Despite growing public acceptance of marijuana and the wide-spread passage of state laws legalizing marijuana for medicinal and even recreational purposes, marijuana remains a criminal offense under federal law which presents profound implications for those involved in the marijuana industry who seek the protections of the Bankruptcy Code. Even in a growth industry, there remains a need — by debtors and creditors alike — for an orderly process for liquidation or restructuring of failing businesses. To date, twenty-nine states and the District of Columbia have enacted medical marijuana legislation, with eight of those states also permitting its recreational use. However, federal law is clear in treating marijuana as an illegal substance and no change is in sight on the federal level. In fact, there are current indications that the Department of Justice may be reversing the laissez-faire federal response to state-sanctioned marijuana adopted under the Obama administration. What effect then does engaging in business activities legal under state but not under federal law have on access to the bankruptcy process?

Continue Reading Bankruptcy Courts Just Say No to the Marijuana Industry


When a court begins its opinion with the statement that “bad facts make bad law,” you know you are in for a good read. Such was the case with The Ninth Circuit Court of Appeals which recently held that two sellers of real estate and design services were liable for the return of payments alleged to be fraudulent transfers made by the debtor’s principal using misappropriated corporate funds. Continue Reading Seller Beware! The Ninth Circuit Holds Innocent Sellers Liable for the Return of Misappropriated Company Funds

Under section 503(b)(9) of the Bankruptcy Code, a creditor may recover as a priority administrative expense the value of goods sold to the debtor in the ordinary course of its business that are “received” by the debtor within the twenty-day period before the filing of the bankruptcy petition. The stakes of such a determination are considerable since, in most Chapter 11 business bankruptcies, priority administrative claimholders are paid in full while general unsecured claims receive only pennies on the dollar, if anything all. Several months ago in this blog, we discussed the opinion of the Third Circuit Court of Appeals in World Imports Ltd. which addressed, under section 503(b)(9), the applicable date of “receipt” by the debtor of goods that are shipped from the seller in China to the buyer in the United States under free on board shipping terms. The Third Circuit reversed the Bankruptcy and District Courts below and held that “receipt” of goods under the statute occurs when the buyer takes physical possession of the goods in the United States port as opposed to the earlier date when the goods are shipped. We observed that this statutory construction would be hailed as a victory by the trade vendor community as more shipments will be deemed to fall within the twenty-day window resulting in greater administrative claim eligibility. Continue Reading The Cookie Crumbles in Baker’s Bid for a § 503(b)(9) Administrative Claim

It is hardly news that the seismic shift in buying habits towards travel and experiences and to internet shopping has dealt a devastating blow to many traditional brick and mortar retailers.  Retailers are going bankrupt at a record pace, and 2017 is on track to post the highest number of retail bankruptcies since the Great Recession. Venerable retailers such as Gymboree, Sports Authority, HH Gregg, Eastern Mountain Sports and RadioShack have all recently sought bankruptcy protection. Compounding this troubling trend is the sobering fact that few of these companies will successfully reorganize. Given the realities of the prevailing retail environment, most of these bankrupt companies will shut their doors, go dark and liquidate their assets. These bankruptcies particularly impact trade vendors who supplied the companies with goods for resale and who typically face the prospects of receiving only pennies on the dollar on their claims in liquidation. However, in what will be welcome news to the beleaguered trade vendor community, the Third Circuit has recently issued a decision refining the definitions of § 503(b)(9) which will enable more vendor claims to be eligible for administrative claim status. Continue Reading Trade Vendor Victory — The Third Circuit Refines Eligibility for Administrative Claims Under § 503(b)(9)

supreme-court-300x199[1]In a decision all but certain to engender future litigation, the Supreme Court recently held in the case of Czyzewski v. Jevic Holding Corp. that structured dismissals providing for distributions that do not follow the normal priority rules and that do not have the consent of affected creditors are impermissible. Reversing the Third Circuit Court of Appeals, which had affirmed the decisions of the courts below, the Supreme Court crafted a narrow ruling that raised but left unanswered questions about the permissible contours of structured dismissals. Continue Reading THE SUPREME COURT DISMISSES STRUCTURED DISMISSALS

White stone home with green roof and shrubbery in front. A red and white sign in the foreground reads "Foreclosure - For Sale."The Bankruptcy Court for the Western District of Pennsylvania has recently held that a pre-petition foreclosure of a debtor’s real property, conducted in accordance with state law, is not subject to attack as a preference under 11 U.S.C. § 547.[1]

Close-up of a bankruptcy petition

The TransVantage bankruptcy case and the resulting efforts by the Trustee to avoid carrier payments made by the defunct freight payment processor has been watched like an upcoming speed trap by the transportation industry concerned about the vulnerability of this business arrangement in bankruptcy. The more than 500 adversary Complaints filed in April of 2015 by the Trustee against the common carriers, shippers and customers of Transvantage Solutions, Inc. have been winnowed down to a just few remaining unresolved cases. Continue Reading The End of the Road for TransVantage Solutions, Inc.?

In the first installment of this article, we discussed the prevalence of preference litigation and some of the commonly-available defenses to business vendors to limit or even eliminate liability to the bankruptcy estate. While preference actions are by far the most common type of avoidance litigation brought in bankruptcy cases, this is not the end of the story.  Bankruptcy estate representatives can also bring actions to avoid fraudulent transfers and post-petition transactions. We will first discuss the elements of each of these avoidance claims, followed by some tips to avoid being the target of such an action in the first place or, if a defendant, some strategies to limit liability.  Continue Reading Bankruptcy Avoidance Litigation Part II – Do I Really Have to Give That Payment Back?

Hourglass BKR 17333100_Large(Part one in a two-part series on avoidance litigation in bankruptcy cases)

While initial consumer and commercial bankruptcy filings have, in recent years, ebbed in the wake of the historic highs of the Great Recession, the tail of the bankruptcy boom continues to vex the business community from an unexpected source — avoidance litigation against the debtor’s service and product vendors. The Bankruptcy Code permits a trustee or debtor in possession to avoid and recover certain payments, known as preferences, made by the debtor to its creditors during the 90-day period preceding the filing of its bankruptcy petition. The legislative policy objectives of preference avoidance rest on a dubious proposition: that all creditors should share equally in the debtor’s financial failure and that those creditors who successfully pressured the debtor for payment immediately before the bankruptcy should not gain a greater share of the estate than creditors who did not prey on a distressed debtor. Continue Reading BANKRUPTCY AVOIDANCE LITIGATION — DO I REALLY HAVE TO GIVE THAT PAYMENT BACK?

magnifying glass 4641319_LargeThe Chapter 7 Trustee appointed in the TransVantage Solutions, Inc. bankruptcy case ground the gears of the nation’s trucking industry this past April when he filed over 500 adversary complaints against common carriers, shippers and customers of the bankrupt company. Continue Reading The Road Ahead for TransVantage Solutions, Inc.