Notable Business Bankruptcy Rulings of 2016
Allowance of Claims—Make-Whole Premiums
After filing for bankruptcy, Energy Future Holdings Corp. ("EFH") proposed to refinance first-and second-lien notes without paying "make-whole" premiums provided for in the governing indentures designed to compensate the noteholders for early repayment of their notes. Aligning itself with a number of Southern District of New York courts (see In re MPM Silicones, LLC, 2014 BL 250360 (Bankr. S.D.N.Y. Sept. 9, 2014), aff’d, 531 B.R. 321 (S.D.N.Y. 2015)), the Delaware bankruptcy court ruled in 2015 that, although EFH had repaid the bonds prior to maturity, make-whole premiums were not payable under the bond indentures because the plain language of the indentures did not require the payment of a make-whole premium following a bankruptcy acceleration. The court also held that EFH’s repayment of the bonds was not an "optional redemption" because, under New York law, a borrower’s repayment after acceleration is not considered "voluntary." See Del. Trust Co. v. Energy Future Intermediate Holding Co. LLC (In re Energy Future Holdings Corp.), 527 B.R. 178 (Bankr. D. Del. 2015); Computershare Trust Co. v. Energy Future Intermediate Holding Co. LLC (In re Energy Future Holdings Corp.), 539 B.R. 723 (Bankr. D. Del. 2015).
The bankruptcy court later denied the noteholders’ request for retroactive relief from the automatic stay to rescind the acceleration and demand payment of the make-whole premiums. See Del. Trust Co. v. Energy Future Intermediate Holding Co. LLC (In re Energy Future Holdings Corp.), 533 B.R. 106 (Bankr. D. Del. 2015). Those rulings were upheld on appeal to the district court in early 2016. See Computershare Trust Co. v. Energy Future Intermediate Holding Co. (In re Energy Future Holdings Corp.), 2016 BL 113612 (D. Del. Apr. 11, 2016); Del. Trust Co. v. Energy Future Intermediate Holding Co. (In re Energy Future Holdings Corp.), 2016 BL 42871 (D. Del. Feb. 16, 2016).
In a highly anticipated ruling, the Third Circuit reversed, thereby obligating EFH to pay noteholders approximately $800 million in make-whole premiums and invalidating one of the cornerstones of EFH’s confirmed chapter 11 plan. See Del. Trust Co. v. Energy Future Intermediate Holding Co. LLC (In re Energy Future Holdings Corp.), 842 F.3d 247 (3d Cir. 2016). The court concluded, among other things, that EFH’s refinancing of the notes after filing for bankruptcy was a voluntary redemption under the terms of the indentures. In so ruling, the court created a rift between courts in the Second and Third Circuits on this issue. On December 15, 2016, EFH asked the Third Circuit to reconsider its ruling, arguing that the decision clashes with rulings from the Southern District of New York and that the question should be certified to the New York Court of Appeals. A more detailed discussion of the ruling can be found elsewhere in this issue of the Business Restructuring Review.
Avoidance Actions—Safe Harbors
In Deutsche Bank Trust Co. Ams. v. Large Private Beneficial Owners (In re Tribune Co. Fraudulent Conveyance Litig.), 818 F.3d 98 (2d Cir. 2016), petition for cert. filed, 85 U.S.L.W. 3095 (U.S. Sept. 9, 2016), the Second Circuit held that the "safe harbor" under section 546(e) of the Bankruptcy Code for settlement payments and for payments made in connection with securities contracts preempted claims under state law by creditors to avoid as fraudulent transfers pre-bankruptcy payments made to shareholders in connection with a leveraged buyout ("LBO") of the debtor.
In Whyte v. Barclays Bank PLC, 644 Fed. Appx. 60, 2016 BL 90805 (2d Cir. Mar. 24, 2016), petition for cert. filed, 85 U.S.L.W. 3077 (U.S. August 19, 2016), which was heard in tandem with Tribune, the Second Circuit (in a summary order) affirmed the district court’s ruling that the separate safe harbor of section 546(g) of the Bankruptcy Code also "impliedly preempts" a chapter 11 plan litigation trustee from bringing state law fraudulent transfer actions seeking to avoid swap transactions. Section 546(g) prevents a trustee from avoiding a transfer under or in connection with a swap agreement unless the transfer is made with the intent to hinder, delay, or defraud creditors.
