Bankruptcy Court Blocks Claims Trade

On June 20, 2017, the United States Bankruptcy Court for the District of Delaware (the “Court”) issued an opinion in the bankruptcy cases of Woodbridge Group of Companies (collectively, the “Debtors”), sustaining the Debtors’ objection to a proof of claim filed by Contrarian Funds LLC (“Contrarian”), who had acquired the claim through a trade. The Court determined that an anti-assignment clause in the underlying debt instrument on which Contrarian’s claim was based nullified Contrarian’s right to assert that claim in the bankruptcy cases.

BACKGROUND -

Prior to the filing of the chapter 11 cases, Debtor Woodbridge Mortgage Investment Fund 3A, LLC (“Woodbridge”) issued three promissory notes to Elissa and Joseph Berlinger each in the principal amount of $25,000 (the “Notes”). Each Note contained an anti-assignment clause providing that neither the Note nor any other instruments executed in connection therewith was assignable by the lender without the borrower’s written consent and any such attempted assignment without such consent was null and void. The related loan agreement contained additional anti-assignment language providing that the lender could not assign,voluntarily, by operation of law or otherwise, any of its rights without Woodbridge’s prior written consent and any such attempted assignment without such consent would be null and void. Subsequent to the petition date, the Berlingers assigned the Notes and rights thereunder to Contrarian. Contrarian then filed a proof of claim asserting a $75,000 secured claim against Woodbridge.