RECENT BANKRUPTCY DEVELOPMENTS

(d) In re PG Industries, Inc., 336 B.R. 765 (Bk. N.D. Ind. 2006) (determine prejudgment interest on preference claims by averaging prime rate over relevant time frame).

(e) In re SGSM Acquisition Co., LLC, 439 F.3d 233 (5th Cir. 2006) (holding that testimony of expert on industry practices was inadequate to establish ordinary course defense).

4. Trustee Election. In re Amherst Technologies, LLC, 335 B.R. 502 (Bk. D.N.H. 2006) (creditor who received potential $4.2MM preference payments where estate totals $22MM in claims has a materially adverse interest and could not vote for trustee; interim trustee had substantial basis for preference claim).

5. Arbitration.

(a)

The Supreme Court has just decided another decision strongly supporting the use of arbitration. In Buckeye Check Cashing, Inc. v. Cardegna, 126 S. Ct. 1204 (2006), borrowers brought an action against a lender which was allegedly making usurious loans disguised as check-cashing transactions, and the lender demanded arbitration pursuant to a provision in the contract. The borrowers objected on the ground that the contract was void and thus the arbitration provision was not enforceable, and argued that this issue had to be decided in the first instance by the court. The Florida Supreme Court agreed, and the U.S. supreme Court reversed. The Court held that the arbitration provision was severable, the validity of the contract was for the arbitrator unless the challenge was to the arbitration provision itself, and that the Federal Arbitration Act applies in state as well as federal courts. The Court reasoned that a challenge to the validity of the contract as a whole was for the arbitrator, and that this principle applied in the face of arguments that the underlying agreement was rendered invalid by virtue of usury or was void. The decision is important in making it impossible for parties opposing arbitration to attack the underlying transaction itself as a defense to arbitration.

(b)

In In re Astropower Liquidating Trust, 335 B.R. 309 (Bk. D. Del. 2005), a Liquidating Trustee sued to avoid a prepetition transfer of stock on fraudulent transfer grounds, as well as state law theories of breach of contract, breach of fiduciary duty, and others. The Court held that there was postpetition jurisdiction. The Court also denied arbitration of the fraudulent transfer claims on the ground that they were core claims, and refused to stay the proceedings on such claims pending a decision on the arbitration of the state law claims. The Court also refused to enforce a forum selection clause and refused permissive abstention.

(c)

The debtor brought a class action alleging that post-petition withdrawals by a bank from the debtor's account were a willful violation of the stay, and the defendant demanded arbitration. The Court approved arbitration on the ground that it would not jeopardize or inherently conflict with the Code, and therefore, the Bankruptcy Court lacked discretion to deny the request. Here, post-discharge arbitration would have no effect on the bankruptcy case, and the status of a class action made it non-integral to the bankrupt estate. MBNA America Bank, N.A. v. Hill, 436 F.3d 104 (2d Cir. 2006). The Court's decision is significant because it strongly suggests that once a debtor seeks class action relief, issues such as arbitration will be determined based on nonbankruptcy principles and that the class action in effect vitiates any argument that the claim relates to the bankruptcy.