In a decision likely to have significant impact on certain types of bankruptcy filings going forward, this morning, the Third Circuit Court of Appeals ordered the dismissal of the Chapter 11 bankruptcy case filed by Johnson & Johnson affiliate LTL Management LLC.
After completing a multi-step divisional merger under Texas law (which led to LTL
In a recent article published by Law360, Mayer Brown’s Sean Scott, Aaron Gavant and Lisa Holl Chang break down recent decisions by the Fifth and Ninth Circuits relating to whether, in solvent debtor cases, unsecured creditors are entitled to postpetition interest in order to be deemed “unimpaired” under a plan of reorganization, and if so
Background
In a recent opinion issued in LCM XXII Ltd. v. Serta Simmons Bedding, LLC, No. 21-CV-3987, 2022 WL 953109 (S.D.N.Y. Mar. 29, 2022), US District Judge Katherine Failla of the Southern District of New York denied defendant Serta Simmons Bedding, LLC’s (“Serta”) motion to dismiss an action challenging its June 2020 non-pro rata
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
Mayer Brown partners Adam C. Paul, Sean T. Scott, Louis S. Chiappetta, Aaron Gavant, and Tyler R. Ferguson recently published an article for Mayer Brown’s Perspectives & Events portal on the December 16, 2021, decision in which Judge Colleen McMahon of the US District Court for the Southern District of New York reversed the bankruptcy
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
Partially walking back her prior pronouncements suggesting that she would rule to the contrary (which we previously wrote about here), on October 13, 2021, District Court Judge Colleen McMahon denied the U.S. Trustee’s request for an emergency stay pending appeal of the Purdue Pharma confirmation order. In a related order issued three days earlier, Judge McMahon had noted that she “fully” intended to grant the stay request so long as she had jurisdiction to do so. In the end, however, the District Court was persuaded to deny the request based on the debtors’ agreement not to raise equitable mootness as a defense to the appeal and by the debtors’ commitment to provide 14 days’ advance notice of the plan going fully effective. The U.S. Trustee had argued that a stay was still required, notwithstanding these conditions, given the weightiness of the issues at stake and the potential for later equitable mootness-related issues. While sympathizing with this position, the District Court ultimately found that the U.S. Trustee had not shown a sufficient likelihood of any “concrete harm” that could arise between the date of the District Court’s ruling and the next-scheduled hearing on the nearly identical stay motion back in the Bankruptcy Court. The District Court nonetheless emphasized that it would “not allow this appeal to be equitably mooted” and if, at any time, “it appears that imminent action might lead to that result,” the movants were invited to “knock on [Judge McMahon’s] door.”
Continue Reading Stay and Direct Appeal Requests Denied in Purdue Pharma; District Court Commits to Shielding Case from Equitable Mootness Concerns
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
Perhaps proving the maxim that people should be careful what they wish for, in a second significant ruling stemming from the Jevic Holding Corp. bankruptcy case, on May 5, 2021, the US Bankruptcy Court for the District of Delaware found that Jevic’s Chapter 7 trustee, appointed following the conversion of the debtors’ cases from Chapter 11 to Chapter 7, did not have standing to continue claims originally brought against the debtors’ prepetition lenders by the Chapter 11 creditors’ committee. Assuming it is upheld on appeal, the decision leaves Jevic’s unsecured creditors without any further remedy against Jevic’s prepetition lenders—in other words, leaving those employees who successfully fought approval of a prior settlement offer by the same lenders all the way to the United States Supreme Court with no recovery from those lenders. Indeed, the decision appears to be a significant victory for secured lenders generally, underscoring the importance of “challenge” provisions typically included in DIP and cash collateral orders.
Continue Reading Be Careful What You Wish For: Jevic Court Denies Chapter 7 Trustee’s Substitution Request, Potentially Ending Action Versus Prepetition Lenders