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    Case Study—Insolvency & Restructuring

    Insolvency & Restructuring


    Richard L. Epling
    New York   
    M. David Minnick
    San Francisco   
    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
    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: Joseph T. Lynyak, III, Rodney R. Peck
    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.
    Circuit Split in Enforceability of Arbitration Clauses in Bankruptcy Left Unresolved
    Authors: Kerry A. Brennan, Alexander K. Parachini
    In a recent summary opinion, the Supreme Court denied certiorari review of a decision, Continental Insurance Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.), 671 F.3d 1011 (9th Cir. 2012), where the Ninth Circuit had affirmed a lower court’s decision refusing to enforce an arbitration clause in a settlement agreement between a debtor and an insurer. In doing so, the Supreme Court declined an opportunity to resolve what many believe to be an important and significant circuit split on the standard for the enforceability of arbitration clauses in bankruptcy proceedings.
    Supreme Court Upholds Right to Credit-Bid in 363 Sales Embedded in Reorganization Plans
    Authors: Richard L. Epling, Kerry A. Brennan, Alexander K. Parachini
    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.
    February 2012
    PLI’s Intellectual Property Institute 2010 - Bankruptcy Issues in Copyright
    Authors: Ana N. Damonte, Philip S. Warden
    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.
    California Restricts Access of Municipalities to Chapter 9 of the Bankruptcy Code
    Authors: Brandon R. Johnson, Craig A. Barbarosh, Karen B. Dine
    Numerous municipalities in California and elsewhere are struggling financially. Indeed, Harrisburg, Pennsylvania and Central Falls, Rhode Island have both recently filed for Chapter 9 protection. State governments may have neither the economic reserves nor the political will to bail out troubled cities and counties. These circumstances have raised the focus on Chapter 9 as a tool for reorganizing municipality debt obligations and has deepened the debate between states and their municipalities about the best strategies for addressing a fiscal crisis.
    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?

    District Court Quashes Controversial TOUSA Fraudulent Transfer Decision
    Authors: Brandon R. Johnson, Craig A. Barbarosh, Erica Edman Carrig, Karen B. Dine
    In a recent 113-page decision, Judge Alan S. Gold of the U.S. District Court for the Southern District of Florida quashed the TOUSA Bankruptcy Court’s previous controversial fraudulent conveyance decision that required secured lenders (the "Transeastern Lenders") to disgorge approximately $480 million received in settlement of their claims against TOUSA. In a ruling with wide-ranging implications for the financing community, the District Court thoroughly rejected the Bankruptcy Court’s reasoning and held that the TOUSA subsidiaries that guaranteed the new loans necessary to fund the settlement had in fact received "reasonably equivalent value" in exchange for their commitments by, among other things, preserving the value of the troubled homebuilder’s entire corporate enterprise.
    December 2010
    Tenacity and Persistence in Litigating a Reorganization
    "I am absolutely elated to see Congoleum's plan confirmed at last. It has been a long, difficult journey out of the complicated asbestos and insurance litigation we faced nearly nine years ago. I could not be happier about putting this chapter of our history behind us."—Roger S. Marcus, Chairman of the Board
    December 2010
    Preserving Millions in Value for Shareholders
    "Bankrupt Tronox Inc.'s reorganization plan has been deemed a winning restructuring formula by a New York judge."—The Daily Deal
    English Courts Can Enforce U.S. Bankruptcy Judgments Without a Separate Proceeding
    Authors: Richard L. Epling, Kerry A. Brennan, Kent P. Woods, Irene Dallas
    In the case of Rubin v. Eurofinance SA [2010] EWCA Civ 895, [2010] All ER (D) 358 (Jul), the English Court of Appeal, Civil Division, determined that a U.S. bankruptcy court’s monetary default judgment obtained against Eurofinance and its principals, British citizens, was enforceable. In doing so, the Court of Appeal favored a “universal” approach to international bankruptcy cases and recognized adversary proceedings as part and parcel of the main bankruptcy case under American bankruptcy rules. The decision did not require initiation of a separate proceeding to obtain an English court judgment as would usually be required under the rules of private international law. This decision potentially has wide-ranging implications that may streamline the process to enforce judgments in international bankruptcy cases.
    Pillsbury Guides Chinese Investment Group Through Its First U.S. CMBS Transaction
    The OpportunityA Chinese real estate investment group was considering its first investment in the U.S. commercial real estate market. It identified a 5,000-unit apartment project in Texas and Maryland that satisfied its investment parameters, but the project was in the midst of the prior owners’ complex Chapter 11 proceeding—the borrowers’ equity had been wiped out, the assets were encumbered by multiple layers of CMBS debt, and the appointed Special Servicer was actively scrutinizing any proposed restructuring transaction.
    3rd Circuit Affirms Rejection of $15 Million Break-up Fee in Section 363 Bankruptcy Sale
    Authors: Jonathan J. Russo, Donovan Warner Burke, K. Brian Joe
    On January 15, 2010, in In re Reliant Energy Channelview LP, the Third Circuit Court of Appeals affirmed the decision of the U.S. Bankruptcy Court for the District of Delaware denying payment of a $15 million break-up fee to the initial bidder of a power plant in conjunction with the debtor’s Section 363 bankruptcy asset sale. The Court based its ruling on the fact that it did not consider the fee necessary to preserve the value of the bankruptcy estate.
    December 2009
    Steering an Icon Through a Financial Storm

