Article Archive — Legal Issues
Lessor More Protected
UCC Article 2A Analysis Strengthens Resistance to Common Lessee Collection Defenses
In late July 2011, the U.S. District Court for the Eastern District of Pennsylvania published a 37-page long decision granting summary judgment for an equipment lessor on various defenses and counterclaims raised by three business lessees of telephone equipment. De Lage Landen Fin. Services, Inc. v. Rasa Floors stands as a thorough and recent analysis of the maturing law on the general enforceability of finance leases, as promoted by UCC Article 2A.
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It’s a Bird… It’s a Plane… It’s a Super-Priority Purchase Money Security Interest
A PMSI is a useful arrow in the quiver of many equipment finance companies. Still, no legal weapons or tools are 100% effective. It is crucial, therefore, for a PMSI lender to have a good understanding of the requirements of a purchase money security interest and to maintain adequate records evidencing that those requirements have been met. Carefully drafted documents are a must.
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Forum Selection and Arbitration Clauses
Use Them or Lose Them
In this edition of Tipping the Scales, Andrew Alper discusses a recent case involving a forum selection clause where the court held the clause was enforceable, and parties that litigate a case extensively cannot attempt to move the case to a different forum at a later date. The article also explores arbitration clauses and the importance of either using them or losing them.
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Finance Leases Versus Vendor Leases
Explaining What We Do
Among the challenges we face in selling leasing to business executives who are unfamiliar with sophisticated equipment financings is the task of explaining how our equipment leases differ from a vendor lease or a vendor-financed installment sale financing. This article will touch on some of the aspects of third-party equipment financings and the explanations and arguments that might be presented to the uninitiated and his or her lawyers.
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Fifth Circuit Recharacterizes Non-Insider Debt as Equity in a Case of First Impression in the Circuit
In the Matter of Lothian Oil Inc., the Fifth Circuit concluded that the power to determine claims in bankruptcy under §502 of the U.S. Bankruptcy Code is not limited to merely allowing or disallowing the claim, but can include the power to determine the proper treatment of the claim, including recharacterization of the claim as debt or equity. More important for creditors, the Fifth Circuit rejected as a matter of law the claimant’s contention, and the ruling of the district court, that recharacterization of a debt as equity is only available as a matter of law with respect to a claim held by an insider.
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Leasing in Indian Country
Understanding Important Issues
A lessor contemplating a finance transaction in Indian country should exercise due diligence by consulting with counsel familiar with tribes and tribal law, waivers of sovereign immunity, and their effect on the finance transaction. Ultimately, it is a business decision whether to lease or finance equipment to a tribe, tribal entity or tribal member where the equipment will be on a reservation. Understanding the issues surrounding such a decision is the first step toward a successful transaction.
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Involuntary Bankruptcy Proceedings
Maybe a Creditor Should Give It a Second Thought (Part II)
The filing of an involuntary bankruptcy petition by a creditor can be a very useful tool for a creditor to collect money from its recalcitrant debtor. But given some new cases, maybe a creditor should give the filing of an involuntary bankruptcy proceeding a second thought.
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Resting Comfortably — The Four Paths to Perfection
The last edition of Dispatches From the Trenches discussed the Article 9 concept of attachment. In this edition, Ken Weinberg discusses the four primary ways in which an attached security interest may be perfected — filing, possession, control and automatic perfection.
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Seventh Circuit Affirms Use of a Powerful Tool for Judgment Creditors in ‘Rare’ Cases
Seizing Passports
When defendants Pethinaidu and Parameswari Veluchamy defaulted on their obligations to Bank of America in June 2009, the bank sued in federal district court for breach of contract, obtained judgment against the defendants 18 months later and began aggressively pursuing post-judgment enforcement remedies. What follows is a rare case eventually upheld in the Seventh Circuit Court of Appeals.
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Attachment: Your Security Interest Isn’t ‘Perfect’ Without It
The key point of this edition of Dispatches From the Trenches is to provide a friendly reminder that attachment is a cornerstone to a perfected security interest and that it is worthwhile to consider the requisite steps to attachment and their timing. Ken Weinberg reminds us that equipment lease forms need to be carefully worded so that the grant of the security interest occurs prior to acceptance in the event goods are not accepted before or simultaneously with delivery.
