As a follow-up to our recent post about the Imerys Talc bankruptcy proceedings (the chapter 11 cases filed by a supplier of talc to cosmetic and other companies, like Johnson & Johnson), last week the Imerys Debtors brought suit in their Chapter 11 cases against two affiliated coal companies.

The new adversary proceeding relates to the ownership of insurance policies with proceeds estimated in the hundreds of millions of dollars.  The Debtor claims that pursuant to an agreement entered into in 1992, it owns the policies despite that the policies previously provided coverage to the coal mining companies (Cyprus Mines Corp & Cyprus Amax Minerals Co) between 1961 and 1986.

Prior to the Debtors’ filing suit, the Cyprus entities filed an emergency motion in the Debtors’ bankruptcy case seeking relief from the automatic stay to use the insurance policies and proceeds to cover their own costs and legal fees related to approximately 700 pending and future lawsuits in which plaintiffs claim that talc contained asbestos and caused cancer.  Generally, the automatic stay (section 362 of the Bankruptcy Code) prevents creditors from taking action against the debtor’s assets.

Before filing its chapter 11 case, Imerys had been involved in the Cyprus lawsuits and had been defending & indemnifying Cyprus.  In Cyprus’s emergency motion, the Cyprus entities claim that the Debtors’ bankruptcy filing was a “surprise” and that the any liability imposed on Cyprus in these lawsuits rests with the Debtors.  In the new adversary Complaint, the Debtors seek injunctive and declaratory relief that (1) the Debtors own all of the rights to the insurance policies and (2) the automatic stay prohibits the Cyprus companies from accessing the proceeds of such policies.

As these issues are just taking shape, we will continue to monitor them.  Insurance policies are often at the center of various bankruptcy litigation matters, including directors and officers liability and fiduciary claims, and accordingly, this case may result in new precedent and decisions out of the Delaware Bankruptcy Court that is relevant to our practice more broadly.  Stay tuned.

This week, a electricity supplier, Starion Energy, filed for chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware and the case is pending before the Honorable Mary F. Walrath.

Electric Towers

The Debtor claims that it needs bankruptcy protection because of pending litigation that was brought by the Commonwealth of Massachusetts this fall alleging unfair and deceptive marketing practices, among other claims and seeking more than $30 million. In th action pending in state court, the Commonwealth of Massachusetts obtained an attachment and injunction on the Debtor’s cash, which the Debtor claims threatened its business and could put more than 20 people out of work.

In order to attempt to protect itself, the Debtor filed for chapter 11 and simultaneously brought an adversary proceeding in the Delaware Bankruptcy Court.  See Starion Energy, Inc. v The Commonwealth of Massachusetts, Bankr. Del. Adv. No. 18-50932.  In this adversary case, the Debtor is seeking a temporary restraining order and an injunction barring the Commonwealth of Massachusetts from seizing its assets in connection with the pending litigation.

It will be interesting to see how this case proceeds as it is a bankruptcy case filed with the primary goal of halting a pending litigation.


In a recent opinion, the U.S. District Court for the Northern District of Texas held that an Equal Employment Opportunity Commission (“EEOC”) action brought against an employer for alleged violations of Title VII of the Civil Rights Act of 1964 is excepted from the automatic stay by 11 U.S.C.§ 362(b)(4) (police and regulatory power exception).

The district court held that the whether the claim was excepted from the automatic stay depended upon, whether the EEOC’s primary purpose in bringing the action was to protect public policy and welfare, or whether the claim is based on the debts of private parties.

Acknowledging that the Fifth Circuit Court of Appeals has not addressed whether an EEOC enforcement action under Title VII falls within Section 362(b)(4)’s exception to the automatic stay provision, the district court followed the Fourth Circuit’s reasoning in EEOC v. Mclean, 834 F.2d 398, 402 (4th Cir. 1987):

Of the relief sought by the EEOC in this case, first and foremost is its request for a permanent injunction, which is not limited in application to the individuals named in the EEOC’s pleadings. There is also no indication from the EEOC’s pleadings that it brought this action to protect a pecuniary governmental interest in Shepherd’s property, and, while the EEOC seeks monetary relief on behalf of specific individuals, it is also vindicating the public interest by seeking to prevent discrimination in the workplace under Title VII. In other words, there is no indication that the EEOC’s primary purpose in bringing this action was to recover property from Shepherd’s bankruptcy estate, whether on its own claim, or based on the debts of private parties.

