Received or Not? That is the question.

Written by Grace Ha Eun Hwang

 

Abstract: The Third Circuit Court of Appeals held that in order for goods to be considered “received” under section 503(b)(9) of the Bankruptcy Code, goods must be delivered into the physical possession of the debtor or its agents within 20 days before the debtor files for bankruptcy.

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On July 10, 2017, the Third Circuit clarified what would happen if a creditor sold goods to a debtor soon before the debtor files a Chapter 11 bankruptcy.

Traditionally, under 11 U.S.C. § 503(b)(9), creditors may recover the value of the good that they sold to the debtor if the good was received by the debtor within 20 days before the bankruptcy petition was filed. But what exactly does “received” mean? In re World Imports answered this question.

In In re World Imports, appellants Haining Wanshen Sofa Company (“Haining”) and Fujian Zhangzhou Foreign Trade Company (“Fujian”) were Chinese companies that sold and shipped furniture to World Imports, a furniture retailer in the United States. Goods were typically shipped from China to the United States “free on board.”

Both the Creditors (Haining and Fujian) and Debtor (World Imports) agreed to the following facts:

Haining’s shipment of goods to World Imports left China on May 26, 2013

Fujian’s three separate shipments of goods to World Imports left China on May 17, May 31, and June 7 of 2013

World Imports took physical possession of Haining’s shipment in the United States on June 21, 2013

World Imports accepted all three of Fujian’s shipments in the United States within 20 days of July 3, 2013, the day on which World Imports filed its Chapter 11 petition

After gaining wind of World Import’s bankruptcy filing, both Haining and Fujian filed Motions for Allowance and Payment of Administrative Expense Claims (“the Motion”) pursuant to 11 U.S.C. § 503(b)(9). Under this administrative claim, if successful, creditors are able to reclaim payments in full value of the goods received by the debtor.

Both creditors claimed that they were entitled to relief under § 503(b)(9) because the goods were sold in the ordinary course of business to the debtor and were received by the debtor within 20 days before the debtor filed for bankruptcy. The Bankruptcy Court hearing the original motion disagreed. The Bankruptcy Court denied the Appellants’ motions after concluding that the goods were “constructively received” when they were shipped from China. The Bankruptcy Court relied on the definition of “received” under the Contracts for the International Sale of Goods (CISG) which allowed receipt by delivery to a common carrier.  The District Court affirmed the Bankruptcy Court’s ruling and the Appellants appealed to the Third Circuit.

The Third Circuit reversed the lower courts’ rulings. The Third Circuit looked to the ordinary meaning and the statutory context and found that the term “received” required physical possession.

When looking at the ordinary meaning of the term, the Court found that the Black’s Law Dictionary and the Oxford English Dictionary both interpreted the term “received” to require some type of physical possession. The Court also found that the UCC defined “receipt” of goods as taking some sort of physical possession of them. The Court then concluded that Congress could not have meant to deviate from all these well-known definitions when it adopted 11 U.S.C. § 503(b)(9).

Next, the Court looked to the statutory context surrounding 11 U.S.C. § 503(b)(9). The Court noted that because § 503(b)(9) was enacted to provide exemptions to the rules provided in § 546(c), the interpretation of the term “received” must be consistent between the two sections. The Court then looked to the ruling in In re Marin Motor Oil, 740 F.2d 220 (3d Cir. 1984) which interpreted § 546(c). In re Marin Motor Oil held that the term “received” meant the same as defined in the UCC, namely that taking physical possession is required for goods to be considered “received.” Since § 503(b)(9) has an interrelationship with § 546(c), the Third Circuit concluded that it would be greatly deviating from well-established authority if it did not also follow the UCC’s definition. The Court was also quick to note that even if the risk transfers upon shipment of goods, common carriers are not agents and thus goods are not received even when risk is transferred.

Because World Imports received their goods through a common carrier outside of the 20-day period but actually physically received possession of the goods within the 20-day period before filing for bankruptcy, both Haining and Fujian qualified for relief.

This ruling not only clarified the meaning of the term “received” but also illustrated the weighty consequences of choosing the method of acceptance for shipped goods.

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Source Cited

Haining Wansheng Sofa Co., Ltd. V. World Imports Ltd. (In re World Imports, Ltd. Et al.), No. 16-1357, 2017 WL 2925429 (3d Cir. Mar. 8, 2017).

District Court: EPIC Cannot Compel President Trump’s Tax Returns

Written By Sam Cohen

Abstract

On August 18, 2017, District Judge James E. Boasberg, of the U.S. District Court for the District of Columbia, dismissed Electronic Privacy Information Center’s (“EPIC”) complaint, which requested that President Donald J. Trump disclose his tax returns.

