TCEH Bankruptcy: SDNY Transfers Delaware Trust Company v. Wilmington Trust N.A. Intercreditor Dispute to Delaware Bankruptcy Court, Reaffirming Broad View of Bankruptcy Jurisdiction
by | posted in: Bankruptcy Administration and Jurisdiction | 0

By Mark Ellenberg, Howard Hawkins, Ivan Loncar, Ellen Halstead, Michele Maman and Tom Curtin of Cadwalader Wickersham & Taft LLP

In Delaware Trust Company v. Wilmington Trust N.A. the United States District Court for the Southern District of New York found that a complaint based on an intercreditor agreement among secured creditors of Texas Competitive Electric Holdings LLC constituted a core proceeding.  Accordingly, the court denied a motion to remand the case to New York state court, where it had originally been filed, and also transferred the case to the US District Court for the District of Delaware.  The case was subsequently referred to the bankruptcy court presiding over the TCEH bankruptcy cases.  Plaintiff had alleged that the dispute, which involved allocation of adequate protection payments ordered by the Delaware Bankruptcy Court, was an intercreditor dispute that turned solely on the interpretation of a prepetition intercreditor agreement and, accordingly, should be decided in state court.  As such, the issue before the District Court was whether a New York court or the Delaware Bankruptcy Court should resolve the intercreditor dispute.

The District Court ruled that the dispute was core because the dispute would have no meaningful existence but for TCEH’s bankruptcy filing, as the ability to receive adequate protection derives solely from the Bankruptcy Code.  In addition, the Court found that the dispute was core because the intercreditor issue would likely arise again in the context of plan confirmation.   The decision is important because it reaffirms the often-challenged principle that contractual disputes solely among creditors may nonetheless qualify as “core” proceedings where, as here, the underlying dispute could only arise in the context of a bankruptcy proceeding.

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U.S. District Court Holds that Puerto Rico’s Recovery Act is Unconstitutional
by | posted in: Municipal Bankruptcy | 0

By Mark Ellenberg, Howard Hawkins, Lary Stromfeld, Ivan Loncar, and Thomas Curtin of Cadwalader Wickersham & Taft LLP

On February 6, 2015, in Franklin California Tax-Free Trust v. Commonwealth of Puerto Rico, the U.S. District Court for the District of Puerto Rico held that the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the “Recovery Act”) is expressly preempted by section 903 of the Bankruptcy Code. Section 903 of the Bankruptcy Code expressly prohibits all states, including Puerto Rico, from enacting laws that prescribe a “method of composition” that discharges debts. The Recovery Act, which was loosely based on chapter 9 of the Bankruptcy Code, would have permitted Puerto Rico’s power authority (PREPA), highway authority (HTA) and water authority (PRASA) to adjust their debts without the consent of all creditors. The court concluded that this scheme ran afoul of section 903, even though municipal entities in Puerto Rico are expressly excluded from the coverage of Chapter 9. The decision is among the first to explicitly hold that section 903 expressly preempts the states, including Puerto Rico, from enacting any debt adjustment scheme that results in the discharge of indebtedness, even if the affected entities have no remedy under the Bankruptcy Code. The court also denied the Commonwealth’s motion to dismiss the plaintiffs’ claims under the Contracts Clause and certain of the plaintiffs’ claims under the Takings Clause.

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