granted — and a motion to extend the automatic stay and/or preliminarily enjoin certain actions against non-debtors pending a final decision of the debtors’ settlement motion. The court also granted the latter motion and entered an order enforcing the automatic stay and temporarily restraining certain actions against non-debtors (October TRO), which identified the restrained actions.This decision followed a final hearing regarding the October TRO.Debtors’ motion sought a determination that all 683 lawsuits listed in the schedule are subject to the stay because: (1) they include express successor liability claims; (2) they contain a bifurcation stipulation in which the plaintiff acknowledges Brenntag as successor to debtor(s); or (3) they allege pre-2004 exposure, rendering them effective successor liability claims and/or necessarily impacting debtors’ rights and defenses and creating the potential for application of res judicata and collateral estoppel, as well as record taint, under 11 U.S.C. § 362(a) and binding case precedent. The court found it was beyond dispute that a majority of the lawsuits are subject to the stay because they include express successor liability claims and because of the bifurcation stipulation pursuant to § 362(a). The remaining 21 actions – which allege pre-2004 exposure – must also fall within § 362(a) or, in the alternative, must have “unusual circumstances” presented as defined by case precedent.Third Circuit jurisprudence permits extension of the automatic stay to nonbankrupt codefendants where “unusual circumstances” exist. McCartney, 106 F.3d at 510 (citing A.H. Robins, 788 F.2d at 999; see also In re Philadelphia Newspapers, LLC, 423 B.R. at 104)). The McCartneycourt explained that such unusual circumstances may be found “where ‘there is such identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment or finding

i.e., cases involving "public rights" that Congress could constitutionally assign to "legislative" courts for resolution), or where the parties have consented, either expressly or impliedly, to the bankruptcy court hearing and determining the matter. See, e.g., Wellness Int'l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) (parties may consent to a bankruptcy court's jurisdiction); Richer v. Morehead, 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").Estate Property and the Automatic Stay"Property of the estate," as referenced in 28 U.S.C. 1334(e), is defined in section 541(a) of the Bankruptcy Code, which provides that the filing of a bankruptcy petition creates an estate comprising an extensive list of property, "wherever located and by whomever held," including, among other things, "all legal or equitable interests of the debtor in property" as of the petition date.The debtor and property of its bankruptcy estate are protected by the automatic stay in section 362 of the Bankruptcy Code from creditor collection efforts during a bankruptcy case, including litigation, enforcement of judgments, and acts "to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate."Under section 362(d), a bankruptcy court can modify or grant relief from the automatic stay upon a showing of: (i) "cause," including the lack of "adequate protection" of an interest in property of the party seeking stay relief; (ii) the debtor's lack of equity in property that is not necessary for an effective reorganization; (iii) a "single asset real estate" debtor's failure within 90 days of the petition date (with certain exceptions) either to file "a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time," or to commence monthly interest payments to any mortgagee. Under the conditions specified in section 362(e), the automatic stay terminates 30 days after a stay relief motion is filed under

t file for bankruptcy relief if “unusual circumstances” exist. Unusual circumstances typically arise in one of the following two situations: (1) where there is such identity between the debtor and the nondebtor that the debtor may be said to be the real party and that a judgment against the nondebtor will in effect be a judgment or finding against the debtor, and (2) where stay protection is essential to the debtor’s efforts for reorganization (e.g., where the nondebtor is a member of the management team who should not be subject to distractions during the critical time postpetition).Debtors have requested extensions of the automatic stay to protect directors and officers, parent entities, affiliates, and codefendants in cases where those parties could be at risk of potential litigation but are otherwise solvent and do not need to reorganize in Chapter 11.Extension of the automatic stay is often achieved through a debtor’s request for an injunction to extend the stay protections under section 362 of the Bankruptcy Code to nondebtors pursuant to section 105(a) of the Bankruptcy Code. Preliminary injunctions are often viewed as extraordinary remedies and are granted in limited circumstances.In re Parlement Technologies, Inc. Chapter 11 ProceedingThe debtor in Parlement Technologies once operated the social media site and app known as Parler. In March 2021, a former executive of Parler sued the debtor and several former officers in Nevada state court (Nevada Action) based on claims of breach of contract, conspiracy and tortious discharge, along with allegations that the app was removed from Apple’s App Store because the company had not taken sufficient steps to prevent the app from being used to incite violence. The debtor filed for Chapter 11 in April 2024.In June 2024, the debtor filed a motion to extend the automatic stay via preliminary injunction to the co-defendants in the Nevada Action, its former officers. The plaintiff in the Nevada Action objected to the motion.OpinionNotwithstanding the Supr