Background

On February 16, 2017, EPIC requested all of Donald J. Trump’s individual income tax returns dating back to 2010, in addition to filing a Freedom of Information Act (“FOIA”) request that he disclose any financial relationships with the Russian government or Russian businesses. The requests were denied because they failed to comply with the published rules and were deemed incomplete requests that the IRS could not process.

After the denial, EPIC filed another request, this time claiming a right to the documents under § 6103(k)(3) of the IRS code. This request was also denied, and the following lawsuit was filed in response.

Discussion

FOIA requests have two requirements: (1) that a request reasonably describes the records sought, and (2) that a request follows the agency’s published rules of stating the time, place, fees (if any), and procedures to be followed. The published rules of the IRS on FOIA procedures can be found in Treasury Regulation § 601.702.

In order for a FOIA application to be considered complete, the subject of the request must give consent. Without consent, the application is incomplete. In EPIC’s case, the requests were filed without the consent of President Trump; therefore, the IRS had no choice but to close the request file without granting the application. The court confirmed that such IRS regulations are reasonable and should be upheld.

EPIC’s second FOIA request was premised on § 6103 of the IRS code, which allows the IRS to disclose records, in limited circumstances, without the consent of the subject. The specific subsection upon which EPIC based its claim was § 6013(k)(3), which can be used to disclose tax returns to correct misstatements of fact. The misstatements alleged by EPIC were tweets by President Trump. Two particular tweets provided such a basis:

“For the record, I have ZERO investments in Russia.” July 26, 2016 at 5:50 p.m. EST.

“Russia has never tried to use leverage over me. I HAVE NOTHING TO DO WITH RUSSIA – NO DEALS, NO LOANS, NO NOTHING!” Jan. 11, 2017 at 6:31 a.m. EST.

For the purposes of the motion to dismiss, the Court had to accept that these tweets were misstatements that could sufficiently trigger § 6013(k)(3), as the Government’s argument against the assertion was a single sentence without citation.

The Court subsequently found that the exceptions under § 6013(k)(3) may not be get around the consent requirement of the IRS regulations; however, for the sake of argument, the Court accepted that consent was not needed. Instead, the Court found that this exception could not be used at all. This is because, before the IRS has to disclose any information under this exception, a party must obtain the approval of the Joint Committee on Taxation. EPIC did not do so. Further, the Court noted that this provision had never successfully been used to compel the disclosure of IRS records, since the Joint Committee on Taxation has never exercised this authority with regard to any other parties.

Beyond this argument, EPIC also alleged two violations of the Administrative Procedure Act. Both were rejected by the Court. Because, the Court decided that there was no way for the judicial system to grant the relief sought by EPIC, the complaint was dismissed.

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Sources Cited

Elec. Privacy Info. Ctr. v. IRS, 2017 U.S. Dist. LEXIS 131911 (D.C. Cir. 2017).

Shayna Posses, Trump or Congress Must OK Tax Return Release, Judge Says, Law360 (Aug. 18, 2017).

 

August 2017: Aaron Tidman (’07)

Most kids don’t dream of becoming a lawyer, but Aaron Tidman wasn’t most kids.  Having grown up in the suburbs of Washington, D.C., Aaron was involved in politics, government, and law as far back as he can remember. In high school, he spent summers interning on Capitol Hill. In college, he interned with the White House. Finally, after studying history and political science at the University of Pennsylvania, Aaron moved to New York City to work as a paralegal, getting some professional experience in before law school.

Aaron Tidman                              Anti-Corruption Counsel for Gilead Sciences

After working as a Trial Preparation Assistant for the Rackets Bureau of the Manhattan District Attorney’s Office, Aaron was smitten with the idea of becoming a prosecutor.  In part, this was why Aaron chose to attend Syracuse Law – for the top-notch trial advocacy program.  Shortly after starting law school, however, he found himself in a class that would forever shape his future as an attorney . . .

“It was my 2L year, and I had Professor Harding for Securities Regulation,” he said. “She was an amazing professor. That class was a major turning point for me, and it just goes to demonstrate how much of a role professors and teachers can have in your career trajectory.”

Before he knew it, Aaron was writing his Law Review Note on securities law enforcement (with the supervision of Professor Harding), accepting a summer internship with the U.S. Securities and Exchange Commission’s Enforcement Division, and working his way forward into a career in securities law that he now loves.

During his tenure at the College of Law, Aaron served as Lead Articles Editor for Syracuse Law Review. In this position, Aaron recruited a number of prominent academics to write articles for publication, including Erwin Chemerinsky, Akhil Amar, Ronald Rotunda, and Andrew Koppelman.