    “After two years of uncertainty, the Queen Mary can once again become a world-class tourist destination.”

    —Pillsbury partner quoted in Bankruptcy Law360, November 9, 2007
    December 2009
    Tenacious Advocacy Pays Off in Big Bankruptcy Recovery

    “Even holders of pre-bankruptcy Solutia’s common shares will make a recovery, despite repeated warnings by the company that those shares would be worthless. ... Those who had been set to get nothing could wind up owning a combined 18 percent of a growing corporation.”

    St. Louis Post-Dispatch, September 27, 2007
    No Free Ride: 9th Circuit Permits Lender to Repossess Vehicle When Bankruptcy Debtor Fails to Recommit
    Authors: Amy L. Pierce, Greg Johnson, Meredith E. Nikkel, Michael P. Ellis
    In Dumont v. Ford Motor Credit Company, the Ninth Circuit Court of Appeals confirms the Bankruptcy Code does not protect a debtor’s personal property collateral if the debtor fails to commit to redeem, reaffirm or assume the underlying loan—even if the debtor continues timely to make loan payments.
    Court Interprets “Retiree Benefits” Under Bankruptcy Law Without Reference to ERISA
    Authors: Peter J. Hunt, Rick B. Antonoff, Kent P. Woods
    The Bankruptcy Court for the District of Delaware has issued a decision concluding that company-paid medical coverage offered as part of an employee severance package is a “retiree benefit” that cannot be unilaterally modified by the company in bankruptcy, except as provided under Section 1114 of the Bankruptcy Code. The court ruled that other payments under the package—salary continuation and car allowance payments—are not “retiree benefits” under Section 1114. The court based its decision on the medical coverage issue primarily on the company’s own description of the severance offer as “an early retirement package” and declined to apply the definition of “retiree benefits” under ERISA.1
    7th Circuit: Certain Equitable Environmental Remedies Not Dischargeable in Bankruptcy
    Authors: Christopher J. McNevin, Rick B. Antonoff, Kent P. Woods, Julia A. Miller
    The Seventh Circuit U.S. Court of Appeals recently ruled that an environmental clean-up obligation under the Resource Conservation and Recovery Act ("RCRA") is not dischargeable in bankruptcy, even when the debtor no longer has any internal clean-up operations and would have to contract a third party to provide such services at significant cost.
    Spring 2009
    Perspectives on Real Estate
    Special Edition: Purchasing Distressed Notes
    Authors: William C. Bowers, Marjorie Fisher Gannett, Peter G. Freeman, Jerry L. Hall, Laura E. Hannusch, Robert (Robin) C. Jones, Jr., Elizabeth Vella Moeller, Dana Proud Newman, Patrick J. Potter, Glenn Q. Snyder, Christina Cole, Michael G. Silver, H. Carl Moultrie III, Susan Ormand Berry
    Lawsuit Challenges Termination of Insured Credit Default Swaps
    Authors: William C. F. Kurz, David M. Lindley, Ernest Patrikis, Rick B. Antonoff
    In a lawsuit filed in New York federal court on March 19, 2008, Merrill Lynch International (“MLI”), an affiliate of the investment banking firm Merrill Lynch & Co. Inc., alleges that bond insurer XL Capital Assurance Inc. (“XL”) wrongfully terminated a series of insured credit default swap agreements based on XL’s claim that MLI repudiated the agreements by assigning voting rights with respect to the insured reference securities to a third party. MLI commenced the lawsuit to obtain a declaratory judgment that the swap agreements remain binding and enforceable against XL and that MLI did not repudiate them. In effect, MLI seeks a ruling that XL’s purported terminations are invalid.
    Landlord Alert: Limitations on Strategic Bankruptcy Filings by “Healthy” Companies to Cap Long-Term Lease Obligations
    Authors: M. David Minnick, Craig A. Barbarosh, Karen B. Dine, Mark Houle


