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Showing 27 posts recarding Third Circuit Court of Appeals.

Third Circuit Rules That Transfers By Non-Debtors Are Immune From Avoidance As Fraudulent Transfers

Crystallex Int’l Corp. v. Petroleos de Venezuela, S.A., 879 F.3d 79 (3d Cir. 2018)

In an Opinion that may also have repercussions in bankruptcy law, the Third Circuit Court of Appeals recently held in Crystallex Int’l Corp. v. Petroleos de Venezuela, S.A. that transfers by a non-debtor cannot be fraudulent under title 6, section 1304 of the Delaware Code (the “Delaware Uniform Fraudulent Transfer Act” or “DUFTA”).  Notwithstanding that the transfers at issue were allegedly orchestrated by a debtor with the express purpose of defrauding a creditor and notwithstanding the transferor’s intentional and knowing participation in the alleged scheme, the Third Circuit found the allegations insufficient to state a claim of a transfer “by a debtor,” and, accordingly, held that the language of DUFTA constrained it from finding a fraudulent transfer under the statute.  The Third Circuit noted its holding should also apply to fraudulent transfer claims under the Bankruptcy Code because DUFTA and section 548 of the Bankruptcy Code are “virtually a carbon copy” and “the result under Delaware law should be the same as the outcome under the Bankruptcy Code.”  879 F.3d at 86 (citation omitted). Read More ›

A Third Circuit Analysis of Fiduciary Duties in the Face of Bankruptcy

In re Ultimate Escapes Holdings, LLC, 682 Fed. Appx. 125 (2017)

In re Ultimate Escapes Holdings, LLC, No. 12-50849 (BLS), 2015 WL 1590132 (Bankr. D. Del. Feb. 5, 2015)

In affirming the decisions of the courts below, the Third Circuit in its Opinion of In re Ultimate Escapes Holdings, LLC not only provides a refresher on Delaware’s entire fairness and business judgment standards; it also sends a comforting signal to officers and directors faced with difficult decisions when a company is in financial distress and on the verge of bankruptcy. Read More ›

Third Circuit Holds That Layoffs Must Be Probable (Not Just Possible) for WARN Act Liability

Varela v. AE Liquidation, Inc. (f/k/a Eclipse Aviation Corp.) (In re AE Liquidation, Inc.), No. 16-2203, 2017 WL 3319963 (3d Cir. Aug. 4, 2017)

As we have discussed prior, under the Worker Adjustment and Retraining Notification (WARN) Act, employers may be liable if they do not give fair warning to their employees before a mass layoff.  Liability can be avoided if, among other things, the “mass layoff is caused by business circumstances that were not reasonably foreseeable at the time that notice would have been required.”  20 C.F.R. § 2102(b)(2)(A).  The question for the Third Circuit Court of Appeals in this appeal was what makes a business circumstance “reasonably foreseeable.”  Does an event need to be “probable” (i.e. more likely than not) or simply “possible”?  Every Circuit Court deciding the issue as well as the Delaware District Court and the Delaware Bankruptcy Court have adopted the probability standard, and by this Opinion, the Third Circuit joined the club.  In doing so, the Court noted that the probability standard strikes the appropriate balance of the WARN Act’s employee protections and employer burdens and also highlighted a concerning result if the lower threshold “possibility” test was adopted.  More specifically, because it is quite possible that a company in financial distress will close or effect a layoff, every company in or near bankruptcy would be forced to send a WARN notice to their employees that is not only costly, but also likely to cause panic and accelerate their own demise.  As explained by the Court, the WARN Act was not meant to impose such a burden on an employer and thus, “a layoff becomes reasonably foreseeable only when it becomes more likely than not that it will occur.”  Op. at *11. Read More ›

Decisions by Third Circuit and Delaware Bankruptcy Court Clarify that “Receipt” under Section 503(b)(9) Requires Physical Possession

Haining Wansheng Sofa Co., Ltd. v. World Imports Ltd. (In re World Imports, Ltd. et al.), No. 16-1357, 2017 WL 2925429 (3d Cir. Mar. 8, 2017) and In re SRC Liquidation, LLC, No. 15-10541 (BLS), 2017 WL 2992718 (Bankr. D. Del. July 13, 2017)

In two recent Opinions, the Third Circuit Court of Appeals and the Delaware Bankruptcy Court clarified that the word “received” in section 503(b)(9) of the Bankruptcy Code requires a showing that goods were delivered into the physical possession of a debtor or its agent within the 20 days before a debtor’s petition date (the “20-Day Period”).  Under the Third Circuit’s holding in Haining Wansheng Sofa Co., Ltd. v. World Imports Ltd. (In re World Imports, Ltd. et al.) and the Bankruptcy Court’s holding in In re SRC Liquidation, LLC, neither receipt of goods by a common carrier nor receipt by a debtor’s customer as the result of a drop shipment within the 20-Day Period satisfy the standard required to render a claim eligible for administrative priority.   The decisions reinforce courts’ strict construction of section 503(b)(9). Read More ›

