(Bankr. E.D. Ky. May 18, 2017)

The Bottom Line

Tidewater Inc., along with 25 of its subsidiaries and affiliates, has filed a petition for relief under Chapter 11 in the Bankruptcy Court for the District of Delaware (Case No. 17-11132).

Intercreditor agreements between multiple lenders are part and parcel of lending to a company with several tranches of debt. Under section 510 of the United States Bankruptcy Code (the “Code”), “[a] subordination agreement is enforceable in a case under this title to the same extent that such agreement is enforceable under applicable nonbankruptcy law.” 11 U.S.C. § 510(a) (West 2017).

On May 15, 2017, the United States Supreme Court issued its decision in Midland Funding, LLC v. Johnson, 581 U.S. ___ (2017) in which it held that filing an “obviously time-barred” proof of claim in a bankruptcy proceeding does not violate the Fair Debt Collection Practices Act (FDCPA).

(Bankr. W.D. Ky. May 12, 2017)

The bankruptcy court enters summary judgment against the debtor holding the debt nondischargeable pursuant to 11 U.S.C. § 523(a)(4). The plaintiffs inherited a judgment against the debtor that was based on the debtor’s theft of the decedent’s property. The plaintiffs were the proper parties to bring the claim, as the decedent’s estate assigned the judgment to them, and the requirements of § 523(a)(4) were satisfied. Opinion below.

Judge: Lloyd

Attorneys for Plaintiffs: Crain – Schuette Attorneys, Amanda Lisenby Blakeman

Rue21 Inc. (“Rue21”) filed for Chapter 11 bankruptcy protection in Pittsburgh, PA on Monday (case no. 17-22045-GLT, Western District of Pennsylvania).

“The law has long treated unenforceability of a claim (due to the expiration of the limitations period) as an affirmative defense … And we see nothing misleading or deceptive in the filing of a proof of claim that, in effect, follows the Code’s similar system.”

Midland Funding, LLC v. Johnson, (May 15, 2017).

Overview

Earlier this week, the U.S. Supreme Court held that a creditor who deliberately files a bankruptcy proof of claim for a time-barred claim does not violate the Fair Debt Collection Practices Act (FDCPA). Midland Funding v. Johnson, No. 16-348, 581 U.S. __ (May 15, 2017) (slip op.). The 5-3 decision authored by Justice Stephen Breyer was met with a blistering dissent by Justice Sonia Sotomayor. While the decision will help unscrupulous debt collectors, it will likely hurt legitimate creditors such as banks.