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A Chapter 11 corporate debtor’s monetary penalty obligation owed to the Federal Communication Commission (FCC), resulting from “fraud on consumers,” survived the debtor’s reorganization plan discharge, even when the FCC “was not a victim of the fraud,” held the U.S. District Court for the Southern District of New York on Sept. 2, 2021. In re Fusion Connect, Inc., 2021 WL 3932346, 1 (S.D.N.Y. Sept. 2, 2021). On appeal, the court reversed the bankruptcy court’s dismissal of the Government’s non-dischargeability complaint under Bankruptcy Code (Code) §1146(d)(6), explaining that the fraud exception to dischargeability reaches debts owed to “creditors who were not themselves defrauded,” such as the Government here. Id., at 2. According to the court, the bankruptcy court had confirmed the debtor’s reorganization plan with a broad discharge (i.e., release) of pre-bankruptcy debt, but the plan confirmation order put “stakeholders … on notice that [the FCC Penalty] could attach to the newly constituted [reorganized] entity,” when its terms made the dischargeability of that liability “an open issue.” Id., at 12.
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Payment Under Critical Vendor Order Does Not Bar Pursuing a Preference Claim
By Andrew C. Kassner and Joseph N. Argentina Jr.
A supplier’s receipt of payment under a critical vendor order does not bar the debtor or trustee from pursuing a preference claim to recover amounts paid prepetition to the vendor, according to a recent ruling from the U.S. Bankruptcy Court for the District of Delaware.
By Rudolph J. Di Massa Jr. and Drew S. McGehrin
The U.S. Bankruptcy Court for the District of New Mexico recently ruled that any attempt to avoid preferential or fraudulent transfers must be supported by evidence that the avoidance will benefit the debtor’s estate and the debtor’s creditors — not just the debtor itself.
Plaintiffs Bar Not Happy with J&J’s Shift of Liability to Victim Fund
By Amanda Bronstad
A bankruptcy filing allows Johnson & Johnson to shift legal liability over its talc-based baby powder into a potential $2 billion compensation program for cancer victims, but not without a big fight from the plaintiffs bar.
Retention of Title Disputes: Don’t Take the Uniform Commercial Code for Granted
By Eva D. Gadzheva, Jeremy M. Downs and David E. Morrison
This article reminds us of the conflict-of-laws analysis at the heart of such retention of title disputes, and then discuss the multi-step UCC analysis that is also required.
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