Keach v. New Brunswick Southern Railway Co. Ltd.

Court: US Court of Appeals for the First Circuit

Docket: 19-1161

Opinion Date: March 10, 2020

Judge: David J. Barron

Areas of Law: Bankruptcy

In this case arising out of a petition for bankruptcy filed by the Montreal Maine & Atlantic Railway (MMA) the First Circuit affirmed the decision of the Bankruptcy Appellate Panel (BAP) upholding the judgment of the bankruptcy court ruling that certain claims filed by creditor railroads should be given priority status pursuant to 11 U.S.C. 1171(b) because they were "Six Months Rule" claims, holding that the claims at issue were priority claims under section 1171(b). In their claims, the creditor railroads sought to recover their share of payments that the MMA was to collect for charges that had been billed to customers that had shipped freight on routes that covered rail systems owned by the MMA and the creditor railroads. The creditor railroads argued that their claims qualified as Six Months Rule claims and so must be paid in full before other claims because the MMA incurred the debt for their share of these payments so close in time to the MMA's bankruptcy. The bankruptcy court agreed with the creditor railroads and concluded that the claims were entitled to priority under section 1171(b). The BAP affirmed. The First Circuit affirmed, holding that the claims were priority claims under the statute.

Hazelton v. Board of Regents for the University of Wisconsin System

Court: US Court of Appeals for the Seventh Circuit

Docket: 19-1405

Opinion Date: March 16, 2020

Judge: Diane S. Sykes

Areas of Law: Bankruptcy, Civil Procedure

The Hazeltons sought sanctions against the University for collecting an educational debt after their debts were discharged in a Chapter 7 bankruptcy. The district court reversed a bankruptcy court holding that the debt was nondischargeable and remanded. The Seventh Circuit dismissed an appeal, citing its jurisdiction in bankruptcy cases under 28 U.S.C. 158(d)(1), which is limited to orders that resolve “discrete disputes” within the bankruptcy case. The district court did not resolve the dispute regarding sanctions but decided a subsidiary legal issue.

Lauter v. Wells Fargo Bank

Court: US Court of Appeals for the Eighth Circuit

Docket: 19-6013

Opinion Date: March 19, 2020

Judge: Schermer

Areas of Law: Bankruptcy

The Bankruptcy Appellate Panel affirmed the bankruptcy court's decision applying the contemporaneous exchange for new value preference defense under Bankruptcy Code 547(c)(1) to except payments by debtor to Wells Fargo from avoidance as preferences. The panel held that new value was provided by the release of Wells Fargo's junior liens where a senior lienholder voluntarily released its liens for less than full payment of its debt; Wells Fargo provided new value to debtor when the IRS, a secured creditor senior to Wells Fargo, was paid from the proceeds of a sale of debtor's assets and voluntarily released its liens; a $100,000 payment made by debtor to Wells Fargo one day before a sale closing was intended to be a contemporaneous exchange; and Wells Fargo's release of claims against Phillips 66 and KCRC resulted in new value to debtor intended by the parties to be a contemporaneous exchange.

The Bank of Missouri v. Family Pharmacy, Inc.

Court: US Court of Appeals for the Eighth Circuit

Docket: 19-6025

Opinion Date: March 19, 2020

Judge: Saladino

Areas of Law: Bankruptcy

The Bankruptcy Appellate Panel reversed the bankruptcy court's order denying BOM's motion under 11 U.S.C. 506(b) for allowance of postpetition default interest. The panel held that the bankruptcy court erred in applying a liquidated damages analysis and ruling the default interest rate was an unenforceable penalty under Missouri law; the panel made no decision as to whether and when the default interest rates under the notes at issue were triggered under the facts of this case, because such decisions are mixed questions of law and fact that are best left for the bankruptcy court to decide in the first instance; the panel endorsed the view that post-Ron Pair, the pre-confirmation interest rate to be applied under section 506(b) to an oversecured creditor whose claim is evidenced by a promissory note or similar loan agreement is the contract (both non-default and default) rate set forth in the note or loan agreement, to the extent enforceable under applicable law; the panel held that, absent state law to the contrary, a liquidated damages vs. penalty analysis is not applicable and should not be applied to a default interest rate set forth in a promissory note or similar loan agreement; and the panel followed the rule that equitable considerations should be used sparingly and only in exceptional circumstances. Accordingly, the panel remanded for further proceedings.