Transactional Lessons from the Bankruptcy Battle Over Silver Linings Playbook



In Spyglass Media Group v. Cohen (In re Weinstein Co. Holdings LLC), the United States Court of Appeals for the Third Circuit ruled that a work-for-hire contract to produce the 2012 film Silver Linings Playbook in exchange for a share of the film’s future receipts was not an executory contract in the Weinstein Company’s (“TWC”) 2018 bankruptcy case.

An executory contract under section 365 of the Bankruptcy Code may only be assumed and assigned to a buyer if all defaults are cured or the debtor provides adequate assurance of prompt cure. Thus, the determination that a contract is executory can make the purchase of assets from a bankruptcy estate more expensive. Whether a contract is executory can mean the difference between a contract counterparty getting paid in full, versus getting paid much less, or nothing, as a general unsecured creditor of a debtor in bankruptcy.

If a contract is determined to be nonexecutory, the rights of the debtor under the contract may be sold to a buyer pursuant to section 363 “free and clear” of the debtor’s past obligations. Accordingly, a debtor may transfer its rights and obligations under the contract, and existing defaults under the contract need not be cured.05 If a contract is not executory, claims for breach or default existing as of the petition date are rendered unsecured claims against the debtor’s estate.


Does the FDCPA Apply When a Creditor Files a Proof of Claim to Collect a Time-Barred Debt?

The U.S. Supreme Court has accepted a number of bankruptcy cases over the last few years, and another issue seems ripe for the big stage:  Can a creditor be held liable under the Fair Debt Collection Practices Act (“FDCPA”) when it files a proof of claim in a bankruptcy case to collect a time-barred debt?  On July 11, 2016, the Eighth Circuit added to the existing circuit split regarding application of the FDCPA in bankruptcy cases.  See Nelson v. Midland Credit Mgmt., Inc., ___ F.3d ___ (8th Cir. 2016).Continue reading

Unmarried Same-Sex Couples Are Not Eligible to File Joint Bankruptcy Petitions Even If They Are Registered Domestic Partners

Section 302 of the Bankruptcy Code provides that a debtor “and such individual’s spouse” may file a joint bankruptcy case. Courts have held that persons who cohabitate, but are not legally married, are not eligible to file a joint petition. See In re Malone, 50 B.R. 2 (Bankr. E.D. Mich. 1985) (opposite-sex couple); Bone v. Allen (In re Allen), 186 B.R. 769 (Bankr. N.D. Ga. 1995) (same-sex couple); In re Lucero, 408 B.R. 348 (Bankr. C.D. Cal. 2009) (opposite-sex couple). On the other hand, legally married couples – including same-sex couples – may file joint petitions. See In re Somers, 448 B.R. 677 (Bankr. S.D.N.Y. 2011) (same-sex couple legally married in Vermont).Continue reading

Supreme Court: “Actual Fraud” Exception to Discharge Is Not Limited to Cases in Which the Debtor Has Made a False Representation to the Creditor

A principal purpose of the Bankruptcy Code is to provide a fresh start to an “honest but unfortunate debtor.”  Under certain circumstances, a creditor may ask the bankruptcy court to determine that a particular debt is nondischargeable.  If the court agrees, the debtor will continue to owe that debt even after the case is over and all other debts are discharged.

Section 523(a)(2)(A) of the Bankruptcy Code provides that an individual debtor’s discharge does not cover any debt “for money, property [or] services . . . to the extent obtained by . . . false pretenses, a false representation, or actual fraud.”  Over the years, courts have disagreed about the meaning of “actual fraud.”  Continue reading

Don’t Lose Your Shirt

Recently there have been a series of high profile retailer bankruptcies – Radio Shack, Haggen Stores and Quicksilver. These cases shine a light on a very difficult problem for commercial property owners. This problem is exacerbated for single-tenant net-leased investments that rely exclusively on the income from one tenant and have become a virtual safe-haven for many investors, especially 1031 exchanges. So what is an owner to do when his formerly blue chip tenant files for Chapter 11?Continue reading

A Bankruptcy Horror Story

In the case of State Bank v. Covey (In re Duckworth), an opinion was issued in late 2014 by the United States Court of Appeals for the Seventh Circuit which voided a $1.1 million security interest because of just one small mistake.

Continue reading

Danning-Gill partner Eric P. Israel participated as a panelist in the 41st Annual Family Law Symposium at the Intercontinental Hotel in Century City, California.

On November 7, 2015, Eric P. Israel participated as a panelist in the 41st Annual Family Law Symposium at the Intercontinental Hotel in Century City, California, sponsored by the Family Law Section of the Beverly Hills Bar Association. Mr. Israel was one of three panelists on the one-hour program on “The Intersection Between Bankruptcy and Family Law,” which included Bankruptcy Judge Neil Bason and Brian Lipak, an expert in family law.

Case Analysis: Ly v. Che (In re Ly), 2015 WL 1787575 (9th Cir. Apr. 21, 2015), Insolvency Law e-Bulletin, Insol. L. Comm., Bus. L. Sec., Cal. State Bar (July 30, 2015).

In Ly v. Che (In re Ly), 2015 WL 1787575 (9th Cir. Apr. 21, 2015), the U.S. Court of Appeals for the Ninth Circuit affirmed the BAP’s issuance of sanctions against an appellant and its attorney for filing a frivolous appeal, but declined to issue further sanctions because (a) the BAP cases that foreclosed the appellant’s arguments were not binding on the Ninth Circuit, and (b) a non-frivolous argument could be made that the reasoning of those BAP cases should not be adopted by the Ninth Circuit.

