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Supreme Court hears arguments on Chapter 12 bankruptcy, insider trading

The US Supreme Court [official website] heard oral arguments [day call, PDF] in two cases on Tuesday. In Hall v. US [transcript, PDF; JURIST report], the justices heard arguments on a conflict between tax law and bankruptcy procedures, regarding the sale of family farms under Chapter 12 of the Bankruptcy Code [text]. The Hall family, after filing bankruptcy for their farm, found a purchaser who paid more than the value of their debt. As a result, they incurred a significant capital gains tax of $29,000, which would typically go to the IRS, but a recent provision [11 USC §§ 1222(a)(2)(A)] to Chapter 12 deems government interests as an unsecured creditor on the Chapter 12 estate, to be wiped away in the bankruptcy. The Halls' attorney argued for this reading of the new provision, as well as referring to the legislative history of the law, which was intended to aid farmers going through bankruptcy by protecting them from the capital gains tax. The Solicitor General argued that the tax was a post-bankruptcy gain and thus not affected by the Chapter 12 statute, as well as being a debt created by the debtor, rather than the estate in bankruptcy. Justice Elena Kagan commented on the dichotomy between Congess' intent to help farmers and the IRS proposed theory of what the law means: "But there's every reason to think, Mr. Shah, that what Congress was worried about here was cases in which the bankruptcy plan would not be approved at all because there were very high capital gains taxes that would result from a sale; and that that was the problem that everybody was focused on, was making sure that farmers could take advantage of section 12. So it's a little bit odd—it's actually more than a little bit odd. It's a lot odd to read the statutes to apply not in that context, but only as to people who have somehow managed to sell their property, you know, 18 months before going into bankruptcy."

In Credit Suisse Securities LLC v. Simmonds [transcript, PDF; JURIST report], the justices considered when the statute of limitations for reporting insider trading begins. The Securities Exchange Act of 1934 [§ 16(b)] states that the statute of limitations begins "more than two years after the date such [profits from insider trading] was realized." Attorney for Vanessa Simmonds, who filed 54 complaints against Credit Suisse, which were rejected on varying grounds including statute of limitations, argued that the statute of limitations can be tolled to include the discovery of the trading or even the filing of a report about the illegal action. This view was endorsed by the Ninth Circuit's ruling [text] that led to the Supreme Court. Petitioners argued for a strict interpretation of the law where the statute of limitations runs firmly from the date of the alleged misconduct. The Solicitor General interceded to argue a third option, that it tolls when a reasonable person should have known about the incident. Chief Justice John Roberts did not participate in the hearing of this case.

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