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Involuntary Bankruptcy Proceedings Part I
Maybe a Creditor Should Give It a Second Thought
The filing of an involuntary bankruptcy petition by a creditor can be a very useful tool for a creditor to collect money from its recalcitrant debtor. But given some new cases, maybe a creditor should give the filing of an involuntary bankruptcy proceeding a second thought.
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Chapter Nine: What You Might Need to Know About Municipal Bankruptcies
More and more, we hear news of the genuine risk of insolvency for some local governments, increasing the likelihood that some may seek relief under Chapter 9 of the Bankruptcy Code. Lesley Hawes’ article provides a general overview of Chapter 9 and its unique provisions applicable to municipal bankruptcies.
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Property and Transactions Subject to Collateral Categories Under Article 9
The last edition of Dispatches From the Trenches generally discussed what kind of property and transactions are, and are not, subject to Article 9 of the Uniform Commercial Code (UCC). This edition provides more detail on the various, highly defined collateral categories created by Article 9.
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Describe Your Debtor Correctly or Lose Your Lien
Adventures in Perfection Land
Make no mistake, Andrew Alper warns, Perfection Land is not as perfect as the name suggests. In the following article, he provides clear direction and compelling case analysis aimed at helping lessors to avoid falling down a particularly expensive and time consuming rabbit hole.
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Defining a Security Interest?
Looking Outside the Comfortable Confines of Article 9
In Ken Weinberg’s estimation, Article 9 of the Uniform Commercial Code is an extremely thoughtful and thorough statute. But, he warns, it’s not the end all, be all of security interests, and it is therefore prudent to visit what is and what isn’t covered by Article 9’s broad scope.
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Bankruptcy Plan Confirmation
Lessons Learned for Lenders From Philadelphia Newspapers
The Third Circuit’s decision in the case In re Philadelphia Newspapers concurs with a similar holding in the case In re Pacific Lumber Co. in which the Fifth Circuit upheld an order confirming a plan proposing to transfer collateral securing claims of the secured lenders free and clear of liens, paying the secured lenders in cash the value of their undersecured claims, and precluding the lenders from credit bidding.
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Attorneys Discuss Equipment Leasing, Financing and Litigation in 2011
Although There are Growth Opportunities for Equipment Leasing, Finding an Availability of Funds Will Remain a Challenge in 2011
As 2011 brings a hopefully brighter outlook for the equipment leasing and financing sector, we asked a group of attorneys how they see the new year in terms of the state of the economy and its affect on litigation and bankruptcy as well as their predictions for the equipment leasing and financing industry as well as the banking industry. While there are signs for optimism after a number of hard years, our participants note that conservatism in lending, especially, will still reign.
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Proposed UCC Article Amendments That Will Impact Equipment Financing
With Article 9 provisions changing and inconsistencies among the codes of various jurisdictions, maintaining a secure position can be a complex responsibility. Bottom line, secure positions are the lifeblood to an equipment lessor and an understanding of changing regulation is critical to success.
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A Little Something About Suretyship, Co-Borrowers and Co-Lessees
When it comes to co-borrowers and co-lessees, attorney Ken Weinberg returns to remind us that even if you call a duck a monkey, it’s still a duck. As such, lenders and lessors should proceed with caution when using these structures to avoid the potential for sticky situations down the road.
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Enforcement of Standstill Provisions
In the world of second lien lending and seller “carry back” financing, it is not uncommon for the lenders to enter into subordination agreements whereby the second lien subordinates its lien and its right to collect payments or money to the first lien. Onerous standstill provisions in subordination agreements are less common but also not unusual in subordination agreements.
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Bankruptcy §363 Sale
Creditor Prevails in Compelling Assumption or Rejection of Lease
The case of In re Gateway Ethanol, LLC provides an extended discussion of a sticky issue frequently encountered in bankruptcy or litigation: whether or not a lease is a true lease versus a lease intended as security. This recent case is now being cited as authoritative by many courts when looking at the true lease/lease intended as security dichotomy.
