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Fifth Circuit Rules for PACA Claimants, and Weakens PACA, All in One Curious Ruling

February 15, 2017

Authors

Leah Fiorenza McNeill

Fifth Circuit Rules for PACA Claimants, and Weakens PACA, All in One Curious Ruling

February 15, 2017

by: Leah Fiorenza McNeill

Set of colored vegetables for kids

Most restructuring practitioners are aware, either vaguely or through punishing experience, of the power of PACA creditors.  PACA (or the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a et seq. for those who hate brevity) requires that buyers of produce hold such produce – and their proceeds – in trust for the benefit of produce sellers.  General creditors of the produce buyer receive nothing, even if they hold a lien on the buyer’s assets, until produce sellers are paid in full on any valid PACA claims (including their interest and attorneys’ fees in most instances).

But sometimes, or many times, the PACA trust assets needed to pay produce sellers are not present.  Accounts must be collected, by use of employees, lawyers, collection agents, or other

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No Trustee Left Behind – Another Bankruptcy Court Requires Colleges to Return Tuition to the Bankruptcy Estate

February 13, 2017

Authors

Mark Duedall

No Trustee Left Behind – Another Bankruptcy Court Requires Colleges to Return Tuition to the Bankruptcy Estate

February 13, 2017

by: Mark Duedall

b09036864402bfedc690a2f80d6de804Another bankruptcy trustee catches another hapless college unaware.  In Roach v. Skidmore College (In re Dunston), Bankr. S.D. Ga. (Jan 31, 2017), a trustee appears to win the next battle of “bankruptcy estates v. child’s college,” ruling that an insolvent parent who paid the college tuition of an adult child made a fraudulent transfer to the college.  Thus, the unsuspecting college will likely have to return the tuition to the parent’s bankruptcy estate.

The theory is simple (albeit unsettling to some).  Under Section 548 of the Bankruptcy Code (and applicable state law, as a back-up), if any debtor makes a transfer to a third party while insolvent, and does not receive reasonably equivalent value in return, the debtor’s bankruptcy trustee may reclaim such transfer for the benefit

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A Lender’s Federal Post-Judgment Interest Quandary

February 11, 2017

Authors

Jacob Maskovich and Bob Miller

A Lender’s Federal Post-Judgment Interest Quandary

February 11, 2017

by: Jacob Maskovich and Bob Miller

Post-judgment interest is not something most lenders consider when making a loan. In fact, it is not ordinarily the subject of significant analysis even when litigation becomes necessary.  Where the United States District Court is the preferred venue, however, parties easily can fall into the quandary of being stuck with the federal statutory post-judgment interest rate, which is currently less than 1% per annum.

Pre-judgment, a lender often has solid rights to contract interest and potentially very high default interest rates, which often approach double-digits, added to a recovery when a solvent obligor is on the other side. But a final judgment may be a game-changer on the rate of interest a lender is able to receive.  Recent circuit court decisions are developing the law on post-judgment interest in a way contrary to the economic recovery of contracting parties, and lenders in particular.  It may be possible, however, to draft

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Handy List of Basic Issues to Consider for the Transactional Workout

February 2, 2017

Authors

Justin Sabin and Bryce Suzuki

Handy List of Basic Issues to Consider for the Transactional Workout

February 2, 2017

by: Justin Sabin and Bryce Suzuki

While significant energy here at the Bankruptcy Cave is devoted to substantive bankruptcy matters, not all aspects of a general insolvency practice are always fun and litigation.  Oftentimes insolvency lawyers add the most value by helping clients avoid a bankruptcy filing, or by successfully resolving a case through a consensual transactional restructuring.  Below are a few key issues diligent counsel for creditors and debtors should think through in connection with a transactional restructuring.[1]

1. Notice and Demand After Default. As anyone reading this knows, a lender often sends a notice of default and maybe even a demand for payment after its borrower defaults.  However, simply sending a notice of default and demand for payment may not always be sufficient or have the intended effect.  Most loan documents provide a cure period before a breach becomes an actionable default.  Some loan documents will only permit a lender to accrue

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A Debtor’s Allegedly False Financial Statement Doesn’t, At All, Excuse a Lack of Lender Diligence

January 9, 2017

Authors

Mark Duedall

A Debtor’s Allegedly False Financial Statement Doesn’t, At All, Excuse a Lack of Lender Diligence

January 9, 2017

by: Mark Duedall

A decision rendered during the sometimes peaceful interlude between Christmas and New Year’s is worth reading, and heeding.  Hurston v. Anzo (In re Hurston), Adv. Proc. No. 15-2026 (Bankr. N.D. Ga. Dec. 27, 2016) is a helpful reminder to anyone representing lenders or creditors which are hell-bent-for-leather to pursue a non-dischargeability claim against a debtor that submits a false written statement (e.g., a personal financial statement) to obtain credit.  Often, in the fervor of the start of a bankruptcy case, the creditor (and its lawyer) will make great hay from the fact that a debtor may have lied in a pre-petition credit application, or forbearance agreement, or other written medium.  However, the facts of Hurston show that a creditor (and its lawyer) should pause, take a breath, and critically evaluate whether the creditor actually relied on the pre-petition writing from the debtor, and whether that creditor’s reliance was also, in fact, reasonable.  If

