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| BANKRUPTCY SECTION NEWSLETTER Commercial Law League of America |
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| SUA SPONTE Judith Greenstone Miller Raymond & Prokop, P.C. jmiller@raypro.com I am excited to assume the Chair of the Bankruptcy Section. Not only
do I appreciate all of the hard work and planning that Jay Welford has
done during the last year to make assumption of these new responsibilities
much smoother, but, also, I am grateful for this apprenticeship. The Bankruptcy
Section of the CLLA is an exciting place to be these days. We have wonderful
opportunities for growth and development in front of us; I firmly believe
that working together we will continue to achieve great things in the
coming years.
CASE ANALYSIS BANKRUPTCY COURT RULES THAT LESSOR PROTECTIONS UNDER 11 USC 365(d)(10) ARE CONTINGENT UPON FIRST PROVING A TRUE LEASE TRANSACTION SUMMARY: The United States Bankruptcy Court for the District of Connecticut
recently held that a lessor is not entitled to the benefits of 11 U.S.C.
§ 365(d)(10) unless and until a court first determines that a lease
is a "true" lease and not a "security agreement".
In re Circuit-Wise, Inc., 277 B.R. 460 (Bankr. D. Conn. 2002). This case
is significant because it erodes lessor protections specifically provided
for under Section 365(d)(10) by delaying the date on which a debtor must
begin making post-petition payments (and any other obligations required
under a lease). CASE LAW UPDATE Catherine E. Vance, Esq. Columbus, Ohio Email: vance76@earthlink.net Fraudulent Transfer. In premarital agreement, debtor arranged to transfer stock to wife and she waived interest in his estate in exchange. Wife never received stock certificate. Later, debtor sold stock and deposited funds into wife’s account. Held, transfer avoidable as fraudulent because wife did not take interest in stock until deposit of sale proceeds, she failed to show she was purchaser of stock because she failed to show delivery, and premarital agreement did not recite stock transfer. Frierdich v. Mottaz (In re Frierdich), 2002 U.S. App. LEXIS 12278 (7th Cir. June 21, 2002).
Needless to say, no one individual can perform all of the tasks attendant to making the Bankruptcy Section vital and successful. I am grateful for the help, assistance and responsibilities from the Executive Council, Committee Chairs and you, the members. Each of you represents a critical component to the success of the Bankruptcy Section and the Commercial Law League of America. I look forward to working with you and thank you in advance for your contribution to the organization. Some of the primary initiatives that I would like to address during my term as Chair of the Bankruptcy Section are: (i) enhancing the membership of the Bankruptcy Section, and in turn the Commercial Law League of America, (ii) enhancing the quality and excellence of the educational programs of the Bankruptcy Section, (iii) enhancing the visibility and national presence of the Bankruptcy Section, (iv) increasing networking and business opportunities for the members of the Bankruptcy Section and (v) increasing the diversity of the membership of the Bankruptcy Section. To this end, I have asked the following individuals to serve as committee leaders. But, I also ask YOU to get involved. Our committees are where the work of the Section is done and where YOU can build your professional network and expertise to better serve the bankruptcy community as a whole. If a committee interests you, please send an email to the Chair and me and let us know of your interest. Let's keep the wonderful momentum from Jay's vision going...getting active is just a click away! Legislative Committee: Responsible for providing strategic
vision for the Section's role in Washington, D.C. and commentary and analysis
on proposed legislation. Newsletter Committee: Responsible for overseeing Bankruptcy
Section Newsletter. NCBJ Committee: Responsible for providing support to
the National Education Planning Committee for CLLA Events held at the
National Conference of Bankruptcy Judges. Education Committee: Responsible for planning Bankruptcy
Section educational programs Membership Committee: Responsible for creating membership
benefit and development programs. ADR Committee: Responsible for identifying projects
related to Alternative Dispute Resolution issues King Award Committee: Responsible for overseeing the
Annual Lawrence B. King Award for Excellence in Bankruptcy awarded by
the Section. Nominating Committee: Responsible for identifying future
leaders of the Bankruptcy Section and overseeing the nomination/formation
of the annual slate of candidates. Special note: this committee meets
