In March 2016, the U.S. Court of Appeals for the Seventh Circuit ruled that a landlord may be liable to a debtor’s bankruptcy estate for the value of a lease the debtor terminated early, holding the termination may be an “avoidable transfer” under the Bankruptcy Code.1 The opinion in Official Comm. of Unsecured Creditors v. T.D. Invs. I, LLP (In re Great Lakes Quick Lube LP)2 reversed the Bankruptcy Court’s ruling, and in doing so perhaps expanded the definition of a “transfer” under the Bankruptcy Code.
Background
(7th Cir. Apr. 14, 2016)
The Seventh Circuit applies Wisconsin state law and holds that a mortgage can attach a lien to a vendor’s interest in a real estate contract and that the lender perfected the lien by recording in the county land records rather than filing a UCC-1 financing statement. The trustee is unable to avoid the lien. Opinion below.
Judge: Hamilton
Attorneys for Trustee: Michael F. Dubis, Christopher R. Schultz
Attorneys for Appellees: Ruffi Law Offices, Sara Lynn Ruffi, Lund Law Office, Brad M. Lund
Landlords contemplating terminating a lease with a distressed tenant in advance of a possible tenant bankruptcy will want to consider carefully a recent decision from the Seventh Circuit. The decision, In re Great Lakes Quick Lube LP, reversed and remanded a bankruptcy court decision in favor of a landlord.
(7th Cir. Apr. 5, 2016)
Landlords dealing with troubled tenants often enter into termination agreements that dictate terms for the consensual terminations of unexpired leases. Among other benefits, such termination agreements provide certainty and allow landlords to move on from unprofitable tenant relationships. Additionally, by entering into termination agreements, troubled tenants can be prevented from later assuming or assigning such terminated leases to an undesirable third-party if the tenant later files for bankruptcy.
A corporation’s asset sale “was structured [by its insiders] so as to fraudulently transfer assets in order to avoid paying [a major creditor] what it was owed,” held the U.S. Court of Appeals for the Seventh Circuit on March 22, 2016. Continental Casualty Co. v. Symons, 2016 WL 1118566, at *6 (7th Cir., March 22, 2016).
A Chapter 11 debtor’s pre-bankruptcy “surrender of [two] … leases to [its landlord] could be regarded as a preferential transfer,” held the U.S. Court of Appeals for the Seventh Circuit on March 11, 2016. In re Great Lakes Quick Lube LP, 2016 WL 930298, at *2 (7th Cir. March 11, 2016).
In In re Caesars Entertainment Operating Co v BOKF, NA(1) the US Court of Appeals for the Seventh Circuit reviewed a bankruptcy court's denial of a trustee's motion for a temporary injunction staying litigation between non-debtors.
Facts
In a case of first impression, the Seventh Circuit recently issued an opinion that may cause landlords and their advisors to re-evaluate the consequences of terminating a financially distressed commercial tenant’s lease prior to bankruptcy. Official Comm. of Unsecured Creditors of Great Lakes Quick Lube LP v. T.D. Investments I, LLP (In re Great Lakes Quick Lube LP), --- F.3d ---, 2016 WL 930298 (7th Cir. Mar. 11, 2016) (Posner, J.).
(7th Cir. Mar. 18, 2016)