December 2017 • Vol. XXXVI, No. 12
The Essential Resource for Today’s Busy Insolvency Professional
Making Chapter 12 More Viable for Family Farmers page 12
By Jeffrey Coe
On the Inside Amended Federal Rules Effective Dec. 1, 2017 page 20 By Una M. O’Boyle
Winter Leadership Conference Exhibitor and Sponsor Directory page 42
L C ea Wi o d nt n e e f Is er rs r s e hi u n p e c e
The Investigation of Financial Statements for Fraud page 32 By Boris J. Steffen
First Glance In This Issue 12
Problems in the Code
14
Last in Line
20
Clerk Commentary
16
Affairs of State
32
Value & Cents
22
Intensive Care
24
Straight & Narrow
28
Lien on Me
34
On Our Watch
36
Dicta
38
Chapter 8 Humor
Making Chapter 12 More Viable for Family Farmers By Jeffrey Coe
Third Circuit Applies Plain Meaning to “Receipt” Under § 503(b)(9) By Bruce S. Nathan and Scott Cargill
Amended Federal Rules Effective Dec. 1, 2017 By Una M. O’Boyle
Domestic-Support Exceptions to the Automatic Stay Are Not as Clear-Cut as They Appear in Chapter 13 Cases By Elizabeth L. Gunn
The Investigation of Financial Statements for Fraud By Boris J. Steffen
42
For Kings and Creditors: False Claims Liability in Bankruptcy Cases Filed by Health Care Organizations By Cullen D. Speckhart and Richard T. Arrowsmith
Winter Leadership Conference Exhibitor and Sponsor Directory
In Every Issue
Benchnotes Legislative Update Legislative Highlights ABC Insights Inside ABI Board of Directors/Past Presidents
6 8 10 40 52 96
Advertiser Index AlixPartners LLP..............................................................15 ASK LLP...................................................Inside Front Cover Blackhill Partners, LLC......................................................9 Cedar Croft Consulting Ltd...............................................37 Conway MacKenzie...........................................................1 CourtCall LLC..................................................................27 Deloitte Financial Advisory Services LLP.........................11 Development Specialists, Inc...........................................23 Donlin, Recano & Company, Inc.......................................17 EisnerAmper LLP.............................................................19 Gavin/Solmonese LLC.......................................................7 GCG...............................................................................31 Goodmans LLP................................................................29 Grant Thornton LLP.........................................................21 Hilco Global.......................................................Back Cover KCC.........................................................Inside Back Cover National Automotive Brokerage Services.........................35 New Generation Research Inc..........................................41 PricewaterhouseCoopers LLP.............................................3 Saul Ewing Arnstein & Lehr LLP.....................................39 Shaw Fishman Glantz & Towbin LLC...............................25 Willamette Management Associates, Inc.........................33 Wilmington Trust...............................................................5 2 December 2017
How Teams Can Help (or Hurt) You When It Comes to Ethics By Prof. Nancy B. Rapoport Keeping Consigned Merchandise Away from a Consignee’s Creditors By Anne M. Aaronson Why Marijuana Assets May Not Be Administered in Bankruptcy By Clifford J. White III and John Sheahan Did You Really Just Say That? Listening and the Art of Advocacy By Hon. Frank J. Santoro There and Back Again: Perspectives on Practicing Law While Parenting By Joseph Boufadel
Features 18
Media Debtors, Take Note: Gawker Court Keeps Defamation Suit and Rejects Application of SLAPP Statute By Mark A. Salzberg and Peter R. Morrison
26
Considerations in Evaluating LLC Operating Agreement Constraints on Voluntary Filings By Cecily A. Dumas and David S. Forsh
30
Management Incentive Plans Under a Microscope By Brian M. Resnick, Ron M. Aizen and Adam L. Shpeen
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Benchnotes By Aaron M. Kaufman, Paul R. Hage and Patrick A. Clisham Substantive Consolidation Approved for Voting and Distribution Purposes
T Coordinating Editor Aaron M. Kaufman Dykema Gossett PLLC Dallas
Coordinating Editor Paul R. Hage Jaffe Raitt Heuer & Weiss, PC Southfield, Mich.
Coordinating Editor Patrick A. Clisham Engelman Berger, PC Phoenix Aaron Kaufman is a member of Dykema Gossett PLLC in Dallas. Paul Hage is a partner with Jaffe Raitt Heuer & Weiss, PC in Southfield, Mich. Patrick Clisham is the managing shareholder of Engelman Berger, PC in Phoenix.
he debtors in ADPT DFW Holdings LLC 1 were comprised of 140 entities engaged in the business of operating five hospitals and 99 free-standing emergency rooms throughout the U.S. At issue was whether the bankruptcy court could confirm the debtors’ joint plan, which would substantively consolidate the 140 entities for voting and plan-distribution purposes, even though the reorganized debtors intended to maintain their corporate separateness following confirmation. Hon. Stacey G. C. Jernigan of the U.S. Bankruptcy Court for the Northern District of Texas approved the plan, including the proposed substantive consolidation of the 140 debtors. In so ruling, the court reiterated that “substantive consolidation” is a judicially created doctrine grounded in principles of equity. While many courts have utilized various iterations of similar multi-factored tests, the court relied principally on two decisions from the Second and Third Circuits, which reduced the multi-factored standard down to two critical elements. Under the Second Circuit’s Augie/Restivo standard, substantive consolidation can be approved if (1) the creditors dealt with the entities as a single economic unit and did not rely on their separate identities in extending credit, or (2) the affairs of the debtors are so entangled that consolidation would benefit all creditors.2 Similarly, under the Third Circuit’s more recent Owens Corning standard, consolidation can be approved if (1) pre-petition, the debtors disregarded separateness so significantly that their creditors relied on the breakdown of entity borders and treated them as one legal entity, or (2) post-petition, the debtors’ assets and liabilities are so scrambled that separating them would be prohibitive and hurt all creditors.3 Turning to the record presented, the court noted that the overwhelming and uncontroverted evidence showed that substantially all creditors viewed the 140-entity debtor enterprise as a single economic unit. Of the 140 entities, 80 were borrowers on the pre-petition senior secured loan facility, while the other 60 either had limited or effectively no assets or operations. Post-petition, all 140 entities were liable under the post-petition debtor-in-possession facility. The court was persuaded by the uncontroverted evidence that “the liabilities and contracts of the Debtors were ‘a tangled mess’ to try to unsort,” and concluded that “separating the Debtors would 1 2017 Bankr. LEXIS 3326 (Bankr. N.D. Tex. Sept. 29, 2017). 2 See In re Augie/Restivo Baking Co. Ltd., 860 F.2d 515 (2d Cir. 1988). 3 See In re Owens Corning, 419 F.3d 195, 211 (3d Cir. 2005).
6 December 2017
be prohibitive and [would] hurt all creditors.” Moreover, the court noted that “[t]here was no evidence of prejudice to any particular creditor. None whatsoever.” Finally, the court explained that it was irrelevant that the debtors only proposed consolidation for plan purposes, noting that “[n]o reported cases have singled this out as a special circumstance that would impact either negatively or positively the substantive-consolidation analysis.” Thus, based on the extensive record supporting the Augie/Restivo and Owens Corning factors, the court concluded that substantive consolidation was appropriate, even if only for plan-voting and distribution purposes.
Bankruptcy Filing Fees Advanced by Debtor’s Counsel Not Reimbursable Post-Petition
In In re Riley, 4 Hon. John W. Kolwe of the U.S. Bankruptcy Court for the Western District of Louisiana considered whether the chapter 13 debtor’s prebankruptcy filing and credit counseling fees were reimbursable as § 503(b) costs in order to preserve the estate, or § 330(a) actual and reasonable expenses. The issue arose in the context of the debtor’s chapter 13 plan confirmation. Debtor’s counsel offered his clients a “no down payment” chapter 13, where he would pay his clients’ filing fees and credit-counseling fees. Then, post-petition, counsel sought to be paid a standard “no-look” fee for the chapter 13 case, in addition to reimbursement of the $367 advanced for filing and creditor-counseling fees. Judge Kolwe denied the additional expenses as part of the “no-look” fee for two reasons. First, the court held that the advances were not reimbursable as “actual, necessary costs of preserving the estate” under § 503(b)(1)(A) because the filing and creditcounseling fees were incurred pre-petition as a condition precedent to the debtor-clients being able to file their respective cases. The court concluded that these pre-petition advances “were made to fulfill obligations of the Debtor personally, not obligations of her estate.” Second, the court was unpersuaded that such expenses could be reimbursable under § 330(a) as a necessary expense incurred by the debtor’s professional. The court noted that § 330(a)(4)(B) was added to the Bankruptcy Code in 1994 as part of the Bankruptcy Reform Act, following Lamie. Under that provision, a court is only authorized to pay a chapter 13 attorney “compensation” without a specific provision authorizing expenses. The court con4 2017 Bankr. LEXIS 3299 (Bankr. W.D. La. Sept. 29, 2017).
ABI Journal
cluded that this provision, when read in conjunction with the local standing order authorizing a “no-look” fee for chapter 13 professionals, does not authorize counsel to include expense advances as part of its compensation under §330(a). Accordingly, the court denied counsel’s request for reimbursement of these expenses.
Miscellaneous
• In re Xenon Anesthesia of Tex., 2017 U.S. App. LEXIS 20167 (5th Cir. Oct. 16, 2017) (court affirmed dismissal of a claim objection due to lack of standing; former equityholder transferred his interests in the debtor to comply with prebankruptcy state court judgment; upon transferring his equity interests, former owner also withdrew his proof of claim, but then objected to another creditor’s proof of claim; claimant moved to dismiss, which bankruptcy court granted; Fifth Circuit affirmed, concluding that res judicata barred re-litigation of validity of purchase agreement, and that without enforceable claim or equity interest, former owner was no longer “party-in-interest” with standing to object to claims); • Rosenfeld v. Rosenfeld (In re Rosenfeld), 2017 U.S. App. LEXIS 19649, 2017 WL 4461037 (6th Cir. Oct. 6, 2017) (ex-husband sued to deny ex-wife’s discharge under § 727(a), arguing that she was using bankruptcy system to avoid contempt judgment from state court; Sixth Circuit affirmed dismissal of dischargeability complaint, stating that “[e]v en if Amy owed debts to Joel, if those debts were nondischargeable (as the bankruptcy court held that
ABI Journal
they would be under 11 U.S.C. § 523[(a)(15)], a conclusion that Joel does not now challenge), then Joel has no personal stake in whether Amy receives a discharge in bankruptcy.... Joel’s claim that creditors at large, the federal judiciary, or the American people have an interest in denying Amy a discharge is a hornbook example of a generalized grievance”); • In re Millennium Lab Holdings II LLC, 2017 Bankr. LEXIS 3419 (Bankr. D. Del. Oct. 3, 2017) (after approving third-party releases as essential part of confirmed chapter 11 plan, certain creditors appealed; district court remanded for ruling on constitutional authority; bankruptcy court concluded that it had both statutory authority to confirm a chapter 11 plan and constitutional authority to approve third-party releases as essential components of that plan; in so ruling, court relied on several post-Stern decisions, including (but not limited to) In re Lazy Days’ RV Center Inc., 724 F.3d 418 (3d Cir. 2013), where Third Circuit recognized constitutional authority to enter orders on quintessential bankruptcy matters, even where those orders directly or indirectly impact Stern-like state court actions; in this case, bankruptcy court held that Stern did not prevent it from entering final confirmation order on plan that released claimants’ third-party RICO claims against nondebtor entities); • In re John Q. Hammons Fall 2006 LLC, 2017 Bankr. LEXIS 3565 (Bankr. D. Kan. Oct. 13, 2017) (despite bankruptcy case being filed on eve of state court trial, bankruptcy court denied plaintiff’s motion for relief from automatic continued on page 92
December 2017 7
Legislative Update By Joseph A. Peiffer1
Thirty Years of Asking, “Are We There Yet?” Congress Rights a Taxing Wrong in Chapter 12 Editor’s Note: For more on this topic, please read the article on p. 12. In addition, read p. 95 for excerpts of the law.
P Joseph A. Peiffer Ag & Business Legal Strategies, PC Cedar Rapids, Iowa Joseph Peiffer is the founder of Ag & Business Legal Strategies in Cedar Rapids, Iowa. He has represented farmers and creditors in chapter 12, and his practice is focused primarily on bankruptcy and debt restructuring. Mr. Peiffer is also certified in business bankruptcy law by the American Board of Certification.
resident Donald Trump signed H.R. 2266 on Oct. 26, 2017, now enrolled as Pub. L. 11572. Buried at the end of that law providing assistance for disaster relief is a significant change regarding how family farmers can utilize chapter 12 to de-prioritize tax claims, treating them as unsecured claims. It prevents tax authorities from blocking confirmation of chapter 12 plans. Understanding the seismic nature of this change requires reviewing the bankruptcy options available to family farmers beginning with the farm crisis of the 1980s. The 1980s were a time for family farmers not experienced since the Great Depression. Beleaguered family farmers (BFFs) shared their stories with Sen. Chuck Grassley (R-Iowa), relating that chapter 11 did not help them save their farms. The problems cited were the absolute priority rule,2 the expense of creditors’ committees and the two-part class votes.3 Chapter 12 was enacted in response during the waning hours of the 99th Congress in October 1986. Congressional staffers holed up in a conference room of the Hart Senate Office Building in Washington, D.C., with smoke billowing out the doors listening to various constituent groups make pitches for what should be included in the legislation.4 Chapter 12 went into effect in late November 1986.5 After its enactment, much like a child on a car trip, the BFFs were asking, “Are we there yet?,” referring to a workable bankruptcy solution to save their farms. Congress and the BFFs believed the answer to the question at that time was, “Yes.”
Chapter 12’s Tax Problem
Early chapter 12 cases raised a significant question: How would the income taxes occasioned by 1 The author thanks Susan M. Freeman of Lewis Roca Rothgerber Christie LLP, ABI Executive Director Sam Gerdano and Austin Peiffer for their valuable editing suggestions. 2 11 U.S.C. § 1129(b)(2)(B)(ii). 3 The confirmation requirement in a chapter 11 for approval from greater than half the class votes and more than two-thirds in amount of the creditors voting for the plan allowed a single undersecured creditor to defeat many farm chapter 11s. See 11 U.S.C. § 1126(c). 4 Requests by creditors’ groups to include a provision similar to § 1111(b) and shared appreciation were considered and discarded by the drafters in favor of a modified chapter 13 on steroids to help save the BFFs. Insight regarding the drafting of chapter 12 was provided by Sen. Grassley’s Judiciary Committee counsel, Mr. Gerdano. 5 Pub. L. No. 99-554, “Bankruptcy Judges, United States Trustee, and Family Farmer Bankruptcy Act of 1986.”
8 December 2017
the sale of farm assets by the BFFs both pre- and post-petition be satisfied? The sale of assets to “right-size” a farming operation during the case generated significant capital gains taxes payable as an administrative expense (a second priority).6 However, the BFFs did not have enough cash flow to pay the taxes in full. Consequently, the answer to the BFFs’ question became, “We’re not there yet,” and the plans were not confirmable. Given Congress’s rush to leave Washington, the drafters lacked the time to run the proposed legislation by the Senate Finance Committee to consider tax questions. Then, the 1986 election saw the balance of power in the Senate change parties. The new leadership had little desire to fix the leftover tax problem faced by the BFFs. Suggestions to address the problem included reducing the secured creditors’ claims to pay the tax claims — an approach that the bankers’ lobby rejected. From the enactment of chapter 12 until S. 260, when the Safeguarding America’s Farms Entering the Year 2000 Act was introduced by Sen. Grassley and cosponsors in early 1999, no bill had been introduced to address the problem. S. 260 resulted from a suggestion that the tax claims of the family farmer be de-prioritized.7 Congress’s solution was to add § 1222(a)(2)(A). Sen. Grassley’s judiciary aide was advised that the proposed language would not survive a U.S. Supreme Court review. The answer to the BFFs’ question next became, “I hope so.” S. 260 was incorporated in H.R. 833, the Bankruptcy Reform Act of 2000. During the spring of 2000 at a breakfast, Sen. Grassley answered questions of 30 people about H.R. 833 without notes. One attendee reminded him that many BFFs needed immediate relief from the tax burdens of “right-sizing” their operations. Sen. Grassley responded by instructing his judiciary staffer to change the bill making the tax provision effective upon enactment. Congress passed H.R. 833 by a veto-proof margin. Unfortunately for the BFFs, it was pocket-vetoed by then-President Bill Clinton due to unrelated issues. 6 11 U.S.C. § 507(a)(2). 7 De-prioritizing the tax claims was suggested by the author in December 1999. The legislative drafters were unwilling to consider allowing chapter 12 debtors to utilize a short tax year allowed by 26 U.S.C. § 1398(d), which would have ensured that post-petition tax claims would be administrative expense claims so they could be easily de-prioritized by changes to § 1222(a)(2).
continued on page 68
ABI Journal
Legislative Highlights Sen. Warren Fears Navient’s Role as Student Loan Servicer
S
en. Elizabeth Warren (D-Mass.) warned in early November that Navient, the nation’s largest student loan servicer, has positioned itself to potentially strip consumer protections from unwitting borrowers when offering products to refinance debt. She is alarmed about Navient’s recent acquisition of online lender Earnest, saying that the transaction opened up the possibility that the company will try to boost its profits by selling debtors on refinancing their current federal student loans with the company’s own private loans — the kind she says do not necessarily permit income-based repayment options. “So long as a student holds a loan that is a federal student loan, there is a public service loan-forgiveness loan program available, there are income-driven repayment options, there is a borrower defense if the college cheated the student — there are protections put in place,” Sen. Warren said. “But those critical federal protections disappear if the loan is refinanced and taken private. That could matter to many students whose loans are shifted from being federal loans to loans that are held privately.” Navient, based in Wilmington, Del., fired back, stating that under contract rules, they may not use Department of Education customer data for any marketing purposes. As a contractor, Navient services $300 billion of student loans for roughly 12 million Americans. In recent weeks, the company has been unabashed about the potential upside of moving beyond just servicing loans and into originating private student loans. The company, which had previously been part of Sallie Mae, has been under intensifying scrutiny after the Consumer Financial Protection Bureau (CFPB) filed a suit alleging a number of improper servicing practices, including excessive interest rates. During the CFPB’s litigation, Navient acknowledged that its top priority is not necessarily safeguarding borrowers. “The servicer acts in the lender’s interest,” the company declared in court filings. “There is no expectation that the servicer will ‘act in the interest of the consumer.”
Mortgages, Bill Collectors Among Top Complaints to CFBP from Service Members
Service member complaints to the CFBP about mortgage products ranked second by volume among all financial products, according to a report by the agency. Among service members, the top-five products by volume of complaints were debt collections at 39 percent, mortgages at 17 percent, credit or consumer reporting at 15 percent, and credit card and checking or savings, both at 7 percent. The CFPB said that it has handled more than 91,000 complaints from service members since 2011, or an average of 15,000 complaints per year. The CFPB classification includes service members, veterans and their families. According to the CFBP, factors related to the military careers of service members often complicate the challenges they face. Complaint data showed instances where the 10 December 2017
experience of service member families differed from that of non-service member families. Nationally, the CFPB analysis found that service members are more likely to submit complaints about debt collection when compared to nonservice members. Only 26 percent of all complaints from non-service members are about debt collection, compared to 39 percent for service members. Complaints by service members and their families show a range of problems with financial products and services, the CFPB said. For example, service members have complained about debt collectors calling their superiors about debts without authorization.
House Committee Hearing Focuses on PROMESA Board, Oversight of Contracts
Rep. Rob Bishop (R-Utah), chairman of the House Committee that created the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), called for tougher oversight of the “weird” no-bid contract between Puerto Rico and Whitefish Energy, as his committee investigated the work of the oversight board at a Nov. 6 hearing. He wants the independent financial oversight board created by Congress to work with the island’s government and other stakeholders to restructure more than $70 billion in debt. The Puerto Rico Electric Power Authority (PREPA) canceled the $300 million contract after criticism mounted over the terms of the deal and qualifications of the company. However, Democratic and Republican lawmakers have said that they will continue to probe the circumstances behind the contract, which contained an unusual clause that said it could not be audited or reviewed by government agencies. Rep. Bishop is focusing on the role of the financial oversight board in facilitating Puerto Rico’s recovery. The oversight board has said it would install an emergency manager to oversee PREPA. Puerto Rico Gov. Ricardo Rosselló has vowed to fight the appointment, which is in litigation in federal court. While criticizing the board for not being aware of the Whitefish contract, Rep. Bishop said that Puerto Rico’s government should not view the board as a threat to its sovereignty, but rather as an extra “eyes and ears” that can work with other agencies, including the Federal Emergency Management Agency and Army Corps of Engineers, in recovery efforts and ensure financial accountability. “One of the reasons Congress established [the board] is to ensure [that] there was someone there to review what is going on,” Rep. Bishop said. “Whitefish is a primary example. There [might] be a very good reason for having Whitefish. There are some things in there that are simply strange. The idea of the board now taking responsibility and reviewing that document as well as future contracts is positive. But separate entities have to work together and not be in an adversarial relationship.” Stay current on developments by visiting ABI’s “Puerto Rico in Distress” page at abi.org/PR-crisis. continued on page 95
ABI Journal
Problems in the Code By Jeffrey Coe
Making Chapter 12 More Viable for Family Farmers Editor’s Note: To read the legislative history of chapter 12, see the article on p. 8. For excerpts of the law, read p. 95.
C
Jeffrey Coe Mesch Clark Rothschild, PC; Tucson, Ariz. Jeffrey Coe is an associate with Mesch Clark Rothschild, PC in Tucson, Ariz.
ongress first enacted chapter 121 in 1986 to address a crisis in the farm economy that had been triggered by low commodity prices, declining land values and high interest rates.2 Due to a strong export market and high commodity prices, American farms expanded aggressively during the 1970s. Farm debt had also expanded, but was supported by steadily rising land values.3 By the early 1980s, however, overproduction caused crop prices to fall while expenses and interest rates remained high, resulting in operating losses and cash-flow problems that “drove many farmers to the edge of a financial cliff.”4 During the farm economy crisis of the 1980s, farms were predominantly owned and operated by individuals and families, but most farmers were ineligible for relief under chapter 13 because they had debts in excess of the limit and they needed the ability to restructure debts over a period longer than five years. Before 1986, chapter 11 was the only means of reorganization for most farmers, but the expense, adequate-protection requirement and absolute priority rule made chapter 11 plans virtually unconfirmable for them.5 In the first year after its enactment, more than 6,000 debtors filed under chapter 12. After several extensions, Congress made chapter 12 permanent under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).6 Chapter 12 provides relief to family farmers in order to help them keep their land despite their financial troubles.7 While relief was never intended to be available to very large farming operations, it was estimated that 90 percent of family farmers would be eligible.8 Since chapter 12 was enacted, the number of farms in the U.S. has remained stable at approximately 2 million. However, in the last two decades, there have only been about 450 chapter 12 filings per year nationally.9 1 11 U.S.C. § 1201, et seq. 2 National Bankruptcy Review Commission Final Report, Bankruptcy: The Next Twenty Years, at 1012 (1997). 3 J. David Aiken, “Chapter 12 Family Farmer Bankruptcy,” 66 Neb. L. Rev. 632, 634-35 (1987). 4 See Bankruptcy: The Next Twenty Years, supra n.2. 5 See Aiken, supra n.3 at 638 (1987); see also H.R. Rep. No. 99-958, at 45-48 (1986); 132 Cong. Rec. 28, 593 (1986) (remarks of Sen. Chuck Grassley). 6 Pub. L. No. 109-08, 119 Stat. 23 (codified at 11 U.S.C. §§ 101-1532 (2005)). 7 See, e.g., In re Watford, 898 F.2d 1525 (11th Cir. 1990). 8 In re Quintana, 107 B.R. 234, 240 (B.A.P. 9th Cir. 1989) (quoting Code Commentary & Analysis § 44.1:2 at 7 (1987)). 9 Ed Flynn, “Chapter 12: Outcomes for Family Farmers and Fishermen,” XXXIV ABI Journal 9, 36-37, 70-72, September 2015, available at abi.org/abi-journal.
