Recent Developments in Bankruptcy Law October 2017
by | posted in: Bankruptcy Administration and Jurisdiction, Cramdown and Priority, Workouts and Pre-Packs | 0

By Richard Levin (Jenner & Block LLP)

The bankruptcy courts and their appellate courts continue to explore issues of interest to practitioners and academics. This quarterly summary of recent developments in bankruptcy law covers cases reported during the third quarter of 2017.

The Second Circuit adopted the use of a market rate to determine cram-down interest rates in a chapter 11 case. It also disallowed a secured lender’s make-whole, although without deciding whether a make-whole should be generally disallowed as unmatured post-petition interest. (In re MPM Silicones (Momentive)) In contrast, the Houston bankruptcy court allowed a make-whole in a solvent case, but also without reaching the post-petition interest issue. (In re Ultra Petroleum)

The Delaware bankruptcy court clarified its jurisdiction to approve a third-party release in a settlement implemented through a confirmed chapter 11 plan, holding that plan confirmation is a core proceeding, so Article III limits do not apply. (In re Millennium Lab Holdings II, LLC) The Delaware bankruptcy court also reconsidered, and disallowed, a merger agreement termination fee after termination of the agreement. (In re Energy Future Holdings, Inc.)

Bankruptcy courts increasingly approve of the idea that under section 544(b), the trustee may use the longer reachback periods of the Internal Revenue Code and the Federal Debt Collection Procedures Act (In re CVAH, In re Alpha Protective Services). And the Ninth Circuit has ruled that for the trustee to pursue an avoidance claim against the United States, section 544(b) does not require a separate sovereign immunity waiver. (In re DBSI, Inc.) 

Finally, the courts have been sympathetic to attorneys in allowing their fees. (In re Stanton; In re Hungry Horse, LLC; In re CWS Enterps., Inc.) Less so for investment bankers. (Roth Capital Partners)

The full memo, discussing these and other cases, is available here, and the full (900-page) compilation of all prior editions is available here.

Non-Article III Adjudication: Bankruptcy and Nonbankruptcy, With and Without Litigant Consent
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Ralph Brubaker (University of Illinois College of Law)

This article explores the diverse and intriguing implications of the Supreme Court’s recent decision in Wellness International Network, Ltd. v. Sharif, both from an “internal” bankruptcy perspective and as a very important and revealing component of the Court’s still-evolving general jurisprudence of non-Article III adjudications.

In that larger jurisprudence, the contrast between Wellness and the Stern v. Marshall decision prominently highlights a seemingly schizophrenic admixture of formal (Stern) and functional (Wellness) analytical methods. This article maintains, however, that what Stern and Wellness reveal and confirm is a coherent and consistent jurisprudence of non-Article III adjudications with a bifurcated analytical methodology that is a logical corollary of (and that facilitates a complex interaction between) the dual interests protected by Article III, § 1 — both nonwaivable structural separation-of-powers values and the waivable personal right of individual litigants to an Article III adjudication.

In the bankruptcy context, Wellness provides further evidence that the Supreme Court is, over a long run of decisions, simply confirming the constitutional significance of its extensive summary-plenary jurisprudence (taken from established English bankruptcy practice prevailing at the time of the Founding) as the operative constitutional boundary for the adjudicatory powers of non-Article III bankruptcy judges. This article uses the Wellness litigation to demonstrate how that summary-plenary jurisprudence can directly inform the core-noncore distinction drawn by the current jurisdictional statute (which codifies constitutional constraints). The Court’s existing and extensive summary-plenary jurisprudence provides a highly developed analytical framework for resolving even the most nuanced and difficult core-noncore determinations.

The full article is available here.

