Other Nationally Significant Cases

The House Judiciary Committee recently held a hearing to consider an amendment to the venue provisions of the Bankruptcy Code proposed by the Committee’s Chairman that would require corporations to file voluntary chapter 11 petitions in the district where they maintain their principal place of business or have their principal assets. Under the current bankruptcy venue provisions of the U.S. Code, a debtor corporation can file its bankruptcy case in the state where it is incorporated, where it has its principal assets, or where it is headquartered. A corporation can also file a chapter 11 case in a venue where its corporate affiliate’s case is already pending. Utilizing these rules, many large chapter 11 cases are commenced in Delaware and New York, despite the fact that the corporate debtor has little ties to those states. For example, Enron – a Texas-based company – filed a bankruptcy for a small New York subsidiary in the Southern District of New York. Shortly thereafter, Enron commenced the bankruptcy case for the main company, and used the venue provisions to bootstrap this case with its New York case, which allowed it to heard along with the subsidiary’s case in New York. A more recent example is the Fremont, CA-based Solyndra LLC, which filed a voluntary chapter 11 petition in Delaware, the state of its incorporation.

Continue Reading A Chapter 11 Diaspora? House Judiciary Committee Considers Chapter 11 Venue Reform

On Thursday, the Supreme Court in a 5-4 decision ruled in Stern v. Marshall[1] that the congressional grant of jurisdiction to bankruptcy courts to issue final judgments on counterclaims to proofs of claim was unconstitutional. For the litigants, this decision brought an end to an expensive and drawn out litigation between the estates of former Playboy model Anna Nicole Smith and the son of her late husband, Pierce Marshall, which Justice Roberts writing for the majority analogized to the fictional litigation in Charles Dickens’ Bleak House. For bankruptcy practitioners, it is yet another chapter in an even more epic saga – that of the back-and-forth between Congress and the Supreme Court over the jurisdictional limits of the nation’s bankruptcy courts. Instead of offering finality, the decision only raises more questions about how far the Court’s reasoning will extend, and what the implications will be for practice under the Bankruptcy Code.

Continue Reading A Shock to the Core: The Supreme Court Pries Jurisdiction Away from the Bankruptcy Courts on Counterclaims to Proofs of Claim, and Possibly More

In In re Young Broadcasting, Inc., et al., 430 B.R. 99 (Bankr. S.D.N.Y. 2010), a bankruptcy court strictly construed the change-in-control provisions of a pre-petition credit agreement and refused to confirm an unsecured creditors’ committee’s plan of reorganization, which had been premised on the reinstatement of the debtors’ accelerated secured debt under Section 1124(2) of the Bankruptcy Code.

Continue Reading Reinstatement of Debt: A Bankruptcy Court’s Strict Interpretation and Application of Change-in-Control Provisions to Protect Senior Secured Lenders

On February 11, 2011, the Hon. Alan Gold of the United States District Court for the Southern District of Florida issued a 113 page opinion and order quashing the bankruptcy court’s order requiring the lenders involved in TOUSA, Inc.’s Transeastern joint venture to disgorge, as fraudulent transfers under Section 548 of the Bankruptcy Code, settlement monies that they had received on July 31, 2007 in repayment of their existing debt and to pay prejudgment interest on such monies, for a total disgorgement in excess of $480 million.

Continue Reading In Re TOUSA: District Court Reverses Bankruptcy Court’s Order Requiring Lenders To Disgorge $480 Million As Fraudulent Transfer

In a partial reversal of a decision from Bayou Group LLC’s bankruptcy case, the U.S. District Court for the Southern District of New York reconsidered a controversial ruling that sent shivers down the spines of institutional investors in 2008.  See In re Bayou Group , LLC, No. 09 Civ. 02577 (S.D.N.Y. Sept. 17, 2010).  Specifically, the District Court found the Bankruptcy Court’s legal reasoning faulty in deciding that, as a matter of law, all money paid out to redeeming investors within the reachback period could be avoided as a fraudulent conveyance, even though many of these investors had been defrauded themselves. The District Court’s recent ruling may do little, however, to help clarify a murky area for institutional investors, leaving them confused as to how they can not only guard against investment risk in unforeseen fraudulent endeavors, but protect themselves from disgorgement of any return they may have innocently received therefrom once a bankruptcy is filed.

Continue Reading Reversal Of Decision In Bayou Group Bankruptcy Offers Little Guidance For The Institutional Investor Wishing To Redeem From A Fraudulent Ponzi Scheme

In a decision that may create a significant roadblock for companies saddled with environmental clean-up liability to continue as a going concern, the Seventh Circuit in U.S. v. Apex Oil Company, Inc., 579 F.3d 734 (7th Cir. 2009) affirmed a district court injunction requiring the clean-up of a contaminated site in Illinois under section 7003 of the Resource Conservation and Recovery Act (RCRA) despite the company’s bankruptcy. On September 27, 2010, the Supreme Court is scheduled to discuss whether to grant review of the Apex decision.

Continue Reading Supreme Court To Decide Whether To Review Seventh Circuit Decision Holding That Bankruptcy Does Not Discharge Environmental Clean-Up Liability Under The Resource Conservation And Recovery Act

In a decision made on August 11, 2009, the U.S. Bankruptcy Court for the Southern District of New York allowed solvent, special purpose entity subsidiaries of a bankrupt parent company, General Growth Properties, Inc., to maintain their Chapter 11 bankruptcy cases, raising several important issues related to the use of special purpose entities structured to be "bankruptcy-remote." 

Continue Reading Bankruptcy Court Allows General Growth’s “Bankruptcy-Remote”

The author is a member of the Firm’s Government Contracts & Regulated Industries Practice Group. For additional articles and postings concerning this and related topics, please refer to Sheppard Mullin’s Government Contracts Blog, which can be found at www.governmentcontractslawblog.com.


Without a doubt, the False Claims Act ("FCA") has been dramatically changed in the last few months. As will be discussed in more detail herein, it certainly appears that the FCA has been retooled so that the playing field is now stacked in favor of the government and qui tam plaintiffs. There is also every indication that lenders who have federally insured mortgages, redevelopment funding, or other financial support from the government, are at risk of being sued for false claims unless they take certain precautions to educate and protect themselves.

Continue Reading New FCA Rules Put Lenders and Brokers Directly in Their Gun Sights

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Tax Act of 2009 ("ARRTA").  ARRTA contains significant potential Federal income tax relief for businesses.  Some of the more important provisions are summarized in the remainder of this article.

Continue Reading Tax Relief For Investment, Restructuring, Refinancing And Other Business Activity