The Wall Street Journal reports on the surprise Thursday announcement from the U.S. Commerce Department that the U.S. gross domestic product unexpectedly shrank at a 1.4% annualized rate during the first quarter of 2022.  The WSJ does not expect the GDP report to alter the Federal Reserve’s plan to raise interest rates this year, including

Recently, the Second Circuit became the first federal circuit court to rule that the federal government could deny a Paycheck Protection Program (“PPP”) loan to a debtor in bankruptcy solely because of an applicant’s bankruptcy status.[1] Prior to the Second Circuit’s decision in Springfield Hospital, Inc. v. Guzman, multiple lower federal courts were divided on the issue, although the majority of those courts reached the same conclusion as the Second Circuit.

Continue Reading Opinion of Interest – Springfield Hospital, Inc. v. Guzman: Second Circuit Upholds Federal Government’s Ability to Deny PPP Loans to Bankrupt Companies

In its January 14, 2022 decision in In re Wolfson, the United States Bankruptcy Court for the District of Delaware discharged Chapter 7 debtor Ryan K. Wolfson of nearly $100,000 in student loan debt.[1] Chief Judge Laurie Selber Silverstein found that Wolfson, an often un- or underemployed and chronically ill man, met the three-prong “Brunner test” and proved that repayment of his student loans would result in “undue hardship” under Section 523(a)(8) of the Bankruptcy Code. Declaring most interpretations of Brunner “unmoored from the original test and the plain language of ‘undue burden,’” Judge Silverstein held that, under the Brunner test, a debtor need only show an inability to maintain “a minimal standard of living” while repaying his or her student loans, not a total incapacity to ever repay them. In discharging the nearly six-figure debt, Judge Silverstein’s opinion found that allowing lifelong student loan debts to escape discharge absent an onerous standard of undue hardship conflicted with the promise of a “fresh start” that the Bankruptcy Code offers.

Continue Reading Opinion of Interest – In re Wolfson: A Potential Re-Evaluation of the “Undue Hardship” Test for Student Loan Borrowers

On January 20, 2022, Mayer Brown Restructuring lawyers Louis Chiappetta (Partner), Lucy Kweskin (Partner), and Samuel Rabuck (Associate) published an article in Law360 on a recent ruling from an adversary proceeding in the In re The Hertz Corp. bankruptcy case by the Delaware Bankruptcy Court on the enforceability of make-whole premiums in bankruptcy.

Given the

Reporting from the Wall Street Journal indicates that plaintiffs in price fixing lawsuits against generic drugmaker Teligent Inc. have sought court authority to continue that litigation despite Teligent’s October bankruptcy filing.  The litigation, which commenced in 2016, alleges that Teligent artificially inflated the costs of certain generic drugs and is being pursued primarily by attorneys

Whether—and in what circumstances—a debtor should pay creditors a make-whole premium continues to be litigated in bankruptcy courts. Last week, as reported by Bloomberg, Judge Dorsey (Delaware) ruled that the debtor – Mallinckrodt Plc – did not need to pay a make whole premium to first lien lenders in order to reinstate such obligations

In its August 5th, 2021 VeroBlue Farms decision,[1] the Eighth Circuit lent its voice to a growing body of criticism of the equitable mootness doctrine contending that its use to bar challenges to confirmed reorganization plans should be circumscribed.  Laying out a new investigation that must be undertaken before using the doctrine to bar confirmation order appeals, the Eighth Circuit emphasized that reviewing courts must: (1) make “at least a preliminary review of the merits” of an appeal to determine the strength of the claims at issue; (2) assess the “amount of time that would likely be required” to resolve the merits of such claims on an expedited basis; and (3) consider the potential equitable remedies that might still be available even after a plan’s implementation, should the appeal prove successful, which would not undermine the plan or harm third parties.

Continue Reading Mootness Muted? – Eighth Circuit Circumscribes Use of Equitable Mootness Doctrine to Bar Bankruptcy Plan Appeals

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”

In a January 2021 decision issued in the re-opened United Refining Company1 bankruptcy case, Judge Lopez of the Southern District of Texas Bankruptcy Court addressed when a tort claim is deemed to arise for purposes of determining whether it was discharged.  In particular, the court had to determine whether an asbestos-related claim arose at the time of exposure (in other words, the time at which the damaging act occurred) or at the time when the harm is diagnosed (in other words, when the claim was discovered).  Complicating things for the court was a lack of records from the 1980s bankruptcy case at issue, which also led to uncertainty as to whether the claimant had notice of the bankruptcy.  That in turn could have led to the conclusion that his claim had not been discharged regardless of the court’s determination of when the claim accrued.  As discussed below, the Court concluded that the claim was a prepetition claim discharged under the plan, and that all creditors were bound by such plan absent a showing that there was no proper notice.

Continue Reading Opinion of Interest – In re United Refining Company: Destruction of Records and the Accrual of Tort Claims