In Clear Channel Outdoor, Inc. v.Knupfer (In re PW, LLC),1 the United States Bankruptcy Appellate Panel for the Ninth Circuit (the “BAP”) addressed the issue of whether a secured creditor had purchased estate property free and clear of liens, claims and encumbrances outside of a plan of reorganization.

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 the summer of 2007, we reported on Gredd v. Bear, Stearns Securities Corp. (In re Manhattan Investment Fund, Ltd.),1 decided by the United States Bankruptcy Court for the Southern District of New York.

A recent federal district court appellate decision issued in the Enron chapter 11 case1 has ruled that the postpetition transfer of a prepetition bankruptcy claim from one party to another may insulate the transferred claim against certain types of attack based solely on conduct by a prior holder of the same claim. Whether a particular claim is protected depends upon how the claim was transferred.

Debtors, creditors, purchasers and lenders continue to carefully monitor employee incentive programs after the 2005 changes to Bankruptcy Code brought on by BAPCA. Although many feared the changes to section 503(c) would eliminate an important tool for creating incentives for employees, courts have consistently approved reasonable and well-thought-out incentive programs.

Factual Background

On April 1, 2013, the U.S. Bankruptcy Court for the Eastern District of California ruled that the City of Stockton qualified to file for protection under chapter 9 of the Bankruptcy Code. The court’s decision on this issue serves as an important milestone for chapter 9 jurisprudence, clarifying the requirements for “good faith” negotiations and being “insolvent” as conditions to filing for chapter 9 protection. Significantly, the court held that a municipal debtor need not negotiate with all of its creditors, only those that it intends to impair.

While the Bankruptcy Code’s safe harbor provision in section 546(e) previously provided comfort for brokerdealers, the Bankruptcy Court’s decision in Gredd v. Bear, Stearns Securities Corp. (In re Manhattan Investment Fund, Ltd.), 359 B.R. 510 (Bankr. S.D.N.Y. 2007), chips away at this provision and creates new risks for those providing brokerage account services. Always at risk as a deep pocket, new duties have been thrust upon brokerdealers that go far beyond the terms of the account agreement.

Factual Background

On June 22, 2012, Judge Robert Drain of the United States Bankruptcy Court for the Southern District of New York granted the motion of the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union to dismiss Hostess’s motion to reject certain expired collective bargaining agreements.  The court held that section 1113 of the Bankruptcy Code no longer applied to key portions of the CBAs because the agreements had expired – certain CBA obligations remained in force only by operation of the National Labor Relations Act.  In re Hostess Brands, Inc., 2012 WL 23

Earlier this year, the U.S. Court of Appeals for the Second Circuit held that a proposed “gifting” plan distributing value from the second lien lenders to the prepetition equity holder violated the absolute priority rule and was confirmed in error.2 This decision, by a 2-1 panel vote,3 reversed the decisions of the Bankruptcy and District Courts for the Southern District of New York. The Second Circuit also affirmed unanimously the designation of the vote of an indirect competitor of the debtor that held no claims prior to the petition date.

On July 13, 2010, a three-judge panel of the United States Court of Appeals for the Third Circuit unanimously held that auto-parts supplier Visteon Corporation could not terminate health and life insurance benefits for approximately 2,100 retirees during its chapter 11 bankruptcy unless Visteon followed the specific requirements laid out in section 1114 of the Bankruptcy Code, even if Visteon would have had the unilateral right to terminate these benefits outside bankruptcy.1 The Court found that a debtor may terminate any retiree benefits in bankruptcy only if,inter alia, the debt