9th Circuit Case Updates

The Ninth Circuit on June 1 affirmed a key bankruptcy principle that liens may survive and “pass through” the bankruptcy process even if the underlying claim secured by the lien is disallowed.  The facts in Lane v. The Bank of New York Mellon (Ninth Cir. Ct. Of Appeals, No. 18-60059,  June 1, 2020) are all too familiar –  a mortgage loan originated by Countrywide Home Loans wound up in a huge pool of securities with The Bank of New York Mellon serving as trustee for the certificate holders.  Countrywide had endorsed the promissory note in blank, which made it payable to the bearer.
Continue Reading Ninth Circuit Affirms that Liens Pass Through Bankruptcy Even if Underlying Claim is Disallowed

In a May 15, 2017 Bankruptcy Court decision (Gardens Decision) from California’s Central District (In re Gardens Regional Hospital and Medical Center, Inc. (Bankr. C.D.Cal., May 15, 2017, No. 1617463), Judge Ernest M. Robles wrote that the grant of oversight and approval authority given to California’s Attorney General over buy/sell and change-in-control transactions between nonprofit sellers of health facilities and for-profit buyers of health facilities (see, California Corporation Code Section 5914 (Section 5914)) is limited to those situations in which a nonprofit seller has an active California health facility license at the time of closing. As written by Judge Robles, the Gardens Decision concludes that transactions between nonprofit sellers and for-profit buyers fall outside the scope of Section 5914 if the assets at hand do not include an operating, California-licensed health facility. As a nonoperational, unlicensed health facility, the transaction at issue is not a health facility transaction subject to Section 5914 and, in turn, Attorney General oversight and approval.
Continue Reading To Report or Not to Report – Is it Really A Question?

The doctrine of equitable mootness provides that Chapter 11 reorganization plans will be deemed moot, and therefore not subject to appellate review, if a plan has been substantially consummated and granting appellate relief would impair the rights of innocent third parties relying on the confirmation order.  Since the development of the court-created mootness doctrine nearly a quarter century ago, courts have grappled with applying it in such a way as to strike an adequate balance between the need for finality, and the need to exercise the court’s jurisdiction and preserve the right to appellate review.  The standard interpretation in bankruptcy was that once the debtor took definitive steps to put the Chapter 11 plan in place (i.e., “substantial consummation”), and the objecting creditor neglected to gain a stay of the plan confirmation order pending appeal, then any appeal was presumed to be “equitably moot” and therefore subject to dismissal by the appellate court.
Continue Reading Ninth Circuit Rulings on Equitable Mootness in Transwest and Sunnyslope Impact Third Party Investors

By Aaron Kleven

The bankruptcy of the largest U.S. city to file a chapter 9 bankruptcy petition has yielded a decision with serious implications for municipal creditors. Specifically, the United States Bankruptcy Court for the Eastern District of California overruled the objections asserted by retired employees of the City of Stockton, California and authorized the City to suspend the retiree’s health benefits during the City’s Chapter 9 case. Ass’n of Retired Employees of the City of Stockton, et al. v. City of Stockton, California (In re City of Stockton), 56 Bankr.Ct.Dec. 250 (Bankr. E.D. Cal.). Bankrutcy Judge Klein acknowledged the potential hardship to the retirees, but citing Section 904 of the Bankruptcy Code stated that the court has no power to interfere with the property or revenues of the debtor during Chapter 9.


Continue Reading Bankrupt Municipality May Reduce Retiree Benefits

On October 21, 2010, the Ninth Circuit overruled what many thought to be well-settled law, and held that a bankruptcy trustee does not have standing to pursue alter ego claims, at least in cases governed by California law. The court first held that California state law does not recognize a general alter-ego cause of action that allows an entity and its equity holders to be treated as alter egos for purposes of all of the entity’s debts. As a result, the court found that bankruptcy trustees (or debtors-in-possession) do not have standing to bring such a claim on behalf of a bankruptcy estate, even if the claim affects all of the bankrupt entity’s creditors.


Continue Reading Altered Ego: New Ninth Circuit Opinion Overrules Previously Well-Settled Law Regarding Exclusive Standing Of Bankruptcy Trustees To Pursue General Claims On Behalf Of The Estate

A bankruptcy court recently held that in order for a supplier of goods on credit to establish an administrative claim under Bankruptcy Code section 503(b)(9) in the bankruptcy case of its buyer, the supplier will need to show that its buyer "physically" received the goods within 20 days prior to the buyer’s bankruptcy filing, regardless of when title to the goods passed. In Re Circuit City Stores, Inc., et al., Case No. 08-35653, No. 7149 (Bankr. E.D. VA April 8, 2010).