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The Issue Becomes Complex When Moving From the UCC to State Title Laws
Uniform Commercial Code §9-311(a)(2) provides that the filing of a UCC financing statement does not perfect a lien that is governed by the state’s certificate of title law. Stepping out of the familiar and more-or-less uniform terrain of the UCC and into state title laws has proven perplexing, expensive and, in some cases, disastrous for motor vehicle lenders and lessors.
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Verifying Debtor Names on UCC Financing Statements Can Mean the Difference Between Collecting a Debt or Going Home Empty-Handed
The current economic situation, and the resulting increase in charge-offs and delinquency rates, now has many lenders scrambling to re-examine their policies and practices regarding protection of the collateral securing such loans. Ensuring the correct debtor name is sourced and filed on a UCC Financing Statement is the beginning part of that process.
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U.S. Supreme Court Reverses Third Circuit on Duty of Trustee to Object to Claims of Exemption in Bankruptcy Case
Claims of exemption can be critical to a debtor that seeks a fresh start through bankruptcy. In addition, they allow a debtor to retain certain categories of property up to a specified dollar value, including equipment and other tools of the trade, vehicles, clothing and household goods. Such assets can provide essential assets for the debtor to start or continue to work and recover financially after bankruptcy.
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TOUSA, Inc.: Upstream Guaranties, Fraudulent Transfers & ‘Cute’ Savings Clauses
Special required notices to guarantors and other byzantine defenses help to explain why so many guaranties are practically unreadable and why many are loathe to make changes to these documents. Take the much-examined case In Re TOUSA, Inc...
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Second Circuit Weighs in on BAPCA’s ‘Hanging Paragraph’ in AmeriCredit Bankruptcy
In this edition of Tipping the Scales, Lesley Anne Hawes returns to discuss the implications of the so-called “hanging paragraph” in BAPCA as ruled upon by the Second Circuit Court of Appeals in AmeriCredit Financial Services v. Thompkins. The ruling, Hawes contends, will make it more difficult for debtors going forward … and gives creditors a reason to cheer.
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A Little Something About Software Leasing & Finance
For many outside our industry, equipment leasing and finance is a niche with magical and confusing terminology and structures such as synthetic leases, operating leases, true leases, FMVs, TRACs, ALIASs and EFAs. When you add software leasing and finance into the mix, you encounter a niche within a niche. In the following article, Ken Weinberg briefly addresses some of the unique considerations raised by such software transactions.
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UCC Statutory Framework Can Benefit Funders
This edition of Dispatches From the Trenches analyses some of the statutory framework of the Uniform Commercial Code, which provides some comfort to funders willing to go blind … that is, don’t receive executed notices and Acknowledgments.
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Minnesota Court Applies Article 9 Commercial Reasonableness Standard to Article 2A Equipment Lease
Andrew Alper returns to discuss a recent case in which the Minnesota court drew from Article 9 commercial reasonable standards to justify its ruling in an Article 2A lease transaction when such requirements do not exist in Article 2A … not good news for lessors that don’t comply with Article 9 disposition agreements.
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Lessors of Motor Vehicles Often Held Strictly Liable for Lessees’ Damage
Blame CERCLA
Many lessors have sighed in relief as the Graves Amendment generally appears to have addressed various state laws, which previously held lessors of motor vehicles strictly liable for damage caused by their lessees. However, the recent case of U.S. v. Saporito, reminds us that strict liability laws are still out there.
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The Taylor Decision & Avoidance Remedies in Bankruptcy
The case In re Taylor illustrates that the determination that the transfer of the security interest should be avoided is only the first step in granting relief to the estate, and formulating the proper remedy for the estate is more complicated than it would appear both practically and legally.
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Meet John Doe: A Little Something About Sole Proprietorships
This issue of Dispatches From the Trenches discusses sole proprietorships (d/b/a), and explores some of the increased risks associated with lessees that fall into this category. These risks include the location, name and movement of the debtor as well as the transfer of collateral.
