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The Delaware Bankruptcy Insider is a premier blog designed to bring its readers a comprehensive analysis of the latest Delaware corporate bankruptcy news and rulings.  Brought to you by Ashby & Geddes, P.A.

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Lack of “Scientific Certainty” Does Not Excuse Late Filing of a Proof of Claim

In re W.R. Grace & Co., No. 01-1139 (KG) (Bankr. D. Del. Dec. 28, 2016)

In this Opinion involving the standards for determining whether a party held an asbestos claim and excusable neglect for filing a late claim, the Court rejected Plum Creek Timber Co.’s (the “Claimant”) argument that it lacked “scientific certainty” with respect to its asbestos-related claim against W.R. Grace & Co. (together with its affiliated debtors, the “Debtors”).  Where the Claimant received actual and publication notice of the bar date in the case, the Court found the Claimant should have timely filed its claim even if… Read More

Applying New York Law, Third Circuit Holds That Acceleration Clauses Do Not Negate Make-Whole Redemption Provisions Absent Clear Contractual Language

Delaware Trust Co. v. Energy Future Intermediate Holding Co. (In re Energy Future Holdings Corp.), 842 F.3d 247 (3d Cir. 2016)

Disagreeing with the United States Bankruptcy Court for the Southern District of New York, the Court of Appeals for the Third Circuit held in this Opinion that New York law requires the Energy Future debtors (“EFIH”) to pay redemption premiums (or a “make-whole”) to their first and second lien noteholders under the terms of governing indentures.  In doing so, the Court reversed the district court decision affirming the Delaware Bankruptcy Court’s ruling (discussed here) that the… Read More

Satisfaction of a Prepetition Loan by a DIP Loan Does Not Extinguish Vendor’s Reclamation Rights Under Section 546(c)

In re Reichhold Holdings US, Inc., No. 14-12237 (MFW), 2016 WL 4479286 (Bankr. D. Del. Aug. 24, 2016)

In this Memorandum Opinion, the Court overruled a limited reclamation claims objection asserted by a liquidating trustee, who argued that a creditor’s reclamation rights were cut-off by a postpetition loan that refinanced a prior perfected prepetition loan.  In doing so, the Court sided with the Sixth Circuit Court of Appeals and rejected a line of cases from the Bankruptcy Court for the Southern District of New York.

After Reichhold Holdings US, Inc. (the “Debtor”) filed its chapter 11 petition, Covestro LLC… Read More

Commencing an Involuntary Just Got Riskier – Petitioning Creditors May Face State Law Damages in Addition to Those Under Bankruptcy Code Section 303(i)

Rosenberg v. DVI Receivables XVII, LLC, No. 15-2622, 2016 WL 4501675 (3d Cir. Aug. 29, 2016)

In this federal preemption Opinion, the Third Circuit Court of Appeals held that section 303(i) of the Bankruptcy Code does not preempt state law claims by non-debtors for damages based on the filing of an involuntary bankruptcy petition.  The Court did not, however, opine on whether section 303(i) preempts state law claims brought by debtors.

The appeal originated from a 2008 involuntary bankruptcy proceeding commenced against Maury Rosenberg and his affiliated businesses.  The petition was dismissed and Mr. Rosenberg recovered fees, costs, and $6 million… Read More

Pac Sun Class Representative Denied Permission to File Class Proof of Claim on Behalf of Priority Claimants

In re Pacific Sunwear of California, Inc., No. 16-10882 (LSS) (Bankr. D. Del. June 22, 2016 and Aug. 8, 2016)

In the first of two related Opinions, Judge Laurie Selber Silverstein granted claimant Tamaree Beeney permission to file a class proof of claim for alleged violations of California wage and hour laws under California’s Private Attorney General Act (“PAGA”), but limited her representative role to absent class members who hold non-priority general unsecured claims.  In the second Opinion, the Court denied reconsideration of Her Honor’s ruling and further disallowed another claimant from representing the priority class in… Read More