Moreover, the EEOC is not seeking to enforce a money judgment; rather, it seeks to prosecute its Title VII claims against Defendant in this action for purposes of preventing Shepherd from engaging in religious discrimination in the future and to also obtain a money judgment on behalf of the named employees. The EEOC also acknowledges that it will not be able to use this proceeding to enforce any money judgment entered against Shepherd. Accordingly, the court determines that the public policy and pecuniary interest tests are satisfied, and that this action falls within the EEOC’s police and regulatory powers. Section 362(b)(4), therefore, applies, and the EEOC is entitled to prosecute its claims and requests for relief in this court notwithstanding Defendant’s bankruptcy proceeding.

Read the full opinion here.

In a recent opinion, the Bankruptcy Court for the Eastern District of New York concluded that the “law of the case” doctrine did not bind the court to its prior ruling that a trustee had adequately alleged claims against debtors for turnover, conversion, and violations of the automatic stay.

In Geltzer v. Brizinova, et al., the court considered a second attempt by the debtors to obtain an order dismissing the adversary proceeding filed against them based on the new theory that the property at issue was not property of the estate.  Adv. Pro. No. 15-01073-ess (Bankr. E.D.N.Y. Sept. 26, 2018).  The trustee had commenced an adversary proceeding against the debtors, who are husband and wife, alleging that the debtors improperly refused to turn over estate property in the form of post-petition sale proceeds (the “Post-Petition Sale Proceeds”) from an auto supply parts company (the “Company”) listed on the debtors’ schedules as owned one hundred percent by the wife.

The debtors initially filed a motion to dismiss the complaint for failure to state a claim (the “Motion to Dismiss”).  In Geltzer v. Brizinova (In re Brizinova), 554 B.R. 64 (Bankr. E.D.N.Y. 2016) (“Brizinova I”), the court denied the Motion to Dismiss and sustained the Trustee’s turnover and stay violation claims.  The court also dismissed the trustee’s conversion claim with respect to the Post-Petition Sale Proceeds on grounds that the Trustee did not adequately allege that the debtors converted specifically identifiable funds.

Soon thereafter, the trustee commenced a second adversary proceeding against the debtors’ daughter-in-law, (the “Soshkin Complaint”) seeking to recover the same Post-Petition Sale Proceeds. Once again, the trustee asserted claims for turnover, stay violations, and conversion of the Post-Petition Sale Proceeds. The daughter-in-law moved to dismiss the Soshkin Complaint, and arguing, for the first time, that the property at issue was property of the Company – not property of the estate.  On this theory, the court granted the motion and dismissed the Soshkin Complaint.

Following the court’s dismissal of the Soshkin Complaint, the debtors filed a motion for judgment on the pleadings and for the entry of an order dismissing the complaint for lack of subject matter jurisdiction (the “Motion for Judgment”).  The debtors adopted the theory that the Company’s assets were not assets of the debtors and did not form any part of the estate.  Therefore, the debtors argued that they were entitled to judgment in their favor on the trustee’s claims and also that the court lacked subject matter jurisdiction over the complaint.

In response, the trustee argued that in Brizinova I the court not only ruled that he had adequately pled that the Post-Petition Proceeds were property of the estate, but that the court explicitly held that it had jurisdiction over the trustee’s claims for turnover, conversion and violation of the automatic stay.  Such holdings, according to the trustee, constituted “the law of the adversary proceeding.”  Therefore, in light of the court’s decision in Brizinova I and the law of the case doctrine, the court should conclude that the trustee’s claims were adequately pled, and deny the Motion for Judgment.