In addition, Aaron created and organized a symposium entitled, “A Nuclear Iran: The Legal Implication of a Preemptive National Security Strategy.” This was the first live symposium hosted by Syracuse Law Review in many years. The 2006 symposium included some of the biggest names in national security law, with panelists such as James Timbie, Steven Miller, Mitchel Wallerstein, David S. Jonas, and Col. Samuel Gardiner, as well as renowned journalist Seymour Hersh serving as the keynote speaker.

Outside of Syracuse Law Review, Aaron competed in the Irving R. Kaufman Memorial Securities Law Moot Court Competition and served as a Research Assistant for Professor Kathleen O’Connor’s Legal Communication and Research class.

Upon graduation in 2007, Aaron began working for Debevoise & Plimpton LLP as a litigation associate, handling matters mostly focused on securities litigation, regulatory enforcement, and white-collar criminal defense. Then, in 2012, Aaron decided to leave the firm and work full-time as Regional Voter Protection Director for the Obama campaign in Virginia. In that role, he recruited and trained hundreds of volunteer attorneys to serve as poll observers, and on Election Day, he managed a team of 15 attorneys handling any voting-related issues in his region.

Following the campaign, Aaron returned to private practice at Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo, P.C. (“Mintz”) in Washington, D.C., where he primarily focused on the U.S. Foreign Corrupt Practices Act and white-collar defense matters, including insider trading and securities fraud investigations.  At Mintz, Aaron found a mentor and friend in Paul Pelletier, a former career prosecutor with the Department of Justice, who was invaluable in helping to guide and shape Aaron’s career.

Today, Aaron serves as Anti-Corruption Counsel for Gilead Sciences, a research-based biopharmaceutical company, headquartered in Foster City, California. There, he is responsible for a broad portfolio of legal and compliance matters related to the company’s anti-corruption and Office of Foreign Assets Control programs.  Aaron said that the international travel, exciting challenges of serving in his new role as in-house counsel, and trials and thrills of moving across the country – from Washington D.C. to Foster City – are never what he initially dreamed up for his future, yet are all welcome life experiences and learning opportunities.

Over the course of his career, Aaron has been awarded City Year’s Idealist of the Year, the LGBT Bar Association’s 40 Best LGBT Lawyers Under 40, as well as Super Lawyers’ Rising Star for White Collar Defense. So, what advice does this decorated and well-accomplished attorney have for the next generation of Syracuse Law graduates?

“There’s a multitude of ways to achieve success,” he said. “Don’t feel like you need to take the traditional big law firm path.  Your first job out of law school will definitely not be your last, and it’s okay to switch jobs and practice areas. This is a profession where you learn on the job; so, you might discover that you’d prefer to focus on a different area of the law a few years down the road. Regardless, look for a mentor and champion right away – someone to guide you and help you navigate your professional choices. Having an advocate and sounding board is invaluable.”

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This story was written by Legal Pulse Editor Samantha Pallini and is the second installment of Syracuse Law Review’s new monthly feature, “Alum of the Month.” Stay tuned for next month’s feature on another noteworthy Syracuse Law Review alumnus.

Case Study: Roy Cockrum, et al. v. Donald J. Trump for President, Inc. and Roger Stone

Written By Nicole Macris

 

BACKGROUND

During the 2016 Presidential Election, an unidentified hacker broke into the Democratic National Convention’s database and stole more than one 100 accounts of donors, staffers, and supporters alike. WikiLeaks later received that information, making it public via its website on July 25, 2016. The hack left of individuals vulnerable and exposed. Three of the affected individuals–Roy Cockrum, Scott Comer, and Eric Schoenberg–have now brought suit to recover for their invasion of privacy.

DISCUSSION

The plaintiffs–two donors and one former DNC staffer– allege that the WikiLeaks disclosures have chilled participation in vital parts of the democratic process, campaign financing, and advocacy. Private identifying information–including social security numbers, dates of birth, addresses, and phone numbers–were made public, and they allege that this now subjects them to a potential lifetime of identity theft and subsequent credit complications.

Moreover, Cockrum’s donations to specific candidates running for public office, state Democratic parties, and the DNC were publicized, which, the Complaint alleges, resulted in a chilling effect with respect to future political contributions. Comer’s emails, discussing his conflicts with colleagues, health issues, and details of his sexual orientation, were also published. The dissemination of their private information and emails, the plaintiffs further allege, resulted in intimidation and fear of using normal technological means of communication for advocacy and financial purposes.

