Law.com Subscribers SAVE 30%

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

The Bankruptcy StrategistFeaturesBankruptcyLitigationRegulation

Ninth Circuit Bankruptcy Appellate Panel: 523(a) Discharge Exceptions Don't Apply to Corporate Debtors Under Subchapter V

By Lawrence J. Kotler and Elisa Hyder
April 01, 2024

In the case of Lafferty v. Off-Spec Solutions (In re Off-Spec Solutions), 651 B.R. 862 (9th B.A.P. 2023), the U.S. Bankruptcy Appellate Panel of the Ninth Circuit held that the discharge exceptions under Section 523(a) do not apply to corporate debtors under Subchapter V of Chapter 11 of the Bankruptcy Code. In so holding, the Lafferty court disagreed with the decision rendered by the U.S. Court of Appeals for the Fourth Circuit, the only circuit court to address this issue in the case of Cantwell-Cleary v. Cleary Packaging (In re Cleary Packaging), 36 F.4th 509 (4th Cir. 2022).

|

Background

In this case, the debtor, Off-Spec Solutions LLC filed for bankruptcy in the U.S. Bankruptcy Court for the District of Idaho and elected to proceed under Subchapter V of Chapter 11 as a small business enterprise. During the case, a former employee filed a complaint against the debtor, seeking a declaration from the bankruptcy court that her claims against the debtor for sexual harassment, discrimination, retaliation, and wrongful termination were nondischargeable under Sections 1192(2) and 523(a)(6) of the Bankruptcy Code.

In support of her complaint, the former employee cited the Fourth Circuit's decision in Cleary. In that case, the Fourth Circuit held that, pursuant to Section 1192(2), the discharge exceptions set forth in Section 523(a) apply to all Subchapter V debtors. Section 1192(2) provides, in relevant part, that, "if a plan of the debtor is confirmed under Section 1191(b) … the court shall grant the debtor a discharge of all debts … except any debt … of the kind specified in Section 523(a)."

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.