Articles Posted in US Court of Appeals for the Second Circuit

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The Second Circuit affirmed the district court's decision affirming the bankruptcy court's dismissal of a Chapter 7 involuntary bankruptcy petition creditor filed under 11 U.S.C. 303(a) against debtor. The bankruptcy court dismissed for cause under 11 U.S.C. 707(a) after concluding that the petition was simply a judgment enforcement tactic. The court held that creditor was not substantially prejudiced by being denied access to bankruptcy remedies and that the interests of debtor and of the bankruptcy system as a whole were advanced by dismissal. View "Wilk Auslander LLP v. Murray" on Justia Law

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The Second Circuit vacated the district court's dismissal of plaintiff's personal injury claims against more than fifty corporate defendants, holding that the district court abused its discretion in invoking the equitable doctrine of judicial estoppel to dismiss her claims. In this case, Defendant Boeing argued that plaintiff's failure to disclose her husband's mesothelioma diagnosis during bankruptcy barred the personal injury claims related to the diagnosis. Plaintiff's husband passed away during the pendency of the appeal. The court held that the principles of equity required the courts to entertain plaintiff's personal injury claims where nothing in the record suggested that she withheld her husband's diagnosis from the bankruptcy court in an effort to game the bankruptcy system. View "Clark v. Advanced Composites Group" on Justia Law

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The Second Circuit affirmed the bankruptcy court's denial of Credit One's motion to compel arbitration on the basis of a clause in the cardholder agreement between Credit One and debtor. The court held that debtor's claim was not arbitrable because the dispute concerned a core bankruptcy proceeding and arbitrating the matter would present an inherent conflict with the goals of the Bankruptcy Code. In this case, the successful discharge of debt was not merely important to the Bankruptcy Code, it was its principal goal. The court explained that an attempt to coerce debtors to pay a discharged debt was thus an attempt to undo the effect of the discharge order and the bankruptcy proceeding itself. View "In re Orrin S. Anderson" 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

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Three groups of creditors appealed MPM's substantially consummated plan of reorganization under Chapter 11 of the Bankruptcy Code. The Subordinated Notes holders challenged the lower courts' conclusions that their claims were subordinate to the Second-Lien Notes holders' claims; the Senior-Lien Notes holders contended that the lower courts erroneously applied a below-market interest rate to their replacement notes; the Senior-Lien Notes holders challenge the lower courts' rulings that they were not entitled to a make-whole premium; and debtors argued that the court should dismiss these appeals as equitably moot. The Second Circuit found merit only in the Senior-Lien Notes holders' contention with respect to the method of calculating the appropriate interest rate for the replacement notes. The court held that the Second-Lien Notes stand in priority to the Subordinated Notes; held that the Senior-Lien Notes holders were not entitled to the make-whole premium; declined to dismiss any of the appeals as equitably moot; and remanded to the bankruptcy court to assess whether an efficient market rate could be ascertained, and if so, applied to the replacement notes. View "In re MPM Silicones, LLC" on Justia Law

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Benjamin Ashmore appealed the district court's order dismissing him as the plaintiff in a whistleblower action under the Sarbanes-Oxley Act, 18 U.S.C. 1514A. Instead, the trustee of Ashmore's bankruptcy estate was substituted as plaintiff. The Second Circuit dismissed the appeal for lack of jurisdiction because the district court's dismissal of the case as to Ashmore and the substitution of the trustee as plaintiff were interlocutory orders that were not immediately appealable. The court vacated the temporary stay of the district court proceedings and denied Ashmore's pending motion to stay as moot. View "Ashmore v. CGI Group, Inc." on Justia Law

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A group of hotel-related businesses, as well as investors and guarantors, filed suit alleging claims of fraud against the Royal Bank and two of its subsidiaries. The district court dismissed the claims because plaintiffs had failed to list their cause of action in a schedule of assets in their now-concluded bankruptcy proceeding, they lacked standing to bring the claim, and were barred by judicial estoppel. The claims of the investor and guarantors were dismissed as untimely and barred by the law of the case. The Second Circuit affirmed on the grounds of judicial estoppel and timeliness. The court held that, under Fifth Circuit law, the kind of LIBOR-fraud claim that BPP wanted to assert was "a known cause of action" at the time of confirmation, so that BPP's failure to list it in the schedule of assets was equivalent to a representation that none existed; the bankruptcy court "adopted" BPP's position; and BPP's assertion of the claims now would allow it to enjoy an unfair advantage at the expense of its former creditors. Furthermore, plaintiffs have not shown good cause for an untimely amendment, and the district court properly denied leave to amend. View "BPP Illinois v. Royal Bank of Scotland Group PLC" on Justia Law