Continue Reading When Are Goods Received For The Purpose Of Asserting Administrative Priority Status Under Section 503(b)(9) Of The Bankruptcy Code?

In Diamond Z Trailer, Inc. v. JZ, LLC (In re JZ, LLC), No. 07-1011 (9th Cir. B.A.P., June 18, 2007), the Ninth Circuit Bankruptcy Appellate Panel affirmed a Bankruptcy Court decision holding that an unscheduled executory contract rides through the bankruptcy if not assumed or rejected during the bankruptcy.  Further, a debtor has standing to sue for a breach of that executory contract when the breach occurred after the closure of the bankruptcy case.


Continue Reading Ninth Circuit Confirms Existence Of Ride Through Doctrine In Chapter 11 Cases

In Travelers Cas. and Sur. Co. of America v. Pacific Gas & Electric Co., 127 S. Ct. 199 (2007) ("Travelers"), the United States Supreme Court overturned a Ninth Circuit Court of Appeals opinion that had made pre-petition contractual provisions awarding attorneys’ fees to the prevailing party unenforceable in bankruptcy to the extent the parties litigated issues peculiar to bankruptcy law. The Ninth Circuit opinion, Fobian v. Western Farm Credit Bank (In re Fobian), 951 F.2d 1149 (9th Cir. 1991) ("Fobian"), was in conflict with other circuit courts that did not impose the same limitation on such contractual provisions in bankruptcy. The Supreme Court held that the Bankruptcy Code did not support the limitation and unanimously overruled Fobian.


Continue Reading Fobian Overruled

On October 4, 2006, the California Court of Appeals for the Fourth District held in Credit Managers Association of California v. Countrywide Home Loans, Inc., 2006 WL 2820882 (Cal.App.4 Dist.) ("CMAC") that Bankruptcy Code §§ 544 and 547, the provisions governing the avoidance of preferential transfers, do not preempt California Code of Civil Procedure § 1800 (" CCP § 1800"), which allows the assignee in a general assignment for the benefit of creditors to avoid certain preferential transfers under California law.  The CMAC panel reached the same conclusion as the California Court of Appeals for the Second District in Haberbush v. Charles & Dorothy Cummins Family Limited Partnership, (2006) 139 Cal.App.4th 1630 ("Haberbush").  Both CMAC and Haberbush directly conflict with the prior conclusion of the Ninth Circuit Court of Appeals in Sherwood Partners, Inc. v. Lycos, Inc., 394 F.3d 1198 (9th Cir. 2005) ("Sherwood").  There, the Ninth Circuit held that the Bankruptcy Code does preempt CCP § 1800, which means, according to the federal court, that general assignees cannot avoid preferential payments to certain creditors under CCP § 1800.


Continue Reading Credit Managers Association of California v. Countrywide Home Loans, Inc. – A Second California State Appellate Court Holds That California Code of Civil Procedure § 1800 Is Not Preempted By The Bankruptcy Code

The Supreme Court recently granted certiorari to hear an appeal from the Ninth Circuit, arising out of the Pacific Gas and Electric ("PG&E") bankruptcy case, concerning a creditor’s claim for attorney fees. The appeal, brought by Travelers Casualty and Surety Company of America (Travelers"), seeks review of the Ninth Circuit’s holding that, in bankruptcy, creditors are only entitled to attorney fees for litigating substantive state law issues (if provided for by contract), but not issues "peculiar to bankruptcy law" including disclosure statement and chapter 11 plan objections. Travelers Casualty and Surety Co. v. Pacific Gas and Electric Co., 167 Fed. Appx. 593, 593-94 (9th Cir. 2006). Because there is substantial Ninth Circuit authority for this proposition, the appeal will test an entire line of cases underlying the recent Ninth Circuit decision.
Continue Reading Supreme Court Grants Certiorari to Resolve Attorney Fees Dispute in PG&E Bankruptcy

In Busseto Foods, Inc. v. Charles Laizure (In re Laizure), No. 06-1112 (9th Cir. B.A.P., September 1, 2006), the Ninth Circuit Bankruptcy Appellate Panel affirmed a Bankruptcy Court decision holding that where a creditor receives a settlement payment on a nondischargeable debt within 90 days prior to bankruptcy but then is compelled to return that payment to the estate as a preference, the creditor’s nondischargeable claim against the debtor is not revived.


Continue Reading Return Of Preferential Payment Arising From Fraud Settlement Does Not Revive Creditor’s Nondischargeability Claim