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The Southern District of New York affirmed a bankruptcy court’s holding that the statutory cap on a landlord’s damage claim [i.e., Bankruptcy Code § 502(b)(6)] “applies to [its] claim against a [Chapter 11] debtor-guarantor.” In re Cortlandt Liquidating LLC, 2024 WL 1301429, *3 (S.D.N.Y. Mar. 26, 2024) (emphasis added). Although the tenant-affiliate of the debtor-guarantor was not a Chapter 11debtor, it had vacated the leased premises and delivered the keys to the lessor one month after its affiliates (including the guarantor) filed their Chapter 11 petitions. The court also held that the non-debtor tenant had “terminated” the lease “for purposes of” the statutory damages cap; the cap should also be calculated in accordance with the “time approach”, not the “rent approach”; the proceeds of a letter of credit security deposit taken from the debtor-guarantor’s “assets” had been properly applied to reduce the lessor’s capped claim; and that “cleanup costs” related to the non-debtor tenant’s premises were “subject to” the statutory damages cap. The court’s decision, supported by a well-reasoned bankruptcy court decision, 648 B.R. 137 (Bankr. S.D.N.Y. 2023) (Wiles, B.J.), provides a helpful overview of the most recent law governing landlords’ damage claims in bankruptcy cases.
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Appellate Courts Skeptical About Bankruptcy Court Sanctions
By Michael L. Cook
Recent appellate decisions reflect a distaste for appeals from bankruptcy court sanction orders. A split Fourth Circuit even refused to hear such an appeal. Other courts tend to limit sanctions or, alternatively, accept a bankruptcy judge’s findings under a stringent “abuse of discretion” standard.
Supreme Court’s Rejection of Purdue Pharma Settlement Redefines Releases In Chapter 11
By Angelo Castaldi
The U.S. Supreme Court has issued its most anticipated bankruptcy decision in recent memory. In a 5-4 decision entered June 27, the Supreme Court struck down the nonconsensual third-party releases. Writing for the Court, Justice Neil Gorsuch ruled that nothing in the Bankruptcy Code authorized the nonconsensual release or discharge of claims of opioid victims against the Sacklers, who were not debtors themselves.
Ninth Circuit: Debt In Asset Case Is Nondischargeable If Debtor Fails to Properly Schedule the Debt
By Lawrence J. Kotler and Geoffrey A. Heaton
In a recent published decision, the U.S. Court of Appeals for the Ninth Circuit addressed a previously unresolved question in that circuit: whether a debtor’s failure to properly schedule a debt in an “asset case” renders the debt nondischargeable.
Is the Rule Preventing Bankruptcy Judges from Appointing Special Masters Outdated?
By Mark B. Conlan and Noel L. Hillman
Rule 9031 of the Federal Rules of Bankruptcy Procedure prevents all bankruptcy judges, and, if broadly interpreted, any federal judge hearing bankruptcy cases and proceedings, from appointing special masters. The rule has not been amended since its adoption in 1983. It is outdated and should be repealed or amended to accord with the reality of today’s complex Chapter 11 cases.
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