Insolvency & Restructuring
Richard L. Epling
M. David Minnick
New York Court of Appeals Gives Global Banks Big Win on “Separate Entity” Issue
Authors: Leo T. Crowley, David Babbott-Klein*
In Motorola Credit Corp. v. Standard Chartered Bank, 2014 N.Y. Slip Op. 07199, 2014 WL 5368774 (Oct. 23, 2014) (“Motorola”), the highest New York state court ended five years of uncertainty and for the first time expressly endorsed the "separate entity” rule, a New York common law doctrine limiting judgment creditors' ability to reach or restrain assets held by judgment debtors in overseas branches of global banks. A previous Court of Appeals ruling, Koehler v. Bank of Bermuda, 12 N.Y.3d 533 (2009), had sparked doubt about the separate entity rule’s continued viability. Motorola gives banks with New York branches renewed confidence that service made in New York will not affect deposits on the books of foreign branches, and it places the burden squarely back on creditors to attempt to reach overseas assets through local law proceedings.
Supreme Court Ruling in Bellingham Offers Comfort but Little Clarity
Authors: Richard L. Epling, Dina E. Yavich
A unanimous Supreme Court, in Executive Benefits Ins. Agency, Inc. v. Arkinson (In re Bellingham Ins. Agency, Inc.), 573 U.S. ___ (2014), confirmed a bankruptcy court’s power to submit proposed findings of fact and conclusions of law for the district court’s de novo review, even though such court is constitutionally barred from entering a final judgment on a bankruptcy-related claim under Stern v. Marshall. While the Bellingham decision mitigates the jurisdictional uncertainty left in Stern’s wake, the Supreme Court’s decision leaves several significant questions unanswered. While Bellingham leaves the terrain of bankruptcy court jurisdiction somewhat clearer, the bankruptcy jurisdictional statute still contains provisions that the Court has found are unconstitutional.
Third Circuit Concludes Personal Injury Causes of Action Against a Successor to Debtor’s Business are Generalized Claims
Authors: Richard L. Epling, Dina E. Yavich
In a novel decision, the United States Court of Appeals for the Third Circuit held, in its ruling In re Emoral, Inc., 740 F.3d 875 (3d Cir. 2014), that personal injury claims of individuals allegedly harmed by a bankrupt debtor’s products cannot be asserted against a pre-petition purchaser of the debtor’s assets, as they are “generalized claims” which belong to the debtor’s bankruptcy estate rather than to the individuals who suffered the harm.
Lehman: New Limitations on Plan Payment of Individual Creditors’ Committee Members’ Professional Fees
Authors: Peter A. Baumgaertner, Leo T. Crowley, Richard L. Epling, Dina E. Yavich
This alert was originally published in Law360 on April 22, 2014.In the recent case of Davis v. Elliot Mgmt. Corp. (In re Lehman Bros. Holdings Inc.), 2014 U.S. Dist. LEXIS 48102 (S.D.N.Y. Mar. 31, 2014), the District Court for the Southern District of New York issued a decision barring reorganization plans from paying legal fees of individual members of official creditors’ committees absent a showing of substantial contribution to the estate. In so holding, the District Court disapproved a trend among New York bankruptcy courts to permit such payments if they are expressly included in the reorganization plan, notwithstanding a lack of specific authorization in the Bankruptcy Code. As a result of this ruling, indenture trustees that serve on official creditors’ committees as part of their role in reorganization cases may find it increasingly difficult to recover their professional fees and expenses pursuant to plan payment provisions.
7th Circuit Holds Successor Liable for FLSA Claims, Despite Buyer’s Disclaimer
Authors: Paula M. Weber, Leo T. Crowley, Thomas N. Makris, Alexander K. Parachini
In Teed v. Thomas & Betts Power Solutions, LLC, the 7th Circuit in an opinion written by Judge Posner held that, absent a good reason to withhold liability, a purchaser of assets was subject to successor liability for Fair Labor Standards Act (“FLSA”) claims and other federal labor and employment laws, even if the successor disclaimed liability when it acquired the assets.
Update on Preparing Living Wills for Bank Holding Companies and Depository Institutions
Authors: Rodney R. Peck, Joseph T. Lynyak, III
This analysis updates a previous memo and incorporates advice we have received from the Federal Reserve Board (“FRB”) and the Federal Deposit Insurance Corporation (“FDIC”) regarding the preparation of living wills for bank holding companies and banks required to comply by July 1, 2103 or December 31, 2013.
