Bankruptcy Answers with Reno Fernandez

Clifton Capital Group, LLC v. Sharp (In re East Coast Foods, Inc.), --- F.4th ---, 2023 WL 3296746, at *1 (9th Cir. May 8, 2023)

TRANSCRIPT

Hello to all the attorneys, fiduciaries, students, and bankruptcy fans out there. Today we are talking about East Coast Foods. The case is about a very famous Los Angeles restaurant. Specifically, in reaction to a $3.2 million judgment for racial discrimination, the operator of Roscoe’s House of Chicken & Waffles in Los Angeles, California, commenced a chapter 11 bankruptcy case. Nevertheless, the restaurant is extremely popular, having catered to President Obama, being referred to in several movies and songs, and having received Snoop Dogg’s interest in purchasing it.

A chapter 11 trustee was eventually appointed to displace management. Ultimately, a chapter 11 plan was confirmed that promises to pay the claims of all creditors in full, with interest.

The bankruptcy court awarded fees of over $1 million to the trustee, including an enhancement of 65% for exceptional services. Clifton Capital Group, an unsecured creditor, objected to the award of compensation, arguing that it was unreasonable and that it created a risk of diminished or delayed recovery for unsecured creditors.

“Injury in fact” is a crucial element of Article III standing. Here, the court found Clifton's alleged injury to be hypothetical and conjectural as the confirmed plan promised full payment to creditors. Thus, the award of compensation to the trustee did not diminish Clifton’s recovery.

The court rejected the less demanding "person aggrieved" test for standing. The opinion points out the confusion surrounding the historical application of this test, a prudential requirement found in the Bankruptcy Act of 1898, which continued to be used despite the act's repeal in 1978. Although not expressly stated in the opinion, presumably the “person aggrieved” test survives as a prudential standing doctrine. But in a footnote, the court commented that it need not address prudential standing because it determined that Clifton lacks Article III standing.

As usual, I’ll put a link to the opinion in the show notes.

My name is Reno Fernandez, and I handle bankruptcy-related appeals throughout the country, all the way up to the U.S. Supreme Court. If you have a question or would just like to chat, please feel free to reach out. Thank you.

In re SVB Financial Group, No. 23-10367 (Bankr. S.D.N.Y. May 17, 2023)

Greetings to all you lawyers, fiduciaries, students, and bankruptcy fans. Today we are talking about an opinion issued on May 17, 2023, in the SVB Financial Group case, which arises from the failure of Silicon Valley Bank.

Specifically, the FDIC brought a motion requesting to escrow tax refunds totaling about $10.7 million. This was opposed by the Debtor, the Official Committee of Unsecured Creditors, and other parties.

The FDIC’s motion was based on a tax sharing agreement with the Debtor. But the Debtor argued that the tax refunds are property of the estate, that the FDIC violated the automatic stay by opening the Debtor’s mail and intercepting refund checks, and that the motion is procedurally improper and should have been brought as an adversary proceeding.

The court determined that the FDIC’s arguments ignore the procedures to be followed under the tax-sharing agreement before receiving a share of the refunds. The court also found that the FDIC interfered with property of the estate without expressly stating that the FDIC violated the automatic stay. Ultimately, the court ordered the FDIC to turn over the tax refund checks.

Of course, I will put a link to the opinion in the show notes.

I am Reno Fernandez, and I handle bankruptcy-related appeals throughout the country, including all the way up to the U.S. Supreme Court. If you have questions or would just like to chat, please feel free to reach out. Thank you.

In re Uzcanga-Ramirez, No. 22-31705 (Bankr. D.Or. May 9, 2023)

TRANSCRIPT

Hello to all you lawyers, fiduciaries, students, and bankruptcy fans out there. Today we are talking about In re Uzcanga-Ramirez. On May 9, 2023, the U.S. Bankruptcy Court for the District of Oregon entered an opinion, approved by all of the active judges of the district, to accompany an order denying the debtor’s motion to reopen her chapter 7 case. The motion would have been a prelude to the debtor moving to vacate her discharge so that she may enter into a reaffirmation agreement, the details of which are not given.