Consequently, on July 12, 2017, the plaintiffs filed suit in the U.S. District Court for the District of Columbia. The allegations set forth in the Complaint assert that the defendants violated the plaintiffs’ privacy rights by disseminating private information about them, in a conspiracy with Russian agents, by way of WikiLeaks, DCLeaks, and Guccifer 2.0, all in violation of 42 U.S.C. § 1985(3). Named as defendants are Donald J. Trump for President, Inc. and Roger Stone, an advisor to the 2016 Trump Campaign.

The Complaint further alleges that the defendants are liable for the public disclosure of private facts, pursuant to D.C. law. In order to prevail on this claim, the plaintiffs must prove “(1) publicity, (2) absent waiver or privilege, (3) given to private facts, (4) in which the public has no legitimate concern (5) and which would be highly offensive to a reasonable person of ordinary sensibilities[.]”

Case law dictates that the dissemination of personal information, such as Social Security numbers and identification information, falls within the “highly offensive” category of private information that should not be made public without waiver. The crux, however, is determining whether disseminating the private information falls within one of the three exceptions, namely, whether it is (1) “crucial to the vitality of democracy,” (2) of public concern regarding current events, public affairs, or (3) information that could protect others or is already of public record. The plaintiffs claim that the information published fails to fall within one of the aforementioned exceptions.

Nevertheless, one crucial question remains: are the defendants culpable for disseminating the plaintiffs’ information and emails? This is where the conspiracy claim comes into play; for without a connection to the third parties, the defendants may not be liable for the published information. Thus, 42 U.S.C. § 1985(3) applies in order to establish the causation of the alleged injuries. The plaintiffs specifically rely on the harm caused by intimidation and injury resulting from supporting one candidate over another, as set forth in the statute:

. . . conspir[acy] to prevent by force, intimidation, or threat, any citizen who is lawfully entitled to vote, from giving his support or advocacy in a legal manner, toward or in favor of the election of any lawfully qualified person as an elector for President or Vice President, or as a Member of Congress of the United States; or to injure any citizen in person or property on account of such support or advocacy . . . .

Despite all of this, the Complaint turns on the connection between the defendants and third parties for the purposes of holding the defendants culpable for the entirety of the lawsuit. Without a finding of the alleged conspiracy, the entire cause of action could fail. Thus, this action depends on plaintiffs establishing their burden of proof with regard to the defendants’ alleged conspired with Russian agents, Gufficer 2.0, DCLeaks, and WikiLeaks.

Several points set forth in the complaint either state or add to the assertion that there was a connection between Trump for President, Inc., Roger Stone, and the aforementioned third parties. While many of the factual allegations set forth in the Complaint have been extensively covered and discussed in the media, the Complaint works to bridge the gap and form the conspiracy relationship by way of logical assertions.

• Paragraphs 9–10, 178, 180: United States government reports conclude that Russia is the culprit of the DNC hacking, and the defendants, thereafter, reaped the benefits;

• Paragraph 11: Trump for President campaign officials had/have ties to Russia, and use these ties to use the information hacked by Russia to their benefit;

• Paragraph 13: The campaign officials entered into agreements with Russia;

• Paragraphs 142–155: Defendants called attention to the hacked, and subsequently published, emails and information, and did so prior to the actual publication by WikiLeaks; and

• Paragraph 182: Defendants (1) denied Russia’s involvement, (2) undermined accountability efforts, and (3) concealed Russian contacts in order to further conceal involvement in the alleged conspiracy.

While this case is in its infancy, it is possible that the discovery, motions, and potential trial may lead to political and constitutional issues overwhelmingly more controversial than the DNC hack or alleged injuries at issue here.

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Sources Cited

Andy Wright, DNC Hack Victims Sue Trump Campaign and Roger Stone, Just Security (July 12, 2017).

Budik v. Howard Univ. Hosp., 986 F. Supp.2d 1 (D.D.C. 2013).

Cockrum, et al. v. Donald J. Trump for President and Stone, Complaint, Case No. 1:17-cv-01370, Dkt. No. 1 (July 12, 2017).

Eric Lichtblau and Eric Schmitt, Hack of Democrats’ Accounts Was Wider Than Believed, Officials Say, N.Y. Times, (Aug. 10, 2016).

Foretich v. Lifetime Cable, 777 F. Supp. 47 (D.D.C. 1991).

Grunseth V. Marriot Corp., 872 F. Supp. 1069 (D.D.C. 1995).

Susan Hennessey and Helen Klein Murillo, Is It A Crime?: Russian Election Meddling and Accomplice Liability Under the Computer Fraud and Abuse Act, Lawfare (July 13, 2017).

