New Cases - Week of February 14, 2011

New Cases For the Week of February 14, 2011 - February 18, 2011

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February 17, 2011
Case	Court	Holding

In re American Home Mortgage Holdings, Inc.
(DBN)

3rd Cir.

The Supreme Court has indicated a reluctance to declare provisions of the Bankruptcy Code ambiguous. It has instead instructed that courts "not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy. There is no ambiguity arising from a conflict between Section 562 and 559 of the Bankruptcy Code. The Sections deal with different situations. The fact that the parties proffer different interpretations of the statutory language does not make the language ambiguous. It just makes the court's role difficult in deciding which interpretation is persuasive.

A valuation based on DCF is a commercially reasonable determinant of value where a market value is not "commercially reasonable" due to the existence of a dysfunctional market, particularly where the dysfunctional market disincents sales.

Whitley v. Moravec
(DBN)

7th Cir.

"A jackalope is the main character in the short film Boundin' and therefore must exist"

New York law (applicable because the debtor was a New York corporation) makes the ten largest shareholders of a private corporation liable for unpaid debts owed to the corporation's workers for services performed. However, statutory penalties owed to workers under another State's laws were not "debts for services performed."

February 16, 2011
Case	Court	Holding

In re Tekoil & Gas Corporation (DBN)	Bankr. SD TX	Service on residents of foreign countries may be made via the Hague Convention. Article 10(a) of the Hague Convention does not permit parties to effect service of process on foreign defendants by mail.
Mt. McKinley Ins. Co. v. Corning Inc. (DBN)	App. Div. Sup. CT NY, 1st Dept.	Documents evincing communications between a debtor and asbestos claimants committees (comprised of attorneys representing asbestos claimants) regarding strategy and preparation for an upcoming confirmation hearing were discoverable by the debtor's insurers. The debtor failed to show a reasonable expectation of confidentiality and hence failed to establish a common interest privilege.

February 15, 2011
Case	Court	Holding

In re MPF Holdings US LLC (DBN)	Bankr. SD TX	How precise must a plan's "reservation and enforcement" provision be so that after a court confirms the plan, the litigation trustee (or reorganized debtor) will have standing to prosecute the pre-confirmation claims that exist as of the confirmation date? After confirmation of a heavily-negotiated plan, the post-confirmation trustee brought numerous litigation actions. Defendants averred that the plan's "litigation reservation" language was inadequate to confer standing. The court agrees. For a plan of reorganization to effectively preserve causes of action, the plan must "expressly retain the right to pursue such causes of action" and the retention language must be "specific and unequivocal. Thus, a plan cannot merely contain generic reservation to pursue preference suits after confirmation. The plan must specifically name each potential defendant. The plan must also specifically state the legal basis on which each individual defendant will be sued, and the plan must state, as to each defendant, that the defendant will, be sued, not merely that the defendant may, could or might be sued.
In re Matter Of C.W. Mining Company (DBN)	10th Cir.	An involuntary Ch. 7 debtor's managers were divested of their authority to act for the debtor by the appointment of a Ch. 7 trustee. The managers thus lacked authority to appeal the petition for relief on behalf of the debtor.
Everitt v. Pneumo Abex, L.L.C. (DBN)	5th Cir.	Where settling non-debtor asbestos parties treated the filing of a bankruptcy by a settling defendant as an event delaying the implementation of the settlement, the lower court erred in holding that the settling plaintiffs were time-barred.

February 14, 2011
Case	Court	Holding

Barrientos v. Wells Fargo Bank, N.A. (DBN)	9th Cir.	There is a distinction among "contested matters," "adversary proceedings," and "administrative matters." Violations of the discharge injunction can only be litigated via a contempt motion in a contested matter brought in the bankruptcy court from which the injunction issued. There is no private cause of action for damages for violation of the discharge injunction.
In re Lett (DBN)	11th Cir.	An impaired creditor in a dissenting class in a cram down proceeding under § 1129 of Chapter 11 may challenge on appeal a bankruptcy court's confirmation of a plan of reorganization on the ground that it violates the absolute priority rule, despite that creditor's failure to formally object on that ground while the proceeding remained in the bankruptcy court.
In re TOUSA, Inc. (DBN)	SD FL	Where subsidiary debtors' parent paid a cross-collateralized loan pre-petition using the parent's funds, the bankruptcy court erred in finding that the subsidiaries had direct fraudulent transfer avoidance claims against the repaid lenders. A direct fraudulent transfer claim requires a transfer of "property of the debtor." The funds at issue were the parent's funds, and thew subsidiary debtors had no right of control over those funds, even though the subsidiaries had pledged all of their assets to secure the loan. The bankruptcy court erred by failing to apply the "control test" in assessing whether the funds were property of the subsidiaries for avoidance purposes. The bankruptcy court also erred in narrowly limiting the meaning of "value" under the Bankruptcy Code when assessing the "indirect value" received by the subsidiary debtors in exchange for their pledge of assets to secure the enterprise loan. The mere 'opportunity to receive an economic benefit in the future constitutes 'value' under the Bankruptcy Code. Indirect benefits may take many forms, both tangible and intangible. Indirect benefits constitute 'value' and can include a wide range of intangibles such as: a corporation's goodwill or increased ability to borrow working capital; the general relationship between affiliates or 'synergy' within a corporate group as a whole; and a corporation's ability to retain an important source of supply or an important customer. An indirect economic benefit can suffice, so long as it is 'fairly concrete. A debtor's reprieve from foreclosure, with the accompanying right to continue its operations, could confer an indirect "economic benefit. What is key in determining reasonable equivalency is whether, in exchange for the transfer, the debtor received in return the continued opportunity to financially survive, where, without the transfer, its financial demise would been all but certain. Where such indirect economic benefits are provided, "the debtors' net worth has been preserved, and the interests of the creditors will not have been injured by the transfer.