Links for Restructuring Professionals to Key Cases, Articles, and News Briefs for June 2018 (Part VI, Final)

Here’s an aggregation of 49 of my Twitter posts from the last week of June 2018, with links to important cases, articles, and news briefs that restructuring professionals should find of interest. Don’t hesitate to reach out and contact me to discuss any posts, and thank you for reading!

BK RELATED CASES:

• 363 Sale – Successor Liability – Chrysler – BK-SD-NY:  Claim versus New Chrysler can proceed for “conduct-based negligence & failure to warn claims” based on a 2015 post-sale accident in a 2004 Durango manufactured pre-sale was not barred by the Sale Order and Amended Master Transaction Agreement (“MTA”). “The Motion mischaracterizes the [Sale Agreement] MTA and attempts to draw a distinction between ‘conduct-related’ liabilities and ‘product-related’ liabilities that is not supported by the language of the Amended MTA.” In re Old Carco LLC
• 363 Sale – Successor Liability – Withdrawal Claims – ND-IL:  Court dismisses as moot under BK Code Sec. 363(m) an appeal of an unstayed 363 sale order where the sole objective of the appeal was to allow the appellant to assert successor withdrawal liability claims against the Buyer. In re Central Grocers Inc
• Avoidance Actions – Fictitious Profits – Recap of the Law – BK-SD-NY:  Court provides a primer on the law in rejecting arguments from certain Madoff customers that they gave “value” within the meaning of BK Code Sec. 548(c) in exchange for their withdrawal of fictitious profits. Securities Investor Protection Corporation v Bernard L Madoff Investment Securities
• Claims Purchases – Anti-Assignment Clause Effect – BK-D-DE:  Anti-assignment clause in promissory note was legally valid and so voided the note transfer. Further, Debtors’ breach of the Notes didn’t render anti-assignment clause unenforceable: a non-breaching party can’t emerge post-breach w/more rts than it had pre-breach. In re Woodbridge Group of Companies LLC
• Claims Purchases – Standing – Timing of Transfer – 5th Cir:  Debtor’s owner, who purchased a claim in order to obtain standing after the BK Ct entered an order appointing special counsel that would pursue the owner on veil piecing theories, lacks standing to object on appeal. He can’t belatedly claim creditor status & get standing retroactively. In re Technicool Systems Incorporated
• Mineral Leases – Prepetition Settlement – Protection Through 544(a) Powers – 5th Cir:  Debtor’s mineral lease, ratified in settlement prepetition, can’t be dissolved for nonpayment of amounts due under the settlement agreement since: the public record shows that the consideration had been fully paid; no 3d party was placed on notice of the remaining payments due; BK Code Sec. 544(a) vests in the debtor the rights of a third party as bona fide purchaser. Matter of Goodrich Petroleum Corporation
• Removal – Party Requirement – Requirement of Service – BK-ED-NC:  If a debtor seeking removal hasn’t been formally served, then it’s not a “party” to the state court suit per 28 USC § 1452 and so removal is improper since the Court can’t permit circumvention of the requirement that only a proper “party” may remove a state action to federal court. Problem here was that although everyone knew the plaintiff meant to sue the debtor, the service was on a DE corp with the same name as the FL corp that should have been named and served. In re Providence Wireless LLC
• Unjust Enrichment – Pleading Requirements – BK-SD-NY:  Unjust enrichment claim dismissed where the complaint fails to allege that the buyer under the APA received any benefits for which it didn’t pay, even though it purchased assets from the debtor and “goodwill” from the owners (which itself was a challenged transfer). In re The Moyer Group Inc

INTERESTING CASES FROM ILLINOIS COURTS & THE UNITED STATES SUPREME COURT:

