From the Top, Jones Day Business Restructuring Review

The U.S. Supreme Court’s October 2010 Term officially got underway on October 4, three days after Elena Kagan was formally sworn in as the Court’s 112th Justice and one of three female Justices sitting on the Court. 

Only two bankruptcy-related cases are on the Court’s docket for this Term. On the opening day of the Term, the Court heard oral argument on the first of these cases—Ransom v. MBNA. In Ransom, the Court will consider whether, in calculating a chapter 13 debtor’s “projected disposable income” during the chapter 13 plan period, the debtor can deduct automobile “ownership costs” specified in charts produced by the Internal Revenue Service (the “IRS”) even though the debtor’s vehicle is completely paid for. The IRS’s National Standards and Local Standards are charts contained in the IRS’s Financial Analysis Handbook that are used to determine a taxpayer’s ability to pay his or her taxes. The ownership chart is a national table, while the operating-costs chart is a local one. The U.S. Court of Appeals for the Ninth Circuit ruled that the bankruptcy court may not allow such deductions. The circuits are split 3-1 on this issue, which arises from ambiguities introduced into the relevant provisions of the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The Fifth, Seventh, and Eighth Circuits have ruled that the deduction may be taken.

The other bankruptcy case on the Court’s docket this Term is Stern v. Marshall. In that case, the Court will consider, among other things, whether a ruling of the Ninth Circuit Court of Appeals that Congress cannot constitutionally authorize non-Article III bankruptcy judges to enter final judgments on all compulsory counterclaims to proofs of claim contravenes Congress’s intent in enacting 28 U.S.C. § 157(b)(2)(C)(2). The Ninth Circuit’s decision created a circuit split on the issue. Oral argument has not yet been scheduled for the case.

The Supreme Court declined to review 14 bankruptcy-related cases on the opening day of the October Term. Among these were: 

• Apex Oil Co. v. United States, 579 F.3d 734 (7th Cir. 2009). The case concerns a ruling by the Seventh Circuit that an obligation imposed on a company by an injunction issued under the authority of the Resource Conservation and Recovery Act to clean up a contaminated site is not a dischargeable “claim” in bankruptcy.
• Hinkle Oil & Gas Inc. v. Bowles Rice McDavid Graff & Love LLP, 2010 WL 55538 (4th Cir. Jan. 5, 2010). The Fourth Circuit ruled that the district court properly dismissed an oil and gas well development company’s lawsuit against attorneys whose then-recently organized company submitted a bid for certain assets of a bankruptcy debtor while another member of their law firm was representing the development company in its attempt to acquire the same assets.
• Chase Manhattan Bank USA NA v. Taxel, 594 F.3d 1073 (9th Cir. 2010). The Ninth Circuit ruled that a bankruptcy trustee’s “strong arm powers” under section 544(a)(3) permit the trustee to disregard a lender’s unrecorded security interest in the debtor’s real property, even though the debtor disclosed the lender’s interest in schedules that were electronically filed simultaneously with the debtor’s electronic bankruptcy petition.
• W.R. Grace & Co. v. Chakarian, 591 F.3d 164 (3d Cir. 2010). The Third Circuit held that a bankruptcy court properly declined to grant a debtor’s motion to expand the scope of a preliminary injunction—enjoining litigation by Montana residents against the debtor and its nondebtor affiliates whose purported asbestos liability derived from the debtor’s alleged liability—to encompass lawsuits against Montana itself by the same residents, who alleged that the state was negligent in failing to warn them of the risks of asbestos from a nearby mine operated by the debtor.

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Ransom v. MBNA (In re Ransom), 577 F.3d 1026 (9th Cir. 2009), cert. granted, 130 S. Ct. 2097 (2010).

eCast Settlement Corp. v. Washburn (In re Washburn), 579 F.3d 934 (8th Cir. 2009).

Tate v. Bolen (In re Tate), 571 F.3d 423 (5th Cir. 2009).

Ross-Tousey v. Neary (In re Ross-Tousey), 549 F.3d 1148 (7th Cir. 2008).

Marshall v. Stern (In re Marshall), 600 F.3d 1037 (9th Cir.), cert. granted, 2010 WL 3053869 (Sept. 28, 2010).