Macdonald | Fernandez LLP


221 Sansome Street
San Francisco, CA 94104
Telephone: (415) 362-0449
Facsimile: (415) 394-5544
914 Thirteenth Street
Modesto, CA 95354
Telephone: (209)549-7949
Facsimile: (209) 236-0172

Thursday, June 27, 2013

Fifth Circuit Rules "Till" Not Mandatory, Reviews for Clear Error

In Wells Fargo Bank, N.A. v. Texas Grand Prairie Hotel Realty, LLC, No. 11-11109 (5th Cir. Mar. 1, 2013), the United States  Court of Appeals for the Fifth Circuit reviewed a bankruptcy court's determination of the "cram down" rate, which is the rate of interest paid after confirmation of a chapter 11 plan on account of a non-consenting secured claim, for clear error.  Wells Fargo Bank had argued that the appellate panel should conduct de novo review.  Although the parties agreed that the "prime-plus" formula established for all chapter 13 cases in Till v. SCS Credit Corp., 541 U.S. 465 (2004) should apply (in which the court starts with the prime rate and adjusts for risk factors), the Fifth Circuit declined to adopt a uniform standard for chapter 11 cases.  The Ninth Circuit has not ruled on the appropriate standard and whether it should be applied uniformly.

Friday, June 21, 2013

Madoff Trustee Barred From Suing Big Banks

The US Court of Appeals for the Second Circuit has upheld a lower court ruling barring Irving Picard, the trustee supervising the dissolution of Bernard Madoff's Ponzi scheme in bankruptcy, from recovering almost $30 million from JP Morgan Chase and other banks he alleges aided Madoff's fraud.  The court sustained the banks' in pari delicto defense (Latin for "in equal fault"), holding that Picard stands in Madoff's shoes and two wrongdoers cannot sue each other for damages related to their conduct.  The court also commented that the victims may sue the banks, but there may be financial and procedural hurdles.

Monday, June 17, 2013

Orchard Supply Hardware Files Chapter 11 Bankruptcy

Orchard Supply Hardware Stores Corp. has commenced a chapter 11 bankruptcy case in Delaware (Case No. 13-11565).  The company spun off from Sears Holdings Corp. in 2011, and blames burdensome payments owed to Sears as the reason for reorganizing.  Lowe's is set to serve as stalking horse bidder to buy 60 of OSH's 91 California stores with a bid of $205 million.

Thursday, June 13, 2013

Judgment Awarding Value of Withdrawing Member's Interest in an LLC Subordinated

In O'Donnell v. Tristar Esperanza Properties, LLC, BAP No. CC-12-1340-KIPaDu (9th Cir. BAP Mar. 8, 2013), the Ninth Circuit Bankruptcy Appellate Panel held that a judgment awarding the value of a withdrawing member's interest in a limited liability company is vulnerable to mandatory subordination under Bankruptcy Code Section 510(b) as damages arising from the purchase or sale of a security.

Jane O'Donnell withdrew her 14% membership interest in Tristar Esperanza Properties, LLC.  Pursuant to the operating  agreement, O'Donnell hired an appraiser, who estimated the value of her interest to be $399,918.  Tristar objected; O'Donnell brought an arbitration and obtained an award for $399,918 less $60,000 previously received.  The award was confirmed and a judgment was entered.

Tristar filed a chapter 11 bankruptcy case  and an adversary proceeding to subordinate O'Donnell's claim.  The debtor prevailed, and the BAP affirmed.

Although a membership interets in an LLC is not among the enumerated examples of a "security" under Bankruptcy Code Section 101(49), the BAP reasoned that it is analogous to "the interest of a limited partner in a limited liability partnership."  The BAP also analyzed the legislative history of Section 510(b) and prior cases, and held that O'Donnell's withdrawal was "nothing other than her cashing out her equity (at a value that the Debtor insists is highly inflated)."

The scope of the BAP's broad view of what constitutes a claim arising from the purchase or sale of a debtor's securities. Any claim with a nexus or causal relationship with a transaction involving securities may be subject to mandatory subordination.

Stockton to Pay $5.1 Million to Settle Health Benefit Claims

In the chapter 9 bankruptcy of Stockton, California, the city will pay $5.1 million in a settlement with retired employees on account of lost health benefits.  The settlement is part of the city's reprganization plan.  The settlement tepresents 2% of the value of the lost benefits, but it preserves their pensions.  The retirees will have the opportunity to vote on the plan.  

Thursday, June 6, 2013

MF Global Creditors Could Receive 94% Recovery

MF Global Inc.’s former customers may receive more than 94 cents on the dollar, an outstanding return in a bankruptcy liquidation.  Most have already recovered 89 percent of their claims. The additional recoveries depend in part upon finalizing settlements with MF Global’s U.K. office and JPMorgan Chase.  Litigation against officers and directors, including Jon Corzine, will also affect the size and timing of the distribution.