Justia Securities Law Opinion Summaries

Articles Posted in Bankruptcy
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The Court of Appeals held that, for purposes of New York's Uniform Commercial Code (UCC) 9-406, an "assignee" includes the holder of a presently exercisable security interest in an assignor's receivables.New Style Contractors, Inc. engaged Checkmate Communications LLC as a subcontractor. Pursuant to a promissory note and security agreement, Checkmate could borrow up to $3 million from Worthy Lending LLC. Checkmate granted Worthy a security interest in its assets, and Worthy filed a UCC-1 financing statement against Checkmate perfecting its secured position regarding Checkmate's assets. Worthy then sent New Style a notice of its security interest and collateral assignment in the New Style accounts. When Checkmate defaulted on the note and filed for bankruptcy. Worthy brought this action against New Style pursuant to UCC 9-607, alleging that Worthy was entitled to recover all amounts New Style owed to Checkmate after New Style's receipt of the notice of assignment. Supreme Court dismissed the complaint. The Appellate Division affirmed, concluding that Worthy did not have an independent cause of action against New Style pursuant to UCC 9-607 because the statute does not authorized a secured creditor as distinct from an assigned, to recover from a nonparty debtor like New Style. The Court of Appeals reversed, holding that the language of the statute required reversal. View "Worthy Lending LLC v. New Style Contractors, Inc." on Justia Law

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The case-at-hand returned to the Eleventh Circuit for disposition from the Florida Supreme Court, to which the court certified three questions of Florida law. In considering the court’s certified questions, the Florida Supreme Court found dispositive a threshold issue that the court did not expressly address: “Is the filing office’s use of a ‘standard search logic’ necessary to trigger the safe harbor protection of section 679.5061(3)?”   The Florida Supreme Court answered that question in the affirmative. And the court further determined that Florida does not employ a “standard search logic.” The Florida Supreme Court thus concluded that the statutory safe harbor for financing statements that fail to correctly name the debtor cannot apply, “which means that a financing statement that fails to correctly name the debtor as required by Florida law is ‘seriously misleading’ under Florida Statute Section 679.5061(2) and therefore ineffective.   The Eleventh Circuit reversed the district court’s order affirming the bankruptcy court’s grant of Live Oak Banking Company’s cross-motion for summary judgment and remand for further proceedings. The court held that Live Oak did not perfect its security interest in 1944 Beach Boulevard, LLC’s, assets because the two UCC-1 Financing Statements filed with the Florida Secured Transaction Registry (the “Registry”) were “seriously misleading” under Florida Statute Section 679.5061(2), as the Registry does not implement a “standard search logic” necessary to trigger the safe harbor exception set forth in Florida Statute Section 679.5061(3). View "1944 Beach Boulevard, LLC v. Live Oak Banking Company" on Justia Law

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Defendants JABA Associates LP and its general partners appealed the district court’s judgment granting summary judgment to Plaintiff, (“Trustee”), pursuant to the Securities Investor Protection Act of 1970 (“SIPA”). JABA was a good faith customer of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and held BLMIS Account Number 1EM357 (the “JABA Account”). The Trustee brought this action to recover the allegedly fictitious profits transferred from BLMIS to Defendants in the two years prior to BLMIS’s filing for bankruptcy. The district court granted recovery of $2,925,000 that BLMIS transferred to Defendants in the two years prior to BLMIS’s filing for bankruptcy, which made it recoverable property under SIPA.Defendants appealed the district court’s grant of summary judgment. The Second Appellate District affirmed reasoning that because is no genuine dispute of material fact that Bernard L. Madoff transferred the assets of his business to Defendants, which made it recoverable property under SIPA, the district court properly granted summary judgment to Plaintiff. The court reasoned that here Here, Defendants argue that the Bankruptcy Code does not authorize an award of prejudgment interest because the statute is silent. Yet Defendants do not make any argument that this silence is dispositive. Further, the court wrote that prejudgment interest has been awarded against other similarly situated defendants in related SIPA litigation. Thus, the district court appropriately balanced the equities between the parties. Given this, the district court did not abuse its discretion in granting an award of 4 percent prejudgment interest to the Trustee. View "In re: Bernard L. Madoff Investment Securities LLC" on Justia Law

