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August 2014 Archives

Court: Not all foreign whistleblowers protected under Dodd-Frank

Signed into law in 2010, the Dodd-Frank Act provides protections to employees who blow the whistle on potential regulatory violations in the financial services industry. Provisions in the law protect whistleblowers from retaliation by their employers. However, a recent U.S. appellate court ruling raises the question of whether certain foreign employees of multinational corporations are afforded those same protections.

The Ninth Circuit's Bankruptcy Appellate Panel Holds That a Non-Debtor Spouse May Purchase a Debtor's Claims Under Section 363(i) When a Third Party's Prior Purchase of the Same Claims Was Not Consummated (e.g. Payment Was Not Tendered)

The Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") recently issued the opinion, Kallman & Co. LLP Gottlieb (In re Lewis), BAP No. CC-13-1367-TaDKi (9th Cir. BAP Aug. 20, 2014), which held that a non-debtor spouse may purchase a debtor's claims under Section 363(i) of the Bankruptcy Code when a third party's prior purchase of the same claims was not consummated. Prior to filing bankruptcy, the Debtor commenced an action against Kallman & Co. LLP (K&C), his former employer, in California state court ("Claims"). The Debtor then filed a Chapter 7 bankruptcy filing, but the Debtor's spouse ("Non-Filing Spouse") was not included in the bankruptcy filing and was thus not a debtor. K&C and the Chapter 7 Trustee reached an agreement where K&C would purchase the Claims for $40,000, subject to a minimum overbid of $10,000. The bankruptcy court overruled opposition by the Debtor and since there were no overbids, approved the sale under Section 363(b) of the Bankruptcy Code to K&C ("K&C Sale Order"). However, one week after the K&C sale hearing, the Non-Filing Spouse notified the Trustee that she intended to exercise her right under Section 363(i) to purchase the Claims for $40,000.

Gov. Brown signs law requiring disclosure from real estate brokers

Whether you're purchasing, selling or leasing a property, commercial real estate transactions must be carefully planned, executed and documented in a contract that minimizes risk and protects your interests. The value of the property and any potential liabilities have to be accurately assessed, and a legal professional with experience in a wide range of real estate transactions can provide counsel and guard against pitfalls.

Chapter 11 or Chapter 7: Which is right for your business?

Risk is a part of business. You can take action to minimize risk, but there may still be unforeseen events that result in losses. The Bankruptcy Code takes into account risk and offers protections for debtors and creditors. At Shulman Hodges & Bastian LLP, we help businesses choose the appropriate debt relief option, whether it's restructuring the business through Chapter 11, a liquidation under Chapter 7, an out of court workout, an assignment for the benefit of creditors, or a formal dissolution.

Former employees claim SpaceX failed to notify about layoff

In California, if you have 75 or more employees on the payroll and you plan to lay off 50 or more, then you are required to give written notice to the employees at least 60 days before the layoff takes effect. Under the state's Worker Adjustment and Retraining Notification Act ("WARN Act"), employers who don't provide the required notification could have to pay as much as 60 days worth of benefits and compensation to the affected employees. Companies could also face civil penalties for failure to provide sufficient notice.

Carve-out agreement will only be allowed if Chapter 7 trustee rebuts presumption of impropriety

The Ninth Circuit U.S. Bankruptcy Appellate Panel in In re KVN Corp., Inc., 13-1318, decided July 29, 2014, remanded a bankruptcy case from the Northern District of California to determine if a carve-out agreement reached between a Chapter 7 trustee and a bank resulted in a benefit to the bankruptcy estate. Upon the debtor's bankruptcy filing, the bank approached the trustee seeking her aid in selling the lender's collateral. The trustee agreed but in exchange, required the bank to pay storage costs and split the net proceeds from the sale with the estate. The trustee estimated the sale would earn up to $4,400 for the benefit of unsecured creditors. The Bankruptcy Court denied approval of the carve-out agreement and the trustee appealed. The BAP agreed with the Bankruptcy Court that generally, fully encumbered property should not be sold by a Chapter 7 trustee and that there is a presumption of impropriety in carve-out agreements but that carve-out agreements are not per se banned. In order to rebut the presumption of impropriety, however, a trustee must show that s/he has fulfilled his/her basic duties, that the agreement benefits the estate, and the terms of the agreement were fully disclosed. In this case, the BAP had a difficult time finding that the carve-out agreement was in the best interest of the estate and remanded the case. Click here to read the full opinion.

