Other Nationally Significant Cases

In In re World Health Alternatives, Inc., Case No. 06-10166 (July 7, 2006), the Bankruptcy Court for the District of Delaware held that—notwithstanding the Third Circuit’s recent opinion, In re Armstrong World Indus., Inc., 432 F.3d 507 (3d Cir. 2005)—a secured creditor "give-up" or "carve out" that inures solely to the benefit of general unsecured creditors does not violate the Bankruptcy Code.Continue Reading World Health Alternatives Upholds a Secured Creditor’s Carve-Out Inuring Solely to the Benefit of General Unsecured Creditors

On May 30, 2006, the Internal Revenue Service (IRS) published Internal Revenue Bulletin No. 2006-22, Revenue Procedure 2006-24.  This bulletin sets forth the steps for a bankruptcy trustee or debtor in possession to follow in order to obtain a prompt determination by the IRS of any unpaid tax liability of the estate incurred during the administration of the debtor’s case. The bulletin can be found at: http://www.irs.gov/irb/2006-22_IRB/ar12.html.Continue Reading Internal Revenue Bulletin No. 2006-22 Sets Forth Procedures for Prompt Determination of Unpaid Tax Liabilities of a Bankruptcy Estate

On June 22, 2006, the First Circuit decided Baena v. KPMG, Case No. 05-2868, affirming the district court’s holding that the in pari delicto defense barred a trustee from bringing an action against an accounting firm that failed to notify the Debtor’s corporate directors of accounting irregularities because the wrongful actions of the corporate officers were imputed to the Debtor as a whole.Continue Reading In Pari Delicto Bars Debtor’s Claim For Unfair Trade Practices Against Accounting Firm

On May 1, 2006, the United States Supreme Court denied the petition for a hearing filed by the Creditors’ Committee in the Chapter 11 case of Owens Corning, Inc. See Official
Continue Reading Supreme Court Declines to Take Appeal of Owens Corning: Third Circuit’s Substantive Consolidation Guidelines Are Now Settled

In In re Thickstun Brothers Equipment Co., Inc. No. 05-8054 (6th Cir. 06/02/2006), the Bankruptcy Appellate Panel for the Sixth Circuit held that a bankruptcy court lacks subject matter jurisdiction to determine whether a debtor’s failure to object to a claim is preclusive in related state court litigation.


Continue Reading Thickstun Brothers: Bankruptcy Court Lacks Jurisdiction to Determine Whether Debtor’s Failure to Object to Claim is Preclusive in Related State Court Litigation

Central Virginia Community College v. Katz, 126 S. Ct. 990 (U.S. 2006), has significantly expanded the scope of the bankruptcy exception to states’ constitutional sovereign immunity. In this 5-4 opinion, the U.S. Supreme Court held that state agencies do not enjoy sovereign immunity with respect to a proceeding to set aside a debtor’s preferential transfer because states implicitly subordinated their immunity to the Bankruptcy Clause (Article I, Section 8 of the Constitution) when the United States Constitution was ratified.
Continue Reading Supreme Court Update: Katz Eviscerates Constitutional Sovereign Immunity in Federal Bankruptcy Proceedings

The National Association of Consumer Bankruptcy Attorneys (NACB) has issued a report that provides the first analysis of over 60,000 consumers who have filed for bankruptcy protection since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act in October of 2006. The report, Bankruptcy Reform’s Impact: Where Are All the Deadbeats, is available at: http://nacba.com. In its report, the NACB concludes that the changes put in place by Congress are not working as intended. Among other things, the report finds that of the 61,335 consumers seen so far by credit counseling firms nearly all are unable to repay any debts, and four out of five would-be filers were forced into dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse.Continue Reading New Report Examines the Effect of BAPCPA

In In re Dairy Mart Convenience Stores, Inc., 411 F.3d 367 (2nd Cir. 2005), the Second Circuit held that a Chapter 11 debtor was entitled to injunctive relief compelling state officials to accept the debtor’s claims against the state’s environmental clean-up fund as timely filed, based on the extension of time provided to debtors by Bankruptcy Code section 108. Although the injunction might ultimately lead to the debtor receiving money on account of its claims, the main relief sought was prospective – to prevent the continuing violation of federal law that the refusal to give effect to section 108 constituted. Thus, the Second Circuit explicitly held that the suit was not barred by the Eleventh Amendment, because the relief sought fell within the Ex Parte Young exception to the bar of sovereign immunity. Continue Reading In re Dairy Mart: State Officials Not Immune from Suit for Injunctive Relief

The Second Circuit has long held that nondebtor releases are proper only in rare cases where the injunction plays an important part in the debtor’s reorganization plan. See SEC v. Drexel Burnham Lambert Group, Inc. (In re Drexel Burnham Lambert Group, Inc.), 960 F.2d 285 (2d Cir. 1992). The Ninth and Tenth Circuits have gone still further, holding that nondebtor releases are prohibited by the Bankruptcy Code, except in the asbestos context. See Resorts Int’l, Inc. v. Lowenschuss (In re Lowenschuss), 67 F.3d 1394, 1401-02, 1402 n.6 (9th Cir. 1995); Landsing Diversified Props.-II v. First Nat’l Bank and Trust Co. of Tulsa (In re W. Real Estate Fund, Inc.), 92 F.2d 592, 600-02 (10th Cir. 1990) (per curiam). Continue Reading Metromedia: Party Failing to Seek a Stay Pending Appeal May Be Barred Under Principles of Equitable Mootness from Obtaining any Remedy With Respect to Impermissible Provisions of a Substantially Consummated Plan