The United States Court of Appeals for the Seventh Circuit, on March 19, 2014, held that a corrupt debtor’s pre-bankruptcy cash transfer to a commodity broker was a “settlement payment” made “in connection with a securities contract,” thus falling “within [Bankruptcy Code] §546(e)’s safe harbor” and insulating the transfer from the trustee’s preference claim. Grede v. FCStone, LLC (In re Sentinel Management Group, Inc.), 2014 WL 1041736, *7 (7th Cir. Mar. 19, 2014).
A creditor’s “later-in-time reclamation demand is ‘subject to’ [a lender’s] prior rights as a secured creditor,” held the U.S. Court of Appeals for the Seventh Circuit on Feb. 11, 2020. In re HHGregg, Inc., 2020 WL 628268 (7th Cir. Feb. 11, 2020). And “[w]hen a lender insists on collateral, it expects the collateral to be worth something,” said the U.S. Court of Appeals for the Third Circuit on Feb. 11, 2020, when rejecting a guarantor’s “novel reading” of his security agreement. In re Somerset Regional Water Resources, LLC, 2020 WL 628542 (3d Cir. Feb. 11, 2020).
The U.S. Court of Appeals for the Seventh Circuit held on Aug. 26, 2013 that an investment manager’s “failure to keep client funds properly segregated” and subsequent pledge of those funds “to secure an overnight loan” to stay in business may have constituted: (a) a fraudulent transfer to the lender; and (b) grounds for equitably subordinating the lender’s $312 million secured claim. In re Sentinel Management Group, Inc., 2013 WL 4505152, *1 (7th Cir. Aug. 26, 2013) (“Sentinel II”).
Lender repossesses the equipment of its business borrower after it defaults on its secured loan agreement. Because borrower needs the equipment to run its business, it then files a Chapter 11 petition and promptly asks lender to return the equipment. Lender refuses because the equipment secures the defaulted loan. Depending on where the debtor sought bankruptcy relief (e.g., New York or New Jersey), lender may be subject to sanctions for holding on to the equipment.
The U.S. Court of Appeals for the Seventh Circuit, on Feb. 14, 2013, held that an insider of a Chapter 11 partnership debtor cannot avoid the “competition rule” in a new-value reorganization plan. The debtor’s equity owner arranged for his wife, also an “insider,” to contribute new value to obtain the equity of the reorganized debtor. In re Castleton Plaza, LP, — F.3d –––, 2013 WL 537269 at *1 (7th Cir., Feb. 14, 2013).
On May 20, 2019, the U.S. Supreme Court issued a ruling of key significance for trademark licensing and for acquisitions, investments, financings and other transactions in which trademark licenses are a key value driver. In Mission Product Holdings, Inc. v. Tempnology, LLC,[1] the Court held, 8-1, that where the licensor of a trademark rejects a trademark license in bankruptcy, the rejection does not deprive the licensee of its rights to use the licensed trademark(s).
The U.S. Court of Appeals for the Seventh Circuit held on July 9 that the nondebtor licensee of a rejected trademark license may continue to use the trademark (Sunbeam Products, Inc. v. Chicago American Mfg., LLC, ___ F.3d ___, 2012 WL 2687939 (7th Cir. July 9, 2012) (Easterbrook, Ch. J.)). The court's clear, concise and no-nonsense opinion explained that Bankruptcy Code ("Code") § 365(g) deems a trustee's rejection to be a "breach" of the contract, enabling "the other party's rights [to] remain in place." Id., at *3.
“Section 365(h) of the Bankruptcy Code [(“Code”)] and the doctrine of equitable recoupment entitled [a commercial tenant] to continue paying [reduced] rent … even after its landlord filed for bankruptcy and rejected the Lease,” held the U.S. Court of Appeals for the Third Circuit on Nov. 30, 2018. In re Revel AC Inc., 2018 WL 6259316, *6 (3d Cir. Nov. 30, 2018).
The U.S. Court of Appeals for the Seventh Circuit affirmed a bankruptcy court’s dismissal of a single asset real estate case on Jan. 19, 2012, reasoning that the debtor’s proposed substitute collateral “was not the indubitable equivalent of the [undersecured lender’s] mortgage.”In re River East Plaza, LLC, 2012 WL 169760, *2 (7th Cir. Jan. 19, 2012) (Posner, J.). In the court’s words, the debtor “wanted [the lender] out of there and decided to seek confirmation of a [reorganization] plan . . .
“The right of setoff … allows entities to apply their mutual debts against each other to avoid the pointless exercise of ‘making A pay B when B owes A.’” held the Seventh Circuit on Aug. 17, 2018. Berg v. Social Security Administration, 900 F.3d 864, 868 (7th Cir. 2018). But the Bankruptcy Code (“Code”) limits “a creditor’s right of setoff during the ninety-day period prior to the” date of bankruptcy, said the court. Id.