Last week, the Supreme Court issued its decision in Travelers Indemnity Co. v. Bailey,2 establishing an important precedent concerning the ability of bankruptcy courts to release claims against third party non-debtors in chapter 11 plans of reorganization. In the June 2009 issue of Cadwalader’s Restructuring Review newsletter, we introduced this case and considered the potential implications of a ruling on this important but unsettled topic.
Introduction
On March 30, 2009, the United States Supreme Court heard oral argument in Travelers Indemnity Co. v. Bailey,1 a case that addresses the jurisdiction of bankruptcy courts to authorize third-party releases in the context of a debtor’s plan of reorganization.
On March 18, 2019, Judge Stuart M. Bernstein of the United States Bankruptcy Court for the Southern District of New York issued a decision enforcing a mortgage lender’s claim for a prepayment premium (a/k/a make-whole or yield maintenance premium) notwithstanding the lender’s prepetition acceleration of the loan due to the debtor’s default.
The United States Bankruptcy Court for the District of Delaware has ruled that a creditor cannot effect a “triangular” setoff of the amounts owed between it and three affiliated debtors, despite pre-petition contracts that expressly contemplated multiparty setoff. In re SemCrude, L.P., Case No. 08-11525 (BLS), 2009 WL 68873 (Bankr. D. Del. Jan. 9, 2009). The Court relied principally on the plain language of section 553(a) of the United States Bankruptcy Code, which limits setoff to mutual obligations between a debtor and a single nondebtor.
The U.S. Court of Appeals for the Second Circuit issued its ruling in Marblegate Asset Management, LLC v. Education Management Corp. that provided much needed clarity to creditors and issuers involved in out-of-court restructurings affecting noteholders. The issue for the court was whether Education Management Corp. (“EDMC”) violated the Trust Indenture Act (the “TIA”) when it implemented a restructuring that impaired the rights of one of its unsecured noteholders, Marblegate Asset Management, LLC (the “Noteholder”).
In Bethlehem Steel Corp. v. Moran Towing Corp. (In re Bethlehem Steel Corp.),1 the United States Bankruptcy Court for the Southern District of New York held that preferential transfer claims were not arbitrable. The Court reasoned that because the avoidance powers did not belong to the debtor, but rather were creditor claims that could only be brought by a trustee or debtor-in-possession, they were not subject to the arbitration clauses in contracts to which the creditors were not parties.
The Dispute and the Arbitration Clauses
On January 13, 2015, the U.S. Court of Appeals for the Second Circuit denied a petition for en banc review of the Second Circuit’s September 2014 panel decision holding that bankruptcy courts are required to review the propriety of a Chapter 15 debtor’s transfers of property interests within the territorial jurisdiction of the U.S., even if such a transfer has already been approved in the debtor’s foreign proceeding. This decision represents a departure from prior cases, in which U.S.
In COR Route 5 Co. v. Penn Traffic Co.1 (In re Penn Traffic Co), the United States Court of Appeals for the Second Circuit held that a non-debtor party to an executory contract may not, by fulfilling its contractual obligations post-petition, deprive the debtor of its ability to reject an executory contract.
On January 14, 2014, Judge Robert E. Gerber of the United States Bankruptcy Court for the Southern District of New York in Weisfelner v. Fund 1. (In re Lyondell Chemical Co.), Adv. Proc. No. 10-4609 (REG), 2014 WL 118036 (Bankr. S.D.N.Y. Jan.
The next time you negotiate a settlement payment with a financially troubled party, you may want to keep in mind an ancient term related to livestock herding: earmarking. The concept may be somewhat antiquated, but the Second Circuit has recently confirmed that it is still viable – and can help you keep the settlement payment if the other party later files for bankruptcy.