12 December 2017
Chapter 12 filing rates have been far below those of chapter 13 and chapter 11, even during periods of increased overall bankruptcy filings, suggesting that chapter 12 might be underutilized. While there might be other factors contributing to the low chapter 12 filing rates, eligibility requirements have not adapted to structural changes in the farming sector. Consequently, a large number of family farmers are ineligible for chapter 12 relief. In order to allow chapter 12 to serve the purpose for which it was created, Congress should raise the farm-debt limit and reduce or eliminate the farm-income requirement.
Current Chapter 12 Eligibility Requirements
Only a family farmer or family fisherman having regular income is eligible for relief under chapter 12.10 “Family farmer” is defined in § 101(18)(A) to include both individuals and married couples, as well as family-owned corporations or partnerships that are “engaged in a farming operation.”11 All family farmers must satisfy a “farm-debt test” by having aggregate debts of below $4,031,575, with at least 50 percent of aggregate, noncontingent liquidated debts arising out of the farming operation. Individuals and married couples must also meet a “farm-income test” under which 50 percent of the individual or married couple’s gross income must be derived from the farming operation.12 A farming business is not subject to the farm-income test, but it must have more than 80 percent of the value of its assets related to the farming operation and must not be publicly traded.
Changes in the Farm Economy
Today, about 97 percent of U.S. farms are family operations, and even the largest farms are still predominantly family-run.13 Over the past four decades, the total number of farms and acres being farmed have remained relatively stable.14 The average farm size is also relatively unchanged, but despite this 10 11 U.S.C. § 109(f). 11 11 U.S.C. § 101(18)(A). 12 Id. The farm-income test requires 50 percent of gross income to be derived from farming operations in either the taxable year preceding the filing, or in each of the second and third taxable years preceding the filing. 13 Structure and Finances of U.S. Farms: Family Farm Report, U.S. Department of Agriculture (USDA) (2014). 14 Farm Size and the Organization of U.S. Crop Farming, USDA (2015).
continued on page 92
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Last in Line By Bruce S. Nathan and Scott Cargill
Third Circuit Applies Plain Meaning to “Receipt” Under § 503(b)(9) Editor’s Note: For an overview of this topic, read Building Blocks in the November 2017 issue.
S Bruce S. Nathan Lowenstein Sandler LLP New York
Scott Cargill Lowenstein Sandler LLP Roseland, N.J. Bruce Nathan is a partner in Lowenstein Sandler LLP’s Bankruptcy, Financial Reorganization and Creditors’ Rights Group in New York. Scott Cargill is Of Counsel in the firm’s Roseland, N.J., office.
ection 503(b)(9) of the Bankruptcy Code, enacted just over 10 years ago, has been a boon for goods sellers seeking to recover from financially troubled companies in bankruptcy. This provision grants sellers an administrative priority claim for “the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business”1 (a “§ 503(b)(9) claim”). The holder of an allowed § 503(b)(9) claim is generally entitled to full payment of its claim under any approved chapter 11 plan, and in any event, prior to any recovery by lower-priority creditors. One of the most frequently litigated issues in determining the allowed amount of a § 503(b)(9) claim is when a debtor is deemed to have “received” goods. In July 2017, the U.S. Court of Appeals for the Third Circuit in the World Imports case became the first U.S. Court of Appeals case to consider the meaning of the term “received” with respect to § 503(b)(9) claims.2 The Third Circuit applied the definition of “receipt” contained in Article 2 of the Uniform Commercial Code (UCC)3 to rule that a debtor is deemed to have “received” goods, for purposes of § 503(b)(9), when a debtor or its agent takes physical possession of the goods.4 In so holding, the Third Circuit reversed the holding of the U.S. District Court for the Eastern District of Pennsylvania,5 which had affirmed the U.S. Bankruptcy Court for the Eastern District of Pennsylvania,6 that the debtor was deemed to have received goods by obtaining constructive possession of them upon the passage of title to, or assumption of the risk of loss with respect to, the goods following their delivery to a common carrier. The lower courts had rejected the UCC as the appropriate applicable law and instead relied on the Convention on Contracts for the International Sale of Goods (CISG)7 and international commercial terms and trade customs. 1 2 3 4 5 6 7
14 December 2017
11 U.S.C. § 503(b)(9) (emphasis added). See generally In re World Imports Ltd., 862 F.3d 338 (3d Cir. 2017). See U.C.C. § 2-103(1)(c). World Imports, 862 F.3d at 346. See In re World Imports Ltd., 549 B.R. 820 (E.D. Pa. 2016). See In re World Imports Ltd., 511 B.R. 738 (Bankr. E.D. Pa. 2014). The CISG is an international treaty to which the U.S. and China are parties.
Lower Court Decisions
The sellers, Haining Wansheng Sofa Co. and Fujian Zhangzhou Foreign Trade Co., had sold furniture and similar goods to the debtor, World Imports Ltd., based on free-on-board (FOB) terms at various ports in China, in the ordinary course of business prior to the debtor’s bankruptcy filing.8 According to the FOB terms, the risk of loss or damage to the goods passed from the sellers to the debtor when the goods were transferred to the common carrier in China.9 The sellers’ goods were loaded onto vessels in China more than 20 days before the debtor’s bankruptcy filing, and the debtor took physical possession of the goods in the U.S. within 20 days of the bankruptcy filing.10 Accordingly, the sellers’ ability to obtain priority status under § 503(b)(9) was contingent on when the debtor had “received” the goods, either upon the common carrier’s receipt of the goods at the ports in China, or at a later date when the debtor took physical possession of the goods in the U.S.11 A later receipt date would have increased the amount of the sellers’ § 503(b)(9) priority claims. During the debtor’s bankruptcy case, both sellers sought allowance and payment of certain of their outstanding invoices as administrative expense claims pursuant to § 503(b)(9).12 The bankruptcy court denied the sellers’ priority status because the debtor had “constructively received” the goods when the goods were transferred to the common carrier in China more than 20 days prior to the bankruptcy filing.13 The bankruptcy court refused to apply the UCC to determine the meaning of the term “received.” The court instead relied on the CISG, which applies to disputes arising under contracts for the sale of goods between parties whose places of business are in different countries.14 The court noted that the CISG is a federal treaty that pre-empts otherwiseapplicable state law, including the UCC.15 While the CISG does not define “received,” the bankruptcy court considered standard com8 World Imports, 862 F.3d at 340. 9 Id. 10 Id. at 340-41. 11 Id. at 341. 12 See id. 13 World Imports, 511 B.R. 745-46. 14 Id. at 743. 15 Id. at 742-43.
continued on page 72
ABI Journal
Affairs of State By Elizabeth L. Gunn1
Domestic-Support Exceptions to the Automatic Stay Are Not as Clear-Cut as They Appear in Chapter 13 Cases
G Coordinating Editor Elizabeth L. Gunn Virginia Office of the Attorney General Richmond, Va. Elizabeth Gunn is an assistant attorney general and serves as the bankruptcy specialist for the Commonwealth of Virginia’s Department of Social Services, Division of Child Support Enforcement. Her practice involves the representation of a IV-D agency in bankruptcy cases throughout Virginia and the U.S.
16 December 2017
enerally, it is understood that parents should contribute to the support of their children. In the Bankruptcy Code, Congress has embraced this tenet by making support a firstpriority obligation (§ 507(a)(1)), making support nondischargeable (§ 523( a)( 5)), requiring payment of ongoing support during a pending case (e.g., §§ 1325( a)( 8) and 1328( a)), and creating exceptions to the automatic stay for the ongoing, post-petition collection of domestic-support obligations (§ 362(b)(2)). Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), § 362(b)(2) contained two subsections allowing for the commencement or continuation of certain actions for domestic issues, and for the post-petition continued collection of support from property that was not property of the estate. BAPCPA not only expanded the existing subsections but added subsections (C) through (G), which enumerate additional enforcement and collection exceptions to the automatic stay for collection from assets that are property of the estate. One of the added exceptions, § 362(b)(2)(F), allows for domestic-support creditors to intercept post-petition tax refunds as authorized by the Social Security Act or analogous state laws. In general, support creditors are authorized to intercept a tax refund when a debtor has an existing domestic-support arrearage. The language of § 362 does not place a timing or other limitation on this exception; however, in chapter 13 cases, the issue has arisen as to whether a confirmed chapter 13 plan that does not provide for the ongoing ability to intercept refunds bars further action under the exception to the automatic stay. The issue is especially tricky where the plan and confirmation order are silent on the question. A circuit split currently exists among the appellate courts that have considered the issue. In New Hampshire v. McGrahan (In re McGrahan), the Bankruptcy Appellate Panel (BAP) for the First Circuit held that the binding effect of the confirmation of a chapter 13 plan binds all parties.
However, such binding extends only to those issues that were actually litigated by the parties and any issue necessarily determined by the confirmation.2 Alternatively, in Florida Department of Revenue v. Gonzalez (In re Gonzalez), the Eleventh Circuit upheld the lower court’s decision that a chapter 13 plan is binding on all creditors and is res judicata on all issues that could have been determined at the confirmation hearing, even if such plan or order is silent on the relevant issue.3 While the results are exact opposites, an examination of the underlying facts and analysis by the courts leads to this underlying problem: If the issue of the domestic-support obligation is not raised during confirmation, what impact does silence have? In McGrahan, the debtor’s plan provided that a claim of approximately $13,000 by the New Hampshire Department of Health and Human Services (DHHS) — the state agency tasked with enforcing domestic-support obligations in New Hampshire — would be paid in full through the plan and stated that as a result of the seizure of the debtor’s refunds, the DHHS’s claim would be “decreased annually to reflect the amounts seized.”4 After confirmation, DHHS intercepted two of the debtor’s post-petition tax refunds totaling more than $4,200 but did not modify its claim; therefore, the chapter 13 trustee continued to pay on the existing filed claim. The debtor filed a motion to modify his plan to remove the language regarding the interception of tax refunds as “overly burdensome,” but keep full payment of DHHS’s arrearage claim through the plan. The modified plan was approved by the bankruptcy court. After confirmation of the modified plan, DHHS filed a motion to reconsider the confirmation, arguing that the modification deprived DHHS of its right to seize post-petition tax refunds, which was protected by § 362(b)(2)(F), and that therefore, the modified plan did not comply with § 1325(a). The bankruptcy court denied the motion as moot due to the fact that there was no provision in the modified plan or confirmation order prohibiting DHHS from acting to pursue collection of a domestic-sup-
1 The opinions expressed herein are provided as a result of the author’s own experiences and not as a representative of the Attorney General or the Division of Child Support Enforcement or any other IV-D agency.
2 459 B.R. 869 (B.A.P. 1st Cir. 2011). 3 882 F.3d 1251 (11th Cir. 2016), cert. denied June 26, 2017. 4 459 B.R. at 871.
ABI Journal
port arrearage under state or federal law.5 Subsequently, the debtor once more sought to amend his plan to add language to reduce the claim of DHHS to be paid through the plan by the amount that it had intercepted from tax refunds. In response, DHHS objected and asked the bankruptcy court to enter an order that either (1) clarified that the elimination of the language on tax intercepts did not prohibit DHHS from exercising its right to intercept as provided for in § 362(b)(2)(F) or (2) ordered the debtor to modify the current proposed plan to expressly provide for tax intercepts. The bankruptcy court ruled that because the plan provided for full payment of DHHS’s claim as required by § 1322(a)(2), and because nothing in § 1322 requires a chapter 13 plan to include a provision to allow continued intercepts under § 362(b)(2)(F), DHHS’s objection was overruled and it was not permitted to engage in future intercepts.6 On appeal, the BAP examined the interplay between §§ 362(b)(2)(F) and 1327 and the binding effect of confirmation orders on parties regardless of the pre-confirmation rights held by creditors. The court noted that it “is clear that all creditors are bound by a confirmation order and that even actions that would be permitted by an exception to the automatic stay ... may be prohibited under a confirmed plan.”7 However, the BAP noted that the binding effect only extends to those issues that were actually litigated by the parties and any issue actually determined by the confirmation order.8
The BAP also determined that an issue that was not sufficiently evidenced in the plan as providing adequate notice to a creditor would not be binding on the creditor. The debtor’s two modifications were silent as to DHHS’s right to intercept; therefore, “silence cannot be interpreted as implicitly prohibiting” DHHS from continuing to intercept any tax refunds. Because the pleadings were silent, neither the confirmed plan nor the confirmation order could be deemed as binding on DHHS, or was found to eliminate its right to act under the exceptions to the automatic stay under § 362(b)(2). The confirmed plan of the debtor in Gonzalez was also silent as to the issue of intercepts for support arrearages, though it did provide for payment in full through the plan and the direct payment of ongoing obligations. Post-confirmation, the Florida Department of Revenue (DOR), the state agency tasked with enforcing domestic-support obligations in Florida, intercepted a federal reimbursement payment to the debtor. The debtor filed a motion to hold DOR in contempt for a violation of the automatic stay. DOR released the funds and ceased collection activities related to the domestic-support claim, but the debtor renewed his motion for contempt, this time alleging that DOR had violated the confirmed plan.9 The bankruptcy court found DOR in contempt for violation of the confirmed plan and awarded attorneys’ fees. The district court affirmed.
5 6 7 8
9 Gonzalez, 832 F.3d at 1253.
Id. at 872. Id. at 872-73. Id. at 875. Id.
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continued on page 78
December 2017 17
Feature By Mark A. Salzberg and Peter R. Morrison
Media Debtors, Take Note Gawker Court Keeps Defamation Suit and Rejects Application of SLAPP Statute
I
t was Gawker Media LLC’s job to draw attention, and it often did so with salacious headlines and tabloid-esque reporting. Even in chapter 11, Gawker drew attention for the resolution of the headline-grabbing lawsuit brought by wrestler Hulk Hogan, which forced the bankruptcy filing in the first place. This summer, Gawker’s legacy expanded to include a lower-profile — but equally important — decision that will likely have a dramatic impact on media-industry debtors. Mark A. Salzberg Squire Patton Boggs, LLP; Washington, D.C.
Peter R. Morrison Squire Patton Boggs, LLP; Cleveland Mark Salzberg is a partner with Squire Patton Boggs, LLP in Washington, D.C. Peter Morrison is a senior associate in the firm’s Cleveland office.
The Underlying Facts
On Dec. 9, 2015, web-based journalist Charles Johnson and his company, Got News LLC (collectively, the “claimants”), filed a complaint against Gawker and two employees in California state court alleging defamation, injurious falsehood, false light and conspiracy to interfere with their civil rights. At issue in the California litigation were articles published by Gawker concerning the claimants’ coverage of Michael Brown’s death in Ferguson, Mo. The Gawker articles allegedly contained statements that criticized Johnson’s honesty and professional skills, as well as rumors related to Johnson’s personal life. Gawker and its employees were also alleged to have posted negative comments on the claimants’ articles and on Twitter. On June 10 and 12, 2016, Gawker Media LLC and two affiliated debtors filed chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of New York. The claimants subsequently filed proofs of claim based on the same allegations as contained in the California litigation. Gawker objected to the claims, and after significant briefing, the court and the parties identified two gating issues to resolve prior to moving forward with litigation on the claim objections: (1) which of the claims, if any, are personal-injury tort claims within the meaning of 28 U.S.C. § 157(b)(2)(B); and (2) whether the California anti-SLAPP statute, Cal. Civ. Proc. Code § 425.16, applies and, if so, in what manner.1 Hon. Stuart M. Bernstein issued his ruling on these two issues on Aug. 21, 2017.2 1 The term “SLAPP” refers to a strategic lawsuit against public participation, which is a lawsuit against a “person arising from any act of that person in furtherance of the person’s right of petition or free speech ... in connection with a public issue as to which the plaintiff has not established that there is a probability that [he/she] will prevail on the claim.” Equilon Enters. v. Consumer Cause Inc., 29 Cal. 4th 53, 58 (2002) (citations omitted). 2 In re Gawker Media LLC, Case No. 16-11700 (SMB), 2017 Bankr. LEXIS 2364 (Bankr. S.D.N.Y. Aug. 21, 2017).
18 December 2017
Are the Claims “PersonalInjury Tort” Claims?
Judge Bernstein first addressed the issue of whether the claims were “personal-injury tort” claims, which are not core, pursuant to 28 U.S.C. § 157(b)(2)(B). If the claims fell within the personal-injury tort exception to core jurisdiction, the district court where the bankruptcy case is pending or where the claim arose would have exclusive jurisdiction over the claims.3 Because “personal-injury tort” is not defined in the statute, courts have developed three separate interpretations: narrow, broad and hybrid. The narrow view requires a personal-injury tort to result in trauma, bodily injury or significant psychiatric impairment.4 The broad view embraces an expansive category of private or civil wrongs, including “damage to an individual’s person and any invasion of personal rights, such as libel, slander and mental suffering.”5 The hybrid view allows the bankruptcy court to adjudicate personal-injury torts under the broad view that, in the court’s discretion, they have the earmarks of financial, business or property tort claims, or contract claims.6 Judge Bernstein recognized the ambiguity in the phrase “personal-injury tort” given the absence of a statutory definition and the facial reasonableness of each interpretation.7 Accordingly, he turned to the cannons of statutory construction and legislative history to aid in its interpretation. The Court relied on noscitur a sociis, a canon of statutory construction “holding that the meaning of an unclear word or phrase should be determined by the words immediately surrounding it.”8 This canon avoids “ascribing to one word a meaning so broad that it is inconsistent with its accompanying words, thus giving ‘unintended breadth to the Acts of Congress.’”9 Simply, the court was persuaded by the fact that “personal-injury torts” and “wrongful 3 28 U.S.C. § 157(b)(5). 4 In re Residential Capital LLC, 536 B.R. 566, 572 (Bankr. S.D.N.Y. 2015) (“A court following this narrow view considers whether the claim is a personal injury tort in the traditional, plain-meaning sense of those words, such as a slip and fall, or a psychiatric impairment beyond mere shame and humiliation.”) (citations omitted). 5 Id. (quoting Boyer v. Balanoff (In re Boyer), 93 B.R. 313, 317-18 (Bankr. N.D.N.Y. 1988)). 6 Id. at 571 (citing Stranz v. Ice Cream Liq. Inc. (In re Ice Cream Liq. Inc.), 281 B.R. 154, 161 (Bankr. D. Conn. 2002)). 7 In re Gawker, 2017 Bankr. LEXIS 2364 at *14. 8 Black’s Law Dictionary (Brian Garner ed., 18th ed.). 9 In re Gawker, 2017 Bankr. LEXIS 2364 at *14.
continued on page 84
ABI Journal
Clerk Commentary By Una M. O’Boyle
Amended Federal Rules Effective Dec. 1, 2017
S
everal new amendments to the Federal Rules of Bankruptcy Procedure (FRBP) and an Official Bankruptcy Form are set to become effective Dec. 1, 2017. The amendments to Rules 1001 and 1006(b) were published for comment in August 2015. Amendments to Rules 2002, 3002, 3007, 3012, 3015, 4003, 5009, 7001 and 9009 and Official Form 113 were published for comment in August 2013 and again in August 2014. Amended Rule 3015 was published for commenting a third time, along with new Rule 3015.1, on July 1, 2016. Because of the limited and conforming nature of the amendment to Rule 1015(b), it was not published for comment. In addition, amendments to Federal Rules of Evidence (FRE) 803(16) and 902 will also be effective Dec. 1, 2017. Una M. O’Boyle U.S. Bankruptcy Court (D. Del.); Wilmington Una O’Boyle is the clerk of court for the U.S. Bankruptcy Court for the District of Delaware in Wilmington. She will also serve as the new coordinating editor of this column in 2018.
Rule 1001
The amendment to Rule 1001 simply changes the last sentence to conform to the language of Federal Rules of Civil Procedure 1 1 and states, “These rules should be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding.”
Rule 1006
Rule 1006( b) allows an individual debtor to pay the bankruptcy filing fee in installments, as authorized by 28 U.S.C. § 1930(a). Previously, the individual bankruptcy courts had inconsistent local procedures regarding the payment of the filing fees. Some courts refused to accept a petition or summarily dismissed a case if an installment payment was not made at the time the case was filed.2 Other courts accepted petitions without any payment. An informal survey of the bankruptcy courts3 found that 32 percent have historically required a payment of some minimum amount of fee for filing a bankruptcy petition to accept the filing. Those 1 Amendments to Federal Rule of Civil Procedure 1 became effective Dec. 1, 2015. 2 See Local Rules of the U.S. Bankruptcy Court for the Eastern District of Missouri, L.R. 1006: Payment of Filing Fees in Installments or Waiver of Filing Fee (“General Requirements. All applications to pay filing fees in installments shall be filed using a form in substantial conformity with Local Form 1.... Fifty percent of the filing fee shall be due at the time the petition is filed for debtors applying to pay the filing fee in installments.”); Local Rules of the U.S. Bankruptcy Court for the District of Delaware, Former L.R. 10061(b) (“Payment of Filing Fee in Installments. Individual filers may file with the petition an Application to Pay Filing Fee in Installments substantially in conformity with the form provided by the Clerk’s Office. The application must be accompanied by a minimum payment of 25% of the filing fee.”). 3 Sixty courts responded to a Survey Monkey survey distributed by the author on Aug. 15, 2017.
20 December 2017
required amounts ranged from $40 to 50 percent of the relevant fee at the time of filing. Sixty-eight percent of courts did not require any payment at the time of filing. Rule 1006(b)(1) now requires that an individual debtor’s petition must be accepted for filing so long as the debtor submits a signed application to pay the filing fee in installments — even if an initial installment payment is not made at the same time. The change was made by the Bankruptcy Rules Advisory Committee after it concluded that requiring a minimum payment at the time of filing was inconsistent with Rules 1006( b)( 1) and 1017(b)(1). Rule 1017(b)(1) allows for a dismissal of the case for the failure to pay any installment of the filing fee only “after a hearing on notice to the debtor and the trustee.”
