Month-In-Brief
Source: Business Law Today , NOVEMBER 2017, (NOVEMBER 2017)
Published by: American Bar Association
Stable URL: https://www.jstor.org/stable/10.2307/27031158
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Business Law Today
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Month-In-Brief:
Bankruptcy &
Finance
CURRENT MONTH (NOVEMBER
2017)
ARTICLES &
Commercial Law
Eighth Circuit on Construing
Indemnification Clauses
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
Feed Management Systems Inc. v. Comco Systems Inc., 823 F.3d
488 (8th Cir. 2016). The Eighth Circuit held that it will “strictly
construe indemnification agreements that shift liability for the
indemnitee’s own negligence.” When an indemnification
agreement does not shift liability for negligence, ordinary
principles of contract interpretation apply.
Second Circuit on Limits of Court
Jurisdiction over Corporations
Registered to Conduct Business in the
Court’s State
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
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Brown v. Lockheed Martin Marietta Corporation, 814 F.3d 619 (2d
Cir. 2016). The State of Connecticut does not have general
personal jurisdiction over a corporation registered to do business in
the state even though the corporation does significant business in
the state. Registration is not consent to jurisdiction, and a
corporation is not “at home” in the state where it is not formed
under the law of that state or have its chief executive office in that
state.
Second Circuit on Review by Courts of
Arbitration Awards
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
National Football League Management Council v. National
Football League Players Ass’n (Brady), 820 F.3d 527 (2d Cir.
2016). A court’s review of an arbitration award is “very limited.”
The court is “not authorized to review the arbitrator’s decision on
the merits despite allegations that the decision rests on factual
errors or misinterprets the parties’ agreement.” The court may
“inquire only as to whether the arbitrator acted within the scope of
his authority as defined by the collective bargaining agreement.
Because it is the arbitrator’s view of the facts and the meaning of
the contract for which the parties bargained, courts are not
permitted to substitute their own.” The court’s “task is simply to
ensure that the arbitrator was ‘even arguably construing or
applying the contract and acting within the scope of his authority’
and did not ‘ignore the plain language of the contract.’”
Fourth Circuit Upholds LenderImposed Transfer Restrictions in an
LLC Operating Agreement
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
In re Kang, 2016 WL 6958438 (4th Cir. 2016). Restrictions in a
limited liability company’s operating agreement on the
encumbrance of LLC property and the transfer of membership
interests—which were added to protect the interests of a lender—
were enforceable and rendered void a transfer of membership
interests in violation of the restrictions.
Bankruptcy Law
Seventh Circuit on Lease Termination
Being a Transfer for Preference
Analysis
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
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In re Great Lakes Quick Lube LP, 816 F.3d 482 (7th Cir. 2016).
The Seventh Circuit found that a termination of a lease could be a
“transfer” for preference purposes. The Bankruptcy Code has an
expansive definition of the term “transfer,” which includes each
mode, direct or indirect, absolute or conditional, voluntary or
involuntary, of disposing of or parting with (i) property; or (ii) an
interest in property.” 11 U.S.C. § 101(54)(D). The court concluded
that valid prepetition lease terminations can be subject to
avoidance in a subsequent bankruptcy, stating “[the debtor] had an
interest in property—namely the leaseholds—which it parted with
by transferring that interest to [the landlord]. That was a transfer to
one creditor of what might have been an asset to [the debtor’s]
other creditors had the transfer not taken place; and if so it was a
preferential transfer and therefore avoidable.”
Bankruptcy Ninth Circuit on Loan
Default Rate Applicability in
Bankruptcy
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
In re New Investments, Inc., 840 F.3d 1137 (9th Cir. 2016).
Although a Chapter 11 plan may cure a default on a secured
obligation, and thereby de-accelerate the debt, because § 1123(d)
provides that the amount necessary to cure must be determined
according to the agreement and applicable non-bankruptcy law, the
debtor remains obligated to pay interest at the default rate. The
court did not specify whether the default rate applies for the
remainder of the loan or only until cure is achieved.
Seventh Circuit on Whether
Settlement Payments Made through a
Financial Institution Are Safe-Harbored
from Avoidance
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
FTI Consulting, Inc. v. Merit Management Group, LP, 830 F.3d
690 (7th Cir. 2016), cert. granted, 137 S. Ct. 2092 (2017). The
protection from avoidance for settlement payments by or to a
financial institution does not protect a transfer that is conducted
through a financial institution that is neither the debtor nor the
transferee, but merely a conduit. Accordingly, a settlement
payment the debtor made for the purchase of securities, which was
handled by a bank as an escrow agent, was not protected and could
be avoided as a fraudulent transfer to the seller of the securities.
First Circuit on Effect of Rejection of a
Trademark License
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By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
Mission Prod. Holdings, Inc. v. Tempnology LLC (In re
Tempnology LLC), 559 B.R. 809 (B.A.P. 1st Cir. 2016). The court
followed Sunbeam Products, Inc. v. Chicago American
Manufacturing, LLC, 686 F.3d 372 (7th Cir. 2012), and held that a
rejection of a trademark license is a “breach” of the license, but not
an avoidance of the license. Thus, the fact that Bankruptcy Code §
365(n) (which protects a license from being stripped of rights to
use licensed intellectual property) does not refer to trademarks
does not matter.
Uniform Commercial Code
Eighth Circuit on Lack of Rights to
Proceeds and Whether Trust
Relationship Exists
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
In re WEB2B Payment Solutions, Inc., 815 F.3d 400 (8th Cir.
2016). A retailer that offered check-cashing and payday loan
services, and that had hired the debtor to process checks received
from its customers, was not entitled to the check proceeds that the
debtor had on the petition date. The funds were not held in an
express trust because the agreement contained neither a
requirement to segregate the retailer’s funds nor an explicit
declaration of trust. There was no resulting trust because the
parties did not intend to create a trust. Imposition of a constructive
trust was not warranted because the checks were properly
negotiated to the debtor, and thus the retailer had no property rights
in them.
Seventh Circuit on Security Interest
Perfection in Rights under a Land
Contract
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
In re Blanchard, 819 F.3d 981, 89 U.C.C. Rep. Serv. 2d 512, 2016
WL 1459568 (7th Cir. 2016). The Seventh Circuit resolved this
question of a pledge of rights under a land contract by applying
Wisconsin real estate law. The potential applicability of UCC
security interest provisions did not override real estate law. A
vendor’s interest in a land contract constitutes an “account” under
UCC Article 9, and filing a financing statement might be an
effective way to perfect a security interest on that interest.
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Second Circuit on Language
Specificity for Collateral Description
By Steven O. Weise, Proskauer Rose LLP, and Teresa Wilton
Harmon, Sidley Austin LLP
In re Sterling United, Inc., 674 Fed. Appx. 19, 2016 WL 7436608
(2d Cir. 2016). A financing statement described the collateral as
“[a]ll assets of the Debtor including, but not limited to, any and all
equipment … located at or relating to the operation of the premises
at 100 River Rock Drive, Suite 304, Buffalo, New York.” The
indication of the collateral was sufficient despite the fact that the
stated location of the collateral was incorrect, because the language
specifying the location modified the clause beginning “including,
but not limited to,” not the opening phrase, “[a]ll assets of the
Debtor.”
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IN-DEPTH
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November 3, 2017
The Uniform Commercial Code Survey
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