In considering the trustee’s argument on the “law of the case” doctrine, the court relied on a recent Second Circuit case that noted “that [the doctrine of law of the case] is not a rule that bars courts from reconsidering prior rulings, but is rather ‘a discretionary rule of practice [that] generally does not limit a court’s power to reconsider an issue.’” Colvin v. Keen, 900 F.3d 63, 68 (2d Cir. 2018) (quoting In re PCH Assocs., 949 F.2d 585, 592 (2d Cir. 1991)).  The court acknowledged that courts generally consider a range of circumstances in determining whether to apply the law of the case doctrine, however, two such considerations stood out as fundamental: (i) whether there is identity of parties between the prior and subsequent matters; and (ii) whether the prior decision is a final one.

Applying those considerations to the case at hand, the court found that neither its prior decision in Brizinova I, nor the “law of the case” doctrine required it to deny the Motion for Judgment.  While there was an identity of parties, the decision in Brizinova I on the debtors’ Motion to Dismiss was not a final judgment.  Ultimately, the court agreed that the Post-Petition Sale Proceeds were not property of the estate and granted the debtors’ Motion for Judgment as to all claims.

In a recent an opinion, the Delaware Bankruptcy Court enforced the broad release language in a confirmation plan to release certain entities that were never intended to be released.

The debtors and the creditors’ committee engaged in hard-fought negotiations, and the committee supported confirmation of the plan in large part because the settlement trust, to be created under the plan, was to pursue post-confirmation litigation against individuals and entities related to the former owner of the debtors’ business. The plan as confirmed contained broad releases.

When an adversary proceeding was filed by the settlement trust against various entities related to the former owner, certain defendants promptly sought summary judgment on the ground that they are each “Released Parties” under the plan, and thus immune from suit. The trustee argued that the adversary proceeding against the former owner entities was central to the committee’s support of the plan, and thus the plan could not operate to release any of these defendants. The bankruptcy court disagreed.

Reviewing the release language in the plan, the bankruptcy court found it unambiguous and adopted its plan meaning. Applying the plain meaning of the release, the bankruptcy court found that at least one of the defendants was entitled to summary judgment on their contention that they were released from liability in the adversary by operation of the plan.

The bankruptcy court reasoned: “Courts have held that a plan is effectively a contract between a debtor and its stakeholders. Those stakeholders vote upon a plan based upon their assessment of what the plan will accomplish, and what they will receive under it. Once a plan is confirmed and the order becomes final, the parties’ rights, obligations and expectations are fixed. The Trustee’s argument – that plan treatment is driven not by reading the plan but by what may have been told to the bankruptcy judge during the case, or by prior plan provisions that were discarded in the final confirmed plan – is inconsistent with applicable law and contrary to sound policy. The Plan here was confirmed by an Order that has become final. Its provisions control.”

To read the full opinion here.

In entertainment and bankruptcy news, the chapter 7 trustee for the bankruptcy filed by former celebrity couple Duane Daniel Martin and Tisha Martin Campbell (the “Debtors”), brought suit against Roxe, LLC (“Roxe”) and others claiming that Roxe was formed by Martin and his brother (also a defendant to this suit) to conceal Martin’s ownership of valuable real estate in Chatsworth, California.  See Gottlieb v. Roxe, LLC, et al. (In re Martin, et al.), Bankr. C.D. Cal. Adv. No. 18-ap-01106, Docket No. 1.  The Debtors are actors who rose to fame on sitcoms in the 1990s.


The property at issue was purchased by Duane Martin in 2006 for $900,000 with a $650,000 loan from IndyMac.  Thereafter, Duane Martin borrowed an additional $1,950,000 from IndyMac to construct the Martin family home – a 9,000 square foot luxury residence.

The Trustee alleges that in 2009, Duane Martin quitclaimed the property to the Campbell-Martin Family Trust and thereafter caused the IndyMac loans to go into default “in order to negotiate a short sale” of the property.  To effectuate this, the Trustee claims that Duane Martin negotiated the short sale of the property from Indymac directly to Roxe for a discounted amount of only $1,380,000.

Purchase of the property by Roxe was allegedly funded by a loan of approximately $1.4 million by Will Smith and Jada Pinkett Smith, through their company TB Properties, LLC (“TB Properties”).

