Here’s an aggregation of some of my Twitter posts from May 25-31, 2018, with links to important cases, articles, and news briefs that restructuring professionals will find of interest. Don’t hesitate to reach out and contact me to discuss any posts. Thanks for reading!
BK RELATED CASES:
- Midstream O&G Contracts – 2nd Cir. affirms the bankruptcy court’s decision in Sabine Oil, which authorized the rejection of midstream oil and gas contracts, stating: “Regarding the horizontal privity requirement, there is no meaningful legal distinction between the contract in Clear Lake & the one at issue here. Neither contract conveyed a property interest in subject land (in this case, the mineral estate). Accordingly, both fail to establish horizontal privity of estate and therefore both fail to create a real covenant.” In re Sabine Oil And Gas Corporation
- Golden Shares – 5th Cir (1) “golden share” op. finds nothing worth mining, stating: “We decline to answer the BK Ct’s 1st certified question regarding the enforceability of “blocking provisions” & “golden shares” generally. That question is appropriately reserved for a case in which it is not hypothetical.” The rest of the 5th’s “Golden Share” opinion, however, is worth mining by private equity investors regarding when a person becomes a “minority controlling shareholder” under Delaware law (with the Court concluding here that “if Boketo is a controlling shareholder of FSNA, then the tail is wagging the dog.” In re Franchise Services of North America Inc.
- Golden Shares – 5th Cir (2): Here’s a good analysis of the 5th Circuit’s “golden shares” decision in Franchise Services of N. America: Fifth Circuit Allows Shareholder-Creditor To Block Bankruptcy Filing, by Sarah Borders, Deff Dutson, and Sarah Primrose of King & Spalding
- Standing – 9th: Failure to attend noticed hearing on and to object to the Ch 7 trustee’s untimely motion to assume an executory contract were irrelevant to whether the assumption order directly & adversely affected pecuniary interests for standing purposes. Matter of Point Center Financial Inc
- Buying Avoidance Actions – D-AZ: The 9th Cir permits a sale of the trustee’s avoiding powers, including to an affiliate of the defendant to the action, and the creditor who purchased those avoidance powers is not required to pursue those powers for the benefit of all creditors. SVP Financial Services Partners LLLP
- Lease Assumption via §365(p) but Not Reaffirmed – SD-CA: In a case of 1st impression, Ct examines whether a lease assumption agreement per Code §365(p) is enforceable after discharge if the lease assumption has not been reaffirmed per §524(c) and holds that reaffirmation is not required if the lease is assumed per Code section 365(p)(2). Bobka v Toyota Motor Credit Corporation
- DOL Claims & Dischargeability – ED-VA: US Dept of Labor claims for unpaid wages are not subject to §523(a)(7)’s discharge exception since liquidated damages award sought by the Secretary serves a compensatory purpose, not a penal purpose. Acosta v JM Osaka Inc
- IP Rights Post-Rejection – BK-CT takes a bold step in support of a nondebtor’s IP rights post-rejection & “respectfully declines to follow the 1st Cir holding [in Tempnology] and similarly aligns with the plain language reading of Section 365(g) advanced by Judge Easterbrook in the 7th Circuit.” In re Sima International Inc
- Summary Judgment Denial as Non-Final Orders – BK-DE compiles cases in ruling that denial of summary judgment motion is not a final order implicating the bankruptcy court’s authority as a non-Article III court to enter final judgments. In re Anderson News LLC
- Claims Objections and Choice of Forum Clauses – BK-DE: Objection to proof of claim is properly heard in the BK Ct despite “multiple challenges to Plaintiff’s choice of forum” and defendant’s request to dismiss, enforce a forum selection clause, abstain, or otherwise transfer the case to a NY court. In re Penson Worldwide
- Mortgage Foreclosure and Offsetting Claims – BK-SD-FL: FL 5-yr statute of limitations for mortgage foreclosures doesn’t reduce a lender’s secured claim by subtracting amounts that were contractually due, absent acceleration, more than five years prior to commencement of the bankruptcy case. In re BCML Holding LLC
- Maritime LIens and BK Jurisdiction – BK-HI cleans up on remand post-9th Cir reversal & holds that the stay does not apply to Plaintiff’s maritime claims & that the BK Ct lacked jurisdiction to rule on plaintiff’s maritime lien or to authorize the trustee’s sale of the vessel free and clear of the lien. In re Sea Hawaii Rafting LLC
- Insurer’s Duty of Disclosure in Settlement – BK-ND-IL won’t dismiss case alleging CNA fraudulently concealed documents relating to disputed insurance policies from the Debtor. Further because of the special relationship between CNA and the Debtor, CNA violated its duty to disclose the documents, which prompted the parties to enter into a settlement agreement, which is approved herein. In re Oakfabco Inc
- Waiver of 5th Am. Privilege – BK-ND-IL: In another well-cited opinion by Judge Thorne holds that because the 5th Amendment privilege was never raised in response to the discovery request, any such objection was waived. In re Wolf
- FERC Proceedings and the Automatic Stay – BK-ND-OH enjoins FERC proceeding, saying it does not involve police powers, would interfere with the Court’s jurisdiction over executory contracts, and creates potential admin claims. In re FirstEnergy Solutions Corp
- GM Ignition Switch MDL and related BK Appeals – SD-NY reviews 8 preceding opinions from the bankruptcy court and 2d Cir in issuing 11 rulings on appeals from bankruptcy court rulings as well as bellweather products liability trials in the GM MDL Litigation. In re Motors Liquidation Company
- Court reverses BK Ct’s 2015 ruling on fraudulent concealment claims against New GM, holding that plaintiffs can proceed on breach of duty claims for not disclosing ignition defects & thus depriving plaintiffs of the ability to file timely proofs of claim, stating: “That is, the mere fact that they allege a form of injury relating to the bankruptcy proceedings does not mean that they allege a duty arising from those proceedings.”
