Justia U.S. 2nd Circuit Court of Appeals Opinion Summaries

The trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC alleged that Madoff Securities transferred property to foreign entities that subsequently transferred it to other foreign entities, including the hundreds of appellees. The trustee claimed that the Madoff Securities' transfers were avoidable as fraudulent under 11 U.S.C. 548(a)(1)(A), and sought to recover the property from appellees under section 550(a)(2). The district court dismissed the actions based on the presumption against extraterritoriality and international comity principles.The Second Circuit vacated and held that neither the presumption against extraterritoriality nor international comity principles barred recovery. In this case, the focus of section 550(a) was on debtor's fraudulent transfer of property to the initial transferee, and these actions involved domestic applications of the Bankruptcy Code because section 550(a) focused on regulating domestic conduct. Therefore, the lower courts erred by dismissing these actions under the presumption against extraterritoriality. The court also held that the district court erroneously dismissed these actions on international comity grounds where the United States' interest in applying its law to these disputes outweighed the interest of any foreign state and prescriptive comity posed no bar to recovery. View "In re: Picard" on Justia Law

Plaintiffs brought an adversary proceeding in bankruptcy court, alleging that defendants wrongfully failed to pay debtor for produce held in trust for plaintiffs, in violation of the Perishable Agricultural Commodities Act. The Second Circuit agreed with the bankruptcy judge and district court and affirmed summary judgment for plaintiffs, but held that defendants should receive a pro rata share of assets of the trust established under the Act.Because assets subject to the Act are held in a ʺfloatingʺ trust for the benefit of unpaid produce suppliers and never become part of a bankruptcy estate, when a purchaser of produce files for bankruptcy under Chapter 7, a creditor covered by the Actʹs provisions is entitled to a pro rata share of trust assets, but not to a complete offset of mutual debts between it and the bankrupt. In this case, although defendants did not file a proof of claim after the district court issued a claims process order under the Act, they preserved their claims by providing statutorily required notice to debtor in connection with each pre‐bankruptcy sale of fresh produce; filed a proof of claim with the bankruptcy court before the district court had issued the claims process order; and reasonably, although mistakenly, thought that they could vindicate their rights as creditors using a bankruptcy offset. View "The PACA Trust Creditors v. Genecco Produce Inc." on Justia Law

The Second Circuit affirmed the district court's decision affirming the bankruptcy court's dismissal of a Chapter 7 involuntary bankruptcy petition creditor filed under 11 U.S.C. 303(a) against debtor. The bankruptcy court dismissed for cause under 11 U.S.C. 707(a) after concluding that the petition was simply a judgment enforcement tactic. The court held that creditor was not substantially prejudiced by being denied access to bankruptcy remedies and that the interests of debtor and of the bankruptcy system as a whole were advanced by dismissal. View "Wilk Auslander LLP v. Murray" on Justia Law

The Second Circuit vacated the district court's dismissal of plaintiff's personal injury claims against more than fifty corporate defendants, holding that the district court abused its discretion in invoking the equitable doctrine of judicial estoppel to dismiss her claims. In this case, Defendant Boeing argued that plaintiff's failure to disclose her husband's mesothelioma diagnosis during bankruptcy barred the personal injury claims related to the diagnosis. Plaintiff's husband passed away during the pendency of the appeal. The court held that the principles of equity required the courts to entertain plaintiff's personal injury claims where nothing in the record suggested that she withheld her husband's diagnosis from the bankruptcy court in an effort to game the bankruptcy system. View "Clark v. Advanced Composites Group" on Justia Law

The Second Circuit affirmed the bankruptcy court's denial of Credit One's motion to compel arbitration on the basis of a clause in the cardholder agreement between Credit One and debtor. The court held that debtor's claim was not arbitrable because the dispute concerned a core bankruptcy proceeding and arbitrating the matter would present an inherent conflict with the goals of the Bankruptcy Code. In this case, the successful discharge of debt was not merely important to the Bankruptcy Code, it was its principal goal. The court explained that an attempt to coerce debtors to pay a discharged debt was thus an attempt to undo the effect of the discharge order and the bankruptcy proceeding itself. View "In re Orrin S. Anderson" on Justia Law

SPV, the assignee of Optimal Strategic, filed suit against UBS and its affiliated entities and individuals (collectively, Access), alleging that UBS and Access aided and abetted the Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff by sponsoring and providing support for two European-based feeder funds. The district court subsequently denied SPV's motion to remand the matter to state court and then granted separate motions to dismiss the complaint. The Second Circuit held that it had jurisdiction over this appeal; this litigation was "related to" the Madoff/BLMIS bankruptcies; the USB defendants lacked sufficient contacts with the United States to allow the exercise of general jurisdiction; the connections between the USB Defendants, SPV's claims, and its chosen New York forum were too tenuous to support the exercise of specific jurisdiction; and the court rejected SPV's two different theories of proximate cause. View "SPV OSUS Ltd. v. UBS AG" on Justia Law