While Tribune resolved a split on this issue within the Second Circuit, a Delaware bankruptcy court in PAH Litigation Trust v. Water Street Healthcare Partners, L.P. (In re Physiotherapy Holdings, Inc.), 2016 BL 251441 (Bankr. D. Del. June 20, 2016), elected not to follow the Second Circuit, holding instead that the state law claims assigned to a litigation trust in that case were not preempted by section 546(e). The Tribune and Physiotherapy holdings represent differing views by sophisticated courts on the breadth of section 546(e) and its preemptive scope.
In FTI Consulting, Inc. v. Merit Management Group, LP, 830 F.3d 690 (7th Cir. 2016), the Seventh Circuit ruled that the section 546(e) safe harbor does not protect "transfers that are simply conducted through financial institutions (or the other entities named in section 546(e)), where the entity is neither the debtor nor the transferee but only the conduit." The ruling deepens a split among the circuit courts of appeal and may be a candidate for review by the U.S. Supreme Court to resolve the issue.
Avoidance Actions—Fraudulent Transfers
In In re SemCrude, L.P., 648 Fed. Appx. 205, 2016 BL 135006 (3d Cir. Apr. 29, 2016), the Third Circuit addressed the meaning of "unreasonably small capital" in the context of constructive fraudulent transfer avoidance litigation. It affirmed a district court decision upholding a bankruptcy court’s rulings that: (i) a debtor can have unreasonably small capital even if it is solvent; and (ii) a "reasonable foreseeability" standard should be applied in assessing whether capitalization is adequate.
The Second Circuit handed down a ruling reaffirming these basic concepts in Adelphia Recovery Trust v. FPL Grp., Inc. (In re Adelphia Commc’ns Corp.), 652 Fed. Appx. 19, 2016 BL 190083 (2d Cir. June 15, 2016). In Adelphia, the Second Circuit affirmed lower court rulings that the assets of defunct cable services provider Adelphia Communications Corp. ("Adelphia") were not "unreasonably small" within the meaning of Pennsylvania’s version of the Uniform Fraudulent Transfer Act when Adelphia repurchased its stock in 1999. The court concluded that the "unreasonably small" test focuses on reasonable foreseeability and that the test is met if the debtor shows it had such minimal assets that insolvency was "inevitable in the foreseeable future." The court also determined that, although insolvency and unreasonably small capital are analytically distinct, the concepts overlap and "adequacy of capital is typically a major component of any solvency analysis."
In Weisfelner v. Hofmann (In re Lyondell Chem. Co.), 554 B.R. 635 (S.D.N.Y. 2016), motion for reconsideration or certification denied, 2016 BL 332813 (S.D.N.Y. Oct. 5, 2016), the district court reversed a bankruptcy court ruling dismissing claims asserted by a chapter 11 plan litigation trustee seeking to avoid as actual fraudulent transfers $6.3 billion in payments made to the former stockholders of Lyondell Chemical Company ("Lyondell") in connection with its 2007 LBO. The bankruptcy court ruled that: (i) the trustee did not adequately allege that Lyondell had incurred debt and transferred the payments to shareholders with "actual intent" to hinder, delay, or defraud its creditors, as required by section 548(a)(1)(A) of the Bankruptcy Code; and (ii) the knowledge, conduct, and intent of Lyondell’s CEO in connection with the shareholder transfers could not be imputed to Lyondell.
The district court reversed on appeal. It ruled that the bankruptcy court "relied on inapposite law" in concluding that the CEO’s intent could be imputed to Lyondell only if the litigation trustee adequately pleaded that the CEO was in a position to control the decision of Lyondell’s board to proceed with the LBO. According to the district court, the imputation of intent to defraud under the circumstances was "entirely consistent with Delaware agency law." The court also held that the trustee adequately pleaded that Lyondell had made the transfers to its shareholders with the intent to hinder, delay, or defraud creditors.
One limitation on a bankruptcy trustee’s avoidance powers is the statutory "look-back" period during which an allegedly fraudulent transfer can be avoided—two years prior to the bankruptcy filing for fraudulent transfer avoidance actions under section 548 of the Bankruptcy Code and, as generally understood, three to six years if the trustee or debtor-in-possession seeks to avoid a fraudulent transfer under section 544(b) and state law by stepping into the shoes of a "triggering" creditor plaintiff. In Mukamal v. Citibank (In re Kipnis), 555 B.R. 877 (Bankr. S.D. Fla. 2016), the court, adopting the majority approach, held that a chapter 7 trustee could effectively circumvent Florida’s four-year statute of limitations for fraudulent transfer actions by stepping into the shoes of the Internal Revenue Service (a creditor in the Kipnis case), which is bound not by Florida law, but by the 10-year statute of limitations for collecting taxes specified in the Internal Revenue Code.