each year in the Spring. If you are interested in possibly serving as
a Council member next year, please send Jay an email! Long Range Planning: I have developed a new structure
for the Long Range Planning Committee to serve as an ongoing "think
tank" that will provide support and develop strategies to move the
Section forward on a positive and productive basis. The committee will
meet quarterly to brainstorm about strategic issues and provide guidance
to the Council and committees. If you have ideas of how the Section can
better serve its members, please forward your thoughts Chair Mary Whitmer. Last but not least, our Executive Committee is always eager to hear from you. Following are our email addresses. Please do not hesitate to contact any of us with ideas, wishes or concerns! Executive Committee: Finally, I believe it is crucial that you get to know the leaders of
your Bankruptcy Section. Beginning next month, I will be spotlighting
members of the committees and Executive Council. I hope you will take
the time to read about these individuals. Not only do they devote an immense
amount of volunteer time to this organization, but I hope it will inspire
you to get involved. Judith Greenstone Miller
FACTS: On May 16, 1996, Circuit-Wise, Inc. ("Circuit-Wise") entered into a Master Lease (the "Lease") with Celtic Leasing Corp., predecessor in interest to plaintiff Wells Fargo Equipment Finance, Inc. ("Wells Fargo"). Circuit-Wise filed a voluntary Chapter 11 petition on March 28, 2001. Nearly a year later, Circuit-Wise had not made any payments under the Lease since its filing date. Wells Fargo filed a motion seeking payment of all amounts due or to become due under the Lease pursuant to Section 365(d)(10). In response, Circuit-Wise argued that the Lease was not a "true" lease but was a lease intended as security under Section 1-201(37) of the Uniform Commercial Code. Therefore it argued Well Fargo was not entitled to the protections of Section 365(d)(10). Wells Fargo claimed that the Lease was at least a "presumptive" or "putative" lease entitled to Section 365(d)(10) protections until the court ruled otherwise. Circuit-Wise countered that the Lease was not entitled to the protections of Section 365(d)(10) until the Court determined that it was a "true" lease. The Court agreed with Circuit-Wise denying Wells Fargo's request for post-petition payments and set the matter for further proceedings regarding resolution of the "true" lease issue. ANALYSIS: The Court found that Wells Fargo was not entitled to Section 365(d)(10) protections unless and until the Court first determined that the Lease was a "true" lease. The Court stated that its ruling was based primarily on a "plain meaning" analysis, noting that the language of Section 365(d)(10) explicitly applies only to leases and not to "security interests" as defined in Section 101(50). The Court found particular relevance in this distinction because of the different rights and remedies accorded to lessors and holders of security interest under the Bankruptcy Code. The language of Section 365(d)(10), the Court stated, "leaves no room for judicial construction." Moreover, the Court reasoned, the term "lease" has been construed by courts to mean a "true" lease, and not a "security agreement", in the context of the Bankruptcy Code. The Court rejected Wells Fargo's argument that the term "lease," as used in Section 365(d)(10), referred to a "presumptive" or "putative" lease and that the analysis of whether the Lease was a "true" lease was essentially an "equities of the case" analysis. Even if the plain meaning was not clear, the Court reasoned, Wells Fargo's interpretation would be contrary to the established rule of statutory construction that a word used throughout a statute has a uniform meaning. Moreover, in a footnote, the Court stated that it had found no legislative history that was "dispositive" on the issue. The Court then reiterated that courts have applied "true" lease meanings in the context of Section 365(d)(3) and (4), adding that Section 365(d)(3) was "in some sense" the model for Section 365(d)(10). Ultimately, the Court found that Congress's deliberate exclusion of words like "putative" and "presumptive" in Section 365(d)(10) to be determinative of the issue. The Court stated that Congress was surely aware of caselaw interpreting the term "lease" to mean a "true" lease in the context of Section 365(d)(3) and (4). If Congress has wanted to extend the protections under Section 365(d)(10) to "putative" or "presumptive" leases, it surely would have used such qualifiers in drafting the subsection. Finally, the Court stated that it was aware that its decision might pave the way for