Given the overarching Madoff Ponzi scheme as well as other mini-Madoff schemes that surfaced in its wake, many have been following issues arising from the ability of a trustee to claw back transfers (either as preferential or as fraudulent transfers) from investors who redeemed their interests in a private investment fund or managed account that turned out to be a Ponzi scheme. The law generally provides that an investor’s principal investment is protected so long as it is received in good faith and for value.
On September 30th, the Sixth Circuit affirmed the dismissal of the bankruptcy trustee's lawsuit against Deloitte & Touche, the debtor's former auditor. The trustee alleged that Deloitte negligently failed to uncover and report unsound related-party transactions by the debtor's sole shareholder and CEO, and aided and abetted the CEO's breach of his fiduciary duty to the debtor. Affirming dismissal, the Court held the trustee failed to allege reliance upon Deloitte's audits and the statute of limitations bars the aiding and abetting claim.
The Sixth Circuit continues to liberally define the "actual knowledge" required to trigger the 3-year ERISA statute of limitations and, in doing so, affirmed summary judgment in favor of the defendants in Brown v Owens Corning Investment Review (Case No. 09-3692).
A recent bankruptcy court decision, which approved procedures governing upcoming claw back litigation, paves the way for the start of long-feared claw back litigation against investor victims of the Madoff fraud. The claw back suits will seek to recover funds withdrawn from Madoff accounts prior to the revelation of the scheme. Many had hoped that SIPC Trustee Irving Picard might refrain from bringing mass law suits against these so-called "net winners" because of the immense harm such suits will harm to people who have already suffered enormously from the fraud.
In St. Hill v. Tribeca Lending Corp., Case No. 09-2214, 2010 WL 2997724 (3rd Cir. Dec. 8, 2010), the Third Circuit showed that, in determining whether the Truth In Lending Act (TILA) applied to a credit transaction, it would look beyond obvious facts to ascertain a transaction's "primary purpose."
- Learn About Your Client and the Debtor.
Before you accept a collection case, make sure you know your client’s business and the debtor’s business.
Section 108 of the Bankruptcy Code grants a two-year extension of time for a trustee in bankruptcy (or a debtor in possession) to bring law suits, provided that the applicable period to sue didn’t expire before the petition date. It also gives a short extension to the trustee for filing pleadings, curing defaults, and performing other acts on behalf of the debtor. These provisions afford a trustee and debtor in possession valuable time to discover and evaluate potential causes of action and to perform other acts to preserve the debtor’s rights.
In re Heller Ehrman, LLP No. 10-CV-03134 2011 WL 635224 (N.D. Cal. Feb. 11, 2011)
In In re Heller Ehrman, LLP, the court analyzed whether the statutory cap imposed on a landlord’s damages resulting from the rejection of a lease should be computed based on the time remaining in the lease, or the full damages resulting from the rejection. While noting a split of authority, the District Court determined that the computation of the cap should be based on a temporal measure to be consistent with statutory language.
As Ursula the Sea Witch once said “Life’s full of tough choices, isn’t it?” The Sixth Circuit was recently faced with its own “tough choice” on choice of law in Sutherland v. DCC Litigation Facility, Inc., No. 13-1497 (6th Cir. Feb.