Rule 1015
Rule 1015(b) provides for the joint administration of bankruptcy cases in which the debtors are closely related. Among the debtors formerly covered by the rule were “a husband and wife.”4 The 2017 amendment replaces “husband and wife” with “spouses.” The change was considered by the Advisory Committee in light of the U.S. Supreme Court’s decisions in United States v. Windsor, 5 which held § 3 of the Defense of Marriage Act to be unconstitutional, and Obergefell v. Hodges, 6 which held that the right to marry is a fundamental right under the Fourteenth Amendment and that same-sex couples may not be deprived of that right.7 The Obergefell Court further held that the Equal Protection Clause prevents states from denying same-sex couples the benefits of civil marriage on the same terms as opposite-sex couples.8
Rule 3015 and New Rule 3015.1
Rule 3015, which provides for the filing of, objection to, and effect and modification of a plan in a chapter 12 or a 13 case, now requires the use of a national official form for chapter 13 plans, unless a district requires the use of a local form that 4 Also covered by the rule are a partnership and one or more of its general partners, two or more general partners, and a debtor and an affiliate. 5 570 U.S. __, 133 S. Ct. 2675 (2013). 6 576 U.S. __, 135 S. Ct. 2584 (2015). 7 Id. at 2599. 8 Id. at 2604.
continued on page 90
ABI Journal
Intensive Care By Cullen D. Speckhart and Richard T. Arrowsmith
For Kings and Creditors
False Claims Liability in Bankruptcy Cases Filed by Health Care Organizations
T Cullen D. Speckhart Wolcott Rivers Gates Richmond, Va.
here have been several interesting health care restructurings recently, many of which have garnered significant government attention. In these civil cases involving fraudulent claims for reimbursement of services rendered to beneficiaries of federal programs, the U.S. Department of Justice (DOJ) has recovered billions of dollars pursuant to the False Claims Act (FCA).1 Owing in part to the efforts of the Health Care Fraud Prevention and Enforcement Action Team (HEAT), which was created through initiatives of the Attorney General and Secretary of the Department of Health and Human Services, the DOJ has recovered more than $19.3 billion in cases involving false-claims violations since 2009.2 The majority of these recoveries generate from qui tam actions filed by whistleblowers.
Types of FCA Liability Richard T. Arrowsmith Alvarez & Marsal Washington, D.C. Cullen Speckhart is a partner with Wolcott Rivers Gates in Richmond, Va., and is co-head of its Bankruptcy and Restructuring Group. Rick Arrowsmith is a managing director with Alvarez & Marsal Healthcare Industry Group in Washington, D.C., and specializes in turnaround and restructuring advisory on behalf of senior lenders.
22 December 2017
The FCA is an effective statutory tool in creating liability for conduct involving fraud perpetrated on the government. The statute identifies seven specific types of prohibited conduct, applies a broad knowledge standard, and imposes liability on contractors and other third parties. The “False Claims” provision of the FCA imposes liability for knowingly presenting, or causing to be presented, a false or fraudulent claim for payment.3 The “False Statement” provision of the FCA assigns liability for knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim.4 A person may also be found liable under the FCA for a reverse false claim involving improper conduct taken to avoid paying the government or an improper retention of an overpayment.5 Conspiracy to commit a violation of any other liability provision is also punishable under the FCA.6 1 31 U.S.C. § 3729, et seq. 2 “Fact Sheet, Significant False Claims Act Settlements and Judgments, Fiscal Years 2009-2016,” U.S. Dep’t. of Justice, available at https://www.justice.gov/opa/pressrelease/file/918366/download (unless otherwise specified, all links in this article were last visited on Oct. 16, 2017). 3 31 U.S.C. § 3729(a)(1)(A). 4 31 U.S.C. § 3729(a)(1)(B). 5 31 U.S.C. § 3729(a)(1)(G). 6 31 U.S.C. § 3729(a)(1)(C). FCA also punishes knowingly and improperly withholding part or all of the government’s money or property (31 U.S.C. § 3729(a)(1)(D)); intent to defraud the government by making or delivering (with the authority to do so) a document certifying receipt of property used, or to be used, by the government without completely knowing whether the information on the receipt is true (31 U.S.C. § 3729(a)(1)(E)); or knowingly buying or receiving, as a pledge of an obligation or debt, public property from an officer or employee of the government, or a member of the Armed Forces, who is not permitted to sell or pledge the property (31 U.S.C. § 3729(a)(1)(F)).
Commencement of FCA Litigation
Civil actions under the FCA may be brought by the U.S. Attorney General and private persons (the “relators”). If advanced by a private litigant, the government will conduct an independent investigation to determine whether to file or intervene in the FCA proceedings. In FCA actions brought by private persons, the person filing the suit is called the “relator” or the qui tam plaintiff. The phrase “qui tam” originates from a Latin translation: “Who as well for the king as for himself sues in this manner.” By its terms, the FCA provides up to 30 percent of any recovery as an incentive to private persons who initiate the civil action. Relators can collect between 25-30 percent of the proceeds of any judgment or settlement if the government declines to intervene. If the government elects to intervene, the relator may receive up to 25 percent of the proceeds, depending on the extent to which the relator and his/her counsel contributed to the prosecution of the action, and to the extent that the action was based on disclosures and information provided by the private plaintiff. Relators are also entitled to reasonable expenses and attorneys’ fees in a qui tam case, but courts can also reduce or eliminate the relator’s share of recovery if they find that the relator planned or initiated the underlying proceeding, or if the relator is convicted of a crime relating to his/her role in the alleged FCA violation.7 Qui tam plaintiffs commencing an FCA action must file the complaint under seal and give the government a copy of the complaint and substantially all material evidence and information that they have to support the allegations in the complaint. The government may use the information to investigate the claims and may elect to intervene in the case. Government intervention must be completed within 60 days of receipt of the complaint, which is subject to extension, and such extensions appear to be frequently granted. History tells us that government intervention in a qui tam case is a major factor in determining the probable outcome and recovery of the litigation. According to the DOJ, settlements and judgments in FCA cases in which the government has intervened have totaled more than $35 billion since 1986, compared to less than $3 billion in cases where the gov7 31 U.S.C. § 3730(d)(3).
ABI Journal
ernment has declined to intervene.8 If the government elects to intervene in a qui tam case, it takes the place of the qui tam plaintiff and assumes primary responsibility for prosecuting the case. However, the government might continue to work with the qui tam plaintiff and his/her counsel to review and analyze documents produced by the defendant and for other types of assistance leading up to trial. In United States ex rel. Ruckh v. CMC II LLC, et al.,9 the government declined to intervene, and Angela Ruckh, a former consultant for Consulate Management Co. LLC (CMC), proceeded as a private litigant. The plaintiff alleged that during her tenure as a consultant for CMC, she observed the submission of invoices for treatments that never occurred and the billing for more costly procedures than what was actually performed.10 To prove damages, the plaintiff’s experts testified using an extrapolative statistical sampling.11 Ruckh was ultimately awarded a $347 million judgment — triple the $115 million found in damages. Extrapolation techniques were also used in United States ex rel. Poehling v. United Health Group Inc., et al.12 The qui tam plaintiff alleged company-wide practices 8 “Fraud Statistics Overview,” U.S. Dep’t. of Justice, available at https://www.justice.gov/opa/pressrelease/file/918361/download. 9 No. 8:11-cv-01303-SDM-TBM (M.D. Fla. Feb. 15, 2017). 10 Id. 11 The FCA is silent as to the use of extrapolation of statistical sampling to illustrate damages. In addition, it is still being challenged at all stages of qui tam litigation, from pre-trial motions to fact-finding stages. The suitability of extrapolation as a means of reviewing and summarizing data in FCA actions remains unclear. 12 No. 11-cv-258 (W.D.N.Y.). Poehling is one of two whistleblower lawsuits against United Health in which the DOJ has intervened. The other, United States ex rel. Swoben v. Scan Health Plan, et al., 2:09-cv05013 (C.D. Cal. 2017), was dismissed on Oct. 5, 2017, pursuant to the motion to dismiss from the defendants, Healthcare Partners LLC and Healthcare Partners Medical Group Inc.
ABI Journal
that were designed to increase the amount of “risk-adjustment” payments received from Medicare; employees were given risk-adjustment targets, and their performances were evaluated based on how well these targets were met.13 In addition, it was claimed that the defendant, United Health, engaged in data-mining, where “coders” would review each patient’s file and mine the information, looking for diagnoses that were not reported by the health care providers themselves but that could be added, which would increase the risk-adjustment payment to be received. The case was recently dismissed.
Damages and Penalties Under the FCA
An entity found to be in violation of the FCA is liable for (1) a civil penalty of $5,500 to $11,000 (as adjusted from time to time), plus three times the amount of damages the government sustains; and (2) the costs of bringing the civil action to recover penalties and damages. The court has the discretion to reduce the treble damages to double damages in circumstances where the defendant company provided to the government all information about the violation within 30 days after the date on which the company first obtained the information or if the company otherwise demonstrates a high degree of cooperation with the government. Given the expansive universe of potential unlawful conduct punishable under the FCA and the incentives for indi13 Poehling Compl. ¶¶ 8-12.
continued on page 86
December 2017 23
Straight & Narrow By Prof. Nancy B. Rapoport1
How Teams Can Help (or Hurt) You When It Comes to Ethics
Prof. Nancy B. Rapoport UNLV; Las Vegas Nancy Rapoport is special counsel to the president of the University of Nevada at Las Vegas. She is also the Garman Turner Gordon professor of law at the UNLV William S. Boyd School of Law and an affiliate professor of business law and ethics in the UNLV Lee Business School.
Consider the plight of a lawyer — fresh out of law school with crushing loan debt and few job offers — who accepts a position at a medium-sized firm. A partner asks the young lawyer to review a client’s documents to determine what needs to be produced in discovery. In the stack, the associate finds a “smoking gun” that is clearly within the scope of discovery and spells disaster for the client’s case. The associate reports the document to the partner, who without explanation tells the associate not to produce it. The associate asks the partner a few questions and quickly drops the subject when the partner tells the associate to get back to work. We would like to believe that the young lawyer has the courage to ensure that the partner ultimately produces the document. We might hope, or expect, that the lawyer will report the issue to the firm’s ethics counsel, if the firm is big enough to have one, or consult with other lawyers in the firm, assuming that she has developed the necessary relationships with her colleagues despite her junior status. In fact, research in the area of social psychology suggests that in some contexts, a subordinate lawyer will often comply with unethical instructions of this sort. This basic, but crucial, insight into human behavior suggests that there is often a significant gap between what the legal ethics rules require and how lawyers will typically behave. Indeed, lawyers will too often obey obviously unethical or illegal instructions or fail to report the wrongdoing of other lawyers.2
P
rof. Andy Perlman’s hypothetical is not farfetched. What we know about sociology and psychology tells us that very smart people can make some very bad choices, including very bad choices about ethics. We also know that teams of people can make worse decisions than individuals in certain circumstances. Remember all of those wonderful motivational posters that claim that group decisions are the best kind of decisions? Rip them up. 1 The views expressed in this column are those of the author alone and not those of anyone affiliated with UNLV. 2 Andrew M. Perlman, “Unethical Obedience by Subordinate Attorneys: Lessons from Social Psychology,” 36 Hofstra L. Rev. 451, 451-52 (2007) (footnote omitted; italics added).
24 December 2017
What we know is that people are absolutely, positively subject to various cognitive errors, including the cognitive error of social pressure. Solomon Asch’s social pressure experiments showed that given enough actors sitting around a table deliberately misleading experimental subjects about the relative length of various lines, most people will be inclined to deny what their own eyes tell them. His experiments3 tested a variety of hypotheses involving social pressure. In many of these experiments, Asch had several actors in a room with the experimental subject, and the described task for those in the room4 was to compare a single line with a set of three lines. The people in the room were supposed to indicate which of the lines in the set of three was the same length as the single line. Over time, he had the actors in the room vary their answers to choose lines other than the actual “right” line. There was a marked effect of having up to three actors identify the same incorrect line; after that, the effect got no larger. But two or three of the actors would cause a significant percentage of the “real” subjects to side with those who were choosing the wrong line. In one version of the experiment, there were 123 subjects, and of those, roughly 37 percent went along with the group. During the debriefing,5 some people just assumed that they were wrong, while others did not want to embarrass those who had identified the wrong line. Why do social pressure experiments matter? Because professionals have to make value judgments and choices all the time. If people are influenced by what their colleagues consider is the “right” answer, they might miss out on better decisions or be swayed to make seriously bad decisions. And social pressure is just one of the problems that humans experience. The author’s colleague has coauthored a wonderful book that describes the many types of cognitive errors that even the smartest among us can make.6 3 For example, check out these experiments, described in Solomon E. Asch, “Opinions and Social Pressure,” Sci. Am. (1955), available at lucs.lu.se/wp-content/uploads/2015/02/ Asch-1955-Opinions-and-Social-Pressure.pdf (last visited Oct. 16, 2017). 4 In other words, what the subject was told the experiment was about — not what the experiment actually was about. 5 Yes, human subjects in experiments require debriefing afterward so that the experiment does not scar the subject for life. 6 Jean R. Sternlight and Jennifer K. Robbennolt, Psychology for Lawyers: Understanding the Human Factors in Negotiation, Litigation and Decision-Making (ABA 2012).
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ABI Journal
Feature By Cecily A. Dumas and David S. Forsh1
Considerations in Evaluating LLC Operating Agreement Constraints on Voluntary Filings
C Cecily A. Dumas Pillsbury Winthrop Shaw Pittman LLP San Francisco
orporate entities may voluntarily commence bankruptcy only with valid authorization as determined by applicable state law. 2 Bankruptcy-remote entities (special-purpose entities (SPEs) or special-purpose vehicles) are specifically structured to isolate credit risk to the SPE assets and minimize bankruptcy risk. The limited liability company (LLC) is a form of organization that is often used to deter bankruptcy filings through provisions in the operating agreement such as the requirement for unanimous votes. While recent decisions have invalidated certain such constraints on federal public policy grounds when implemented at a creditor’s request, future decisions could view the various policy considerations differently and reach other conclusions, particularly with other transaction structures.
Background
David S. Forsh Pillsbury Winthrop Shaw Pittman LLP New York Cecily Dumas is a partner with Pillsbury Winthrop Shaw Pittman LLP in San Francisco. David Forsh is a counsel in the firm’s New York office.
The recent Lake Michigan and Intervention Energy decisions have received significant attention by addressing the validity of such corporate authority constraints.3 Both decisions dealt with LLC borrowers, organized under Michigan and Delaware law (respectively), that defaulted on their loans and, in exchange for forbearance from their senior secured lenders, amended their operating agreements to give their lenders de minimis membership interests and require unanimous member consent to authorize a voluntary bankruptcy. In both situations, the amended operating agreements attempted to eliminate any duties of the lenders in their capacities as LLC members to other members or the corporate entity.4 After the borrowers failed to recover, voluntary bankruptcy cases were commenced without lender consent. In both cases, motions to dismiss were filed and ultimately denied, but on different grounds. 1 The authors published supporting materials for ABI’s Views from the Bench 2017, available at abi.org/education-events/sessions/special-issues-involving-llcs, with certain similarities or overlaps on this article. 2 See, e.g., Keenihan v. Heritage Press Inc., 19 F.3d 1255, 1258 (8th Cir. 1994) (citing Price v. Gurney, 324 U.S. 100, 106 (1945)). 3 In re Lake Michigan Beach Pottawattamie Resort LLC, 547 B.R. 899 (Bankr. N.D. Ill. 2016); In re Intervention Energy Holdings LLC, 553 B.R. 258 (Bankr. D. Del. 2016). 4 Cf. In re Gen. Growth Props. Inc., 409 B.R. 43, 63 (Bankr. S.D.N.Y. 2009) (with operating agreement language imposing fiduciary duties on independent managers “similar to that of a director of a [Delaware] business corporation,” holding that those managers properly considered interests of parents and that their authorization to voluntarily commence bankruptcy was not objectively bad faith).
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The Lake Michigan decision concluded that the operating agreement amendment was unenforceable “both as a matter of Michigan corporate governance and bankruptcy law.”5 The Michigan law holding was based on an identified conflict between the nonwaivable duty under state law for managers to act in good faith in the best interests of the LLC and the explicit disclaimer of any duties for the lender/ member under the operating agreement,6 while the bankruptcy law holding was based on the reasoning that a blocking director or manager structure may be valid as a matter of bankruptcy law — only if such person remains subject to “normal ... fiduciary duties” that enable a vote for bankruptcy even if contrary to the lender’s interests.7 In contrast, the Intervention Energy decision denied dismissal solely on federal grounds.8 Starting from the proposition that debtors may not contract away bankruptcy rights, the court concluded that the amendment to the operating agreement, by giving the ability to block bankruptcy to an entity in primarily a creditor’s relationship with the debtor and with no duties to anyone else, was “tantamount to an absolute waiver of [the] right” to seek federal bankruptcy relief and was therefore void under federal public policy, even if permitted under state law.9 More recently, the Lexington Hospitality decision addressed a similar situation with an LLC borrower organized under Kentucky law.10 The borrower obtained financing involving, among other things, operating agreement amendments to (1) provide the lender with a 30 percent membership interest until the repayment of the loan and certain additional fees, (2) prohibit filing for bankruptcy without the consent of at least 75 percent of member interests and (3) appoint an “independent manager” responsible solely for providing or withholding consent to a voluntary filing after considering the interests of creditors and without fiduciary duties to any LLC members.11 Agreeing with Intervention Energy that provisions in an operating agreement that essentially pro5 547 B.R. at 914. 6 Cf. M.C.L.A. § 450.4401 (LLC members have manager duties if the operating agreement does not provide for a manager). 7 547 B.R. at 914. 8 553 B.R. at 265-66. 9 Id. at 265. 10 In re Lexington Hospitality Grp. LLC, No. 17-51568 (GRS), 2017 WL 4118117 (Bankr. E.D. Ky. Sept. 15, 2017). 11 Id. at *2-3.
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hibit a bankruptcy filing without creditor consent are void, and with the Lake Michigan position that the power to approve or deny a bankruptcy filing must be exercised by fiduciaries, the court concluded that the provisions gave the lender the ability to prevent the LLC from filing for bankruptcy without consideration of the best interests of the LLC and were therefore unenforceable on federal public policy grounds.12 To date, there have been few other decisions on point, and a consensus approach to such issues has not yet developed. In In re Global Ship Sys. LLC,13 the court dismissed the case after finding that the LLC debtor had engaged in bad faith by soliciting creditors to file an involuntary petition when its operating agreement prohibited filing a voluntary petition without the consent of the Class B equity member. The Class B equity, comprising 20 percent of the LLC equity, had been acquired by the LLC’s secured creditor in the initial financing (along with 18 percent annual interest plus fees) three years previously.14 Although the petition was to forestall a lender foreclosure that would yield no equity recoveries, the court characterized the lender as wearing “two hats” and affirmed its right as a Class B member to withhold consent to a bankruptcy filing.15 In In re DB Capital Holdings LLC,16 the court affirmed dismissal of a voluntary petition filed by the LLC manager without unanimous member consent as required by the amended operating agreement. Despite allegations that the amendment was executed at the demand and for the sole benefit of the secured creditor (five months after formation and more than two years before financial difficulties), the court rejected the public policy argument due to the lack of supporting authority. The court reasoned that cases “involv[ing] a debtor’s agreement with third parties to waive the benefits of bankruptcy” do not “stand ... for the proposition that members of an LLC cannot agree among themselves not to file [for] bankruptcy” or that “such [an] agreement [would be] void as against public policy”).17 In In re Bay Club Partners–472 LLC, 18 the court addressed motions to dismiss that were filed by the secured creditor and an LLC member after the LLC voluntarily filed for bankruptcy, nine years after being formed with an operating agreement that barred filing for bankruptcy with any secured indebtedness outstanding. With testimony that the provision had been included at the secured creditor’s request, the court applied prior case law on pre-petition contractual waivers of specific bankruptcy protections to conclude that the provision was unenforceable on public policy grounds.19 In In re Squire Court Partners Ltd. P’ship,20 the court affirmed dismissal of a voluntary petition filed by the general partner of a limited partnership without the consent of the limited partners as required by the partnership agreement. The court distinguished the Lake Michigan conclusion that blocking structures required fiduciary duties to be valid, noting that corporate directors have decision-making authority
because of delegation rather than fiduciary duties, and held that non-fiduciary owners may have a controlling role in the bankruptcy decision-making process.21
Discussion
The scarcity of pertinent decisions might suggest that such provisions have been largely effective in keeping borrowers out of the bankruptcy courts. Alternatively, such provisions might be more likely in situations where the economics after default do not incentivize the borrower to fight a motion to dismiss the bankruptcy case; notably, neither of the Lake Michigan and Intervention Energy debtors were able to successfully reorganize, and both bankruptcy cases were dismissed for cause within months of those decisions being issued. Regardless, such decisions might prompt further litigation. Future decisions on such provisions might be called upon to further explore the intersection of bankruptcy policies with other federal policies, such as deference on corporate authority issues to state law.22 In addition, while denials of motions to dismiss will generally be interlocutory and without appeal 21 Id. at *4.
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12 Id. at *6-7. 13 391 B.R. 193 (Bankr. S.D. Ga. 2007). 14 Id. at 197. 15 Id. at 203. 16 No. 10-046, 2010 WL 4925811 (B.A.P. 10th Cir. Dec. 6, 2010). 17 Id. at *3. 18 No. 14-30394 (RLD), 2014 WL 1796688 (Bankr. D. Ore. May 6, 2014). 19 Id. at *4-5. 20 No. 16-00935 (JLH), 2017 WL 2901334 (E.D. Ark. July 7, 2017).
ABI Journal
December 2017 27
Lien on Me By Anne M. Aaronson
Keeping Consigned Merchandise Away from a Consignee’s Creditors
I
Anne M. Aaronson Dilworth Paxson, LLP Philadelphia Anne Aaronson is a partner with Dilworth Paxson, LLP in Philadelphia and represents chapter 11 debtors.
28 December 2017
n the wholesale and retail markets, matching product supply and customer demand is key to a merchant’s ability to maximize profit, minimize waste and sustain operations. For entrepreneurs and producers, a tension exists between ensuring market exposure for a product and preserving sufficient capital for additional production. One means to mutually achieve the goals of both merchants and producers is consignment. In a consignment relationship, the producer/ consignor and merchant/consignee negotiate terms by which the producer will deliver the product to a merchant, who will then offer that product for sale to its customer base. The producer retains ownership of the product until it is sold, and takes back any product that the merchant is unable to sell. The proceeds of product sales are remitted to the producer by the merchant, less the merchant’s agreedupon commission. The consignment relationship provides the consignee with the ability to expand the variety of merchandise that is available to its customers, and stock additional product, without having to expend capital to purchase the product up front and without the risk of loss if the product fails to sell. The consignor benefits by obtaining market exposure of its product without incurring the expenses associated with selling, or acquiring a space from which to sell, its product. This seemingly symbiotic relationship is not without its disadvantages and risks — one of the most significant being the risk if a merchant/consignee becomes financially distressed. As an increasing number of retailers enter the bankruptcy arena, it is worth reviewing the effect that a consignee’s bankruptcy filing might have on the consignment relationship. In bankruptcy, the bankrupt consignee, bankruptcy trustee and other creditors (particularly secured lenders) each have an incentive to challenge the consignor’s position vis-à-vis the consigned merchandise — especially any proceeds from the liquidation of that merchandise — to maximize their own recoveries and the value of the consignee’s bankruptcy estate. Ensuring that a consignor’s interests are perfected at the outset of the consignment relationship is not only prudent, it is the surest and most cost-effective way for the consignor to retain ownership and avoid loss.