Supreme Court Permits Bankruptcy Courts to Issue Final Judgments with Parties’ Consent
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Harold S. Novikoff, Douglas K. Mayer, Ian Boczko, Emil A. Kleinhaus, and Alexander B. Lees of Wachtell, Lipton, Rosen & Katz

The Supreme Court’s latest decision regarding the power of bankruptcy judges to resolve claims between bankruptcy estates and their creditors is Wellness International Network, Ltd. v. Sharif, handed down on May 26, 2015. In its landmark 2011 ruling in Stern v. Marshall, the Court held that bankruptcy judges have limited authority under Article III of the Constitution to determine claims asserted by an estate against creditors. However, Stern left open the question, which has split lower courts, whether parties can nonetheless consent to bankruptcy court adjudication. In Wellness, the Supreme Court held that bankruptcy litigants may waive Article III rights, and suggested that parties may forfeit untimely objections to a bankruptcy court’s lack of authority.

For a fuller analysis and summary, click here for our memo on Wellness.

The Article III Problem in Bankruptcy
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Anthony J. Casey and Aziz Z. Huq, University of Chicago Law School

Casey, Anthony_0Huq Aziz 2009-06-18

The Supreme Court has struggled for the last three decades in defining the permissible scope of bankruptcy courts’ power. This question poses difficult federalism and separations-of-powers problems under Article III of the Constitution. Divided opinions in Northern Pipeline Construction v. Marathon Pipe Line, and more recently, in Stern v. Marshall, have produced confusion and litigation for practitioners and lower courts. This is true in large part because the Court’s Article III decisions lack any foundational account of why bankruptcy judges implicate a constitutional problem. As the Court prepares to confront the issue once again later this term, Aziz Huq and I provide such an account in a new article. This account more concretely identifies the precise stakes in this debate. We argue that a tractable, economically sophisticated constraint on delegations to the bankruptcy courts can be derived from what should be an obvious source: the well-tested creditors’ bargain theory of bankruptcy. Working from this account of bankruptcy’s necessary domain minimizes Article III and federalism harms while also enabling bankruptcy’s core operations to continue unhindered. To illustrate its utility, we then apply our framework to a range of common bankruptcy disputes, demonstrating that many of the Court’s existing jurisprudence is sound in result, if not in reasoning.

The article is forthcoming in the University of Chicago Law Review, and is available here.

Mind the Gap: Supreme Court Partially Resolves Procedural Uncertainty Created by Stern v. Marshall
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Paul Hessler, Aaron Javian, and Robert Trust, Linklaters LLP

 On June 9, 2014, in a highly anticipated decision Executive Benefits Ins. Agency v. Arkison, Chapter 7 Trustee of Estate of Bellingham Ins. Agency, Inc., the U.S. Supreme Court partially resolved the procedural uncertainty created by the Court’s decision in Stern v. Marshall. In Stern, the Supreme Court analyzed the constitutionality of 28 U.S.C. § 157, which in relevant part defines certain matters as “core” or “non-core,” and authorizes bankruptcy courts to finally adjudicate “core” matters, but only to issue findings and conclusions subject to de novo review in “non-core” matters. The Stern Court held that Article III of the U.S. Constitution prohibits Congress from vesting bankruptcy judges with the authority to finally adjudicate certain claims that it had statutorily designated as Javian, AaronLinklaters LLP“core,” such as state law avoidance claims. The Stern Court did not, however, address how bankruptcy courts should proceed in such cases. The Supreme Court considered that procedural question in Executive Benefits and held that with respect to “core” claims that a bankruptcy judge is statutorily authorized but prohibited from finally adjudicating as a constitutional matter, the courts should deal with such claims as they would in “non-core” proceedings; that is, by issuing findings and conclusions subject to de novo review by district courts.

The Supreme Court’s holding makes clear that a wide-range of bankruptcy-related disputes that were previously heard and decided by bankruptcy courts must now be submitted for de novo review by district Trust, RobertLinklaters LLPcourts. This additional layer of judicial involvement could make bankruptcy litigation more cumbersome and casts doubt on the well-established expectation of the bankruptcy court system as the single, consolidated venue for adjudication of all matters related to a debtor’s bankruptcy case. Importantly, the Supreme Court did not decide, and it remains to be seen, whether parties can consent to a bankruptcy court’s final adjudication of core matters that otherwise fall outside of a bankruptcy court’s constitutional authority under Stern. The full memo can be read here.