Introduction

The United States Bankruptcy Court for the Southern District of New York (the Court), has held that section 553(a) of the Bankruptcy Code prohibits a swap counterparty from setting off amounts owed to the debtor against amounts owed by the debtor to affiliates of the counterparty, notwithstanding the safe harbor provision in section 561 of the Bankruptcy Code and language in the ISDA Master Agreement permitting the swap counterparty to effect “triangular” setoffs. In re Lehman Brothers Inc., Case No. 08-01420 (JMP)(SIPA) (Bankr. S.D.N.Y. October 4, 2011).

The United States District Court for the Southern District of Ohio, applying Ohio law, has held that a dishonesty exclusion barred coverage under primary and excess directors and officers (D&O) policies for the Wrongful Acts of the principals of a bankrupt company, all of whom were criminally convicted of securities fraud and related crimes.  The Unencumbered Assets Trust v. Great American Insurance Co., et. al., 2011 WL 4348128 (S.D. Ohio Sept.

On October 4, 2011, the United States Bankruptcy Court for the Southern District of New York ruled that a contractual right of a triangular (non-mutual) setoff was unenforceable in bankruptcy, even though the contract was safe harbored. In re Lehman Brothers, Inc., No. 08-01420 (JMP), 2011 WL 4553015 (Bankr. S.D.N.Y. Oct. 4, 2011).

On July 22, 2011, Bankruptcy Judge Craig A.

 IN RE: LONGVIEW ALUMINUM, L.L.C. (September 2, 2011)

A New York bankruptcy court recently considered the effects of Bankruptcy Code section 552 on a lender’s security interest in the proceeds of an FCC broadcast license and held that a prepetition security interest extended to proceeds received from a post-petition transfer of the debtors’ FCC license. Sprint Nextel Corp. v. U.S. Bank. N.A. (In re Terrestar Networks, Inc.), Case No. 10-15446, Adv. Pro. No. 10-05461 (Bankr. S.D.N.Y. Aug. 18, 2011). This result directly conflicts with Spectrum Scan LLC v. Valley Bank and Trust Co. (In re Tracy Broadcasting Corp.), 438 B.R.

Recently, the Third Circuit held that withdrawal liability triggered after a bankruptcy filing date may be apportioned to pre- and post-petition service for the debtor, and that the withdrawal liability attributable to post-petition service may be entitled to priority over general unsecured claims under the Bankruptcy Code.  Employers that participate in a multiemployer pension plan should determine the claims impact of withdrawal in light of this court decision and also assess whether filing for bankruptcy protection outside of the Third Circuit is appropriate.  

LLC organizers sometimes refer to themselves loosely as “partners” during the preliminary stages of a development project, before they get around to forming their limited liability company, but those words can come back to haunt them. Say, for example, that during the pre-formation phase, one of the organizers signs a contract in his own name, intending that the LLC carry out the contract. The LLC is formed, but then the project doesn’t go forward, the parties fall out, and the organizer that signed the contract can’t pay.

In Green Tree Serv., LLC v. DBSI Landmark Towers LLC,1 a case that is significant for landlords and leasing attorneys, the Eighth Circuit recently held that a subtenant of commercial office space was permitted to vacate its leased premises after the rejection of the master lease and sublease by the debtor-sublandlord, notwithstanding an attornment provision in the sublease requiring the subtenant to attorn2 to the landlord when the landlord either terminates the master lease or otherwise succeeds to the interest of the sublandlord under the master lease.