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In this world nothing is certain, except taxes—but does that include pre-petition tax sales?

February 13, 2015

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On November 6, 2014, the United States Bankruptcy Court for the Western District of New York in Canandaigua Land Dev., LLC v. Cnty. of Ontario, ruled that an in rem tax foreclosure conducted by a county—in full compliance with Article 11 of the New York Real Property Tax Law—was capable of being set aside in bankruptcy as a constructively fraudulent transfer, pursuant to 11 U.S.C. § 548(a)(1)(B).

The County had foreclosed on a real property tract, 642-732 pdfvalued at approximately $300,000 to $425,000, in order to satisfy a tax debt of $16,595. Further, the sale was conducted only a few hours after the debtor filed its Chapter 11 petition.  The debtor argued that the County’s foreclosure of its tax lien constituted a constructively fraudulent transfer because the debtor was rendered insolvent by the transfer and received less than reasonably equivalent value in exchange for the transfer of the property to the County.

The Canandaigua court distinguished the United States Supreme Court case BFP v. Resolution Trust Co. (holding that a properly-conducted, non-collusive mortgage foreclosure sale is entitled to a presumption of reasonably equivalent value) on the grounds that the tax foreclosure process did not include the safeguards provided

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Ninth Circuit Holds Twombly / Iqbal “Plausibility” Standard Does Not Apply To Denials

In a seminal pair of decisions, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009), the United States Supreme Court clarified that the pleading standard under Federal Rule of Civil Procedure 8(a) requires that a complaint contain sufficient factual allegations to state a claim to relief “that is plausible on its face.” Neither Twombly nor Iqbal addressed, however, whether this “plausibility” standard also applies to denials under Federal Rule of Civil Procedure 8(b). In its recent decision in In re Mortgages Ltd., 771 F.3d 623 (9th Cir. 2014), the Ninth Circuit Court of Appeals weighed in and held that the “plausibility” standard does not apply to denials.

The debtor in this case, Mortgages Ltd., was a private lender that made loans secured by real estate located in Arizona. Mortgages Ltd. funded its lending operations, in part, by selling fractional interests in its loans to investors. Under this arrangement, the investors owned their fractional interests in the Mortgages Ltd. loans in which they invested.

After Mortgages Ltd.’s bankruptcy filing, the Bankruptcy Court confirmed a plan that created an entity known as ML Manager LLC to manage and liquidate Mortgages Ltd.’s loan portfolio. Issues

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Rolling the Dice on Collective Bargaining Agreements in Bankruptcy: A Lesson From In re Trump Entertainment Resorts, Inc.

In In re Trump Entertainment Resorts, Inc., a bankruptcy case currently pending before the United States Bankruptcy Court for the District of Delaware at Case No. 14-12103, the union at a famous Atlantic City casino made a bet on its ability to “hold up” the casino’s bankruptcy process and force hard line negotiations on an expired collective bargaining agreement. Ultimately, this gamble did not pay off, as the Honorable Judge Kevin Gross held that the casino was permitted to reject the expired collective bargaining agreement as an “executory contract” under the Bankruptcy Code. Put succinctly, the union’s negotiation tactics resulted in the loss of all benefits under the collective bargaining agreement for union members

While the holding in Trump is predicated on extreme factual circumstances, it serves as a reminder that parties seeking to “stiff-arm” negotiations may face serious repercussions, particularly in the context of bankruptcy.

Introduction

The circuits are split on the issue of whether a bankruptcy court retains jurisdiction to consider a motion to reject an expired collective bargaining agreement under 11 U.S.C. § 1113(c), or if a bankruptcy court lacks jurisdiction because the only duties following the expiration of a collective bargaining agreement are statutory (specifically, arising under

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Arizona Court Finds That A Non-Judicial Foreclosure After Entry of Judgment Limits Valuation Hearing Rights

November 25, 2014

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For lenders in many jurisdictions around the United States, the risk of post-sale litigation expense for valuation determinations can be daunting. However, in a recent unpublished opinion, the Arizona Court of Appeals concluded that once a judgment is entered, the Arizona statute providing a right to a post-sale valuation hearing does not apply if the sale occurs after judgment is entered.