The Trustee alleges that, all on the same day in November 2012, TB Properties recorded a deed of trust on the property in the sum of approximately $1.4 million with Roxe listed as borrower, the IndyMac loans used for purchase/construction of the home were satisfied and Roxe obtained title to the property from the Debtors.

Thereafter, the Debtors leased the mansion for $5,000 per month from Roxe.  The Trustee alleges that in July 2018, Duane Martin caused the property to be listed for sale in the amount of $2,695,000 and that the sale proceeds in excess of the TB Properties loans totaled $1.3 million. The Trustee further alleges that the lease was a sham, not intended to be performed.

In the adversary case, the Trustee seeks (i) to quiet title to the property, claiming that the Debtors are the true owners of the property and (ii) a turnover of the property from defendants under Bankruptcy Code Section 542, claiming that the property is estate property.

Both because of the celebrities involved and the bankruptcy litigation claims asserted, this will be an interesting case to follow.  Check back for further updates as the case progresses.

Yesterday, the Bankruptcy Panel of the Ninth Circuit Court of Appeals issued yet another decision related to standing and rights to appeal bankruptcy court orders.  In Bray v. U.S. Bank National Association, (In re Bray), the Ninth Circuit BAP considered a chapter 7 individual debtor’s appeal from an order reopening his involuntary chapter 7 bankruptcy case.  See Bray, B.A.P. No. CC-17-1373-SKuF (9th Cir. BAP Aug. 7 2018).

Our prior blog posts on similar decisions from the Ninth Circuit regarding rights and standing to appeal bankruptcy court orders are available here and here.


In determining whether the debtor here had appellate standing, the Court explained that “reopening a closed case is a ‘ministerial act’ that primarily enables the clerk to manage the case as an active matter.”  Id. at 10 (citation omitted).  The Court further elaborated that a bankruptcy court order reopening a case “lacks legal significance and determines nothing with respect to the merits of the case.”  Id. (citation omitted).

The Court considered the person aggrieved standard, which provides that “‘those persons who are directly and adversely affected pecuniarily by an order of the bankruptcy court’ have standing to appeal.” Id. at (citation omitted).  In order to meet this standard, the debtor would have to show that the order on appeal “diminished his property, increased his burdens or otherwise detrimentally affected his rights.”  Id. at 11.

The Court found that the order reopening the case did not impact Bray in any of these ways, and thus he lacked standing to appeal the bankruptcy court’s order reopening the case.  Id. at 11 (dismissing appeal).

A recently issued opinion by the U. S Bankruptcy Court for the District of New Mexico provides some guidance on the relevant date for the transfer of real property for purposes of the statute of limitations applicable to fraudulent transfer claims.

In Gonzales v. Sexton (In re Esquibel), Adv. No. 17-1042-j (Bankr. D.N.M. July 23, 2018) the Bankruptcy Court considered a chapter 7 trustee’s summary judgment motion regarding the trustee’s claims for avoidance and recovery of actual and constructive fraudulent transfers under the Bankruptcy Code and state law.

real estate transferPre-petition, the Debtor owned unencumbered real property (the “Property”).  This Property was transferred to the Defendant on May 19, 2014 via a quitclaim deed.  In exchange for the Property, the Defendant (recipient of the Property) promised to maintain the property, provide the Debtor with a rent-free place to live, and care for Debtor if she was unable to care for herself.  Id. at ¶ 27.

Several years later, on September 7, 2016, just 177 days before the Debtor filed her voluntary bankruptcy petition, Defendant recorded the quitclaim deed.  Id. at ¶ 29.  The Trustee brought suit against the Defendant claiming that the transfer of the Property was avoidable under Section 548 of the Bankruptcy Code and state law because it constituted both actual and constructive fraudulent transfers.

The threshold issue for the Court was when the Property was transferred for purposes of statute of limitations – in 2014 when the deed was executed or in 2016 when the deed was recorded.  Section 548 allows a trustee to avoid transfers of estate property that occurred during the 2 years before the bankruptcy.  The Defendant asserted that the transfer occurred when the deed was signed in 2014, and the Court disagreed, finding that the transfer for the purposes of a Section 548 fraudulent transfer occurred when the deed was recorded, in 2016.

