On December 12, 2019, the United States Court of Appeals for the Sixth Circuit (“Sixth Circuit”) issued an opinion affirming in part and reversing in part a bankruptcy court’s assertion of exclusive and unlimited jurisdiction over certain of FirstEnergy Solutions’ (“FES”) power purchase agreements that FERC had previously approved under the Federal Power Act (“FPA”) and that FES sought to reject in bankruptcy.
In In re Ditech Holding Corp., 2019 WL 4073378 (Bankr. S.D.N.Y. Aug. 28, 2019), the U.S. Bankruptcy Court for the Southern District of New York addressed several objections to confirmation of a chapter 11 plan that proposed to sell home mortgage loans "free and clear" of certain claims and defenses of the homeowner creditors, contrary to a provision of the Bankruptcy Code—section 363(o)—which was enacted in 2005 to prevent free and clear sales of certain claims and defenses relating to consumer credit agreements.
Whether because of, or in spite of, the proliferating case law it is hard to say, but the issues in, underlying and surrounding third-party releases in Chapter 11 plans just continue to arise with incessant regularity, albeit without a marked increase in clarity. We have posted about those issues here six times in little more than two years,[1] and it is fair to assume that this post will not be the last.
Prepayment premiums (also referred to as make-whole premiums) are a common feature in loan documents, allowing lenders to recover a lump-sum amount if a borrower pays off loan obligations prior to maturity, effectively compensating lenders for yield that they would have otherwise received absent prepayment. As a result of the widespread use of such provisions, three circuit courts of appeal – the U.S. Court of Appeal for the Second, Third and Fifth Circuit – have recently had to address the enforceability of prepayment provisions in bankruptcy.
If you lend money, you know – or should know – it is a cardinal sin to collect a debt or repossess collateral after a borrower files bankruptcy.
Bankruptcy triggers the automatic stay – a command, not a suggestion, that collection activity cease. This is common knowledge, but every once in a while a case comes along that merits sharing as a reminder of what happens when lenders ignore the Bankruptcy Code.
Courts struggled this year to find a balance between state-licensed cannabis activity and the federal right to seek bankruptcy protection under the Bankruptcy Code. During 2019, we had the first circuit-level opinion in the bankruptcy/cannabis space that appeared to open the door to bankruptcy courts, albeit slightly. We also had lower court opinions slamming that door shut. Below, we look at a few of the most important decisions issued throughout 2019 and analyze the current state of the law.
The Ninth Circuit Court of Appeals’ Garvin Decision
On December 12, 2019, the United States Court of Appeals for the Sixth Circuit (the “Sixth Circuit”) issued a long awaited decision in the dispute between FirstEnergy Solutions Corp. (“FirstEnergy”), the Federal Energy Regulatory Commission (“FERC”) and certain power purchase contract counterparties, including the Ohio Valley Electric Corporation (“OVEC”).1 The decision helps clarify a murky area of jurisprudence and has significant implications for restructurings in the electric power sector.
We recently reported on a decision of the United States Court of Appeals for the Third Circuit in favor of a creditor that seized a debtor’s property pre-petition.
Currently there are no clear laws specifically addressing the means for addressing insolvency issues for debtors and creditors involved in the Cannabis industry. Like the industry itself, the laws are evolving. Using a Cannabis grower business as an example, at this time the Federal Court system is not available to address such entities insolvency issues.
Loan servicers’ employees are human beings. Loan servicing employees use systems designed by other human beings. We all know this and so should anticipate that there will be mistakes in loan servicing operations. Recently, the Seventh Circuit Court of Appeals reminded us that how loan servicers plan for and react to inevitable mistakes is important. The case also has some good reminders for litigation counsel and planning tips for loan servicers.