- Court further reverse BK Ct ruling that the claims of purchasers of used GM vehicles without the Ignition Switch Defect were barred by the Sale Order to the same extent as the claims of their predecessors in interest, stating: “Plaintiffs purchased GM vehicles & suffered accidents after the Closing Date, they fall squarely within the scope of the 2d Circuit’s holding that the Sale Order cannot be applied to those who ‘had no relation with Old GM prior to bankruptcy.’ “
INTERESTING CASES FROM ILLINOIS AND OTHER COURTS:
- Standing and Remand Rights – 7th Cir: Upon finding that patrons in action removed to federal court lacked Article III standing, the district court was required to remand the case back to state court rather than dismiss it. Collier v SP Plus Corporation
- Takings Claims Arising from the Harvey Flooding in Houston – Fed. Cl.: For those of you who like interesting takings cases, here’s one relating to the construction of dams that worked perfectly, but also flooded the land upstream in last year’s Houston floods. “The government’s argument based on preexistence fails. Palazzolo explicitly rejects the ‘sweeping[ ] rule’ that ‘[a] purchaser or a successive title holder … is deemed to have notice of an earlier-enacted restriction and is barred from claiming that it effects a taking. [Palazollo] explained that ‘[t]he State may not put so potent a Hobbesian stick into the Lockean bundle,’ thereby “put[ting] an expiration date on the Takings Clause,’ ‘strip[ping landowners] of the ability to transfer the interest which [they] possessed before the prior to the regulation,’ and ‘secur[ing] a windfall [to the State].’ [Palazzolo, 533 U.S.] at 627.” In re Upstream Addicks and Barker (Texas) Flood-Control Reservoirs
- Insurance Duty to Defend Mixed Claims – IL AP 1: Legal malpractice claims alleging willful conduct throughout the complaint are excluded from insurance coverage and so there is no duty to defend. Illinois State Bar Association Mutual Insurance Company v Leighton Legal Group LLC
BK RELATED NEWS & ARTICLES:
- Banking & Bankruptcy: Prof. Steve Lubben concludes: “After nearly a decade of waffling between ‘special’ & ‘normal’ bankruptcies for banks, we are ready to build upon what we learned & take the necessary further step: stop feigning that bank insolvency can or should happen in BK Ct.” A Functional Analysis of Sifi Insolvency, via SSRN
- Dairy Woes in VT: Excellent raw video interviews with dairy farmers from Vermont. “Hinsdale said he tried for a year to sell the farm & found no buyers, even though it was priced less than the $2.5M the barn alone cost to build. Up to 800 people attended the auction, but only 300 bid. Farmers wanted to see what dairy assets are worth.” Says the farmer on the video, “If I gave them the farm, it wouldn’t cash flow; . . . the mantra is ‘get big or get our.’ ” Vermont dairy is in crisis: 4 years of bad prices take a toll even on industry leaders. Vermont dairy is in crisis: 4 years of bad prices take a toll even on industry leaders, via Burlington Free Press
- Defeating Bankruptcy Law by Contract: There’s a lot to digest in Professor Westbrook’s trailer for his 2018 remake of “The End of Bankruptcy,” the Baird & Rasmussen 2002 classic. The End of Bankruptcy, by Jay Lawrence Westbrook via Credit Slips Blog
- Farm Bankruptcy: This is a sad story. I wonder if the Chapter 7 trustee will pursue an avoidance action for the transfer of the farm to the joint debtors’ son 2 years before the filing. Maine organic farming icons file for bankruptcy, via BDN Business
- Fiscal Expansion and BK: Don’t expect bankruptcies for a while. “Larry Summers has described the US [programme of fiscal expansion and reform] (accurately) as ”the most rapid increase in the debt-to-GDP ratio during peak business cycle times that has ever been seen in peacetime’.” Consequences of the Great Fiscal Divergence: Policy is raising US bond yields but effects on the dollar are ambiguous, via FT
