In its recent opinion arising out of the Orexigen Therapeutics Inc. bankruptcy case, the US Court of Appeals for the Third Circuit affirmed that while a creditor retains its direct setoff rights against a debtor under Section 553 of the Bankruptcy Code when both it and the debtor owe debts to one another, so called “triangular” setoffs – setoffs relating to affiliated third party debts –  are not similarly protected, even if provided for contractually.1 In so holding, the Third Circuit became the first US circuit court of appeals to reach the issue and affirmed a substantial body of law on the topic developed by numerous lower courts.
Continue Reading Opinion of Interest – In re Orexigen Therapeutics Inc.: “Mutual” Means Mutual Third Circuit Confirms that Triangular Setoffs not Entitled to Protection under Section 553 of the Bankruptcy Code

In its recent decision in Matter of First River Energy, LLC,1 the Fifth Circuit resolved a priority dispute between lienholders regarding their competing claims to cash held by the debtor, First River Energy, LLC. The cash at issue was the proceeds of a pre-bankruptcy sale of crude oil that the debtor purchased from certain producers (located in Texas and in Oklahoma) and then sold on to certain downstream purchasers. Following the debtor’s filing, each of the producers asserted a first-priority lien on the cash proceeds, as did the administrative agent for certain of First River Energy’s secured lenders. The administrative agent subsequently filed an adversary proceeding seeking to confirm its first priority status (senior to the producers), based on its perfection by the filing of a first-in-time UCC-1 financing statement with the Delaware Secretary of State in 2015. The two issues before the Bankruptcy Court were what law applied to the priority dispute (as between Delaware, First River’s state of organization, or Texas or Oklahoma, the locations of the producers and the oil sold) and, based on such choice of law, the priority of the parties’ liens. The Bankruptcy Court ruled that Delaware law applied and found that, under Delaware law, the administrative agent’s lien had priority over the lien of the Texas producers, but that the administrative agent’s lien did not have priority over the Oklahoma producers’ lien. The Fifth Circuit took an interlocutory appeal of the decision.

Continue Reading Opinion of Interest – Matter of First River Energy: Some State-Specific Liens May be no More than “Amazing Disappearing Security Interests”

Reporting from the Wall Street Journal details an independent monitor’s conclusion that Texas’ Public Utility Commission overcharged market participants by approximately $16 billion dollars during Texas’ recent energy crisis by electing to keep wholesale prices raised for 33 hours longer than the monitor deemed necessary. Although the monitor urged the Public Utility Commission of Texas

In a recent opinion issued in the Cinemex theater bankruptcy cases, In re Cinemex USA Real Estate Holdings, Inc., Case No. 20-14695-BKC-LMI, 2021 WL 564486 (Bankr. S.D. Fla. Jan. 27, 2021), Judge Laurel M. Isicoff of the U.S. Bankruptcy Court for the Southern District of Florida ruled that while Cinemex was excused from paying rent under a lease for one of its Florida theaters for the time period during which Cinemex, and other non-essential businesses, were barred entirely from opening under Florida’s COVID shutdown orders, Cinemex’s obligation to pay rent was not excused, and the lessors were entitled to payment of rent as an administrative priority expense, once Florida’s shutdown orders were lifted and Cinemex was allowed to reopen, even if only at partial capacity.

Continue Reading Opinion of Interest – In re Cinemex:  COVID or Not, Parties Still Bound by Lease Terms

Reuters reports that the involuntary bankruptcy proceeding filed against Navient by three student loan borrowers on February 8, 2021 was dismissed on February 25, 2021. In dismissing the case, Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York noted that there was no evidence Navient was not paying its

Reporting from S&P Global shows that from January 1, 2020 through December 13, 2020, there were 610 commercial bankruptcy filings by public and private entities with at least $2 million in reported assets or liabilities at the time of the bankruptcy filing. Entities in the consumer discretionary, industrial, energy, and healthcare industries made up over

The Wall Street Journal reports on the growth of dividend recapitalization transactions during the COVID-19 pandemic by private equity controlled companies. That growth stands in contrast to prior economic downturns. [WSJ; Dec 17, 2020]

Reporting from Yahoo Finance addresses the growing control that investment firms and hedge funds exert over commercial restructuring efforts as a

In a new opinion issued in the Chuck E. Cheese bankruptcy cases, In re CEC Entertainment, Inc., Case No. 20-33163 (Bankr. S.D. Tex.),1 Judge Marvin Isgur of the U.S. Bankruptcy Court for the Southern District of Texas ruled2 that CEC Entertainment, Inc. (“CEC”), the parent company of the Chuck E. Cheese pizza chain, could not defer its rent obligations due to ongoing COVID-19 disruptions beyond the initial 60-day period authorized by section 365(d)(3) of the Bankruptcy Code.  While CEC had initially sought rent relief with respect to dozens of its store locations, it was able to settle with the landlords for all but six locations in North Carolina, Washington, and California; the non-settling landlords continued to insist that CEC was required to pay rent despite the global pandemic and CEC’s bankruptcy filing.  In its December 14, 2020 opinion, the court agreed with these landlords and rejected each of CEC’s arguments for its proposed relief, including that: (1) sections 105 and 365 of the Bankruptcy Code authorized the Bankruptcy Court to suspend CEC’s rent obligations beyond the 60-day period included in Section 365(d)(3); (2) the COVID-19 pandemic—and related restrictions put in place by state and local governments—constituted a force majeure event under each of the six leases at issue; and (3) CEC’s inability to fully utilize the leased premises as a result of state and local restrictions on indoor dining and entertainment entitled CED to a “frustration of purpose” defense with respect to each lease.

Continue Reading Opinion of Interest – In re CEC Entertainment Inc.: COVID Disruptions Do Not Justify Additional Rent Deferrals Beyond Initial 60-Day Period Expressly Permitted by Bankruptcy Code

AMC Entertainment Holdings Inc. announced that it is exploring financing alternatives to address the financial strain on the company resulting from the COVID-19 pandemic, including an at-the-market sale of 178 million shares, reports The Street. This announcement comes after Walt Disney Co. announced that approximately 80% of its new content in 2021 would be

In Manikan v. Peters & Freedman L.L.P., No. 19-55393, 2020 WL 6938318 (9th Cir. Nov. 25, 2020) the Ninth Circuit Court of Appeals addressed whether a debtor was precluded from bringing a Fair Debt Collection Practices Act (“FDCPA”) claim against his homeowner’s association when the claim at issue was based