Emory Bankruptcy Developments Journal

Volume 35Issue 1
A Tribute to The Honorable Mary F. Walrath

Collateral Damage: Non-Debtor Recovery for Bad Faith Involuntary Bankruptcy Petitions

Seth Webster | 35 Emory Bankr. Dev. J. 111 (2019)

When a creditor initiates an involuntary bankruptcy, third parties can be imperiled as much as the debtor. Where an involuntary bankruptcy is filed in bad faith, these third parties may be subject to serious collateral harm. While no court has awarded collaterally harmed third parties damages arising from an involuntary bankruptcy, the Third Circuit has recently open the door for some form of non-debtor recovery. In 2016, the Third Circuit declared that non-debtor third parties could seek a recovery for damages arising from an involuntary petition in state court. After analyzing this issue, the author proposes a hybrid approach for making harmed third parties whole.

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A Bankruptcy Litigation Framework for Series LLC Eligibility, Property of the Estate and Substantive Consolidation

Thomas J. McElhinney | 35 Emory Bankr. Dev. J. 151 (2019)

The Series LLC is a new and idiosyncratic business entity that presents unique questions of law in the bankruptcy context. The Series LLC shields its members from liability and limits liability between various business endeavors. However, this multi-faceted liability protection creates several questions. These include: whether the Series LLC is eligible for bankruptcy, how to deal with the yet untested limited liability protection of different business endeavors, and whether the Series LLC’s multi-directional liability protections run contrary to federal bankruptcy policy. After responding to these concerns, the author proposes a bankruptcy litigation framework to address uncertainty surrounding Series LLC bankruptcy eligibility and create a level playing field.

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Closing the Loophole in Commercial Landlord Bankruptcies: Why the Ninth Circuit Made the Right Decision in Matter of Spanish Peaks Holdings II, LLC

Bradford N. Barnhardt | 35 Emory Bankr. Dev. J. 191 (2019)

When it decided Matter of Spanish Peaks Holdings II, LLC, the Ninth Circuit exposed a major loophole in the Bankruptcy Code relating to landlords and tenants. This loophole may be exploited by shrewd real estate developers who create two corporate entities and place each into a landlord-tenant relationship, with the lease’s terms heavily favoring the tenant corporate entity. Creating this artificial landlord-tenant relationship would permit the tenant entity to retain possession of the property should the landlord entity ever have to file for bankruptcy. This would permit the developer to receive a financial windfall either in the form of a buyout of the tenant entity’s lease by a third-party purchaser, or by the continued operation of the tenant entity’s business on the purchaser’s land. The author analyzes the majority and minority approaches to this loophole, and ultimately argues that the minority approach is more pragmatic. The author then proposes a way for judges to fashion adequate protection to lessen the effect of an undeserving tenant’s recovery.

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Third-Party Relief for Municipal Debtors: “Necessity” in the Chapter 9 Context

Christian Morbidelli | 35 Emory Bankr. Dev. J. 225 (2019)

Bankruptcy courts have often used “third-party releases” in the chapter 11 context to release certain non-debtors from liabilities. As chapter 9 municipal bankruptcies have become more numerous, debtors have sought third-party relief there as well. The author categorizes these chapter 9 cases into two categories. The first involves cases where the State provides funds to the reorganization effort in exchange for some creditors giving up claims against the State. The second consists of cases where a city attempts to relieve its police officers of liability for civil rights violations by including injunctions against the civil rights plaintiffs in the city’s plan of reorganization. The author argues that the second category of cases have ignored fundamental limitations on third-party relief and allow debtors to exploit a test that was not intended for chapter 9 bankruptcy. This leads the author to propose replacing the “necessity” standard with one suited for municipal bankruptcies.

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It’s Not You, It’s Us: Assessing the Contribution of Trademark Goodwill to Properly Balance the Results of Trademark License Rejection

Clayton A. Smith | 35 Emory Bankr. Dev. J. 267 (2019)

In 1988, Congress amended § 365 of the Bankruptcy Code to allow intellectual property licenses to retain usage rights following the rejection of an executory contract. Unfortunately, this amendment did not include trademarks in its definition of intellectual property. The author thoroughly examines the circuit split, comparing and contrasting the dueling circuit court decisions over whether trademark licenses should receive the same protections as other intellectual property. In analyzing this circuit split, the author centrally focuses on Mission Product Holdings, Inc. v. Tempnology, LLC, a case out of the First Circuit Court of Appeals. The author concludes by proposing a three-factor test to aid courts in arriving at the most equitable result for not only the debtor’s estate, but also society writ-large.

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