“Straddling the Line”: Delaware Bankruptcy Court Rules That Not All Tax Liabilities Incurred During a Debtor’s Petition Year are Eligible for Administrative Expense Priority

In re Affirmative Insurance Holdings, Inc., Case No. 15-12136 (CSS), 2019 WL 5173773 (Bankr. D. Del. Oct. 15, 2019).

In this Opinion, Chief Judge Sontchi ruled that tax liabilities incurred by a corporation during a year that “straddles” the petition date should be bifurcated, such that tax liabilities stemming from post-petition events are afforded administrative expense priority, whereas tax liabilities stemming from pre-petition events are afforded general unsecured status.  In so doing, his Honor departed from the previous practice of affording administrative expense priority to tax liabilities incurred by a corporate debtor during the year of its petition date in… Read More

Insider’s Scoop: Judge Silverstein Imposes Heightened Standard Regarding Appointment of Future Claims Representative

In re Imerys Talc America, Inc., et al., No. 19-10289 (Bankr. D. Del. May 8, 2019).

In this Bench Ruling, Judge Silverstein departed from a long line of cases concerning the applicable standard of scrutiny when evaluating the candidacy of a proposed future claims representative (“FCR”).

Imerys Talc America, Inc. and certain of its affiliated entities (the “Debtors”) filed their chapter 11 petitions in the Delaware Bankruptcy Court on February 13, 2019.  On February 27, the Debtors filed a motion to appoint James L. Patton, Jr. as the Legal Representative for Future Talc Personal Injury Claimants. … Read More

Delaware Bankruptcy Court Rejects Per Se Premise that a Discretionary Bonus Payment Can Never Be on Account of “Value”

Jalbert v. Flanagan, et al. (In re F-Squared Investment Management, LLC), No. 15-11469 (LSS), 2019 WL 2051005 (Bankr. D. Del. May 7, 2019).

In this Opinion, Judge Silverstein granted in part and denied in part the motions of Brian Flanagan, Matthew Landon, Patrick Coyle, and Scott Kearney (collectively, the “Defendants”)  to dismiss certain fraudulent transfer and insider preference claims brought by the Trustee for the Debtors’ (defined below) liquidating trust (the “Trustee”).  In so doing, Judge Silverstein rejected the Trustee’s premise that an entirely discretionary bonus can never be made in exchange for value.

F-Squared… Read More

On a Mission: Supreme Court Clarifies Effect of Rejection of Executory Contract

Mission Prod. Hldgs., Inc. v. Tempnology, LLC, No. 17-1657 (2019).

In Mission Prod. Hldgs., Inc. v. Tempnology, LLC, the United States Supreme Court resolved a long-standing Circuit Court split in holding that a debtor’s rejection of an executory contract does not eliminate a contract counterparty’s right to use certain debtor trademarks provided thereunder.  Rather, according to the Court, following the debtor’s rejection of such contract, the counterparty retains the rights it received pursuant to the terms of the underlying agreement and applicable nonbankruptcy law.

Generally, Mission Product Holdings, Inc. (“Mission”) entered into a contract with Tempnology,… Read More

Delaware District Court Agrees That Plans Need Not Reflect Bargained For Priority Provisions in Subordination Agreements

Law Debenture Trust Co. et al. v. Tribune Media Co. (In re Tribune Media Co.), 587 B.R. 606 (D. Del. 2018)

In this Memorandum, the Delaware District Court upheld the decision of the Delaware Bankruptcy Court to confirm the plan of reorganization (the “Plan”) of Tribune Media Company (“Tribune”) and its debtor affiliates (collectively, the “Debtors”), despite the fact that the distributions proposed therein on account of certain claims infringed on prepetition subordination agreements.  In rendering the decision, Judge Sleet agreed with Judge Sontchi’s lower court opinion that the strict enforcement of subordination agreements, including provisions therein… Read More

Judge Silverstein Tosses Bad Faith Filing in Rent-A-Wreck of America But Doesn’t Award Sanctions – Finds That a Filing to Employ the Powers of the Code is Alone Insufficient to Support Good Faith

In re Rent-A-Wreck of America, Inc., 580 B.R. 364 (Bankr. D. Del. 2018)

In this February 13, 2018 Opinion, Judge Silverstein of the Delaware Bankruptcy Court dismissed the voluntary chapter 11 proceedings filed by Rent-A-Wreck of America, Inc. (“RAWA”) and its wholly owned subsidiary, Bundy American, LLC (“Bundy”, and together with RAWA, the “Debtors”).  Judge Silverstein found that the Debtors did not file their petitions in good faith as required by 11 U.S.C. § 1112(b).  While the Court found that the Debtors’ actions in commencing the cases fell “on the dark side of the spectrum” which ranges… Read More

Delaware Bankruptcy Court Refuses to Enforce an Employee Arbitration Agreement with a Class Action Waiver Despite Its Opt-out Provision

Chan v. Fresh & Easy, LLC (In Fresh & Easy, LLC), No. 15-51897 (BLS), 2016 WL 5922292 (Bankr. D. Del. Oct. 11, 2016)

In this motion to compel arbitration Opinion, the Bankruptcy Court for the District of Delaware ruled on two issues of first impression in Delaware:  (i) whether a class action waiver provision in an arbitration agreement violates the National Labor Relations Act (the “NLRA”); and if so, (ii) whether the agreement remains enforceable if it allows an employee to opt-out.  The Court found that the class action waiver was unenforceable because it violated the NLRA.  The… Read More

Delaware Bankruptcy Court Permits Attorneys’ Fees in Fee Defense, Distinguishing ASARCO and Boomerang Tube

In re Nortel Networks Inc., No. 09-10138 (KG), 2016 WL 932947 (Bankr. D. Del. Mar. 8, 2017)

In the Nortel family of cases, the Delaware Bankruptcy Court sustained, in part, an objection to the attorneys’ fees sought by the Nortel Networks Capital Corporation Bonds Indenture Trustee (the “Indenture Trustee”), slashing its attorneys’ fee request by almost one million dollars.  However, the more noteworthy ruling came when Judge Gross permitted the Indenture Trustee’s attorneys’ fees for defending their fees, distinguishing the Supreme Court’s ruling in ASARCO and the Delaware Bankruptcy Court’s recent ruling in Boomerang Tube. … Read More

Delaware Bankruptcy Court Finds Debtor Did Not Properly Terminate Contract, Faces Significant Breach of Contract Damages

In re Outer Harbor Terminal, LLC, No. 16-10283 (LSS), 2017 WL 696676 (Bankr. D. Del. Feb. 21, 2017)

In the context of a claims objection, the Court adhered to unambiguous contract language in determining that the presence of a termination triggering event did not automatically terminate a contract, opening the door for potentially significant damages.  This matter will now proceed to the damages phase, where the non-debtor contract counterparty has alleged in its proof of claim an approximate $13.3 million in, among other things, breach of contract damages.

Outer Harbor Terminal, LLC (the “Debtor”) provided stevedoring services—docking and loading/unloading… Read More

Delaware Bankruptcy Court’s Local Rules For 2017 Now Effective

The Bankruptcy Court for the District of Delaware’s Local Rules for 2017 went effective today, February 1, 2017.  A copy of the 2017 Local Rules can be found here and a redline of the 2017 Local Rules against the 2016 Local Rules can be found here.

This year, the Court is clearly emphasizing cross-border bankruptcy cases.  Not only have the Local Rules been revised where appropriate to incorporate references to “chapter 15 cases” and “foreign representative(s)”, the Court has also fashioned a new rule—Local Rule 9029-2, setting forth the “Guidelines for Communication and Cooperation Between Courts in… Read More