Untitled Document

2015 Commercial Law Developments, Prepared by the Business Law Section Commercial Transactions Committee for the 2015 Business Law Section Annual Report
X. Other Laws Affecting Commercial Transactions

A. Bankruptcy

1. Bankruptcy Estate

  • Cantor v. FDIC (In re Downey Financial Corporation), ___ F.3d ___ (3d Cir. 2015) – Tax sharing agreement did not create agency relationship because alleged principal did not ‘control’ alleged agent; thus property in possession of ‘agent’ was agent’s property.

2. Automatic Stay

  • In re Energy Futures Holdings Corp., _ B.R. _ (Bankr.D.Del.2015) – Court refused to allow a creditor to obtain relief from the automatic stay to de-accelerate a debt. De-acceleration was important because the credit documents provided for a makewhole premium in the event of a voluntary prepayment, but not in the case of an ‘involuntary’ prepayment occurring upon automatic acceleration of the debt in the event of bankruptcy. The court cited the borrower’s counsel’s opinion’s bankruptcy exception as putting the secured parties on notice that the make-whole might not be due in the event of bankruptcy.

  • In re Caesars Entertainment Operating Co., Inc., _ B.R. _ (N.D.Ill. 2015) – Court would not enter injunction staying actions against non-bankrupt parent (guarantor of claims against debtor) of Chapter 11 debtor because claims not ‘sufficiently related’

3. Substantive Consolidation

4. Secured Parties, Set Off, Leases

  • In re ADI Liquidation Inc. (Bankr. Dela. 2015) – Debtor in Chapter 11 may use credits and overpayments owed to vendors (e.g., overpayments) to offset secured claims and administrative costs.

  • Bank of America, N.A. v. Caulkett, 575 U.S. __ (2015) – The Supreme Court held that a Chapter 7 debtor may not void a junior mortgage lien under Bankruptcy Code § 506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the creditor’s claim is both ‘secured’ by a lien and ‘allowed’ under Bankruptcy Code § 502. The Court relied on its decision in Dewsnup v. Timm, 502 U.S. 410 (1992), which construed the term ‘secured claim’ in § 506(d) to mean any claim supported by a security interest in property, regardless of whether the value of the property would be sufficient to cover the claim, which is fully allowed pursuant to § 502. .

5. Avoidance Actions

6. Executory Contract

7. Claims

  • Baker Botts LLP v. Asarco, LLC, _ U.S. _ (2015) – Bankruptcy Code section 330(a) does not allow bankruptcy courts to award attorneys’ fees for defending their fee applications.

8. Plan

  • Bullard v. Blue Hills Bank, 575 U.S. __ (2015) – Bankruptcy court’s order denying confirmation of a Chapter 13 debtor’s proposed repayment plan is not a ‘final’ order and thus is not immediately appealable as long as the debtor has the right to propose an alternative plan. The Supreme Court reached this conclusion first and foremost ‘because only plan confirmation - or case dismissal - alters the status quo and fixes the rights and obligations of the parties’. (Emphasis added). For a copy of the decision, see the link below.

  • In re The Village At Lakeridge, LLC, _ F.3d _ (9th Cir. 2016) – A person who acquires a claim from a statutory “insider” is not automatically an “insider.” “Insider” refers to the claimant, not the claim, which does not itself carry “insider” status. A creditor could be a non-statutory insider if the creditor had a close relationship with the debtor and did not negotiate the relevant transaction at arm’s length. Thus the creditor was not precluded from certain votes in the debtor’s Chapter 11 proceeding. Bankruptcy Code § __.

  • In re Village Green I, GP, _ F.3d _ (6th Cir. 2015) – Artificial impairment in a plan is permissible. The court should inquire whether the plan was proposed in good faith.

9. Other

  • Wellness International Network, Ltd., et al. v. Sharif, 575 U.S. __ (2015). The Supreme Court held that Article III, §1, of the Constitution permits bankruptcy judges to adjudicate Stern v. Marshall claims with the parties’ knowing and voluntary consent. The Court concluded that ‘allowing bankruptcy litigants to waive the right to Article III adjudication of Stern claims does not usurp the constitutional prerogatives of Article III courts.’ Because bankruptcy judges are subject to control by the Article III courts, their work poses no threat to the separation of powers. Further, the Court found that litigants do not have to expressly consent to adjudication by the bankruptcy courts. Litigants consent can be implied based on ‘actions rather than words’ (quoting Roell v. Withrow, 538 U.S. 580, 589, 590 (2003)), so long as such consent is knowing and voluntary.

B. Consumer Law

  • Pierre v. Planet Automotive, Inc., 2015 WL 5793316 (E.D. N.Y. 2015) – The voluntary assignee of a car loan from the dealership that sold the car could not be liable for the dealership’s alleged violation of the Truth in Lending Act relating to the sale of extended warranty coverage because the alleged violation did not appear on the face of the disclosure statement.

  • Vantu v. Echo Recovery, LLC, 85 F. Supp. 3d 939 (N.D. Ohio 2015) – A repossession company could be liable under the Fair Debt Collection Practices Act for the repossession of the debtor’s car at gunpoint because even though the enforcement of security interests generally does not constitute debt collection within the meaning of the act, a repossession company is a ‘debt collector’ for the purposes of _____ § 1692f(6), which prohibits taking of property when there is no present right to possession, and the enforcer of a security interest loses the right to present possession of the collateral by breaching the peace.

