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The U.S. District Court for the Southern District of New York, on April 23, 2019, denied a litigation trustee’s motion for leave to file a sixth amended complaint that would have asserted constructive fraudulent transfer claims against 5,000 Tribune Company (Tribune) shareholders. In re Tribune Co. Fraudulent Conveyance Litigation, 2019 WL 1771786 (S.D.N.Y. Apr. 23, 2019). The safe harbor of Bankruptcy Code (Code) §546(e) barred the trustee’s proposed claims, held the court. Id. at 12. Based on undisputed facts, it reasoned that the debtor, Tribune Company (Tribune) “was a ‘customer’ of CTC” [Computershare Trust Company, N.A.]; CTC was “acting as Tribune’s ‘agent or custodian’ … ‘in connection with a securities contract’”; and that both entities were a “financial institution” as defined by the Code. Id. at 9. Also, held the court, “at this stage of the litigation,” allowing the trustee to amend his complaint “would result in undue prejudice to the [defendant] Shareholders.” Id. at 12.
Supreme Court Rules Rejection of Trademark License Does Not Rescind Rights of Licensee
By Mark Page
Mission Product Holdings, Inc. v. Tempnology, LLC
The question is whether a debtor’s rejection of its agreement granting a license “terminates rights of the licensee that would survive the licensor’s breach under applicable nonbankruptcy law.”
Trustee Litigation Trend: Tuition Clawback
By Theresa A. Driscoll
With increasing frequency, Chapter 7 trustees are looking to insolvent parents as well as colleges and universities to avoid and recover for estate creditors payments made by insolvent debtors for the benefit of the debtors’ dependents. These cases are premised on the theory that the tuition payments being made by insolvent parents for the benefit of their children are avoidable as constructively fraudulent transfers because the parents do not receive reasonably equivalent value in exchange for the payment of such tuition. Courts are divided as to whether the payment of a child’s tuition provides reasonably equivalent value to the insolvent parents.
By Stephanie Lieb and Dana Robbins
In its recent opinion in Taggart v. Lorenzen, the Supreme Court decided that “[a] court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct.” Although this standard appears to be new, it is more than a century old and “brings the old soil” from civil contempt with it.
Involuntary Bankruptcy: Limited Remedy and Strong Sanctions for Abuse
By Michael L. Cook
A bankruptcy court decision recently detailed how courts applying Bankruptcy Code §303(i) can sanction creditors who “abuse … the power given to [them] … to file an involuntary bankruptcy petition.” The decision shows why the filing of an involuntary bankruptcy requires careful pre-filing legal judgment.
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