U.S. Bank N.A. v. Village at Lakeridge, LLC

(U.S. Sup. Ct. Mar. 5, 2018)

The Supreme Court affirms the Ninth Circuit’s determination that a “clear error” review applied to the issue presented. The issue was whether an individual creditor was an “insider” under 11 U.S.C. § 101(31), which in this case determined whether a chapter 11 cramdown plan could be confirmed. The issue required the bankruptcy court to apply established facts to the correct legal standard for determination of insider status (a mixed question of law and fact). The Court holds that this particular question entails primarily legal work rather than factual work. Accordingly, “clear error” review was appropriate. Opinion below.

Justice: Kagan

2018-03-05 – u. s. bank n. a. v. village at lakeridge, llc

Author: Matt Lindblom

Merit Management Group, LP v. FTI Consulting, Inc.

(U.S. Sup. Ct. Feb. 27, 2018)

The Supreme Court holds that the safe harbor of 11 U.S.C. § 546(e) applies only to the transfer that is sought to be avoided, and is not applicable based solely on intermediary transfers. Section 546(e) exempts from a trustee’s avoidance powers certain types of transfers (e.g., settlement payments as defined in § 101) to certain protected parties, including financial institutions. If the transfer sought to be avoided is between two non-protected parties, the safe harbor does not apply, even if there is an intermediary or conduit party that is a protected party. Opinion below.

Justice: Sotomayor

2018-02-27 – merit management v. fti consulting

Author: Matt Lindblom

Midland Funding, LLC v. Johnson

(U.S. Sup. Ct. May 15, 2017)

The Supreme Court holds that a creditor did not violate the Fair Debt Collection Practices Act when it filed a proof of claim on a debt that was barred from collection by the applicable statute of limitations. The proof of claim made clear that the limitations period had passed. The decision resolves a split among the circuits on the question of whether such a filing constituted “false,” “deceptive,” “misleading,” “unconscionable,” or “unfair” conduct under the act. The court reasons that while the claim may not be enforceable, it is nevertheless a “claim” under the bankruptcy code. It is not a false or misleading statement, but it can be disallowed based on its unenforceability. Similarly, the court reasons that the filing was not unconscionable or unfair, as there are protections built into the bankruptcy process that minimize risk to the debtor. Opinion below.

Justice Breyer

2017-05-15 – in re midland funding

Author: Matt Lindblom

Czyzewski v. Jevic Holding Corp.

(U.S. Sup. Ct. Mar. 22, 2017)

The Supreme Court holds that a distribution scheme ordered by the bankruptcy court as part of a dismissal of a Chapter 11 case (i.e., a “structured dismissal”) cannot deviate from the basic priority rules in the bankruptcy code, without the consent of affected parties. The Court recognizes that the code gives a bankruptcy court the power to dismiss a Chapter 11 case, but there is no statutory language that supports a dismissal that includes nonconsensual priority-violating distributions of estate value. The Court further holds that there cannot even be a “rare case” exception where such structured dismissals would be appropriate. Opinion below.

Justice: Breyer

2017-03-22 – czyzewski v jevic holding corp

Author: Matt Lindblom

Commonwealth of Puerto Rico v. Franklin California Tax-Free Trust

(U.S. Sup. Ct. June 13, 2016)

The Supreme Court holds that Puerto Rico is a “State” for purposes of Chapter 9’s pre-emption provision, despite the Code’s definition of “State” excluding Puerto Rico for purposes of defining who may be a debtor under Chapter 9. Thus, Puerto Rico cannot authorize its municipalities to seek relief under Chapter 9 nor enact its own municipal bankruptcy laws. The district court properly enjoined enforcement of the laws enacted by Puerto Rico in 2014, which enabled its public utilities to modify their debts. Opinion below.

