The next time you negotiate a settlement payment with a financially troubled party, you may want to keep in mind an ancient term related to livestock herding: earmarking. The concept may be somewhat antiquated, but the Second Circuit has recently confirmed that it is still viable – and can help you keep the settlement payment if the other party later files for bankruptcy.

On January 7, 2013, the Judge Robert D. Drain of the United States Bankruptcy Court for the Southern District of New York held that a dispute concerning the debtors’ use of cash collateral was not subject to arbitration, notwithstanding a broad arbitration clause in the parties’ underlying agreement, because the decision to allow a debtor to use cash collateral constituted a “core” issue and was a fundamental aspect of the bankruptcy process. In re Hostess Brands, Inc., No. 12-22052 (RDD), 2013 WL 82914 (Bankr. S.D.N.Y. Jan. 7, 2013).

Background

On May 30, 2012, the United States Court of Appeals for the Eleventh Circuit held that a bankruptcy court in one federal district lacks jurisdiction to determine whether a debt was discharged under a chapter 11 plan confirmation order issued by a bankruptcy court in another federal district.  Alderwoods Group, Inc. v. Garcia, 1:10-cv-20509-KMM, 2012 U.S. App. LEXIS 10891 (11th Cir. May 30, 2012).  The decision makes it clear that a debtor must seek enforcement of its discharge order in the same federal court that granted the discharge in the first place.

In the W.R. Grace bankruptcy, the United States Court of Appeals for the Third Circuit recently reaffirmed its prior rulings on the controversial issue of a bankruptcy court’s power to enjoin actions by third parties against non-debtors.1 Resting on prior precedent, the Third Circuit held that bankruptcy courts lack subject matter jurisdiction to enjoin third party actions that have no direct effect upon the bankruptcy estate.

Introduction

In a recently filed motion in the United States Bankruptcy Court Southern District of New York (the “Motion”), Lehman Brothers Holdings Inc. (“LBHI”) is seeking to compel Metavante Corporation (“Metavante”) to perform its obligations under a swap agreement between Metavante and Lehman Brothers Special Financing Inc.

In the March 2008 issue, we discussed a decision from the In re Urban Communicators PCS, Ltd. Partnership1 case. In that decision, the United States Bankruptcy Court for the Southern District of New York held that under section 506(b) of the Bankruptcy Code, the Bankruptcy Court could limit the rate of postpetition interest to be paid to an over-secured creditor to an amount less than the contract interest rate.

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.

In UPS Capital Business Credit v. Gencarelli (In re Gencarelli),1 the First Circuit Court of Appeals addressed the issue of whether a secured creditor is entitled to collect a prepayment penalty from a solvent debtor. The Court found that the secured creditor could collect the penalty, whether or not it is reasonable, so long as the penalty is enforceable under state law. The Court reasoned that any other holding would leave open the possibility that an unsecured creditor could recover more from a solvent estate than a secured creditor.

Background

On January 30, 2013, Judge Christopher Klein of the Bankruptcy Court for the Eastern District of California held that, pursuant to section 904 of the Bankruptcy Code, a municipal debtor is not required to seek court approval to enter into settlements with and make settlement payments to prepetition creditors during the pendency of its chapter 9 case. The decision demonstrates the broad scope of section 904 and the free reign that a municipal debtor enjoys under that section during the pendency of its chapter 9 case. In re City of Stockton, Cal., Case No. 12-32118 (Bankr. E.D. Cal.