• Chevron Deference Reconsidered – SCOTUS:  Concurring and dissenting ops by Justices Kennedy and Alito, respectively, show they are troubled by the impact of the Court’s decision in Pereira on the “now increasingly maligned” Chevron decision. Per Chevron, Justice Alito writes, “if a federal statute is ambiguous & the agency that is authorized to implement it offers a reasonable interpretation, then a Ct is supposed to accept that interpretation.” For his part, Justice Kennedy is troubled by Chevron’s “reflexive deference.” Pereira v Sessions
• Extraterritoriality – US Statutes – SCOTUS:  The Court reviews the 2-step approach to deciding questions regarding the extraterritoriality of a statute. This is a significant case for attorneys representing a trustee seeking extraterritorial application of US BK laws in avoidance actions. WesternGeco LLC v ION Geophysical Corp
• Infringement – Shotgun Litigation – ND-IL:  Litigation strategy of suing an alleged software patent infringer’s unsuspecting customer is stayed indefinitely until the main infringement case against the software developer is disposed of. Mantissa Corporation v Old Second Bancorp Inc
• Prevailing Party – Fees and Costs Distinguished – IL-AP-2d:  Payment of court costs by a party seeking to voluntarily dismiss its claims is routine and was (i) uncontested by plaintiff and (ii) not a significant issue in the litigation between the parties. But to be a “prevailing party” for purposes of recovering fees, the party must have achieved success on a significant issue. Thus, the award of costs to the defendant does not show that it was the prevailing party in the litigation.  Tanna Farms LLC v Golfvisions Management Inc
• Restraint of Trade – Credit Card Anti-Steering Provisions:  US failed to prove anticompetitive effects merely by showing an increase in merchant fees. Its focus on just one side of a two-sided market meant that it failed to show that prices as a whole were greater than expected in a competitive market. Ohio v American Express Co
• Restrictive Covenants – Confidential Information:  Complaint for misappropriation by former employees of confidential information survives motion to dismiss, with the Court stating: “Whether restrictive covenants are enforceable depends on the specific facts and circumstances of the individual case, . . . including “the near permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions.” Apex Physical Therapy LLC v Ball
• Stare Decisis – SCOTUS:  Wayfair is a very interesting read. The pillars of stare decisis are crumbling in the cyber age, with the Court stating: “When it decided Quill, the Court could not have envisioned a world in which the world’s largest retailer would be a remote seller.” South Dakota v Wayfair Inc
• Statutory Interpretation – “Under” – SCOTUS:  “For purposes of statutory interpretation, the word ‘under’ is a chameleon that must draw its meaning from its context.” Here, under the Illegal Immigration Reform & Immigrant Responsibility Act of 1996, it means “in accordance with” or “according to.” Pereira v Sessions
• Textualists vs. Contextualists – SCOTUS:  The philosophical battle between textualists and contextualists is in fully display here as Justices Gorsuch and Breyer respectfully snipe at the flaws in the other’s use of the “traditional tools of statutory interpretation.” Wisconsin Central Ltd v US
• Tortious Interference – Injunctive Relief – ND-IL:  Preliminary injunction issued on a tortious interference claim asserting that Party “A” breached an agreement that that Party “B” induced the breach. “A” initially refused to sell Party “C”s sinks to “B” because another party had the rights to the sink. “B” was displeased with “A”s decision & insisted on getting the sinks whose design he had seen. “A” subsequently crafted a virtually-identical sink to sell to “B”. Empire Industries Inc v Winslyn Industries LLC

BK RELATED NEWS & ARTICLES:

