St. John' Case Blog

By: Crystal Lawson

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


In In re Interstate Bakeries Corp.,[i] the United States Court of Appeals for the Eighth Circuit recently held that a trademark license agreement was not an executory contract because it was part of a larger, integrated sale agreement that had been substantially performed by both parties.[ii] Accordingly, since the debtor could not reject the agreement, the Eighth Circuit did not determine whether the rejection of a trademark-licensing agreement necessarily terminates the licensee’s rights in the trademark.[iii] In 1996, Interstate Brands Corp (“IBC”), a subsidiary of Interstate Bakeries Corporation (“Interstate Bakeries”), transferred two of its brands and certain related assets to Lewis Brothers Bakeries (“LBB”) pursuant to an antitrust judgment.[iv] In connection with the sale, the parties entered into an asset purchase agreement and a trademark license agreement.[v] In 2004, Interstate Bakeries and eight of its subsidiaries, including IBC, filed for bankruptcy under chapter 11 of the Bankruptcy Code.[vi] After Interstate Bakeries disclosed that it intended to assume the trademark license agreement, LBB commenced an adversary proceeding seeking a declaration that the agreement was not an executory contract under section 365(a) of the Bankruptcy Code and therefore, was not subject to assumption or rejection.[vii] Finding that both parties owed material obligations under the trademark license agreement, the bankruptcy court held that the agreement was executory.[viii] The district court affirmed that decision.[ix] The Eighth Circuit, however, reversed, holding that the trademark license agreement was not executory because it was part of a larger, integrated contract that had been substantially performed.[x]

March 1 2015

By: Pamela Frederick

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Notwithstanding a debtor’s high income and ability to pay creditors, in In re Snyder,[i] a bankruptcy court in New Mexico recently refused to dismiss the debtor’s chapter 7 bankruptcy case because the court found that the debtor did not act in bad faith when filing the case.[ii] The debtor, a 63-year-old doctor with an annual salary of $290,000, filed for bankruptcy under chapter 7 of the Bankruptcy Code in order to discharge a $170,000 debt.[iii] In response, the debtor’s sole creditor moved to dismiss the case, or alternatively, to convert the case to one under chapter 11, arguing that the debtor filed the case in bad faith.[iv] In support of its motion under section 707(a), the creditor argued that the debtor’s high income, ability to repay, failure to try to repay, failure to schedule his wife’s jewelry, use of his historical average expenses on his Schedule J, and the fact that the movant was the debtor’s only unsecured creditor were all indicia of the debtor’s bad faith.[v] The debtor responded that he did not file his chapter 7 case in bad faith, arguing that his age, lack of retirement savings, lack of a lavish lifestyle, and compliance with the Bankruptcy Code all indicated that he filed his petition in good faith.[vi] The court ultimately denied the creditor’s motion, concluding that despite the existence of unfavorable factors and the debtor’s high income, the debtor’s desire to save for retirement was “consistent with good faith.”[vii] Likewise, the court denied the creditor’s motion to convert because the evidence relied upon to support a conversion under section 706(b) was “identical” to the evidence in support of the motion to dismiss under section 707(a).[viii]

February 26 2015

By: Shantel M. Castro

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Recently, in In re The Great Atlantic & Pacific Tea Company, Inc.,[i] the District Court for the Southern District of New York upheld a bankruptcy-court order enforcing an abatement provision in a lease.[ii] The case involved a twenty-year lease between a commercial landlord and a grocery store.[iii] Under the terms of the lease, the grocery store was to construct its own building on the leased premises, and the landlord would pay the grocery store a $1.9 million construction allowance within ninety days of the grocery store opening to the public.[iv] A provision in the lease stated that if the landlord failed to pay the construction allowance, the grocery store’s obligation to pay fixed rent and other charges would abate until the allowance was paid with interest.[v] The lease further provided that the grocery store would have title to the building until such time. [vi] A subsequent section of the lease entitled “Landlord default” detailed the remedies available to the grocery store in the event of a default by the landlord.[vii] After the grocery store opened, but just prior to the deadline for payment of the construction allowance, the grocery store filed for bankruptcy under chapter 11 of the Bankruptcy Code.[viii] The landlord’s financing for the construction allowance was conditioned on the grocery store assuming the lease.[ix] The lease was not assumed prior to the payment deadline for the construction allowance, therefore the landlord could not close on its financing.[x] Consequently, the landlord did not pay the construction allowance on time.[xi] Therefore, the grocery store withheld rent payments and property taxes due under the lease until the construction allowance was paid nine months later.[xii] The landlord commenced an adversary proceeding to collect the rent and filed a cure claim after the grocery store assumed the lease.[xiii] The bankruptcy court dismissed the adversary proceeding and denied the cure claim.[xiv] On appeal, the district court affirmed.[xv]