- Franchisee Bankruptcy: This dispute is worth following between Applebees & its 2nd largest franchisee, now in BK, involves the intersection of bankruptcy and franchise law. Copy of complaint here. Applebee’s Sues Franchisee In Ch. 11 Over Deal Breaches
- Necco: “The company’s treats include Mary Jane candies, Clark Bars, Squirrel Nut Zippers and Sweethearts, the heart-shaped Valentine’s Day candy bearing romantic messages such as ‘Kiss Me’ and ‘Be Mine.’ Necco wafers have been around since before the Civil War.” Maker of Necco Wafers Gets Sweet Reprieve at Bankruptcy Auction, via WSJ
- Pension Withdrawal Liability Settlement: “That obligation, valued at $95M, will be paid by the warehouse’s former owner, C&S Wholesale Grocers, which supplies Tops with about two-thirds of its merchandise. Tops already paid $29M of it. C&S will pay the remaining $65M due.” Pension Deal Removes Potential $180 Million Hurdle in Tops Bankruptcy, via The Buffalo News.
- Retail: “Perhaps retail’s death is more a misunderstanding of a sector adapting to demand not just from the internet, but also a lopsided societal structure; where affluent urbanites shop in LCD lit stores, while the masses get by on Dunkin & Dollar General.” Retail is not dead, via FT
- Valuation: Profs Morrison & Ayotte examine BK Ct opinions on valuation disputes with the goals of (1) understanding how parties and expert witnesses justify opposing views and (2) guiding judges in resolving valuation disputes, especially the pervasive errors in expert discounted cash flow (DCF) testimony. Valuation Disputes in Corporate Bankruptcy, via SSRN
LAW RELATED NEWS & ARTICLES:
- CBS / Viacom: “Delaware judges obey statute, not instinct. Redstone has the stronger case in corporate law. Like a pampered bird just noticing he’s in a cage, CBS’s imperial chief Moonves is restless. But which part of the phrase ‘controlling shareholder’ doesnt he understand.” The battle for CBS is old-fashioned entertainment: Les Moonves and Shari Redstone are acting like entitled baby boomers, via FT
- Covenant-Lite Lending-1: “A private equity buyout of a US roofing company earned a dubious distinction this week: it offered ‘some of the worst covenants’ ever seen by Covenant Review (CR), an independent credit research firm that specializes in that area.” “Some of the worst covenants that we’ve ever seen”, via FT
- Covenant-Lite Lending-2: There’s an opportunity in
#privateequity as banks shy away from less aggressive loans for fear of receiving a “private warning” from the Office of the Comptroller of the Currency “ordering [them] to modify their business-lending practices.” Banks Hunting Growth Loosen Terms on Business Loans: Regulators raise red flags as rising interest rates may make it harder for businesses to pay off loans, via WSJ - Credit Card Processing: “Retailers’ main concern with combining the buttons is that merchants won’t be able to route their debit-card transactions to lower-cost networks.” Visa, Mastercard Push for One-Click Ordering. Retailers Say ‘Not So Fast’: Walmart among merchants fighting card firms’ online plan, via WSJ
- Directors’ Notetaking: Even the most haphazard of notes take a life of their own in litigation. Be proactive on note-taking! “Directors’ notes, if not properly handled, can result in unintentional waivers of privilege & violations of confidentiality obligations.” Directors’ Notes: A Trap for the Unwary?, by David Katz and Laura McIntosh of Wachtell, Lipton, via Harvard Law School Forum on Corp. Governance and Fin. Regulation