The Consignment and the Interests of the Consignor
Before parting with possession of its product, a consignor must take all of the steps that are necessary to perfect, or legally ensure, its continued ownership of and ability to recover its product and any proceeds thereof ahead of the consignee and its creditors. The legal requirements necessary to perfect a consignor’s interests depend on the nature of the consignment relationship. As defined in the Uniform Commercial Code (UCC): “Consignment” means a transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and: (A) the merchant: (i) deals in goods of that kind under a name other than the name of the person making delivery; (ii) is not an auctioneer; and (iii) is not generally known by its creditors to be substantially engaged in selling the goods of others; (B) with respect to each delivery, the aggregate value of the goods is $1,000 or more at the time of delivery; (C) the goods are not consumer goods immediately before delivery; and (D) the transaction does not create a security interest that secures an obligation.1 For consignments that meet this definition,2 the consignor retains title and holds a purchase money security interest (PMSI) in the consigned goods (which are considered inventory), as well as in the identifiable proceeds thereof.3 Whether this PMSI is perfected and has priority over competing liens depends on whether the consignor satisfies the requirements of Article 9. The consignor must file, in the appropriate jurisdiction, a financing statement that adequately describes the goods being consigned in order to perfect its PMSI in the consigned goods. In order to have priority over the rights of a creditor with a prior blanket security interest in the 1 U.C.C. § 9-102(a)(20). 2 The parties cannot contractually deem a consignment that does not meet this definition to meet the requirements of the UCC. See TSA Stores Inc., et al. v. M J Soffe LLC (In re TSAWD Holdings Inc.), 565 B.R. 292, 299 (Bankr. D. Del. 2017). 3 U.C.C. §§ 9-103(d), 9-315 and 9-324(b); In re Valley Media Inc., 279 B.R. 105, 115 (Bankr. D. Del. 2002).
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consignee’s inventory, the consignor must also (1) file its financing statement describing the consigned goods prior to the consignee’s receipt of those goods, (2) send an authenticated notice to each person or entity that holds a conflicting prior perfected security interest in the consignee’s inventory that states that the consignor has acquired or expects to acquire a PMSI in the goods and describes the goods, and (3) provide this authenticated notice so that it is received by each person or entity that holds a conflicting prior perfected security interest in the consignee’s inventory before the consignee’s receipt of the consigned goods.4 In addition, a consignor must file a continuation financing statement and provide renewed notice to each person or entity that holds a conflicting security interest in the consignee’s inventory every five years in order to maintain its perfected interest.5 Although many consignment relationships fall within the UCC definition, those that do not might be governed by Article 2 (the “Sale of Goods”) or by applicable state law. These include “true consignments,” where a consignee is generally known by its creditors to be engaged in the sale of goods belonging to another, and instances where a court determines that a purported consignment is actually a secured transaction.6 Even when the consignment parties believe that their relationship falls outside of Article 9, the consignor would be wise to nevertheless file a financing statement and 4 U.C.C. § 9-324(b) and (c). 5 U.C.C. § 9-515. 6 TSAWD Holdings, 565 B.R. at 298; In re Morgansen’s Ltd., 302 B.R. 784, 787-89 (Bankr. E.D.N.Y. 2003); Angell v. Hyosung Motors America Inc. (In re Britt Motorsports LLC), No. 11-07688-8-SWH, 2015 WL 1880057, at *4 (Bankr. E.D.N.C. April 22, 2015).
ABI Journal
send the requisite notice required by Article 9 in the event that its interests are later challenged and a court determines that the consignment does fall within Article 9.7
Protecting the Value of the Consignor’s Interests
While satisfying the legal requirements is the surest way for consignors to perfect and obtain priority of their interests in the consigned goods and proceeds thereof, exercising due diligence to monitor the delivery and sale process will help insure against loss or misappropriation. To protect the value of its perfected priority interest, the consignor should obtain periodic sales and inventory reports from its consignee, and should require the consignee to remit proceeds within a specified period of time following each sale. These reports received from the consignee should be cross-referenced with the consignor’s own records regarding the number of goods consigned and the sales and payment history between the parties. The consignor should also periodically check the consignee’s inventory and its storage and sale practices, and determine the reasons for any loss or damage to the consigned goods. In that regard, the parties should ensure in their consignment agreement that either the consignor’s or the consignee’s insurance policies cover the consigned goods and insure against the risk of loss or damage. These efforts, in addition to complying with the requirements necessary to 7 U.C.C. § 9-505.
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December 2017 29
Feature By Brian M. Resnick, Ron M. Aizen and Adam L. Shpeen
Management Incentive Plans Under a Microscope
B Brian M. Resnick Davis Polk & Wardwell LLP; New York
Ron M. Aizen Davis Polk & Wardwell LLP; New York
Adam L. Shpeen Davis Polk & Wardwell LLP; New York Brian Resnick is a partner, Ron Aizen is counsel and Adam Shpeen is an associate with Davis Polk & Wardwell LLP in New York.
ankruptcy practitioners, strategic investors and other chapter 11 actors have become increasingly focused on the key economic and legal terms of management incentive plans (MIPs).1 One view is that an MIP properly aligns the economic interests of employees with shareholders, and might offer employees with an opportunity to share in future gains generated by their efforts where, in many cases, previously granted equity awards (or shares issued on the vesting of such awards) will lose all or a significant portion of their value as a result of a reorganization. Critics often cast MIPs as an unwarranted bargain by key stakeholders with management to secure support for the stakeholders’ restructuring plan, with the new equity of the reorganized company reserved under MIPs (often around 10 percent of the total equity) as an unjustified “bleed” from creditors’ recoveries.2 Finding agreement on the terms of an MIP can be among the most daunting obstacles toward building consensus around a restructuring plan. The timing of negotiating the terms of an MIP may itself be the subject of negotiation, with certain parties seeking to forge agreement early in restructuring negotiations and others seeking to defer committing to MIP terms until a new board of directors is seated. This article provides a brief overview of the key elements of MIPs and certain hotly negotiated legal issues that arise in connection with their negotiation.
business and execute strategic opportunities might prove difficult because of the stigma associated with bankruptcy or the uncertainty around compensation and job security. Moreover, reorganized companies might be vulnerable to the same economic headwinds that existed prior to its bankruptcy, which often exacerbate executive retention and recruitment concerns unless executives have the opportunity for potential upside gain to outweigh downside risk. The Bankruptcy Code makes no reference to MIPs specifically. Section 1123( b)( 6) of the Bankruptcy Code permits a chapter 11 reorganization plan to include any “appropriate provision not inconsistent with the applicable [Code] provisions.”3 This general catch-all provision is thought to authorize a debtor to include a MIP as part of a reorganization plan, most often in the form of a plan supplement. As a technical matter, a reorganization plan often authorizes — and in some cases, directs — the adoption and implementation of a MIP by the reorganized debtor on the plan’s effective date.4 Because MIPs are incorporated into and made a part of a reorganization plan, objections to MIPs are generally made in the form of plan objections, commonly on bad-faith grounds (i.e., an allegation that the MIP is proposed in bad faith in order to enrich existing management at the expense of other parties),5 or as objections to the amount of disclosure regarding the MIP in the disclosure statement accompanying a chapter 11 plan.
Background: Post-Emergence MIPs
Key Elements of an MIP
In general, MIPs are intended to serve the same purposes as equity incentive plans adopted by financially healthy companies — namely, to attract and retain executives and other key employees and incentivize them to improve the business results of the reorganized company by providing them with an opportunity to acquire a proprietary interest in the company’s success. For certain companies that reorganize through a chapter 11 process, retaining or attracting a talented and experienced management team that can stabilize the post-emergence 1 MIPs are also often referred to as “employee-incentive” or “equity-incentive” plans. In addition to providing for equity grants to senior management, MIPs generally also provide for grants to non-management employees, including rank-and-file employees. 2 Equity awards issued under MIPs to management teams have drawn particular scrutiny in cases where the equity value of the reorganized debtor increased dramatically following a restructuring, resulting in a management team reaping tremendous profits very shortly after the company it led emerged from bankruptcy. See Ryan December, “Most Lucrative Energy Job? Some Say It’s CEO of a Bankrupt Company,” Wall Street Journal, April 3, 2017.
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Generally speaking, an MIP authorizes a reorganized company (most often, the compensation committee of the company’s board of directors) to grant equity awards to MIP participants, subject to certain parameters set forth in the MIP or in the individual 3 See 11 U.S.C. § 1123(b)(6). 4 The U.S. Trustee’s office has objected to chapter 11 disclosure statements and reorganization plans on the grounds that grants made under the MIP to insiders (as defined in § 101(31) of the Bankruptcy Code) of the chapter 11 debtor run afoul of the restrictions set forth in § 503(c) of the Bankruptcy Code. See, e.g., In re Vanguard Natural Res. LLC, Case No. 17-30560 (Bankr. S.D. Tex. May 16, 2017) [ECF No. 733] (objection of U.S. Trustee to approval of a chapter 11 disclosure statement for, among other things, failure to provide sufficient information to determine whether debtors complied with § 503(c)); In re Mem’l Prod. Partners LP, Case No. 17-30262 (Bankr. S.D. Tex. April 10, 2017) [ECF No. 336] (objection of U.S. Trustee to confirmation of reorganization plan because such plan “improperly provides for [an MIP] in a manner that does not comply with 11 U.S.C. § 503(c)”). In response to such objections, chapter 11 debtors have argued that because the adoption of the MIP is a post-emergence act of the reorganized debtor, grants made thereunder are not subject to the restrictions set forth in § 503(c). 5 See 11 U.S.C. § 1129(a)(3); see also In re AbitibiBowater Inc., Case No. 09-11296 (KJC), 2010 WL 4823839 at *13 (Bankr. D. Del. Nov. 22, 2010) (discussing objection to plan confirmation “on the grounds that the proposed management compensation plans are too generous”).
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award agreements issued thereunder. These parameters (e.g., forms of awards, vesting requirements and amount of shares available to be awarded) are discussed below. Forms of Awards From an economic perspective, equity-based awards granted under MIPs generally fall into one of two award categories: “full value” (e.g., restricted stock or restricted stock units (RSUs)) or appreciation (e.g., stock options or stock appreciation rights (SARs)).6 A full-value award provides the participant with the value of the shares covered by the award once the vesting conditions are met.7 As such, they are often viewed as the most advantageous from an MIP participant’s perspective, as they provide value even if the company’s share price fails to appreciate or declines. By contrast, when a participant exercises an appreciation award, the participant receives value only to the extent that the company’s share price has increased from the grant date. For that reason, appreciation awards are often favored by shareholders, who might believe that management should not be compensated unless shareholders benefit from gains. On the other hand, shareholders of a reorganized company who are subject to legal or practical restrictions on their ability to sell their shares for a period post-emergence may prefer that at least some awards be granted in the form of restricted stock or RSUs so that management is incentivized to preserve the company’s value until these restrictions lapse. If the share price declines significantly following emergence (a not infrequent occurrence), appreciation awards might be so far “underwater” that the holders might assume that the awards will never have value and therefore be insensitive to share price performance.
amount of any emergence grants, (3) the definition of a “change-in-control” transaction that triggers accelerated vesting of awards and (4) the circumstances by which awards vest or are forfeited when an employee is terminated. An agreement between the company and consenting creditor constituencies on some or all of such issues is typically memorialized in the restructuring support agreement and/or plan. MIP Pool The maximum amount of shares reserved for issuance under the MIP is commonly referred to as the “MIP pool.” The percentage of new common stock in a reorganized debtor reserved for the MIP pool is often around 10 percent of the total equity of the reorganized company.8 Because awards under an MIP might be granted simultaneously with or subsequent to equity-based distributions to creditors and other stakeholders (including stock, warrants or options to pur8 A survey by the authors of 13 companies in the energy sector that recently filed for chapter 11 found that the average percentage of total shares of common stock of the post-chapter 11 reorganized company reserved in the MIP pool was 9.4 percent, with a range of 5.5 to 11 percent. Where a company’s capitalization is so large that the dollar value of a MIP pool that is around 10 percent appears unreasonably high, the stakeholders that become new shareholders of the company in a reorganization may advocate for a smaller MIP pool.
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Vesting Requirements A participant’s right to receive the value of the shares covered by an MIP award is generally subject to specified vesting requirements; to the extent that these requirements are not met, the award is forfeited. These vesting requirements generally include a service condition, which is satisfied if the participant remains employed through a specified date or dates, and might also include one or more performance conditions, which are satisfied based on the level of attainment of specified metrics related to the individual or a company’s performance, such as revenues, earnings, income, cash flows or stock prices. It might be challenging for a company and its advisors to determine appropriate financial performance conditions in the context of a post-emergence company with a potentially changing management team and an evolving business plan. Therefore, many companies limit initial post-emergence grants to service-vesting awards and wait until subsequent grants to incorporate performance conditions.
Hotly Negotiated Issues
The most hotly negotiated issues related to MIPs often pertain to (1) the size of the MIP pool, (2) the form and 6 The form of an MIP award might also have advantageous or disadvantageous tax implications under, among other provisions, §§ 83(b), 409A and 422 of the Internal Revenue Code. An analysis of such tax implications is outside the scope of this article. 7 Restricted stock is granted as actual stock that is subject to surrender back to the company if the vesting conditions are not met, whereas RSUs provide a contractual right to receive stock (or the cash value thereof) if the vesting conditions are met.
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December 2017 31
Value & Cents By Boris J. Steffen
The Investigation of Financial Statements for Fraud
S
carcely a day passes when it is not reported that some government agency, financial institution, producer, supplier or individual is being investigated for one reason or another, though often related to fraud. For example, the Financial Oversight and Management Board for Puerto Rico recently announced an independent investigation into the borrowing that led to the island’s $74 billion debt crisis and subsequent bankruptcy. The examination is expected to encompass Puerto Rico’s debt issuances and its related disclosures, use of proceeds, marketing of securities and constitutional debt limits. In cases such as these, a financial statement investigation is frequently the requisite to establishing and recovering the value of a claim.
Essence of Investigation Coordinating Editor Boris J. Steffen RSM US LLP McLean, Va. Boris Steffen is the director and Southeast leader of RSM US LLP’s Financial Investigations and Dispute Advisory Services Practices.
32 December 2017
As seen from Puerto Rico, a financial statement investigation is an investigation brought in response to concerns over fraud and misconduct that affect an entity’s financial statements, disclosures and public filings. Consequently, the focus of a financial statement investigation is on evaluating whether the financial statements or disclosures have been prepared in a way that misleads users. Doing so requires consideration of the rules that govern the basis of accounting and the form and content of the financial statements together with the elements of fraud. The basis of the accounting and reporting used to prepare an entity’s financial statements might be that of generally accepted accounting principles (GAAP) in the U.S., or International Financial Reporting Standards (IFRS) elsewhere. The content and form of financial statements is guided by the regulations of the Securities Exchange Commission (SEC) in the U.S. (i.e., Securities Act of 1933, Securities Exchange Act of 1934, Regulations S-X and S-K) and its equivalent in other countries. The SEC and GAAP also address the concept of materiality. As with the accounting rules that govern the preparation of financial statements, the elements of fraud might vary based on jurisdiction and whether the claim is brought as a civil or criminal action. Generally, however, the elements of financial statement fraud consist of (1) the presentation of false information or omission of information that is material, (2) knowledge that the representation is false or
is careless in its inattention to truth, (3) justifiable and reasonable reliance on the representation, and (4) the incurrence of damages as a consequence of the foregoing.1 The primary factor that differentiates fraud from error is whether the conduct that led to the misstatement is intentional.
Fraudulent Financial Reporting
Generally Accepted Auditing Standards maintain that there are two types of misstatements relevant in evaluating fraud: misstatements due to fraudulent financial reporting (FFR) and those stemming from the misappropriation of assets. Misstatements due to FFR are intentional misstatements or omissions of amounts or disclosures that are intended to mislead users, the result of which is that the financial statements are not presented in accordance with GAAP in all material respects. Actions indicative of FFR include the (1) modification or falsification of accounting records and source documents, (2) misrepresentation or intentional omission of events and transactions, and (3) misapplication of GAAP in the treatment of amounts, classifications, presentation and disclosures.2 A significant source of fraud underlying FFR is corruption,3 which can arise from conflicts of interest in schemes associated with procurement and sales activities, bribery in the form of kickbacks and bid-rigging, illegal gratuities, and economic extortion. Corruption often involves the intentional omission of a transaction (i.e., a bribe) that is intended to influence the outcome of a decision involving contractual or governmental approvals. Many of the investigations undertaken pursuant to the Foreign Corrupt Practices Act have resulted from this activity. FFR can also occur as a consequence of financial and nonfinancial misstatements.4 Financial misstatements result from actions that have been taken to overstate assets and revenue, as well as understating expenses and liabilities. On the revenue and expense side, this can involve shifting the time at 1 William S. Hopwood, Jay J. Leiner and George R. Young, Forensic Accounting 265 (McGraw-Hill Irwin, 2d ed. 2008). 2 Dean C. Bunch, Karen M. Cheek, Amy M. Hawkes and Randy C. Joshi, “Financial Statement Investigations,” Litigation Services Handbook, The Role of the Financial Expert 37.3 (Roman L. Weil, et al., eds. 5th ed. 2012). 3 Fraud Tree, Report to the Nation (1996), Association of Certified Fraud Examiners, available at acfe.com/fraud-tree.aspx (follow “Fraud Resources” link; then follow “Report to the Nations” link; then follow “Report Archives” link; then follow “1996 Report” link) (unless otherwise specified, all links in this article were last visited on Nov. 1, 2017). 4 Id.
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which transactions are recorded by recognizing sales before they are completed and deferring expenses to a subsequent period. Asset and liability amounts can be manipulated through the assumptions that are implicit to the valuation of contingencies, impairments and derivatives, among other items. Nonfinancial misstatements emanate from falsifying or manipulating data, information, documents and disclosures.
Misappropriation of Assets
Misstatements attributable to the misappropriation of assets (MOA) stem from the theft of an entity’s assets, the result of which is that the financial statements are not presented in accordance with GAAP in all material respects. MOA can be accomplished in various ways, including the theft of (1) cash on hand or from sales, payment of receivables and refunds; (2) inventory and other assets by means of asset requisition and transfer, sales and shipping, and purchasing and receiving arrangements; and (3) fraudulent payments in connection with billing, payroll, expense reimbursement, check-tampering and point-of-sale schemes.5 In an effort to disguise these acts, the theft might also be combined with the creation of false or misleading documents and records.
Incentives to Defraud
Excluding personal gain, the intentional misstatement of financial statements is often motivated by how the informa5 Id.
ABI Journal
tion is used. A common theme is to achieve or ensure continued access to the capital markets. Where an entity is seeking funding in the bond, bank loan or equity markets — in other words, is at risk of failing to meet market expectations for earnings and revenue, in danger of breaching its debt covenants, or fearful of being unable to continue as a going concern — the temptation is to manipulate the financial statements to address the concern. This was demonstrated in the financial-reporting scandals and subsequent bankruptcies of Enron, Worldcom, Tyco, HealthSouth, AIG, Bernard Madoff, Adelphia and Refco, among others. Other cases have involved the issuance of false financial statements to facilitate IPOs or maintain secondary-market trading prices; conceal misappropriation of assets, fraudulent borrowing and Ponzi schemes; commit tax fraud; and hide employee misconduct leading to losses, as with Barings, Sumitomo, Daiwa and First Allied.
Conduct of the Investigation
Scope and Purpose The first step in an investigation is to define its scope and purpose.6 This requires the identification of the individuals, operations, geographies and financial-reporting processes and accounts involved; the substance, possible effects and significance of the allegation; persons having oversight responsibility at the relevant locations; and the availability and location 6 See supra n.2, “Financial Statement Investigations,” at 37.9.
continued on page 80
December 2017 33
On Our Watch By Clifford J. White III and John Sheahan
Why Marijuana Assets May Not Be Administered in Bankruptcy
M Clifford J. White III Executive Office for U.S. Trustees Washington, D.C.
John Sheahan Executive Office for U.S. Trustees Washington, D.C. Clifford White is the director of the Executive Office for U.S. Trustees. He served as an ex officio member of the ABI Commission to Study the Reform of Chapter 11 and currently serves in the same capacity on the ABI Commission on Consumer Bankruptcy. John Sheahan is a trial attorney in the Office of the General Counsel. Both are based in Washington, D.C.
arijuana continues to be regulated by Congress as a dangerous drug, and as the U.S. Supreme Court has recognized, the federal prohibition of marijuana takes precedence over state laws to the contrary.1 The primacy of federal law over state law is hardly a novel proposition and has been the rule since the ratification of the Constitution. Thus, whenever a marijuana business files for bankruptcy relief, a threshold question is whether the debtor can be granted relief consistent with the Bankruptcy Code and other federal law. If the answer to that question is “no,” the U.S. Trustee Program (USTP), in its role as the watchdog of the bankruptcy system, will move to dismiss. Illegal enterprises simply do not come through the doors of the bankruptcy courthouse seeking help to further their criminal activities. To obtain bankruptcy relief, some may try to hide the nature of their business or income, but bankruptcy courts require full financial disclosure and are not a hospitable forum for continuing a fraudulent or criminal scheme. Marijuana businesses are a unique and unprecedented exception to this rule because they often involve companies that openly propose to continue their illegal activity during and after the bankruptcy case. Those cases present a challenge to the bankruptcy system because they generally involve assets that are illegal even to possess. In contrast to other types of cases involving illegal businesses, in which the criminal activity has already been terminated and the principal concern of the bankruptcy court is to resolve competing claims by victims for compensation, a marijuana bankruptcy case might involve a company that is not only continuing in its business, but even seeking the affirmative assistance of the bankruptcy court in order to reorganize its balance sheet and thereby facilitate its violations of the law going forward. The USTP’s response to marijuana-related bankruptcy filings is guided by two straightforward and uncontroversial principles. First, the bankruptcy system may not be used as an instrument in the ongoing commission of a crime, and reorganization plans that permit or require continued illegal activity may not be confirmed. Second, bankruptcy trustees and other estate fiduciaries should not be required to administer assets if doing so would cause them to violate federal criminal law. 1 Controlled Substances Act, 21 U.S.C. § 801, et seq. (the “CSA”); Gonzales v. Raich, 545 U.S. 1, 12 (2005).