Insider’s Scoop: Judge Sontchi’s Decision to Confirm Horsehead’s Plan Was One of His Honor’s Most Difficult and Closest Calls in Ten Years on the Bench

In re Horsehead Holding Corp., No. 16-10287 (CSS) (Bankr. D. Del. Sept. 2, 2016)

Following a three day confirmation trial, which attracted scores of shareholders and running commentary via live tweets from the courtroom, Judge Sontchi confirmed the second amended plan of reorganization (the “Plan”) proposed by Horsehead Holding Corp. and its affiliated debtors (“Horsehead”) over the objection of the official committee of equity holders (the “Equity Committee”), holding that the Plan was proposed in good faith and satisfied the absolute priority rule.  His Honor described the decision as one of the most difficult and closest calls… Read More

Delaware Bankruptcy Court Holds Section 546(e) Safe Harbor Does Not Bar a Litigation Trust, as a Creditor-Assignee, From Asserting State Law Constructive Fraudulent Transfer Claims

PAH Litig. Trust v. Water Street Healthcare Partners, L.P. (In re Physiotherapy Holdings, Inc.), No. 15-51238 (KG), 2016 WL 3611831 (Bankr. D. Del. June 20, 2016)

In rendering this Opinion and permitting a post-confirmation trust to pursue state law constructive fraudulent transfer claims against two former shareholders of debtor Physiotherapy Holdings, Inc. (“Physiotherapy”), the Honorable Kevin Gross of the Delaware Bankruptcy Court eschewed the recent holding of the Court of Appeals for the Second Circuit that section 546(e) of the Bankruptcy Code preempts not only state law fraudulent transfer claims brought by trustees in bankruptcy, but also those brought… Read More

Unredeemed Gift Cards are Not Entitled to Priority Status Under Bankruptcy Code 507(a)(7)

In re City Sports, Inc., No. 15-12054 (KG), 2016 WL 4190090 (Bankr. D. Del. Aug. 4, 2016)

In what the Bankruptcy Court deemed a purely academic issue given the circumstances of the City Sports bankruptcy cases, Judge Gross held that unredeemed gift cards are not entitled to priority status, and instead, are properly classified as general unsecured claims.  In so doing, Judge Gross rejected and disagreed with a previous holding of the Delaware Bankruptcy Court wherein the court found that gift cards fall under the definition of “deposit” and accorded them priority status under the Bankruptcy Code.  See In re WW Warehouse,… Read More

Stock-Based Compensation “Fits Squarely Within” the Bankruptcy Code’s Definition of “Equity Security”

GSE Envtl., Inc. v. Sorrentino (In re GSE Envtl., Inc.), No. 16-50377 (MFW), 2016 WL 3963978 (Bankr. D. Del. July 18, 2016)

In this Opinion, Judge Walrath ruled that stock-based compensation owed to the former chief executive officer (the “Defendant”) of GSE Environmental, Inc. and GSE Holding, Inc. (the “Debtors”) under his employment agreement constitutes an “equity security”, as that term is defined under the Bankruptcy Code.  See Op. at *5; 11 U.S.C. § 101(16).

Defendant’s pre-petition employment agreement provided for monthly compensation in the amount of $186,000, payable in $100,000 of cash and $86,000 of company stock.  After the bankruptcy… Read More

Set Off of Administrative Claim Against Preference Liability is Permissible and Not a “Disguised New Value Defense”

Official Comm. of Unsecured Creditors of Quantum Foods, LLC v. Tyson Foods, Inc. (In re Quantum Foods, LLC), No. 15-50254 (KJC), 2016 WL 4011727 (Bankr. D. Del. July 25, 2016)

In this Opinion, the Delaware Bankruptcy Court addressed a question that remained in the wake of the Third Circuit’s Opinion in Friedman’s: although post-petition goods and services may not be counted as subsequent new value under section 547(c)(4) of the Bankruptcy Code, may they still be used to offset alleged preference liability?  See Friedman’s Liquidating Tr. v. Roth Staffing Co., LP (In re Friedman’s Inc.), 738… Read More