Vedder Price Wins Reversal in Second Circuit Court of Appeals

With bankruptcy filings up by more than 25% in the recent past, and with the promise of many more to come in the near future, an increasing number of businesses and individuals may find themselves listed amongst the largest unsecured creditors of a debtor and with much to lose in a bankruptcy case. As one of the largest creditors, these same businesses and individuals may also find themselves being solicited to serve on “official” unsecured creditors’ committees.

The following is a list of some recent larger U.S. bankruptcy filings in various industries. To the extent you are a creditor to any of these debtors, or other entities which may have filed for bankruptcy protection, you as a creditor are entitled to certain protections under the Bankruptcy Code.  

OIL AND GAS  

Oil producer Transmeridian Exploration files for Chapter 11 protection in Texas.  

REAL ESTATE  

A known creditor, which was aware of a debtor’s pending bankruptcy but did not receive legally required notice of the debtor’s chapter 11 case, was not barred from bringing a state action following bankruptcy discharge.

The U.S. Court of Appeals for the First Circuit held that actual knowledge of the pending chapter 11 case did not satisfy due process requirements; therefore, the known creditor’s subsequent claim was not barred by the debtor’s discharge injunction. Arch Wireless, Inc. v. Nationwide Paging, Inc. (In re Arch Wireless, Inc.), 534 F.3d 76 (1st Cir. 2008).

Companies that engage in multiple transactions with different entities of related groups often enter into contractual netting agreements that allow the setoff of obligations between entities within the groups. The effectiveness of these agreements has been called into question by a recent decision of a bankruptcy court in Delaware, which refused to allow a party to a contractual netting agreement to offset its obligations to the debtors against obligations of the debtors under the netting agreement.

The U.S. Court of Appeals for the Ninth Circuit has held that a bankruptcy trustee could not avoid an unauthorized sale of real estate to a bona fide purchaser— although the proceeds of the sale did belong to the estate.

The court ruled that an unauthorized postpetition transfer of real property in California could be avoided only if the buyer had actual knowledge of a bankruptcy filing, or if the trustee recorded the transfer of title to the property from the debtor to the estate in the land records of the applicable county, In re Tippett, 542 F.3d 684 (9th Cir. 2008).

Troubled economic times predictably result in an escalation in bankruptcy filings. As the economy began to worsen last year, the U.S. Court of Appeals for the Fifth Circuit issued a reminder that courts can—and will—penalize parties that tax an already busy bankruptcy court system with bad faith filings.

Under the “American Rule” concerning the recovery of attorney’s fees in pursuing breach of contract litigation, the prevailing party is awarded fees if the contract or an applicable statute provides for such recovery. Some states also allow a judgment creditor to recover fees incurred in enforcing the judgment, if the judgment was based on a contract or statute that authorized fees in the original litigation. See, e.g., California Code of Civil Procedure § 685.040.

As has been reported and rumored for many weeks, the bankruptcy filing for either GM or Chrysler, or both companies, is clearly one of the potential destinations on the road ahead. For certain parts suppliers who can take advantage of guarantees under the Auto Supplier Support Program recently announced by the U.S. Treasury Department, the news of a bankruptcy filing may feel somewhat less dire, except with respect to the likely disruption and fall off of future business.  

A recent opinion from the U.S. Court of Appeals for the Third Circuit confirms that “actual control” over a debtor is not necessary to qualify as a nonstatutory “insider” for the purpose of extending the period for preference recovery under Section 547 of the Bankruptcy Code. See Schubert v. Lucent Technologies, Inc. (In re Winstar Communications, Inc.), 554 F.3d 382 (3rd Cir. 2009).