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Bankruptcy Code Does Not Preempt State Law for Allowance of Claims

By: Dylan Lackowitz

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Like other states, New Jersey allows third parties to purchase tax liens at auction.[1] These liens against real property are a result of property owners failing to pay local property taxes.[2] Successfully bidding on the lien at auction gives the purchaser the right to foreclose on the property and to seek a judgment on the debt note.[3] In New Jersey, the bidding begins at 18% interest, and each bid lowers the interest rate that would have been assessed on the tax debt.[4] Once the bidding reaches 0%, the bidding parties will then bid on a premium payable to the municipality holding the lien.[5] The party that wins at auction pays the municipality the tax debt owed by the delinquent property owner and any premium incurred during the bidding process in exchange for the tax lien, as evidenced by a tax sale certificate and its accompanying rights.[6] New Jersey law, however, also provides that any holder of a tax sale certificate, who knowingly charges or exacts an excess fee in connection with the redemption of any tax sale certificate, shall forfeit such tax sale certificate to the person who was charged such excessive fee.[7] In In re Princeton Office Park, L.P., the United States Court of Appeals for the Third Circuit held that the United States Bankruptcy Code (the “Code”) does not preempt state law regarding the allowance of claims.[8] Therefore, the Third Circuit held that Plymouth Park Tax Services LLC’s (“Plymouth”) claim in bankruptcy against Princeton Office Park L.P. (“Princeton”) was disallowed because Plymouth charged Princeton an excessive fee in connection with the redemption of a tax sale certificate.[9]

Bankruptcy Taxation
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December 17 2016
Publication Notice Satisfies Due Process for Unknown Future Asbestos Claimants

By: Colleen Angus-Yamada

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Almost thirty years after the Bankruptcy Court for the Southern District of New York confirmed the Chapter 11 plans of Johns-Manville Corporation (“Manville”) and Manville Forest Products (“MFP”), pursuant to which creditors were enjoined from pursuing asbestos claims against them, a plaintiff sought to recover from Graphic Packaging International (“Graphic”), a purported successor of MFP. In In re Johns-Manville Corp.,[1] the Bankruptcy Court enjoined Ms. Berry from pursuing asbestos claims arising from her exposure to asbestos on her husband’s work clothes.[2] According to the Bankruptcy Court, because Graphic is a successor of MPF, a bankruptcy debtor and a wholly-owned subsidiary of Manville, Ms. Berry must first pursue her asbestos claims against the Manville Personal Injury Trust (the “Trust”) in accordance with the Chapter 11 Plan (the “Manville Plan”).[3]

Business Reorganization
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December 17 2016
Finding a Safe Harbor After the Storm

By: William Accordino

St. John’s Law Student

American Bankruptcy Institute Law Review Staffer

In In re Lehman Brothers Holdings Inc. (“Lehman”), Judge Shelley C. Chapman of the United States Bankruptcy Court for the Southern District of New York dismissed a complaint filed by Lehman Brothers Holding Inc. (“LBHI”) and Lehman Brothers Special Financing Inc. (“LBSF”) challenging the early termination of forty-four credit default swap agreements.[1] The complaint alleged the subsequent liquidation of the collateral underlying those agreements after the early termination and the distribution of those proceeds violated the Bankruptcy Code (“Code”) despite LBSF’s default.[2] Of the forty-four swap agreements, the court found five contained provisions that “effected an ipso facto modification of LBSF’s rights . . . .”[3] However, the distributions from those transactions were protected by the Code’s safe harbor provision.[4] Judge Chapman found the priority provisions in the other thirty-nine swap agreements did not operate as ipso facto clauses because they did not modify any rights of LBSF.[5] The payment priority for those agreements was not set at any time prior to the termination of the swap, thus no right to payment priority could be modified by a termination.[6] As a result, all nineteen counts of the complaint were dismissed for failure to state a cause of action.[7]

Bankruptcy Litigation
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December 16 2016
Non-Dischargeability of Foreign Student Loans

By: Andrew Brown

St. John’s Law Student

American Bankruptcy Institute Law Review Staffer

Educational loans made, insured, or guaranteed by a governmental unit are not dischargeable in a chapter 7 bankruptcy case, unless the debtor obtains a hardship determination.[1] Thus, it is very difficult to discharge student loans through a bankruptcy case. This is true even if the loan is made, insured, or guaranteed by a foreign governmental unit. In the case of In re Mulley, the Bankruptcy Court for the Central District of California determined that government guaranteed student loans, made pursuant to the Canada Student Loans Act (“CSLA"), were non-dischargeable under the United States Bankruptcy Code.[2]

Consumer Bankruptcy
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December 16 2016
Courts Override Underlying Contractual Obligations in the Chapter 11 Surrender and Abandon of Aircraft Equipment and Vessels

By: Lisa Strejlau

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In Chapter 11 airline cases, a court will typically balance the interests of debtors and creditors in determining the method, timing and condition of collateral returns and whether or not the parties must comply with the underlying contractual obligations. In In re Republic Airways Holdings, Inc.,[1] the United States Bankruptcy Court for the Southern District of New York held that a debtor is not required to comply with underlying contractual requirements for the return of aircraft and engines as collateral.[2] After filing for Chapter 11, Republic Airways Holdings, Inc. (“Republic”) sought to surrender or abandon certain aircrafts and engines subject to liens of Citibank, pursuant to an agreement to secure Republic’s obligations with respect to a credit and guaranty agreement.[3] Republic moved for an order authorizing them to (i) transfer title to and abandon certain aircrafts and engines and reject a related aircraft lease, and (ii) to fulfill their obligations under a certain engine purchase agreement and directing Citibank to cooperate with the closing of that agreement.[4]

