April 2007

Debtor/Creditor NewsMag
A publication of the Debtor/Creditor Rights Committee of the Business Law Section of the State Bar of Michigan

Summaries of Select Published Decisions within the 6th Circuit

Sale order may be res judicata to claims that could have been raised in connection with sale but were not explicitly reserved. 

Winget v. JP Morgan Chase Bank, N.A., 2007 U.S. Dist. LEXIS 15968 (E.D. Mich. 2007)

Larry Winget (Winge”), who owned substantially all of the Venture entities, as well as other assets, guaranteed a loan from JPMorgan Chase (Chase) to Venture under the Eighth Amendment to the credit agreement between Venture and Chase.  The guaranty and pledge agreement signed by Winget provided that Chase would not pursue the guaranty and pledge agreement collateral until all reasonable efforts to collect from Venture had been exhausted.  In 2005, after Venture filed for bankruptcy and was ultimately sold at auction, Chase sued Winget to enforce the guaranty and collect its deficiency claim of approximately $375 million.  Winget counterclaimed, asserting that Chase had failed to preserve its collateral, had breached the pledge agreement, and was barred by unclean hands and lack of good faith.  Winget was ordered to comply with Chase’s audit request (count one of the Chase complaint) but Winget’s counterclaims and Chase’s right to a declaratory judgment would be determined in a subsequent case.  In 2006, Winget filed a complaint, alleging that Chase, as well as others, failed to make all reasonable efforts to collect their collateral from the Venture entities, wrongfully exposing Winget to liability under the guaranty documents.  The United States District Court for the Eastern District of Michigan (Cohn, J.), found that Winget’s 2006 complaint against Chase was premature and sought an advisory opinion, because Chase had not taken any actions to enforce the pledge agreement or the guaranty.  The court also found that because Winget’s claims against Chase could and should have been litigated as a part of the entry of the order authorizing the sale of substantially all of the assets of Venture.  Because they were not, and because Winget withdrew his objections to the sale order and did not challenge or appeal the sale order, Winget is barred by res judicata from asserting claims against Chase related to the sale of the Venture assets. 

Practitioners counseling purchasers of financially troubled companies should consider creative means of structuring purchaser to avoid fraudulent transfer liability.


Valley X-Ray Co. v. VPA, P.C.
, 2007 U.S. Dist. LEXIS 172 (E.D. Mich. 2007)

In 2000, Valley X-Ray (VXR) entered into an agreement to sell substantially all of its assets to Diversified Medical Group (Diversified).  Diversified terminated the sale agreement without purchasing VXR’s assets, and VXR subsequently entered into a letter agreement with VPA, P.C. (VPA), who agreed to pay VXR $10,000 for its assets, as well as to pay VXR’s liabilities.  Under the terms of the letter agreement, VPA had 90 days to refuse to consummate the sale without incurring any liability.  Sometime during the 90-day period, VPA became concerned about VXR’s substantial liabilities and decided that it did not want to purchase VXR’s liabilities.  VPA was approached by Diversified, which was still interested in the VXR assets, but concerned about the “bad blood” between it and VXR as a result of the earlier, failed transaction.  Therefore, in order to permit Diversified to buy the VXR assets without VXR knowing Diversified was the purchaser, VPA and Diversified formed an acquisition entity, Valley Medical Services (VMS).  VPA and Diversified were the sole members of VMS, and the VMS operating agreement provided that after the closing of the sale of the VXR assets, Diversified would purchase VPA’s share of VMS.  Diversified, through VMS, funded VMS’s purchase of the VXR assets.  VMS received a bill of sale for the VXR assets, for which, in total, Diversified paid $725,305.36.  After VXR was filed into an involuntary bankruptcy, the VXR trustee (Trustee) sued VPA for return of a fraudulent conveyance.  Judge Tucker of the Eastern District Bankruptcy Court held that the Trustee could not recover from VPA because VPA was not (1) the initial transferee of the transfer, (2) the entity for whose benefit the transfer was made or (3) an immediate or mediate transferee of the transfer.  Judge Feikens of the District Court affirmed, finding that VMS was not an alter ego of VPA, VMS was not acting as VPA’s agent at the time of purchase, and VPA was not the entity for whose benefit the transfer was made. 