debtors to routinely raise the "true" lease issue as a way of delaying their timely performance obligations. Nevertheless, the Court suggested that there are currently available measures that are sufficient to protect putative lessors without having to resort to a "strained construction" of Section 365(d)(10). For example, a court can liberally grant a lessor's request for an expedited trial, can require the debtor to post a security, or can award attorneys' fees for raising the "true" lease issue and for an improper purpose under Bankruptcy Rule 9011(b)(1). COMMENT: The Circuit-Wise decision amounts to an unjustified judicial validation of a debtor strategy that attempts to shift the burden to the lessor to prove that its transaction is a "true" lease transaction, unnecessarily delaying the debtor's time to perform under a lease even though the debtor may enjoy the continued use of the lessor's equipment in the debtor's post-petition operations. In so doing, the decision gives unwarranted leverage to the debtor and seriously erodes intended lessors' rights under Section 365(d)(10). This holding is contrary to both the legislative intent behind Section 365(d)(10) and relevant caselaw, most specifically the case of In re Elder-Beerman Stores Corp., 201 B.R. 759 (Bankr. S.D. Ohio 1996), which states that that a lease is a lease transaction unless proven otherwise. In light of this holding, a lessor should plan to file a motion to compel Section 365(d)(10) payments on or about the 60th day of the debtor's bankruptcy. By being the first to file a motion to compel, the lessor may convince the court that it should enforce Section 365(d)(10) as written or have the initial opportunity to frame the lease/security issue in the most favorable light. If this strategy proves unsuccessful, the lessor should request that the debtor at least be required to make a prima facie showing that there is a real dispute as to whether a lease is a "true" lease or a security agreement before denying the lessor's Section 365(d)(10) payments. Short of this, the lessor may have to settle for post-petition lease payments (commencing on the 61st day) being made into a separate blocked account while it attempts to prevail on the lease/security litigation. Jesse Mainardi
Selective Waiver of Privilege and Work Product. In effort to settle Medicare and Medicaid fraud investigation, company turned over information protected by privilege and work product to government with agreement providing that disclosure would not constitute waiver of privilege or work product. Company was subsequently sued by insurance companies and patients based on company’s improper billing. Court rejected concept of selective waiver; disclosure to government constituted complete waiver of privilege and work product. Tenn. Laborers Health & Welfare Fund. v. Columbia/HCA Healthcare Corp. (In re Columbia/HCA Healthcare Corp. Billing Practices Litig.), 293 F.3d 289 (6th Cir. 2002). Fraudulent Transfer. In premarital agreement, debtor arranged to transfer stock to wife and she waived interest in his estate in exchange. Wife never received stock certificate. Later, debtor sold stock and deposited funds into wife’s account. Held, transfer avoidable as fraudulent because wife did not take interest in stock until deposit of sale proceeds, she failed to show she was purchaser of stock because she failed to show delivery, and premarital agreement did not recite stock transfer. Frierdich v. Mottaz (In re Frierdich), 2002 U.S. App. LEXIS 12278 (7th Cir. June 21, 2002). Sanctions. District court’s order of sanctions formally censuring and reprimanding counsel for submitting documents to court that contained abusive and offensive remarks, and ordering stricken without opportunity to amend or withdraw any future documents containing similar remarks upheld as valid exercise of court’s inherent power to oversee attorneys practicing before it. Thomas v. Tenneco Packaging Co., Inc. 2002 U.S. App. LEXIS 11660 (8th Cir. June 13, 2002). Interpretation of § 363 Sale Order/Abstention. Dispute arose in state court between local taxing authority and purchaser under § 363 of debtor’s real property and equipment free and clear of liens. State court ultimately determined sale order’s “free and clear of liens” language to be overbroad in intended scope and, therefore, of no force and effect regarding real estate taxes owed by debtor; purchaser ordered to pay unpaid taxes. When requested to reopen debtor’s case to resolve dispute, bankruptcy court abstained, citing judicial economy and comity, and avoidance of forum shopping. Held, bankruptcy court had concurrent, not exclusive, jurisdiction in dispute between two third-parties to bankruptcy case