Motion to Dismiss Fraudulent Conveyance Action Denied

In In re Railworks Corp., 325 B.R. 709 (Bankr. D. Md. 2005), the defendants sought dismissal of several fraudulent conveyance actions brought by a litigation trustee. The defendant asserted that the reservation-of-claims clause in the debtor's confirmed chapter 11 plan failed to preserve the right of the estate representative to pursue causes of action under §544(b). Furthermore, the defendants asserted that the litigation trustee lacked standing to pursue the causes of action under §544(b) and that the bankruptcy court did not retain jurisdiction over the post-confirmation causes of action. Bankruptcy Judge E. Stephen Derby found that there were three factors in determining standing under §1123(b)(3): (a) the plan must retain the claims to be asserted post-confirmation; (b) if the person seeking to enforce the claim is a stranger to the estate, the person must be appointed and be a representative of the estate; and (c) the claims being reserved must belong to the estate or the debtor. The court held that the debtor's plan had satisfied each of these requirements and that the litigation trustee had standing to pursue the causes of action. Furthermore, the court retained jurisdiction post-confirmation, since the claims were either core matters or sufficiently related to the bankruptcy case to warrant jurisdiction. In In re Bridgeport Holdings Inc., 326 B.R. 312 (Bankr. D. Del. 2005), a similar case, Bankruptcy Judge Peter J. Walsh addressed whether the debtor's reservation of rights to pursue avoidance actions in its liquidation plan was sufficient to prevent the plan confirmation order from being accorded res judicata effect on the post-confirmation trustee's ability to pursue a preference complaint. The defendant in the preference action filed a motion to dismiss the preference complaint asserting, inter alia, that the trustee was barred from pursuing such cause of action since the liquidation plan failed to specifically preserve the right to assert a cause of action against the defendant. The bankruptcy court began by discussing the numerous provisions in the liquidation plan and disclosure statement that set out the debtor's intention to preserve all avoidance actions. Following the discussion of the plan provisions, the bankruptcy court undertook a detailed review of the authority cited by the defendant, finding that such cases were factually distinguishable or that the bankruptcy court did not agree with the holding. The bankruptcy court denied the motion to dismiss, holding that the language contained in the debtor's liquidation plan was adequate to preserve the right of the trustee to pursue such causes of action.

Veil-Piercing Claim Is Property of Debtors' Estate

In In re Bridge Information Systems Inc., 325 B.R. 824 (Bankr. E.D. Mo. 2005), Bankruptcy Judge David P. McDonald was required to determine whether a veil-piercing claim was property of the debtor's estate, thus allowing the plan administrator to enter into a settlement of such claims that would be binding upon third parties. Pre-petition, controlling shareholder of the debtor caused the debtor to transfer certain assets to individual partnerships controlled by the shareholder. During the same time period, the controlling shareholder convinced a member of the lending group to delay filing an involuntary bankruptcy petition. During the delay, the controlling shareholder completed the fraudulent transfers. In opposing the compromise between the plan administrator and the controlling shareholder, the member of the lending group asserted ownership over the veil-piercing claim and that it was not property of the bankruptcy estate. In determining whether the cause of action was property of the estate, the bankruptcy court found that even though the member of the lending group had relied on the false representations of the controlling shareholder, only the debtor had suffered injury from the fraudulent transfers. The bankruptcy court held that under Missouri law, the veil-piercing claim was property of the debtor's estate and thus only the plan administrator had authority to prosecute the claim.

Related-to Jurisdiction Undiminished in Liquidation

In In re Boston Regional Medical Center Inc., 410 F.3d 100 (1st Cir. 2005), the First Circuit Court of Appeals addressed the scope of post-confirmation "related to" jurisdiction in a case involving a liquidating reorganization plan. Following confirmation of a liquidating reorganization plan, the liquidating trust initiated an adversary proceeding against the defendants in bankruptcy court to compel the turnover of the debtor's share of certain trust assets. The defendants asserted that the bankruptcy court did not have "related to" jurisdiction under 28 U.S.C. §1334(b). The First Circuit began by noting that the statutory grant of "related to" jurisdiction is quite broad, which enables bankruptcy courts to deal efficiently and effectively with the entire universe of matters connected to bankruptcy estates. The court found that while §1334 does not distinguish between pre-confirmation and post-confirmation jurisdiction, several courts have limited the "related to" jurisdiction in post-confirmation proceedings involving reorganized debtors. The court held that when a trustee commences litigation designed to marshal the debtor's assets for the benefit of its creditors pursuant to a liquidating reorganization plan, the compass of related-to jurisdiction persists undiminished after plan confirmation.

