December 2, 2011

December 1, 2011

"Good cause" to extend the 120 day deadline to effect service of process in an adversary proceeding is not present where the plaintiff relies on an old defendant address in debtor's records with no effort to verify whether the address remains valid.

However, even where "good cause" is not present, the court has equitable discretion to extend the deadline. Where defendant's counsel's actions reflect an effort to conceal service defects, discretion is warranted.

A claim under 11 USC 548 to avoid a constructively fraudulent obligation, and the transfers made pursuant thereto, fails, where the obligation was incurred outside the two-year limitations period in 11 USC 548. Since the putative fraudulent obligations are unavoidable under section 548, the transfers made pursuant to such obligations, even though made within the limitations period, are deemed to be transfers on account of an antecedent debt, and thus were made "for reasonably equivalent value."

For State fraudulent transfer claims asserted under 11 USC 544(b), the State law limitations period (here, 6 years) counts back from the petition date, not the date of the filing of the avoidance action. Moreover, although applicable State law incorporates the above-referenced concept of "antecedent debt as fair value," that State-law rule does not apply when the payment of antecedent debt is to an insider.

Although the plaintiff/trustee has adequately pleaded the limitations and value components of the fraudulent transfer claim, she has not plausibly pled the "debtor insolvency" element. Plausible pleading of insolvency in this context requires some sort of balance sheet test or information from which the court can infer the existence of insolvency. There must be be an evaluation of the market value of the assets at the time the transfers took place. There should be information as to the level of liquidity of the transferor's assets. Often, there is valuation provided of a company's assets or probable liabilities. The complaint includes only net income and net cash flow figures for the years in which the transfers occurred. These lists are insufficient for the Court to determine whether the Debtors were insolvent or rendered insolvent by the transfers. Leave is granted to amend the complaint to address pleading of debtor insolvency.

November 30, 2011

A bankruptcy court has the constitutional authority only to issue proposed findings and conclusions with respect to Stern-type claims. Even though defendants have filed proofs of claims, the affirmative fiduciary-type claims asserted against them by the trustee cannot be finally adjudicated in the bankruptcy court. The court also holds that if it lacks constitutional authority to finally adjudicate such claims against defendants who have filed proofs of claims, it likewise must lack constitutional authority to finally adjudicate such claims against those defendants who have not filed proofs of claims.

The fiduciary duty of good faith owed by a director (under Delaware law) has, until recently, been relatively uncharted. The duty has often been discussed in the context of a discussion on the duty of care, although the Delaware Supreme Court has now made clear that it is a sub-set of the duty of loyalty. At least three different types of behavior have been considered in the context of "bad faith": (i) subjective bad faith (i.e., intent to harm), (ii) gross negligence and (iii) intentional dereliction of duty. Type (i) clearly is bad faith. Type (ii) clearly is not. Type (iii) is bad faith.

For type (iii)-type claims (i.e., claims based on breach of the duty to exercise appropriate attention), there are two possibilities. If the breach is the result of negligence, the claim is analyzed under the duty of care and the director is entitled to the benefit of the business judgment rule. For these types of claims, compliance with the duty of care is not judged by reference to the content of the board decision, but rather by the process employed in reaching the decision.

However, if the director's action (or inaction) arises from an conscious unconsidered failure of the director to act in circumstances in which due attention would have prevented the loss, business judgment protection does not apply. The failure to act in such cases must be "knowing" and "sustained or systemic." Under these circumstances, the claim is analyzed under the "good faith" aspect of the duty of loyalty.

In an workers compensation insurance dispute with debtors, the insurers asserted that the Bankruptcy Court lacked subject matter jurisdiction because the dispute was neither core or non-core.

Whether a proceeding is core or non-core is beside the point for determining jurisdiction because the allocation of core and non-core does not implicate questions of subject matter jurisdiction. So long as a proceeding is one or the other, the Bankruptcy Court possessed subject-matter jurisdiction.

If an adversary proceeding involves a contract matter, whether it is core depends on (1) whether the contract is antecedent to the reorganization petition and (2) the degree to which the proceeding is independent of the reorganization. The Court concludes that this contract dispute is core, since some of the contracts at issue are post-petition. The pre-petition contract part of the dispute is also core because it affects "allowance or disallowance of claims against the estate." and because it "could also have substantial implications on both the estate and the priority of the creditors." This latter rationale sounds more like a description of "related to" jurisdiction.

November 28, 2011

Excellent results are rarely sufficient to justify an upward adjustment from lodestar fees. When counsel accepts an engagement he implicitly promises to use his best efforts to obtain excellent results. Thus, counsel's request for an upward adjustment form lodestar is not warranted on this basis , even though creditors were paid in full and there was a surplus.

However, the court sua sponte finds that the usual hourly rate charged by debtor's lead bankruptcy counsel was "unreasonably low." Since counsel is entitled to recover "reasonable rates," rather than "usual rates," the court retroactively increases lead counsel's hourly rate to be more "reasonable".