As part of our efforts to bring you the latest information on restructuring and bankruptcy issues, we at the Bankruptcy Blog are rolling out a new series called “What We’re Watching.” Once a month, we will preview to our readers the cases on appeal that we are monitoring. We’ll be sure to post updates periodically with the latest developments on those appeals. Below are some of the issues on appeal that have caught our eye this month:
Executive Benefits Agency
We’ve already covered the circuit split between the Sixth and Ninth Circuits as a result of the Stern v. Marshall decision. Perhaps not surprisingly, petitions for certiorari were filed in both cases. The petition in Waldman v. Stone, No. 12-933, 2013 WL 326585 (U.S. Jan. 24, 2013) was denied, but the petition for writ of certiorari in Exec. Benefits Ins. Agency v. Arkison, No. 12-1200, 2013 WL 1329527 (U.S. Apr. 3, 2013) is pending. As we’ve noted, in Executive Benefits Agency, the appellants seek review of whether bankruptcy courts (i) may issue final orders where they would otherwise lack such authority on the basis of the litigants’ consent (or implied consent) and (ii) have constitutional authority to enter a proposed findings of fact and conclusions of law in “core” matters, just as they are permitted to do in “non-core” matters.
On April 23, 2013, Cellmark Paper Incorporated filed a petition for writ of certiorari, styled as Cellmark Paper Inc. v. Ames Merchandising Corp. (In re Ames Dep’t Stores, Inc.), No. 12-1280, 2013 WL 1771080 (U.S.) (Apr. 23, 2013), to the Supreme Court of the United States asking for review of the Second Circuit’s decision in Cellmark Paper Inc. v. Ames Merchandising Corp. (In re Ames Dep’t Stores, Inc.). Cellmark is asking the Supreme Court to decide, firstly, how much a payment must deviate from the parties’ historical payment practices to fall outside of the “ordinary course of business” exception found in section 547(c)(2)(B) of the Bankruptcy Code and, secondly, what standard of review should be applied when an appellate court reviews a bankruptcy court’s ruling that a payment was not made in the “ordinary course of business.”
On January 24, 2013, Route 21 Associates of Belleville, LLC, a creditor in Lyondell Chemical’s chapter 11 case, appealed an order of the United States District Court for the Southern District of New York, which affirmed an order of the United States Bankruptcy Court (Judge Gerber) denying Route 21’s motion for specific performance of a prepetition remediation agreement and denying Route 21’s administrative expense claim for prepetition and postpetition clean-up costs. The appeal, styled as Route 21 Associates of Belleville, LLC v. Millennium Custodial Trust (In re Lyondell Chemical Company), Case No. 13-230 (2d Cir. Jan. 24, 2013) is currently pending before the United States Court of Appeals for the Second Circuit. Although there are many factual and legal issues on appeal, here are some of the ones we are watching:
- Are money damages a viable alternative to specific performance of the debtor’s obligations under a remediation agreement to clean up contamination on a property previously owned by the debtor? The district court said yes.
- Is the ability to estimate damages the same as monetization, which equates to a right to payment under 11 U.S.C. § 101(5)(B)? The district court said yes.
- Does the right to specific performance under an executory contract terminate once the executory contract is rejected? The district court said yes.
- Did Route 21’s cleanup of the contaminated property benefit the debtor’s estate, which was liable for the contamination, even though the debtor no longer owned the property? The district court said no and affirmed the bankruptcy court’s denial of Route 21’s administrative expense claim.
On December 13, 2012, chapter 7 debtor Rafia N. Kahn filed an appeal (captioned Kahn v. Regions Bank, No. 12-6567 (6th Cir. Dec. 17, 2012)) with the United States Court of Appeals for the Sixth Circuit claiming that her prior appeal to the United States District Court for the Eastern District of Tennessee had been dismissed improperly for lack of standing. At issue is what degree of financial stake an appellant must have in a bankruptcy court judgment to have standing to appeal and, more specifically, the circumstances under which an out-of-the-money chapter 7 debtor can appeal from a decision affecting claims against their estate.
In In re Loop 76, LLC, No. 12-60021 (9th Cir. Mar. 27, 2012), the appellant, Wells Fargo, is appealing a November 2012 decision issued by the Bankruptcy Appellate Panel for the Ninth Circuit, which we wrote about here in which the Ninth Circuit BAP held that a bankruptcy court may consider the existence of a third-party (non-debtor) source of recovery (a guarantee) when determining whether unsecured claims are “substantially similar” for purposes of plan classification under section 1122(a) of the Bankruptcy Code.