34 December 2017
The USTP’s policy of seeking dismissal of marijuana bankruptcy cases that cannot lawfully be administered is not a new one; rather, it is a policy that has been applied consistently over two presidential administrations and under three attorneys general. Nor are these concerns unique to marijuana. These same principles would also guide the USTP’s response in a case involving any other type of ongoing criminal conduct or administration of illegal property.
[T]he USTP will continue to enforce the legislative judgment of Congress by preventing the bankruptcy system from being used for purposes that Congress has determined are illegal. Although a recent ABI Journal article2 takes the USTP to task for its marijuana-enforcement efforts, it is noteworthy that the author fully agrees with the USTP’s position as to the first of the two aforementioned principles and appears to agree to a significant extent with the second principle. As the author concedes, “it hardly needs explanation that a bankruptcy court should not supervise an ongoing criminal enterprise regardless of its status under state law.”3 As to the second principle, “[i]t would obviously violate federal law for the trustee to sell marijuana.”4 Given these concessions, the author’s disagreement with the USTP’s position would appear to be limited to a fairly narrow range of cases: those where the administration of the estate would not require the trustee to sell marijuana (but would require the trustee to administer other marijuana-derived property), and those where the debtor is a “downstream” participant in a marijuana business, such as a lessor of a building used for a marijuana dispensary.5 Yet under the CSA, there is no distinction between the seller or the grower of marijuana and the 2 Steven J. Boyajian, “Just Say No to Drugs? Creditors Not Getting a Fair Shake When Marijuana-Related Cases Are Dismissed,” XXXVI ABI Journal 9, 24-25, 74-75, September 2017, available at abi.org/abi-journal. 3 Id. at 25. 4 Id. 5 Id. at 74.
ABI Journal
supposedly more “downstream” participants whom the article proposes to protect: All are in violation of federal criminal law. In particular, § 856 of the CSA specifically prohibits knowingly renting, managing or using property “for the purpose of manufacturing, distributing, or using any controlled substance;” § 863 of the CSA makes it a crime to sell or offer for sale any drug paraphernalia, which is defined to include, among other things, “equipment, product, or material of any kind which is primarily intended or designed for use” in manufacturing a controlled substance; and § 855 provides for a fine against a person “who derives profits or proceeds from an offense [of the CSA].”6 Thus, not only would a trustee who offers marijuana for sale violate the law, so too would a trustee who liquidated the fertilizer or equipment used to grow marijuana, who collected rent from a marijuana business tenant or who sought to collect the profits of a marijuana investment. Although cases involving illicit proceeds of Ponzi schemes and other criminal activities — seen in such notorious cases as Enron, Dreier LLP and Madoff — are administered in bankruptcy, they deal with the aftermath of fraud, usually after individual wrongdoers have been removed from the business. Such cases are wholly inapposite analogies to a marijuana case, where the illegal activity is still continuing through the bankruptcy administration process and where bankruptcy relief might allow the company to expand its violations of law in the future. Nor do any of those cases involve proposed chapter 11 and 13 plans where the feasibility of the plan itself is directly premised on the continued 6 Controlled Substances Act, 21 U.S.C. § 801, et seq.
ABI Journal
receipt of profits from an illegal enterprise. And none of them requires the courts or trustees to deal with property of the kind described in the CSA, for which mere possession is a federal crime. Similarly, although the author cites two decades-old decisions in support of his claim that “courts have not always shied away from handling marijuana-related bankruptcies,”7 it is noteworthy that neither of those decisions involved active marijuana operations or would have required a bankruptcy trustee to administer any illegal marijuana assets.8 Both Chapman and Kurth Ranch involved bankruptcy cases that were filed after law enforcement had arrested and seized the assets of marijuana growers. The legal issues raised by the current wave of marijuana filings were simply not present in those cases: Neither case involved an ongoing violation of law, and in neither case were there any marijuana assets to be administered, because all illegal assets had been seized and disposed of pre-petition. Finally, the article suggests that the “ongoing conflict over marijuana policy” is one that should take place outside the bankruptcy system. The USTP agrees. However, that does not mean that the USTP or the courts should turn a blind eye to bankruptcy filings by marijuana businesses. Rather than make its own marijuana policy, the USTP will continue to enforce the legislative judgment of Congress by preventing the bankruptcy system from being used for purposes that Congress has determined are illegal. abi 7 Id. at 25. 8 See Dep’t of Revenue v. Kurth Ranch, 511 U.S. 767 (1994); In re Chapman, 264 B.R. 565 (B.A.P. 9th Cir. 2001).
December 2017 35
Dicta By Hon. Frank J. Santoro
Did You Really Just Say That? Listening and the Art of Advocacy
W
Hon. Frank J. Santoro U.S. Bankruptcy Court (E.D. Va.); Norfolk Hon. Frank Santoro is a U.S. bankruptcy judge for the Eastern District of Virginia. He previously served as a chapter 7 and 13 trustee and practiced in bankruptcy, corporate reorganizations and corporate finance.
36 December 2017
hen I was appointed to the bench, I promised my friends and myself that I would never forget how hard lawyers work and how difficult it is to be an effective advocate. I try to remind myself of that every time I go into court. Bankruptcy lawyers work hard under difficult circumstances. They are tasked with solving unsolvable problems in real time with limited or no resources. These problems affect actual human beings every day. The problems presented are complex, the pace of the process can be daunting, and the pressure is enormous. It is no surprise that sometimes cases can go sideways. How can you avoid this? Every lawyer is well-trained in the technical aspects of the profession: Analyze the facts, identify the issues, evaluate the applicable legal principles, understand the technical and multifaceted aspects of the Bankruptcy Code and Rules, and turn all of this into a finished product that will help resolve the client’s problem. However, good lawyering and effective advocacy require more than mastering the technical aspects of the law. There is a certain amount of art that goes into the process. The pressures of being a practicing bankruptcy lawyer are manifold. There are market pressures associated with the practice of law. There are client expectations, which are not always reasonable or even grounded in reality. There is the pressure of constantly interacting within the confines of the adversary system. There are self-imposed pressures to excel and perform effectively. These are real-world pressures that boil to the surface almost every time a lawyer enters the courtroom. The art of listening is often lost in the mix. Let’s face it: The courtroom is a dynamic, action-packed and pressure-filled environment. Sometimes, a lawyer is unable to slow his/her internal dialogue sufficiently to listen, and listen carefully, to what is going on. Listening is crucial, especially when it comes to understanding, actually hearing and effectively responding to questions from the bench. Fueled by adrenaline and caught up in the combative nature of the adversary system, lawyers are often unable to understand a judge’s question and discern the reason for the question. Sometimes, they simply cannot focus on the question and are therefore often unable, in that precise moment, to formulate a response. This is important because, generally speaking, most judges want to and are willing to rule in your favor most of the time. It is up to you — as the
advocate — to present the case in a fashion that will enable or facilitate this. What are the tools that will maximize the lawyer’s ability to do this? The first tool is simple in concept and difficult in practice. It is essential to know more about your case than anyone else in the courtroom. While this is not always possible, it should be the norm. If you aspire to do this, put in place processes in order to accomplish it and consistently take the time in advance to be a good lawyer, thus reducing the pressures of the courtroom experience. Good, solid preparation and a comfortable facility with the operative facts and applicable law are essential foundation blocks of good advocacy. However, every lawyer reading this article knows that and tries to do exactly that. What else should be done? In answering this question, some context is necessary. First, and most importantly, judges are removed from the day-to-day tensions of the adversary system. The judge does not have a client to represent. He/she does not have an adversary on the other side of the courtroom. Please remember and understand that. For a judge, the process generally allows time for cool review, analysis and reflection with regard to the specific issue in a case. In this regard, it is almost the polar opposite of the day-to-day practice of law because the function of the court is to understand as fully as possible the facts of the case and the law applicable to those facts in order to make an informed decision on the merits. When a judge asks a question, it is to further this objective or assist the lawyer in considering a different view of the issue and how it might be resolved. It is never to belittle or argue with the lawyer. Unfortunately, a judge sometimes experiences a lawyer shutting down, becoming defensive, being non-responsive or all of the foregoing when questioned by the court. Most judges ask questions of lawyers to assist in enabling the lawyer to understand a different perspective that might facilitate a more complete inquiry into the case. Being able to express a cogent response to the inquiry is an essential trial skill — and it is one that requires a lot of work to develop. Lawyers who are able to formulate a calm, reasoned response realize that judges have neither the desire nor the appetite to engage in an argument with a lawyer. While it is understandable that a lawyer might be caught up in the moment and view a question or inquiry as an effort to argue (and all judges understand ABI Journal
this), it is important for the lawyer to combat this instinctive reaction, slow down his/her thinking, and try to respond in a balanced, candid and composed fashion. The judge is not the adversary. However, the judge’s question is presented within the context of the real-time excitement of the adversary system. Therefore, it is inevitable that some of that stress will bleed over into the lawyer’s reception of the question. The misconception that the judge is the lawyer’s adversary is compounded because lawyers often have not honed good, solid listening skills. They might think that they have, but developing these skills is analogous to getting in shape for an athletic event. It takes practice, discipline, focus and desire — and it is a never-ending process. Like so many things, developing good listening skills is a constant struggle for most people. The purpose of this article is to help you, as a lawyer, understand the need to develop these skills. Doing so will enable you to focus on the court’s questions and not be burdened with the perception that the question is an exercise in argumentation or advocacy. This skill is a critical prerequisite of effective advocacy. An example drawn from a case docket will help illustrate the point. This example does not represent an actual case but is an amalgamation of several real events. The lawyer, clients and chapter 13 trustee appear at a hearing on a motion for approval of a post-confirmation loan modification in a chapter 13 case. It appears that the loan modification is a good deal for the debtors, but there are significant inadequacies in the motion that counsel needs to consider and address. These inadequacies were highlighted by the trustee’s response in opposition to the motion. During the hearing, the court asked the lawyer several questions regarding the structure of the transaction and the nature of the relief being requested. The lawyer was unable to answer those questions. The court then observed that the inadequacies described by the chapter 13 trustee prevented a favorable ruling on the motion and specified the reasons why. The court then asked counsel, “Do you have a motion?” Counsel replied, “Yes, I have a motion to modify the loan and would like for you to grant it.” After taking a moment to recover, the court made a couple of points. First, with some important modifications, the motion was likely to be granted. Second, when the trial judge asked for a motion under the circumstances, she was generally suggesting that counsel move for a continuance or an adjournment to address the concerns that had been expressed by the court or were otherwise apparent from the record. As a result of this and further prompting from the court, the lawyer requested a continuance for purposes of modifying the motion so that the concerns of the chapter 13 trustee and the court might be addressed. Attentive listening to the court’s concerns would have revealed the intent behind the question and signaled to the lawyer that the court was amenable to his seeking a continuance to make necessary amendments to his motion so that he could obtain the court’s granting of the motion — all of which would have reduced the stress on the lawyer and the clients. Careful preparation and listening do not occur in isolation. These are interrelated and flow from and into one another. If the lawyer had “listened” to the chapter 13 trustee’s response in preparation for the hearing, that hearing would ABI Journal
have been less stressful. In that regard, listening is also the ability to recognize and respond to the merits of a well-stated contrary position. Therefore, listening is more than auditory; it is a component of the ability to be intellectually flexible and responsive in the face of a contrary position — and it was noticeably absent in this instance. Every lawyer has experienced one or more of these moments at some point in his/her career, and judges are no exception. We remember and empathize in these circumstances. I know that I experienced my share of these moments, but the key is to realize that these moments will occur, make sure that they are minimized (they will never be eliminated), develop effective listening skills, process in real time, and overcome the inevitable figurative (and sometimes literal) intake of breath that follows. With that observation, how does this apply to your practice? What can you get out of this article that will help you to be more effective and reduce the ever-present stress in the practice of law? First and always, prepare. This means understanding and being attuned to the client’s situation and needs. Remember that you are the lawyer and must, to the best extent possible, continued on page 76
December 2017 37
Chapter 8 Humor By Joseph Boufadel
There and Back Again
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Perspectives on Practicing Law While Parenting
Joseph Boufadel Salvato Law Offices Los Angeles Joseph Boufadel is a bankruptcy litigator with Salvato Law Offices in Los Angeles. He is also a certified specialist in bankruptcy law from the State Bar of California’s Board of Legal Specialization.
t a recent outing of the Monday Night Lawyers Movie Club in Los Angeles, I bombarded the group with photographs of my daughter. As a proud new parent, I assumed that everyone would love to see pictures of my favorite (and only) “mini-me” daughter, Emma, with her big brown eyes and curly dark hair. What’s not to love? After enduring the onslaught of pictures and stories, J. Scott Bovitz1 of Bovitz & Spitzer retaliated. Bovitz: Cute photos. You should write a Chapter 8 Humor article — you know, a personal-interest story about how becoming a parent has impacted your practice. Boufadel: I’m not comfortable writing about myself. Bovitz: Do it. Aren’t you a millennial? Talking about yourself should come easily. Plus, maybe at least a few readers of the ABI Journal will find it interesting and refreshing to hear a different perspective on being a parent today as a bankruptcy litigator. I know what many of you are thinking: “Who wants to hear from only a millennial?” 2 Good question. Luckily, I agree with you and recruited my mother-in-law, who kindly agreed to compare notes on her experiences parenting a bunch of millennials. Some of you probably know her as Lisa Hill Fenning, who has also been an ABI member since 1992. She was a bankruptcy judge in Los Angeles from 1985-2000, when she returned to practice to pay for college for my then-future wife, Danielle, and Danielle’s three siblings. 3 Along the way, she found time to sit on the boards of ABI and NCBJ, handle a bunch of mega-cases, and do some other good bar stuff. And, from my personal perspective, her kids still managed to turn out OK (“OK” equals “terrific” if they are reading this). What follows is a discussion about our experiences in practicing law and being a parent during the 1980s, 1990s and now, and how the tools available to attorneys have evolved since that time. 1 A thank you goes to Mr. Bovitz, who also serves as a coordinating editor for the ABI Journal, for his editorial suggestions and for the opportunity to write this article. Also, a big thank you goes to Mrs. Fenning and my wife for their insights and edits. 2 “Sorry, baby boomers and Gen Xers, but the millennials aren’t going away.... Millennials, defined as individuals born between roughly 1980 and 2000, are now the largest generation.” See David Lat, “4 Trends Shaping The Future Of The Legal Profession,” Above the Law (Oct. 5, 2017), available at abovethelaw.com/2017/10/4-trends-shaping-the-futureof-the-legal-profession (unless otherwise specified, all links in this article were last visited on Oct. 18, 2017). 3 She retired from Arnold & Porter Kaye Scholer LLP last year but still does pro bono and other projects.
38 December 2017
Getting Work Done While on Maternity/Family Leave
Boufadel: You had two children while practicing law and two more while on the bench. First question: How did you survive? Fenning: In the Dark Ages (i.e., the early 1980s), I was a senior associate at O’Melveny when we had Danielle and her big sister. The firm didn’t exactly have a formalized maternity leave policy; I was only the second woman lawyer at the firm to have a baby. Of course, the firm only had one Hon. Lisa Hill woman partner, so this female Fenning (ret.) lawyer thing was still pretty new. I experienced pregnancy complications and was confined to bed rest for the last few months of both pregnancies. The first time, I worked from my bed reviewing medical records for a large class action we were defending, shipping boxes of documents back and forth to the office. I also studied up on the then-brand-new Bankruptcy Code to help start a Bankruptcy Practice Group at the firm. The second time, I had advanced warning and organized a similar set of projects to run from my bed. The federal judiciary had no maternity policy at all (women of childbearing years weren’t expected to be judges). But my colleagues were supportive, and we planned ahead. I went off the wheel at that time, and front-loaded my hearings before going on leave. For adversary proceedings, I simply set the next hearing date and deadlines far enough down the road that I would be back (and many never noticed I was gone). Matters that required hearings were handled by a visiting judge from Chicago for my third child, and by a Ninth Circuit judge who was curious about how bankruptcy really works (Alex Kozinski, using a bit of jurisdictional sleight of hand) for my fourth. Since this was still before 1992, we had no internet or electronic filing. So the applications, motions, proposed orders and supporting papers were delivered to the house by the bucketload in big blue official business pouches that held up to about six to eight inches of paper. I reviewed them, manually signed the orders, and shipped them back to court. Today, there would be none of that. Just log in electronically from anywhere, review papers and enter orders online. Done. ABI Journal
Boufadel: I remember working from the home office during the initial weeks after Emma was born. While Danielle got some much-needed rest, I had Emma parked in the Pack ’n Play next to my desk. She was cozy and swaddled like a little burrito. Luckily, at that time, she was mostly a slug and didn’t wake to my incessant typing on what I now know is a loud mechanical keyboard. For those times I needed to address client matters, I could work from home as if I was in the office with access to everything electronically. If a document needed to be assembled and served, I could send it to the office. Expectations are different now. Immediacy is paramount, and I couldn’t imagine working primarily by snail mail.
Bring Your Child to Work Day
Fenning: On occasion, the kids would come with me while I was on the bench. They would come in with me on the train from South Orange County, which was always kind of fun for them. In court, they would sit at my unused courtroom deputy desk and color, read books or amuse themselves during hearings. When they got bored, they could go back into chambers through the private door and help my judicial assistant “sort” papers. Boufadel: Danielle told me a story about one of those days. She was amusing herself in the courtroom when she suddenly became far more interested in the proceedings because your tone had changed in speaking to an attorney, and Danielle knew he was in trouble. She distinctly remembers thinking, “Wow, adults get a talking to like that (from my mom), too.”
ABI Journal
Fenning: Yes, well, sometimes managing a courtroom does bear a strong resemblance to breaking up playground fights among 6-year-olds. Boufadel: Emma would probably get a kick out of the train ride to Los Angeles (for probably 30 minutes before wanting out). But I feel that when I work from home, it is as if I’m bringing Emma to work with me. As a bankruptcy practitioner, the day-to-day is unlike attorneys on television. Other than being in court or at a deposition, for example, I work at my desk — drafting motions, responding to emails, speaking with clients. And my home office is nearly identical to the office in Los Angeles: an L-shaped desk, dual screens, desk space to pile stacks of documents and coffee always available. Emma, of course, doesn’t see a difference between her house and the home office. A door is no barrier to her insistence that I play with her. One time, I kept the door only partially closed. Emma barged into the room to play and did not care that I was on a conference call or that I had stacks of paper carefully arranged on my desk. She was also immune to my negotiation to play outside (she’ll make a good lawyer one day). She simply wanted to play, and that was that.4 4 It reminds me of a recent and entertaining video where a professor’s two children wandered into his home office while on a video interview with the BBC. The children just wanted to play, and the mother rushed in to extricate the kids. The video went viral for other reasons, too. See Jessica Roy, “That Asian Mom Is Not the Nanny. Why Do So Many People Assume She Is?,” Los Angeles Times (March 10, 2017), available at latimes.com/nation/la-na-bbc-professor-video-asian-wife-nanny-stereotypes-20170310-story.html.
continued on page 70
December 2017 39
ABC Insights By Michael D. Fielding
Board Certification Reduces Risk of Attorney Grievances
O
Michael D. Fielding Husch Blackwell LLP Kansas City, Mo. Michael Fielding is a partner with Husch Blackwell in Kansas City, Mo. He is board certified in business bankruptcy law by the American Board of Certification and is a member of its board of directors.
ver the past few years, complaints to state bar entities against attorneys have nearly doubled. In 2015, approximately one out of every 10 attorneys could expect to have a complaint made against them to their state bar agency. In addition, approximately one out of every 200 practicing attorneys could expect to receive some sort of private or public discipline. In an era with more than 1.4 million practicing attorneys, is there a way for clients to quickly identify lawyers who are significantly less likely to be the subject of an attorney grievance or disciplinary action? Yes, there is, if the attorney practices in bankruptcy or creditors’ rights law. The American Board of Certification (ABC) is a nonprofit entity that objectively certifies attorneys who meet its rigorous standards. These attorneys are substantially less likely to have grievances lodged to state bars or have disciplinary actions taken against them. This article considers why board certification creates such a strikingly significant statistical difference.
The ABA Study
Each year, the Standing Committee on Professional Discipline of the American Bar Association’s (ABA) Center for Professional Responsibility releases the results of its Survey on Lawyer Discipline Systems (the “SOLD survey”) questionnaire, which is sent to 56 lawyer disciplinary agencies throughout the U.S. The survey reveals significant data regarding attorney disciplinary actions on a state-by-state basis. Let’s take a look at the SOLD survey results for 2013-15. The 2013 SOLD survey found that there were nearly 1.19 million active lawyers in the U.S. 1 During that time, there were a total of 43,535 complaints received by attorney disciplinary agencies.2 Plus, there were an additional 24,133 complaints pending as of the beginning of the year. 3 Of the total pending and new complaints received that year, 41,167 were summarily dismissed or screened out by the disciplinary agency.4 There were 55,078 complaints that were investigated,5 and 23,402 of the complaints were subsequently closed or dis1 2013 SOLD Survey, Total for Item 1, available at americanbar.org/groups/professional_ responsibility/resources/historicalabasoldsurveys.html. 2 2013 SOLD Survey, Total for Item 2. 3 2013 SOLD Survey, Total for Item 3. 4 2013 SOLD Survey, Total for Item 4. 5 2013 SOLD Survey, Total for Item 5.
40 December 2017
missed.6 Ultimately, 4,150 attorneys received some form of private discipline,7 while 2,600 lawyers were publicly disciplined.8 The SOLD survey for 2014 found that there were 1.235 million active lawyers in the U.S. 9 That year, there were a total of 88,930 complaints received by attorney disciplinary agencies. 10 There were an additional 27,340 complaints pending as of the beginning of 2014.11 Of those pending and new complaints, 43,998 were summarily dismissed or screened out by the disciplinary agency.12 There were 63,257 complaints that were investigated,13 and 34,317 of the complaints were subsequently closed or dismissed. 14 Ultimately, 4,884 attorneys received some form of private discipline, 15 and 4,566 lawyers were publicly disciplined.16 In April 2017, the SOLD survey for the 2015 calendar year was released. 17 It found that there were just over 1.4 million active lawyers in the U.S. 18 During that time, there were a total of 116,175 complaints received by attorney disciplinary agencies.19 Plus, there were an additional 28,498 complaints pending as of the beginning of the year.20 Of the total pending and new complaints received that year, 40,856 were summarily dismissed or screened out by the disciplinary agency.21 There were 67,895 complaints that were investigated,22 and 34,381 of the complaints were subsequently closed or dismissed. 23 Ultimately, there were 4,747 attorneys who received some 6 2013 SOLD Survey, Total for Item 5. 7 2013 SOLD Survey, Totals for Items 8-8c. The private discipline consisted of the following: 2,034 (private/nonpublic disciplinary sanctions); 900 (admonition); 319 (reprimand); and 897 (letter of warning/caution). Id. 8 2013 SOLD Survey, Total for Item 9. 9 2014 SOLD Survey, Total for Item 1, available at americanbar.org/groups/professional_ responsibility/resources/historicalabasoldsurveys.html. 10 2014 SOLD Survey, Total for Item 2. 11 2014 SOLD Survey, Total for Item 3. 12 2014 SOLD Survey, Total for Item 4. 13 2014 SOLD Survey, Total for Item 5. 14 2014 SOLD Survey, Total for Item 6. 15 2014 SOLD Survey, Totals for Items 10-10c. The private discipline consisted of the following: 2,077 (private/nonpublic disciplinary sanctions); 1,022 (admonition); 258 (reprimand); and 1,527 (letter of warning/caution). Id. 16 2014 SOLD Survey, Total for Item 11. 17 The 2015 SOLD Survey (available at americanbar.org/content/dam/aba/administrative/professional_responsibility/2015_sold_results.authcheckdam.pdf) indicates that Connecticut, Nevada and South Dakota did not provide responses by the deadline. 2015 SOLD Survey, Introduction. Given various issues with the reporting, the SOLD Survey estimates various total figures. 18 2015 SOLD Survey, Total for Item 1, p. 3. 19 2015 SOLD Survey, Total for Item 2, p. 3. 20 2015 SOLD Survey, Total for Item 3, p. 7. 21 2015 SOLD Survey, Total for Item 4, p. 7. 22 2015 SOLD Survey, Total for Item 5, p. 7. 23 2015 SOLD Survey, Total for Item 6, p. 7.
