August 01, 2018

MONTH-IN-BRIEF: Bankruptcy & Finance

Penny Christophorou, Taryn Darling

Bankruptcy Law

Delaware Bankruptcy Court Upholds Sovereign Immunity Defense of State Board of Equalization

Michael Enright, Robinson and Cole

U.S. Bankruptcy Judge Christopher S. Sontchi recently upheld the Bankruptcy Court’s authority under Section 505 of the Bankruptcy Code to determine a debtor’s entitlement to refunds for property taxes paid prepetition, but the court capped the amount based on applicable state procedures, and it dismissed the State Board of Equalization (Board) from the proceeding based on sovereign immunity. In re La Paloma Generating Company, et al., Case No. 16-12700 (July 25, 2018). The taxes in question were based on valuations made by the Board, and they had been paid in full to the county prepetition. The debtor initiated litigation in the Bankruptcy Court under Section 505 to challenge the Board’s valuation and obtain a refund of the taxes paid to the county. Judge Sontchi first considered the Bankruptcy Court’s power to decide the dispute under Section 505. He concluded that he could decide whether the debtor was entitled to a refund of taxes paid prepetition, but the court held that the debtor could not recover more in the proceeding than the amount of its “proper request” under Section 505. As a result, the debtor’s recovery was capped at the $3.5 million it had requested in the administrative process, not the $14 million it was seeking in the Bankruptcy Court. Judge Sontchi next turned to the sovereign immunity defense raised by the Board. After a thorough consideration of numerous issues and arguments, Judge Sontchi held that the Board had a valid sovereign immunity defense. The Board had not filed a claim, had not received the tax payments in question, had not otherwise consented to jurisdiction in the Bankruptcy Court, and the taxes in question were challenged only after the debtor made the payment. Although the court saw the question as one of first impression in the Third Circuit, consideration of recent Supreme Court precedent led Judge Sontchi to the conclusion that the Board could not be sued by the debtor in Bankruptcy Court under the circumstances, and he dismissed the Board as a defendant. Anyone considering challenging state taxes in a bankruptcy proceeding will want to review this decision.

Uniform Commercial Code

Rhode Island Enacts Uniform Voidable Transactions Act

By Paul Hodnefield, CSC

The governor of Rhode Island signed House Bill 7334 and Senate Bill 2288 to enact the Uniform Voidable Transactions Act on July 2, 2018. The new law took effect immediately but only applies to a transfer made, an obligation incurred or a right of action accrued on or after the effective date.

Consumer Finance

California Enacts Consumer Privacy Act

By Paul Hodnefield, CSC

The governor of California approved Assembly Bill 375 to enact the Consumer Privacy Act of 2018 on June 28, 2018, which could impact a wide variety of businesses.  This law relates to the collection, storage and sale of personal information of California residents.  The new law grants California consumers a right to request a business to disclose personal information collected about the consumer, the sources from which the information was collected, the business purposes for collecting or selling the information, and the third parties with which the information is shared.  It also gives the consumer the right to have a business delete the information upon receipt of a verified request.  The new law takes effect on January 1, 2020.

Penny Christophorou

Counsel; Cleary Gottlieb Steen & Hamilton LLP

Penelope L. Christophorou’s practice focuses on commercial financing, including secured transactions and bankruptcy law, derivative products, and structured finance. She represents leading financial institutions, corporate borrowers, private investment funds and sovereign clients on these matters.

Taryn Darling

Board Member, William H. Dwyer Inns of Court

Taryn began her career as a bankruptcy lawyer almost ten years ago. Her practice includes reorganization, insolvency, receivership, work-outs, and bankruptcy and all related litigation. Taryn has litigated at the trial level and appellate level on behalf of her clients in a number of adversary proceedings and in consumer protection litigation. Taryn’s clients include individuals, business owners, and closely held corporations and businesses. Her breadth of experience in the area of bankruptcy and insolvency enables her to take a preventive approach when clients come to her at the outset of a problem. Taryn develops creative solutions to mitigate the impact or consequences when it becomes clear that a bankruptcy or receivership is the best course of action.