On May 18th, the Second Circuit, applying the Supreme Court's holding in Milavetz, Gallop & Milavetz, P.A. v. U.S., 130 S.Ct. 1324 (2010), reversed a trial court order finding that provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act that prohibit debt relief agencies from advising clients to incur more debt were overbroad and unconstitutional when applied to attorneys.
On May 18th, the Second Circuit, addressing the 2005 amendments to the Bankruptcy Code, held that a lender with a purchase-money security interest in a car is entitled to an unsecured claim with regard to a deficiency it incurred upon the surrender and sale of the car. The deficiency claim derives from the contract between the parties and background state law. In the absence of a Bankruptcy Code provision expressly disallowing it, such an unsecured claim may be maintained.
Two recent rulings have provided significant guidance on the determination of whether an entity is eligible to be a debtor under Chapter 9 of the Bankruptcy Code. On April 26, 2010, the Bankruptcy Court for the District of Nevada issued a decision denying a motion to dismiss the Chapter 11 case of Las Vegas Monorail Company (LVMC) filed by Ambac Assurance Corp. In re Las Vegas Monorail Company (Las Vegas Monorail).
On May 17th, a federal district court denied motions to dismiss a securities fraud lawsuit alleging that defendants failed to disclose adequately their investment in notes issued by a shell company owned by Lehman Brothers, who provided the principal protection guarantee. Defendants' knowledge regarding the notes and Lehman's insolvency contradicted their public statements, satisfying Rule 10b-5's scienter requirements. Plaintiffs also allege that their losses were exaggerated by defendants' lack of disclosure, adequately alleging loss causation.
On June 7th, the US Supreme Court addressed the calculation of a Chapter 13 debtor's projected "disposable income" under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. When a bankruptcy court calculates a debtor's projected disposable income, the court may account for changes in the debtor's income or expenses that are known or virtually certain at the time of confirmation. Hamilton v. Lanning.
On June 15th, the Second Circuit held that district courts may issue anti-litigation injunctions barring bankruptcy filings as part of their broad equitable powers in the context of an SEC receivership. SEC v. Byers. Reuters reported on the involuntary bankruptcy petitions filed by creditors which prompted the district court's anti-litigation order.
On June 14th, the First Circuit modified the bankruptcy court's $250,000 sanction award against a mortgage servicer who erroneously claimed to be the mortgage holder. The mortgage servicer did not deliberately or intentionally seek to mislead the bankruptcy court and its actions were not prejudicial. First Circuit therefore modified the award to $5,000. In re Jacalyn S. Nosek.
On July 2nd, the Sixth Circuit affirmed a bankruptcy court's finding that, under Kentucky law, a bank did not perfect its security interest in an auto loan until that security interest was noted on the title. Because perfection did not occur within 20 days after the debtor received possession of the auto, Section 547(c)(3) of the Bankruptcy Code did not protect the bank's loan from avoidance as a preferential transfer. Branch Banking and Trust Co. v. Brock.
On July 16th, the OCC announced that it has approved the use of a shelf charter for the acquisition of a failed bank, allowing NAFH National Bank, Miami, Florida, to acquire two banks in Florida and one in South Carolina. This is the second instance in which a shelf charter was approved for use in such an acquisition. OCC Press Release.
On September 15th, the Sixth Circuit resolved a conflict among the district courts within the circuit. It held that a bank holding the undersecured home mortgage of a Chapter 13 debtor who is in arrears at the time of filing, is entitled to receive under the Chapter 13 bankruptcy plan fees and costs in the arrearage cure. Deutsche Bank National Trust Co. v. Tucker.