In In re Energy Future Holdings Corp., 648 Fed. Appx. 277, 2016 BL 142290 (3d Cir. May 4, 2016), cert. denied, 196 L. Ed. 2d 336 (U.S. 2016), the Third Circuit ruled that a tender offer may be used to implement a classwide debt exchange in bankruptcy outside a plan of reorganization. It also held that the Bankruptcy Code’s confirmation requirements do not apply to a pre-confirmation settlement and that the settlement was not "inconsistent with the equal treatment rule." Finally, the Third Circuit ruled that the settlement at issue did not constitute a sub rosa chapter 11 plan. In so ruling, the Energy Future courts rejected the reasoning of other courts that have applied certain chapter 11 plan confirmation requirements—such as the "absolute priority rule"—to pre-confirmation settlements.
Chapter 11 Plans—Impairment, Classification of Claims, and Good Faith
One of the prerequisites to confirmation of any chapter 11 plan is section 1129(a)(10) of the Bankruptcy Code’s mandate that at least one "impaired" class of creditors must vote in favor of the plan. In Village Green I, GP v. Federal National Mortgage Association (In re Village Green I, GP), 811 F.3d 816 (6th Cir. 2016), the Sixth Circuit joined the Fifth and Ninth Circuits in ruling that artificial impairment—creating an immaterially impaired class for the purpose of obtaining confirmation—does not preclude a plan from satisfying the impaired class acceptance requirement, but instead is relevant in determining whether the debtor has proposed a chapter 11 plan in good faith.
Chapter 11 Plans—Cure of Defaults
In 1994, Congress amended the Bankruptcy Code to add section 1123(d), which provides that, if a chapter 11 plan proposes to "cure" a default under a contract, the cure amount must be determined in accordance with the underlying agreement and applicable nonbankruptcy law. Since then, a majority of courts have held that such a cure amount must include any default-rate interest required under either the contract or applicable nonbankruptcy law.
Until 2016, courts in the Ninth Circuit adhered to a contrary approach articulated nearly three decades ago (well before the enactment of section 1123(d)) in Great Western Bank & Trust v. Entz-White Lumber and Supply, Inc. (Entz-White Lumber and Supply, Inc.), 850 F.2d 1338 (9th Cir. 1988). However, the primacy of Entz-White in the Ninth Circuit finally ended in 2016. In In re New Invs., Inc. (Pacifica L 51 LLC v. New Invs., Inc), 840 F.3d 1137 (9th Cir. 2016), a divided three-judge panel of the Ninth Circuit held that "Entz-White’s rule of allowing a curing debtor to avoid a contractual post-default interest rate in a loan agreement is no longer valid in light of § 1123(d)." A more detailed discussion of New Investments can be found elsewhere in this edition of the Business Restructuring Review.
Cross-Border Restructurings—Extraterritoriality of Avoidance Powers
In Weisfelner v. Blavatnik (In re Lyondell), 543 B.R. 127 (Bankr. S.D.N.Y. 2016), the court refused to dismiss a claim seeking avoidance of a fraudulent transfer under section 548 of the Bankruptcy Code on the ground that the challenged transfer had occurred outside the U.S. The court reasoned that Congress could not have intended to exclude extraterritorial transfers from avoidance under section 548 while explicitly defining property of the bankruptcy estate under section 541 to include all of the debtor’s property "wherever located and by whomever held." Thus, the court explained, evidence from the context of section 548 that Congress intended for it to apply extraterritorially rebutted the "presumption against extraterritoriality."
Cross-Border Restructurings—Modification of Recognition Order
In In re Sanjel (USA) Inc., 2016 BL 246261 (Bankr. W.D. Tex. July 28, 2016), the court held that, because the statute of limitations governing claims against a Canadian debtor’s officers and directors under the Fair Labor Standards Act might expire, the order recognizing the debtor’s Canadian bankruptcy proceeding under chapter 15 and enforcing the Canadian court’s stay of actions against the debtor’s officers and directors should be modified to allow U.S. creditors to assert their claims in pending U.S. district court litigation. In so ruling, the court rejected the argument, based on In re Nortel Networks Corp., 2013 BL 317273 (D. Del. Nov. 15, 2013), that the plaintiffs would not be prejudiced because they could seek relief from the Canadian court. According to the Sanjel court, it would be "unreasonable and exceedingly burdensome" to require the plaintiffs to seek a Canadian court’s permission to pursue claims in the U.S. district court "based wholly on a statutory right created by United States law to protect employees within the United States."
