2009 Chapter 11 Recent Developments (Part I)

Rules:

(1)

Under 29 U.S.C. §§ 2104(a)(1), (4), (5) of the WARN Act, "either the union or an individual union member may bring a WARN Act claim, but the individual member retains the right to receive any recovery." Under the LMRA, the union has the exclusive right to litigate a claim for breach of a collective bargaining agreement, this right does not "affect an employee's right to receive the proceeds of a lawsuit that the union brought on the employee's behalf." Thus, the employees retain the rights to litigation proceeds.

(2)

Under federal common law, both WARN Act claims and claims under § 301 of the LMRA are assignable.

Holding: The transfers of the claims to Liquidity are upheld.

Reasoning: By the language of the relevant statutes, the employees had right to sell their claims. And, the sale contracts are not unconscionable - procedurally, the contracts were simple and clearly provided the terms of the deal; substantively, because claims against a bankruptcy estate are inherently risky and immediate payment of such claims is not unconscionable. The court upheld the bankruptcy court's finding (i) that there was no fraudulent inducement and (ii) that a violation of an ethical rule does not create an independent civil liability nor create a presumption that some duty has been breached. Therefore, the Teamsters have not shown any reason that would warrant the rescission of the sales contracts.

IV. PLAN CONFIRMATION

a. Classification and Voting Issues

In re Nutritional Sourcing Corp., 2008 WL 5396491 (Bankr. D. Del. Dec. 23, 2008)

Facts: Three debtors declared bankruptcy - Nutritional Sourcing Corp. (NSC) (a holding company), Pueblo International, LLC (Pueblo), and FLBN, LLC (FLBN). NSC had declared bankruptcy in the past. In the first bankruptcy, NSC entered into certain loan agreements (the "Loan Contracts") pursuant to which Pueblo was to transfer funds to NSC to pay off NSC's restructured debt. Part of Pueblo's real estate was the collateral for NSC's Loan Contracts. A subordination provision was included in the Loan Contracts under which Pueblo's payments to NSC were subordinate to all claims of any trade creditors of Pueblo. 'Trade creditor' was not defined in either the Loan Contracts, the Debtors' SEC filings, or in Pueblo's bankruptcy schedules. In the second bankruptcy, the Debtors each filed a separate, but interrelated, plans of reorganization (the "Plan") under which Pueblo's trade creditors were defined to include only certain creditors that provided goods to Pueblo. The creditors not included in the Plan's definition of trade creditors objected to confirmation.

Issues: Whether the plan definition of trade creditor impermissibly excludes certain creditors pursuant to the terms of the Loan Contracts.

Rules: Under NY law, which governs the Loan Contracts, "where contract language is unambiguous, it must be given its commonplace meaning." Moreover, NY case law "defines a 'trade creditor' as someone who provides a good or service in the ordinary course of business and to whom debt is owed."

Holding: The court denied plan confirmation.

Reasoning: The Loan Contracts used the term 'trade creditor' as its commonplace meaning: someone who provides goods or services in the ordinary course of business. And, because the Plan impermissibly excludes certain creditors who provided goods and services in the ordinary course of