  • Jesinoski v. Countrywide Home Loans Inc., _ U.S. _ (2015) – Borrowers only have to notify creditors in writing of the borrower’s intention to rescind a mortgage within three years under the Truth In Lending Act. Borrowers do not have to file a lawsuit to rescind a mortgage within three years of the home loan’s issuance.

C. Professional Liability

  • Fulbright & Jaworski LLP v. Verano Land Group, LP, 2015 WL 481177 (Nev. 2015) (No personal jurisdiction over out-of-state law firm).

  • Becker v. Bar Plan Mutual Insurance Co., 2015 WL 9459771 (Kan. Ct. App. 2015) – A malpractice insurer was not obligated to pay the claim against an insured lawyer who failed to conduct a proper UCC search or inform her client of a prior perfected security interest in the collateral because the policy provided coverage only for claims made and reported during the current policy period, not for claims as to which the insured had, in a prior policy period, knowledge of the act or omission constituting the basis of the claim but did not report the act or omission to the insurer. The client had, in a prior policy period, informed the lawyer of the lawyer’s error, stated that the lawyer had failed to comply with the applicable standard of care, claimed damages in an unknown amount, and advised the lawyer to notify her insurance carrier.

  • Peterson v. Katten Muchin Rosenman LLP, 792 F.3d 789 (7th Cir. 2015) – The bankruptcy trustee for some investor funds that made loans secured by nonexistent collateral stated a cause of action for malpractice against the law firm that failed to advise them that, by not confirming with the account debtor the existence of the accounts and structuring the transaction so that the funds putatively coming from the account debtor flowed through another entity owned and controlled by the borrower, there was a risk that the borrower was engaged in a massive Ponzi scheme.*

  • Vossoughi v. Polaschek, 859 N.W.2d 643 (Iowa 2015) – Creditor’s malpractice action against his attorney for failing to obtain a mortgage lien on real property and a perfected security interest in personal property accrued, for the purpose of the statute of limitations, when the debtor stopped making payments even though the creditor had learned of the attorney’s failure previously.

  • Elling v. Hauck, 2015 WL 5401653 (N.D. Ill. 2015) – The attorney for a corporate debtor, who prepared loan documentation and filed in the wrong jurisdictions financing statements intended to perfect a security interest in the debtor’s assets, owed no duty to the secured party – the chairman of the debtor’s board of directors – because there was no direct communication and no attorney-client relationship between the secured party and the attorney.

  • Rolnick v. Sight’s My Line, Inc., 2015 WL 9436697 (Tex. Ct. App. 2015) – Texas courts did not have personal jurisdiction over the Florida lawyer who recommended Texas counsel to assist a client in selling a chain of Texas stores to a Delaware corporation – which involved perfecting a security interest in the assets sold – and which counsel failed to file a financing statement in Delaware. The Florida lawyer’s only contacts with the Texas counsel were a few phone calls and e-mail exchanges, and he necessarily exercised his legal judgment in Florida.

  • Paul v. Patton (California 2015) – Attorney may owe duty of care to trust beneficiaries.

  • Kumaraperu v. Feldsted, _ Cal.App.4th _ (2015) – Lawyers did not commit malpractice when they could not reasonable foresee that advice to client would lead to criminal prosecution.

  • Taylor v. Bell, 340 P. 3d 951 (Wash. App. 2014) - Client of a Washington law firm received a third-party opinion from Idaho counsel for the other party to a transaction. The opinion was wrong on an issue of Idaho law. The client sued the opinion giver for negligent misrepresentation and its own Washington law firm for malpractice. The opinion suggests, at least in some circumstances, that obtaining for a client an opinion from counsel for the other part may not be sufficient to discharge the duty the recipient’s counsel owes its client with regard to the matters covered by the opinion.

  • Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., _ Cal.App.4th _ (2016) – When law firm engagement letter provided for application of California law, FAA did not apply. Thus question of legality of engagement agreement as a whole was for court, and not arbitrators, to decide. Due to conflict with another client, engagement letter was unenforceable. “Boilerplate” waiver of future conflicts was not effective on the facts because it was not “informed.”

  • Moiser v. Stonefield Josephson, Inc., _ F.3d _ (9th Cir. 2016) – Receiver for company sued accountants who audited company’s financial statements. Company obtained investors and receiver alleged that incorrect financials kept company going longer than it should have. Company had to show loss “caused” by incorrect financial statements, which would include showing reliance. Court held that company (run by fraudsters) could not rely on incorrect financial statements. Nor was there any evidence that outsiders relied.

  • RBC Capital Markets, LLC v. Jervis, A.3d _, 2015 WL 7721882 (Del. Nov. 30, 2015) – A financial advisor was liable for aiding and abetting breaches of fiduciary duty by directors of a corporation during a sale of control transaction if the financial advisor “knowingly participated” in the breach by “exploiting its own conflicted interests to the detriment of [the corporation] and by creating an informational vacuum.” The Court characterized its holding as “narrow”. A third party has this liability if it “knows that the board is breaching its duty of care and participates in the breach by misleading the board or creating the informational vacuum.”.

  • Paul v. Patton, ___ Cal.App.4th ___ (Calif. 2015) – Attorney for settlor of trust may owe duty of care to trust beneficiaries.

  • Ontiveros v. Constable, _ Cal.App.4th _ (2016) - A lawyer could not concurrently represent a corporation and its majority shareholder in a dispute with a minority shareholder. The majority shareholder could not consent on behalf of the corporation because the shareholder’s interests were adverse to the corporation’s interests. A minority shareholder has standing to seek disqualification of the lawyer.

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