Cross-Border Restructurings—Chapter 15 Eligibility
In In re Creative Finance Ltd. (In Liquidation), 2016 BL 8825 (Bankr. S.D.N.Y. Jan. 13, 2016), the court denied recognition of a British Virgin Islands ("BVI") liquidation commenced as part of a scheme to avoid paying a U.K. judgment. The court ruled that the debtors’ foreign representative failed to demonstrate that the debtors’ "center of main interests" was in the BVI—either at the time of the filing of the liquidation or because of the liquidator’s post-filing activities—or even that the debtors had an "establishment" in the BVI. Moreover, in so ruling, the court emphasized that "[f]rom beginning to end, . . . [the] tactics [of the debtors’ principal] were a paradigmatic example of bad faith, and the [BVI] Liquidator’s actions—and inaction—facilitated them."
Bankruptcy Remoteness—Blocking Provisions
A contractual waiver of an entity’s right to file for bankruptcy is generally invalid as a matter of public policy. Nonetheless, lenders sometimes attempt to prevent a borrower from seeking bankruptcy protection by conditioning financing on a covenant, bylaw, or corporate charter provision that restricts the power of the borrower’s governing body to authorize such a filing. In In re Lake Mich. Beach Pottawattamie Resort LLC, 2016 BL 109205 (Bankr. N.D. Ill. Apr. 5, 2016), the court held that one such restriction in the membership agreement of a limited liability company—a lender-designated "special member" with the power to block a bankruptcy filing— was unenforceable because it did not require the member to comply with his fiduciary obligations under applicable nonbankruptcy law.
In In re Intervention Energy Holdings, LLC, 553 B.R. 258 (Bankr. D. Del. 2016), the court held invalid as a violation of federal public policy a provision in a limited liability company governance document, "the sole purpose and effect of which is to place into the hands of a single, minority equity holder [by means of a ‘golden share’] the ultimate authority to eviscerate the right of that entity to seek federal bankruptcy relief."
Executory Contracts—Assumption, Rejection, and Assignment
In In re Trump Entm’t Resorts, 810 F.3d 161 (3d Cir. 2016), cert. denied, 136 S. Ct. 2396 (2016), the Third Circuit answered a question of apparent first impression by ruling that section 1113 of the Bankruptcy Code permits a bankruptcy trustee or chapter 11 debtor-in-possession to reject a collective bargaining agreement even after the agreement has expired. Lower courts have been divided over whether such terminated contracts can be rejected or if the surviving terms of an expired bargaining agreement continue in force until a new agreement is executed.
In In re Sabine Oil & Gas Corp., 547 B.R. 66 (Bankr. S.D.N.Y. 2016), the court permitted the debtor to reject gas gathering and handling agreements governed by Texas law. The court held that the debtor’s rejection of the midstream agreements was a proper exercise of business judgment, but it also determined that the related questions of Texas real property law were not properly before the court because it could not adjudicate the issues in the context of a motion to reject an executory contract.
Subsequently, in Sabine Oil & Gas Corp. v. HPIP Gonzales Holdings, LLC (In re Sabine Oil & Gas Corp.), 550 B.R. 59 (Bankr. S.D.N.Y. 2016), the court held that the covenants in the rejected midstream gathering agreements did not run with the land either as real covenants or as equitable servitudes. The court concluded, among other things, that, in accordance with Texas law, the covenants in the agreements did not "touch and concern" the debtor’s real property. The court also ruled that the covenants at issue did not limit the use of or burden the debtor’s mineral estate such that they could run with the land as equitable servitudes because the agreements were fundamentally service contracts relating to the debtor’s personal property.
