Our “Must-Cite” Bankruptcy Cases

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August is that hot, humid time of the year when many professionals in the concrete jungles across this country decide to quietly slip away to more scenic locales (if you don’t believe us, try calling up your stockbroker right now… go ahead, we’ll wait).  Unfortunately, fellow bankruptcy practitioner, the law waits for no one.

You know the drill.  Just as you’re about to take off a little early to join your investment banker friends at the beach, an email arrives in your inbox.  Congrats!  You have been tasked with writing a memo about a bankruptcy topic you know next-to-nothing about.  Oh, and did we mention it was due “yesterday”?

Have no fear, loyal reader—we’re here to help.  We at the Weil Bankruptcy Blog have compiled our favorite “must-cite” cases—the sort of cases that no brief or motion on a particular issue should go without citing.  The criteria were simple: If your emergency memo fails to cite to one particular case, will it come back with a note saying, “You missed something.  TRY AGAIN!”?  If so, then you’ve got a “must-cite” case.  (By the way, it also sounds like you’ve got a jerk for a boss, with all this last-minute memo writing and mean post-it notes.)

Our “Must-Cite” Cases

(1) The best place to start looking for any substantive answer, of course, is the Bankruptcy Code itself.  If you happen to get lucky, the answer may be right there in the words of the statute, but sometimes you just need to spell it out for opposing counsel anyway.  As U.S. v. Ron Pair Enters. will tell you, a Bankruptcy Code statute means what it says, and it says what it means.

Key quote:  “In this case it is also where the inquiry should end, for where, as here, the statute’s language is plain, the sole function of the courts is to enforce it according to its terms.”

(2) It turns out your client is demanding some, shall we say, “unusual” relief from the court, and the Bankruptcy Code lacks the plain language you were hoping to find.  Sure, you can cite to section 105(a), but it looks a little lonely by itself on the page.  What to do?  Your answer may be a nod to Pepper v. Litton for the proposition that bankruptcy courts are courts of equity.

Key quote:  “Consequently this Court has held that for many purposes courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity.

(3) While you are here, you better make sure the bankruptcy court can even grant the relief your client wants.  As a loyal Weil Bankruptcy Blog reader, it’s almost redundant to mention, but bankruptcy court jurisdiction over state law issues starts with Stern v. Marshall—at least until Wellness Int’l Network v. Sharif arrives to explain things a little better.

Key quote:  “[B]ankruptcy courts may hear and enter final judgments in ‘core proceedings’ in a bankruptcy case.  In non-core proceedings, the bankruptcy courts instead submit proposed findings of fact and conclusions of law to the district court, for that court’s review and issuance of final judgment.”

(4) Maybe all your client really needs is to settle some crazy dispute so it can move on in life.  In re W.T. Grant Co. sets the standard for court approval (and fortunately, it’s not a tough bar to clear).  Sure, the case is almost as old as the Bankruptcy Code itself, but it still resonates today across the circuits whenever a Rule 9019 motion is filed.

Key quote:  “In undertaking an examination of the settlement, we emphasize that this responsibility of the bankruptcy judge, and ours upon review, is not to decide the numerous questions of law and fact raised by appellants but rather to canvass the issues and see whether the settlement falls below the lowest point in the range of reasonableness.”

(5) Another piece of advice—know your role.  If you are looking to define the limits of a debtor in possession’s role and fiduciary duties, the Supreme Court’s Commodity Futures Trading Comm’n v. Weintraub is the place to start.

Key quote:  “The trustee is accountable for all property received and has the duty to maximize the value of the estate.”

(6) By the way, the debtor can’t maximize the value of the estate until it knows what counts as property of the estate.  To make that determination, look to another oldie but goodie from the Supreme Court, Butner v. U.S., which explains where your section 541 analysis should begin.  Unfortunately, it also explains that you’re going to need to find another set of statutes.

Key quote:  “Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.”

(7) Maybe the reason this brief was due yesterday is because someone forgot to give your client notice there was a confirmation hearing in the first place.  Do you represent the mysterious and terrifying “unknown creditor” who was bound by a publication notice?  Start with Mullane v. Cent. Hanover Bank & Trust Co., the must-cite case for due process considerations (and the only case on our list that didn’t involve a financially-distressed entity).

Key quote:  “An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.”

(8) You’re reviewing the debtor’s plan, but you can’t figure out why the creditor you represent got stuck in a class all by its lonesome, when it seems to fit in perfectly well with another class.  Are you looking for a chance to invoke a term named after the ever-popular former Massachusetts Governor Elbridge Gerry?  Do you want your objection to conjure up images of Moses (or Charlton Heston) coming down off of Mount Sinai holding stone tablets?  Look no further than Phoenix Mut. Life Ins. Co. v. Greystone III, J.V. for the one case that fulfills those needs.

Key quote:  “Those courts did not, however, adhere to the one clear rule that emerges from otherwise muddled caselaw on § 1122 claims classification: thou shalt not classify similar claims differently in order to gerrymander an affirmative vote on a reorganization plan.”

(9) Is the debtor trying to play the “new value” card in its plan?  Or maybe you just need to brush up on the basics of absolute priority before you figure out your real plan of attack.  Either way, Bank of Am. Nat. Trust and Savings Assoc. v. 203 N. LaSalle St. P’ship is your “must-cite” case.

Key quote:  “An old equity holder simply cannot take property under a plan if creditors are not paid in full.”

(10) So there’s no “new value” issue, but maybe you can go after the debtor’s plan on feasibility.  The chapter 11 case of Johns-Manville, once the world’s largest miner of asbestos, gave us Kane v. Johns-Mansville Corp.., a 1988 Second Circuit decision that has been cited for feasibility issues in every circuit in the country.  Plus, what is there not to appreciate about a bankruptcy case filed in 1982 that nonetheless spawned (yet another) Second Circuit opinion as recently as two weeks ago?

Key quote:  “Subsection 1129(a)(11) requires that the plan is not likely to be followed by liquidation or the need for further financial reorganization.  As the Bankruptcy Court correctly stated, the feasibility standard is whether the plan offers a reasonable assurance of success.  Success need not be guaranteed.”

Faithful readers, we know we could have doubled this list easily, but we want to hear from you.  What are the cases that you use over and over—the ones that you consider “must-cites?”  Click here to give us your suggestions, and we will update the list at the end of the summer just before everybody gets back to business.