The Court looked to Section 548(d), which states “a transfer is made when such transfer is so perfected that a bona fide purchaser from the debtor against whom applicable law permits such transfer to to be perfected cannot acquire an interest in the property transferred that is superior to the interest in such property of the transferee.”  Id. at 10.  The Court further explained that the purpose of 548(d) is to “prevent fraudulent transfers from becoming impregnable to attack by keeping them secret until the limitation period has lapsed.”  Id. (citation omitted).

The Court then looked to New Mexico state law to determine when a real property transfer is perfected and found that such a transfer is perfected “when it is recorded with the county clerk of the state in which the real estate is situated.”  Id. at 11 (citation omitted).  Given this, the Court found that the transfer of the Property occurred upon recording in 2016, which was within 177 days of the chapter 7 filing, and therefore was “within the two-year look-back period under §548(a).”  Id. 


In Beskrone v. Int’l Educ. Corp., Adv. No. 17-50523 (CSS) (Bankr. D. Del. July 2, 2018), the Bankruptcy Court for the District of Delaware held that a chapter 7 trustee’s adversary proceeding to recover alleged prepetition accounts receivable fell under the Court’s “related to” jurisdiction. Pursuant to 28 U.S.C. §§ 1334 and 157(a), bankruptcy courts have jurisdiction over the following types of matters: cases under title 11 of the United States Code, i.e., the Bankruptcy Code; proceedings arising under title 11; proceedings arising in a case under title 11; and proceedings related to a case under title 11. In Beskrone, the Court assessed its jurisdiction under this last prong.

In this case, PennySaver USA Publishing, LLC and affiliated entities (the “Debtors”) filed voluntary petitions for relief under chapter 7 of title 11 of the United States Code and Don A. Beskrone was appointed to serve as the chapter 7 trustee of the Debtors’ bankruptcy estates (the “Trustee”). Before the close of the Debtors’ cases, the Trustee filed a single-count complaint against International Education Corporation (“IEC”), who had entered into a prepetition agreement with PennySaver for advertising services. Id. at 3. The Trustee sought to collect payments allegedly requested by PennySaver that IEC did not pay in full. Id. at 3-4. IEC moved to dismiss the Trustee’s complaint for lack of subject-matter jurisdiction. Although IEC made both facial and factual challenges to the Court’s jurisdiction over the Trustee’s claim, the Court held that it should hold IEC’s factual challenges for a later proceeding and evaluate only IEC’s “facial” challenge. Id. at 7. In a “facial” challenge to a court’s jurisdiction, a court accepts as true all factual allegations in the plaintiff’s complaint and only examines the pleadings to determine if jurisdiction exists.

In Beskrone, the Court held that it did have subject-matter jurisdiction. Principally, the Court reasoned that in assessing whether it had “related to” jurisdiction over the Trustee’s claim, the test articulated by the Third Circuit in Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1985) still provided useful guidance. In Pacor, the Third Circuit reasoned that a bankruptcy court had “related to” jurisdiction over a matter if the “outcome of [the] proceeding could conceivably have any effect on the estate being administered in bankruptcy.” 743 F.2d at 994. The Court noted that the Pacor test is satisfied if a proceeding “may impact . . . debtor’s rights, liabilities, options, or freedom of action or the handling and administration of the bankrupt estate.” Op. at 9-10. As applied to the Trustee’s claim against IEC, the Court held that the claim satisfied the Pacor test. The claim was an action held by the debtor pre-petition, and thus was property of the estate, and the Trustee’s recovery under his claim might increase funds available to the body of the Debtors’ creditors. Id. at 10.

IEC argued that if the only conceivable effect on the Debtors’ bankruptcy estates was a greater dividend for creditors, that finding jurisdiction over such an action would overly extend “related to” jurisdiction in chapter 7 liquidations. Id. at 11. In support thereof, IEC cited cases applying jurisdictional analyses in post-confirmation proceedings. The Court acknowledged that a proceeding’s effect on a bankruptcy case may be different in a reorganization versus a liquidation, and pre-confirmation versus post-confirmation, but ultimately dismissed IEC’s argument.