    Under Section 502(b)(6) of the Bankruptcy Code, Chapter 11 debtors have a very powerful statutory tool to limit a landlord’s recovery under a long term real property lease when the lease is rejected in bankruptcy. Generally, under Bankruptcy Code Section 502(b)(6), a landlord’s claim for damages resulting from the termination of a real property lease will be limited to the obligations due under the lease for the greater of (i) one year or (ii) fifteen percent, not to exceed three years, of the remaining term of the lease, plus amounts due under the lease on the earlier of the bankruptcy filing date or the date the property was surrendered. However, two recent judicial decisions, one by the Third Circuit Court of Appeals and the other by a California bankruptcy court, clarify that a lessee may be denied the ability to remain a Chapter 11 debtor when it is solvent and files for bankruptcy relief as a strategic maneuver solely to reject a lease and limit a landlord’s lease recovery. Knowledge of this evolving caselaw may impact your ability to protect your rights in certain situations.
    Seventh Circuit Permits Debtor Landlord to Sell Property Free and Clear of Tenant's Lease
    Creditors' Rights No Statutory Cap on Certain Truth in Lending Actions
    November/December 2013
    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.
    June 2012
    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, Kerry A. Brennan, Brandon R. Johnson
    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.
    May 2012
    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?
    January 2012
    California Restricts Access of Municipalities to Chapter 9 of the Bankruptcy Code
    Source: Pratt's Journal of Bankruptcy Law
    Authors: Brandon R. Johnson, Craig A. Barbarosh, Karen B. Dine
    Numerous municipalities in California and elsewhere are struggling financially. Indeed, Harrisburg, Pennsylvania, and Central Falls, Rhode Island, have both recently filed for Chapter 9 protection. State governments may have neither the economic reserves nor the political will to bail out troubled cities and counties. These circumstances have raised the focus on Chapter 9 as a tool for reorganizing municipality debt obligations and have deepened the debate between states and their municipalities about the best strategies for addressing a fiscal crisis.
    June 2011
    Appellate Decision in TOUSA Bankruptcy Protects Secured Lenders
    Source: Corporate Rescue and Insolvency - International
    Authors: Brandon R. Johnson, Craig A. Barbarosh, Erica Edman Carrig, Karen B. Dine
    Insolvency & Restructuring partners Craig Barbarosh and Karen Dine, senior associate Erica Carrig and associate Brandon Johnson discuss the appellate decision in TOUSA bankruptcy. They write that appellate court quashes and roundly criticizes bankruptcy court’s constructive fraudulent conveyance decision; that the appellate decision strengthens protections for lenders that fund borrowers with complex corporate structures and borrowers on the verge of bankruptcy; and that the appellate decision clarifies scope of due diligence required by lenders receiving repayment of debt.
    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: Michael Murphy, Joshua B. Konvisser, Yusuf H. Safdari, Nishith Desai, Joseph Chan
    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
    March 2011
    Monorail, Monorail, Monorail
    Source: Norton Journal of Bankruptcy Law and Practice
    Authors: Richard L. Epling, Kerry A. Brennan, Kent P. Woods
    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.
    Fall 2009
    Additional Risks Landlords Should Consider When Taking Letters of Credit From Commercial Lease Tenants
    Source: The Real Estate Finance Journal
    Authors: M. David Minnick, Ana N. Damonte
    This article by Insolvency & Restructuring partner David Minnick and Litigation senior associate Ana Damonte originally appeared in the Real Estate Law Journal, published by West.
    How Law Firms Can Stay Afloat When a Recession Strikes
    Author: Richard L. Epling
    Richard Epling, partner in Pillsbury's Insolvency & Restructuring practice and member of the firm's Board, authored this article which originally appeared on, March 5, 2008.
    Spillover Effect from Subprime Collapse
    Source: Real Estate Board of New York: A New York Law Journal Special Section
    Authors: Brant K. Maller, Rick B. Antonoff

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