Three groups of creditors appealed MPM's substantially consummated plan of reorganization under Chapter 11 of the Bankruptcy Code. The Subordinated Notes holders challenged the lower courts' conclusions that their claims were subordinate to the Second-Lien Notes holders' claims; the Senior-Lien Notes holders contended that the lower courts erroneously applied a below-market interest rate to their replacement notes; the Senior-Lien Notes holders challenge the lower courts' rulings that they were not entitled to a make-whole premium; and debtors argued that the court should dismiss these appeals as equitably moot. The Second Circuit found merit only in the Senior-Lien Notes holders' contention with respect to the method of calculating the appropriate interest rate for the replacement notes. The court held that the Second-Lien Notes stand in priority to the Subordinated Notes; held that the Senior-Lien Notes holders were not entitled to the make-whole premium; declined to dismiss any of the appeals as equitably moot; and remanded to the bankruptcy court to assess whether an efficient market rate could be ascertained, and if so, applied to the replacement notes. View "In re MPM Silicones, LLC" on Justia Law

Benjamin Ashmore appealed the district court's order dismissing him as the plaintiff in a whistleblower action under the Sarbanes-Oxley Act, 18 U.S.C. 1514A. Instead, the trustee of Ashmore's bankruptcy estate was substituted as plaintiff. The Second Circuit dismissed the appeal for lack of jurisdiction because the district court's dismissal of the case as to Ashmore and the substitution of the trustee as plaintiff were interlocutory orders that were not immediately appealable. The court vacated the temporary stay of the district court proceedings and denied Ashmore's pending motion to stay as moot. View "Ashmore v. CGI Group, Inc." on Justia Law

A group of hotel-related businesses, as well as investors and guarantors, filed suit alleging claims of fraud against the Royal Bank and two of its subsidiaries. The district court dismissed the claims because plaintiffs had failed to list their cause of action in a schedule of assets in their now-concluded bankruptcy proceeding, they lacked standing to bring the claim, and were barred by judicial estoppel. The claims of the investor and guarantors were dismissed as untimely and barred by the law of the case. The Second Circuit affirmed on the grounds of judicial estoppel and timeliness. The court held that, under Fifth Circuit law, the kind of LIBOR-fraud claim that BPP wanted to assert was "a known cause of action" at the time of confirmation, so that BPP's failure to list it in the schedule of assets was equivalent to a representation that none existed; the bankruptcy court "adopted" BPP's position; and BPP's assertion of the claims now would allow it to enjoy an unfair advantage at the expense of its former creditors. Furthermore, plaintiffs have not shown good cause for an untimely amendment, and the district court properly denied leave to amend. View "BPP Illinois v. Royal Bank of Scotland Group PLC" on Justia Law

Avoca Plaintiffs filed suits against New Kerr-McGee, alleging toxic tort claims. The suits were stayed when the owners/operators of the Avoca Plant, Tronox debtors, filed for bankruptcy. In this appeal, Avoca challenged the district court's order enforcing a permanent anti‐suit injunction issued after the bankruptcy settlement. New Kerr‐McGee had moved in the district court for an order enforcing the Injunction and for sanctions, asserting that the Injunction forecloses claims that arise from liabilities derived from or through the Tronox debtors that are also generalized and common to all creditors. The district court concluded that the claims are barred by the Injunction and, without imposing sanctions or finding contempt, ordered the Avoca Plaintiffs to dismiss with prejudice their state‐court complaints. The court rejected the Avoca Plaintiffs' assertions of appellate jurisdiction, concluding that the district court's order is not "final" for purposes of 28 U.S.C. 1291, because it neither found contempt nor imposed sanctions; the order is not a decision by the district court on review of a bankruptcy court order, as required by 28 U.S.C. 158(d); and the court lacked jurisdiction under 28 U.S.C. 1292(a)(1) because the district court properly construed (and neither modified nor continued) the Injunction. The court held that the Avoca Plaintiffs' personal injury claims based on conduct of the Tronox debtors, and asserted against New Kerr‐McGee on a variety of state‐law indirect‐liability theories, are generalized "derivative" claims that fall within the property of the bankruptcy estate. Accordingly, the court lifted the stay and dismissed the appeal for lack of jurisdiction. View "In re Tronox Inc." on Justia Law