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St. John's Case Blog

By: Daniel J. Opisso
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in In re Visteon, the Third Circuit held that a chapter 11 debtor had to follow section 1114 of the Bankruptcy Code when terminating a retiree benefit plan, notwithstanding the terms of an existing collective bargaining agreement (“CBA”) that permitted unilateral termination.[1] At the time Visteon filed for chapter 11, the CBA provided that retired employees would receive medical benefits until death.[2] However, the CBA gave Visteon the discretionary power to unilaterally terminate or modify any retiree benefits at any time.[3] Despite Visteon’s apparent reservation of the right to terminate retiree benefits, the Third Circuit held that Visteon could not do so in its bankruptcy case without complying with section 1114, which sets forth a specific procedure for termination or modification of retiree benefits.[4]

December 1 2010

By: Justin Zaroovabeli
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in In re Reiman,[1] a Michigan bankruptcy court held that a trustee could not revoke abandonment of property that he later discovered to have additional value.[2] The Reimans, the debtors, listed both their house’s value and a secured claim above their house’s value on their chapter 7 schedules.[3] After the trustee filed his no-asset report, the bankruptcy case closed and the debtors received a discharge.[4] The property eventually foreclosed at a bid price below the house’s fair market value and the trustee moved to re-open the case to recover any additional value in the house.[5] Although the court re-opened the case,[6] the court denied the trustee’s motion to revoke abandonment because the trustee’s no asset-report was not influenced by an unforeseeable change or mistake of law.[7] The court also noted that policy considerations typically favored finality in bankruptcy cases.[8]

December 1 2010

By: David Wohlstadter
St. John's Law Student
American Bankruptcy Institute Law Review Staff

In AASI Creditor Liquidating Trust v. Raymond James & Associates, Inc. (In re All American Semiconductor, Inc.),[1] a bankruptcy court held that res judicata barred creditors from objecting to a final fee order because the creditors had notice of the prior hearing regarding the fee application and should have objected to the specific fees then.  The liquidating trustee challenged pre-petition fees paid to a financial advisor for his efforts to sell various assets owned by the debtor.[2]  The bankruptcy court overruled the trustee’s objection because the creditor’s committee and United States Trustee had already objected unsuccessfully during the final fee hearing.[3]

December 1 2010

By: Deirdre E. Burke
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently in O’Sullivan v. Loy (In re Loy),[1] a Virginia district court held that although a bankruptcy proceeding is ancillary to a foreign main proceeding, a chapter 15 “case” was commenced upon the filing of the petition for recognition in a United States bankruptcy court and not on the date of commencement of the foreign insolvency proceeding.[2] Certain chapter 15 provisions authorize relief after the “commencement of the case.”[3] Chapter 15, however, does not define the date commencement is considered to have occurred.  As a result, determining whether these statutes refer to the date the foreign proceeding commenced or the date of the foreign representative’s petition for recognition in U.S. bankruptcy courts can have significant ramifications.[4] In this case, an English Trustee was unable to avoid the debtor’s transfer of United States property as a post-petition transfer under sections 1520 and 549 of the Code, because the transfer took place before the English Trustee filed the petition for recognition in U.S. bankruptcy court.[5]

December 1 2010

By: Matthew Donoghue
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently in Longview Aluminum, L.L.C. v. Brandt (“Longview”),[1] an Illinois district court held that a member of a limited liability corporation (“LLC”) is an “insider” under 11 U.S.C. § 101(31) of the Bankruptcy Code (“the Code”) regardless of the member’s control over the LLC.[2] The court reached this conclusion by analogizing a member of an LLC to a director of a corporation,[3] which is listed as a per se “insider” under section 101.[4]

November 30 2010

By: Samantha Aster
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in In re Computer World Solution Inc.,[1] a bankruptcy court in Illinois held that the ordinary course of business defense to a preference claim does not apply to a debtor engaged in a fraudulent Ponzi scheme.[2] In 2006, an electronics distributor who was allegedly running a Ponzi scheme, obtained a $2.2 million loan from its lender.  The day before the loan was to mature, the loan was modified to extend the repayment period.[3] Shortly after the lender obtained a state-court judgment against the debtor it made the disputed payments. The estate sought to avoid these three payments made to the lender as preferences under section 547 of the Bankruptcy Code.[4] Even though the lender was unaware of the fraud, and thus not at fault, the court held that the ordinary course of business defense is inapplicable when the debtor engages in fraudulent conduct.[5] 

November 30 2010

By: Rebecca Rose
St. John’s Law Student
American Bankruptcy Institute Law Review Staff

Recently, in Matthys v. Green Tree Servicing, LLC (In re Matthys),[1] a bankruptcy court held that a debtor does not have a private right of action against the creditor who listed the debtor’s full social security number on its proof of claim. This holding is consistent with what the majority of courts have held in similar cases.[2] While the joint debtors in Matthys sought relief under various statutes, including Bankruptcy Code sections 105 and 107,[3] the court found that no private right of action existed. 

November 30 2010

By: Brian Powers
St. John’s Law Student
American Bankruptcy Institute Law Review Staff

Section 549(a) empowers a chapter 7 trustee to avoid unauthorized post-petition transfers of estate property.[1]  Recently, in Marathon Petroleum, Co., LLC v. Cohen (In re Delco Oil, Inc.), the court held that there is no protection for an innocent seller of goods who was unaware that the DIP was not authorized to use cash collateral to pay for the delivered good.[2] In the case, the debtor, an oil company, filed a routine first-day motion[3] and simultaneously moved for an emergency order authorizing the use of cash collateral.[4] One of the oil company’s secured creditors objected to the cash collateral motion on the ground that its security interest was not adequately protected.[5] Reserving judgment on the cash collateral motion until after a hearing, the bankruptcy court nevertheless authorized the debtor to continue its business as a DIP.[6] Before the hearing date on the cash-collateral motion, the oil company used cash collateral to purchase approximately $1.9 million of petroleum products without the court’s permission.[7] The cash-collateral motion was subsequently denied, and the oil company voluntarily converted its case to chapter 7.[8] The chapter 7 trustee then filed suit against the oil supplier, attempting to recover the funds paid to it.[9]

November 30 2010

By: Christopher J. Rubino
St. John’s Law Student
American Bankruptcy Institute Law Review Staff

In Weinman v. Graves (In re Graves)[1], the Tenth Circuit held that section 542(a)[2] does not permit a chapter 7 trustee to force the IRS to turnover overpaid taxes of joint debtors where the debtors elected to apply the overpayment to the next year’s tax liability.  In Graves the joint debtors elected to apply their 2006 tax refund to their 2007 tax liability.[3]  Two months after filing their tax returns, the debtors filed for bankruptcy.[4] The Tenth Circuit affirmed the bankruptcy court’s refusal to order the IRS to turnover the debtors’ 2006 tax refund under section 542(a).[5] 

November 29 2010

By:  Katelyn Trionfetti
St. John’s Law Student
American Bankruptcy Institute Law Review Staff

In Texas Comptroller of Public Accounts v. Liuzza (In re Texas Pig Stands, Inc.),[1] the Fifth Circuit considered whether a bankruptcy trustee could be held personally liable for failing to remit state sales tax pursuant to Texas Tax Code section 111.016(b).[2] In Texas Pig Stands, the state taxing authority brought an adversary proceeding against a bankruptcy trustee after the trustee failed to timely remit state sales tax, which violated a court order and a court approved reorganization plan.[3] The Fifth Circuit held that the trustee was personally liable for over $100,000[4] in taxes he failed to remit.[5]

November 29 2010