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In 2017, the Delaware Court of Chancery held that Plaintiff Robert Lenois had pled with particularity that the controlling stockholder of Erin Energy Corporation (“Erin” or the “Company”) had acted in bad faith. It further held that Lenois had pled either “very serious claims of bad faith” or “a duty of care claim” against the remainder of Erin’s board in connection with two integrated transactions. In those transactions, the controller allegedly obtained an unfair windfall by selling certain Nigerian oil assets to Erin. The trial court dismissed the derivative claims on standing grounds (i.e., holding that demand was not excused). Lenois appealed that decision. During the pendency of the appeal, Erin voluntarily filed for bankruptcy. The Chapter 7 Trustee obtained the permission of the Bankruptcy Court to pursue, on a direct basis, the claims that had been asserted in the Lenois action in the Court of Chancery. As a result of the bankruptcy proceedings, which vested the Trustee with control over the claims, the Delaware Supreme Court determined that the sole issue on appeal was moot. The case was remanded to the Court of Chancery to resolve two pending motions — a Rule 60(b) motion and the Trustee’s motion pursuant to Rule 25(c) to be substituted for nominal defendant Erin and then realigned as plaintiff (the “Realignment Motion”). The Court of Chancery denied the Rule 60(b) motion and summarily denied the Rule 25(c) motion. Here, the Supreme Court reversed, holding the Court of Chancery should have granted the Trustee’s Substitution and Realignment Motion. View "Lenois v. Lukman" on Justia Law

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Plaintiffs sued Morrison in Alabama state court in 2006, alleging common-law fraud and Alabama Securities Act violations, later adding claims under the Alabama Uniform Fraudulent Transfer Act, alleging that Morrison had given property to his sons to defraud his creditors. Morrison filed for Chapter 7 bankruptcy. The bankruptcy court allowed the Alabama case to proceed but stayed the execution of any judgment. Plaintiffs initiated a bankruptcy court adversary proceeding, seeking a ruling that their state-court claims were not dischargeable. The bankruptcy court entered Morrison’s discharge order with the adversary proceeding still pending. In 2019, the Alabama trial court entered judgment ($1,185,176) against Morrison on the common-law fraud and Securities Act claims but rejected the fraudulent transfer claims.In the adversary proceeding, the bankruptcy court held that the state-court judgment was excepted from discharge, 11 U.S.C. 523(a)(19), as a debt for the violation of state securities laws, and later ruled that the discharge injunction barred appeals against Morrison on the fraudulent transfer claims. The court found the "Jet Florida" doctrine inapplicable because Morrison would be burdened with the expense of defending the state-court suit. The district court and Eleventh Circuit affirmed, rejecting arguments that the fraudulent transfer suit is an action to collect a non-dischargeable debt (securities-fraud judgment) or that Plaintiffs should be allowed to proceed against Morrison as a nominal defendant, to seek recovery from the fraudulent transferees. The bankruptcy court has discretion in deciding whether to allow a suit against a discharged debtor under Jet Florida. View "SuVicMon Development, Inc. v. Morrison" on Justia Law