ion. Does the authority to stay such litigation survive Purdue? In In re Parlement Technologies, Inc., Case No. 24-10755 (CTG) (Bankr. D. Del. Jul. 15, 2024) (“Parlement”), a Delaware bankruptcy court held that it did, though it denied the debtor’s request for a stay on other grounds.Parlement Technologies, Inc. (the “Debtor”) used to operate the political social media site Parler. In March 2021, a former senior executive sued the company and certain of its owners and former executives in Nevada (the “Nevada Suit”). Several of the individual defendants have cross-claimed for indemnification against the Debtor. The Debtor filed for bankruptcy in April 2024. Shortly thereafter, the Debtor removed the Nevada Suit to federal court and sought to transfer it to the United States District Court for the District of Delaware, where the bankruptcy case was filed.The Bankruptcy Code provides for an automatic stay of most litigation against the debtor upon the filing of a bankruptcy petition. See 11 U.S.C. § 362(a). The automatic stay does not apply to suits against nondebtors. On June 14, the Debtor moved to “extend” the automatic stay to cover its co-defendants in the Nevada Suit until August 30. The Debtor argued that, because of its indemnification obligations to its co-defendants, the Nevada Suit is in substance an action against the Debtor.The court considered the debtor’s motion in two parts. First, the court considered whether Purdue undermines prior authority holding that bankruptcy courts could grant a preliminary injunction barring suits against nondebtors. The court explained that a preliminary injunction in this context is governed by the traditional four-factor test governing preliminary injunctions, including likelihood of success on the merits. In the normal case, likelihood of success on the merits means the likelihood that the party seeking the preliminary injunction would ultimately be entitled to a permanent injunction. In the context of staying litigation against nondebtors,

form, or refrain from performing, some designated action, and also brings a person or entity into compliance with environmental law. SEPs may be part of an enforcement settlement where a violator voluntarily agrees to undertake a remedial project to provide tangible environmental or public health benefits to the affected community or environment.[9] Finally, criminal enforcement actions, which are typically reserved for willful or knowing violations, can result in a defendant being ordered to pay penalties and/or restitution to those affected by the violation, and may also result in incarceration. When the costs of these enforcement actions become too much for PRPs, they often file bankruptcy, whether voluntarily or involuntarily, to obtain relief from their environmental obligations.One of the fundamental protections offered by the U.S. Bankruptcy Code (the “Bankruptcy Code”) to a debtor is a statutorily imposed stay of virtually all collection efforts against the debtor. Pursuant to section 362(a) of the Bankruptcy Code, filing for bankruptcy operates as a stay of the “commencement or continuation . . . of a judicial, administrative or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case . . ., or to recover a claim against the debtor that arose before the commencement of the case . . . .” This stay is imposed automatically upon the debtor filing its petition, hence the name “automatic stay.”Not all actions or proceedings, however, are subject to the automatic stay. For example, the automatic stay does not apply to criminal proceedings against a debtor. Additionally, section 362(b) of the Bankruptcy Code specifically provides that the filing of a bankruptcy petition does not operate as a stay of “the commencement or continuation of an action or proceeding by a governmental unit . . . to enforce such governmental unit’s or organization’s police and regulatory power, including the enforcement of a judgment other than a money judgment, o

