By order issued on February 23, 2012, the United States District Court for the Eastern District of North Carolina vacated the bankruptcy court’s decision in In re Mammoth Grading, Inc.  This decision and the companion decision in In re Harrelson Utilities, Inc. held that the lien rights of construction subcontractors and suppliers cannot be perfected once a bankruptcy petition is filed by a party higher in the contract chain. 

Last week, the bankruptcy estate of Orleans Homebuilders filed over 250 complaints to recover alleged preferential transfers (see our previous post on the Orleans bankruptcy here, as well as a post on bankruptcy preference actions here).

Bankruptcy Courts may be courts of equity, but a recent decision by the United States District Court for the Southern District of New York holds that even equity can’t trump the plain words of a settlement agreement.

1. Introduction

On Feb. 29, 2012, a Michigan citizens’ group opposed to the State of Michigan’s emergency financial manager law (officially entitled “Local Government and School District Fiscal Accountability Act,” MCL §§ 141.1501 et seq. and referred to herein as the “Act”), filed petitions to place the issue of the Act’s rejection on the state ballot in November.

LEHMAN BANKRUPTCY

In re: Lehman Brothers Holdings, Inc., et al., No. 08-13555

On March 6, 2012, Lehman Brothers Holdings Inc. and its affiliated debtors announced that their Modified Third Amended Joint Chapter 11 Plan, which had been confirmed by the United States Bankruptcy Court for the Southern District of New York on December 6, 2011, had become effective. Distributions under the Plan will begin on April 17, 2012.

In a recent Michigan Court of Appeals case, Wells Fargo Bank N.A. vs. Cherryland Mall Limited Partnership et al., (2011 WL 6795393), the court found that the borrower’s violation of a solvency covenant triggered the conversion of the borrower’s and guarantor’s non-recourse obligations to full- recourse obligations. In light of the decision, when negotiating a non-recourse loan, parties would be well advised to pay close attention to the recourse covenants and to be very clear about which covenants, if breached, would trigger full recourse.

Background

On December 12, 2011, the Supreme Court granted a petition for certiorari in a case raising the question of whether a debtor's chapter 11 plan is confirmable when it proposes an auction sale of a secured creditor's assets free and clear of liens without permitting that creditor to "credit bid" its claims but instead provides the creditor with the "indubitable equivalent" of its secured claim. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, No. 11-166 (cert. granted Dec. 12, 2011).

In their study published in February's issue of The Quarterly Journal of Economics, “Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961–1999,” Princeton University Professor David Lee and University of California Professor Alexandre Mas estimated that an “average union effect on the equity value of the firm equivalent to $40,000 per unionized worker.” The professors noted that the loss was a combination of a transfer of wealth to workers and inefficiencies caused by the unions.

On the surface, Irving Picard, the trustee of Bernard L. Madoff Investment Securities LLC (“BLMIS”), had a very good day. Judge Jed S.

The U.S. Bankruptcy Court for the Central District of Illinois held that a debtor's explanation of estate planning as a rationale for asset transfers made prior to bankruptcy is sufficient to survive the Bankruptcy Trustee's motion for summary judgment. However, the Court noted that a deeper factual analysis would be required and expressed skepticism for the debtor's estate planning rationale.