| October 2008 issue: Your Name Here! The Bankruptcy Section is looking for volunteers to write a Case Analysis for an upcoming addition. The Case Analysis is typically based on Court of Appeals or Supreme Court decisions, although you can use your discretion to discuss relevant BAP, District Court and Bankruptcy Court decisions -- especially those interpreting BAPCPA's amendments to the Code. If you are interested or would like to learn more, please send an email to the Managing Editor. You can view the archive here. Your subscription You have been subscribed to this list as part of your membership in the Bankruptcy Section of the Commercial Law League of America. CLLA 205 N. Michigan, Suite 2212, Phone: 312-240-1400 Newsletter design by: |
Upcoming Bankruptcy Section Events: Fall Teleseminars, Nov. 18 and Dec. 2Don’t miss the chance to earn CLE credit while sitting comfortably in your office. There is no limit to the amount of listeners per registered phone line. The Impact of the Subprime Meltdown Nov. 18, 2008 ~ 12:00-1:30pm EST $175 per site Get an up-to-date analysis of the subprime fallout, from Fannie and Freddie, to the bailout and beyond. This program is sponsored in part by the National Conference of Bankruptcy Judges and is a continuation of the excellent programs presented at the 2008 NCBJ.
Dec. 2, 2008 ~ 1:00-3:00EST $175 per site What is a vendor entitled to under the Bankruptcy Code?s new section 503(b)(9)? How do you assert a §503(b)(9) priority claim? What are the defenses to §503(b)(9) priority claims? Our experts will explore the hidden complexities of this statute, discuss the courts' rulings, and explain what a vendor can expect if its customer files for bankruptcy.
Sua Sponte Steve Ungerman The Commercial Law League and its Bankruptcy Section were well-represented at the National Conference of Bankruptcy Judges on September 24-25, 2008. Our Annual CLLA Breakfast featuring Herb Cohen, Internationally Renowned Negotiator and Author was well attended and Herb Cohen was very interesting and entertaining. David Gamache gave an overview of the CLLA and I gave a presentation on the Bankruptcy Section. We also presented the 2008 Lawrence P. King Award for Excellence in Bankruptcy to Judge Robert Ginsberg. The CLLA’s Frank W. Koger Memorial Educational Program was outstanding and very timely. The Education Program was our twenty-third Annual Current Developments in Hot and Emerging Areas. The topics included Lionel Revisited: Bankruptcy Sales - The Good, The Bad and The Ugly, From a Ripple to a Tsunami: The Impact of the Subprime Meltdown, and Effective Techniques Used By Creditors Committees and Other Constituencies to Maximize Recoveries. I would like to recognize our Section’s NCBJ Committee for planning and executing the above programs: Jay Welford, Chair, Hon. Jeffrey Deller, NCBJ Liaison, Hon. Judith Fitzgerald, Judith Greenstone Miller, Ivan Reich, and Cathy Vance. I would also like to thank the Executive Council and Section members for their sponsorships and their solicitations of sponsorships. Meghan Cook and Elizabeth Hart did an outstanding job with the CLLA Booth and supporting the Breakfast and Educational Programs. Many Attendees stopped by the Booth and we obtained some new members. During the NCBJ Conference, Congress was debating the Bailout Legislation. Peter
Califano, Louis Robin, and David Goch prepared a letter to Congress advocating I am looking forward to seeing our members who are attending the CLLA meeting in New York. Case AnalysisPaul R. Hage, Esq.1 Bankruptcy Court Holds that Section 502(d) Does
Not Apply to In In re Plastech Engineered Products, Inc., Case No. 08-42417 (PJS), 2008 WL 4294279 (Bankr. E.D. Mich. Sept. 16, 2008), the bankruptcy court addressed an issue of first impression, "whether § 502(d) of the Bankruptcy Code may be used to disallow an administrative expense under § 503(b)(9)." In that case, the debtor, a tier one auto supplier, objected to a number of administrative expense claims that were filed pursuant to section 503(b)(9) of the Bankruptcy Code, which allows administrative priority to creditors that sell goods to the debtor in the ordinary course of the debtor’s business within 20 days prior to the commencement of the bankruptcy case. The debtor asserted that the section 503(b)(9) claims should be disallowed based on section 502(d) of the Bankruptcy Code which provides that a claim of a creditor shall be disallowed if, for example, the creditor has failed to return allegedly preferential transfers that are recoverable under sections 547 and 550 of the Bankruptcy Code. In the debtor’s view, section 502(d) could be used to disallow any claim "irrespective of whether the entity’s claim arose pre-petition or post-petition," and irrespective of whether the claim was subject to the allowance provisions of sections 501 and 502 or, alternatively, was allowed pursuant to some other section of the Bankruptcy Code. Conversely, the 503(b)(9) creditors argued that the disallowance provision of section 502(d) was inapplicable to claims under section 503(b)(9) because that provision only applies to claims filed under section 501 (which governs the filing of pre-petition claims and certain specifically identified