Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

The Bankruptcy Hotline

By ALM Staff | Law Journal Newsletters |
July 29, 2004

Supreme Court Denies Review of First Circuit Decision in BankVest

The U.S. Supreme Court has denied review of the First Circuit's opinion in Eagle Insurance Company and Newark Insurance Company v. BankVest Capital Corp. (In re BankVest Capital Corp.), 360 F.3d 291 (2004).

As detailed in an article that appeared in The Bankruptcy Strategist last month by Jay Gottlieb and Arianna Frankl (p. 1), the First Circuit is the first circuit court to address the issue of whether a debtor is required to cure a nonmonetary default prior to assuming an unexpired lease under ' 365 of the Bankruptcy Code since the Ninth Circuit's controversial ruling in In re Claremont Acquisition Corp., 113 F.3d 1029 (9th Cir. 1997). In Bankvest, the First Circuit rejected the Ninth Circuit's rationale and held that non-monetary defaults of unexpired leases are not required to be cured before assumption.

Bankruptcy Court Refuses to Disqualify WorldCom/MCI Auditor

The Bankruptcy Court for the Southern District of New York has rejected a motion filed by 14 states, led by Massachusetts, to disqualify the independent auditor for MCI Inc., formerly WorldCom. In re WorldCom Inc., No. 02-13533 (June 30).

The states filed this motion only weeks before the debtor was to emerge from bankruptcy. They argued that the auditor should be disqualified because the same auditor had advised the company with respect to some allegedly questionable pre-petition tax planning.

The bankruptcy court denied the motion, finding the auditor to be disinterested and that it did not hold any “adverse interest to the bankruptcy estate. In addition, the court held that despite the pre-petition tax advice given to the debtor, there was no appearance of impropriety. The court also took issue with the fact that the states waited so long to file this motion, stating that bringing the motion on “the eve of the Debtors' emergence from bankruptcy was potentially disruptive to the Debtors' reorganization; the interests of all creditors in these Chapter 11 cases would have been hindered by the disqualification, as emergence could have been delayed without any foreseeable benefit to the Debtors' estates.”

Debtor's Replacement Check Is Avoidable As Preferential Transfer

The Ninth Circuit has ruled that where a debtor submits a new check, replacing a prior dishonored check and this replacement check falls within the 90-day preference period, this constitutes an avoidable preference under ' 547(b) of the Bankruptcy Code. Endo Steel Inc. v. Janas (In re JWJ Contracting Co.), No. 03-15388 (June 14).

The bankruptcy court rejected a preference claim filed by the Chapter 7 trustee and granted summary judgment in favor of a creditor. The court held that the debtor's payment, which replaced a previously dishonored check, was a contemporaneous exchange for new value in the form of the creditor's earlier release of a bond claim, making the payment exempt from avoidance under ' 547(c)(1). The Bankruptcy Appellate Panel (BAP) reversed, holding that because the creditor had given the debtor an unconditional release of the bond claim in exchange for what turned out to be an NSF check, the subsequent payment that replaced the NSF check was given in exchange for what had become an unsecured debt, and did not result in a contemporaneous exchange for new value.

The Ninth Circuit affirmed. The court held that the creditor's unconditional release given in exchange for what turned out to be an NSF check, resulted in a credit transaction. The unsecured debt arising from that transaction was then extinguished by delivery of the replacement check. Therefore, the release and the reissued check were not contemporaneous and not avoidable as a preference under ' 547(b).

Supreme Court Denies Review of First Circuit Decision in BankVest

The U.S. Supreme Court has denied review of the First Circuit's opinion in Eagle Insurance Company and Newark Insurance Company v. BankVest Capital Corp. (In re BankVest Capital Corp.), 360 F.3d 291 (2004).

As detailed in an article that appeared in The Bankruptcy Strategist last month by Jay Gottlieb and Arianna Frankl (p. 1), the First Circuit is the first circuit court to address the issue of whether a debtor is required to cure a nonmonetary default prior to assuming an unexpired lease under ' 365 of the Bankruptcy Code since the Ninth Circuit's controversial ruling in In re Claremont Acquisition Corp., 113 F.3d 1029 (9th Cir. 1997). In Bankvest, the First Circuit rejected the Ninth Circuit's rationale and held that non-monetary defaults of unexpired leases are not required to be cured before assumption.

Bankruptcy Court Refuses to Disqualify WorldCom/MCI Auditor

The Bankruptcy Court for the Southern District of New York has rejected a motion filed by 14 states, led by Massachusetts, to disqualify the independent auditor for MCI Inc., formerly WorldCom. In re WorldCom Inc., No. 02-13533 (June 30).

The states filed this motion only weeks before the debtor was to emerge from bankruptcy. They argued that the auditor should be disqualified because the same auditor had advised the company with respect to some allegedly questionable pre-petition tax planning.

The bankruptcy court denied the motion, finding the auditor to be disinterested and that it did not hold any “adverse interest to the bankruptcy estate. In addition, the court held that despite the pre-petition tax advice given to the debtor, there was no appearance of impropriety. The court also took issue with the fact that the states waited so long to file this motion, stating that bringing the motion on “the eve of the Debtors' emergence from bankruptcy was potentially disruptive to the Debtors' reorganization; the interests of all creditors in these Chapter 11 cases would have been hindered by the disqualification, as emergence could have been delayed without any foreseeable benefit to the Debtors' estates.”

Debtor's Replacement Check Is Avoidable As Preferential Transfer

The Ninth Circuit has ruled that where a debtor submits a new check, replacing a prior dishonored check and this replacement check falls within the 90-day preference period, this constitutes an avoidable preference under ' 547(b) of the Bankruptcy Code. Endo Steel Inc. v. Janas (In re JWJ Contracting Co.), No. 03-15388 (June 14).

The bankruptcy court rejected a preference claim filed by the Chapter 7 trustee and granted summary judgment in favor of a creditor. The court held that the debtor's payment, which replaced a previously dishonored check, was a contemporaneous exchange for new value in the form of the creditor's earlier release of a bond claim, making the payment exempt from avoidance under ' 547(c)(1). The Bankruptcy Appellate Panel (BAP) reversed, holding that because the creditor had given the debtor an unconditional release of the bond claim in exchange for what turned out to be an NSF check, the subsequent payment that replaced the NSF check was given in exchange for what had become an unsecured debt, and did not result in a contemporaneous exchange for new value.

The Ninth Circuit affirmed. The court held that the creditor's unconditional release given in exchange for what turned out to be an NSF check, resulted in a credit transaction. The unsecured debt arising from that transaction was then extinguished by delivery of the replacement check. Therefore, the release and the reissued check were not contemporaneous and not avoidable as a preference under ' 547(b).

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
'Huguenot LLC v. Megalith Capital Group Fund I, L.P.': A Tutorial On Contract Liability for Real Estate Purchasers Image

In June 2024, the First Department decided Huguenot LLC v. Megalith Capital Group Fund I, L.P., which resolved a question of liability for a group of condominium apartment buyers and in so doing, touched on a wide range of issues about how contracts can obligate purchasers of real property.

Strategy vs. Tactics: Two Sides of a Difficult Coin Image

With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.

CoStar Wins Injunction for Breach-of-Contract Damages In CRE Database Access Lawsuit Image

Latham & Watkins helped the largest U.S. commercial real estate research company prevail in a breach-of-contract dispute in District of Columbia federal court.

Fresh Filings Image

Notable recent court filings in entertainment law.

The Power of Your Inner Circle: Turning Friends and Social Contacts Into Business Allies Image

Practical strategies to explore doing business with friends and social contacts in a way that respects relationships and maximizes opportunities.