Saturday, November 24, 2012

Sixth Circuit Court of Appeals
Revisits Stern v. Marshall

In a recent Sixth Circuit Decision, Waldman v. Stone, decided October 26, 2012, the Court may have significantly expanded the intended reach of a 2011 Supreme Court decision, Stern v. Marshall, 131 S.C.T. 2594 (2011).

In Stern v. Marshall, the Supreme Court held that Bankruptcy Court Judges, as Article I Judges and not Article III Judges under the United States Constitution, could not exercise Article III judicial power to decide state law cause of action even where such state cause of action was arguably a core proceeding under 28 U.S.C. §157.  Under 28 U.S.C. §157 bankruptcy judges can enter final judgments in core proceedings but can only make recommendations to the District Court in non-core proceedings unless the parties consent.

Bankruptcy Court Opinion Makes It Virtually Impossible
for Individual Chapter 11 Debtors to Confirm a Plan
over Objection by an Undersecured Lender

The United States Bankruptcy Court for the District of Puerto Rico, in a case of first impression in this district, on November 9, 2012, issued an opinion and order, concluding that the absolute priority rule applies to individual Chapter 11 debtors.   In re Lee Min Ho Chen, Case No. 11-08170 (BKT), Docket No. 211.

The absolute priority rule of Section 1129(b) of the Bankruptcy Code is a fundamental creditor protection in a Chapter 11 bankruptcy case. In general terms, the rule provides that if a class of unsecured creditors rejects a debtor’s reorganization plan and is not paid in full, junior creditors and equity interestholders may not receive or retain any property under the plan. The rule thus implements the general state-law principle that creditors are entitled to payment before shareholders, unless creditors agree to a different result. Recent litigation in the federal courts nationwide has raised the issue and created a split among courts as to whether the absolute priority rule still applies in Chapter 11 cases filed by individuals.

7th Circuit Decision Should Minimize Disruption
Licensor Bankruptcy Has on Trademark Licensee’s
Ongoing Business and Use of Licensed Mark

The U.S. Court of Appeals for the Seventh Circuit in Chicago has issued a decision with significant implications for licensees of trademarks whose licensors become debtors in bankruptcy.  In Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, the Court considered whether rejection of a trademark license in bankruptcy deprives the licensee of the right to use the licensed mark.[1]   Disagreeing with the holding of the Court of Appeals for the Fourth Circuit in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc.,[2]  the Court concluded that a licensee could continue to use the licensed mark notwithstanding the rejection of the license agreement.  The decision may have important implications also for other types of intellectual property licenses and, indeed, all other kinds of contracts, licenses and leases as well.