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BALCAP Case: Conflicting Statutes Make for Bad Law for Judgment Lien Creditors
The recent case of Banc of America Leasing & Capital vs. 3Arch Trustee Services, Inc. decided on January 5, 2010, describes what judgment lien creditors might say is an unfair result shutting BALCAP out of the money on its recorded judgment lien. Here is another case where conflicting statutes make for bad law.
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A Question of Form or Substance
Two Cases for Consideration
This edition of Dispatches From the Trenches discusses: whether an assigned lease is part of the assignor’s bankruptcy estate; and whether a lessee has a valid cause of action if a lessor misrepresents that the “lease” is really a loan. Mixed goods and services transactions and conflicting choice of law provisions are also mentioned.
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Court Decision Marks the End of the Road for the Chapter 7 Ride-Through Option
Under the ride-through option, debtors had an option in bankruptcy … to retain vehicles without reaffirming the debt and without redeeming the collateral. They could simply continue to make the monthly payments. If the debtor defaulted, lenders could repossess. However the Ninth Circuit of Appeals recent decision in the Dumont case may have taken that option away.
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Fraudulent Inducement, Mistake & Unconsionability Defenses and the Importance of Language
This edition of Dispatches from the Trenches discusses: a borrower’s attempt to avoid its obligations under an equipment financing agreement by asserting the defenses of fraudulent inducement, mistake and unconsionability, and why lessors should make sure their leases have standard language noting that the equipment does not constitute a fixture and is removable from and not essential to the premises where the equipment is located.
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Can Non-Debtors Be Discharged Through a Debtor’s Bankruptcy Reorganization Plan?
This article arises because of a very recent case entitled The Pacific Lumber Co, 2009 West Law 3082766; 2009 U.S. App. LEXIS 21749 filed in the Fifth Circuit. Among many other issues, it revisits the issue as to whether a plan of reorganization can release non-debtors from liability. Before getting to this case, a discussion of the law regarding non-debtor releases is appropriate.
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An Update on Payment Intangibles & Case Law Regarding a Lessor’s Rights as an Additional Insured
This edition of Dispatches from the Trenches covers two areas: 1.) to provide an update regarding the holding of In re Commercial Money Center regarding payment intangibles, and 2.) analyze a recent case that may make you question your reliance on certain certificates of insurance.
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Where Bankruptcy & Suretyship Law Collide
Creditors Prevail in the Ninth Circuit
In a complex case, the Ninth Circuit Court of Appeals has addressed a series of critical issues involving the operation and effect of a prepetition release by a surety and a “revival” provision in a settlement as well as the ability of an unsecured creditor to include in its unsecured claim attorneys’ fees and costs. The decision provides some important guidance for creditors in the drafting and enforcement of revival provisions in a settlement.
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Fair and Clear: Liquidating Damages and Indemnity Provisions
This edition of Dispatches From the Trenches discusses two recent cases from the perspective of liquidated damages and indemnity provisions: National City Healthcare Finance v. Refine 360, LLC and Midwest Concrete Placement, Inc. v. L&S Basements, Inc. The two cases illustrate the necessity of being both fair in terms of liquidated damages provisions and clear with regard to indemnification provisions
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Issues With Proving Up Damages From Computer Records
In the following article, Andrew Alper looks back to 2005, the case In re Vinhnee and the issues with the provision of foundational evidence required by the court with regard to the introduction of computer records. As he shares from his own experience, when relying on the Vinhnee case, the court can get hung up on the matter of a witness’ ability to “import an aura of verisimilitude.” And that can be confounding.
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Understanding Fixtures and Special Priority Rules in Lease Default Claims
In a rough economy, lessors are more frequently faced with competing claims against equipment on lease to defaulted customers. Some of these claims come from landlords or mortgagees who have an interest in the premises on which the leased equipment is located. Such claims can be particularly troublesome if the leased equipment may be considered fixtures under state law.
