Bankruptcy and Restructuring Blog

In 2005, in a blow to assignments for the benefit of creditors ("ABC") in California, the Ninth Circuit in Sherwood Partners Inc. v. Lycos ("Sherwood I"), 394 F.3d 1198 (9th Cir. 2005), held that an assignee in an ABC cannot bring preference actions under California law because the Bankruptcy Code preempts state preference law. Since Sherwood I, two California state courts of appeal have reached the opposite conclusion and held that assignees can bring preference actions under California law because the Bankruptcy Code does not preempt state preference law. Credit Managers Ass'n of California v. Countrywide Home Loans, Inc., 144 Cal. App. 4th 590 (2006), review denied; Haberbush v. Cummins Family Ltd. Partnership, 138 Cal. App. 4th 1630 (2006). While Sherwood I leaves uncertain an assignee's ability to bring preference actions under state law, California state courts have resoundingly shown approval for ABCs in California in rejecting Sherwood I.

In the case of Sherman v. Harbin (In re Harbin), the Ninth Circuit decided that in determining feasibility of a plan under Bankruptcy Code Section 1129(a)(11), a court must evaluate the possible impact of pending litigation whether at the trial level or on appeal.