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Notes from the
Debtor/Creditor Rights Committee

DEBTOR/CREDITOR RIGHTS COMMITTEE, MEETING NOTES OF 1/10/07

    The Debtor/Creditor Rights Committee met over Chinese food on January 10, 2007, at the Southfield offices of Jaffe Raitt. Twenty-two members heard Jessica Allmand and Elias "Lee" Majoros speak on litigation to avoid refinancing mortgages, including the December 10, 2006, hearings before all of the bankruptcy judges. David Ruskin spoke about the Chapter 13 trustees' project to install wireless internet access for the Chapter 13 trustees at the Eastern District of Michigan bankruptcy court and their willingness to allow the Committee to work with them to expand the project to include the entire bankruptcy bar. David Lerner and Willard Hawley agreed to represent the Committee and work with the Chapter 13 trustees on the project

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NEXT DEBTOR/CREDITOR RIGHTS COMMITTEE MEETING

    When: May 9, 2007, 6 p.m.
    Where: Honigman's Oakland County offices, 38500 Woodward, Suite 100, Bloomfield Hills

    Topics: 

       Articles for Michigan Business Law Journal
       Internet Access of the Eastern District of Michigan Bankruptcy Court
       Correcting the Michigan Exemption Legislation
       Amendments to Local Rules for the Michigan Exemption Legislation
       Amending Michigan’s Recording Statutes

    RSVP to Judy Calton or Judy Miller if you are attending

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WIRELESS INTERNET ACCESS FOR THE BANKRUPTCY COURT, MEETING NOTES

Will Hawley, Co-chairperson on the new sub-committee on wifeless internet access for the bankruptcy court, reported his notes of the initial meeting of that sub-committee as follows:

    The initial meeting of the chairpersons for the debtor/creditor rights section sub-committee on wireless internet access for the bankruptcy court occurred recently.  Committee chairpersons Will Hawley, David Lerner and David Ruskin discussed many issues related to the project, including funding, administration, logistical issues and access speed, as well as coordination with various parties necessary for a successful implementation.  While there are many issues taking the project, the sub-committee remains committed to the project and believes that successful implementation would greatly benefit practitioners in our district.  Look for more information on the project in upcoming issues, and if you have questions or suggestions, contact Will Hawley at whawley@mcdonaldhopkins.com

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HOW TO GET YOUR COPY OF NEWSMAG

    What you're reading right now is the April 2007 issue of NewsMag, a publication of the Debtor/Creditor Rights Committee of the Business Law Section of the State Bar of Michigan. To receive NewsMag you must be a member of the Business Law Section.  NewsMag goes out to all 450 members. To sign up for membership just call the State Bar at (800) 968-1442.

    Get on the Listserv for NewsMag

    Any questions, just contact Judy Calton or Judy Miller, Co-Chairs of the Committee.

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HOW TO BECOME A BIG FISH

    You can become a big fish in a little pond by becoming a contributing editor to NewsMag. It's not hard. All you have to do is write a 3 or 4 paragraph article on some topic of current interest which the general practitioner in the everyday battlefield of bankruptcy should know about. Remember our objective: a quick read for the lawyer on the run. Just crank one out and you will get a credit on the front page of NewsMag as a contributing editor. Your editorial comments are most welcome.

    What we are looking for is cases, published and unpublished rulings of the Eastern and Western District, judges' preferences, procedures newly adopted by the U S Trustee's office, interesting cases just filed, etc.

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HOW TO GET YOUR TWO CENTS IN - WRITE A LETTER TO THE EDITOR

    Is there something you would like to say to the Bench or the Bar but never had the chance? Is there a comment you’d like to make about our bankruptcy system in a very public way? Is there an accolade or admonishment that needs to be aired?

    Well, here’s your chance!

    This is to let you know we have added a Letters to the Editor column to NewsMag. By now you should have received the February 2007 issue. We reach over 450 e-mail addresses including the judges of the Eastern and Western District Bankruptcy Courts.

    If you would like to put in your two cents about bankruptcy - good, bad, constructive, critical, or whatever - please send it to Letters to Editor c/o Marty Fried.

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    Announcements

    APPELLATE BAR SECTION SCHEDULES TWO DAY BENCH BAR CONFERENCE

    When: May 2 - 4
    Where: St. John's Conference Center in Plymouth

    Registration is now open for the 2007 Michigan Appellate Bench Bar Conference, May 2-4, 2007, at St. John’s Conference Center in Plymouth.  The conference features panel discussions with judges of the Michigan Court of Appeals and Supreme Court on appellate decision-making and court practices; a keynote address on oral advocacy; break-out sessions on specific practice areas; and opportunities for informal interaction with the judges and court staff.  Registration, including reception, dinner, materials and two lunches, is $295.  Some scholarships are available.  The conference brochure and registration form are available at www.benchbar.org

CBA PRESENTS NUTS & BOLTS SEMINAR

    When: Monday, May 7, 2007, 9 a.m. to 4 p.m.
    Where: Sterling Heights Inn, Sterling Heights

    The Consumer Bankruptcy Association would like to announce the upcoming NUTS & BOLTS SEMINAR. Please mark the date on your calendar and plan on attending as you won’t want to miss out on the fun and activities the CBA has planned for you! 

