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Bankruptcy Litigation

Not My Client, Not My Problem. The Duty of Attorney’s to Non-Clients

By: Daniel Quinn

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In 2015, the United States Court of Appeals for the Second Circuit found that attorneys at May-er Brown, LLP had inadvertently terminated certain liens granted by General Motors (“GM”) in favor of J.P. Morgan Chase (“JPM”). GM repaid the Term Loan agreement in full in accordance with the bankruptcy court order and therefore made the retirement plaintiffs and Term Loan members subject to clawback provisions under the Bankruptcy Code. The members of the Term Loan agreement and retirement plaintiffs filed a lawsuit against Mayer Brown, the law firm responsible for the erroneous termination of liens, for negligent mis-representation and legal malpractice in the United States District Court of Northern District of Illinois.

Actual Knowledge Bars Section 546(e) Safe Harbor Defense

By: Amanda Tersigni

St. John’s Law Student

American Bankruptcy Institute Law Review, Staff

Section 546(e) of the Bankruptcy Code generally provides that a trustee may not avoid a “settlement payment” as a preference or a fraudulent transfer.[1] This so-called “safe harbor,” a defense to a trustee’s avoidance power, is designed to avoid uncertainty in security trading and to prevent an ultimate instability in the financial markets.[2] The United States Bankruptcy Court for the Southern District of New York in Picard v. Avellino (In re Bernard L. Madoff Inv. Sec. LLC),[3] held that having actual knowledge of fraudulent nature of a security trading precluded a defendant from using the safe harbor defense under Section 546(e).[4]

A Lender’s Knowledge of Alleged Breaches of Fiduciary Duties Shall Not Be Imputed Upon Debtors in a Statute of Limitations Analysis

By: Michael DeRosa

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In In re AMC Investors, the Delaware district court reversed the bankruptcy court’s decision granting summary judgment in favor of the officers and directors (“Defendants”) of AMC (the “Company”) because[1] Eugenia, as the sole creditor, was granted derivative standing to file suit on behalf of the debtors of the Company.[2] Prior to being granted derivative standing, Eugenia filed involuntary Chapter 7 bankruptcy petitions against the debtors in 2009.[3] The bankruptcy court granted summary judgment in favor of the Defendants, which was based on Defendants’ statute of limitation defense.[4] Eugenia and the debtors (collectively “Plaintiffs”) appealed summary judgment.

Pension Plans Retired by Section 1114

By: Courtney Sokol

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The United States District Court for the Northern District of Alabama concluded that the Bankruptcy Court had jurisdiction and entered a valid termination of retirement benefits pursuant to Section 1114 of the Bankruptcy Code. Moreover, according to the District Court, it lacked jurisdiction to consider the Appellants' challenge to the Bankruptcy Court's ruling under Section 1113. This ruling allows Walter Energy to terminate collective bargaining agreements with retired coal miners, thus allowing the “necessary” reorganization of the debtor. This suit was an effort by the United Mine Workers of America to preserve the retirement plans of covered employees of Walter Energy, a company seeking a protection under Chapter 11 of the Bankruptcy Code. If retiree benefits were not halted the proposed purchaser, Warrior Met Coal, LLC, would not acquire Walter Energy.

Collateral Attacks May Allow Bankruptcy Courts to Alter Final Sale Orders

By: Louis Calabro

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In In re Gunboat International, Ltd., the United States Bankruptcy Court for the Eastern District of North Carolina held that section 363(m) of the Bankruptcy Code, which protects a good faith purchaser from a reversal of an order approving a bankruptcy sale, does not apply to collateral attacks on a sale order under Rule 60(b) of the Federal Rules of Civil Procedure (“FRCP”). In that case, the debtor (“Gunboat”) agreed to sell its interest in the G4—a sailboat model contracted between the debtor and two other parties—to a third party, Mr. Chen. In the months leading up to the sale, The Holland Companies (“Holland”), which held certain exclusive manufacturing and usage rights over the G4, had been negotiating a settlement agreement to buy Gunboat’s interest in the G4. Holland was unaware that Gunboat was attempting to sell Gunboat’s G4 interest to another party and believed that Gunboat should have given Holland an opportunity to make a more attractive offer considering its ongoing attempts to settle. On May 10, 2016, the court entered a final order approving the sale of Gunboat’s assets to Mr. Chen. Thereafter, Holland filed a motion to reconsider with the court under FRCP Rule 60(b); in response, Gunboat opposed.

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