First, the Court noted that the notion that the nature of a bankruptcy filing could create different scopes of jurisdiction has been criticized, and that the nature of a chapter 7 liquidation “does not upend the logic of Pacor.” Id. at 13. The Court reasoned that the Trustee’s action to recover accounts receivable would directly benefit the Debtors’ estates, and that there was nothing noteworthy about the Trustee’s claim that implicated characteristics “unique to a chapter 7 liquidation.” Id. at 14. Second, the Court rejected IEC’s contention that the Trustee’s claim should be dismissed for lack of jurisdiction because the matter did not satisfy the test established by the Third Circuit in Binder v. Price Waterhouse & Co., LLP (In re Resorts Int’l, Inc.), 372 F.3d 154 (3d Cir. 2004) for determining jurisdiction over post-confirmation proceedings in chapter 11 cases.  In Resorts Int’l, the Third Circuit reasoned that a bankruptcy court has “related to” jurisdiction over certain post-confirmation proceedings that “affect an integral aspect of the bankruptcy process – there must be a close nexus to the bankruptcy plan or proceeding.” Op. at 14-15 (citing Resorts Int’l). But, as the Court noted, post-confirmation proceedings diminish connections to the bankruptcy estate when the parties “have purposefully and by agreement removed a debtor from court oversight.” Id. at 15. In contrast, pre-closing chapter 7 liquidations, such as the Debtors, are “less attenuated to the estate.” Id. at 16. Lastly, the Court found IEC’s argument that there are similarities between chapter 7 and chapter 11 liquidations that make the application of the jurisdictional standard set forth in Resorts Int’l proper, to be unpersuasive.

Ultimately, the Court denied IEC’s motion to dismiss for lack of subject-matter jurisdiction and found that the Trustee’s proceeding to recover prepetition accounts receivable fell within the Court’s “related to” jurisdiction.

Kerri Gallagher writes:

The Bankruptcy Court for the Southern District of New York recently dismissed claims in an adversary proceeding commenced by pilots against the pilots’ union and an airline in connection with the airlines’ rejection of an old collective bargaining agreement (“Old CBA”), and negotiation of a new collective bargaining agreement (“New CBA”) that eliminated certain job protections that the pilots held under the Old CBA.  In addition, the airline entered into a letter agreement with the pilots’ union that permitted an arbitration proceeding to create new job protections for the pilots who lost the protections under the Old CBA.

In prior proceedings the bankruptcy court dismissed many of plaintiffs’ claims, leaving only a claim for breach of duty of fair representation against the pilots’ union, and a collusion claim against an airline.  Defendants sought summary judgment and dismissal of these remaining claims, which the bankruptcy court granted.

In so holding, the bankruptcy court found, among other things: (i) plaintiffs failed to put forward evidence demonstrating a causal connection for their various claims under any causation standard, and (ii) plaintiffs failed to provide sufficient basis for their “sweeping denials” of the facts that defendants contended were undisputed.

With respect to the fair representation claim, the bankruptcy court rejected a number of plaintiffs’ arguments.  For example, plaintiffs argued that the pilots’ union breached its duty of fair representation by wrongfully structuring the arbitration to permit two separate pilot committees to submit two competing proposals rather than one unified pilot position. The bankruptcy court rejected this argument because it was raised for the first time in plaintiffs’ responses to the summary judgment motions. The court further reasoned that “[e]ven if this argument were not waived, however, it would fail because the lack of a unified position was not discriminatory, arbitrary, or in bad faith.”  In addition, the plaintiffs argued that the pilots’ union failed to replicate certain protections under the Old CBA. The bankruptcy court again rejected this argument noting that it had been raised and rejected in the prior proceedings.

With respect to the collusion claim, the bankruptcy court held that in order to prove collusion, plaintiffs must prove a breach of duty of fair representation. Since the breach of duty claim failed, the bankruptcy court determined that the collusion claim failed as well.

Read the full opinion here.

Kerri Gallagher is a summer associate in Fox Rothschild’s Philadelphia office.