2016-06-13 – puerto rico v franklin california tax-free trust

Author: Matt Lindblom

Huskey International Electronics, Inc. v. Ritz

(U.S. Sup. Ct. May 16, 2016)

The Supreme Court resolves a split among the circuits as to whether 11 U.S.C. § 523(a)(2)(A), which in part excepts from discharge debts obtained by actual fraud, requires a false representation to a creditor or is applicable to other forms of fraud that do not require a false representation. The Court holds that a false representation is not required. The debtor caused an entity he controlled to transfer funds to other debtor-controlled entities while the transferor entity owed a significant debt to the creditor. The Court explains that “actual” in “actual fraud” means the fraud must be fraud that is not merely implied fraud or fraud in law. “Fraud” has historically encompassed a broad variety of activities, including the transfer of assets that hinders a creditor’s ability to collect a debt. The debtor argued that a narrower interpretation should be applied because the broader interpretation created overlap with other dischargeability provisions. The debtor also argued that effecting a fraudulent conveyance does not cause the debtor to “obtain” a debt and thus the narrower interpretation is correct. The Court rejects both arguments, based largely on statutory construction, and remands for a determination of whether the debtor here “obtained” a debt because it owned interests in the entities receiving the fraudulent conveyances. The dissent is consistent with the debtor’s argument that a fraudulent conveyance does not cause the transferor to obtain debt by actual fraud. Opinion below.

Majority Opinion: Justice Sotomayor

Dissenting Opinion: Justice Thomas

2016-05-16 – huskey international electronics v ritz

Author: Matt Lindblom

Baker Botts L.L.P. v. ASARCO LLC

(U.S. Sup. Ct. June 15, 2015)

The Supreme Court holds that professionals employed by trustees may not be compensated for time spent defending their fee applications in court. Because 11 U.S.C. § 330(a)(1) provides that professionals may be compensated for “actual, necessary services rendered,” the Court concludes that compensation for work defending a fee application is not authorized. The Court reasons that such work is not an actual and necessary service for the estate, and thus the “American Rule”—that each litigant pays his or her own attorney’s fees unless a statute or contract provides otherwise—should not be altered. Opinion below.

2015-06-15 – baker botts v asarco

Author: Matt Lindblom

Bank of America, N.A. v. Caulkett

(U.S. Sup. Ct. June 1, 2015)

The Supreme Court holds that a Chapter 7 debtor may not void a junior mortgage lien when the senior lien exceeds the value of the collateral. The Court recognizes that 11 U.S.C. § 506(a)(1) provides that an allowed claim is only a secured claim to the extent of the value of such creditor’s interest in the collateral. Section 506(d) provides that to the extent a lien secures a claim that is not an allowed secured claim, it is void. The Court suggests that the Code could be interpreted such that § 506(d) would allow the voiding of the junior mortgage lien, if not for the Court’s prior decision in Dewsnup v. Timm, 502 U.S. 410 (1992). There, the Court held that for purposes of § 506(d) a claim is a secured claim regardless of whether the collateral value is less than the lien amount. Thus, Dewsnup controls here and the debtors are not permitted to void the junior mortgages. Opinion below.

2015-06-01 – bank of america v caulkett

Author: Matt Lindblom

Wellness International Network, Ltd. v. Sharif

(U.S. Sup. Ct. May 26, 2015)

The Supreme Court holds that certain claims entitled to Article III adjudication (i.e. Stern claims) may be decided by bankruptcy judges when the parties knowingly and voluntarily consent to such adjudication. Such consent does not have to be express. Here, the creditor filed a non-dischargeability complaint that included a count requesting a declaratory judgment that a trust was the alter-ego of the debtor. The bankruptcy court entered judgment against the debtor on that count (as well as the non-dischargeability counts). The debtor’s answer conceded that the action was a core proceeding and requested judgment in his favor on all counts. The Supreme Court remands to the Seventh Circuit to decide whether the debtor gave the requisite knowing and voluntary consent to entry of the final judgment by the bankruptcy court. Opinion below.

2015-05-26 – wellness international network v sharif

Author: Matt Lindblom

Harris v. Viegelahn

(U.S. Sup. Ct. May 18, 2015)

The Supreme Court holds that post-petition debtor wages held by the Chapter 13 trustee after the debtor converts to Chapter 7 should be returned to the debtor rather than distributed to creditors in accordance with the Chapter 13 plan. There was a split on this issue between the Fifth and Third Circuits, with the Fifth Circuit holding the funds were properly distributed to creditors under the plan following conversion. So long as the debtor does not convert to Chapter 7 in bad faith, such funds should be returned to the debtor. Opinion below.

2015-05-18 – harris v viegelahn

Author: Matt Lindblom