The Seventh Circuit affirmed a district court’s ruling that a debtor-in-possession (“DIP”) lender had breached its financing agreement, barring its claim for commitment and funding fees from the DIP. Arlington LF, LLC v. Arlington Hospitality, Inc., No. 09-3560, 2011 WL 727981, *9 (7th Cir. March 3, 2011), aff’g No. 08 C 5098, 2011 WL 3055350 (N.D. Ill. Sept. 18, 2009). Although the DIP itself had also breached the agreement, that breach was not, in the court’s view, effective until after the lender had already “walked away.” Id. at *6.

The Bankruptcy Court for the Southern District of New York recently considered the enforceability of claims for "make-whole" amounts and damages for breach of a "no-call" provision. In re Chemtura Corp., No. 09-11233 (Bankr. S.D.N.Y. Oct. 21, 2010) ("Chemtura"). These provisions are generally enforceable outside of bankruptcy, but enforceability in the context of a bankruptcy case is still unclear. In Chemtura, the court did not actually rule on enforceability but approved a settlement that allocated value to creditors on account of a make-whole clause and a no-call provision.

The U.S. Court of Appeals for the Third Circuit held on Feb. 3, 2009, that a debtor’s “strategic partnership” vendor was liable as a non-statutory insider for preferential payments it received approximately four months prior to the debtor’s bankruptcy. In re Winstar Communications, Inc., ___F.3d ___, 2009 U.S. App. LEXIS 1953, at *1 (3d Cir. 2/3/09). The court affirmed the bankruptcy court’s judgment (an 88-page decision with detailed fact findings), rendered after a 21-day bench trial that included 1,400 exhibits and 39 witnesses.

The U.S. Court of Appeals for the Eighth Circuit recently held that insiders who control the operations of a debtor owe a duty, as fiduciaries, to refrain from self-dealing. In re Brook Valley VII, Joint Venture (Lange v. Schropp), 496 F.3d 892 (8th Cir. 2007). The controlling insiders of two Chapter 11 debtors had thus breached their fiduciary duties to the debtors when they caused the debtors to consent to a foreclosure sale of estate properties and then secretly purchased the properties for themselves at the sale.

District Judge James D. Zagel of the United States District Court for the Northern District of Illinois on Nov. 9, 2007, ordered a Chapter 11 debtor-in-possession ("DIP") to "immediately" pay its so-called "commitment" and "DIP Facility Funding" fees. ("Loan Fees"). Arlington LF, LLC, v. Arlington Hospitality, Inc., 2007 WL 3334499 (N.D. Ill. 11/9/07). Reversing the bankruptcy court, the district court held that the DIP was not excused from paying the fees despite the lender's earlier refusal to advance further funds on its $6 million revolving loan agreement ("Revolver"). Id. at 5.

The Delaware Supreme Court affirmed on May 18, 2007, the Delaware Chancery Court’s dismissal of a breach of fiduciary duty suit brought by a creditor against certain directors of Clearwire Holdings Inc. North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, C.A. No. 1456-N (May 18, 2007).

Whether a creditor may assert a direct claim against corporate directors for breach of fiduciary duty when the corporation is insolvent or in the so-called “zone of insolvency.”

Answer: No.

A district court judgment dismissing a $500 million fraudulent transfer and breach of fiduciary duty suit against Campbell Soup Co., the former parent of Vlasic Foods International (“VFI” or “the debtor”), was affirmed by the United States Court of Appeals for the Third Circuit, on March 30, 2007. VFB, LLC v. Campbell Soup Co., 2007 WL 942360 (3d Cir. 3/30/07).

Last month, the Chapter 7 trustee (the "Trustee") in the Viashow bankruptcy filed avoidance actions against several creditors of the bankruptcy estate.  One avoidance action in particular seeks to recover damages allegedly sustained by Viashow due to breaches of fiduciary duties by its officers and directors (the "D&O Action").  In addition to Viashow's officers and directors, the D&O Action seeks damages against defendants who allegedly "aided and abetted" the officers and directors in their breach.  

Summary

In an 11 page opinion published May 27, 2011, Judge Walsh granted a motion under F.R.C.P. 56(d) and quoted another opinion which says “where the facts are in possession of the moving party a continuance of a motion for summary judgment for purposes of discovery should be granted almost as a matter of course.” Judge Walsh’s opinion is available here (the “Opinion”).

Background

Recently, over 180 adversary actions were filed in the MPC Computers bankruptcy. The adversary actions fall generally in to two categories - preference actions filed by MPC's Committee of Unsecured Creditors and breach of contract actions filed by MPC. This post will look briefly at why MPC filed for bankruptcy and discuss what may happen next now that the adversary actions are underway.

Background on the MPC's Business and Events Leading to Bankruptcy