Applying New York Law, Third Circuit Holds That Acceleration Clauses Do Not Negate Make-Whole Redemption Provisions Absent Clear Contractual Language

Delaware Trust Co. v. Energy Future Intermediate Holding Co. (In re Energy Future Holdings Corp.), 842 F.3d 247 (3d Cir. 2016)

Disagreeing with the United States Bankruptcy Court for the Southern District of New York, the Court of Appeals for the Third Circuit held in this Opinion that New York law requires the Energy Future debtors (“EFIH”) to pay redemption premiums (or a “make-whole”) to their first and second lien noteholders under the terms of governing indentures.  In doing so, the Court reversed the district court decision affirming the Delaware Bankruptcy Court’s ruling (discussed here) that the make-whole payments were not due. Read More ›

Commencing an Involuntary Just Got Riskier – Petitioning Creditors May Face State Law Damages in Addition to Those Under Bankruptcy Code Section 303(i)

Rosenberg v. DVI Receivables XVII, LLC, No. 15-2622, 2016 WL 4501675 (3d Cir. Aug. 29, 2016) 

In this federal preemption Opinion, the Third Circuit Court of Appeals held that section 303(i) of the Bankruptcy Code does not preempt state law claims by non-debtors for damages based on the filing of an involuntary bankruptcy petition.  The Court did not, however, opine on whether section 303(i) preempts state law claims brought by debtors. Read More ›

Plan Confirmation Principles Not Categorically Applied in the Settlement Context

In re Energy Future Holdings, Corp., No. 15-1591, 2016 WL 2343322 (3d Cir. May 4, 2016)

The Third Circuit recently determined that a settlement in the form of a tender offer did not violate the Bankruptcy Code and was within the Bankruptcy Court’s discretion to approve.  In its ruling, the Court examined whether principles applicable to a plan of reorganization, such as the “equal treatment” rule embodied in 11 U.S.C. § 1123(a)(4), must be categorically applied in the settlement context, and found there is no such requirement.  Nonetheless, the Court affirmed the lower courts’ ruling on the grounds that the settlement in this case provided equal treatment to creditors. Read More ›

Third Circuit Holds that Minimum Threshold under Section 547(c)(9) Requires Transfer-by-Transfer Analysis

Slobodian v. U.S. Internal Revenue Serv. (In re Net Pay Solutions, Inc.), No. 15-2833, 2016 WL 2731676 (3d. Cir. May 10, 2016)

In this precedential Opinion, the United States Court of Appeals for the Third Circuit (the “Third Circuit”) addressed whether multiple transfers may be aggregated for purposes of meeting the statutory minimum under section 547(c)(9) of the Bankruptcy Code.  The Court affirmed the ruling of the United States District Court for the Middle District of Pennsylvania (the “District Court”) that they may not be aggregated where the transfers are for the benefit of different creditors on distinct debts. The Court also addressed whether employee withholding taxes paid to the IRS by a payroll management company on behalf of an employer are immune from avoidance as “trust fund” taxes under 28 U.S.C. §7501(a), and held that they are. Read More ›

Third Circuit Affirms Debtors’ Right to Reject Expired Collective Bargaining Agreement Under Section 1113

In re Trump Entm’t Resorts, Unite Here Local 54, Appellant, No. 14-4807, 2016 WL 191926 (3d. Cir. Jan. 15, 2016), aff’g In re Trump Entm’t Resorts, Inc., 519 B.R. 76 (Bankr. D. Del. 2014)

On direct appeal, the Third Circuit Court of Appeals has affirmed a Delaware Bankruptcy Court ruling (see previous post here) that debtors’ powers under section 1113 of the Bankruptcy Code to reject a collective bargaining agreement remain in effect even if the agreement has expired. Read More ›

Third Circuit Holds That Bad Faith Determined by the Totality of the Circumstances Provides an Independent Basis for Dismissing an Involuntary Petition

In re Forever Green Athletic Fields, Inc., No. 14-3906, 2015 WL 6080665 (3d Cir. Oct. 16, 2015)

Despite no dispute that the petitioning creditors satisfied the statutory requirements for commencing an involuntary chapter 7 proceeding under section 303(b)(1) of the Bankruptcy Code and that the putative debtor was not paying its debts as they came due, this precedential Opinion of the Third Circuit Court of Appeals adopted the “totality of the circumstances” standard for determining bad faith under section 303 and affirmed the decisions of the lower courts that dismissed the proceeding as a bad faith filing. Read More ›