ABI Journal
form of private discipline 24 and 3,146 lawyers who were publicly disciplined.25 What are the practical takeaways from these figures? In 2015, as a practicing attorney, there was a 10.3 percent chance that you had a pending or new complaint made against you. If a complaint was made, you had a 28.2 percent probability of having the complaint summarily dismissed. If it was investigated, you had a 23.8 percent chance of then having it dismissed following the investigation. In other words, more than half of all disciplinary complaints resulted in no adverse outcome for the attorney. Please note that not all complaints received in 2015 would have been resolved by the year’s end but would carry into 2016. As such, it is not possible to accurately determine from a year-to-year survey how many complaints ultimately result in some sort of public or private disciplinary action being taken. However, given the 4,747 attorneys who were privately disciplined and the 3,146 attor24 2015 SOLD Survey, Total for Items 10-10c, p. 15. The private discipline consisted of the following: 1,824 (private/nonpublic disciplinary sanctions); 1,088 (admonition); 257 (reprimand); and 1,578 (letter of warning/caution). Id. 25 2015 SOLD Survey, Total for Item 11, p. 20.
SOLD Survey Results, 2013-15 Year
Active Lawyers
New Complaints
Pending Complaints
Percentage
2013
1,187,777
43,535
24,133
5.7%
2014
1,235,298
88,930
27,340
9.4%
2015
1,403,258
116,175
28,498
10.3%
ABI Journal
neys who were publicly disciplined, one can conclude that there is at least a 0.56 percent chance that an attorney would receive some sort of public or private disciplinary action. In other words, in 2015, approximately one in 10 practicing attorneys could expect to have some sort of bar complaint made against them, and roughly one out of every 200 attorneys could expect to receive some sort of disciplinary action. When the SOLD survey results are compared on a yearto-year basis, it becomes clear that there is a marked increase in complaints about attorney performance. The table summarizes SOLD survey results for 2013-15.26 Strikingly, in the past few years, the percentage of complaints against lawyers has nearly doubled. While the cause of the growing client dissatisfaction is beyond the scope of this article, these numbers are cause for concern. With the large number of practicing attorneys today, how can clients quickly discern which attorneys are highly immune from client complaints or disciplinary actions?
The American Board of Certification
Statistically speaking, attorneys who are certified by the ABC are far less likely to have a complaint filed against them or be the subject of a state bar disciplinary action. Founded in 1992 as a nonprofit organization, the ABC seeks to improve the quality of representation in bankruptcy and creditors’ rights law. According to its website, “ABC offers separate 26 The ABA released the 2013 SOLD Survey in October 2014, and the 2014 SOLD Survey was released in January 2016.
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Nov. 30-Dec. 2, 2017 La Quinta Resort & Club Palm Springs, Calif. Directory of Exhibitors and Sponsors Associations American Board of Certification International Women’s Insolvency & Restructuring Confederation Turnaround Management Association Attorneys/Counsel Cravath, Swaine & Moore LLP Gray Reed & McGraw LLP Greenberg Traurig, LLP (Capital Partner) Jenner & Block LLP McGuireWoods LLP (Capital Partner) Nelson Mullins Riley & Scarborough LLP Pachulski Stang Ziehl & Jones LLP (Capital Partner) Polsinelli (Capital Partner) Proskauer Saul Ewing Arnstein & Lehr, LLP Shaw Fishman Glantz & Towbin LLC Shook, Hardy & Bacon, LLP Snell & Wilmer, LLP Case Management and Support Services American Legal Claim Services, LLC BMC Group CourtCall LLC Donlin, Recano & Company, Inc. (Capital Partner) GCG KCC (Capital Partner) Loeb & Loeb LLP Rust Omni
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Corporate Recovery/ Reorganization AlixPartners LLP (Capital Partner) Deloitte CRG (Capital Partner) Development Specialists, Inc. (Capital Partner) EisnerAmper LLP (Capital Partner) FTI Consulting, Inc. (Executive Partner) Gavin/Solmonese LLC (Presidential Partner) Getzler Henrich & Associates, LLC Grant Thornton LLP (Capital Partner) T.D. Consulting, LLC Debtor Counseling and Education Credit Abuse Resistance Education Expert and Financial Services/ Consulting Baker Tilly Virchow Krause, LLP Bentham IMF Conway MacKenzie (Capital Partner) Intapp
Sherwood Partners, Inc./agencyIP Wilmington Trust (Presidential Partner) Insurance/Investment Banking/ Advisory Services Burford Capital East West Bank Liquidation/Valuation/Appraisal Ritchie Bros. Publishers/Media ABI Bookstore Bloomberg Law (Presidential Partner) ModioLegal Thomson Reuters (Presidential Partner) The Wall Street Journal (Executive Partner) WSJ Pro Bankruptcy
ABI Bookstore 66 Canal Center Plaza, Suite 600 • Alexandria, VA • 22314 Contact: James H. Carman, Director of Communications jcarman@abi.org • Phone: (703) 739-0800 store.abi.org Stop by the ABI Bookstore during the conference and browse the latest ABI titles, including Survival Guide to Bankruptcy for In-House Counsel and Admitting Valuation Evidence Before the U.S. Bankruptcy Courts. ABI books are written by experts in the field and are widely used by the bankruptcy bar, bench and others involved in the bankruptcy process. AlixPartners LLP 909 Third Ave., 30th Floor • New York, NY • 10022 Contact: Lisa Donahue, Managing Director ldonahue@alixpartners.com • Phone: (212) 297-6329 www.alixpartners.com In today’s fast-paced global market, timing is everything. You want to protect, grow or transform your business. To meet these challenges, we offer clients small teams of highly qualified experts with profound sector and operational insight. Our clients include corporate boards and management, law firms, investment banks, investors and others who appreciate the candor, dedication and transformative expertise of our teams. We will ensure that insight drives action at that exact moment that is critical for success. When it really matters. American Board of Certification 4403 1st Ave. SE, Suite 113 • Cedar Rapids, IA • 52402 Contact: Kristin Delfs, Assistant Executive Director assistantdirector@abcworld.org • Phone: (319) 365-2222 www.abcworld.org Join more than 700 attorneys and judges who are certified in business bankruptcy law, consumer bankruptcy law and creditors’ rights law by the American Board of Certification (ABC). The ABC is a national nonprofit organization dedicated to serving the public and improving the quality of the insolvency and creditors’ rights bar. ABC certification serves the public by helping clients make informed decisions when choosing bankruptcy and creditors’ rights counsel. American Legal Claim Services, LLC 5985 Richard St., Suite 3 • Jacksonville, FL • 32216 Contact: Jeff Pirrung, Managing Director jeff.pirrung@americanlegalclaims.com Phone: (904) 517-1444 www.americanlegalclaims.com The American Legal Claim Services, LLC (ALCS) team has been providing support services in the bankruptcy and restructuring arenas for more than 20 years. Whether it be as claims and noticing agent, balloting or distribution agent, or providing a back-office suite of services to liquidating trustees or other ancillary administrative-support services, ALCS continues to surpass the expectations of its clients. ALCS’s experience, coupled with its commitment to responsiveness, creative solutions and cost structure, make it a go-to provider for any middle-market case.
Baker Tilly Virchow Krause, LLP 205 N. Michigan Ave. • Chicago, IL • 60601 Contact: Anne Rasho Vanderkamp, CFE/Principal, Forensic, Litigation and Valuation Services anne.vanderkamp@bakertilly.com • Phone: (312) 228-7324 www.bakertilly.com Baker Tilly Virchow Krause, LLP is a full-service accounting and advisory firm with specialized professionals who connect with you through refreshing candor and clear industry insight. Attorneys and their clients count on the firm’s national Forensic, Litigation and Valuation Services Group to provide strategic and tactical advice in order to craft winning strategies. With economic and financial analysis, valuations, litigation support and expert witness testimony, Baker Tilly delivers value at every phase. Its integrated team of advisors — made up of forensic investigators, valuation specialists, restructuring professionals and certified public accountants — work together seamlessly on multifaceted financial matters. Combining deep industry expertise and sophisticated technical knowledge, Baker Tilly delivers creative solutions that resonate, educate and persuade in the boardroom or courtroom. Bentham IMF 437 Madison Ave., 19th Floor • New York, NY • 10022 Contact: Allison K. Chock, Chief Investment Officer info@benthamimf.com • Phone: (213) 550-2687 www.benthamimf.com Bentham IMF is the U.S. arm of IMF Bentham Ltd., one of the most successful litigation funding companies in the world, with a portfolio that has a total claim size value of AUD$3.8 billion. The companies have 11 offices throughout the world and provide funding to clients in the U.S., Australia, Canada, New Zealand, Hong Kong and Singapore. They have funded to completion more than 162 cases in the past 16 years, generating more than AUD$2.1 billion in recoveries and achieving a 91 percent success rate, with their clients retaining an average of 62 percent of all case proceeds. Bloomberg Law tradeshows@bna.com • Phone: (800) 372-1033 www.bna.com/bloomberglaw Bloomberg Law provides proprietary market data, trusted content and legal analysis, together enabling and accelerating client growth, client excellence and client profitability. Bloomberg Law’s Bankruptcy Practice Center’s tools and resources help users stay up to date on changes in bankruptcy and restructuring; track recent filings, motions and decisions; and implement revisions to bankruptcy rules and forms. BMC Group Contacts: Tinamarie Feil • tfeil@bmcgroup.com Oliver Zurbel • ozurbel@bmcgroup.com Varouj Bakhshian • vbakhshian@bmcgroup.com Phone: (800) 655-1129 www.bmcgroup.com BMC Group has been a premier claims and noticing agent for nearly 20 years. Always leveraging technology, the firm’s solutions deliver cost-efficient quality. Value-added services
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include public securities and solicitation expertise, as well as complex distribution excellence. BMC Group is proud to be the only claims agent with its own top-tier virtual data room platform (SmartRoom™), available in nine languages. With offices around the world, BMC Group provides global 24/7 resources and delivers the expertise, technology, tools and services that are required to ensure timely and accurate data for informed decision-making. Burford Capital 292 Madison Ave. • New York, NY • 10017 Contact: Emily Slater, Director info@burfordcapital.com • Phone: (212) 235-6820 www.burfordcapital.com Burford Capital is a leading global finance and investment management firm focused on law. Its businesses include litigation finance and risk management, asset-recovery, and a wide range of legal finance and advisory activities. Burford Capital is publicly traded on the London Stock Exchange, and it works with law firms and clients around the world from its principal offices in New York, London and Chicago. Conway MacKenzie 401 S. Old Woodward Ave., Suite 340 Birmingham, MI • 48009 Contact: Jason Lewis, Marketing Manager jlewis@conwaymackenzie.com • Phone: (248) 433-3100 www.conwaymackenzie.com Conway MacKenzie is a complete business-advisory firm that provides services that are focused on financial, operational and strategic growth. Our professionals’ breadth of experience and depth of understanding of our clients’ businesses allow us to adopt a multidisciplinary approach to problem-solving. From transaction services and private-fund services to turnaround management and litigation services, Conway MacKenzie provides solutions that can guide your company to where you need it to be. CourtCall LLC 6383 Arizona Circle • Los Angeles, CA • 90045 Contact: Jim Kelley, National Sales and Marketing Manager jkelley@courtcall.com • Phone: (888) 882-6878 Ext. 266 www.courtcall.com CourtCall LLC is an organized and voluntary way for busy lawyers to make telephonic and/or video appearances from their offices, homes or other convenient locations. Our remote appearances are suitable for virtually any appearance or judicial assignment and are particularly well suited for status conferences, case-management conferences, motions, review hearings, trial-setting conferences and expert witness testimony. CourtCall is available at no cost or expense to the court, and blends into and conforms to a judge’s existing calendar schedule. CourtCall assists in reducing the cost of litigation for the court, saves busy attorneys the travel time to and from court, and saves the client thousands of dollars in legal fees. CourtCall will greatly enhance and improve access to justice in your court and legal community. CourtCall: Remote Court Appearances, Simplified.
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Cravath, Swaine & Moore LLP 825 Eighth Ave. • New York, NY • 10019 Contact: Paul H. Zumbro, Partner and Head, Financial Restructuring and Reorganization Practice pzumbro@cravath.com • Phone: (212) 474-1036 www.cravath.com Cravath, Swaine & Moore LLP has been active in restructuring since its founding, pioneering the reorganization of the railroad industry and continuing to represent clients in restructuring transactions that have marked pivotal moments in history. The firm’s Financial Restructuring and Reorganization Practice has substantial experience in reorganization, restructuring and bankruptcy matters, including debtor-in-possession and exit financing, advising directors and boards, distressed and bankruptcy M&A, bankruptcy litigation, and municipal and sovereign restructuring. Clients benefit from Cravath’s role as a strategic partner when faced with issues triggered by financial distress or insolvency, receiving complete representation from its restructuring specialists and premier Finance, Board Advisory, M&A and Litigation teams. Credit Abuse Resistance Education 66 Canal Center Plaza, Suite 600 • Alexandria, VA • 22314 Contacts: Anna Flores, Executive Director aflores@care4yourfuture.org Ian Redman, Program Coordinator iredman@care4yourfuture.org Phone: (703) 894-5985 www.care4yourfuture.org Credit Abuse Resistance Education (CARE) is a 501(c)(3) nonprofit that provides free financial education materials and presentations to local schools and community organizations throughout the country. CARE focuses on educating students and young adults on the responsible use of credit and the potential consequences of poor financial management. This program connects professionals in bankruptcy and other financial service industries with organizations to provide financial capability through the lens of real-world experiences and compelling stories. CARE has also undergone a modernization effort and is proud to announce a new curriculum and redesigned website. Deloitte CRG deloittecrg@deloitte.com www.deloitte.com/us/crg Deloitte CRG is a leader in helping organizations transform periods of financial difficulty or crisis into opportunities for rejuvenation. Having led both large multinational organizations and middle-market companies through unprecedented challenges, we apply our unrivaled experience and superior foresight to achieve successful outcomes for our clients, their creditors and equityholders. Whether the goal is to enhance the performance of a healthy company, assume an interim leadership role or guide stakeholders through complex bankruptcy reorganizations, our team works closely with clients to quickly understand their businesses and their most pressing issues, then advises them on how to move ahead with confidence.
Development Specialists, Inc. 70 W. Madison St., Suite 2300 • Chicago, IL • 60602 Other offices in New York, Los Angeles, Miami, London, San Francisco, Wilmington, Del., and Columbus, Ohio Contacts: Bradley D. Sharp bsharp@dsi.biz • Phone: (213) 617-2717 Geoffrey L. Berman gberman@dsi.biz • Phone: (213) 617-2717 Bill Brandt bbrandt@dsi.biz • Phone: (312) 263-4141 or (212) 425-4141 www.dsi.biz Development Specialists, Inc. (DSI) is one of the leading providers of management consulting and financial advisory services, including turnaround consulting, financial restructuring, litigation support and forensic accounting. DSI’s clients include business owners, private-equity investors, corporate boards, financial institutions, secured lenders, bondholders and unsecured creditors. For almost 40 years, DSI has been guided by a single objective: maximizing value for all stakeholders. With its highly skilled and diverse team of professionals, offices in the U.S. and international affiliates, and an unparalleled range of experience, DSI not only achieves that objective, but has also built a solid reputation as an industry leader. Donlin, Recano & Company, Inc. 48 Wall St. • New York, NY • 10005 Contact: Nellwyn Voorhies, Executive Director nvoorhies@donlinrecano.com • Phone: (619) 346-1628 www.donlinrecano.com Donlin, Recano & Company, Inc., an affiliate of American Stock Transfer & Trust Company, LLC, has served more than 200 national clients across a broad range of industries and business sectors. Working with counsel, turnaround advisors and affected companies, Donlin Recano provides best-in-breed services for distressed companies, including crisis communications, virtual data rooms, provisions of creditor notification, website-accessible information, formation of professional call centers, management of claims, balloting, distribution and other administrative services. We have the greatest capacity and capability in the industry, and all of it is handled in-house; we do not outsource anything. East West Bank 135 N. Los Robles Ave. • Pasadena, CA • 91101 Contact: Richard Arbuckle, Senior Vice President and National Sales Manager SDS richard.arbuckle@eastwestbank.com Phone: (404) 308-9843 www.eastwestbank.com East West Bank’s Specialty Deposit Services (SDS) offers companies and their advisors specialized banking and cash-management services designed to meet the specific needs of professional fiduciaries, state and federal court officers, debtors in possession, bankruptcy/restructuring attorneys, receivers, chief restructuring officers, classaction administrators, assignees and chapter 7 trustees. East West Bank is one of the strongest financial institutions in the nation, adding the security that you are depos-
iting funds with a bank that has a solid history of stability and growth. East West Bank is consistently ranked as a top 15 bank in the nation by Forbes. Its 2016 annual report reflects East West Bank’s seventh consecutive year of record earnings. East West Bank is approved to hold bankruptcy deposits nationwide. EisnerAmper LLP 111 Wood Ave. S. • Iselin, NJ • 08830 Contact: Allen Wilen, Partner allen.wilen@eisneramper.com • Phone: (732) 243-7386 www.eisneramper.com EisnerAmper LLP’s Bankruptcy and Restructuring Practice provides turnaround, restructuring and related advisory services to distressed companies, lenders, unsecured creditors and trustees in the middle-market environment. EisnerAmper’s results-driven approach, along with its breadth of capabilities in restructuring, insolvency advisory, valuation services and forensic accounting, results in the maximization of value for its clients and other stakeholders. EisnerAmper’s highly experienced team features years of experience with some of the largest national and international consulting firms, and it is able to leverage the global resources of EisnerAmper for tax and accounting consulting on domestic and cross-border issues. FTI Consulting, Inc. 227 West Monroe St., Suite 900 • Chicago, IL • 60606 Contact: Michael Buenzow, Senior Managing Director michael.buenzow@fticonsulting.com Phone: (312) 252 9333 www.fticonsulting.com FTI Consulting, Inc. is an independent global businessadvisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes. With more than 900 professionals located in 16 countries and 44 offices, its Corporate Finance and Restructuring professionals work closely with clients, partnering with them throughout the value-creation lifecycle to anticipate, illuminate and overcome complex restructuring, business transformation and transaction challenges, and opportunities. FTI’s experts with impact take an industry-first approach, delivering critical solutions in such industries as real estate; retail; automotive; energy, power and products; mining and metals; financial institutions; health care; and telecom, media and entertainment. Gavin/Solmonese LLC 919 N. Market St., Suite 600 • Wilmington, DE • 19801 Contact: Ted Gavin, CTP, Managing Director and Founding Partner ted.gavin@gavinsolmonese.com • Phone: (484) 432-3430 www.gavinsolmonese.com Gavin/Solmonese LLC leads business situations to resolution using the most progressive strategies. The firm’s Bankruptcy and Fiduciary Services Group leads turnarounds, restructurings and sales, and advises debtors, committees and lenders on bankruptcy plan evaluation, reorganization/restructuring, recovery optimization and litigation, in addition to serving as management, advisor, plan administrator, examiner or trust-
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ee. As interim management, the firm’s Corporate Recovery Practice Group provides leadership and maximizes value for underperforming and troubled companies and their stakeholders. Its litigation and mediation professionals provide expert guidance for valuations, purchase price disputes, IP/ brand valuations, damages, forensic investigations, board/ transaction issues, criminal matters, bankruptcy/advisory proceedings, due diligence, fraud discovery, mediation and settlement negotiations. GCG 1985 Marcus Ave. • Lake Success, NY • 11042 Contact: Jennifer Meyerowitz, Managing Director, Client Relations jennifer.meyerowitz@choosegcg.com Phone: (631) 470-5120 www.choosegcg.com GCG provides a fully integrated, multidisciplinary approach when addressing all aspects of a bankruptcy administration. With its best-in-class technology, industry experts and cost-effective programs, GCG takes a swift and proactive approach to address any hurdles that might arise. Its considerable experience managing the administration of bankruptcy cases in all chapters, out-of-court exchange offers, solicitations and rights offerings makes GCG an ideal partner for any administration. In acknowledgement of the firm’s experience and qualifications, GCG received M&A Advisor’s “Restructuring Deal of the Year” award for the chapter 11 reorganization of Quicksilver Resources Inc. and the “Information Management Product of the Year” award for 2016. Getzler Henrich & Associates, LLC 295 Madison Ave., 20th Floor • New York, NY • 10017 Contact: William Henrich, Co-Chairman whenrich@getzlerhenrich.com • Phone: (212) 697-2400 www.getzlerhenrich.com Getzler Henrich & Associates, LLC has been successfully assisting distressed or underperforming companies facing multiple challenges, in and out of court, for the past 50 years. The firm has been consistently recognized by Turnarounds & Workouts magazine as one of the nation’s outstanding firms over the last two decades. Tuned into the objectives and sensitivities of all stakeholders, the firm efficiently achieves the best solutions to restore/maximize value. Getzler Henrich & Associates, LLC serves middle-market companies (annual revenues up to $1 billion) with a variety of debt and capital structures in industries as diverse as health care, food and restaurants, oil and gas, manufacturing, distribution, retail and service. Grant Thornton LLP Grant Thornton Tower • 171 N. Clark, Suite 200 Chicago, IL • 60601 Contact: Jim Peko, National Managing Principal, Transaction Services jim.peko@us.gt.com • Phone: (646) 825-8400 www.grantthornton.com Grant Thornton LLP’s Transaction Services Practice helps high-growth, dynamic companies navigate complex
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transactions — whether buying or selling, restructuring or providing capital solutions — always with speed and agility. From deal strategy and valuation to evaluating the financial and operational issues affecting performance and identifying strategic alternatives, Grant Thornton helps solve problems, manage risk and seize opportunities to unlock your potential for growth. The people in the independent firms of Grant Thornton International Ltd. provide personalized attention and the highest-quality service to public and private clients, and can serve you in more than 130 countries. Gray Reed & McGraw LLP 1300 Post Oak Blvd., #2000 • Houston, TX • 77056 Contact: Madison Longust, Marketing Communications Specialist mlongust@grayreed.com • Phone: (469) 320-6126 www.grayreed.com Founded in 1985, Gray Reed & McGraw LLP is a fullservice, Texas-based law firm with more than 130 lawyers practicing in Dallas and Houston. Gray Reed offers a wide range of legal services, including business litigation, corporate transactions, oil and gas, tax planning and litigation, real estate, health care, trusts and estates, labor and employment law, family law, intellectual property and bankruptcy. The firm’s bankruptcy attorneys have significant experience representing troubled companies, trustees, secured and unsecured creditors, equityholders, owners, managers, committees and other constituents in financial distress, workout, turnaround, restructuring, planning and bankruptcy scenarios. Greenberg Traurig, LLP MetLife Building • 200 Park Ave. • New York, NY • 10166 Beth Hodgman, Senior Marketing Manager hodgmane@gtlaw.com • Phone: (312) 476-5012 www.gtlaw.com Greenberg Traurig, LLP’s internationally recognized Restructuring and Bankruptcy Practice has broad advisory and litigation experience with the often-complex issues that arise in reorganizations, restructurings, workouts, liquidations, and distressed acquisitions and sales, in both domestic and cross-border situations and proceedings. With offices in commercial centers across the U.S. and throughout the world, the firm utilizes its invaluable business network to offer critical advice and counsel to multiple constituencies in insolvency situations. Intapp 200 Portage Ave. • Palo Alto CA • 95124 Contact: Brea White, Marketing Events Manager brea.white@intapp.com • Phone: (650)-460-7512 www.intapp.com More than 650 firms with the most demanding, complex and thorough compliance needs use Intapp, including 91 of the top 100 global law firms. Intapp manages today’s intricate compliance challenges while maintaining the flexibility and agility to easily encompass tomorrow’s regulatory changes. Increasing regulations, threats of personal liability, fines and sanctions, and escalating client
demands are putting pressure on firms to transform the way they evaluate and onboard new clients and relationships, and how they manage those relationships throughout the engagement lifecycle. International Women’s Insolvency & Restructuring Confederation www.iwirc.com For more than 20 years, the International Women’s Insolvency & Restructuring Confederation (IWIRC) has been connecting women in the insolvency profession worldwide. With more than 40 networks in the U.S., Canada, Australia, Europe and Asia and 1,300 global members, IWIRC provides opportunities for networking, professional development, education, leadership and mentoring at both the local and international levels. IWIRC and its networks annually host and sponsor both substantive and networking programs in various international cities. Whether it is across the café table or the continents, the diverse backgrounds and emphasis on relationship-building make IWIRC the premier organization for women in the restructuring and insolvency professions. Jenner & Block LLP www.jenner.com Jenner & Block LLP’s Restructuring and Bankruptcy Practice enjoys a national reputation for excellence in challenging restructuring situations. Its partners have served as examiners and trustees in high-profile cases; debtor, litigation and conflicts counsel; strategic advisors to special board committees and investors; and committee counsel. The firm’s unique profile includes landmark victories before the U.S. Supreme Court, § 1114 retiree committee representations, remarkable wins in litigated insolvency matters, and unmatched experience in commodity broker liquidations. The firm’s partners include five fellows of the American College of Bankruptcy, the chair of the National Bankruptcy Conference, and faculty at law schools, CLE programs and judicial workshops. KCC 1290 Avenue of the Americas • New York, NY • 10104 Contact: Albert Kass, Executive Vice President, Corporate Restructuring Services akass@kccllc.com • Phone: (917) 281-4860 www.kccllc.com KCC, a Computershare company, is a leading claims and noticing agent providing administrative-support services to companies undergoing corporate restructurings. For more than a decade, KCC has set the standard for claims-administration services, with innovative technologies and the most experienced staff in the market who offer in-depth expertise and highly responsive client service. KCC provides claims administration, noticing, public securities services, strategic communications, document production, balloting and tabulation, disbursement services, and a suite of e-services on mobile and digital platforms. KCC’s solutions streamline chapter 11 and 9 processes while providing cost efficiencies and greater data management.