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Commercial Mortgage Backed Securities: Dafaults and Workouts
The very structure of many commercial loans, and the relationship between rents collected and mortgage payments, have the effect of deferring loan defaults for a while. Signs are beginning to appear, though, that delinquencies are sure to accelerate. When they do, there will be an avalanche of defaults, of which perhaps 20% will be of loans that are now held in commercial mortgage-backed securities trusts falling under the general description of “commercial mortgage-backed securities” (CMBS).
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Documentation of Certificates of Title Drum Up a Complex Dance Between Parties
Stepping out of the familiar and more-or-less uniform terrain of the UCC and into state title laws has proven perplexing, expensive and, in some cases, disastrous for motor vehicle lenders and lessors. At the end the day, the interplay between the generally uniform provisions of the UCC and the various state Certificate of Title laws resembles a complex dance, which must be attempted with caution.
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First Circuit Rules on Debtor’s Right to Exempt Fraudulently Conveyed Property
On April 1, 2009, the Court of Appeals for the First Circuit became the first federal circuit court to publish a decision on the right of a debtor to exempt property that the debtor fraudulently conveyed prior to filing bankruptcy.
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Protecting Your Collateral: A Little Something About Lessee Assignments and Assumptions
In these difficult times, lessors are more frequently willing to allow an existing lessee to assign its rights and interest in leased or financed equipment to a new lessee so long as the new lessee assumes all obligations under the lease. This issue of Dispatches from the Trenches discusses additional due diligence that should be conducted for lessee assignments and assumptions.
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Is a Bankruptcy §363 Sale of Assets a Lender’s Friend or Enemy?
In some instances, a preplan 363 sale can still be structured to accomplish many objectives: it can meet the requirements of the Bankruptcy Code, be used to limit the leverage of out-of-the-money junior lienholder hold-outs, and serve as an expedient way to get assets sold and money distributed to creditors. In short, the 363 sale can be a lender’s best friend or its worst enemy.
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Surmounting a Slippery Slope: Complying With ECOA When Rejecting Applicants
Many in the industry find themselves rejecting more applicants than they have in a long time. This edition provides an outline of the Equal Credit Opportunity Act and the requirements it imposes on finance companies in such situations.
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Meeting §303(b) Requirements in Creditor Involuntary Relief Petitions
The en banc decision in Trusted Media highlights the significant practical and legal implications of a ruling that makes a determination that the requirements of §303(b) are properly met — a prerequisite to subject matter jurisdiction, as the Fifth and Second Circuits hold. Creditors filing an involuntary petition for relief against a debtor must “get it right” or risk substantial uncertainty as to the validity of orders and activities in the case.
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Why Bankruptcy Practitioners Should Care About E-Discovery
The day-in, day-out reality of bankruptcy practice for practitioners is often likened to the emergency room of a busy urban hospital. Sometimes the patient is wheeled in, barely clinging to life. The wounds must be cleansed, the bleeding stopped, sometimes with an incomplete knowledge of the patient’s full history and circumstance, and with foreknowledge that resuscitation may not be in the cards. All of this is done while striving to earn a living, and to uphold the ethics of the profession.
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True Leases Verses Straight Loans
A Matter of Distinction
It is common for those in our industry to distinguish true leases from dollar-out leases or other leases intended as security, which result in nothing more than a secured loan (referred to throughout the remainder of this issue as an ALIAS). This edition goes a step further and discusses situations where a loan documented on a note and a security agreement (sometimes referred to as a straight loan) is preferable to a lease, and vice versa.
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Fraud in Today’s Economy for Lenders and Lessors
Look Out for the Many Warning Signs
When it comes to fraud, here’s the bottom line: fraud costs lenders and lessors millions of dollars every year. The key to fraud prevention is diligence, diligence and more diligence. For this year’s Risk Management and Fraud Prevention issue, Andrew Alper reminds readers to look out for the many “badges” of fraud.
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Be Explicit When Talking Negligence
Thoughts on Indemnification & Exculpation
There are risks involved in not mentioning negligence in the indemnity section of a lease agreement. Lessors should also be warned that state laws regarding the enforceability of exculpatory clauses can be relevant. Cautious lessors should always review their lease documents to know if these forms will protect them from claims.
