► In This Issue:

• Expanding the Safe Harbor of § 546(e): Securitized Loan Payments Are Shielded from Avoidance
• Room to Breathe: The Ninth Circuit Decides that a Trustee’s Avoidance Powers Preempt State Law Statutes of Repose
• In Hellas II, Second Circuit Finds “Intent” Key to Limiting Safe Harbor Under 11 U.S.C. § 546(e)
• “Broadcasting Lies”: Broadcaster Liability in Consumer Fraud, Part 1
• New and Improved! ABI’s Committee Site Has Moved
• Available for Pre-Order from the ABI Bookstore—Fraud & Forensics: Piercing Through the Deception in a Commercial Fraud Case

Expanding the Safe Harbor of § 546(e): Securitized Loan Payments Are Shielded from Avoidance

Eric D. Madden Reid Collins & Tsai LLP Dallas

In a case of first impression, the U.S. Bankruptcy Court for the Northern District of Illinois recently held that loan payments related to a two-tiered securitization structure are protected from avoidance by 11 U.S.C. § 546(e). Specifically, in Krol v. Key Bank National Association (In re MCK Millennium Centre Parking LLC), the court held that the debtor’s payments on a nondebtor affiliate’s loan, which had been transferred into a trust as part of a commercial mortgage-backed securitization, were made “in connection with a securities contract” under § 546(e) and, therefore, were not avoidable as preferential or constructively fraudulent transfers.  Read More

Room to Breathe: The Ninth Circuit Decides that a Trustee’s Avoidance Powers Preempt State Law Statutes of Repose

Ryan W. Blackney Freeborn & Peters LLP Chicago

It is well settled that state law statutes of limitations do not affect a trustee’s ability to bring fraudulent transfer actions, so long as the limitations period has not expired before the petition date. Assuming that the limitations period has not expired, the limitations period essentially freezes, and the bankruptcy trustee has two years of “breathing room” to investigate and bring fraudulent transfer claims. But prior to In re EPD Invest. Co. LLC, it was unclear how state law statutes of repose affected a trustee’s ability to bring claims otherwise viable on the petition date. Do trustees have the same room to breathe as it relates to statutes of repose? Or does the clock keep ticking, so to speak, such that the repose period continued to run until the trustee filed his or her complaint? The Ninth Circuit recently found in favor of the former view.  Read More

In Hellas II, Second Circuit Finds “Intent” Key to Limiting Safe Harbor Under 11 U.S.C. § 546(e)

Robert Loh, CFE, CIRA CBIZ MHM, LLC New York

In December 2014, attorneys and financial advisors serving both unsecured creditors&rs committees and trustees watched as the Second Circuit expanded the “safe-harbor” provision available to defendants in certain clawback litigations. The safe-harbor provision was designed by Congress to protect certain securities and other transactions including “settlement payments” from avoidance actions. In 11 U.S.C. 546(e), the Bankruptcy Code sets forth that a trustee may not avoid a transfer that was a settlement payment to (or for the benefit of) a broker or financial institution, or for a payment made in connection with a securities contract. In 11 U.S.C. § 741, the Bankruptcy Code widely defines securities contracts to include “a contract for the purchase, sale, or loan of a security” and includes almost any financial instrument.  Read More

“Broadcasting Lies”: Broadcaster Liability in Consumer Fraud, Part 1

Kelly Crawford Scheef & Stone, LLP Dallas

Charlene Koonce Scheef & Stone, LLP Dallas

“Many a small thing has been made large by the
right kind of advertising.” — Mark Twain

Two recent cases suggest that broadcasters who advertise a debtor’s fraudulent business may be vulnerable to § 548 claims. If the broadcaster received notice of the debtor’s fraudulent business practices, it may lack good faith. Yet a recent decision from the Fifth Circuit suggests that even if good faith exists, advertising that grew the debtor’s fraud does not provide reasonably equivalent value. In this first of two articles, good faith is addressed.

Good Faith
The trustee for Taxmasters Inc. recently challenged broadcasters’ good faith in receiving payment for advertisements. Taxmasters blanketed cable networks with advertisements in which it made false promises about instant tax relief. The commercials were so prevalent they were parodied on Saturday Night Live.

The Texas attorney general (AG) sued Taxmasters for deceptive trade practices, and its petition expressly referenced networks broadcasting Taxmasters’s false commercials. The AG also obtained an injunction enjoining Taxmasters from specific false practices and requiring certain disclosures before selling its services. Taxmasters informed each of the networks of the lawsuit, but the networks continued running the commercials. While the case was pending, ABC’s “Nightline” ran a story on Taxmasters’s deceptive trade practices and referred to the still-running commercials. Taxmasters filed for bankruptcy on the eve of trial, but the AG proceeded to trial and obtained a $112 million judgment.  Read More

New and Improved! ABI’s Committee Site Has Moved

You may have noticed a few changes to the committee site over the last week, including a new location. The committees’ webpages have now been integrated into the main ABI website. To access these new pages, simply visit abi.org, hover over the “Membership” tab, and click on “Committees.” Here, you will be able to access newsletter articles, recent recordings, announcements, listserve activity and contact information for your leadership team.

Not sure of what committees you are a member? Update your profile, select the “Committees” tab and use the check boxes to update your status. While you’re here, take a few moments to update your full preferences, including CLE and bar information, contact information, title, and more. Uploading a professional photo is also a great way to make yourself more visible in the directory. Not only will your photo be included in the directory, but ABI staff will also have it available for use with any future article or speaking bylines.

Have comments, questions or concerns? Email us through our new support system: support@abi.org.

Available for Pre-Order from the ABI Bookstore—Fraud & Forensics: Piercing Through the Deception in a Commercial Fraud Case

Fraud & Forensics: Piercing Through the Deception in a Commercial Fraud Case Edited by Kathy Bazoian Phelps

member price* $95 non-member price $115