Loeb & Loeb LLP 345 Park Ave. • New York, NY • 10154 Contact: Walter H. Curchack, Department Chair wcurchack@loeb.com • Phone: (212) 407-4861 www.loeb.com/bankruptcypractice Loeb & Loeb LLP is a multi-service law firm with approximately 350 attorneys and offices across the U.S. and Asia. The firm’s Bankruptcy, Restructuring and Creditors’ Rights Practice brings experience and committed representation to all aspects of insolvency and bankruptcy law. Loeb & Loeb represents creditors, debtors, committees and trustees, as well as buyers and sellers of distressed assets, across a host of industries, including real estate, financial services, entertainment, energy, health care and telecommunications. The firm’s practice provides clients with consistent counsel from one integrated team by combining litigators and transactional attorneys to offer a multidisciplinary approach that achieves better results efficiently and expeditiously. McGuireWoods LLP Gateway Plaza • 800 E. Canal St. • Richmond, VA • 23219 Contact: Dion Hayes, Deputy Managing Partner dhayes@mcguirewoods.com • Phone: (804) 775-1144 www.mcguirewoods.com McGuireWoods LLP has more than 1,000 lawyers in 24 offices. Its Restructuring and Insolvency Department has 35 lawyers and represents senior lenders, debtors, unsecured creditors, estate fiduciaries, asset-acquirers, distressed-debt investors and equityholders in chapter 11 cases, out-of-court restructurings, and complex commercial and financial litigation and appeals. The group combines the bench strength of an international full-service law firm with the agility that is necessary for fast-paced insolvency transactions and litigation, including in such major cases as Lehman Brothers Inc., MF Global, Circuit City, LandAmerica, ASARCO, AMF Bowling, US Airways, Radio Shack and Rothstein Rosenfeldt Adler PA. ModioLegal P.O. Box 843 • Corona Del Mar, CA • 92625 Contact: Kevin C. Mitchell, CEO accounts@modiolegal.com • Phone: (949) 216-3720 www.modiolegal.com Everybody’s busy, so how do you make staying informed a priority? Join fellow ABI members already subscribed to ModioLegal’s ABI Journal audio edition and instead of forgoing billable desk-time, access the same content as the print version in a same-day, word-for-word, article-specific, human-narrated audio format while engaging in multi-tasking activities such as commuting and exercising. How much is an hour of your desk time worth? Stop by our booth to sign up for a free trial.
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Nelson Mullins Riley & Scarborough, LLP 101 Constitution Ave. NW, Suite 900 Washington, DC • 20001 Contact: H. Jason Gold, Chair, Bankruptcy and Financial Restructuring Practice jason.gold@nelsonmullins.com • Phone: (202) 712-2819 www.nelsonmullins.com With more than 550 attorneys and government-relations professionals, including more than 25 bankruptcy and restructuring attorneys practicing from offices in California, Florida, Georgia, Massachusetts, New York, Tennessee, West Virginia, Colorado, Washington, D.C., and throughout the Carolinas, Nelson Mullins Riley & Scarborough, LLP covers more than 65 diversified practice areas, including “bet-the-company” litigation, M&A and major regulatory matters, among others. Many Nelson Mullins clients — including growth companies, expanding local businesses and major international companies — retain the firm to provide all of their legal services. Other clients are national companies requiring assistance with specific regional or local legal matters. Pachulski Stang Ziehl & Jones LLP Phone: (310) 277-6910 www.pszjlaw.com Pachulski Stang Ziehl & Jones LLP (PSZJ) is the nation’s leading corporate restructuring boutique, with offices in Los Angeles, San Francisco, Wilmington, Del., and New York. PSZJ attorneys are experienced in representing all major constituencies in bankruptcy proceedings and out-of-court workouts, including debtors, committees, trustees, bondholders, asset-purchasers and third-party plan proponents. PSZJ also handles sophisticated business litigation and transactional matters as part of its renowned U.S. News & World Report’s “Tier One” restructuring practice. Polsinelli 222 Delaware Ave., Suite 1101 • Wilmington, DE • 19801 Contact: Christopher Ward, Managing Shareholder cward@polsinelli.com (@ChrisWard_DelBK) Phone: (302) 252-0920 www.polsinelli.com Polsinelli’s Bankruptcy and Financial Restructuring Group is a nationally recognized practice that is part of an Am-Law100 law firm with more than 800 lawyers, 20 offices and a national footprint, with attorneys from Delaware and New York, across the heartland and out to Los Angeles who provide cost-efficient legal services to clients via a mid-market rate structure and a collaborative culture. The Bankruptcy Group primarily represents chapter 11 debtors, official committees of unsecured creditors, trustees, individual creditors, distressed-asset purchasers and bankruptcy litigants across the nation. The firm also specializes in nonbankruptcy alternatives, including assignments for the benefit of creditors, out-of-court workouts, receiverships and state court liquidations. In addition, the Bankruptcy Group works in conjunction with Polsinelli’s top-ranked Health Care Practice to provide a special focus on distressed health care. Polsinelli is widely recognized
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for its The Devil’s Dictionary of Bankruptcy Terms, which is available for free on iTunes. Proskauer 70 W. Madison, Suite 3800 • Chicago, IL • 60602 Contact: Jeff J. Marwil, Partner jmarwil@proskauer.com • Phone: (312) 962-3540 www.proskauer.com Proskauer’s Business Solutions, Governance, Restructuring and Bankruptcy Group distinguishes itself by providing a full range of services to companies, boards of directors, management and acquisition parties. Corporate governance is a significant issue in today’s economy, and its lawyers are highly skilled in navigating fiduciary duties, as well as in acting as and representing independent fiduciaries and creditors’ committees in matters of distress and fraud. The firm regularly represents companies in distress, as well as their lenders, managers, directors, investors and creditors on the full spectrum of chapter 11, workout and insolvency-related issues. The firm’s group has been praised by Chambers USA for its intelligence and creativity in seeking to achieve clients’ goals. Ritchie Bros. 4444 Ritchie Road • Denver, CO • 80504 Contact: Zac Dalton, National Strategic Accounts Manager zdalton@ritchiebros.com • Phone: (720) 256-6578 www.ritchiebros.com www.rbauction.com www.ironplanet.com Established in 1958, Ritchie Bros., a global leader in full-service asset management and disposition, helps people buy and sell tens of thousands of equipment items, trucks and trailers at its live unreserved public auctions around the world and every day on its online marketplaces. In 2016, Ritchie Bros. sold $4.3 billion of equipment, including $2.1 billion sold to online buyers. Buyers benefit from its massive selection, convenient buying options and services, and fair, transparent buying with no games. Sellers can take advantage of its massive global buying audience, competing on-site and online bidders, and a selling process that is open, fair, transparent and efficient. Rust Omni 5955 DeSoto Ave., Suite 100 • Woodland Hills, CA • 91367 1120 Avenue of the Americas, Suite 440 New York, NY • 10036 Phone: (818) 906-8300 • (212) 302-3580 Contacts: Brian Osborne • bosborne@omnimgt.com Eric Schwarz • eschwarz@omnimgt.com Paul Deutch • pdeutch@omnimgt.com www.omnimgt.com Rust Omni is an industry-leading claims and noticing agent. Its expertise, proactive approach, extensive resources and client-friendly pricing models lead to exceptional personal service. With an ongoing commitment to powerful, intuitive technology solutions — virtual data rooms, online claims reconciliation, bulk email noticing and preference software solutions — Rust Omni achieves extraordinary cost-effective results for its clients. Its services include pre-petition
preparations, noticing, claims management, balloting, call centers, disbursements, U.S. Trustee compliance, public securities and equity-identification services, and post-confirmation trustee services. Saul Ewing Arnstein & Lehr, LLP Centre Square West • 1500 Market St., 38th Floor Philadelphia, PA • 19102 Contact: Jeffrey C. Hampton, Attorney jhampton@saul.com • Phone: (215) 972-7118 www.saul.com The 400-plus attorneys of Saul Ewing Arnstein & Lehr, LLP are dedicated to providing client-centric counsel to businesses throughout the U.S. and internationally from its 17 offices, stretching down the East Coast from Boston to Miami and extending into the Midwest by way of Chicago. The firm works with well-known corporations, exciting start-ups, and an array of closely held and privately held companies. Its commercial bankruptcy and restructuring attorneys counsel clients throughout the multiple phases of chapter 11 and reorganization proceedings from commencement to plan confirmation, handling matters ranging from straightforward chapter 11s to complex restructurings. Shaw Fishman Glantz & Towbin LLC 321 N. Clark St., Suite 800 • Chicago, IL • 60654 300 Delaware Ave., Suite 1370 • Wilmington, DE • 19801 Contact: Brian L. Shaw, Robert M. Fishman and Thomas M. Horan, Members Phone: (312) 541-0151 • (302) 480-9412 www.shawfishman.com Chicago- and Wilmington, Del.-based Shaw Fishman Glantz & Towbin LLC is one of the nation’s preeminent boutique commercial insolvency and litigation firms. Its attorneys are leaders in their fields and include two past ABI presidents and three Fellows of the American College of Bankruptcy, provide counsel to a wide variety of clients and offer aggressive-yet-pragmatic approaches to problem-solving and obtaining results. In 1998, Robert Fishman, Robert Glantz and Brian Shaw joined Shaw & Gussis, bringing with them thriving insolvency and bankruptcy practices. The addition of partners Steven Towbin, Peter Roberts and Ira Bodenstein, as well as Thomas Horan and the opening of its Wilmington, Del., office in 2016, have made Shaw Fishman’s Bankruptcy Practice Group one of the most sophisticated in the nation. The firm has since grown to 27 attorneys. Sherwood Partners, Inc./agencyIP Silicon Valley • Los Angeles • New York Contact: Martin Pichinson, Co-Managing Member mdp@shrwood.com • Phone: (650) 454-8001 www.shrwood.com www.agencyip.com Since 1992, Sherwood Partners, Inc. has developed deep financial advisory solutions and has become one of today’s premier consulting, restructuring and workout firms in the nation. It has built an excellent reputation in the venture capital, private-equity, banking and legal communities. Sherwood is a full-service advisory firm specializing in
board and corporate advisory services, due diligence, business assessment, corporate restructuring, crisis management, corporate finance, debt restructuring, asset liquidation, bankruptcy advisory services, assignments for the benefit of creditors and solution implementation. agencyIP represents owners and creators of patents, trademarks and copyrights. Its team not only finds ways to monetize IP, but has been successful in finding new and creative additional uses for IP. agencyIP is an exclusive agent for IP owners and creators. The firm does not own IP, therefore there is no conflict. Shook, Hardy & Bacon, LLP Two Commerce Square • 2001 Market St., Suite 3000 Philadelphia, PA • 19103 Contact: Ryan Foley, Partner rfoley@shb.com • Phone: (215) 575-3131 www.shb.com Shook, Hardy & Bacon, LLP handles bankruptcy and creditors’ rights issues nationwide. Its attorneys are experienced in negotiating, litigating and enforcing all types of claims in bankruptcy. The firm also provides assistance in all facets of a bankruptcy case, including the challenges that creditors face in corporate reorganizations, treatment of contracts and leases under a bankruptcy plan, and purchasing property out of bankruptcy estates. In addition, its practice represents creditors in bankruptcy litigation involving preferences, fraudulent conveyances, setoffs and lien-priority disputes. Companies know that they can turn to Shook, Hardy & Bacon for guidance on bankruptcy claims, the restructuring of the debtor/creditor relationship and other alternatives. Snell & Wilmer, LLP One Arizona Center • 400 E. Van Buren St. Phoenix, AZ • 85004 Contacts: Donald L. Gaffney dgaffney@swlaw.com • Phone: (602) 382-6000 Rob Kinas rkinas@swlaw.com • Phone: (702) 784-5203 www.swlaw.com Snell & Wilmer, LLP is one of the largest business law firms in the southwestern U.S., with more than 400 attorneys practicing in nine offices. Its bankruptcy, insolvency and business reorganization attorneys regularly represent creditors, debtors, committees and trustees in bankruptcy proceedings, as well as in state court collections and receivership actions. Clients not only call on the firm to represent them in those states where the firm has offices, but also in cases pending in Delaware, Idaho, Illinois, Louisiana, Michigan, Minnesota, New York, Oregon, Tennessee, Texas, Washington and Wyoming. Snell & Wilmer, LLP has earned a reputation for offering what clients value: exceptional legal skill, responsiveness, 365/24/7 availability and practical cost-effective solutions with the highest level of professional integrity.
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T.D. Consulting, LLC 586 N. First St., #106 • San Jose, CA • 95112 Contact: Tony Delas tony@turnaroundco.com • (408) 605-1774 www.turnaroundco.com T.D. Consulting, LLC is a team of turnaround specialists and attorneys. You do not need to hire an outside law firm, thus saving time and money. More than 100 years of factory floor experience with startup through Fortune 100 companies makes T.D. Consulting ideally suited to address problems in the following areas: cash flow and profitability; forensic accounting; costs, manufacturing, supplier and engineering; intellectual property; marketing and sales; quality assurance (Six Sigma and Black Belt); and interim management. Thomson Reuters 610 Opperman Drive • Eagan, MN • 55123 Contact: Joe Kubes, Director, Strategic Relations joseph.kubes@thomsonreuters.com • Phone: (651) 687-5722 www.thomsonreuters.com Thomson Reuters Legal is proud to be a presidential partner of ABI, providing today’s busy insolvency professionals with in-depth analysis and practice guidance from expert ABI authors. Thomson Reuters also offers other authoritative bankruptcy resources, such as the Norton Bankruptcy Library, Chapter 11 Reorganizations and Consumer Bankruptcy Manual. Plus, WestlawNext ® is your online source for more than 400 bankruptcy databases, as well as new time-saving search tools to help you find what you need. Thomson Reuters ProViewTM Ebooks provide you with easy access to ebooks anywhere, anytime — including access to select ABI eBook content. Stop by the Thomson Reuters booth and see how ABI eBooks work on ProView. Turnaround Management Association www.turnaround.org The Turnaround Management Association (TMA) is the leading organization dedicated to turnaround management, corporate restructuring and distressed investing. Established in 1988, TMA has more than 8,300 members in 55 chapters worldwide, including 32 in North America. Members include turnaround practitioners, attorneys, accountants, advisors, liquidators, executive recruiters and consultants, as well as academic, government and judicial employees.
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The Wall Street Journal www.wsj.com As the publisher of record for American business, no other news outlet can match The Wall Street Journal’s (WSJ) influence and reach. WSJ attracts 1.35 million daily paid subscribers, more than double any other U.S. newspaper, which gives it the potential to notify more unknown claimants than any other publication. WSJ has been ranked the most believable and credible newspaper every year since 1985 by Pew Research. Use The Wall Street Journal’s Legal Notice section to ensure that your notice reaches the most possible claimants. WSJ is a proud supporter of ABI and provides special rates to ABI members. WSJ Pro Bankruptcy 211 Avenue of the Americas • New York, NY • 10036 Contact: Joseph Koskuba, Head of Sales joseph.koskuba@dowjones.com • Phone: (212) 416-3879 www.wsj.com/pro WSJ Pro Bankruptcy is a premium membership service for professionals in the bankruptcy and distress space, powered by The Wall Street Journal’s peerless reporting and Dow Jones’ specially curated data. Gain an edge and drive your decision-making with an exclusive package of proprietary news, analysis, data and events that puts bankruptcy and distress trends into context. A membership to WSJ Pro Bankruptcy gives access to a number of tools and interactives, including a court document interface, bankruptcy calendar, bankruptcy fee tracker and firm-retention summaries. Request your one-month complimentary membership today (email wsjpro@dowjones.com with promo code PROABI). Wilmington Trust 1100 N. Market St. • Wilmington, DE • 19890 Contact: Vito Iacovazzi, Vice President viacovazzi@wilmingtontrust.com • Phone: (212) 415-0522 www.wilmingtontrust.com Wilmington Trust has served clients for more than a century, providing the resources to meet the needs of sophisticated enterprises worldwide. Wilmington Trust is a leading provider of corporate trust and agency services, focusing on defaults, high-yield issues, and loan agency and restructuring services. Wilmington Trust has developed customized solutions by combining staff and technology in many of the world’s most attractive jurisdictions. You will find Wilmington Trust on creditors’ committees for some of the largest transactions in the market. Learn how Wilmington Trust can make a difference on your next transaction. abi
A SPECIAL THANK YOU TO ALL THE SPONSORS OF ABI’S WINTER LEADERSHIP CONFERENCE
Chicago • Wilmington TM
RE NOWNED FOR A REASON
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President’s Column
his issue of the ABI Journal is being released during the annual Winter Leadership Conference, at which ABI will be honoring its first class of “40 Under 40” and holding a meeting of the Commission on Consumer Bankruptcy. I have been able to participate in both of these programs, and that has given me some insights that I’d like to share with you.
Inside ABI
“40 Under 40”
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ABI President Hon. Eugene R. Wedoff (ret.) Oak Park, Ill. Retired Judge Eugene Wedoff served as a bankruptcy judge in the Northern District of Illinois from 19872015 and as chief judge from 200207. He co-chaired ABI’s Consumer Bankruptcy Committee and currently serves as an ex officio member of ABI’s Commission on Consumer Bankruptcy. ABI’s consumer bankruptcy conference in Chicago was renamed in his honor in 2016. Now a sole practitioner, he handles pro bono appeals in consumer matters.
What initially impressed me was the large number of very qualified candidates who were nominated. This, it seemed to me, was an indication that our profession is alive and healthy, with plenty of talented, dedicated young practitioners doing superb work. But with nearly 200 nominees to choose from, the task of picking just 40 was daunting. A steering committee of 10 ABI members — Trish Redmond (Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, PA; Miami) (chair), Nina Parker (Parker & Associates; Winchester, Mass.), Soneet Kapila (KapilaMukamal, LLP; Fort Lauderdale, Fla.), Katie Coleman (Hughes Hubbard & Reed LLP; New York), Derek Abbott (Morris, Nichols, Arsht & Tunnell LLP; Wilmington, Del.), Eve Karasik (Levene, Neale, Bender, Yoo & Brill, LLP; Los Angeles), Doug Lutz (Frost Brown Todd LLC; Cincinnati), Hon. Deborah Thorne (U.S. Bankruptcy Court (N.D. Ill.); Chicago), Risa Wolf-Smith (Holland & Hart LLP; Denver) and myself — was given that task, and we worked hard at it. ABI’s staff, directed by Executive Director Sam Gerdano, Chief Technology Officer Karim Guirguis and Membership Director Chris Thackston, made the job possible. Each of the completed applications was scored by four committee members on several categories, and the staff tabulated the results of this initial review in a manner much like Olympics scoring. We then took the highest net scores from this review and had the entire committee score each of those candidates, again with the results tabulated. All of the final 40 candidates were chosen on the basis of the resulting full committee scoring, with minimal adjustments to achieve balance and with complete consensus from the steering committee. I could not be happier with the results! These 40 young professionals are all spectacularly well-qualified, successful in their daily work and generous in service to their communities. At the same time, they represent the full range of insolvency activity, including attorneys representing large and small business debtors and creditors, attorneys representing consumer
debtors in large and small firms, government attorneys, insolvency accountants, financial management professionals and legal educators. They richly deserve to be celebrated! The idea behind “40 Under 40” is not just a celebration of these professionals as accomplished individuals. Rather, we aim to bring them together — as ABI does for insolvency professionals in general — in the belief that they will be a group of proven leaders who can share ideas and work on matters collegially, multiplying their effectiveness. We’ll be starting that process now. One unhappy aspect of my work on “40 Under 40” was having to pass over so many nominees who were also worthy of recognition. The saving grace here is that most of the candidates who could not be chosen this year are still eligible for nomination as ABI continues the program in 2018 — and the future experience and activity that they engage in will make future applications even stronger. Look for more details to be posted at abi40under40.org.