In states like Arizona, there are statutory protections for obligors that require a court to conduct a valuation hearing to determine the lender’s enforceable deficiency. Recently, Bryan Cave represented a lender in attempting to recover on a defaulted loan. In that case, the borrower/guarantors were convinced that the Arizona real property securing the loan was far more valuable than what the lender could recover at a non-judicial foreclosure sale (i.e., in Arizona, a trustee’s sale).

In our case, the lender commenced a trustee’s sale simultaneously with pursuing an action in state court on the note and guaranty (n.b., because some states limit enforcement rights, you should coordinate your enforcement strategy with an attorney knowledgeable with local law). To accommodate the borrower/guarantors’ interest in reducing deficiency liability, the lender proposed—and the borrower/guarantors agreed—that the borrower/guarantors could market and sell the

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Managing Property Managers — A Guide for Lenders

Lenders are frequently confronted with questionable lender-liability claims not only from borrowers (usually in connection with collection or foreclosure procedures) but also from property managers unable to recover from borrowers. Claims property managers assert directly against lenders include those for breach of oral or written contract, fraud, and unjust enrichment (particularly if the lender has foreclosed its interest in the borrower’s property). Lenders can hedge against the risk of claims by property managers through a variety of methods, both pre- and post-borrower default.

 

As part of origination (or any subsequent review of the borrower’s property management agreement), the lender should ensure that the property management agreement clearly defines that the property manager can turn solely to the borrower for satisfaction of the property manager’s fees and expenses. Thorough property management agreements will also cap expenses the property manager is allowed to incur absent approval, which can help avoid successful assertion of contractor liens.

 

The lender can also obtain a three-party subordination agreement among the lender, borrower and property manager that subordinates the property manager’s rights to those of the lender and allows the lender to, among other things, (i) seize rents immediately upon default, and (ii) terminate the

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Voidable If Not Fraudulent — NCCUSL Approves the Uniform Voidable Transactions Act

In July 2014, the National Conference of Commissioners on Uniform State Laws (NCCUSL) approved the Uniform Voidable Transaction Act (UVTA), a long-awaited update to the Uniform Fraudulent Transactions Act (UFTA). As the new title suggests, the UVTA, like the UFTA before it, encompasses a broader range of transactions than those traditionally deemed fraudulent and therefore avoidable under the common law. The amended Act clarifies and expands the burden of proof as well as presenting new challenges and opportunities to creditors seeking to avoid transfers by debtors operating under insolvent conditions. This development also has importance for creditors with claims in bankruptcy due to the bankruptcy trustee’s power to bring avoidance actions based on state law under 11 U.S.C. § 544(b) and thereby increase the assets available to repay debts.

Under the amended Act as before, creditors bringing constructive fraudulent transfer claims have the ability to avoid transactions which deprive the debtor of assets that could otherwise satisfy debts to creditors when the debtor is or is presumed to be insolvent; however, several key updates affect which debtors are insolvent within the meaning of the amended Act. The UFTA specifies that a debtor is presumed to be insolvent when it is

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Bankruptcy Court will not Revisit State Court Foreclosure Decision

A Memorandum of Decision recently entered in In re 56 Walker, LLC, Case No. 13-11571 (ALG), Bankr. S.D.N.Y. (Mar. 25, 2014), provides clear guidance as to the effect of a state court decision granting summary judgment in favor of a secured lender in a foreclosure action prior to the Debtor’s bankruptcy filing.642-737 dumps The collateral estoppel, res judicata and Rooker-Feldman doctrines each separately served as grounds for the Bankruptcy Court’s finding that it was unable to review the prior state court decision.

In 56 Walker, the Debtor’s sole asset was a six-story mixed-use building in New York, New York. The property was pledged as security for a mortgage loan with Broadway Bank. The Debtor defaulted, and Broadway Bank commenced a foreclosure action against the Debtor in the Supreme Court of New York, New York County. After a first chapter 11 case was dismissed, MB Financial Bank, N.A. (having acquired the loan via a purchase and assumption agreement with the FDIC, as receiver of Broadway Bank), filed a motion for summary judgment in the State Court. The Debtor opposed MB’s motion and filed a cross-motion for summary judgment seeking dismissal of MB’s complaint on the grounds that MB had not

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