1979) ("Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding."). Where state law and federal law conflict, however, state law yields, especially in circumstances where a private party cannot comply with both laws or where state law stands as an obstacle to the purpose of Congress. SeeCrosby v. Nat'l Foreign Trade Council, 530 U.S. 363, 372 (2000).The aggregation of estate property is an essential step before assets can be administered and equitably distributed in bankruptcy. For this reason, estate property is protected from creditor collection efforts by an "automatic stay" upon the commencement of a bankruptcy case. The automatic stay precludes "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. § 362(a)(3). One purpose of the stay is to give debtors a "breathing spell" by stopping collection efforts, foreclosure actions, and other harassment. See H.R. Rep. No. 95-595, 340 (1978). The stay also serves to protect creditors, helping to provide "an orderly [reorganization or] liquidation procedure under which all creditors are treated equally." Id.For most courts, violations of the stay are treated as void. See generally Collier on Bankruptcy ¶ 362.12[1] (16th ed. 2023). However, some courts, including the U.S. Court of Appeals for the Fifth Circuit, have concluded that actions violating the stay are merely voidable rather than void. SeeIn re Jones, 63 F.3d 411 (5th Cir. 1995). The Fifth Circuit reads section 362(d) of the Bankruptcy Code, which permits a court to retroactively annul the automatic stay, together with section 549(a)(1), which authorizes a bankruptcy trustee to avoid unauthorized postpetition transfers, to mean that certain postpetition actions are valid if not voided. See Si

more than $80,000 in civil penalties, disgorgement and interest, as well as retain an independent consultant to review its audit, review and quality control policies and procedures as to their sufficiency, adequacy, design, implementation and effectiveness and issue a written report to improve CSH's policies and procedures.Key TakeawaysSEC staff will closely scrutinize issuer claims to be first or fast to accomplish a stated goal, which may have contributed to the SEC's interest in Lordstown. As Associate Director of the SEC's Division of Enforcement Mark Cave noted, "in a fiercely competitive race to introduce the first mass-produced electric pickup truck to the U.S. market, Lordstown oversold the true demand for the Endurance."The SEC and other government agencies can continue investigations and enforcement actions when a company enters bankruptcy. Although most legal proceedings against a debtor are stayed automatically and immediately upon the filing of a bankruptcy petition, (see 11 U.S.C. 362(a)), there is an exemption for actions or proceedings brought by a "governmental unit" to enforce its "police and regulatory power." See 11 U.S.C. § 362(b)(4).This settled action highlights that public companies should be as vigilant in social media posts and traditionally less formal communications channels as they are in formal SEC reporting. Failure to do so can be risky.Enforcement's interest in SPACs remains unabated. As noted by this blog previously, the SEC's "SPAC crackdown" continues to target SPAC sponsors and de-SPAC companies and executives.It is worth noting that the settlement with CSH, Lordstown's auditor, included a violation of Rule 2-01 of Regulation S-X for lack of independence, among other charges, for allegedly providing prohibited non-audit services to Lordstown while also engaged in auditing Lordstown's financial statements, which were then used in connection with Lordstown's registration statements and periodic reports filed with the SEC. This charge is a reminder

