Status Report on the Supreme Court

October 2, 2018

The Supreme Court denied petitions for certiorari yesterday in two creditors’ rights cases: Credit One Bank NA v. Anderson, 17-1652 (Sup. Ct. certdenied Oct. 1, 2018); and Noble Energy Inc. v. ConocoPhillips Co., 17-1438 (Sup. Ct. certdenied Oct. 1, 2018).

There is one bankruptcy-related case already on the high court’s docket for the term that began this week: Obduskey v. McCarthy & Holthus LLP, 17-1307 (Sup. Ct.), reviewing Obduskey v. Wells Fargo, 879 F.3d 1216 (10th Cir. 2018). The date for oral argument in Obduskey is yet to be set.

Anderson was a moderately attractive case for Supreme Court review. However, there was not a clear-cut circuit split.

In Anderson, the Second Circuit refused to enforce an arbitration agreement, thus allowing a class action to proceed in bankruptcy court alleging violations of the discharge injunction. Credit One Bank NA v. Anderson (In re Anderson), 884 F.3d 382 (2d Cir. March 7, 2018).

The petitioner argued that the Second Circuit had not followed Supreme Court authority regarding the enforcement of arbitration agreements. To read ABI’s discussion of the Second Circuit opinion, click here.

Noble Energy was a petition for certiorari to the Texas Supreme Court. Significant sums of money were involved, but the petitioner wanted the U.S. Supreme Court to review the Texas courts’ interpretation of federal bankruptcy law regarding blanket assumptions of executory contracts. Were the petitioner appealing a decision by a federal court of appeals, the case would have been more attractive for Supreme Court review.

Obduskey, where the appellant’s brief on the merits was filed in August, is an important case for consumers. The outcome will decide whether the federal Fair Debt Collection Practices Act applies to nonjudicial foreclosures.

Amicus briefs have been filed on behalf of liberal members of the House and Senate, the NAACP Legal Defense & Education Fund Inc., and a national consumer law organization.

Three cases percolating from the courts of appeals are attractive candidates for grants of certiorari later this term.

In Lorenzen v. Taggart (In re Taggart), 888 F.3d 438 (9th Cir. April 23, 2018, rehearing denied Sept. 7, 2018), the Ninth Circuit held that a good faith belief that an action does not violate the automatic stay is a defense to contempt of the stay, even if the belief is unreasonable. There is a stark circuit split, because the First Circuit this year refused to allow good faith as a defense to a stay violation. IRS v. Murphy, 892 F.3d 29 (1st Cir. June 7, 2018).

The debtor in Taggart is expected to file a certiorari petition this week. To read ABI’s discussions of Taggart and Murphy, click here and here.

The Tenth Circuit and the District of Columbia Circuit are the two appeals courts to hold that the automatic stay does not compel a lender or owner to return property automatically that was repossessed before bankruptcy. The courts of appeals for the Second, Seventh, Eighth, Ninth and Eleventh Circuits hold to the contrary and require the automatic return of repossessed property, on pain contempt. The circuits that compel immediate return allow the owner or lender to seek adequate protection after returning the property.

Although the outcome is a foregone conclusion, the issue was argued again in the Tenth Circuit on September 26 in Davis v. Tyson Prepared Foods Inc. (In re Garcia), (10th Cir. 17-3247). The debtor is likely to file a petition for certiorari when the appeals court affirms on the authority of WD Equipment v. Cowen (In re Cowen), 849 F.3d 943 (10th Cir. Feb. 27, 2017), where the Tenth Circuit held that passively holding an asset of the estate, in the face of a demand for turnover, does not violate the automatic stay in Section 362(a)(3) as an act to “exercise control over property of the estate.”

To read ABI’s discussions of Davis and Cowen, click here and here.

At conference on October 12, the justices will consider the certiorari petition in Mission Product Holdings Inc. v. Tempnology LLC, 17-1657 (Sup. Ct.). Granting the petition will permit the high court to decide whether the Fourth Circuit correctly decided the infamous case of Lubrizol Enterprises Inc. v. Richmond Metal Finishers Inc., 756 F.2d 1043 (4th Cir. 1985).

In Lubrizol, the Richmond, Va.-based appeals court held that rejection of an executory license for intellectual property precludes the non-bankrupt licensee from continuing to use the license. The decision prompted Congress to add Section 365(n) and the definition of “intellectual property” in Section 101(35A). Together, they provide that the non-debtor can elect to continue using patents, copyrights and trade secrets despite rejection of a license.

However, Congress did not add trademarks to the list of intellectual property that a licensee could continue to use despite rejection. Most courts interpreted the omission to mean that rejection cuts off the right to use trademarks.

More recently, the circuit courts split regarding the continued use of trademarks after rejection. In Sunbeam Products Inc. v. Chicago American Manufacturing LLC, 686 F.3d 372 (7th Cir. 2012), the Seventh Circuit held in 2012 that rejection does not preclude the continued use of a trademark license.

However, the First Circuit pointedly disagreed this year with the Seventh by holding in Mission Product Holdings Inc. v. Tempnology LLC (In re Tempnology LLC), 879 F.3d 389 (1st Cir. Jan. 12, 2018), that rejection ends the use of a trademark.

If the Supreme Court grants certiorari in Mission Product, the justices might expound broadly on the effects of rejection. The case also presents an interesting question of statutory interpretation: Did Congress intend to leave Lubrizol unaffected by omitting trademarks from the protection of Section 363(n)?

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