BAP holds that post-petition earnings earned during Chapter 11 revert to debtors upon conversion to Chapter 7

The U.S. Bankruptcy Appellate Panel for the Ninth Circuit ("BAP") recently held in Wu v. Markosian (In re Markosian), BAP No. NC-13-1339-JuKiD (9th Cir. BAP March 12, 2014), that a bonus earned by the debtor by his employer for services performed while the case was pending in Chapter 11 reverted to the debtors upon conversion of the case to Chapter 7 and was not the property of the Chapter 7 bankruptcy estate. Earnings received post-petition in a Chapter 11 case are generally the property of the estate under Section 1115(a)(2) of the Bankruptcy Code but are not the property of the estate in a Chapter 7 case under Section 541(a)(6) of the Bankruptcy Code. The BAP based its decision on Section 348(f)(1)(A) of the Bankruptcy Code which excludes a debtor's post-petition earnings from the property of a Chapter 7 estate upon conversion from a Chapter 13 case. The BAP found no difference between the conversion of a Chapter 13 case to a Chapter 7 case versus the conversion of a Chapter 11 case to a Chapter 7 case. However, in Markosian, the case was originally filed as a Chapter 7, converted to Chapter 11, and then converted back to Chapter 7. The BAP, citing to Magallanes v. Williams (In re Magallanes), 96 B.R. 253, 255 (9th Cir. BAP 1988), found that property of the estate is determined as of the filing date of the Chapter 11 petition, not the conversion date. In this case, on the Petition Date, the case was originally filed in a Chapter 7 case, so Section 541(a)(6) of the Bankruptcy Code excluded post-petition earnings from the estate. Thus, income that came into the Chapter 11 estate is recharacterized as the property of the debtor upon conversion. Query whether the Court would come to the same result if the filing was originally commenced as a Chapter 11 such that on the petition date, post-petition earnings were property of the Chapter 11 estate.

Arizona Court of Appeals Finds Alleged Security Interest in Lottery Winnings Did Not Attach Due to Lack of "Value"

In Woodbridge Structured Funding, LLC v. Arizona Lottery, 326 P.3d 292 (Ariz. App. 2014), the Arizona Court of Appeals held that the first company's alleged security interest in lottery winnings did not attach because the first company never gave "value" to the winner (e.g. the first company never made any payment to the winner). The lottery winner had entered into and signed a structured settlement with the first company whereby the winner attached his lottery rights in return for a lump sum. A few hours later, the lottery winner cancelled the contract with the first company. The first company refused to acknowledge the cancellation and filed a UCC-1 financing statement. The lottery winner then entered into a new agreement with a different structured settlement company and that second company sought to invalidate the UCC-1 filing. The Court held that the first company's security interest never attached because it did not give "value" - the firm never gave any money to the winner - and as such, the first company did not have a valid security interest in the lottery winnings. 

The Ninth Circuit's Bankruptcy Appellate Panel Holds That a Creditor Does Not Violate Automatic Stay By Maintaining Contempt Proceeding Against the Debtor

The Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") recently issued the opinion, Yellow Express LLC v. Dingley (In re Dingley), BAP No. NV-13-1261-KiJuTa (9th Cir. BAP Aug. 6, 2014), which held that a creditor does not violate the automatic stay by maintaining a state court contempt proceeding against the debtor because the state court contempt proceedings related to court-ordered sanctions for the debtor's discovery violations. In 2009, the appellants had filed a state court action against the debtor and two LLCs he owned and controlled. One year prior to the bankruptcy filing, the state court ordered the debtor and his two LLCs to pay sanctions to appellants for their willful failure to appear for depositions. The debtor and the two LLCs did not pay the sanctions. On April 2, 2013, the state court judge issued an order to show cause ("OSC") why the debtor and the LLCs should not be held in contempt for nonpayment. The debtor filed a Chapter 7 proceeding on April 8, 2013.

Righting wrongs through a professional negligence claim

A successful business is operated and grown by good, smart work. The effective coordination of skills and experience across jobs can have extremely positive outcomes, and employees and licensed professionals have to be carefully chosen to protect your interests, reduce risks, handle operations and build profits.

Shareholders approve Safeway-Albertsons merger in California

Major mergers and acquisitions continue to take shape in the supermarket industry. In June we discussed a 14-percent increase in earnings per share after Kroger paid $2.9 billion for Harris Teeter Supermarkets. Kroger is currently the nation's largest supermarket chain.

Contract dispute between USPS and HP settled for $32.5 million

Legal contracts are a fundamental part of doing business. With a good written contract that carefully and clearly sets out the terms and requirements of a transaction, costly liabilities and pitfalls can be avoided. When a party to a contract violates, intentionally or not, the agreed-upon terms, then an experienced legal team can seek a cost-efficient, out-of-court resolution or litigate if necessary.

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