New Cases - Week of February 20, 2012

New Cases For the Week of February 20, 2012 - February 24, 2012

February 23, 2012
Kentucky Bar Assoc. v. J. Baxter Schilling (DBN)	KY Sup. Ct.	An attorney appointed as an examiner in a large Chapter 11 case breached his ethical duties when he tried to secretly negotiate a "side agreement" with unsecured creditors for a "percentage-based fee." Ultimately, the Circuit Court of Appeals ordered all fees disgorged. The ethical violations warranted a public reprimand.
In re TMST, Inc. (DBN)	Bankr. MD	The debtor was in the business of servicing mortgage loans. Although all parties assumed that a secured claimant's lien covered all servicing assets, the court determined that the lien covered only the debtor's rights as "owner," and not the debtor's rights as "servicer." However, the court further determined that the right with primary value was the right of the owner to terminate and substitute the servicer upon 30 days notice. Because of this termination right, the servicing rights themselves had relatively little value.

February 22, 2012
In re Agape World, Inc. (DBN)	Bankr. ED NY	A bankruptcy trustee states a cognizable claim for constructive fraudulent transfer against a law firm which represented a Ponzi company when he avers that the firm's services were negligent. The trustee sought to recover legal bills paid to the law firm by the Ponzi debtor. Ordinarily, payment for services rendered is an exchange for reasonably equivalent value. However, since the trustee asserted that the firm's services were negligent, the value of such services was called into question. Claims by the trustee that the law firm aided and abetted the principal of the Ponzi company in his efforts to loot the company are barred by the Wagoner rule. The principal's scheme to divert assets from the Ponzi debtor is imputed to the debtor under the theory of agency. This imputation acts to prevent the trustee from suing to recover for a wrong in which the trustee is deemed to have participated. Although the adverse interest exception to the Wagoner rule might have prevented this conclusion, that exception does not apply when (as here) the Ponzi debtor is a corporation owned by a single shareholder.
In re Parmalat Securities Litigation (DBN)	2nd Cir.	When state law issues related to bankruptcy can be "timely adjudicated" in state court, the federal court must abstain from hearing the issues and remand to state court. The delay in remanding is outweighed by the complexity of state law issues and deference to state courts in matters of state law.
Lubin v. Cincinnati Insurance Company (DBN)	11th Cir.	The Chapter 7 trustee for a debtor parent company could not bring a breach-of-contract action against an insurance company for failing to honor a claim submitted by the company's wholly owned subsidiary, which was in FDIC receivership. The breach-of-contract cause of action belonged exclusively to the FDIC.