Links for Restructuring Professionals to Key Cases, Articles, and News Briefs for July 2018 (Part I)

Here’s an aggregation of 26 of my Twitter posts from the first week of July 2018, with links to cases, articles, and news briefs that restructuring professionals should find of interest. Thanks for reading!

BK RELATED CASES:

• Asbestos Bankruptcy – Claims Procedure Order – BK-D-DE:   In approving claims procedure order options for handling asbestos claims (either mediated w/retired judge or lifting the stay to allow pursuit of insurance while waiving a right to distributions from the estate), the retired judge may consider debtor’s “relative culpability vis a vis other tortfeasors.” In re Hovensa LLC
• Chapter 15 – Subpoena Compliance – Arbitration Clause Effect – SD-NY:  Court disagrees with CohnReznick’s motion for a stay pending appeal of a BK Ct order requiring compliance with a subpoena in a Chapter 15 proceeding, and in particular with the argument that an arbitration clause precludes discovery sought by the Liquidators. In re Platinum Partners Value Arbitrage Fund LP
• Default Judgment – Foreign Defendants – BK-SD-NY:   Court holds it can enter a final default judgment against a foreign defendant that fails to respond to a summons & complaint personally served on it, and then to a motion for entry of default judgment served by US mail. In re Advance Watch Company Ltd
• Jurisdiction – “Related-to” – BK-SD-FL:   Court rejects arguments of Simpson & Kasowitz that ‘related-to’ jurisdiction exists, finding “potentially inconsistent results is not a basis, alone, to find subject matter jursidiction” absent risk that collateral estoppel is present.  Court also rejects related to jurisdiction on the basis that testimony in the state court action of “former Patriot National officers, directors & employees will likely bind Pat. Natl., which would have a conceivable effect on the Patriot Natl estate.”  Mariano v Simpson Thacher And Bartlett LLP
• Madoff BK – Derivative Fraudulent Transfer Claims – 2d Cir.:  “The facts alleged don’t state a colorable claim that Picower controlled BLMIS [suff. to sustain a Section 20(a) securities fraud claim]. The substance of the allegations, therefore, still amounts only to a derivative, fraudulent transfer claim.” In re Bernard L Madoff Investment Securities LLC
• Preferences – Earmarking – BK-D-KS:   The circumstances where the earmarking doctrine may [be a valid] defense to preference are unclear [in the 10th Cir]. A footnote in the leading 10th cir. case, Davidson, noted: ‘The funds paid by Christiansen [a general contractor] to [a supplier of goods to Davidson, a subcontractor] by joint check are excluded from the bankruptcy estate under the doctrine of earmarking.” But the rule from this FN doesn’t apply here. In re WB Services LLC
• Preferences – Statutory Minimum – Triangular Setoffs – BK-MD-PA:  One preference count for $1,403 against the IRS is dismissed for being less than the $6,425 statutory minimum to challenge a transfer under BK Code section 547(c)(9). Also, the IRS’s prepetition setoff claim against a $731K receivable due the debtor from the US Postal Service was not not invalidated for lack of mutuality. In re AEH Trucking Co LLC
• Recoupment – Single Transaction Tests – BK-WD-WI:  “Circuits are split on the appropriate test for determining whether two debts arose out of one transaction [for recoupment purposes]. Courts apply either the logical relationship test or the stricter single integrated transaction test. . . . The Seventh Circuit has not expressly adopted either approach, but courts in the Circuit have generally applied the single integrated transaction test. . . . Here, the purchase order was a later order for cranberry purchases negotiated separately from the agreement that defines the terms for the original 7 loads and that prohibited the debtor from selling cranberries to certain others, so recoupment is denied. In re Cranberry Growers Cooperative
• Secured Claims – Credit Bidding Participation – BK-D-DE:  Court rejects junior lender’s argument that the secured portion of senior creditor’s claim is determined by its last credit bid rather than the market price for the collateral as determined by the winning bid. In re Aerogroup International Inc

BK RELATED NEWS & ARTICLES:

• Charging Orders – LLC’s:  “Even though the bankruptcy succeeded in having the debtor’s financial obligations discharged, it did not erase the assignee status held by the bank with respect to the LLC. The LLC’s manager eventually sold LLC assets and liquidated the LLC, which entitled the bank to millions in liquidation proceeds. The bank is happy since that amount exceeded what the debtor otherwise owed the bank. The bank therefore profited from the LLC’s accumulated asset value and the debtor was never able to share in such value.” LLC Charging Order Protection Against Creditor Causes Debtor to Lose Even More Money: How Can That Be?, by Ed Brown of Greenspoon Marder LLP, via Lexology
• Collateral Transfer – Pulling off a “J. Crew”:   “PetSmart sued Citibank, the agent on the company’s term loans, for refusing to bless the transfers of shares that puts them out of the reach of its lenders and within the grasp of its private-equity owner BC Partners. . . . The transfer of the 20% stake to PetSmart’s parent would give BC Partners control over the proceeds of any sale of those shares. At the same time, the company could pledge the other 16.5% stake to low-ranking debtholders in a debt swap.”  PetSmart Sues Citibank in Escalating Battle With Lenders: Transfer of shares in PetSmart’s Chewy.com e-commerce unit is cause of dispute, by Soma Biswas at The Wall Street Journal
• Copyright Trolls in BK: Armageddon 2419:  Buck Rogers in the 25th century on the big screen? Armageddon 2419 coming to a theater near you (depending on how this all plays out in bankruptcy court). “Two and a half years later, Louise Geer and Dan Herman are still at it, using every trick in the book to keep a beloved tale out of the public domain, where it firmly belongs. Along the way the pair have stiffed multiple law firms, and currently are abusing a Bankruptcy Court in Pennsylvania in a Hail Mary effort to…well, it’s not exactly clear what they’re trying to do.” The continuing saga of Buck Rogers and the Copyright Trolls, by Rogers Anthony, via boing boing
• Covenant-Lite – Subprime Auto:  “Given the lack of triggers and the growing popularity of B rated classes in subprime auto loan ABS, the market is bearing similarities to the speculative corporate bond market where covenant-lite structures are abounding.” Investors Dive Deep Into Riskiest Subprime Debt, via Bloomberg / Newsmax Finance
• Dairy Farm Distress – Small Farmer Squeeze:   “Many of the Kentucky dairy farmers who sold their milk to Dean Foods have not yet found anyone else to buy it instead. They are just the latest of more than 42,000 dairy farmers who have gone out of business since 2000, casualties of an outdated business model, pricey farm loans and pressures from corporate agriculture. There were nearly 650,000 dairy farms in the U.S. in 1970, but just 40,219 remained at the end of 2017. . . . Walmart’s decision to build its own milk processing plant highlights another issue for farmers. In a trend extending to the 1970s but ramped up over the past decade, corporate agriculture is increasingly taking control of all stages of milk production. Best advice to U.S. dairy farmers? ‘Sell out as fast as you can’: Small-dairy farmers are getting squeezed out by corporate agriculture. “That is not what America is about,” a struggling farmer said, by Phil McCausland at NBC News
• Yield Curve – Flattening Signal:  But fear not, the author concludes: “Yes a flattening yield curve is a bad sign, but remember it takes on avg ~18 mos from when the yield curve inverts to when the econ. actually goes into recession, w/stocks historically rising along the way.” The Flattening Yield Curve Spells Doom, by dkorth@finsum.com, via Nasdaq

LAW RELATED NEWS & ARTICLES:

