By: Gabriella Formosa
St. John’s Law Student
By: Joseph P. Donnelly IV
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
By: Steve Traditi
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
In In re TOUSA, Inc.,[1] the Eleventh Circuit held that subsidiaries of a parent company did not receive “reasonably equivalent value” in exchange for liens granted to secure the obligations of the parent company in an attempt by the group to avoid bankruptcy.[2] The court also held that third party beneficiaries could be liable as parties “for whose benefit” the transfer was made.[3] In 2005, TOUSA, Inc., a large homebuilding company, entered into a joint venture in order to acquire homebuilding assets from Transeastern Properties, Inc., using monies borrowed from the so-called “Transeastern Lenders” to fund the acquisition.[4] When the housing market took a downturn in 2006, TOUSA defaulted and the Transeastern Lenders sued for more than $2 billion.[5] TOUSA agreed to settle the case for $421 million with money borrowed from a collection of lenders (the “New Lenders”). The New Lenders secured their loans by taking liens on the assets of certain of TOUSA’s subsidiaries (the “Conveying Subsidiaries”).[6] After TOUSA and its subsidiaries, including the Conveying Subsidiaries, went into bankruptcy, TOUSA sought to avoid the New Lenders’ liens as fraudulent transfers arguing that the Conveying Subsidiaries did not receive reasonably equivalent value.[7] In addition, TOUSA sought to recover from the Transeastern Lenders by claiming that the Transeastern Lenders were the entities for whose benefit the transfer was made.[8] The bankruptcy court agreed with TOUSA, but the district court reversed.[9] TOUSA then appealed to the Eleventh Circuit.
By: Benjamin Yeamans
St. John’s Law Student
By: Jessica Wright
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
In In re Lovell,[1] the Bankruptcy Court for the Northern District of Iowa, held that a debtor who tithed approximately 11% of her gross income was nevertheless entitled to a hearing on whether she qualified for a hardship discharge of her student loan debt.[2] The debtor received a Chapter 7 discharge and then filed an adversary complaint for a discharge of her student loans, arguing that the loans would impose an undue hardship based on her current income and monthly expenses.[3] The debtor was gainfully employed and earned $44,255.04 per year,[4] and in her self-reported monthly expenses[5], she included charitable donations and tithes to her church amounting to nearly 11% of her gross income.[6] In assessing her expenditures, the court held that making charitable contributions and tithing is not per se unreasonable when requesting discharge of student loan debt. Instead, a fact-intensive inquiry into the appropriateness of such expenditures is required. For this reason, the court held that it was precluded from granting summary judgment to the creditor.[7]
By: Colleen E. Spain
St. John’s Law Student
By: Kathryn Swimm
St. John’s Law Student
By: Melanie Spergel
St. John’s Law Student
By: Andrew J. Zapata
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
In a matter of first impression, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) in In re Fairfield Sentry Ltd.[1] held that the tolling provisions of section 108 of the Bankruptcy Code (the “Code”) become automatically available to “Foreign Representatives”[2] under section 103(a) in chapter 15 cases.[3] Fairfield Sentry Ltd. was a feeder fund that invested its assets with Bernard Madoff, and was placed into liquidation proceedings in the British Virgin Islands after Mr. Madoff’s fraudulent activities were uncovered.[4] The Bankruptcy Court recognized the British Virgin Islands proceedings as a foreign main proceeding on July 22, 2010, and held that the joint liquidators were the foreign representatives of the debtor.[5] The foreign representatives sought to have the section 108 tolling provision applied from July 22, 2010 in order to have at least an additional two years to investigate and commence actions.
By: Samantha M. Tusa
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
The Bankruptcy Court for the Eastern District of Michigan held, in In re Piccinini[1], that bankruptcy courts have exclusive jurisdiction over attorneys’ fees incurred in bankruptcy proceedings because of the “restrictive language” of section 329 of the Bankruptcy Code (the “Code”). [2] The issue arose after the debtor terminated his original attorney who then filed a suit against the debtor in state court to collect his fees.[3] The bankruptcy court stayed the state court collection action pending the bankruptcy court’s resolution of the fee dispute. [4]