Would you know what to do if you learned that one of your franchisees had filed for bankruptcy? Perhaps more importantly, would you know what not to do? While each circumstance and franchise agreement is different, there is a general framework for dealing with a franchisee in bankruptcy. Here we’ll introduce some of the issues you are likely to encounter throughout the bankruptcy process.

The Automatic Stay

In a case of importance to foreign representatives of foreign debtors seeking the assistance of US courts pursuant to chapter 15 of the Bankruptcy Code, the US Court of Appeals for the Second Circuit has held that the debtor eligibility requirements of section 109(a) of the US Bankruptcy Code apply in cases under chapter 15 as they would in cases under other chapters of the Bankruptcy Code. The decision in Drawbridge Special Opportunities Fund LP v. Barnet (In re Barnet), Case No. 13-612 (2d Cir. Dec.

In a case of significant importance to licensees of US intellectual property, the US Court of Appeals for the Fourth Circuit held in Jaffé v. Samsung Electronics Co. (In re Qimonda), Case No. 12-1802, 2003 WL 26478864 (4th Cir. Dec. 3, 2013) (“Jaffé”), that a bankruptcy court did not err by requiring that the protections of section 365(n) of the Bankruptcy Code apply with respect to a foreign debtor’s US intellectual property (“IP”) as a condition of granting the debtor’s foreign representative relief under chapter 15 of the Bankruptcy Code.

A recent Third Circuit reversal paves the way for Fair Debt Collection Practices Act (FDCPA) lawsuits based on minor procedural mishaps in bankruptcy court. This contradicts the law in the Second and Ninth Circuits and in many district and bankruptcy courts that previously have found that participation in bankruptcy proceedings is not an attempt to collect a debt and thus not grounds for an FDCPA claim.   

In re American Roads LLC, et al., 496 B.R. 727 (S.D.N.Y. 2013

CASE SUMMARY

An ad hoc committee of bondholders who executed an agreement with a monoline insurer securing claims under an insured unitranche containing a “no action” clause, bargained away their right to appear in the debtor’s bankruptcy case and, therefore, lacked standing to object to the debtor’s chapter 11 plan.

FACTUAL  BACKGROUND

In re Investors Lending Group, LLC, 489 B.R. 307 (Bankr. S.D. Ga. 2013)

CASE  SNAPSHOT

The secured lender was judicially estopped from objecting to the valuation of parcels of land that the debtor proposed to surrender to the secured creditor through its plan of reorganization because the debtor used the valuations provided by the secured lender’s appraiser.

FACTUAL  BACKGROUND

In In re Eastman Kodak Co., 495 B.R. 618 (Bankr. S.D.N.Y. 2013) (No. 12-10202), the Bankruptcy Court for the Southern District of New York permitted a Chapter 11 debtor-in-possession (Kodak) to assign a previously assumed real estate lease despite the lease’s anti-assignment clause.

The Third Circuit recently held that claims purchased from trade creditors by a claims trader will be disallowed under section 502(d) of the Bankruptcy Code when the seller of the claim received, and did not repay, a preference. In doing so, the United States Court of Appeals for the Third Circuit expressed its disagreement with a relatively recent decision in the United States District Court for the Southern District of New York which reached the opposite conclusion.

In a recent decision, the Court of Appeals for the Third Circuit (the “Third Circuit”) affirmed¹ the bankruptcy court’s decision in In re KB Toys, Inc.,² and held that a claim that is subject to disallowance under section 502(d) of the Bankruptcy Code in the hands of the original claimant is similarly disallowable when that claim is held by a subsequent transferee because the section is applicable to “claims” rather than “claimants.” This holding is in contrast to a prior decision of the District Court for the Southern District of New York in