To read the full, unpublished decision, click here:

In 2006, a forged deed was recorded with the L.A. County’s recorder’s office, purporting to transfer title of certain residential real property from Michelle Che (“Che”) to occupant Alen Ly (“Ly”).  When Che found out about it, she sued Ly and obtained a default judgment declaring the deed void and enjoining Ly from coming within 100 yards of the property.  Ly apparently refused to move out.

Ly filed for bankruptcy in April 2012; in his schedules he claimed to own the property.  A few months later, Che filed a motion for relief from stay to commence eviction proceedings.  Ly opposed the motion on the grounds that Che was not a real party in interest, and lacked standing to seek relief, because Ly had allegedly purchased the property from Che in July 2006.  Ly claimed that he had retained counsel to handle the state court litigation, and was shocked when he later received a 5-day notice to quit.

The bankruptcy court granted Che’s motion for relief from stay, and Ly appealed to the BAP.  Che responded by, among other things, filing a motion asking the BAP to sanction Ly and his counsel for filing a frivolous appeal.  Ly did not file any response to the motion.

In an unpublished decision, the BAP affirmed.  In doing so, the BAP referred to two cases it published in 2011 holding that a party moving for stay relief has a colorable claim sufficient to establish standing to prosecute the motion if it has an ownership interest in the subject property.  See Veal v. Am. Home Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 913 (9th Cir. BAP 2011); Edwards v. Wells Fargo Bank, N.A. (In re Edwards), 454 B.R. 100, 105 (9th Cir. BAP 2011).

The BAP also sanctioned Ly and his counsel pursuant to FRBP 8020.  The BAP identified two reasons for its issuance of sanctions.  First,

[Ly’s counsel] should have known from our published opinions in In re Veal and In re Edwards that Panel precedent quite clearly recognizes that a party moving for relief from stay who has a colorable claim to ownership of the subject property has prudential standing.  We assume that he read the Panel’s opinion in In re Veal because he cited it to us in [his] Opening Brief specifically for its “exhaustive” discussion of standing and real party in interest issues.

Second, the BAP found it “particularly troubling” that when Ly’s counsel filed Ly’s original excerpts of the record, he omitted exhibits to declarations filed in support of Che’s motion for relief from stay (including the certified copy of the judgment), though he did include exhibits to his own declaration.  Ly’s counsel “had to be aware that the Judgment was a critical part of the evidentiary record before the bankruptcy court supporting its finding that Che had standing to seek stay relief.”  Ly’s counsel only supplemented the excerpts of the record to include the judgment after the BAP’s motions panel ordered Ly “to supplement the record with a complete copy, ‘including exhibits,’ of the Stay Motion.”

Ly appealed the BAP’s affirmance of the bankruptcy court’s order, and the BAP’s issuance of sanctions, to the Ninth Circuit.  Che responded by filing a motion with the Ninth Circuit requesting additional sanctions against Ly and his counsel.

First, the Ninth Circuit easily affirmed the BAP’s affirmance of the bankruptcy court’s order granting relief from stay.

Second, the Ninth Circuit ruled that the BAP did not abuse its discretion in sanctioning Ly and his attorney for filing a frivolous appeal. “Given the case law directly contradicting [Ly’s] position [i.e., Veal and Edwards], the result of Ly’s appeal was obvious and his arguments were ‘wholly without merit.’”

However, applying the exact same standard that the BAP applied when it issued its sanctions, the Ninth Circuit declined to issue further sanctions against Ly and his attorney because “the cases that foreclosed Ly’s arguments before the BAP, [Veal] and [Edwards], are not binding on this court.  Accordingly, because a non-frivolous argument could be made that the reasoning of those cases should not be adopted by this Court, although no such argument was made, we decline to impose sanctions for a frivolous appeal in the exercise of our discretion.”

Based on the facts described in the BAP’s decision, Che clearly had standing to move for relief from stay and Ly’s appeal was frivolous.  But mixed signals from the Ninth Circuit make this decision notable.  While a circuit court can certainly exercise its own discretion in deciding whether to issue sanctions, how can the further appeal to the circuit court be considered non-frivolous where the circuit court affirms a lower court’s issuance of sanctions for filing a frivolous appeal?

In any event, litigants who intend to challenge a prior BAP ruling before the circuit court should elect to proceed before the district court or should be certain to make a non-frivolous argument that the prior BAP decision should be overruled.  Otherwise, even if a non-frivolous argument could be made that the BAP’s prior ruling should not be adopted by the circuit court, a party and counsel risk sanctions simply because the BAP considers its published rulings binding on subsequent panels.  See Ball v. Payco-Gen. Am. Credits, Inc. (In re Ball), 185 B.R. 595, 597 (9th Cir. BAP 1995) (“[w]e will not overrule our prior rulings unless a Ninth Circuit Court of Appeals decision, Supreme Court decision or subsequent legislation has undermined those rulings.”); Inst. of Imaginal Studies v. Christoff (In re Christoff), 527 B.R. 624, 634 (9th Cir. BAP 2015).

These materials were written by John N. Tedford, IV, of Danning, Gill, Diamond & Kollitz, LLP (  Editorial contributions were provided by Everett L. Green of the Insolvency Law Committee. 

Thank you for your continued support of the Committee.

Best regards,

Insolvency Law Committee

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