and decision to permissively abstain was proper. New England Power & Marine, Inc. v. Town of Tyngsborough, Massachusetts (In re Middlesex Power Equipment & Marine, Inc.), 2002 U.S. App. LEXIS 11154 (1st Cir. June 11, 2002). Property of the Estate. Repossession of debtors’ vehicles prepetition transferred ownership of vehicles to creditor; vehicles not property of debtors’ Chapter 13 estates. Bell-Tel Federal Credit Union v. Kalter (In re Kalter), 2002 U.S. App. LEXIS 10827 (11th Cir. June 7, 2002). Admission to Practice. Attorney was licensed to practice law in Texas, but later moved his practice to Wisconsin and Michigan where he handled only bankruptcy cases. Michigan bankruptcy court held attorney was not an attorney within the meaning of 11 U.S.C. § 101(4) and was engaging in the unauthorized practice of law. Court of Appeals held that federal law controls admission to practice before federal courts; because attorney was duly licensed in Texas, he met requirements to practice before the federal bankruptcy courts in Michigan. Rittenhouse v. Delta Home Improvement, Inc. (In re Desilets), 2002 U.S. App. LEXIS 10583 (6th Cir. June 3, 2002). Catherine E. Vance, Esq. Focus on education Should Congress pass the proposed bankruptcy bill, a 2-3 hour substantive educational program will be added to the schedule. Details in the August, 2002 newsletter. Advanced Issues in Chapter 11 Speakers: The Honorable Allan L. Gropper, United States Bankruptcy Court, Southern District of New York; Bruce A. Markell, Doris S. and Theodore B. Lee Professor of Law, William S. Boyd School of Law, University of Nevada, Las Vegas and Of Counsel, Stutman, Treister & Glatt, Los Angeles, California; and Joseph Samet of Baker & McKenzie, New York, New York. Program Description: Judge Gropper will discuss recent developments with respect to financing orders, with particular attention to guidelines or rules of court that have been adopted in various jurisdictions throughout the nation. In addition, he will analyze select cases and trends with respect to the jurisdiction of the Bankruptcy Courts and issues relation to abstention, venue, appeals, and the allocation of jurisdiction between the District and Bankruptcy Courts. Professor Markell will examine recent appellate and trial level cases discussing the rules relating to plan confirmation. In particular, Professor Markell will look at recent cases involving feasibility, classification and treatment of bondholders, and the manner in which courts have tried to apply the Supreme Court’s 1999 decision in the 203 North LaSalle case. Mr. Samet will examine the treatment of intellectual property in bankruptcy under § 363(n) of the Code from both a legal and practical perspective.
Program Description: Trying to pursue claims against debtors in other countries requires knowledge of the local laws (which local lawyers can give), but also a general appreciation of some of the differences, especially in culture, between the United States and those other countries. This presentation, given by a panel of attorneys from various countries around the world, will answer questions of practical and day-to-day importance for all those who have dealt with or are likely to deal with foreign claims. Ethical Issues in Representing Organizations and Entities Speaker: Anthony E. Davis of Moye, Giles, O’Keefe, Vermeire & Gorrell, New York, New York and Denver, Colorado. Program Description: When you are representing an entity, to whom do you owe allegiance? The complexities presented by multiple layers of authority invite ethical problems. Your understanding of the proper methods for initiating and managing such client relationships is crucial to your success. In this program, Anthony Davis will provide you with knowledge of the ethics rules and case law, along with a proven structure upon which to pattern your client relationships. Upon completion of this course, you will be able to identify your client (which may be more difficult than you think!); draft or respond to engagement letters for outside counsel, or employment terms for in-house counsel; deal with the potentials for disaster surrounding whistle blowers; safeguard against problems with non-management employees’ rights in subsequent disputes; and asses your right to be present when opposing counsel wants to interview employees or former employees. Every aspect of this program is solidly based upon existing ethics rules and case law, but Mr. Davis reaches far deeper to give you the systems you need to insure that your practice is safe from the many potential nightmares that lurk in representing organizations and entities. Advanced Negotiations Skills Speaker: Barry J. Elms of Strategic Negotiations