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Supreme Court Weighs Granting Cert on Bankruptcy Issues Involving Surcharge and Voting Rights of Assignee of Insider Claim

December 5, 2016

Authors

Jay Krystinik

Supreme Court Weighs Granting Cert on Bankruptcy Issues Involving Surcharge and Voting Rights of Assignee of Insider Claim

December 5, 2016

by: Jay Krystinik

The Supreme Court is considering whether to grant review of two bankruptcy cases.  On October 3, 2016, the Supreme Court invited the Solicitor General to file briefs expressing the views of the United States.  Because the Supreme Court’s justices normally give significant weight to the federal government’s recommendations regarding interpretations of federal statutes (here, the Bankruptcy Code), the Solicitor General’s forthcoming briefs could influence whether the Supreme Court grants cert. on the two notable bankruptcy cases.

Southwest Securities v. Segner

The first case under consideration is Southwest Securities v. Segner (In re Domistyle, Inc.), 811 F.3d 691 (5th Cir. 2015).  At the commencement of this case, the trustee believed the debtor possessed equity in certain real property that could benefit unsecured creditors.  Id. at 693-94.  The property was encumbered by Southwest Securities’ lien.  After marketing the property for a year, the trustee was unable to sell the property and ultimately abandoned it to

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For Whom the Bell Tolls: Obligations and Risks of Third-party Witnesses under Rule 2004 Examinations.

November 27, 2016

Authors

James Maloney

For Whom the Bell Tolls: Obligations and Risks of Third-party Witnesses under Rule 2004 Examinations.

November 27, 2016

by: James Maloney

Two recent Bankruptcy Court cases both remind and illustrate the power and risks presented by discovery of facts and documents under Bankruptcy Rule 2004, showing that it can compel third parties to provide information to support later litigation against them or cause them to lose their 5th Amendment right against self-incrimination.

  • In re Great Lakes Comnet, Inc.[1]/ (a copy of the case is here: great-lakes-comnet-inc), the Bankruptcy Court for the Western District of Michigan held that the Committee of Unsecured Creditors was entitled to conduct a Rule 2004 examination of a third-party company while explicitly recognizing that the intent of the examination was to prepare for and inform the committee regarding later litigation against the third-party.
  • In re Mavashev[2]/ (a copy of the case is here: in-re-mavashev), the Bankruptcy Court for the Eastern District of New York held that a third-party witness would not
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Preliminary Injunctions in Bankruptcy Courts: Can a Litigant Get a Second Opinion?

November 27, 2016

Authors

Michelle Masoner

Preliminary Injunctions in Bankruptcy Courts: Can a Litigant Get a Second Opinion?

November 27, 2016

by: Michelle Masoner

District courts can hear an appeal from any interlocutory order, as long as they agree to accept the appeal.  28 U.S.C. § 158(a)(3).  Final judgments, orders and decrees are always immediately appealable.  28 U.S.C. § 158(a)(1).  Certain interlocutory orders, such as orders increasing or reducing the exclusive time periods for a debtor to file and obtain acceptance of a plan for reorganization under Chapter 11 are also immediately appealable.  28 U.S.C. § 158(a)(2).  Other interlocutory orders are appealable only “with leave of the court.”  Preliminary injunctions are interlocutory orders that fall into the last category.

The timing and process for perfecting an appeal of a preliminary injunction is not certain.  Recently, Judge James Zagel in the Northern District of Illinois declined to grant leave to appeal a preliminary injunction entered in the bankruptcy court, finding the debtor had no automatic right to appeal.  Gilman v. Goldberg (In re Goldberg),

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Creditors Beware: Fifth Circuit Court of Appeals Expands Purview Of Potential FDCPA Violations And Furthers Circuit Split

October 23, 2016

Authors

Natalie Daghbandan

Creditors Beware: Fifth Circuit Court of Appeals Expands Purview Of Potential FDCPA Violations And Furthers Circuit Split

October 23, 2016

by: Natalie Daghbandan

In Daugherty v. Convergent Outsourcing, Inc., No. 15-20392 (5th Cir. Sept. 8, 2016) the Fifth Circuit Court of Appeals recently joined the circuit split interpreting the Fair Debt Collections Practices Act (“FDCPA”) in a way that further limits debts collectors.

Under the FDCPA the term “debt collectors” is not limited to those collecting debts for others –  certain creditors collecting debts directly owed to them can be bound by the FDCPA.   This statute prohibits debt collectors from using “false, deceptive, or misleading representation or means in connection with the collection of any debt.”  A debt collector who violates the FDCPA can be forced to pay actual damages, costs, reasonable attorney’s fees and up to $1,000 of additional damages if the plaintiff is an individual or up to $500,000 or one percent of the debt collector’s net worth in a class action.

In Daugherty, the Fifth Circuit considered whether

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