There is an inherent tension between the goals of bankruptcy law and the state law doctrine of constructive trust. A central tenet of bankruptcy policy is that similarly situated creditors should be treated equally: because an insolvent business or individual will not be able to pay all creditors in full, a proper bankruptcy system must provide as equitable a distribution to each of them as possible. Constructive trust law, on the other hand, works to the advantage of a single creditor – which always means the detriment of the others when everyone is competing for limited funds.

(6th Cir. Feb. 23, 2017)

The Sixth Circuit affirms the bankruptcy court’s decision to confirm the debtor’s Chapter 13 plan, which included payment of overdue property taxes under Tennessee law with an interest rate of 12%. The state argued that the interest rate should be 18% due to the additional 6% interest permitted under the applicable state statute for a default penalty. The court holds that the 12% provided in the “nonbankruptcy law” is applicable, while the 6% penalty is not applicable. Opinion below.

Judge: Stranch

In January 2017, a divided panel of the United States Court of Appeals for the Second Circuit issued its widely reported opinion in Marblegate Asset Management, LLC vs. Education Management Corp., in which the majority held that the “right ... to receive payment” set forth in Section 316(b) of the Trust Indenture Act of 1939 (TIA) prohibits only nonconsensual amendments to an indenture’s core payment terms and does not protect the practical ability of bondholders to recover payment.

Background

The United States Bankruptcy Code, pursuant to 11 U.S.C. Section 502(b)(6), caps a landlord's claim in bankruptcy for damages resulting from the termination of a real property lease. See In re PPI EnterprisesU.S., 324 F.3d 197, 207 (3rd Cir. 2003). Under Section 502(b)(6), a landlord-creditor is entitled to rent reserve from the greater of one lease year or 15 percent, not to exceed three years, of the remaining lease term.

(Bankr. S.D. Ind. Feb. 15, 2017)

In In re NewPage Corporation, et al., Adversary Proceeding No. 13-52429 (Bankr. D. Del. Feb. 13, 2017), a Delaware Bankruptcy Court applied a unique defense to certain preferential transfers targeted by a liquidating trustee. The defense focuses on a commonly overlooked element of a preferential transfer, section 547(b)(5).

Preference 101

A deposit into a checking or savings account seems like a pretty straightforward and innocuous transaction–unless the customer files for bankruptcy, and the bankruptcy trustee starts looking for assets to recover. Bankruptcy trustees will seek to recover money that once belonged to the borrower under various theories including fraudulent conveyance, particularly if the debtor-bank customer was running some sort of Ponzi or investment fraud scheme.

(S.D. Ind. Feb. 17, 2017)

The district court affirms the bankruptcy court’s judgment in favor of the plaintiff trust. The bankruptcy court held that the trust could pierce the corporate veil and hold the debtor personally liable to the trust. The district court analyzes Indiana law on veil piercing and finds no error. Opinion below.

Judge: Young

Attorney for Debtor: Goering Law LLC, Wilmer E. Goering, II

Attorney for Plaintiff: Kroger Gardis & Regas LLP, David E. Wright

Recently, the United States Bankruptcy Court for the District of Delaware held that a carve-out provision in a DIP financing order did not act as an absolute limit on the fees and expenses payable to the professionals retained by an unsecured creditors’ committee (the “Committee”). Rather, in In re Molycorp, Inc., 562 B.R. 67 (Bankr. D. Del.

On February 21, 2017, Judge Silverstein of the Delaware Bankruptcy Court issued an opinion (the “Opinion”) in the Outer Harbor Terminal bankruptcy proceeding – Bankr. D. Del., Case 16-10283. The Opinion is available here. This Opinion decided the Debtor’s objection to a claim for breach of contract filed by Kawasaki Kisen Kaisha, Ltd. (“K Line”).