Supreme Court Upholds Right to Credit-Bid in 363 Sales Embedded in Reorganization Plans
Authors: Richard L. Epling, Alexander K. Parachini, Kerry Brennan
In the recent case of RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 2012 WL 1912197 (May 29, 2012), the Supreme Court in a unanimous 8-0 opinion, delivered by Justice Scalia, held that the Bankruptcy Code statutory scheme mandates that secured creditors must be allowed to credit-bid in 363 sales of assets where the sale is incorporated into a plan of reorganization. While many in the finance and bankruptcy space view the right of a secured creditor to credit-bid as sacrosanct and uncontroversial, several recent circuit court opinions suggested that credit-bidding was not required for a 363 sale in connection with a plan of reorganization so long as the debtor provided such creditor alternatively with the "indubitable equivalent" of its claim. The Supreme Court resolved any uncertainty in favor of the right of a secured creditor to credit-bid.
In Destabilizing Decision for Secured Lenders, 11th Circuit Reverses TOUSA District Court
Authors: Andrew M. Troop, Brandon R. Johnson
On May 15, 2012, the Eleventh Circuit Court of Appeals issued a fraudulent transfer ruling in TOUSA, Inc.'s chapter 11 case with wide-ranging implications for the financing community. As discussed herein, this decision weakens protections for secured lenders, especially when extending credit to distressed borrowers.
PLI’s Intellectual Property Institute 2010 - Bankruptcy Issues in Copyright
Authors: Philip S. Warden, Ana N. Damonte
Software licenses are copyright licenses. The license specifies the extent to which “copying” is permitted under the license. In this article, we address various bankruptcy issues related to computer software, computer software licenses and other intellectual property assets. First, we provide basic background applicable to licensor/licensee bankruptcies. Second, we discuss the Intellectual Property Bankruptcy Protection Act of 1988 (Bankruptcy Code Section 365(n), including identification of risk and potential strategies for minimizing those risks. Third, we consider issues relating to the assumption of technology licenses by debtor-licensees. Fourth, we provide an overview of benefits and risk of working with a financially troubled licensor. Fifth, we discuss the necessity of perfecting security interests. Lastly, we discuss the dischargeability of copyright infringement judgments (and other IP infringement judgments) in bankruptcy.
Seventh Circuit Rejects Bond Indenture and Its Waiver of Tribal Sovereign Immunity, But Allows Leave to Amend for Equitable Claims
Authors: Blaine I. Green, Craig A. Barbarosh, Daron T. Carreiro
A recent ruling by the United States Court of Appeals for the Seventh Circuit affirmed the invalidity of a trust indenture between a tribal corporation and bond trustee that was not approved by the National Indian Gaming Commission ("NIGC"). However, the Seventh Circuit granted the trustee leave to amend its complaint to assert equitable claims, remanding the case for the district court to determine if other bond documents could support a waiver of the tribal corporation’s sovereign immunity, and whether the trustee has standing to sue for the return of funds to the bondholder.
Is Corporate Bankruptcy an Option for Tribal Casinos?
Authors: Blaine I. Green, Craig A. Barbarosh, Mark Houle, Daron T. Carreiro
Tribal economies are not immune to the recent global financial crisis and economic downturn. The Indian gaming industry was hit especially hard. After consistent year-over-year growth in tribal gaming revenues during the 1990s and continuing through 2008, industry revenues declined in 2009 and have continued to stagnate. Amid reports of several tribal casino defaults—and many more tribes with significant debt maturing in the near future that will need to be restructured—tribes and creditors must consider two questions: Are tribes and their corporations eligible for bankruptcy? If so, is bankruptcy an attractive option for a tribal casino?
The Draft U.S. Consumer Privacy Bill of Rights Act: Proposing Changes Large and Small
Source: Bloomberg BNA
Author: Catherine D. Meyer
On February 27, 2015, the Obama Administration released its discussion draft of the Consumer Privacy Bill of Rights Act (‘‘Draft’’)1 (see WDPR, March 2015, page 30). Its stated purpose is to ‘‘establish baseline protections for individual privacy’’ and to implement and enforce those protections.
Buyer be Prepared
Authors: Richard L. Epling, Dina E. Yavich
This article was originally published by LatinFinance on November 25, 2014.A rise of cross-border insolvencies in recent years has generated substantial litigation. In some cases, US bondholders, perceiving their treatment under a foreign reorganization plan to be inequitable, have sought a second chance by opposing the plan in the US on the grounds that its enforcement would be contrary to domestic public policy.