The court held that it lacked the authority to vacate the debtor’s discharge under the circumstances. First, one of the statutory predicates for approval of a reaffirmation agreement is that it be made before entry of the discharge under Bankruptcy Code § 524(c). Once a discharge is granted, the court lacks jurisdiction to approve a reaffirmation agreement.

Second, there is a procedure for extending the time for approval of a reaffirmation agreement while also delaying entry of discharge, which was not done here.

The court acknowledged a prior prevailing practice of vacating a discharge under Rule 9024 of the Federal Rules of Bankruptcy Procedure in order to accommodate such a request but stated that this practice has been foreclosed.

As usual, I will put a link to the opinion in the show notes. Thank you.

Fogel v. Specialty Industries II, LLC (In re Palmieri), No. 22-A-00177 (Bankr. N.D.Ill. May 15, 2023)

TRANSCRIPT

Hello you lawyers, fiduciaries, students, and bankruptcy fans. Today we are talking about Fogel v. Specialty Industries II, LLC. On May 15, 2023, the U.S. Bankruptcy Court for the Northern District of Illinois entered a memorandum opinion applying the ten-year lookback period for tax claims to a fraudulent-transfer action under Bankruptcy Code § 544.

The opinion concerns a dispute between Richard Fogel, the chapter 7 trustee for the estate of Michael J. Palmieri, on one hand, and Specialty Industries II, LLC, Karen Witt, and Nicholas R. Recchia, on the other hand. At the center of the case is Fogel's motion to avoid what he alleges are fraudulent transfers of real property. He brings this claim under the Illinois Uniform Fraudulent Transfer Act (UFTA) and § 544 of the Bankruptcy Code. The defendants moved to dismiss the action as untimely.

The defendants argued that Fogel's complaint is time-barred due to the UFTA's four-year statute of limitations, whereas the transfers occurred outside this timeframe. Fogel, however, asserts that he can use the ten-year statute of limitations available to the IRS under 26 U.S.C. § 6502(a)(1) by virtue of § 544(b) of the Bankruptcy Code. This is in the context of the debtor’s own history of tax fraud.

Although there is a split of authority on the issue, the majority of courts have found that § 544(b) allows the trustee to use the extended statute of limitations. The defendants, referencing a case from the Bankruptcy Court in New Mexico, argue that the trustee is bound by the four-year statute of limitations. However, the court rejects this argument, pointing out the clear language of § 544(b) that allows the trustee to take advantage of the extended limitations period.

Lastly, the defendants contend that the complaint should be dismissed because the debtor did not personally own the property at the time of the transfer. But the court concluded that Fogel sufficiently alleged facts to state a reverse veil-piercing claim, thereby overcoming this objection.

As always, I’ll put a link to the opinion in the show notes. Thanks.

On April 27, 2023, the U.S. Court of Appeals for the Seventh Circuit issued an opinion holding that the preponderance of the evidence standard, rather than clear and convincing evidence, applies in turnover actions under Bankruptcy Code § 542.

Dordevic v. Paloian (In re Dordevic), --- F.4th --- (7th Cir. 2023)

TRANSCRIPT

Hello to all you lawyers, fiduciaries, students, and

Jelena Dordevic's bankruptcy case involves her mother,

The opinion explores the summary turnover procedure's

Using the Szaflarski factors to determine actual property

The opinion returns to the standard of proof debate,

Spartan Tank Lines, Inc. v. Le (In re Le), No. NC-22-1033-BGF (9th Cir. BAP May 11, 2023)

TRANSCRIPT

Hello to you lawyers, fiduciaries, students, and bankruptcy

On May 11, 2023, the BAP affirmed an order denying a request

Specifically, Spartan Tank Lines, Inc. took an appeal from denial

The debtor had issued a personal guarantee of American's

Consequently, Spartan took legal action against American and

The bankruptcy court eventually ruled in favor of Spartan,

The opinion further delved into the application of

The bankruptcy court had concluded that it was not, as it

The panel's findings suggested that the bankruptcy court did

The panel also addressed California Code of Civil Procedure

Hours after its first bankruptcy case was dismissed this afternoon, Johnson & Johnson's talc business filed a new petition for relief under chapter 11 of the Bankruptcy Code.

