CURRENT MONTH (March 2018)
Shareholder of Debtor Violated Stay by Pursuing Claim Under State Corrupt Practices Act
By Michael Enright, Robinson & Cole LLP
The Bankruptcy Appellate Panel of the Sixth Circuit (BAP) recently upheld the bankruptcy court’s contempt order against the shareholder of a Chapter 7 debtor for his ongoing pursuit of claims against one of the debtor’s business counterparties under the Ohio Corrupt Practices Act. Although the Ohio statute clearly granted standing to an aggrieved party indirectly injured by the defendant, such as the shareholder, the BAP held that such standing did not overcome well-established precedent that the claim of a shareholder based on wrong done to the corporation is derivative in nature. As a result, the claim properly comprised property of the debtor’s Chapter 7 estate, and the shareholder violated the stay by continuing his pursuit of the claim in state court. Lowe v. Ransier (In re Nicole Gas Production, Ltd.), Nos. 15-8053/8055 (B.A.P. 6th Cir. Mar. 13, 2018). The court also upheld sanctions against the shareholder in excess of $90,000, based on the attorneys’ fees incurred by the Chapter 7 trustee in connection with the shareholder’s “persistent attempts to exercise control” over property of the estate. Parties who believe they have been personally harmed by wrong done to a debtor entity in which they own an interest may wish to consider this decision carefully before proceeding under a state statute that grants them standing.
Supreme Court Holds Section 546(e) Safe Harbor Does Not Apply to All Transfers Made Through Financial Institutions
By Sean A. O’Neal, Thomas S. Kessler and Brandon M. Hammer, Cleary Gottlieb Steen & Hamilton LLP
On February 27, 2018, the U.S. Supreme Court issued its unanimous decision in Merit Management Group, LP v. FTI Consulting, Inc., holding that 11 U.S.C § 546(e), which creates a safe harbor against the avoidance of certain transfers made “by or to (or for the benefit of)” financial institutions, does not apply merely because the challenged transfer is completed through a financial institution. In reaching its conclusion, the Court focused heavily on the text of the statute, instructing courts to focus their analysis on the “end-to-end transfer” the trustee seeks to avoid rather than any individual transaction contained within the transfer.
The decision is the Supreme Court’s first to address the safe harbors under the U.S. Bankruptcy Code. Thus, although the specific holding of Merit may not be directly applicable to the rights of financial counterparties under qualified financial contracts, the Court’s decision is likely to have a significant impact on the application of the safe harbors to avoidance actions and related litigation.
Georgia Enacts Law to Change Attachment Effect of State Tax Liens
By Paul Hodnefield, CSC
The Georgia governor signed House Bill 661 on February 20, 2018, to revise the territorial effect of filed tax lien executions. Last year, Georgia enacted a law that required all tax lien executions filed with a county clerk of the superior court after January 1, 2018, to be centrally indexed with the Georgia Superior Court Clerk’s Cooperative Authority (GSCCCA). Under that law, such executions would be effective against all the taxpayer’s real and personal property within the state. This bill continues to require central indexing with the GSCCCA, but provides that a tax lien attaches only to real property within the counties where the execution was filed. The new law took effect immediately.
Federal Judge Adopts CFTC Position That Cryptocurrencies Are Commodities
By James Joseph Benjamin Jr., Jan-Paul Bruynes, Peter I. Altman, Nicholas C. Adams, and Kelly Handschumacher, Akin Gump Strauss Hauer & Feld LLP
A New York federal judge held that virtual currencies are commodities that can be regulated by the Commodity Futures Trading Commission (“CFTC”), enjoining the defendants, an individual and affiliated entity, from trading cryptocurrencies on their own or others’ behalf or soliciting funds from others, and ordering an expedited accounting. CFTC v. McDonnell, No. 18-cv-0361, Dkt. 29 (E.D.N.Y. Filed Jan 18, 2018). While the CFTC announced its position that cryptocurrencies are commodities in 2015, this case marks the first time a court has weighed in on whether cryptocurrencies are commodities. Having answered that question in the affirmative, the court went on to hold that the CFTC has jurisdictional authority over defendants’ alleged cryptocurrency fraud under 7 U.S.C. § 9(1), which permits the CFTC to regulate fraud and manipulation in underlying commodity spot markets.
Uniform Commercial Code
Alabama Enacts the Uniform Voidable Transactions Act
By Paul Hodnefield, CSC
On March 6, 2018, the Alabama governor signed Senate Bill 152 to enact the Uniform Voidable Transactions Act (UVTA) with a few non-uniform amendments. For example, SB 152 omits all references to “obligations” that appear in the official text. This appears to be in keeping with Alabama’s practice of not addressing “obligations” within the purview of state fraudulent conveyance statutes but determining whether a voidable conveyance has occurred by applying existing common law. Likewise, Alabama’s version of UVTA makes explicit that a sale under strict foreclosure is not a transfer protected from avoidance and, through the addition of Section 8(e)(3), broadens the protection for enforcement to include a regularly conducted, noncollusive foreclosure sale or execution of a power of sale if it results from certain sales under a mortgage, deed of trust, or security agreement. Finally, the Alabama law departs from the time periods for bringing a claim under Section 9 of the UVTA. The new law takes effect in Alabama on January 1, 2019.