post-petition claims) and otherwise allowed under section 502 (which governs the allowance of claims filed under section 501). Because section 503(b)(9) claims are allowed under section 503(b) ("after notice and a hearing, there shall be allowed administrative expenses…") and not section 502, the 503(b)(9) creditors asserted, the disallowance mechanism of section 502(d) "just does not apply" to the payment and allowance of such claims. After conducting an exhaustive review of the related case-law, the court held that section 502(d) does not apply to claims under section 503(b), including section 503(b)(9) claims. The court set forth a number of rationales for this holding. First, the court reasoned that the allowance of claims under section 502 is "entirely separate from the allowance of administrative expenses" which is done through section 503(b). Because the disallowance provision is located in section 502 and expressly refers to "subsections (a) and (b) of section 502," it only applies to claims that are allowed under that section. Second, although it stopped short of finding that a section 503(b)(9) administrative expense is not a "claim" generally, the court found that a section 503(b)(9) administrative expense is simply not a type of claim that is subject to section 502(d). In reaching this conclusion, the court was persuaded by the numerous distinctions that exist with respect to the treatment of administrative expenses under sections 503(a) and (b) as compared to the treatment of "claims" provided in sections 501 and 502. Third, the court noted that the debtor’s position would result in a direct conflict between the mandatory allowance provision in section 503(b) and the mandatory disallowance provision of section of 502(d). Such a conflict does not exist with respect to other claims, the court held, because the statute expressly provides that section 502(d) applies "notwithstanding subsections (a) and (b) of this section." No such qualifying language exists, however, for administrative expenses under section 503. Finally, the court refused to distinguish section 503(b)(9) administrative expenses from other section 503(b) administrative expenses solely because such expenses are pre-petition in nature. The court noted that this is not the only time that section 503(b) recognizes a pre-petition obligation as an allowable administrative expense. Furthermore, no such distinction is recognized in the statute or the legislative history. "[I]f Congress only intended to make section 503(b)(9) a "special class" of pre-petition claims and thereby continue to make them subject to the claims allowance provisions of sections 501 and 502," the court reasoned, "it could have easily accomplished that." However, by taking this "special class" of pre-petition claims and determining that they are administrative expenses, payable and allowable under section 503(b), "Congress placed § 503(b)(9) administrative expenses beyond the reach of § 502(d)."
1 Case Law UpdateCLLA Staff Moglia v. Pac. Employers Ins. Co. In a bankruptcy-related action in which debtor's trustee sought partial release of letters of credit issued by debtor to defendants-insurers, and defendants in turn sought to enforce an arbitration provision in the policies, trustee's appeal of a district court order compelling arbitration is dismissed for lack of jurisdiction where: 1) the trustee could be required to sign the arbitrator's hold-harmless agreement; 2) an appeal from the order to sign the agreement was interlocutory in nature, and appellate review was not available; and 3) the court could not review the order under the doctrine of pendent appellate jurisdiction. In the Matter of Caneva In the context of bankruptcy, when a debtor owns and controls numerous business entities and engages in substantial financial transactions, the complete absence of recorded information related to those entities and transactions establishes a prima facie violation of 11 U.S.C. section 727(a)(3). Also, when a debtor transfers a substantial amount of money to a third party, the failure to keep any documentation evidencing the terms of the transfer or the fact that the payment actually took place establishes a prima facie violation of section 727(a)(3). In re: Rafter Seven Ranches LLP In a bankruptcy case, decision rejecting appellant's objection to appellee's claim that it was liable to appellee on certain equipment leases is affirmed over claims that the bankruptcy court: 1) erred in concluding appellant had no right to test certain sprinklers before the obligation to notify appellee accrued; 2) erred in deciding the case on issues appellant claimed were not included in a pretrial order or any other pleading; and 3) abused its discretion in denying appellant's Motion to Reconsider. In re: Sterten In a bankruptcy proceeding, upon debtor's challenge to the claim of a mortgage corporation, seeking rescission of the loan upon which the claim was based, judgment in favor of creditor is affirmed, where a Truth in Lending Act (TILA) defendant who does not specifically defend on the ground that any inaccuracies in its disclosure fell within the tolerance range provided by TILA does not waive the protection that provision provides. |