Wolf v. Regardie, 553 A.2d 1213, 1220 (D.C. 1989).

SDNY Dismisses Challenge to New York’s Zero Emission Credit Nuclear Subsidy Program

Written By Conor Tallet

On July 25, 2017, District Judge Valerie Caproni, of the U.S. District Court for the Southern District of New York, dismissed a challenge to New York’s Zero Emission Credit (“ZEC”) subsidy program.

Background

The program originated from Governor Andrew Cuomo’s Clean Energy Standard, which established a policy goal of achieving 50% of electrical generation from renewable sources by the year 2030. It also sets forth a goal of a 40% reduction in carbon emissions by 2030.

Due to low gas prices leading to lower power pricing, nuclear plants have been threatening to shut down because they are operating at a loss. The plan, then, is to have taxpayers subsidize the nuclear power plants over the next twelve years in order to ensure that they continue to operate, thus permitting New York to “reap[] the value of the virtually emissions-free power.” It’s estimated to cost New York electric ratepayers approximately $7.6 billion over the next twelve years.

Discussion

A key component in achieving a reduction in carbon emissions is to preserve the zero-carbon attributes of nuclear generation facilities in New York. Consequently, the Clean Energy Standard promulgated a nuclear subsidy targeted at uneconomic nuclear power plants in the New York wholesale electricity market.

The subsidy involves the payment of approximately $17.48 per megawatt hour sold from the nuclear generation facilities into the wholesale market. This causes the wholesale electricity market to work as an auction, by matching up the demand for electricity with the cheapest bids for electricity from generators.  Thus, the subsidy helps nuclear plants to continue operating.

Soon after the subsidy was passed by the New York Public Service Commission, a number of wholesale electricity generators filed suit. In Coalition for Competitive Electricity v. Zibelman, the plaintiffs argued that New York’s program intrudes on the Federal Energy Regulatory Commission’s (“FERC”) exclusive jurisdiction over the wholesale energy market vested in it by the Federal Power Act.

Where the direct sale of electricity from an individual’s local utility, to a consumer, is regulated by the individual states, any “sale for resale” of electricity is regulated by FERC. Because the ZEC subsidy works to allow nuclear plants to submit artificially low bids in the wholesale auction (when they otherwise would be uncompetitive in the wholesale market), the plaintiffs argued that the Federal Power Act should preempt the ZEC state subsidy.

A key case for the plaintiffs has been Hughes v. Talen Energy Marketing, LLC. In Hughes, the Supreme Court struck down a Maryland subsidy aimed at preserving in-state generation by paying a generator a subsidy of the difference between a bilateral contract price and the actual price the generator’s electricity cleared the wholesale market. In a narrow holding, Justice Ginsburg articulated that “[s]o long as a state does not condition payment of funds on capacity clearing auction, the State’s program would not suffer from the fatal defect that renders Maryland’s program unacceptable.” Accordingly, so long as the payment of a subsidy is not contingent, or “tethered,” on the electricity clearing the wholesale auction, it escapes the grasp of the Supreme Court’s rule and is a permissible state regulation.

The Southern District of New York determined that the ZEC program is not tethered as in Hughes. Specifically, the court stated that, contrary to the plaintiffs’ argument, New York does not require nuclear generators to sell their power into the wholesale market to receive the subsidy; rather, it is a business decision on the generators’ part. Since New York is not requiring the qualifying nuclear plants to actually sell their power into the wholesale market, the ZEC program lacks the “tether,” as was fatal in Hughes. In addition, the court determined that ZECs merely incorporate environmental attributes that are “unbundled” from the wholesale electric rate, and therefore, fall squarely within a state’s jurisdiction to incentivize clean energy outside the confines of FERC’s wholesale jurisdiction.

New York’s ZEC program has been copied in the State of Illinois, who also recently threw out a challenge to its ZEC subsidy and will likely continue to proliferate to states seeking to preserve environmental attributes of expensive forms of electrical generation.

This case has been appealed to the Second Circuit and will likely be appealed all the way up to the Supreme Court.

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Sources Cited

Andy Anderson, New York Electricity Supply Costs to Increase in 2017 – PSC Approves Clean Energy Standard, Subsidizes Upstate Nuclear Power, EnergyWatch (Aug. 1, 2017).

Coalition for Competitive Electricity v. Zibelman, 16-CV-8164 (S.D.N.Y. 2017).

Hughes v. Talen Energy Marketing, LLC, 136 S.Ct. 1288 (2016).

Tim Knauss, How Will Subsidies for Upstate NY Nuclear Plants Affect Your Electricity Bill?, Syracuse.com (Mar. 3, 2017).