Executory Contracts—Trademark License Agreements
In Mission Prod. Holdings, Inc. v. Tempnology LLC (In re Tempnology LLC), 559 B.R. 809 (B.A.P. 1st Cir. 2016), a bankruptcy appellate panel for the First Circuit reversed the ruling of a bankruptcy court, relying on Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers Inc.), 756 F.2d 1043 (4th Cir. 1985), that trademark license rights were not protected by section 365(n) of the Bankruptcy Code because trademarks are not included in the Bankruptcy Code’s definition of "intellectual property." The panel, finding that the bankruptcy court’s reliance on Lubrizol was flawed, instead adopted the Seventh Circuit’s interpretation of the effect of rejection of an executory trademark license in Sunbeam Prods., Inc. v. Chicago Am. Manuf., LLC, 686 F.3d 372 (7th Cir. 2012), cert. denied, 133 S. Ct. 790 (2012). In Sunbeam, the Seventh Circuit held that when a trademark license is rejected in bankruptcy, the licensee does not lose the ability to use the licensed intellectual property.
In Sun Capital Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, 724 F.3d 129 (1st Cir. 2013), the First Circuit held that a private equity fund was a "trade or business" which could be held jointly and severally liable under the Employee Retirement Income Security Act ("ERISA") for the multi-employer pension plan withdrawal liability incurred by one of its portfolio companies.
However, the First Circuit remanded the case to the district court to determine: (i) whether a related private equity fund was also a trade or business under ERISA; and (ii) whether the second prong of the test for imposing joint and several liability under ERISA—i.e., "common control"—had been met with respect to the group of related portfolio companies. On remand, the district court concluded in Sun Capital Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, 172 F. Supp. 3d 447 (D. Mass. 2016), that the answer to both of these questions is yes. The ruling was appealed to the First Circuit.
In Czyzewski v. Jevic Transp., Inc. (In re Jevic Holding Corp.), 2016 BL 241827 (3d Cir. July 27, 2016), the Third Circuit ruled that a private equity fund and its subsidiary did not constitute a "single employer" for the purpose of assessing potential liability under the Worker Adjustment and Retraining Notification Act (the "WARN Act") and its New Jersey counterpart. The Third Circuit held, among other things, that the mere fact that a subsidiary is dependent on its parent’s loans and ultimately fails without them is inadequate to demonstrate dependency of operations for purposes of WARN Act liability.
In In re Aéropostale, Inc., 2016 BL 279439 (Bankr. S.D.N.Y. Aug. 26, 2016), the court denied motions by the debtors to: (i) equitably subordinate the secured claim of term lenders that were affiliated with a private equity sponsor; (ii) limit the lenders’ ability to credit bid their secured claim in a bankruptcy sale of the company; and (iii) recharacterize the lenders’ secured claim as equity. According to the court, the lender acted reasonably in imposing new credit terms after a minimum liquidity threshold was triggered under their credit agreement. The court also found that the allegation that the lenders had a secret plan to push the debtors into bankruptcy and buy them "on the cheap" was "not credible." Finally, the court ruled that there was no basis to limit the lenders’ credit bidding rights due to the absence of any evidence of inappropriate behavior by the lenders in connection with the bankruptcy case, such as "allegations of collusion, undisclosed agreements, or any other actions designed to chill the bidding or unfairly distort the sale process."
In In re Hercules Offshore, Inc., 2016 BL 366002 (Bankr. D. Del. Nov. 1, 2016), the court overruled the objections of a committee of equity security holders to a chapter 11 plan that included releases of prepetition lenders, including a hedge fund which had acquired 40 percent of secured debt refinanced as part of a previous chapter 11 filing. The court rejected the committee’s argument that the releases were inappropriate due to colorable claims against the lenders for misconduct in enforcing their rights under a prepetition credit agreement.
The court ruled that a claim for equitable subordination of the lenders’ claims to the debtor’s common stock failed as a matter of law because section 510(c) of the Bankruptcy Code does not permit creditors’ claims to be equitably subordinated to equity interests. The court also held that "equitable disallowance . . . is not typically recognized by bankruptcy courts." Finally, the court ruled that the lenders had not breached the implied covenant of good faith and fair dealing by asserting "baseless" events of default. According to the court, although the lenders "were strategic in their actions, . . . lenders are free to enforce contract rights and negotiate hard against borrowers at [arm’s length], particularly those that are in distress, as here." A more detailed discussion of Hercules Offshore can be found elsewhere in this issue of the Business Restructuring Review.
Out-of-Court Restructurings—The Trust Indenture Act
In Waxman v. Cliffs Natural Resources Inc., 2016 BL 406073 (S.D.N.Y. Dec. 6, 2016), the district court dismissed a complaint alleging that a debt-for-debt exchange offered only to institutional investors and non-U.S. persons, with no related consent solicitation, violated section 316(b) of the Trust Indenture Act of 1939 (the "TIA") because the facts alleged did not implicate the type of conduct that the TIA was designed to prevent.
