The United States Bankruptcy Court for the District of Delaware (the “Court”) recently upheld a $23.7 million make-whole payment (the “Make-Whole Payment”) in In re School Specialty (Case No. 13-10125), denying the assertion by the Official Committee of Unsecured Creditors (the “Committee”) that the fee is unenforceable under the United States Bankruptcy Code and applicable state law.

In re Maharaj, 681 F.3d 558 (4th Cir. 2012)

CASE SNAPSHOT

The Court of Appeals for the Fourth Circuit is the first court of appeals to determine whether the absolute priority rule continues to apply to individual chapter 11 debtors. Taking the "narrow view" adopted by certain courts, the Fourth Circuit held that the rule was not abrogated by the amendments of the Bankruptcy Abuse Prevention and Consumer Protection Act, and therefore affirmed the bankruptcy court’s order denying confirmation of the proposed plan.

Irving Picard, the trustee appointed under the Securities Investor Protection Act (the “Trustee”), 15 U.S.C. § 78aaa et seq. (“SIPA”), to administer the estate of Bernard L. Madoff Investment Securities, LLC, has brought hundreds of actions seeking to avoid transfers that were purportedly fraudulent or preferential (the “Avoidance Actions”). Some of the Avoidance Action defendants sought to withdraw the reference to the Bankruptcy Court, basing their motions on the Supreme Court’s decision in Stern v. Marshall, 131 S. Ct. 2594 (2011).

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

In re Miller, 2013 WL 425342 (6th Cir. Feb. 5, 2013)

CASE SNAPSHOT

The Sixth Circuit Court of Appeals held that the secured lender’s credit bid, which equaled the total debt owed on two properties but exceeded the value of the only foreclosed property involved in the sheriff’s sale, extinguished the entire debt. The court affirmed the order to lift the automatic stay only to require the lender to dismiss the second foreclosure action, release the promissory note and mortgage, and turn over the second property to the borrower free and clear.

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