Section 510(b) of the Bankruptcy Code provides that claims for “damages arising from the purchase or sale of . . . a security” of the debtor or an affiliate of the debtor are subordinated to any claims not based on stock. 11 U.S.C. § 510(b). Because there is rarely enough value in a bankrupt company to satisfy all claims, a determination that a particular claim is subject to mandatory subordination under section 510(b) means that, as a practical matter, the claim is unlikely to receive any distribution from the estate.

On June 16th, the Supreme Court of the United States issued a decision that is likely to have a significant impact on how debtors will sell assets in bankruptcy. InFlorida Department of Revenue v.

On May 23, 2008, in American Home Mortgage Investment Corp. v. Lehman Bros. Inc.(In re American Home Mortgage Corp.),1 the United States Bankruptcy Court for the District of Delaware ruled that BBB-rated mortgagebacked notes are eligible for the Bankruptcy Code’s repurchase agreement safe harbor as “interests in mortgage loans”.

Many of the cases we have reported on continue to be hotly debated among the parties and are subject to appeals or motions for reconsideration. In an effort to keep you updated, we have highlighted some of these developments below.

Musicland

In Mukamal v. Bakes,1 the trustee of two trusts created under a chapter 11 plan of reorganization filed a complaint (the “Complaint”) against the former directors and officers of the debtors, the dominant shareholders of the debtors and the debtors’ accounting firm, alleging, among other things, various breaches of fiduciary duties.

In Giant Eagle, Inc. v. Phar-Mor, Inc.,1 the United States Court of Appeals for the Sixth Circuit held that a lessor-claimant whose lease was rejected pursuant to section 365(a) of Title 11 of the Bankruptcy Code was entitled to a claim for future-rent damages against the debtor, even though the lessor had entered into a nearly identical substitute lease. The Court concluded that efforts to mitigate damages by the lessor would not be considered in reducing the actual damage claim when those efforts failed to reduce the actual harm suffered by the lessor.

In COR Route 5 Co. v. Penn Traffic Co.1 (In re Penn Traffic Co), the United States Court of Appeals for the Second Circuit held that a non-debtor party to an executory contract may not, by fulfilling its contractual obligations post-petition, deprive the debtor of its ability to reject an executory contract.

In Go West Entertainment, Inc. v. New York Liquor Authority (In re Go West Entertainment, Inc.),1 the United States Bankruptcy Court for the Southern District of New York refused to extend the automatic stay or to utilize its other injunctive powers to prevent state regulatory authorities from revoking a debtor’s liquor license.

September 21, 2008 Following a week of unprecedented market upheaval, players in financial contracts got some reassurance from the bankruptcy judge presiding over the liquidation of broker/dealer Lehman Brothers Inc. (“LBI”) and the sale of a portion of its assets to Barclays Capital Inc. (“BCI”).

In In re Bryan Road LLC,1 the United States Bankruptcy Court for the Southern District of Florida considered whether a waiver of the automatic stay provision included in a prepetition workout agreement is enforceable in the debtor’s subsequent bankruptcy. The Bankruptcy Court enforced the waiver and held the creditor was not bound by the automatic stay after engaging in a four-factor analysis of the agreement and the circumstances surrounding its execution. The Bankruptcy Court cautioned, however, that relief from stay provisions are neither per se enforceable nor self-executing.