- Fintech: “Bill Demchak, CEO of PNC Bank, he expects fintech to affect his bank’s small-business lending. ‘Fintech makes things very simple for small business and do it with a very low cost base: They don’t have an army of bankers running all over the place.’ ” Main Street Banks’ New Lending Rivals: Hedge Funds and Private Equity: Midsize banks have to rethink a business that is a key part of their revenue, via WSJ
- FOIA in IL: Congratulations to Edgar County Watchdogs, who filed an amicus brief with the Illinois Supreme Court that supported the winning argument seeking reversal of a ruling that a change to FOIA was retroactive when the legislature did not specifically make it so. Illinois Supreme Court rules in favor of Plaintiff on FOIA case
- Gerrymandering: Has anyone ever heard a bankruptcy lawyer use the hard “G” when complaining about gerrymandering in a chapter 11 plan confirmation battle? Attention, America, We’ve All Been Saying Gerrymander Wrong: Elbridge Gerry, the New England politician whose political map inspired a cartoon, pronounced his name with a hard G, via WSJ
- Lebron James and IP: Who owns the rights to portray barbershop talk using the word “SHOP”? Lebron James’s company thinks only it can, so it sends notice of copyright infringement to the Univ. of Alabama, whose defense collapses & so changes the name of Coach Saban’s football show from SHOP TALK to BAMA CUTS. Then, the owner of the trademark “SHOPTALK”, which “uses a barbershop for cultural discussions” with “inspirational entrepreneurs . . . engaging in the art of conversation” sues Lebron et al. for infringement, alleging that Lebron and his company only originated the idea of after plaintiff pitched it to him. The King and IP: A Copyright Tussle between LeBron’s Uninterrupted and the University of Alabama, by Kimberly Buffington of Pillsbury Winthrop Shaw Pittman LLP
- Liability Insurance, Restatement of the Law: This one flew in under the radar, but will be an important source and citing reference. The American Law Institute Approves Restatement of the Law, Liability Insurance, via ALI
- Sonic Attacks: Some good background in this short article. US fears grow over mystery ‘sonic attacks’ against diplomats: Some scientists sceptical that symptoms felt by embassy staff were caused by high-tech weapons via FT
- Shareholder Activism: “The New York State Supreme Court’s adoption of the Hubbard standard represents a great victory for shareholder activists. New York is now the first state outside Delaware to adopt the Hubbard standard.” The Xerox Takeover Saga, via Harvard Law School Forum of Corp. Governance & Fin. Regulation
- Trademark Protection, China: “The CTMO found in favor of the American company that the pirate’s mark constituted pre-emptive registration of a mark having a pre-existing reputation . . . and it invalidated the second Chinese pirate’s trademark registration.” An Innocent Abroad: A Successful Recovery of Trademark Rights in China, by Tom Cowan and John Carson of Knobbe Martens
LIFE AND THE WORLD GENERALLY:
- AI and Degenerative Diseases: “Their study found links between some behaviors—such as tremors when using a mouse, repeat queries and average scrolling velocity—and Parkinson’s disease.” Clues to Parkinson’s and Alzheimer’s From How You Use Your Computer: A study involving the Microsoft search engine Bing shows how artificial intelligence might detect medical conditions traditional medicine misses, via WSJ
- Bernie Lewis-1: “Yet by 2010 he was predicting that Turkey under Recep Tayyip Erdogan would turn to Islamic rule while Iranians would tire of political Islam and embrace secular nationalism.” So far he’s been right about Turkey. Bernard Lewis: The great scholar of the Middle East predicted its recent convulsions, via WSJ.