Executory Contract Appeal Denied

In In re Teligent Inc., 326 B.R. 219 (S.D.N.Y. 2005), Hon. John G. Koeltl addressed an appeal of a bankruptcy court's order denying a request by the claims representative to vacate an order authorizing the debtor's assumption of an executory contract. The claims representative initially filed a preference complaint seeking to recover both pre-petition and post-petition payments made to the debtor's health care insurance provider. In response to a motion to dismiss based on the well-settled doctrine that a preference action may not be maintained for payments made in connection with an assumed executory contract, the claims representative sought to vacate the order authorizing the debtor's assumption of the health care policy. The district court confirmed the bankruptcy court's ruling that the claims representative was estopped from seeking to vacate the order, imputing the debtor's knowledge and conduct in prosecuting the motion to assume the health care policy to the claims representative. Additionally, the court held that despite the potential greater distribution to unsecured creditors, the claims representative was unable to establish entitlement to relief under Federal Rule of Civil Procedure 60(b)(6).

Consultant's Administrative Expense Claim Denied

The allowance of professional fees as an administrative expense, where the professional's employment had not previously been approved by the court, was recently addressed in In re Garden Ridge Corp., 326 B.R. 278 (Bankr. D. Del. 2005), by Hon. Donald D. Sullivan. Prior to filing bankruptcy, the debtors retained the services of a real estate consultant. Post-petition, the debtors sought to retain the same real estate consultant; however, the creditors' committee objected to the fee structure. The debtors decided to employ an alternate real estate consultant and withdrew the motion to retain the initial real estate consultant. The initial real estate consultant sought to recover its fees and expenses as an administrative expense of the estate under §503(b)(1)(A) of the Code. The bankruptcy court determined that allowance of professionals' fees under §503(b)(1)(A) would essentially negate §327(a) and Congress' intent that professionals be approved prior to providing services to the estate and denied the application for an administrative expense claim.

Patent License Agreements Assignable with Creditor Consent

In In re Quantegy Inc., 326 B.R. 467 (Bankr. M.D. Ala. 2005), Hon. Dwight H. Williams Jr. addressed the ability of the debtor to assume and assign its interest in patent license agreements. The creditor asserted that the patents were not assignable under federal patent law, citing In re Catapult Entertainment Inc., 165 F.3d 747 (9th Cir. 1999). The debtor argued that the licenses were not personal and were therefore assignable, since the identity of the party performing the services was not material. After reviewing the license agreements, the bankruptcy court determined that it was not necessary to address either of these arguments, since the license agreements had specific provisions relating to assignment. The bankruptcy court held that so long as the debtors proposed to assign the licenses in compliance with the license agreements, the creditor's performance under the license agreements was not excused and thus the creditor would be required to consent to the transfer.

Miscellaneous

• In re Enron Corp., 325 B.R. 671 (Bankr. S.D.N.Y. 2005) (determination of whether payments made with respect to short-term commercial paper prior to the maturity date qualified as "settlement payments" under §546(e) is a factual issue);
• In re Fleming Companies Inc., 325 B.R. 687 (Bankr. D. Del. 2005) (chapter 11 debtor's rejection of executory contract, which contained arbitration provisions, did not prevent the debtor from enforcing such provision);
• In re Oakwood Homes Corp., 325 B.R. 696 (Bankr. D. Del. 2005) (Rule 9(b) of the Federal Rules of Civil Procedure, which requires that "all of the elements of fraud or mistake" be plead with particularity, applied to claims of constructive fraud under §§544 and 548);
• In re ChoChos, 325 B.R. 780 (Bankr. N.D. Ind. 2005) (while the elements of constructive fraud must be plead with particularity under §§544 or 548, Rule 9(b) of the Federal Rules of Civil Procedure did not apply to a cause of action under §549);
• In re Lewandowski, 325 B.R. 700 (Bankr. M.D. Pa. 2005) (in a case of apparent first impression, the discharge exception under §523(a)(19) was held applicable, even though statute creating the exception was enacted after the filing date of debtor's bankruptcy petition);
• In re DSC Ltd., 325 B.R. 741 (Bankr. E.D. Mich. 2005) (bankruptcy court had authority to set an earlier deadline for additional creditors to join an involuntary bankruptcy petition under §303(c));
• In re Drew, 325 B.R. 765 (Bankr. N.D. Ill. 2005) (proceeds from debtor's mortgage refinancing became part of post-confirmation bankruptcy estate, thus allowing chapter 13 trustee to modify confirmed chapter 13 plan to increase the dividend to unsecured creditors);
• In re Craig, 325 B.R. 804 (Bankr. N.D. Iowa 2005) (collection letters sent to nondebtor spouse did not implicate debtor's discharge injunction);
• In re Courtney Excavating & Constr. Inc., 325 B.R. 839 (Bankr. W.D. Mo. 2005) (bankruptcy court did not have related-to jurisdiction to determine validity and extent of debt between party that had issued irrevocable letter of credit on behalf of debtors and company that had provided surety bonds for debtor);
• In re Metropolitan Mortg. & Securities Co. Inc., 325 B.R. 851 (Bankr. E.D. Wash. 2005) (as diminution of insurance proceeds affected both the debtor's interest in the proceeds and its rights to recover such proceeds, both the insurance policies and insurance proceeds were property of the bankruptcy estate); and
• In re Hawthorne, 326 B.R. 1 (Bankr. D. D.C. 2005) (service under Rule 9014 was inappropriate as Rule 3007 contains specific directions for service of an objection to claim).