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Golf Channel Finds the Fairway in Fraudulent Transfer Litigation – Good News for Vendors in Ponzi Scheme Cases

In some good news for commercial vendors, the Supreme Court of Texas recently ruled that payments for ordinary services provided to an insolvent customer are not recoverable as fraudulent transfers, even if the customer turns out to be a “Ponzi scheme” instead of a legitimate business.

In Janvey v. Golf Channel, Inc.,[1] the Court considered whether, under the Texas Uniform Fraudulent Transfer Act (“TUFTA”), a vendor should be required to return payments it received in good faith for services rendered simply because its customer turned out to be a Ponzi scheme and not a lawful business.[2]  Ultimately, the Court determined that the objective market value of services provided in the ordinary course of business serves as a defense to a fraudulent transfer claim, despite the illegitimate nature of the Ponzi scheme. In reaching that conclusion, the Court rejected the contention that the

Preference Defendants, Rejoice! Services Billed in a Lump Sum Can Be Allocated Per Diem, for Your New Value Defense

May 4, 2016

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Preference actions are, for the most part, insanity. We won’t go on a tirade here. But recently, a ruling brings common sense to the “new value” defense.

Specifically, all bankruptcy lawyers know that any “new value” must come after the allegedly preferential transfer. This can be problematic for service providers, especially services provided daily, or over time. The debtor may, for instance, pay a prior invoice on April 10, and then file for bankruptcy on April 20, or 30, before the service provider generates an invoice for all of April’s services. A crafty trustee may thus argue that there is no evidence of new value provided after April 10, and hence no new value defense.

The recent case of Levin v. Verizon Business Global, LLC (In re OneStar Long Distance, Inc.), 3:15-cv-00049 (S.D. Ind. March 28, 2016) is a perfect example of this. The defendant provided telecommunications services to the

7th Circuit Disrupts Commercial Certainty in Lease Terminations; Landlords, We Hate That You Have to Read this Blog Post

There are many tenants that are, shall we say, “problem children.” They pay late, open late, breach, junk up your strip or building, threaten, the works. Sometimes, the landlord finds it easier just to reach a lease termination agreement with such a tenant, with the parties walking away with a mutual release. If the lease is below market, or the landlord is really motivated to move this tenant along, the landlord even provides some “keys money” to terminate the lease.

This normal practice may now be turned on its head. In a recent opinion, the Seventh Circuit ruled that a pre-bankruptcy lease termination was a “transfer” under the Bankruptcy Code. Because it was a “transfer,” if the tenant did not receive “reasonably equivalent value” for the value of the lease (such as where the tenant alleges it was a below market lease, which could have been assigned in bankruptcy for

10th Circuit Holds That First Time Transactions Fall Within 11 U.S.C. 547(c)(2), Ordinary Course of Business Defense

In a decision that surprised many, the United Stated Circuit Court of Appeals for the Tenth Circuit (the “10th Circuit Court of Appeals”) affirmed decisions finding that a payment made on account of a first time transaction between a debtor and creditor can qualify for the ordinary course of business defense under 11 U.S.C. § 547(c)(2).

C.W. Mining Company (the “Debtor”) entered into an equipment agreement with a new contractor, SMC Electric Products, Inc. (“SMC”), in an attempt to increase the Debtor’s coal production. This agreement was reached several months before the filing of an involuntary bankruptcy petition. Within 90 days of the involuntary bankruptcy filing, the Debtor made the first payment under the agreement in the amount of $200,000 to SMC via wire transfer. The Trustee filed an adversary proceeding seeking to avoid and recover the $2000,000 payment under 11 U.S.C. §§ 547(b) and 550, as an alleged preferential

Earth to Creditors: Triangular Payment Arrangements May Constitute “Reasonably Equivalent Value”

Satellite Orbiting Earth.

The Eleventh Circuit Court of Appeals recently clarified the meaning of “reasonably equivalent value” in a complex fraudulent transfer case.  Its decision in In re PSN USA, Inc., Case No. 14-15352 (11th Cir. Sept. 4, 2015), provides particular insight on fraudulent transfers in the context of parent-subsidiary and other triangular payment arrangements.  The Eleventh Circuit held that even though the debtor, a cable television channel, was not a party to the underlying satellite services contract at issue, payments made from the debtor to the satellite services company pursuant to its parent company’s contracts constituted “reasonably equivalent value” and could not be avoided as constructive fraudulent transfers.

PSN USA, Inc. (the “Debtor”) operated the PSN Channel, a cable television station that broadcasted live and recorded sporting events throughout Latin America.  Pan

Will your claim in bankruptcy withstand the test?

Within the past year bankruptcy courts and federal courts adjudicating bankruptcy appeals have further developed the law governing claims in bankruptcy which are generally governed by Sections 501 and 502 of Title 11 of the United States Code (the “Bankruptcy Code”) and related Federal Rules of Bankruptcy Procedure. Below is a discussion regarding two distinct cases that discuss the validity and priority of claims in bankruptcy.

Consumer Debt Buyers Beware: Think Before Filing A Proof of Claim

The Eleventh Circuit Court of Appeals held that a Chapter 13 debtor could prosecute an adversary proceeding against a consumer debt buyer for violating the Fair Debt Collections Practices Act (“FDCPA”) based on the creditor filing a proof of claim on debt which was uncollectible under the Alabama statute of limitations. Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014).

It appears the Eleventh Circuit’s decision comes in response to a

Inside The N.D. Ill.’s Broad Reading Of Section 546(e)

May 11, 2015

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In what appears to be a case of first impression, the United States Bankruptcy Court for the Northern District of Illinois has concluded that payments to a master servicer of a commercial mortgage backed securitization (a “CMBS”) could not be avoided as either allegedly constructively fraudulent transfers or as allegedly preferential transfers because the securities contract “safe harbor” under section 546(e) of the Bankruptcy Code precluded such claims. Krol v. Key Bank Nat’l Ass’n. (In re MCK Millenium Centre Parking, LLC), 2015 Bankr. LEXIS 1432 (Bankr. N.D. Ill. Apr. 24, 2015). A Bryan Cave team, led by New York partner Larry Gottesman, represented the defendants.

The background of the decision is straightforward. The chapter 7 trustee of the debtor brought an adversary proceeding against Key Bank (“Key”), as master servicer, and the related CMBS trust, alleging that the debtor had made loan payments on a loan owed by the debtor’s

Voidable If Not Fraudulent — NCCUSL Approves the Uniform Voidable Transactions Act

In July 2014, the National Conference of Commissioners on Uniform State Laws (NCCUSL) approved the Uniform Voidable Transaction Act (UVTA), a long-awaited update to the Uniform Fraudulent Transactions Act (UFTA). As the new title suggests, the UVTA, like the UFTA before it, encompasses a broader range of transactions than those traditionally deemed fraudulent and therefore avoidable under the common law. The amended Act clarifies and expands the burden of proof as well as presenting new challenges and opportunities to creditors seeking to avoid transfers by debtors operating under insolvent conditions. This development also has importance for creditors with claims in bankruptcy due to the bankruptcy trustee’s power to bring avoidance actions based on state law under 11 U.S.C. § 544(b) and thereby increase the assets available to repay debts.

Under the amended Act as before, creditors bringing constructive fraudulent transfer claims have the ability to avoid transactions which deprive the

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