• Accountant Malpractice – Confidential Settlements – FDIC Exception:  Excellent reporting here by Francine McKenna. (Also, much appreciate the shout-out!) Multimillion-dollar award against PwC is window into typically secret auditor settlements: FDIC can’t agree to confidential settlements, so public now knows about record $625 million award, unlike many previous deals, viaMarketWatch
• Credit Default Swaps – Controversial Trades:  “Shah’s pioneering complex trades have shaken the $10T market for credit default swaps to its core, leaving a trail of at least 3 three lawsuits & recriminations among the world’s largest private equity groups & some powerful names in finance.” The mystery trader who roiled Wall Street: Former Blackstone executive used complex credit derivatives to become a feared hedge fund manager but left behind a trail of recriminations, by Miles Johnson and Robert Smith, via Financial Times
• Defamation – Anoymous Posting:  ““Many high-level people in the industry have told [the plaintiff bringing the defamation action against the anonymous Instagram poster] that he will never work again unless he can publicly clear his name,” Hence the lawsuit. Instagram Account That Sought Harassment Tales May Be Unmasked, by Sapna Maheshwari at The New York Times
• IPO, Venture Capital & M&A Update:  “WilmerHale’s annual IPO, Venture Capital and M&A Reports offer insights into market conditions and provide comprehensive statistics and analysis that are hard to find elsewhere. The 2018 IPO Report offers a detailed IPO market review and outlook, plus useful market metrics and articles on topics of interest. The 2018 Venture Capital Report offers an in-depth US venture capital market review and outlook, including industry and regional breakdowns. The 2018 M&A Report provides a detailed global M&A market review and outlook. Each report also includes a center spread highlighting prominent recent transactions in each area and company counsel rankings from independent sources.” WilmerHale 2018 IPO, Venture Capital And M&A Reports, via Mondaq
• M&A – Controlling Shareholder – Extraction of Special Benefits: “This is an important decision because it reconciles prior case law regarding when a claim is direct and not derivative and thus survives a merger. When a controlling stockholder uses its power to approve a merger while extracting special benefits for itself, it deprives the other stockholders of a benefit they would have received in the transaction. Hence, a claim arising out of this type of situation is one belonging directly to the minority stockholders and it survives closing.” Court Of Chancery Explains When Claim Is Direct And Survives A Merger,by Albert Carroll and Ed McNally of Morris James LLP, via JD Supra

LIFE, BUSINESS, AND THE WORLD GENERALLY:

• Community Colleges – New Tech Talent Incubators:  “Long stigmatized as ‘junior,’ community colleges might seem like an unlikely source of talent for major tech companies Yet, increasingly, some of the biggest tech giants are turning to these two-year schools to find the skilled workers they desperately need.” Big Tech’s Hot New Talent Incubator: Community College: As student debt mounts and a shortage of skilled workers persists, students find their local two-year institution could be a lower-cost shortcut to a good job, by Christopher Mims at The Wall Street Journal
• Equity Funds – Outflows:  “The deterioration in risk appetite evident in equity fund outflows is also illustrated by rising demand for US T-bills. BofA-Merrill Lynch noted that allocations to Treasury bills among its private client allocations had surged to a 10-year high.” Huge equity funds outflow has awkward echoes of 1998 Asian crisis: Trade war fears spark second-largest weekly withdrawal since turn of the century, by Chris Flood at Financial Times
• Fracking Revolution – Origins:  “Twenty years ago this month, a well was drilled here that changed the world. Nothing at the time suggested the unassuming well in this rural town north of Fort Worth would hobble OPEC, the powerful oil cartel that had governed prices of the world’s most important commodity for more than a generation. Or that it would help turn the U.S. into a global energy exporter, or shuffle the geopolitical deck. But it did all of that—and more. The well used hydraulic fracturing to crack the incredibly tight shale rocks below. The Texas Well That Started the Fracking Revolution: Two decades ago, an engineer tried a new way to get gas out of the ground. Energy markets and global politics would never be the same, by Russell Gold via The Wall Street Journal
• Natural Disaters – AI Predictions:  The AI tool predicted storm severity & locations that would be hardest hit, so Hydro One knew where to position 1,400 front-line staff needed to restore power & handle approximately 130,000 customer calls that came in during the outage.” AI Helps Cities Predict Natural Disasters: New tools aim to forecast storm and earthquake damage, improving emergency response, by Aili McConnon at The Wall Street Journal
• Private Equity – Japan:  “This time last year, Japan’s biggest tech deal became a tug of war between four private equity groups. The biggest surprise was that nobody seemed too bothered. Japan’s private equity taboo, said one of the four, had finally lifted. When the prize was eventually seized by a consortium led by Bain Capital​ — a deal with a record-breaking price tag of $20bn including debt — it was indeed tempting to stamp the moment as a turning point for Japan.” Private equity moves into the mainstream in Japan: The $20bn sale of Toshiba Memory to a Bain-led consortium was seen as a turning point, by Leo Lewis and Kana Inagaki, via Financial Times
• Smart Earbuds – Foreign Language Translation:  “Five years, countless classes and ten visits to Moscow later, I still claim a distinctly below-average capacity for the Russian tongue and its dense, foreboding components. To fill these gaps ahead of my next adventure abroad, I turned to technology.” Can Smart Earbuds Instantly Translate Foreign Speech?: Eavesdropping earbuds can translate dozens of languages and dialects in real time. But how well do they actually work? We put them to the test, by Dylan Love at The Wall Street Journal

©2018, Steve Jakubowski