On April 12th, a federal district court addressed the in pari delicto defense, including the sole actor exception to the adverse interest exception. In the instant case, a litigation trust created in bankruptcy court to pursue the debtor's claims sued Credit Suisse for allegedly assisting the debtor's founders' looting of the debtor's subsidiaries. Credit Suisse sought summary judgment, asserting the in pari delicto defense. The Court agreed, finding that the evidence supported the conclusion that the founders so dominated the subsidiaries that the subsidiaries lacked a separate existence.
On May 18th, the Second Circuit, applying the Supreme Court's holding in Milavetz, Gallop & Milavetz, P.A. v. U.S., 130 S.Ct. 1324 (2010), reversed a trial court order finding that provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act that prohibit debt relief agencies from advising clients to incur more debt were overbroad and unconstitutional when applied to attorneys.
Swiss Investigating Magistrate Entitled to U.S. Documents
On August 20th, the U.S. Court of Appeals for the Tenth Circuit reversed a trial court's ruling finding that judgments against Ponzi scheme "net gainers" were non-dischargeable in bankruptcy. The debtors were early investors in what turned out to be a Ponzi scheme and received more money than they invested. When the Ponzi scheme was uncovered, the state State of Oklahoma sued the debtors for unjust enrichment but not for any securities violations. After the State obtained a judgment on the unjust enrichment claim, the debtors declared bankruptcy.
On April 7th, a federal bankruptcy court sanctioned Lender Processing Services, Inc., a home foreclosure service provider against whom the Federal Reserve Board and OCC have initiated enforcement action. The opinion explains LPS's business model and that model's failings, and cites case law documenting LPS's historic shortcomings. It reminds litigants that proving a default is the lender's, not counsel's, responsibility. In re Ron Wilson, Sr.
On May 17th, a federal district court denied motions to dismiss a securities fraud lawsuit alleging that defendants failed to disclose adequately their investment in notes issued by a shell company owned by Lehman Brothers, who provided the principal protection guarantee. Defendants' knowledge regarding the notes and Lehman's insolvency contradicted their public statements, satisfying Rule 10b-5's scienter requirements. Plaintiffs also allege that their losses were exaggerated by defendants' lack of disclosure, adequately alleging loss causation.
Crumbs Bake Shop Inc. shut down in July and filed for bankruptcy in New Jersey court that same month. The bankruptcy court ordered an auction sale, and a purchaser has come forward to buy all of the company’s assets.
On March 15, 2012, the American Bar Association’s Electronic Discovery (ESI) in Bankruptcy Working Group (the “Working Group”) published an interim report addressing certain principles and suggested best practices for electronic discovery in bankruptcy cases (the “Interim Report”). The Working Group was formed to study and prepare guidelines or a “best practices” report on the scope and timing of a party’s obligation to preserve ESI in bankruptcy cases.
On February 22nd, the Bankruptcy Court overseeing the liquidation of Lehman Brothers' broker-dealer business denied motions seeking to modify the order approving the sale of the business to Barclays Capital. The Court noted the extraordinary circumstances surrounding the sale, the affirmance of that sale order, and movants' failure to challenge the order for one year. The court held that even if the evidence presented here were known in 2008, the result would have been the same, i.e., the sale would have been approved.
On April 26th, the Eleventh Circuit held that the anti-injunction provision of the Financial Institutions Reform, Recovery and Enforcement Act prohibits a federal district court from enjoining the FDIC. A trial court had initially imposed a TRO against a failing bank prohibiting it from taking any action with respect to $1 billion worth of mortgage proceeds it held in trust for petitioner, Bank of America, who held legal title. When the FDIC was appointed receiver, the FDIC moved to dissolve the TRO. The trial court refused converting the TRO into a preliminary injunction.