On May 1, 2012, the United States Court of Appeals for the Third Circuit in In re Federal–Mogul Global, Inc. confirmed that anti-assignment provisions in a debtor’s insurance liability policies are preempted by the Bankruptcy Code to the extent they prohibit the transfer of a debtor’s rights under such policies to a personal-injury trust pursuant to a chapter 11 plan.In re Federal-Mogul Global Inc., --- F.3d ---, 2012 WL 1511773 (3d Cir. 2012).
There have been some important recent legal developments that will likely impact acquisition finance. This article will survey some of the more notable ones.
The Eleventh Circuit Court of Appeals, on May 15, 2012, overturned1 a prior District Court decision stemming from the bankruptcy case of Tousa, Inc., affirming a bankruptcy court’s earlier 2009 decision that had ordered the return, on fraudulent transfer grounds, of over $400 million that had been repaid to prior lenders of the Tousa parent company in connection with a secured financing to the parent and its subsidiaries.
If you received payments from a now bankrupt entity during the preference period, you may be subject to a Preference Action seeking recovery of all payments during that period. The preference period is most commonly 90 days prior to the date the bankruptcy was filed. While there are defenses, many businesses that receive a Preference Action fail to respond. This may be for a variety of reasons, but most commonly, many businesses do not realize that they have been served. These actions may be served by First Class Mail and there is national service and jurisdiction.
Trademark licensees won a victory on July 9, 2012, when the Court of Appeals for the Seventh Circuit issued its decision in Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC. The opinion holds that the rights of a trademark licensee do not automatically terminate when its license agreement is rejected by a trademark owner in bankruptcy. Nevertheless, the significance of that victory will only become clarified if and when other courts, including possibly the Supreme Court, and Congress address the issues raised in Sunbeam.
The recent decision of the United States Bankruptcy Court for the District of Delaware in Friedman’s Inc. v. Roth Staffing Cos., L.P. (In re Friedman’s Inc.)1 should be a reminder of the preference risk that exists for creditors, such as critical vendors, whose pre-petition claims are paid by court order. This article discusses various ways in which this preference risk can be eliminated or minimized.
The Second Circuit has summarily affirmed a district court’s denial of a petition to vacate an arbitration award, and granted the cross-petition to confirm. We noted in our December 15, 2010 post that the Southern District of New York confirmed the award to Bayou Funds, a group of bankrupt entities which had been run as a massive Ponzi scheme. The district court ruled that the arbitrator did not manifestly disregard the law, even though he did not explicate the reasons for his ruling.
A federal court in West Virginia has ruled that the U.S. government may proceed with a Clean Air Act (CAA) and Resource Conservation and Recovery Act (RCRA) enforcement action, even though defendant and its subsidiaries have filed for bankruptcy. United States v. RG Steel Wheeling, LLC, No. 12-19 (N.D. W. Va. 7/9/12).
On Tuesday, June 5, 2012 the Supreme Court of Canada heard an appeal of the Ontario Court of Appeal’s decision in Re IndalexLimited (“Indalex”). The Indalex decision concerned, among other things, the priority of a deemed trust for certain unpaid pension amounts over the super-priority charge granted in favour of a DIP Lender.
Pursuant to a June 27, 2012 tribal resolution, on July 2, 2012, the Santa Ysabel Resort and Casino filed a voluntary chapter 11 bankruptcy petition. The casino is an unincorporated enterprise for economic development owned by the Iipay Nation of Santa Ysabel, a federally recognized Indian tribe. After numerous construction problems during the peak of construction pricing, the casino opened in 2007, just before the drop in the economy.
In a recent important decision, the 7th Circuit Court of Appeals held that a trademark licensor could not use its bankruptcy to deny the rights of a licensee to use the trademark pursuant to a pre-bankruptcy agreement. (Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, 7th Circuit Court of Appeals, No. 11-3920, decided July 9, 2012) This decision creates a conflict among the federal circuits, which often means the U.S. Supreme Court must eventually decide the issue.