• 363 Cat(hy) Fights:  Interesting fight with Cathy Hershcopf  leading the Committee and concerned that (i) marketing efforts would lose precious time over the long July 4th holiday period, making it difficult ‘to get a fresh start’ for bid solicitation and (ii) the company and some creditors are “too close to Apollo & supportive of the RSA.” Claire’s Revises Ch. 11 Bid Scheme After Criticism, by Jeff Montgomery at Law360
• Dairy Collapse – Lost Valley Farm:  Looks like game-set-match for this dairy. Very sad for the workers and the animals. Waste permit revoked for controversial Oregon dairy: The Oregon Department of Agriculture and Department of Environmental Quality have revoked the waste management permit for Lost Valley Farm, by George Plaven at Capital Press
• Farm Distress – Both Lenders and Borrowers: “A farmer told me he’s contemplating BK. On top of that, his local bank is over-extended on ag loans, putting it in hot water with federal regulators. . . . This has far wider implications than just what’s going on with the dairy farms,” Already in trouble, Wisconsin dairy farmers are now getting hammered by tariffs, by Rick Barrett at Milwaukee Journal Sentinel
• FTI, Lakeside, and Unaddressed Questions: Outstanding article by Prof. Bruce Markell (formerly BK-NV) examining the elephants in the room for which the dogs aren’t barking in article entitled. Especially interesting is Prof Markell’s analysis of the effect of FTI on the collapsing doctrine in avoidance actions. He writes: “The problem, along the theme of this piece, was silence. They never mentioned collapse or focused on conduits. Which theory was the Court following?” He concludes: “In both FTI and Lakeside, the Court elected to prefer silence over clarification. The two opinions leave unresolved major issues involving key concepts: the definition and application of ‘transfer’ in FTI; and the definition of “insider” in Lakeside.” The Dogs That Didn’t Bark: FTI, Lakeside and Unaddressed Questions, by Hon. Bruce A. Markell, via Bankruptcy Law Letter
• IP Auctions in Bankruptcy:  Here’s a well done 26 page newly minted chapter on acquiring intellectual property assets in bankruptcy. Understanding the Special Protections Afforded Intellectual Property Licenses in Bankruptcy, by Mark Salzberg and Grace King of Squire Patton Boggs, via eSquire Global Crossings Blog
• Second Lien Loans – A Covenant Lite Alternative:  Some US companies (e.g., Assurion, MGM) are raising capital through 2d-lien loans instead of cheaper high yield bonds due to the flexibility of yield-hungry investors. They have covenant-lite terms, but allow private equity sponsors to repay at will, unlike bonds that offer investors call protection. US second-lien – first choice?, by Jonathan Schwarzberg at Reuters
• Selling Shmatas in “Bargain Basements”: A nice review, tracing Edward Filene’s and Frieda Loehmann’s roots in the shmata business, which led to most dept stores having “bargain basements” and discount outlets for defective, overproduced or cancelled orders. How long can the off-price retail party go on?: The discount sector is still hot, but a good economy, the pressure to sell online and the decline of department stores bring new challenges, by Daphne Howland via Retail Dive
• Student Debt Forgiveness – Tax Consequences:  Private-sector workers under the income driven repayment plans pay for 20-25 yrs and remaining balance is forgiven, but tax law treats that disappearing debt as cancellation of indebtedness income for that given year, and it is taxed as such. Student-Debt Forgiveness Is a Wonderful Boon, Until the IRS Comes Calling: Education analysts, student advocates warn of impending crisis from one-time tax bills individuals may not be prepared to pay off, by Josh Mitchell at The Wall Street Journal

LAW RELATED NEWS & ARTICLES:

• Civility in the Courtroom:  “Judge Cott didn’t resolve any of the disputes . . . but admonished the attorney for cutting each other off, saying, ‘One thing I can’t abide is ad hominem attacks. I’m a very patient person, except when lawyers do what you were starting to do.’ ” Mud Slung In Conflicts Suit Against Madoff Victims’ Lawyer, by Jack Newsham at Law360
• Collateral Transfers – 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
• Covenant Lite – Incurrence Covenants:  “Covenant-lite credits feature incurrence covenants, meaning an issuer must meet financial tests only if it wants to take particular actions (e.g., paying dividends to the private equity owner). Their acceptance in the global leveraged loan market has soared in recent years.” Leveraged Loans: Cov-Lite Volume Reaches Yet Another Record High, via LeveragedLoan.com
• D&O Insurance – Allocation Clauses:  On the policyholder-side, insurers are relying on these clauses more & more as an excuse to pay only a small fraction of the defense in mixed-claim cases (i.e., suits involving both clearly covered claims and claims that the insurer contends are not covered). Allocation Clauses in D&O and E&O Policies – Traps for the Unwary, by Peri Mahaley of Pillsbury Winthrop Shaw Pittman LLP via Lexology
• Fiduciary Duties – Directors – Flawed Capital Structure: “The Delaware Court of Chancery issued a post-trial decision determining that a director who refused to cooperate in remediating flaws in the company’s capital structure breached his fiduciary duty of loyalty and owed damages to the corporation.” Delaware Court of Chancery Addresses Technical Defects in Equity Issuances, Ratification of Defective Acts, and Related Fiduciary Duty Issues, by John Aguirre, Nate Emeritz, Ryan Greecher, Julia Reigel, and Amy Simmerman of Wilson Sonsini Goodrich & Rosati, via JD Supra
• “Foldering” in the Electronic Age:  “He made an email account and shared the password. He wrote messages but saved them as drafts, never sending actual emails. Other guys open the draft, read it, delete.” ‘Foldering’: In the Manafort Case, an Old Spy Trick Enters the Digital Age: The practice, one of the alleged ways that the former campaign chairman was secretly communicating with potential witnesses, has ties to the Cold War, by Ben ZImmer at The Wall Street Journal
• Journalists – Advice of Counsel Defense: “The New York Times is reviewing her decision, on advice of counsel, not to immediately tell her editors about a letter she received in Feb. that her records had been seized. That seizure was alarming to First Amendment advocates.” How an Affair Between a Reporter and a Security Aide Has Rattled Washington Media, by Michael Grynbaum, Scott Shane, and Emily Flitter at The New York TImes
• Minority Shareholders – Control: “Another decision where the Chancery Ct had to decide if a less than 50% stockholder controlled the corporation. This is important because a controller has fiduciary duties & the intrinsic fairness test apples to the review of any transaction involving that controller.” Court Of Chancery Explains Who Is A Controller, by Ed McNally of Morris James LLP, via JD Supra
• SCOTUS and the Regulatory State: “The Kagan and Kennedy opinions, then, are useful reminders that one need not be an arch-conservative to see flaws in modern administrative law. Both Chevron deference and the ALJ structure reflect old attempts to strike balances.” Regulatory State Has a Bad Day in Court: Opinions from Justices Kagan and Kennedy speak to the need to restore constitutional constraints, by Adam White at The Wall Street Journal
• Stretching Vendor Terms – PACA Implications:  Kroger’s terms “invalidate the seller’s trust rights under PACA to be a priority creditor in the event of a buyer bankruptcy or insolvency” per Matt McInerney, Senior Executive Vice President at Western Growers. Kroger’s new payment policy could violate federal law: By implementing new 90-day payment terms, Kroger might be violating Perishable Agricultural Commodities Act, says California Fresh Fruit Association, via Supermarket News

LIFE, BUSINESS, AND THE WORLD GENERALLY:

• AI Wargames – Child’s Play:  These advances in AI wargames is the rapidly-becoming universal following among kids in the US and China is why these two countries will dominate future assessments of military capabilities Video games that mimic the real world pose next hurdle for AI: Winning at Go is one thing, but mastering complex player narratives is another level, by Richard Waters at Financial Times
• Banality of Evil – Digital Version:  People’s capacity for creatively infllcting evil is the stuff movies–and tragedies–are made of. Thermostats, Locks and Lights: Digital Tools of Domestic Abuse, by Nellie Bowles at The New York Times
• Bernie Lewis’ 2010 Predictions – Turkey & Iran: “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.” Prof. Lewis is sure looking right about Turkey. Bernard Lewis: The great scholar of the Middle East predicted its recent convulsions, by the Editorial Board at The Wall Street Journal
• Boom Times – Financial Engineering:  Some informative charts in this article. “Today’s economic boom is driven not by any great burst of innovation or growth in productivity. Rather, it is driven by another round of financial engineering that converts equity into debt.” The ‘mother of all credit bubbles’ is brewing — and this time it isn’t household debt: Corporate America has transformed itself into one giant leveraged buyout, by Steve Pearlstein at the Washington Post, via Financial Post
• China – E-Commerce Platform Liability – Fake or Substandard Goods:  The law would hold e-commerce platforms (Alibaba, JD.com, Tencent) liable for fraudulent goods sold by vendors on their sites. This is a shift in approach to the country’s $1T e-commerce market, plagued by the fake or substandard products. China to make ecommerce groups accountable for fake goods: Sweeping law would make Alibaba and JD.com responsible for merchant fraud, by Emily Feng at Financial Times
• China – Outbound Investment in US:  “Chinese investment totaled only $1.8B between January & May. That’s a 92% drop compared to the same period in 2017, and the lowest level in seven years, according to a report released Wed by Rhodium Group. ‘The pipeline has dried up, very quickly.’ ” Chinese investment in the United States has plummeted 92% this year, by Julia Horowitz, via CNN Money
• Health Care – The Amazon Way:  “I have devoted my public health career to building scalable solutions for better healthcare delivery,” Dr Gawande said. “This work will take time but must be done. The system is broken, and better is possible. Atul Gawande, a surgeon injecting humanity into US healthcare: He has been chosen to lead an Amazon venture that may reform a $3tn industry, by Anjana Ahuja at Financial Times
• Hospitality Industry – An Employment Engine:  “The hospitality industry had 844,000 unfilled positions in April, a record high. That accounts for about one out of every eight jobs available in America. The 6% unemployment rate for restaurant workers is the lowest on record,” Short of Workers, Fast-Food Restaurants Turn to Robots: Flippy the burger chef doesn’t complain about the drudgery of grill work and never leaves the kitchen, by Julie Jargon & Eric Morath at The Wall Street Journal
• Investing – Value and Momentum:  “The 2 clearest factors for long-term outperformance are value & momentum. Value has done badly throughout the post-crisis recovery period. The result has been for momentum to take an even greater lead, a phenomenon intimately tied up w/the FAANGS.”  Equity investing in 2018 is all about momentum led by the Faangs: Popular stocks gets ever stronger while unloved cheap stocks grow cheaper, by John Authers via Financial TImes
• Music Streaming – Metrics for Success:  “This race among music services is far from over, though. It won’t be decided by the largest library or the most exclusive content—or even the best app. It’s a battle of intelligence: curation and personalization, voice recognition and search.” Spotify, Amazon, Apple or YouTube? The Streaming-Music Showdown: Streaming apps are vying for your money, each offering millions of songs. Here’s how to pick the best one, by David Pierce at The Wall Street Journal.
• Office Leases – Revenue-Sharing Model:  WeWork relies on revenue-sharing leases to resolve the significant mismatch between the unreliability of its income stream based on short term leases and rent it promises to its landlords. The rise of the revenue-sharing lease should be watched closely. How WeWork’s revenue-sharing leases could affect property investors: For any property investor, the US group’s business model is something that should be watched closely, by Aime Williams at Financial Times
• Oprah Winfrey – Weighing Investment Returns: “In Oct 2015, she made a $43m investment in Weight Watchers, an increasingly beleaguered company at less than $7 per share, joined its board, and lent her brand to its marketing. Last week, its stock hit $101, a 1,400 per cent rise since Ms. Winfrey bought in.” Oprah’s Weight Watchers bet leaves Wall Street pros trailing: Billionaire entrepreneur’s decision to buy shares in dieting company has proved lucrative, by Chloe Cornish via Financial Times
• Rising Interest Rates and the Flawed Phillips Curve:  “Reflecting on the current state of the world it seems that the most relevant yrs are 1928-33. A FED that gives credence to a flawed Phillips Curve is prone to err by raising rates during contracting global liquidity & tepid growth.” Notes from the Underground: Are We Reliving 1930?, by Lincolnwood’s Yra Harris, via Notes From the Underground Where 2+2=5 Is Also a Beautiful Thing Blog

©2018, Steve Jakubowski