an independent federal right of setoff, but merely preserves any such right that exists under applicable non-bankruptcy law). As noted by the U.S. Supreme Court in Studley v. Boylston Nat. Bank, 229 U.S. 523 (1913), setoff avoids the "absurdity of making A pay B when B owes A." Id. at 528; see also In re Lehman Brothers Holdings Inc., 404 B.R. 752, 756 (Bankr. S.D.N.Y. 2009) (discussing the historical underpinnings of the setoff doctrine).The Bankruptcy Code defines a "claim," in relevant part, as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured," and it defines a "debt" as a "liability on a claim." 11 U.S.C. §§ 101 (5)(A), (12).With certain exceptions for setoffs under "safe-harbored" financial contracts, a creditor is precluded by the automatic stay from exercising setoff rights against a debtor in bankruptcy without court approval. See 11 U.S.C. §§ 362(a)(7), (b)(6), (b)(7), (b)(17), (b)(27), and (o). Stayed setoff rights are merely suspended, however, pending an orderly examination of the parties' obligations by the court, which will generally permit a valid setoff unless it would be inequitable to do so. See In re Ealy, 392 B.R. 408 (Bankr. E.D. Ark. 2008).A creditor stayed from exercising a valid setoff right must be granted "adequate protection" (see 11 U.S.C. § 361) against any diminution in the value of its interest caused by the debtor's use of the creditor's property. Ealy, 392 B.R. at 414.Setoff is expressly prohibited by section 553 if: (i) the creditor's claim against the debtor is disallowed; (ii) the creditor acquires its claim from an entity other than the debtor either (a) after the bankruptcy filing date or (b) after 90 days before the petition date while the debtor was insolvent (with certain exceptions); or (iii) the debt owed to the debtor was incurred by the creditor (a) after 90 days before the petition date, (b) whil

This blog post addresses: (1) steps to be taken, (2) issues to be aware of, and (3) recovery prospects when a general contractor files for bankruptcy protection under Chapter 11 of the Bankruptcy Code, from the owner’s perspective.1. The Automatic Stay Prohibits Taking Immediate Adverse Action Against the General ContractorWhen a general contractor files for bankruptcy protection, the automatic stay immediately takes effect, and no prior notice of the stay is required to be given to the owner or any other parties. See 11 U.S.C. § 362(a). Section 362(a) provides a broad list of activities that are immediately stayed by the filing of a bankruptcy case. Section 362(a) generally prohibits taking most adverse actions against the debtor without first requesting that the bankruptcy court grant relief from the automatic stay. For example, the owner cannot immediately terminate its contract with the general contractor once it files bankruptcy and the automatic stay is in effect.To properly terminate the general contract, the owner must obtain relief from the automatic stay. This entails the filing of a written motion, providing notice in the bankruptcy proceeding, and showing “cause” for termination in a hearing. If cause is shown, then the bankruptcy court may modify the automatic stay to allow termination of the general contractor (or other adverse action). In addition, the owner cannot attempt to collect a debt or enforce any remedies to collect a debt against the general contractor outside of the bankruptcy process.2. The

or means in connection with the collection of any debt.” The statute creates a private right of action for consumers to sue debt collectors who break the law by lying or providing wrong information while collecting a debt.The Carrasquillo Case:The Carrasquillo case originated in September 2019, when the Plaintiff-Appellant initiated bankruptcy proceedings. Defendant CICA Collection Agency had been engaged to collect an alleged debt from the Plaintiff-Appellant. In October 2020 (during the pendency of the bankruptcy proceedings), CICA mailed a letter stating that such debt was “due and payable,” and that the Plaintiff-Appellant could be sued if the debt was not paid. The letter did not acknowledge the pending bankruptcy proceeding.In October 2021, the Plaintiff-Appellant sued the Defendant in the District Court for the District of Puerto Rico, alleging that the letter violated the FDCPA, for, among other grounds, making a false statement (given the operation of the automatic stay under 11 U.S.C. § 362).CICA filed a Motion to Dismiss, arguing that it did not know Carrasquillo filed for bankruptcy because it had not received notice of the bankruptcy proceeding. Therefore, CICA argued, it did not intentionally make a false statement, and should not be subject to liability. The District Court granted CICA’s Motion to Dismiss, agreeing that the FDCPA did not intend to punish unintentional false statements. The Plaintiff-Appellant appealed to the First Circuit.The Amicus Brief:In its brief, the CFPB argued that Section 1692e’s prohibition against the use of “any false, deceptive, or misleading representation” extends to the provision of wrong information. Thus, the FDCPA allows a consumer to sue a debt collector for providing wrong information that the collector should have known was wrong – such as, the CFPB argues, CICA’s claim that it could sue to collect debt from a consumer who had filed for bankruptcy.Intent:The CFPB’s primary contention is that intent is not a factor in determinin