    Questions? Contact Karen Evangelista.

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IWIRC FEATURES LYNN TILTON

    When: Wednesday, May 16, 5:30 p.m.
    Where: Bodman offices at Ford Field

    Lynn Tilton is the founder and CEO of Patriarch Partners, LLC.  Patriarch Partners is an investment fund based in New York and Charlotte, North Carolina. Patriarch provides portfolio management services to 8 leveraged funds and a private equity fund, which funds own and manage a diverse portfolio of international companies and credit facilities with an aggregate asset value of approximately $4.5 billion including equity ownership positions (majority and minority) in more than 60 companies.

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BUSINESS LAW INSTITUTE ANNUAL SEMINAR

    When: Saturday, June 1-2, 2007
    Where: Mountain Grand Lodge & Spa, Boyne Falls

    The annual seminar is sponsored by the Business Law Council of the State Bar of Michigan. Presentations include Global Business: Meeting International Compliance Requirements and Expectations, How to Build Your Practice, Case Law and Legislative Updates, Business Outlook for Michigan, Understanding Insurance Coverage and both a Mergers & Acquisitions breakout and an “in a nutshell” break-out track. 

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ABI CENTRAL STATES WORKSHOP

    When: June 14 - 17, 2007
    Where: Grand Traverse Resort and Spa

    Now in it’s fourteenth year, the annual Central States Bankruptcy Workshop brings together America’s preeminent insolvency professionals for four days of intense learning and fun. Bring the whole family and enjoy the best Michigan has to offer.

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MICHIGAN BUSINESS LAW JOURNAL SEEKS ARTICLES

    Call for longer articles.  The March 2008 edition of the Michigan Business Law Journal will feature articles on bankruptcy law and other debtor-creditor topics.  The Debtor/Creditor Rights Committee is responsible for compiling and submitting articles for this edition.  Thomas R. Morris of Silverman & Morris, P.L.L.C. is serving as the edition editor.  If you have a topic of interest on which you would like to write an article (and it is too long to be accommodated by the NewsMag), or if you are willing to review articles written by others, please contact Tom by e-mail at Morris@SilvermanMorris.com, or attend the committee meeting on Wednesday, May 9 (see announcement above).

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ADMINISTRATIVE OFFICE ANNOUNCES CHANGES IN CERTAIN DOLLAR AMOUNTS

    The Administrative Office of the United States Courts announced the automatic adjustment of certain dollar amounts to go into effect for cases filed on or after April 1, 2007.

    View the List

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LETTERS TO THE EDITOR

    "Nicely done"
                   - Mike Khoury

    "Feb Newsletter- Nice Job!"
                   - Drew Paterson

    "This is great! Debtor/CreditorNewsMag"
                    - Byron Otto Kuxhaus

    "your magazine is wonderful"
                    - Karen Evangelista

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    IT'S YOUR TURN!

    Is there something you would like to say to the Bench or the Bar but never had the chance? Is there a comment you’d like to make about our bankruptcy system in a very public way? Is there an accolade or admonishment that needs to be aired?

    Well, here’s your chance!

    This is to let you know we have added a Letters to the Editor column to NewsMag. By now you should have received the February 2007 issue. We reach over 450 e-mail addresses including the judges of the Eastern and Western District Bankruptcy Courts.

    If you would like to put in your two cents about bankruptcy - good, bad, constructive, critical, or whatever - please send it to Letters to Editor c/o marty@gbfllaw.com.

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SEYMOUR SEZ—Wise Words of a Wry and Whimsical Wit

    Our own homegrown philosopher-lawyer, Seymour Markowitz, has been busy in the courtrooms keeping both bench and bar on their toes. Over the years, Seymour has made many observations worth sharing with the lawyer in the battlefield of everyday bankruptcy practice as well as in the battlefield of everyday life. Each issue of NewsMag will present a few words from Seymour to help us get through it all. Read on -

      Idle hands are the Devil's tools;
      an idle mind is the Devil's workshop;
      an idle bankruptcy attorney is the Devil's associate.
      - Seymour