Blogs

By: Peter N. Chiaro

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The United States Bankruptcy Court for the Eastern District of Pennsylvania, in In re Brewery Park Associates, L.P.,[1] recently affirmed that the “absolute priority rule” is violated when a secured creditor receives more than the value of its claim under a chapter 11 plan.  Following the expiration of the debtor’s exclusivity, the Retirement Fund (“TRF”), a secured creditor, proposed its own chapter 11 plan.[2]  After failing to gain approval from all classes of impaired creditors, it sought to cramdown its proposed chapter 11 plan under section 1129(b).[3]  TRF’s plan allowed TRF to obtain a parcel of property that was worth, by its own estimate, between $5 million and $6 million in exchange for a credit bid of $2 million.[4]  Further, because TRF’s secured claim was roughly $5.2 million, TRF’s low credit bid would also give it deficiency claims against the loan guarantors.[5]  The court determined that TRF’s plan would likely overpay TRF’s allowed claim, and therefore the plan could not be confirmed because it was not fair and equitable.[6]

By: Brian P. King

St. John’s Law Student

American Bankruptcy Institute Law Review Staff    

Broadly interpreting the forward contracts definition, the District Court for the Eastern District of Louisiana, in Lightfoot v. MXEnergy, Inc.[1] held, for the first time, that a requirements contract to provide energy to a purchaser, absent a specific quantity, was a ‘forward’ contract.[2]  As a result, payments made under that contract were not avoidable as preferences pursuant to 11 U.S.C § 547[3] because they were deemed to be settlement payments[4] related to a forward contract.  The issue arose under an agreement between MBS Management Services, Inc. (“MBS” or the “Buyer”), a real-estate management company and MXEnergy, Inc. (“MX” or the “Supplier”) who agreed to supply all of the energy requirements for apartments managed by MBS.   Following MBS’s bankruptcy filing,[5] the court appointed trustee, Lightfoot, initiated an adversary proceeding to avoid payments made by the Buyer to the Supplier on the basis that those payments were preferences under 11 U.S.C § 547.[6]  The defendants asserted that, as a forward contract merchant,[7] the payments made by MBS were settlement payments made pursuant to a forward contract and, as such, they could not be avoided under section 547 based on the limitations set forth in 11 U.S.C § 546(e).[8]  The court agreed. 

 By: Joshua L. Eisenson

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

By: Jonathan Weiss

St. John’s Law Student

American Bankruptcy Institute Law Review Staff 

In S. White Transportation, Inc.,[1]the Bankruptcy Court for the Southern District of Mississippi held that secured creditor had “participated” in the chapter 11 case and was bound by a plan voiding its lien because it received notice, even though it had not appeared or taken any action in the case.[2] The debtor, S. White Transportation, Inc. (“SWT”), had challenged the validity of a Deed of Trust with the creditor, Acceptance Loan Company, Inc. (“Acceptance”) in state court on the basis that the individuals who had signed the Deed of Trust on behalf of SWT did not have the authority to do so.[3]  Consistent with its claims in state court, SWT’s proposed chapter 11 plan classified Acceptance’s lien as a disputed claim on which no payment would be made.[4] Two weeks after SWT’s chapter 11 plan was confirmed, Acceptance objected to the plan, requesting that the court find that its lien survived the confirmation unaffected.[5] The court held that the plan voided the lien and denied motions for relief and modification of the plan, and reaffirmed the old adage that litigants must not “sleep on their rights”.[6]

By: Jessica E. Stukonis

St. John’s Law Student

American Bankruptcy Institute Law Review Staff 

An attorney who signed a proof of claim on his client’s behalf narrowly avoided disqualification in In re Duke Investments.[1] In Duke, the court refused to disqualify the attorney from representing his creditor-client in the chapter 11 case because the attorney was not a “necessary witness” despite his role in preparing, signing, and filing a creditor’s proof of claim.[2] The creditor’s attorney compiled the proof of claim based on information received from the creditor’s officers.[3]  The court denied the debtor’s motion to disqualify the creditor’s attorney because the debtor failed to demonstrate that the attorney was a necessary witness. The attorney was not a necessary witness because he lacked “exclusive knowledge or understanding of the [proof of claim]. . . . [and the attorney’s] testimony would [not] be the sole source of information pertaining to the [proof of claim]”.[4]  Moreover, even if the attorney was a “necessary witness,” he would not be disqualified because the debtor failed to demonstrate that his testimony would “substantially conflict” with Amergy’s testimony,[5] and Amergy consented to the attorney’s continued representation.[6]