Lehman Decision Transmutes Structured Finance Investors into General Unsecured Creditors
Source: Journal of Bankruptcy Law
Authors: Leo T. Crowley, Margot P. Erlich
This article was originally published in the October 2014 Journal of Bankruptcy Law.The U.S. Bankruptcy Court for the Southern District of New York recently ruled that Lehman Brothers Holdings Inc. cannot subordinate securities fraud claims filed by holders of mortgage-backed securities under Bankruptcy Code Section 510(b) even though a Lehman Brothers affiliate and co-debtor was the depositor of, and considered the issuer for securities law purposes of, the mortgage-backed securities. The authors of this article discuss this very significant ruling and its consequences.
Bankruptcy Issues in Trademarks
Source: IP Litigator
Authors: Samuel S. Cavior, Richard L. Epling, Philip S. Warden
This article was originally published in IP Litigator, Volume 19, Number 6, November/December 2013.
Intersections of Bankruptcy Law and Insurance Coverage Litigation
Source: Thomson Reuters' Norton Journal of Bankruptcy Law and Practice, Vol. 21 #2
Authors: Richard L. Epling, Brandon R. Johnson, Kerry A. Brennan
Bankruptcy and insurance law frequently intersect and sometimes conflict. This article addresses the most important of these intersections, including the ability of a debtor to satisfy insured claims by the assignment of coverage proceeds in bankruptcy, the treatment of D&O insurance in bankruptcy, a debtor’s non-payment of a deductible or self insured retention (“SIR”) as a defense to coverage, “buy back” agreements and coverage-in-place settlements in bankruptcy, the ability of insurers and/or debtor-affiliates to obtain third-party releases, insurer insolvency and potential gaps in coverage, and paid-loss retrospective policies and a bankruptcy estate’s bad faith claims. As discussed throughout, this is an area of law that is quickly developing and where several issues remain unsettled.
Restructuring Strategies Can Shield a Business From Future Trouble
Source: Scotsman Guide's Commercial Edition, May 2012
Authors: Deryck A. Palmer
Commercial mortgage brokers can guide clients in the commercial real estate industry to look into how to employ the same approaches used by sound companies in other industries to shield their businesses against liquidity or cash-flow problems down the road. They also can advise clients when seeking rearrangements of contractual terms, pursuing refinancing or making restructuring plans.
Cross-border Restructuring Know-how
Source: The Deal
Authors: Deryck A. Palmer
When businesses in the U.S. face challenges, powerful laws are available that permit both operational and financial restructuring. By contrast, European and other global businesses are largely stuck with a model based on business cessation and asset liquidation. Can U.S.-style restructuring practices be used to help right the global economy?
What Happens On the Outsourcers Insolvency: A Comparison of Relevant Insolvency Principles in the U.S., India and China
Source: PLC Cross-border Outsourcing Handbook
Authors: Joshua B. Konvisser, Nishith Desai, Joseph Chan, Michael Murphy, Yusuf H. Safdari
Top-ranked IT and outsourcing lawyer Michael Murphy, nationally recognized outsourcing lawyer Joshua Konvisser and Pillsbury senior counsel Yusuf Safdari, along with Nishith Desai and Joseph Chan, explain U.S. bankruptcy law principles and issues most relevant to customers of insolvent outsourcing service providers. The authors provide a comparison of those principles with the insolvency frameworks in India and China in order to put customers in the best position to navigate the complexities of local insolvency laws. This article originally appeared in the PLC Cross-border Outsourcing Handbook 2011/12
Monorail, Monorail, Monorail
Source: Norton Journal of Bankruptcy Law and Practice
Authors: Richard L. Epling, Kent P. Woods, Kerry A. Brennan
Where a city's financial fortunes are tied up with a municipal authority or other type of quasi-municipal entity and the underlying project proves unsuccessful, what options does the city or project have to restructure? Richard Epling, leader of Pillsbury's Insolvency & Restructuring practice and top-ranked Bankruptcy lawyer by Best Lawyers in America, with Litigation partner Kerry Brennan and Insolvency & Restructuring associate Kent Woods, lay out practical concerns and solutions regarding Chapter 9 and restructuring issues relating to municipal authorities. This article originally appeared in the March 2011 issue of the Norton Journal of Bankruptcy Law and Practice.