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Sixth Circuit Rules on Lease Rejection Damages, the Impact of Mitigation Efforts
The case of Giant Eagle, Inc. v. Phar-Mor, Inc., holds a number of positive rulings for equipment lessors. The court found that lessors’ rights would not be limited in its claims for rejection damages, but also highlights the disadvantages that this type of structure could present for equipment lessors.
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Florida Court Buries Graves Amendment Regarding Lessor Liability Claims and Financial Responsibility
Lessors have had to concern themselves with lessor liability claims and the scariest of these have stemmed from claims that haven’t required evidence of wrongdoing on the part of the lessor. Along came the Graves Amendment, and lessors began to find some comfort. But a recent ruling from the Sunshine State has once again cast ominous clouds in the matter of financial responsibility.
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Ninth Circuit Changes Course on Secured Creditor’s Right to Default Interest in Chapter 11 Bankruptcy
The Court of Appeals in the Ninth Circuit recently ruled a secured creditor whose claim is oversecured can recover default interest under certain circumstances in a Chapter 11 plan. The court also ruled that the secured creditor may recover attorney’s fees and costs if it prevails on its claim for recovery of default interest. What does this reversal mean for secured creditors?
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Implied Covenant of Good Faith & Fair Dealing
This issue discusses the implied duty of good faith and fair dealing often raised by aggrieved lessees complaining of lack of fairness or equity. Such claims are frequently heard simultaneously with claims of unfair and deceptive trade practices, unjust enrichment and unconsionability.
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Documentation Matters
California Finance Lenders Law Trumps Choice of Law Clause Contained in Loan Contract
Most brokers, lenders and lessors have heard horror stories about doing business in California and the requirement of having a Commercial Finance Lenders License. Yes, the horror stories are true although qualifying to obtain the license is not very difficult. The following discussion is a short summary of some of the relevant provisions of the CFFL.
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Important Differences Between Commercial and Municipal Equipment Lease Documents
A veteran commercial leasing professional can quickly become “a fish out of water” when attempting to dive into the murky waters of municipal leasing. Nearly everyone knows that a municipal lease must include something referred to as a “nonappropriation clause,” but beyond that, do you know the legal risks of failing to include certain provisions that are specific to municipal leasing transactions? Do you know the provisions that should not be included?
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Liens That Survive Transfer of the Equipment
This month, Ken Weinberg contemplates UCC provisions, which protect a lessee when it sells equipment leased pursuant to almost every type of lease under the sun as well as equipment finance agreements and loans secured by equipment.
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Bankruptcy Court Refuses to Allow Creditor a Nondischargeable Claim Despite Fraudulent Financial Statement
In this edition of Legal Watch, Andrew Alper reminds us that there are always lessons to be learned from adverse court decisions. Lessons include the necessity for lenders and lessors in making sure their lending and leasing guidelines make sense and the importance of digging deeper into credit information received from a borrower or lessee.
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Revised Article 9: Refinancings, Consolidations & Renewals of Purchase-Money Security Interests
As markets continue to deteriorate in the months to come, it is going to be even more important to understand refinancings, renewals and consolidations of purchase-money security interests. This edition turns the spotlight on existing secured loans as they are refinanced.
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Discovery Duties in e-Stored Information
8.5 Million Reasons to Learn the Lessons of Qualcomm v. Broadcom
Not sure about your discovery duties when using e-stored information? The Qualcomm case illustrates that applying these general discovery duties in practice may not be as easy as the familiar general “due diligence” requirement suggests. While the ink is drying on the Qualcomm decision, it may be a good time for companies and their counsel to reassess their own case management and discovery procedures in light of the lessons learned.
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How Guaranties can Help or Hurt Lessors
How does a guaranty affect a lease? How does the court rule in the case of a guaranty? In this edition, Barry Marks and Ken Weinberg tread through the different types of guaranties as well as the various rules, to show how they can be of benefit — or a detriment — to lessors.
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Hell or High Water Clause Comes Under Attack
Lessor's Best Friend...or Worse Nightmare?