https://www.calg.com/reno

(415) 649-6700

TRANSCRIPT

Hi, Reno Fernandez here.  This just in:  On Tuesday, April 4, 2023, Johnson & Johnson’s talc business, namely LTL Management LLC, filed a second chapter 11 bankruptcy petition just hours after a New Jersey bankruptcy judge dismissed its first case.  The new case number is 23-12825, and it is before the same bankruptcy judge, namely Judge Michael B. Kaplan. 

The judge dismissed LTL Management’s first case under the mandate of the Third Circuit, which ordered the case to be dismissed for bad faith because the business was not in financial distress. 

Johnson & Johnson’s strategy depends on the trending “Texas Two-Step” maneuver, in which a problematic business unit is spun off and put into bankruptcy.  The bad optics of this maneuver almost certainly played a role in the Third Circuit’s decision.

Now, LTL Management comes back with an $8.9 million settlement with personal injury claimants.  We will see whether the result is different this time.

Once again, I am Reno Fernandez.  I handle bankruptcy appeals throughout the country, at all levels, including the Supreme Court. I also consult at the trial level on anticipated appellate issues. If you have questions, or you would just like to chat, please feel free to reach out. Thank you.

Bankruptcy appellate attorney Reno Fernandez provides an update on the U.S. Trustee's appeal from an order confirming a chapter 11 plan of reorganization in Voyager's bankruptcy case.

This is the U.S. Supreme Court's opinion in Bartenwerfer v. Buckley, 143 S.Ct. 665 (2023) read aloud without citations or footnotes. You can read about this opinion here: Bartenwerfer v. Buckley: Emerging Creditors’-Rights Court Denies Discharge for Innocent Partner.

On Thursday, U.S. Bank filed a petition for certiorari with the U.S. Supreme Court, seeking to abolish the doctrine of "equitable mootness." U.S. Bank, N.A. v. Windstream Holdings, Inc., No. 22-926 (U.S. Mar. 23, 2022).

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Hi. This is Reno Fernandez, and today we have a Supreme Court update.

On Thursday, March 23, 2023, U.S. Bank filed a petition for certiorari asking the court to discard the doctrine of equitable mootness, which it claims has "wrongfully and unevenly deprived bankruptcy litigants of review by Article III judges. The bank claims that Congress instituted a "comprehensive statutory scheme" to ensure judicial review of bankruptcy decisions, which has increasingly been evaded by the courts via the equitable mootness doctrine. The case is U.S. Bank versus Windstream Holdings, No. 22-926.

In 2015, Windstream sold its real estate holdings to a spinoff and leased back its assets. In 2019, Windstream obtained confirmation of a chapter 11 plan of reorganization providing for a settlement between the spinoff and Windstream that put any outstanding issues to bed. U.S. Bank, which held Windstream notes, contends they should have been permitted to seek to reverse the transaction, but plan confirmation left them with no recourse. The noteholders took an appeal from plan confirmation and approval of the settlement, but the appeal failed for equitable mootness.

The petition for sert calls the Second Circuit's interpretation of the equitable mootness doctrine "unpincipled" and faults the courts for prioritizing certainty over fairness. The bank points to a district court judge's decision to overturn Purdue Pharma's plan as an example of an appropriate judicial response.

In my own observation, mootness is being challenged more and more. I wouldn't be surprised if the Supreme Court takes up the issue, whether now or in another case.

And now for my book recommendation of the day, which is A Practitioner's Guide to Liquidation and Litigation Trusts. This is only slightly related to today's topic, but it is very related to all of the activity surrounding mass-tort cases and third-party releases. I'll post a link to the book in the show notes.

I am Reno Fernandez, and I handle only bankruptcy- and insolvency-related appeals, at all levels, including the U.S. Supreme Court. If you have questions or just want to chat, please feel free to reach out. Thank you.