Dodd-Frank’s Intersection with the Bankruptcy Code Could Have Significant Impact for Unsecured Creditors

On February 11th, the three private plaintiff-appellants and eleven State plaintiff-appellants in State National Bank of Big Spring, et al. v. Jacob J. Lew, et al. filed briefs with the U.S. Court of Appeals for the District of Columbia Circuit in their appeal of the District Court’s decision that the plaintiffs lacked standing to challenge certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (the “Dodd-Frank Act” or the “Act”).  The plaintiff-appellants challenged the “Orderly Liquidation Authority” granted to the FDIC under Title II of the Dodd-Frank Act on the basis that such authority supplants Chapters 7 and 11 of the Bankruptcy Codeand thereby strips the plaintiff-appellants of the statutory protections, amounting to property rights, afforded by the Bankruptcy Code to unsecured creditors.  Judge Huvelle found this argument insufficient to satisfy the standing requirement imposed by Article III of the Constitution,  stating that “[while] it is true that Dodd-Frank empowers the FDIC to treat creditors’ claims somewhat differently than they are treated in traditional bankruptcy proceedings…no one can know if this will ever happen.” The plaintiff-appellants argue that the challenged provisions are facially invalid, rendering the probability of harm test irrelevant, because “[f]or creditors of large financial institutions, Title II of the Dodd-Frank Act expressly ends one of the Bankruptcy Code’s core statutory rights: creditors’ express right to be repaid equally with other similarly situated creditors.”

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Interior’s Carcieri Opinion Means More Diligence for Trust Land Development Projects

The Office of the Solicitor of the Department of the Interior has issued a legal opinion (the “Opinion“) to the Secretary of the Interior interpreting the statutory phrase “under federal jurisdiction” in the Indian Reorganization Act, 25 U.S.C. § 461 et seq. (1934), (the “IRA“).[1]  The Opinion is a result of the U.S. Supreme Court decision, Carcieri v. Salazar, 555 U.S. 379 (2009) (hereinafter, “Carcieri”), which limited Secretarial authority to take land into trust for tribes to those tribes “under federal jurisdiction” in 1934. The Opinion advises the Department of the Interior (“Interior“) that a tribe may be considered “under federal jurisdiction” in 1934 if it can show:

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Attacking LBO Payouts as State Law Fraudulent Transfers

The United States Bankruptcy Court for the Southern District of New York (the “Court”) in Weisfelner v. Fund 1 (In Re Lyondell Chemical Co.), 2014 WL 118036 (Bankr. S.D.N.Y. Jan. 14, 2014) recently held that the safe harbor provision of 11 U.S.C. § 546(e) did not bar unsecured creditors from seeking, under state fraudulent transfer law, to recover payouts made to former shareholders of a company acquired in a leveraged buyout.  This case highlights the limitations in section 546(e)’s so-called safe harbor provision, which protects settlement payments made to complete pre-bankruptcy securities contracts from later being attacked and avoided by the bankruptcy estate representative as fraudulent transfers.

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Showdown in the Richmond: The City of Richmond Threatens Eminent Domain on Underwater Loans

BREAKING NEWS: In a contentious 4-3 decision and amid more than 300 community members on both sides of the issue, the City Council for the City of Richmond voted to continue pursuing its eminent domain plan in the early morning hours of Wednesday, September 11. The council also rejected two related measures, one that would withdraw the letters threatening eminent domain and another requiring Mortgage Resolution Partners, the firm providing financial backing for the City’s plan, to obtain insurance to insulate the city from legal liabilities.

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Equityholder’s Strategy for Shifting Tax Burdens to Creditors Upheld by Third Circuit

In re Majestic Star Casino, LLC, F.3d 736 (3rd Cir. 2013), the U.S. Court of Appeals for the Third Circuit broke from other courts by holding that S corporation status (or “qualified subchapter S subsidiary” or “QSub” status) is not property of the estate of the S corporation’s bankruptcy estate. Other Circuits have routinely held that entity tax status is property of the estate.

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Cherry Picking Contract Provisions in Bankruptcy: Not so Taboo After All?

One of the quintessential principles of the Bankruptcy Code is that when a debtor assumes an executory contract, it must assume the contract as a whole – a debtor cannot cherry pick the contract provisions it wants to assume while rejecting others. Two recent bankruptcy court decisions – In re Hawker Beechcraft, Inc. and In re Contract Research Solutions, Inc. – demonstrate a growing trend among debtors to test the parameters of this general rule. But they also provide guidance to parties on how they can structure their agreements to limit or expand a counterparty’s ability to selectively assume contract provisions in bankruptcy.

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Committee’s Attack upon Lender’s Make-Whole Premium Denied

The United States Bankruptcy Court for the District of Delaware (the “Court”) recently upheld a $23.7 million make-whole payment (the “Make-Whole Payment”) in In re School Specialty (Case No. 13-10125), denying the assertion by the Official Committee of Unsecured Creditors (the “Committee”) that the fee is unenforceable under the United States Bankruptcy Code and applicable state law.

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Saying Goodbye to Fannie and Freddie?

The U.S. Treasury placed Fannie Mae and Freddie Mac into conservatorship in September 2008 as a result of the subprime mortgage crisis. Five years later, the first indications of potential reform are emerging from Capitol Hill. Senators Bob Corker (R-TN) and Mark Warner (D-VA) are currently working on a draft bill entitled, the “Secondary Mortgage Market Reform and Taxpayer Protection Act of 2013,” copies of which began circulating on June 6, 2013. The bill contemplates winding down Fannie Mae and Freddie Mac and replacing them with a new government agency called the Federal Mortgage Insurance Company (the “FMIC”).

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Delaware Court Provides Critical Guidance as to the Commercial Reasonableness of a UCC Article 9 Foreclosure Sale

Secured lenders often resort to non-judicial foreclosure sales of personal property upon a borrower’s default. Article 9, Part 6 of the Uniform Commercial Code requires that every aspect of such a sale must be commercially reasonable. However, the courts have historically provided little guidance as to what exactly constitutes a commercially reasonable sale. Fortunately, the Delaware Chancery Court recently issued a decision, entitled Edgewater Growth Capital Partners, L.P. v. H.I.G. Capital, Inc., C.A. No. 3601-CS (Del.Ch. Apr. 18, 2013), in which the court analyzed the meaning of this “commercial reasonableness” requirement and provided helpful guidance to borrowers and secured creditors alike.

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The Libor Scandal: What’s Next?

The London Interbank Offered Rate (Libor) is calculated daily by the British Banking Association (BBA) and published by Thomson Reuters. The rates are calculated by surveying the interbank borrowing costs of a panel of banks and averaging them to create an index of 15 separate Libor rates for different maturities (ranging from overnight to one year) and currencies. The Libor rate is used to calculate interest rates in an estimated $350 trillion worth of transactions worldwide.

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