Columnist Andrew Alper discusses the common missteps taken by both lessors and lessees when drafting a hell or high water provision in equipment lease agreements. He also provides recent examples of the courts’ uneven decisions regarding the matter.
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Easing the Way Through the Broker-Lender Relationship
In a time when the working relationship between brokers and funding sources has never been more important, attorneys from law firm Askounis & Borst — Thomas Askounis, Alex Darcy and Debra Devassy — discuss the common missteps and resolutions that can arise in these partnerships.
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Consider All Aspects — and State Revisions — When Drafting a Choice of Law Provision
Drafting a choice of law provision is not as easy as it seems if you assume the Uniform Universal Code (UCC) is ‘universal’ in all states. But it isn’t. Therefore, one needs to be extra vigilant in writing these provisions to ensure the outcome isn’t different from what was intended.
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Relevant Issues Relating to Inventory Financing
The last installment discussed the possibility of a lessor of vehicles being unable to rely on a lien notation on the Certificate of Title for purposes of perfection. This article continues this theme by discussing other issues related to inventory financing.
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Second Circuit: When Debt is Non-Dischargeable in Backruptcy
The influential Second Circuit Court of Appeals has become the latest federal circuit court to add its voice to the interpretation of a key provision upon which creditors can seek a determination that a debt is non-dischargeable in bankruptcy.
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BCI Aircraft Leasing, SEC Legal Battle Heats Up
A legal battle pitting Chicago’s BCI Aircraft Leasing and its chief executive Brian Hollnagel against attorneys from the Securities & Exchange Commission (SEC) has continued to escalate over the past several months. It all started in August when the SEC filed a civil lawsuit in the U.S. District Court for the Northern District of Illinois [...]
Read more...Date Posted November 1, 2007
Liquidated Damages Under True Leases
No Double-Dipping Allowed
This installment discusses liquidated damages under true leases. Ken Weinberg provides three cases: In re Baldwin Rental Centers, Inc., Carter v. Tokai Financial Services, and In re Montgomery Ward Holding Corp. as examples of the complexity of liquidated damages clauses.
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Using the Bankruptcy Stay to Prohibit Enforcement of Claims Against Nondebtors
Monitor columnist Andrew Alper discusses §105 of the Bankruptcy Code and how the courts determine if it is possible to use a stay to prohibit litigation of a nondebtor’s claims. Whether the court decides to extend a bankruptcy case depends on the facts. Alper provides examples to explain why this is a common occurrence.
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Supreme Court Overrules Ninth Circuit’s Fobian Rule on Attorneys’ Fees in Bankruptcy
The United States Supreme Court yet again reversed a decision of the Ninth Circuit Court of Appeals and resolved a conflict among the circuit courts regarding the allowance of attorneys’ fees in bankruptcy litigation. Columnist Lesley Hawes discusses the court’s process in the case of Travelers Casualty & Surety Co. v. Pacific Gas & Electric Co., and how this decision will affect future litigation.
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Perform the Proper Due Diligence When Documenting Your Claim on a Title Certificate
Lessors of over-the-road trucks may find themselves becoming inventory lessors. This installment warns lessors to keep a close eye on certificates of title when another party is subleasing leased trucks. To sublease, Weinberg says, requires more due diligence than simply noting your interest on a certificate of title.
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Fraudulent Documentation
Court Rules Assignee Prevails on Nondischargeability Claim
Are assignee’s rights limited in a bankruptcy case? By looking into the recent case of In re Boyajian, 367 B.R. 138 (B.A.P. 9th Cir.), filed on March 30, 2007, we can now determine whether an assignee can submit nondischargeability claims against dishonest debtors, lessees or guarantors.
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When Identity Theft Strikes: Knowing Your Rights as a Creditor
Identity theft has become quite common — but what can creditors do when it strikes? This installment focuses on two areas: The first discusses fraud prevention methods and red flags, which can help creditors from funding transactions tainted by identity theft. The second discusses creditor rights when contacted by legal counsel with a claim that an individual obligor’s identity has been stolen.
