him.

In Stern v. Marshall, 564 U.S. ____ (June 23, 2011), the U.S. Supreme Court, in a 5-4 decision, held that the bankruptcy court could not, as a constitutional matter, enter a final judgment on a counterclaim that did not arise under Title 11 or in a case under Title 11, even though 28 U.S.C. § 157(b)(2)(C) expressly permits it to do so. In a dispute concerning the estate of the late J. Howard Marshall II, Pierce Marshall filed a complaint in Vickie Lynn Marshall’s bankruptcy case alleging that Vickie defamed him and that such defamation claim was not dischargeable.

When creditors succeed in obtaining an order for relief in an involuntary Chapter 11 case and the appointment of a Chapter 11 trustee, who controls the appeals for those orders? According to an April 28, 2011 order of the U.S. District Court for the District of Nevada, the correct answer is the Chapter 11 trustee.