February 26 2015

Michael Vandermark

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

February 24 2015

By: Daniel Teplin

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

February 24 2015

By: D. Nicholas Panzarella

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

February 22 2015

By: Debra March

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

February 22 2015

By: Michael Benzaki

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Recently, in In re Flannery,[i] the bankruptcy court held that the earmarking doctrine was not an appropriate defense to a preference action seeking to avoid a late-filed mortgage that was granted as part of a home-loan refinancing.[ii] In Flannery, the debtors financed the purchase of their home through an initial home-mortgage loan, which was secured by a mortgage. Further, within a year of granting the first mortgage, the debtors also granted a second-priority mortgage to secure a home equity line of credit. Subsequently, a new bank acquired both loans and mortgages from the initial lender.[iii] In 2012, the debtors refinanced the initial loan with the new bank through the Home Affordable Refinancing Program (“HARP”).[iv] In connection with the refinancing loan, the debtors granted the new bank a new mortgage against their property and the new bank executed a subordination of mortgage, subordinating the home equity mortgage to the new mortgage.[v] The proceeds from the refinancing loan were used to pay off the initial loan on January 25, 2012, and a discharge of the initial mortgage was recorded on February 21, 2012.[vi] However, the new mortgage was not recorded until April 18, 2012.[vii] Subsequently, on June 28, 2012, less than ninety days later, the debtors filed for bankruptcy under chapter 7 of the Bankruptcy Code. Since the mortgage was recorded within ninety days of the bankruptcy filing, the chapter 7 trustee for the debtors sought to avoid the refinance mortgage as a preference pursuant to section 547 of the Bankruptcy Code.[viii] Ultimately, the court rejected the new bank’s argument that, given the facts of the case at hand, the earmarking doctrine successfully defended the transaction in question from being designated an avoidable preference.[ix]

February 19 2015

By: Rosa Aliberti

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Recently, the Fifth Circuit held, in Viegelahn v. Harris (In re Harris),[i] that any funds held by a chapter 13 trustee at the time of conversion to chapter 7 should be distributed to creditors in accordance with the chapter 13 payment plan.[ii] In In re Harris, the debtor filed for bankruptcy under chapter 13 of the Bankruptcy Code.[iii] The chapter 13 plan required the debtor to make monthly payments to a trustee for distribution to secured creditors and unsecured creditors.[iv] The debtor also was required to make monthly mortgage payments directly to Chase, his mortgage lender. After failing to do so, the bank foreclosed on his home.[v] The debtor did not modify the plan and continued making the required monthly payments to the trustee for approximately a year before converting his case to chapter 7.[vi] Since Chase no longer had a claim against the debtor, the funds that were allocated for Chase under the plan began to accumulate.[vii] After the debtor converted to chapter 7, the chapter 13 trustee distributed the funds in her possession to pay the debtor’s attorneys’ fees, the remaining secured creditor, the six unsecured creditors, and her commission.[viii] The debtor moved to compel the chapter 13 trustee to return those funds, arguing that the trustee was not authorized to distribute the funds once he converted the case to chapter 7.[ix] The bankruptcy court ordered the chapter 13 trustee to return the funds to the debtor,[x] and on appeal, the district court affirmed.[xi] The trustee appealed again, and the Fifth Circuit reversed,[xii] concluding that the creditors’ claim to the undistributed funds was greater than that of the debtor.[xiii]

February 19 2015

By: Cecilia Ehresman

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


In In re Chicago Construction Specialties, Inc.,[i] the United States Bankruptcy Court for the Northern District of Illinois recently held that the debtor must satisfy the requirements of section 1113 of the Bankruptcy Code, even though the debtor was liquidating under chapter 11 instead of reorganizing.[ii] In Chicago Construction, debtor, a demolition construction company, ceased operations, sold substantially all its assets outside of bankruptcy, and sent the union representing its workers a notice that it intended to reject a collective bargaining agreement[iii] before the company filed for bankruptcy.[iv] Subsequently, the debtor filed for bankruptcy under chapter 11 of the Bankruptcy Code and moved to reject its CBAs pursuant to section 1113 of the Bankruptcy Code.[v] The union objected, arguing that the debtor had unilaterally rejected the CBA by providing an ultimatum rather than a proposal for modification.[vi] The Chicago Construction court ruled in favor of the debtor, finding that there was no good reason not to allow the debtor to reject the CBA because the debtor had already liquidated and the only effect of not allowing the debtor to reject the CBA would be to elevate the union’s claims over those of the debtor’s other creditors.[vii]

February 19 2015

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