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eDiscovery for Careful Lenders
Prepare Today for Litigation Tomorrow
Ask not for whom the clarion bells ring. If you’re a careful lender or lessor, they ring for thee. Careful lenders need to know what is “new” about eDiscovery and why it is important to prepare for it now, even for a lawsuit that has not yet been filed. Chapman and Cutler’s Jeffrey Close takes a closer look at the requirements needed for a well-prepared ESI inventory.
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U.S. Supreme Court Resolves Conflict Over ‘Absolute’ Right to Convert to Chapter 13
In this issue, Monitor columnist Lesley Hawes provides the summary of the Marrama v. Citizen’s Bank of Massachusetts case and the Supreme Court’s decision detailing if a Chapter 7 debtor can transfer its case to a Chapter 13 or other proceeding if he/she acted in bad faith of the court, as well as the effects this ruling will have on future cases.
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A Little Something About EFA Documentation
What is an Equipment Finance Agreement?
An industry with a myriad of finance structures and even more colorful names (such as split TRAC’s, first amendment, leveraged, synthetic, dirty, finance, put and security leases) has added another — the Equipment Finance Agreement (EFA). This installment discusses EFAs and their impact on the future of the industry.
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Can Creditors Recover Attorney’s Fees in Bankruptcy Cases?
The Supreme Court Decides
Creditors are often faced with the dilemma as to whether they can recover their legal fees incurred in a bankruptcy once the lessee or debtor files a bankruptcy petition. In the Travelers’ case, the U.S. Supreme Court tackled the question as to whether a creditor may recover attorney’s fees authorized by a prepetition contract and incurred in postpetition litigation.
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Still Impacts Certain Commercial Leasing Transactions
The Fair Credit Reporting Act
This edition discusses the Fair Credit Reporting Act (FCRA) and its application on commercial leasing transactions. Although not a hot topic in the press, the FCRA still impacts commercial leasing transactions when credit reports are pulled from consumer reporting agencies. Those creditors that do not follow the FCRA can face legal consequences.
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Debt or Equity: How the Classification of Hybrid Securities Can Turn a Good Company Bad
A company that appears to be flying high in the black might actually be neck deep in the red if its financing relies heavily on “hybrid” securities. Issuances of hybrid securities — financial instruments that have qualities of both debt and equity — are on the rise. This article reviews three cases that may guide individuals charged with directing a company’s operations to determine whether hybrid securities should be treated as debt or equity.
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Court Determines Payment Intangibles are Separate from Lease
In this issue, Ken Weinberg discusses the Commercial Money Center, Inc. case, and the decision, which determined that payment intangibles are separate from the lease itself. The results of this case offer some recommendations funders may want to consider.
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Perfection Delays Mean Big Losses for Lenders in Bankruptcy
The arrival of 2007 was not very happy for the lenders who are the subject of two recent decisions. In opinions issued in the first two weeks of this year, the courts sent a strong message — don’t expect a sympathetic reception when you fail to perfect your security interests promptly.
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Interim Rent
A Practical Look at a Sometimes Overlooked Charge
Many lease agreements contain an “interim rent” provision enabling the lessor to charge for the use of the lease property for the time period between the actual acceptance date and the date on which the base term of the lease commences. Although interim rent is well established, it’s not specifically addressed in the UCC. Therefore, it’s valuable to have an understanding of how it’s used and how the courts enforce it.
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Get Ready to Rumble
The Fight Between Good Faith Assignees & Trusting Lessees Rages On
Bad facts sometimes make for bad law. In recent litigation against assignees of leases, this has clearly been the case. This article discusses the recent California case of Wells Fargo Bank Minnesota, N.A. v. B.C.B.U. to illustrate how confusion can occur with parties from two different states following two different articles in the Commercial Code, and how courts deal with the conflicting Article 9 and Article 2A.
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Alleged Fraudulent Inducement
Lessees’ Tactics to Avoid the ‘Hell or High Water’ Clause
This edition of Dispatches discusses the “hell or high water” clause. Any lessor that has ever had to defend a claim of defective equipment should be aware of the various tricks counsel uses to avoid the infamous clause. This article uses Georgia’s Colonial Pacific case to provide a detailed analysis of such an attack.
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