International, Newburyport, Massachusetts. Program Description: This seminar will show you how to deal with complex credit and collection issues, including solving cash flow problems, collecting unauthorized deductions, and improving the payment habits of major customers. In this program, attendees will gain an understanding of the five negotiation elements that control the outcome of all credit interactions and learn how to use six negotiating strategies that will maximize performance in credit related negotiations. In addition, attendees will complete a survey to compare their own beliefs about negotiation with those of professional negotiators, as well as a fascinating and revealing self assessment evaluation of their own personal negotiating style. Collections Business: Getting It and Getting It Done Speakers: Ivan J. Reich of Becker & Poliakoff, P.A., Fort Lauderdale, Florida, Christopher W. Conner, Ambrose, Wilson, Grimm & Durand, Knoxville, Tennessee; Eric R. Main, Continental Commercial Group of New York, Buffalo, New York; and John S. Pucin, Weltman, Weinberg & Reis Co., L.P.A., Columbus, Ohio. Program Description: This program is designed to provide practical tips to attorneys who are new to collection law. The seminar will be broken down into two main parts. The first part is aimed at introducing attorneys to the process of how the collection claim works its way into your office. We will discuss the interaction between the Law Lists, Collection Agencies and Law Firms in arranging the call trip. We will focus on who you should talk to during your visit and what steps you should take after the trip is over and you return to your office. The second part of the program will discuss what a law office should
do when the claim arrives. Inclusive in this portion of the program will
be a review of the claim when it arrives, the sending out of a demand
letter and attempts to make personal contact with the debtor. Options
available prior to suit will be discussed. Once suit is filed we will
discuss what the lawyer should do during the litigation process. Finally,
the program will conclude with a discussion of the collection options
once judgment is received. Bankruptcy Basics Speaker: Professor Douglas J. Whaley, James W. Shocknessy Professor of Law at The Ohio State University, Columbus, Ohio. Program Description: Who are the major players in bankruptcy? What are their rights, duties and responsibilities? This program, designed for both the attorney who is new to bankruptcy practice and the seasoned non-bankruptcy professional, will unravel the complexities of the Bankruptcy Code, teaching you how to maximize your client’s interest, while avoiding the many traps that can lead to trouble for parties in interest and their counsel. Survey of Bankruptcy Law Program Description: Following up on his extremely successful "Annual Survey of Business Bankruptcy" this spring, Professor Markell will briefly review major business bankruptcy cases of the past year. Topics will include recent cases on critical vendor motions, issues regarding plan solicitation and confirmation, and a special section of cases on an emerging topic -- what effect does a prior bankruptcy have when the debtor files again? This efficient summary is designed to provide you with the tools you need to keep up to date on the latest cases, and to let you know how they can affect your day-to-day practice. Speaker: Bruce A. Markell, Doris S. and Theodore B. Lee Professor of Law, William S. Boyd School of Law, University of Nevada, Las Vegas and Of Counsel, Stutman, Treister & Glatt, Los Angeles, California Creditors’ Rights under Negotiable Instruments Law Program Description: Mr. Despotakis will cover specific issues under Articles 3 and 4 of the Uniform Commercial Code that affect your ability to collect on a claim when a check or other negotiable instrument is involved. Speaker: Gus Despotakis of Wilson, Elser, Moskowitz,
Edelman & Dicker, New York, New York. If Congress passes the new bankruptcy bill, the National Conference of Bankruptcy Judges at its annual meeting in Chicago will present a two hour seminar on the highlights of this legislation that you need to know. The CLLA is one of the sponsors of this program. Written materials will be furnished. Speakers will include: The program will be moderated by The Honorable Frank W. Koger, Western District of Missouri, Kansas City, MO The program will be held Friday, October 4, 2002 at 3:30 p.m.
©2002, Commercial Law League of America |
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CLLA, 150 North Michigan Avenue, Suite 600, Chicago, IL 60601 Phone: 312-781-2000 • Fax: 312-382-9323 |
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