Business Reorganization
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November 20 2016
The Eighth Circuit’s Leniency on Discharging Student Loan Debt

By: Maria Casamassa

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Under the Bankruptcy Code, a discharge of student loan debt is not justified “unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents . . . .”[1] A finding of undue hardship is difficult to establish; accordingly, student loan debt is rarely discharged.[2] However, in In re Fern,[3] the United States Bankruptcy Court for the Northern District of Iowa applied the totality of the circumstances test and held that the debtor presented sufficient evidence demonstrating that excepting her student loans from discharge would impose an undue hardship on her and her family and, therefore, the debt was dischargeable.[4]

Consumer Bankruptcy
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November 20 2016
Federal Trademark Law Trumps A Licensee’s Right to Assume in Bankruptcy

By: Olivia Cheung


St. John’s Law Student


American Bankruptcy Institute Law Review Staff


In In re Trump Entertainment Resorts, Inc., the United States Bankruptcy Court for the District of Delaware held that trademark licenses are not assignable by a debtor licensee without the consent of the licensor.[1] In interpreting applicable federal trademark law, the court noted that exclusive or non-exclusive trademark licenses are precluded from assignment by a licensee without the licensor’s consent, even if the original license agreement did not expressly prohibit such an assignment.[2] In this instance, the trademark license agreement granted Trump Entertainment Resorts (“TER”) a royalty-free license to use the names and likenesses of Donald and Ivanka Trump in connection with three casinos in Atlantic City, New Jersey.[3] The license was subject to termination if TER failed a quality assurance review and did not cure the deficiencies within a specific period of time.[4] If TER failed the review, the licensor would have the right to start proceedings to terminate the license in New Jersey state court.[5] TER allegedly failed a quality assurance review, and the licensor sued in New Jersey state court seeking to terminate the agreement.[6] The state court action was stayed automatically when TER filed petitions for relief under chapter 11.[7] Pursuant to TER’s proposed plan of reorganization, TER would cure any defaults and assume the license agreement.[8] Subsequently, the licensor filed a motion in the bankruptcy court seeking to have the stay lifted so that the licensor could proceed with the state court termination action.[9]

Technology & IP
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January 18 2016
Lehman Stock was not an Excessively Risky Investment for ESOP Fiduciaries in 2008

By: Zien Halwani

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The United States District Court for the Southern District New York dismissed an action for breach of fiduciary duty relating to investment in Lehman stock during the 2008 financial crisis.[1] Beneficiaries of Lehman Brothers Savings Plan, an employee stock ownership plan (“ESOP”), sued Lehman’s former directors, which included Richard S. Fuld and the Lehman’s Employee Benefit Plans Committee (“Plan Committee”).[2] This lawsuit was dismissed twice under Rule 12(b)(6) for failing to plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[3] The Second Circuit affirmed the second dismissal in Rinehart v. Akers,[4] but the dismissal was vacated and remanded to this district court by the United States Supreme Court in light of its decision in Fifth Third Bancorp v. Dudenhoeffer.[5] Prior to the Supreme Court’s ruling in Dudenhoeffer, several lower courts found that ESOP fiduciaries were entitled to a general presumption of prudence.[6] In Dudenhoeffer, the Supreme Court narrowed this entitlement to a presumption of prudence only when Employee Retirement Income Security Act (“ERISA”) fiduciaries — ESOP or otherwise — rely on publicly available information in making investment decisions.[7] The Supreme Court also held, however, that a company might be an imprudent investment if it was going “out of business.”[8]

Labor & Employment
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January 16 2016
Lack of Prejudice Defeats Procedural Due Process Claim of Plaintiff Class

By: Bryant Churbuck

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In In re Motors Liquidation Co., the Bankruptcy Court of the Southern District of New York held that the class of "Pre-Closing Accident" plaintiffs would be unable to proceed with their personal injury claims against the new General Motors (“GM”), rather than the old GM , because they suffered no prejudice to support a procedural due process violation, despite the fact that the notice by publication given to the "Pre-Closing Accident" plaintiffs was insufficient. In Motors Liquidation, several classes of plaintiffs were asserting claims related to an ignition switch defect that was known by GM as far back as 2003. At least 24 GM business and in-house legal personnel employees knew about the ignition switch defect at the time of GM's 2009 chapter 11 bankruptcy case and section 363 Sale Order. On July 10, 2009, the sale of Old GM in accordance with the Section 363 Sale Order closed, forming the new GM. In the Spring of 2014, GM finally recalled the vehicles with the faulty ignition switch issue. Shortly thereafter, GM announced the ignition switch defect, resulting in several class action lawsuits.

Asset Sales & Bankruptcy Litigation
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January 6 2016
The Government Will Get Theirs (Most of the time)

By: Clayton J. Lewis

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In the case of In re Brown, the Bankruptcy Court for the Middle District of Florida held that a tax debt owed to the IRS was excepted from a hardship discharge, and accordingly was not excused from payment. The debtors in In re Brown filed for Chapter 13 bankruptcy relief and initially implemented a payment plan for 100% of their debts, including a total of $303,229 payable to the IRS. The debtors, however, were unable to meet their payment obligations and had to amend their payment plan twice. With over $155,000 still due to the IRS, the debtors offered to settle theirs debt with the IRS. The debtors and the IRS were unable to reach a settlement. The IRS nonetheless suggested that the debtors file for a hardship discharge under section 1328(b) of the Bankruptcy Code. The debtors followed this suggestion and received a hardship discharge, and their bankruptcy case was closed. The discharge order expressly noted that the debt to the IRS, however, was not discharged and was still due in full. When the IRS attempted to collect the debt, the debtors filed a complaint against the IRS in the bankruptcy court, alleging that the IRS had violated the Discharge Order.

Bankruptcy Taxation
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January 6 2016

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