Petition for Certiorari Asks Supreme Court to review critical issue of federal preemption of state-law tort claims:

Currently pending before the Supreme Court is a petition for writ of certiorari that raises one of the most important bankruptcy issues in recent years, Pilevsky v. Sutton 58 Associates, LLC., (Case No. 20-1483), filed on April 20, 2021. The Petition asks the Court to review a decision by the New York Court of Appeals which held that a state-law tort claim for intentional interference with contract could be maintained by a commercial lender against non-debtor third parties on the basis that the non-debtor parties had facilitated the filing of a bankruptcy case by advancing funds for legal costs, and certain other assets to the debtors—thus causing the lender’s contractual agreement with its borrower to be breached.[1]

It is the author’s view that unless reversed, the decision by the New York Court of Appeals, could seriously jeopardize modern bankruptcy practice. It would permit any state court to impose liability on third parties based on an argument that the bankruptcy filing was improper, or filed in bad faith, or otherwise delayed a lender from exercising its state law foreclosure rights. In so doing, it would discourage lawyers, accountants, lenders and a host of other third parties, from providing any financing, services or other forms of assistance to troubled companies or individuals which need to seek bankruptcy protection. Even if the respondents cannot ultimately prove its claim at trial, without reversal, the New York case will still recognize the possibility of such a tort claim. Our view is that any claim, whether against a debtor or third parties, which challenges the propriety of a federal bankruptcy filing, is within the exclusive jurisdiction of the federal bankruptcy courts, and is preempted by the federal Bankruptcy Code.

Status.  The Supreme Court has requested a reply to the cert petition from the Lender, and the due date for such reply is now July 6, 2021. The cert petition will likely be placed on the summer calendar, with the decision on whether to grant cert likely to be made in the Court’s first Fall conference prior to the first Monday in October. 

A copy of the amicus brief in support of the cert petition may be found under the tab marked “Illustrative Briefs.”

[1] Sutton 58 Associates LLC v. Pilevsky, 164 N.E.3d 984, 140 N.Y.S. 3d 897 (2020).