- Bernie Lewis-2: In 1976, Prof Bernie Lewis wrote: “If, we are to understand anything about what is happening in the Muslim world now and in the past, two essential points need to be grasped: (1) the universality of religion in people’s lives; (2) the religion’s centrality. . . . The 3 major ME religions are significantly different re the state & their attitudes to political power. Judaism was associated with the state & then disentangled from it (its new encounter with the state at the present time raises still unresolved problems). Christianity, during the formative centuries of its existence, was separate from, indeed antagonistic to, the state w/which it only later became involved. . . . Islam from the lifetime of its founder was the state, and the identity of religion and government is indelibly stamped on the memories and awareness of the faithful from their own sacred writings, history, and experience.” The Return of Islam (1976), by Bernard Lewis, via Commentary Magazine
- Electric Vehicles & Pollution: “Switching to EVs doesn’t inherently eliminate the use of fossil fuels, since the electricity that powers EVs could come from fossil fuels, which in China means coal.” Pollution studies cast doubt on China’s electric-car policies: Experts say massive plan may be more about industrial advantage than green impact, via FT
- Elon Musks of the World: “In the same way that lotteries have to exist for us to dream of winning them, Musks of the world let people fantasize about zipping across cities instead of sitting in traffic. If investors lose a few billions along the way, maybe that’s a price worth paying. Of course, the investors are unlikely to see it that way.” Elon Musk plays to human fantasy, and the world plays along, via FT
- Facial Recognition Technology: “The software can be used for ‘real-time face recognition across tens of millions of faces, and detection of up to 100 faces in challenging crowded photos’.” Amazon under fire over facial recognition software: Civil rights groups demand company stop selling technology to police and government, via FT
- FBI – Furniture Shopping: “[Grassley’s] team recently discovered that 1 of the items Justice scrubbed from the Strzok-Page texts was their concern that FBI Deputy Dir. McCabe had a $70,000 conference table (lacquered w/unicorn tears?)” The Real Constitutional Crisis: The FBI and Justice Department continue evading congressional oversight, via WSJ
- Fortnite: “Instead of being confined to PCs or PlayStations, players can compete on iPhones and iPads too. Such ‘cross platform’ play is still unusual for online multiplayer games.” ‘Fortnite’ shakes up gaming with all the best moves: Teens are hooked by the battle royale format and ubiquity on smartphones, via FT
- Iran & Women: “On International Womens Day on 3/8/18, Iran’s Supreme Leader launched a tirade against women who challenge the hijab laws, and he blamed the West: who worked to promote the protest so that ‘a few girls would be deceived and take their scarves off.’ ” The Mullahs’ Biggest Fear, Iranian Women: Protesters removing their headscarves in unprecedented acts of civil disobedience are fostering a crisis of self-confidence for the regime, via WSJ
- Night Shifts: Why does America have only 14 year data on this issue? “Across Europe, almost one in five workers are employed on night shifts. In 2004 (the most recent data available) approximately 8 per cent of Americans worked nights or evenings.” Night shift – The dangers of working around the clock: A growing number of us work nights or irregular hours — but at what cost?, via FT
- NY MTA: This $43B, 15 year overhaul project “is in addition to approximately $50B in capital expenditures needed over the next 15 years.” There is one caveat in the story about all these numbers, however: “ ‘Our experience at estimating project costs is woefully inadequate and makes the MTA subject to ongoing criticism, if not ongoing ridicule,’ Mr. Lhota said.” New York’s Subway, Bus Overhaul Will Take 15 Years, Cost $43 Billion: Cost and duration of upgrades were removed from MTA-presented plan at Governor Andrew Cuomo’s request, via WSJ
- Opoids: Origins of an Epidemic: “Starting in 2007, the year of the settlement, distributors of prescription drugs sent enough pain pills to West Virginia over a five-year period to supply every man, woman and child there with 433 of them.” Origins of an Epidemic: Purdue Pharma Knew Its Opioids Were Widely Abused, via NYT
- Polypharmacy Dangers: “The main focus of his eloquent bile is polypharmacy, with the ‘mass prescribing of drugs imposing a serious burden on people’s lives while (if paradoxically) posing a substantial threat to their health and wellbeing.’ ” The perils of taking half a dozen pills before breakfast: James Le Fanu’s warning on preventive drug-taking is a welcome antidote to the mass ‘medicalisation’ of millions, via FT
- Tennis: “Since 2005 the fabulous five—Nadal, Roger Federer, Novak Djokovic, Andy Murray and Stan Wawrinka—have won 50 Grand Slams. Other men have won just two.” A Last Stand for the Golden Age of Men’s Tennis: As the French Open is set to begin, there is finally a crack at the top of the sport, one that seems likely to, at long last, change the scene for good
- Tracking Flappy the Bird: “When she set off across the Arabian Sea, she provoked an outpouring of awe and admiration that a Cuckoo from Beijing could make such a journey to Africa.” Be sure to check the migration map and see the long trek over the Arabian Sea. Farewell Flappy, via Birding Beijing
- Turkey-1: “Economists in Turkey like to joke that the lira is the only real opposition left.” Recep Tayyip Erdogan: Turkey’s strongman grapples with the markets: Facing a currency crisis and a re-election bid, the president finally allowed interest rates to rise. But investors fear he is micromanaging the economy, via FT
- Turkey-2: “His advisers are a bunch of idiots and sycophants,” says one Turkish official. “He no longer listens to sensible advice.” Erdogan’s siege mentality pushes Turkish lira to the brink: Mainstream voices drowned out by more eccentric members of president’s economic team, via FT
- Turkey-3: “It feels like the end of the game,” said a strategist at an international bank. “Now we have to see how the endgame plays out.” Lira’s plunge places Turkey on edge of financial crisis: Investors are demanding more than emergency interest rate rises to stay in the country, via FT
©2018, Steve Jakubowski