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After the Bernie Madoff Ponzi scheme collapsed, Picard was appointed under the Securities Investor Protection Act, 15 U.S.C. 78aaa (SIPA), as the liquidation trustee for Bernard L. Madoff Investment Securities LLC (BLMIS). The Act established a priority system to make customers of failed brokerages whole before other general creditors. Where customer property is insufficient to satisfy customers' claims, the trustee may recover property transferred by the debtor that would have been customer property but for the transfer if and to the extent that the transfer is void or voidable under the Bankruptcy Code. 15 U.S.C. 78fff–2(c)(3). The provisions of the Bankruptcy Code apply only to the extent that they are consistent with SIPA.Picard attempted to recover transfers of money that the defendants had received from BLMIS in excess of their principal investments. The defendants are BLMIS customers who were unaware of the fraud but profited from it by receiving what they thought were legitimate profits; the funds were actually other customers' money. The Second Circuit affirmed summary judgment in favor of Picard. The Bankruptcy Code affirmative defense that permits a transferee who takes an interest of the debtor in property "for value and in good faith" to retain the transfer to the extent of the value given does not apply in this SIPA liquidation. The transfers were not "for value" and recovery would not violate the two-year limitation. View "In re: Bernard L. Madoff Investment Securities LLC" on Justia Law

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In this case, a byproduct of litigation stemming from the derailment of a Montreal, Maine & Atlantic Railway, Ltd. (MMA) freight train carrying crude oil in Lac-Megantic, Quebec, the First Circuit affirmed the district court's entry of judgment in favor of Robert Keath, the estate representative of MMA, and against creditor Wheeling & Lake Erie Railway Company, holding that, giving due deference to the fact-finder's resolution of the burden of proof, the judgment must be affirmed.One month after the derailment, MMA filed a voluntary petition for protection under Chapter 11 of the Bankruptcy Code. Wheeling instituted an adversary proceeding in the bankruptcy court against MMA and the estate representative, seeking a declaratory judgment regarding the existence and priority of its security interest in certain property of the MMA estate. The case involved intricate questions concerning secured transactions, carriage of goods, and corporate reorganization. After a settlement, the bankruptcy court ruled in favor of the estate representative. The First Circuit affirmed, holding (1) ultimately, this case turned on principals relating to the allocation of the burden of proof and the deference due to the finder of fact; and (2) giving due deference to the fact-finder's resolution of the burden of proof issue, the district court's judgment must be affirmed. View "Wheeling & Lake Erie Railway Co. v. Keach" on Justia Law

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The First Circuit affirmed the judgment of the Title III court granting summary judgment against Bondholders, who owned bonds issued in 2008 by the Employees Retirement System of the Government of the Commonwealth of Puerto Rico (the System), and in favor of the Financial Oversight and Management Board for Puerto Rico (the Board), holding that the Bondholders did not have security interest in certain of the System's assets.In 2016, the System filed Title III petitions for bankruptcy protections offered under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), 48 U.S.C. 2101-2241, and PROMESA's Title III, 2161-2177. The System subsequently filed two lawsuits against the Bondholders seeking declaratory relief on the validity, priority, extent and enforceability of the Bondholders' asserted security interest in the System's postpetition assets, including employer contributions to the System received postpetition. The Title III court granted summary judgment against the Bondholders. The First Circuit affirmed, holding (1) 11 U.S.C. 552(a) prevents the Bondholders' security interest from attaching to postpetition employers' contributions; (2) the Bondholders did not have special revenue bonds under 11 U.S.C. 902(2)(A) or (D); and (3) Congress intended section 552 to apply retroactively. View "Employees Retirement System v. Andalusian Global Designated, Employees Retirement System" on Justia Law

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The class representative of federal securities class actions appealed the dismissal of the unsecured creditor claim and amended claim he filed in the pending Chapter 7 bankruptcy proceeding of lead class counsel, Green Jacobson, P.C. The Eighth Circuit held that the claim for the cy pres distribution was no longer an issue because the distribution had been returned by the charity and deposited with the district court clerk for ultimate distribution for the benefit of the NationsBank class; the negligent supervision claim was time-barred; the disgorgement claim was not time-barred by Missouri's five year statute of limitations; and the bankruptcy court did not err in disallowing the bankruptcy claim as premature and lacking in supporting foundation. Accordingly, the court affirmed in part, reversed in part, and remanded. View "Oetting v. Sosne" on Justia Law

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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