In re Georges Marciano, No. 11-60070 (9th Cir., Feb. 27, 2013)

CASE SNAPSHOT

Judgment creditors of Georges Marciano filed an involuntary chapter 11 petition against Marciano, who appealed the state judgments before the petition was filed. The Ninth Circuit ruled, in a case of first impression, that unstayed state court judgments on appeal were not "the subject of a bona fide dispute," and thus the Bankruptcy Court did not err when it entered an order for relief under chapter 11 against Marciano, notwithstanding the pending appeals.

Good news for lenders. Judge Carey of the Bankruptcy Court for the District of Delaware enforced a make-whole premium equal to 37 percent of the outstanding principal balance on a loan. He determined that, under New York state law, the calculation was not "plainly disproportionate" to the lender’s possible loss and was negotiated at arm’s length between sophisticated parties. In addition, Judge Carey held that a make-whole claim was not equivalent to "unmatured interest," which is unauthorized under Section 502 of the Bankruptcy Code, but instead was a claim for liquidated damages.

Ad Hoc Group of Vitro Noteholders v. Vitro S.A.B. de C.V., 701 F.3d 1031 (5th Cir. 2012)

CASE SNAPSHOT

In re Patriot Coal Corporation, et al., 492 B.R. 718 (2012)

CASE SNAPSHOT

The United States District Court for the Middle District of Pennsylvania has held that an E&O policy issued to a now-bankrupt credit counseling company did not cover claims arising under unfair trade practices statutes, but did cover claims arising under fair debt collection statutes. Hrobuchak v. Fed. Ins. Co., 2013 WL 2291875 (M.D. Pa. May 24, 2013). The court also held that carve-outs from the policy’s definition of loss did not preclude coverage for statutory damages or damages representing the return of fees paid to the insured.

Dill Oil Company, LLC v. Stephens, No. 11-6309 (10th Cir., Jan. 15, 2013)

CASE SNAPSHOT

The Court of Appeals for the Tenth Circuit, in a case of first impression before the court, joined the Fourth Circuit in holding that the absolute priority rule remains applicable in individual chapter 11 cases.

FACTUAL BACKGROUND

The legalization under state law of the marijuana business in Colorado through Amendment 20 (medical marijuana) and Amendment 64 (recreational marijuana) (Amendment 20 and Amendment 64 shall be referred to collectively as the "Colorado Amendments") raises serious issues for banks whose customers or borrowers are involved in the marijuana business in Colorado. The Colorado Amendments do not affect federal law that defines marijuana as a Class 1 controlled substance.

The US Court of Appeals for the Ninth Circuit recently resolved a split within the circuit when it held that a bankruptcy court has the power to recharacterize debt as equity.

Your good client Michael Bluth calls you from the Delaware bankruptcy court. Now that his family’s business, The Bluth Company, has filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code and his late nights with DIP lenders and our bankruptcy colleagues have come to a temporary pause, Michael’s ready to turn back to his typical day-to-day job running his business.

A New York state court recently denied a motion to dismiss an action brought by a reorganized debtor against the former chair of the official committee of unsecured creditors in the debtor's chapter 11 case.¹  The decision is noteworthy for its holding that the reorganized debtor had standing to commence an action against the former committee member even though the claim was not expressly listed as an asset of the estate in the debtor's chapter 11 disclosure statement.

Background