Thursday, June 21, 2012

Do We See a Precedent Here?

On May 24, 2012, Judge McMahon of the United States District Court for the Southern District of New York rendered a decision in the Coudert Brothers, LLP bankruptcy case holding that, in the absence of a partnership agreement provision to the contrary, upon dissolution of a law firm partnership, unfinished business, specifically hourly billed client representations still in progress, constitutes an asset of the partnership and partners who took that business with them to other law firms, and those other law firms, must account for the profits realized in finishing that work.  Further, in calculating the profit realized from work in progress, the partners who complete the work at another law firm would not be entitled to compensation.  The Court also held it would not use a quantum meruit analytic to measure the profit which would have compensated the law firms for the work performed.

Tuesday, June 5, 2012

Supreme Court Upholds Right to Credit Bid in Cramdowns

In what Justice Scalia termed “an easy case,” the United States Supreme Court has ruled 8-0 that a debtor cannot strip a secured creditor’s right to credit bid under 11 U.S.C. § 1129(b)(2)(A)(ii).  RadLAX Gateway Hotel, LLC, et al. v. Amalgamated Bank, NO. 11-166. The Court granted certiorari in this case to resolve a split in the circuits between the Seventh Circuit, on one hand, and the Third and Fifth Circuits, on the other, as to the ability of a debtor to prevent a secured creditor from credit bidding at a sale pursuant to a plan of reorganization. 

Under clause (i) of 11 U.S.C. § 1129(b)(2)(A), the secured lender retains its lien on its collateral and receives deferred cash payments.  Clause (ii) provides for the sale of the collateral free and clear of a security interest so long as the secured creditor can credit bid at the sale.  Clause (iii), on the other hand, provides for confirmation so long as the secured creditor receives the “indubitable equivalent.”

Temporary Bankruptcy Judgeships Reauthorized

This month, Congress finally passed the Temporary Bankruptcy Judgeship Extension Act of 2011 (H.R. 1021 and S. 1821) (the “Extension Act”) and on May 25, 2012, President Obama signed the Extension Act into law.  The law will go into effect on November 21, 2012.  This bill provides for the extension of thirty temporary bankruptcy judgeships in nineteen districts for five years.  The Extension Act was in response to what some commentators had deemed a “crisis” due to the expiration of temporary judgeships created in the wake of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”).  These BAPCPA temporary judgeships expired five years after their creation and could not be filled after a judge in that district retires.  This led some observers to note that, in the coming years, the number of bankruptcy judges would decline by approximately 8%.  This loss of bankruptcy judgeships, combined with an overall increase in filings, led many to fear bankruptcy courts would be overwhelmed.