According to the court, section 316(b) "sprang from concerns about majorities abusing minority holders, which did not occur here." The court explained that, unlike in the cases broadly interpreting section 316(b), there was no vote or majority action of any kind and "there was no de facto bankruptcy reorganization executed outside the supervision of a bankruptcy court, as required by this set of cases." In fact, the court emphasized that "none of the indicia of an involuntary, out-of-court pseudo-bankruptcy outlined in the instructive cases" was present: (i) the plaintiffs were not "forced to relinquish claims" without bankruptcy-court protections, nor were they left with "no practical ability to receive payment"; and (ii) the exchange offer did not dispose of any assets, amend any terms of the indentures, or modify or remove any guaranty (citing BOKF, N.A. v. Caesars Entm’t Corp., 144 F. Supp. 3d 459 (S.D.N.Y. 2015); Marblegate Asset Mgmt., LLC v . Educ. Mgmt. Corp., 111 F. Supp. 3d 542 (S.D.N.Y. 2015), rev’d, No. 15-2141, 2017 BL 12251 (2d Cir. January 17, 2017); MeehanCombs Global Credit Opportunities Funds, LP v. Caesars Entm’t Corp., 80 F. Supp. 3d 507 (S.D.N.Y. Jan. 15, 2015); Marblegate Asset Mgmt. v. Educ. Mgmt. Corp., 75 F. Supp. 3d 592 (S.D.N.Y. 2014)). The court also rejected the plaintiffs’ claim that the exchange offer violated the implied covenant of good faith and fair dealing because it was not made to every holder.
From the Top
The U.S. Supreme Court issued two rulings in 2016 involving issues of bankruptcy law.
In Husky Int’l Elecs., Inc. v. Ritz, 194 L. Ed. 2d 655, 2016 BL 154812 (2016), the Court addressed the scope of section 523(a)(2)(A) of the Bankruptcy Code, which bars the discharge of any debt of an individual debtor for money, property, services, or credit to the extent obtained by "false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition." In a 7-1 decision, the Court ruled that the term "actual fraud" in section 523(a)(2)(A) encompasses a fraudulent transfer even if the transfer does not involve a false representation by the debtor transferor. Jones Day successfully argued Husky before the Supreme Court on behalf of the prevailing party—Husky International Electronics.
In Commonwealth v. Franklin Cal. Tax-Free Trust, 136 S. Ct. 1938 (2016), the Court upheld lower court rulings declaring unconstitutional a 2014 Puerto Rico law, portions of which mirrored chapter 9 of the Bankruptcy Code, that would have allowed the commonwealth’s public instrumentalities to restructure a significant portion of Puerto Rico’s $72 billion in bond debt. The Court ruled by a 5-2 margin (with one justice abstaining) that the Puerto Rico Public Corporation Debt Enforcement and Recovery Act was preempted by a provision of chapter 9 invalidating any "State" law purporting to implement a nonconsensual "method of composition" of a municipality’s debts, even though Puerto Rico’s municipalities are not eligible to file for relief under chapter 9. Following the ruling and facing the prospect of a July 1, 2016, default by Puerto Rico on a $2 billion bond payment, Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act.
On June 28, 2016, the Court granted a petition for a writ of certiorari in Czyzewski et al. v. Jevic Holding Corp., No. 15-649 (June 28, 2016), in which it will review a ruling by the Third Circuit upholding the "structured dismissal" of a chapter 11 case. See Official Committee of Unsecured Creditors v. CIT Group/Business Credit Inc. (In re Jevic Holding Corp.), 787 F.3d 173 (3d Cir. 2015). The Court heard arguments in Jevic on December 7, 2016.
On October 11, 2016, the court agreed to review the Eleventh Circuit’s decision in Johnson v. Midland Funding, LLC, 823 F.3d 1334 (11th Cir. 2016), cert. granted, 137 S. Ct. 326 (2016). In Johnson, the Eleventh Circuit ruled that there is no irreconcilable conflict between the Bankruptcy Code and the Fair Debt Collection Practices Act (the "FDCPA"). Thus, the court concluded, a creditor may file a proof of claim in a bankruptcy case even though the debt is time-barred, but when the creditor is a "debt collector," it may be liable under the FDCPA for "misleading" or "unfair" practices. The Eleventh Circuit’s ruling is at odds with decisions issued by other circuit courts of appeal.
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