ABI Commission on Consumer Bankruptcy
My work with the Consumer Commission (ConsumerCommission.abi.org) has also been very gratifying. As ABI had hoped, bringing together knowledgeable practitioners of goodwill from across the areas affected by the consumer bankruptcy system is resulting in spirited and productive discussion on a range of issues, including the costs of bankruptcy to consumers, the treatment of student loans and home mortgages, and the compensation of trustees and bankruptcy attorneys. As I have participated in these discussions, I have repeatedly seen how the interaction of people with different perspectives but open minds leads to better ideas than any of the participants could have developed individually. Again, this is the hallmark of ABI: a community of diverse practitioners working collegially to accomplish unique results. I have also seen that the emerging ideas are not limited to proposals for amendments to the Bankruptcy Code. Rule changes, new administrative approaches and the best outcomes for disputed legal issues are also very much in the mix. There is a real prospect that the Commission’s work will result in concrete improvements in consumer practice.
Conclusion
This brings me to a final thought about both the “40 Under 40” program and the Consumer
Commission. It happens that three members of the inaugural “40 under 40” class are working on Commission matters now. Ariane Holtschlag (The Law Office of William J. Factor, Ltd.; Chicago) is a commissioner, and Miriam Goott (Walker & Patterson, PC; Houston) and Kate Nicholson (Nicholson Herrick LLP; Cambridge, Mass.) are members of the Commission’s Committee on Chapter 7. One of the activities that I hope to see from the “40 Under 40” members as they grow in experience
and stature is continued advocacy for a better insolvency system. The recommendations that emerge from the ABI Commission on Consumer Bankruptcy, as well as the outstanding recommendations of ABI’s Commission to Study the Reform of Chapter 11, are a starting point. But what I have seen of the energy and creativity of our 40 professionals makes me think that they will be able to generate new ideas and find new ways to get those ideas put into effect. There are many reasons to celebrate here! abi
Event Roundup Georgetown Views from the Bench Features Bankruptcy Judges
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early 200 people attended this year’s Views from the Bench program at Georgetown University Law Center on Oct. 17 in Washington, D.C. More than a dozen bankruptcy judges from New York, Delaware, Maryland, Virginia, New Jersey, Florida, Georgia and Texas led the faculty. Panels covered new developments in retail cases, confirmation issues, director and officer liability, and special issues dealing with LLCs. Debate topics dealt with third-party releases and gifting plans post-Jevic. The conference chair was David R. Kuney (Whiteford Taylor Preston LLP; Washington, D.C.). He was assisted by advisory board members Derek C. Abbott (Morris, Nichols, Arsht & Tunnell Bankruptcy Judge Kevin J. Carey (D. Del.) LLP; Wilmington, shared insights on viability of bankruptcy Del.), Marc Abrams remote LLC structures. (Willkie Farr & Gallagher LLP; New York), Michael L. Bernstein (Arnold & Porter Kaye Scholer LLP; Washington, D.C.), Martin J. Bienenstock (Proskauer; New York), Mark D. Collins (Richards, Layton & Finger, PA; Wilmington, Del.), Melanie L. Cyganowski (Otterbourg P.C.; New York),
Inside ABI
A roundtable led by Bankruptcy Judge Robert D. Drain (S.D.N.Y.), Mary Joanne Dowd (Arent Fox LLP), Bankruptcy Judge Michael G. Williamson (M.D. Fla.), Bankruptcy Judge Shelley C. Chapman (S.D.N.Y.) and Jay M. Goffman (Skadden, Arps, Slate, Meagher & Flom LLP) (l-r) covered recent confirmation hot topics.
Mary Joanne Dowd (Arent Fox LLP; Washington, D.C.), Cecily A. Dumas (Pillsbury Winthrop Shaw Pittman LLP; San Francisco), Douglas M. Foley (McGuireWoods LLP; Washington, D.C.), Peter M. Friedman Members of the ABI and Georgetown Law (O’Melveny & Myers staff manned the registration desk (above) L L P ; W a s h ington, while attendees networked before the start of the conference (below). D.C.), Karen A. Giannelli (Gibbons PC; Newark, N.J.), Jay M. Goffman (Skadden, Arps, Slate, Meagher & Flom LLP; New York), Kristin K. Going (Drinker Biddle & Reath LLP; New York), Craig Goldblatt (WilmerHale; Washington, D.C.), Jason W. Harbour (Hunton & Williams LLP; Richmond, Va.), Gary T. Holtzer (Weil, Gotshal & Manges LLP; New York), Thomas M. Horan (Shaw Fishman Glantz & Towbin LLC; Wilmington, Del.), Laura Davis Jones (Pachulski Stang Ziehl & Jones LLP; Wilmington, Del.), Humayun Khalid (Cleary, Gottlieb, Steen & Hamilton LLP; New York), Norman N. Kinel (Squire Patton Boggs LLP; New York), C. Kevin Kobbe (DLA Piper; Baltimore), Jeffrey A. Liesemer (Caplin & Drysdale, Chtd.; Washington,
Bankruptcy Judges Christopher S. Sontchi (D. Del.), S. Martin Teel, Jr. (D. D.C.) and Kevin R. Huennekens (E.D. Va.) (l-r) participated in a panel discussing director and officer liability issues.
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D.C.), Brett H. MIller (Morrison & Foerster LLP; New York), Richard M. Meth (Fox Rothschild LLP; Morristown, N.J.), Erika L. Morabito (Foley & Lardner LLP; Washington, D.C.), David L. Pollack (Ballard Spahr LLP; Philadelphia), Jeffrey S. Sabin (Venable LLP; New York), Michael B. Schaedle (Blank Rome LLP; Philadelphia), Jeffrey L. Tarkenton (Womble Bond Dickinson LLP; Washington, D.C.), Irving E. Walker (Cole Schotz P.C.; Baltimore), Stephanie Wickouski (Bryan Cave LLP; New York) and Donald A. Workman (BakerHostetler; Washington, D.C.). Financial sponsors included Pachulski Stang Ziehl & Jones LLP; Gavin/Solmonese LLC; BakerHostetler; Skadden, Arps, Slate, Meagher & Flom LLP; McGuireWoods LLP; and Wilmington Trust.
International Program Enjoys New Format in Dublin
President-International Dr. Annerose Tashiro (Schultze & Braun GmbH; Achern, Germany) in planning this year’s program. ABI also thanks the following sponsors for their support: Matheson; Mourant Ozannes; Skadden, Arps, Slate, Meagher & Flom LLP; Development Sir Ivan Rogers (former Permanent Specialists, Inc.; Freshfields Representative of the U.K. to the Bruckhaus Deringer LLP; European Union) (c) delivered the keynote and is pictured with Ian G. Hogan Lovells LLP; PJT Williams (l) and Dr. Annerose Tashiro. Partners Inc.; RSM UK Group LLP; Anchor Rechtsanwälte; Gavin/Solmonese LLC; Schultze & Braun GmbH; Wilmington Trust; and Global Turnaround.
Inside ABI
Midwest Program a Tribute to the Late Mark Stingley of Bryan Cave LLP
Program Chair Ian G. Williams (RSM Restructuring) is pictured with Bankruptcy Judge Robert D. Drain (S.D.N.Y.), Al Togut (Togut, Segal & Segal LLP), Jay Goffman (Skadden, Arps, Slate, Meagher & Flom LLP) and William Brandt (Development Specialists, Inc.) (l-r), who led the annual “America Now!” panel.
ABI returned to Dublin Oct. 19-20 for its 13th Annual International Insolvency & Restructuring Symposium. The symposium was held at the historic Westin Dublin and included an extra day of programming provided by partners INSOL International, INSOL Europe, the International Insolvency Institute and the Turnaround Management Association. Attendees were offered sessions on trends, options and opportunities for distressed financing, Ireland/U.S. restructurings, law and finance in offshore jurisdictions, and much more. ABI thanks program chair Ian G. Williams (RSM Restructuring; London) who was assisted by ABI Vice
Van Durrer (Skadden, Arps, Slate, Meagher & Flom LLP), Patrick Armstrong (Goldman Sachs), Eric Hoffman (Centerbridge), Matt Ross (KKR), Nicholas Tally (Wilmington Trust) and Jamie O’Connell (JT Partners) (l-r) evaluated trends, options and opportunities for distressed financings.
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ABI and UMKC School of Law partnered again this year to present the 37th Annual Midwestern Bankruptcy Institute Oct. 26-27 at the Kansas City Marriott. This year’s program was dedicated to the memory of Mark G. Stingley, a former ABI Executive Committee member and chair of this program who passed away unexpect- Mark G. Stingley edly after a short illness on July 9, 2017. 1952-2017 During the luncheon on Oct. 26, the Commercial Law Committee of the Missouri Bar presented the Michael R. Roser Excellence in Bankruptcy Award to Mark posthumously. Mark’s wife, Cyndi, along with his children, attended the program and accepted the award on Mark’s behalf. This year’s program once again offered attendees separate business and consumer tracks, which covered current bankruptcy developments (covered by ABI Editor-atLarge Bill Rochelle), bankruptcy fraud and crimes, implications of the Jevic decision, ethics, bankruptcy appeals and much more. The program also featured the Frank W. Koger Lecture and Luncheon, during which ABI President Eugene R. Wedoff discussed student loans. ABI thanks the program’s judicial chair, Hon. Dennis R. Dow (U.S. Bankruptcy Court (W.D. Mo.); Kansas
Rachel L. Foley (Foley Law) (r) discussed claims-related topics and the impact of Midland Funding, LLC v. Johnson as Bankruptcy Judge Anita L. Shodeen (S.D. Iowa), Patricia Hamilton (Chapter 7 Trustee), Wendee ElliottClement (SouthLaw, PC) and Diana Daugherty (Chapter 13 Trustee) (l-r) looked on.
Sharon Stolte (Sandberg Phoenix), Kenneth Pasquale (Stroock & Stroock & Lavan LLP), David Lander (St. Louis University School of Law) and Jeana Goosmann (Goosmann Law Firm) (l-r) led a panel on practical ethical pitfalls in chapter 11 representations.
Unique Complex Financial Restructuring Program Held in Philadelphia
ABI’s Complex Financial Restructuring Program goes beyond financial and legal theory and takes a realistic look into the strategies of restructuring professionals: attorneys, investment bankers and financial advisors. The daylong program is based on a real case study of a troubled company’s efforts to reorganize, proving insights into the thinking and strategies of the various stakeholders, including successor entities. The faculty assumed various roles in consideration of issues such as valuation of company assets, feasibility, satisfying the best interests test and evaluating competing alternatives.
Bankruptcy Judge Mary F. Walrath (D. Del.) (c) delivered this year’s keynote and is flanked by ABI Board Members Christopher A. Ward (Polsinelli) (l) and Thomas M. Horan (Shaw Fishman Glantz & Towbin LLC).
Wharton School Three-Peat as Corporate Restructuring Competition Champion
Inside ABI
City), and conference co-chairs John J. Cruciani (Husch Blackwell LLP; Kansas City, Mo.) and Rachel L. Foley (Foley Law, PC; Independence, Mo.), as well as the many members of the program’s advisory board. ABI also thanks the program’s Premium Sponsors: BK Billing, GlassRatner Advisory & Capital Group LLC, MarksNelson, LLC, MorrisAnderson, Polsinelli, Spencer Fane LLP and Veris Consulting, Inc.; Patron Sponsors: Bryan Cave LLP, Gavin/Solmonese LLC, Lathrop & Gage LLP, Shook, Hardy & Bacon LLP and Sikich LLP; and General Supporting Sponsors: Allen Credit & Debt Counseling Agency and LegalPRO Systems, Inc. for their financial support.
Co-chairs for this 14th Annual Program were Kathryn A. Coleman (Hughes Hubbard & Reed LLP; New York), Eric J. Fromme (Theodora Oringher PC; Costa Mesa, Calif.), Stephen A. Spitzer (AlixPartners LLP; Dix Hills, N.Y.) and Wayne P. Weitz (EisnerAmper LLP; New York). A program highlight is the annual dinner in conjunction with the Corporate Restructuring Competition, which was held the following day. This year’s keynote was provided by Hon. Mary F. Walrath (U.S. Bankruptcy Court (D. Del.); Wilmington). ABI thanks the program’s many financial sponsors: AlixPartners LLP; Alvarez & Marsal; Blank Rome LLP; Cowen and Company; Dacarba LLC; Deloitte CRG; DLA Piper; EisnerAmper LLP; Epiq Systems, Inc.; FTI Consulting, Inc.; Gavin/Solmonese LLC; Getzler Henrich & Associates LLC; Greenberg Traurig, LLP; Hughes Hubbard & Reed LLP; Montgomery, McCracken, Walker & Rhoads, LLP; Morris, Nichols, Arsht & Tunnell LLP; Pachulski Stang Ziehl & Jones LLP; Paul, Weiss, Rifkind, Wharton & Garrison LLP; Potter Anderson & Corroon LLP; Raymond James Financial, Inc.; Skadden, Arps, Slate, Meagher & Flom LLP; SSG Capital Advisors, LLC; Teneo; Theodora Oringher PC; and Weil, Gotshal & Manges LLP.
The winning team from The Wharton School posed with the Bettina M. Whyte Trophy after the Corporate Restructuring Competition. Also pictured are Thomas A. Morrow (Association of Insolvency & Restructuring Advisors) (far left) and William S. Sugden (Alston & Bird LLP) (third from right).
A team of students from The Wharton School at the University of Pennsylvania took top honors for the third consecutive year at ABI’s 14th Annual Corporate Restructuring Competition. Wharton bested seven other top graduate business schools at the competition, which was held on Nov. 3 in Philadelphia. This is the school’s seventh time overall in receiving the Bettina M. Whyte Trophy, which is presented each year to the winning team. Students were given only one week to solve a hypothetical complex case and present their proposed solutions to judges representing key industry stakeholders. Another team from The Wharton School came in second place, while one of two teams from Columbia Business School took third. ABI’s Anthony H.N. Schnelling Endowment Fund provided cash prizes of $6,000, $3,500 and $2,500 for the top three teams, respectively. Other
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Inside ABI
schools competing this year were Northwestern University Kellogg Graduate School of Management, University of Chicago Booth School of Business, Cornell SC Johnson College of Business, University of Virginia Darden School of Business, Babson College and Dartmouth College Tuck School of Business. William S. Sugden of Alston & Bird LLP served as the chair of the Corporate Restructuring Competition, assisted by Thomas A. Morrow from the Association of Insolvency & Restructuring Advisors. They both participated as competition judges. Practitioners who also served as competition judges of both the oral presentations and the written deliverables included Robert Axenrod of Centelis Capital, Brian Buebel of Huron Consulting, Tom Clinkscales of Alston & Bird LLP, Kathryn A. Coleman of Hughes Hubbard
B Kurt A. O’Keefe
Leah M. Eisenberg
Peter S. Kaufman
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& Reed LLP, Scott B. Davis of Grant Thornton LLP, Daniel F. Dooley of MorrisAnderson, Joe Fallon of PJT Partners, Eric J. Fromme of Theodora Oringher PC, Neil Gupta of SSG Capital Advisors, LLC, James Hadfield of Guggenheim Securities, LLC, Dan Ireland of FTI Consulting, Inc., Kathryn Z. Keane of McGuireWoods LLP, Tom Kirby of Deutsche Bank, Michael R. Lastowski of Duane Morris LLP, James M. Lukenda of Huron Business Advisory, Mr. Morrow, Charles Reardon of Asgaard Capital, Suzanne B. Roski of Protiviti Inc., Kyle Sturgeon of Meru, LLC, Thomas Patrick Tinker of the Office of the U.S. Trustee and Peter G. Wollmeringer of Huron Consulting Group. ABI thanks the major sponsors of this year’s competition, including Alston & Bird, Duane Morris, Huron Consulting Group and PJT Partners. abi
Members in the News
utler Snow LLP announced that Chambers USA ranked the firm’s attorneys as leaders in their fields and ranked the firm in 13 categories for 2017. In the nationwide leader listings, Martin A. Sosland (an ABI member since 2013) was ranked nationwide and in Texas in bankruptcy/restructuring. In addition, Christopher R. Maddux (an ABI member since 2003) and Stephen W. Rosenblatt (an ABI member since 1988) ranked in corporate/ commercial for bankruptcy in the Mississippi individual leader listings, and S. Ault Hootsell, III (an ABI member since 1998) ranked in bankruptcy/restructuring in the Louisiana individual leader listings. Kurt A. O’Keefe, a solo practitioner from Grosse Pointe, Mich., with more than 35 years of experience in bankruptcy and other consumer law fields, received the 2017 Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys. He is board-certified in consumer bankruptcy law by the American Board of Certification and a participant in pro bono programs for the U.S. Bankruptcy Court for the Eastern District of Michigan, and is on the panel of attorneys for Access to Bankruptcy Court for the Eastern District of Michigan. Mr. O’Keefe has been an ABI member since 2013. Foley & Lardner LLP announced that Leah M. Eisenberg has joined the firm’s Bankruptcy and Business Reorganizations Practice in New York as Of Counsel. She has more than 16 years of experience counseling clients in default, restructuring, bankruptcy and corporate trust matters, with an emphasis on indenture trustee, creditors’ committee and other creditor representations. Based on her background, contributions and leadership roles in the industry, Ms. Eisenberg will be receiving the prestigious New York Institute of Credit’s
“Women’s Executive of the Year” Award in February 2018. Earlier in her career, she served as a law clerk to Hon. Robert E. Gerber of the U.S. Bankruptcy Court for the Southern District of New York. Ms. Eisenberg holds leadership positions within the Women’s Division for the New York Institute of Credit and Association of Insolvency and Restructuring Advisors, and she is a past co-chair of ABI’s VALCON program and serving on the advisory board of ABI’s Delaware Views from the Bench program. An ABI member since 2002, she is also committed to mentoring young lawyers in the industry, participating in monthly bankruptcy pro bono programs and supporting women’s business-development initiatives. Peter S. Kaufman announced that he has partnered to form Caissa Capital, LLC, a venture aimed at providing senior-level workout, financial restructuring and legal services. The firm will target large, complex capital stack situations in international markets in both sovereign and corporate debt matters. An ABI member since 1997, Mr. Kaufman remains president and head of Restructuring and Distressed M&A with Gordian Group, LLC in New York. Richards, Layton & Finger, PA announced that the Wilmington, Del.-based firm led The Deal’s rankings of M&A transactions handled by Delaware law firms in the first half of 2017. Posting 24 deals valued at $100 million or more, the firm served as local counsel on more highvalue transactions than the other listed Delaware firms combined. In addition, the firm was recognized for excellence in 23 practice areas in the U.S. News/Best Lawyers 2018 “Best Law Firms” rankings. Richards, Layton & Finger’s Mergers and Acquisitions Litigation Practice was also ranked nationally. ABI members with the firm include Joseph C. Barsalona, II, Mark D. Collins, Daniel J. DeFranceschi, Brett M.
equity clients in connection with their distressed-portfolio companies. A Fellow of the American College of Bankruptcy, Mr. Basta has been an ABI member since 2007 and serves on the advisory board of ABI’s New York City Bankruptcy Conference. Elliott Greenleaf, PC announced that Kathryn Harmon has been selected by the Business Law Section of the American Bar Association to be a member of the Fellows Program for the 2017-19 class. In this role, she is required to attend the Business Law Section Annual Meeting, the Business Law Section Spring Meeting, and one stand-alone committee meeting for each year of her term. An ABI member since 2016, Ms. Harmon is the third attorney from the firm to be selected for the program (the others were Rafael X. ZahralddinAravena and Jonathan M. Stemerman). Bentham IMF announced the launching of a new bankruptcy litigation funding platform to help debtors, creditors and other stakeholders involved in commercial disputes. The firm will provide non-recourse funding to debtors in possession, creditors and official committees, chapter 11 trustees and post-confirmation estates. The initiative will be led by New York attorney Kenneth Epstein, who joins the company as an investment manager and legal counsel. He has debtor- and creditor-side restructuring experience across multiple industries. An ABI member since 2012, Mr. Epstein has taught bankruptcy law at Cardozo Law School, advised and served on distressed company boards, and is certified as an insolvency and restructuring advisor by the AIRA. The U.S. Bankruptcy Court for the Southern District of Ohio has formed an Attorney Advisory Committee to work with the courts on issues important to the administration of the bankruptcy system in the Southern District of Ohio, and to promote district-wide collaborations. As chair of the Chapter 13 Subcommittee, Jon J. Lieberman of Sottile & Barile LLC will lead the subcommittee’s efforts in standardizing, as much as possible, chapter 13 practice in the district, both as between the divisions of the court and between the different trustees, and by resolving and streamlining noticing issues in chapter 13 cases. An ABI member since 2001, he serves as membership relations director of ABI’s Consumer Bankruptcy Committee and as an associate editor for the ABI Journal. The National Creditors Bar Association announced that it has elected Thomas (Tom) L. Canary, Jr. to its board of directors. He is a senior attorney with Reimer Law Co. in Solon, Ohio, and his practice includes bankruptcy, replevin and creditors’ rights. Mr. Canary was the recipient of NARCA’s President’s
Roger S. Cox
John D. Penn
Inside ABI
Haywood, Paul N. Heath, Ann Jerominski, Cory D. Kandestin, John H. Knight, Robert C. Maddox, Jason M. Madron, Michael J. Merchant, Marcos A. Ramos, Brendan J. Schlauch, Zachary I. Shapiro, Russell C. Silberglied, Robert J. Stearn, Jr., Amanda R. Steele and Marisa A. Terranova. Roger S. Cox, a shareholder with Underwood’s Amarillo, Texas, office, recently authored Cox’s Texas Creditors’ Rights Laws Annotated. The new work is published by Thomson Reuters and is part of the Thomson Reuters Texas Annotated Code Series. An ABI member since 1992, Mr. Cox is board certified in business bankruptcy law, commercial real estate law and farm and ranch real estate law by the Texas Board of Legal Specialization. Wolfson Bolton PLLC in Troy, Mich., announced that Scott A. Wolfson, Adam L. Kochenderfer and Anthony J. Kochis have been recognized as Super Lawyers, and Michelle H. Bass and Thomas J. Kelly were recognized as Rising Stars. Mr. Wolfson has been an ABI member since 2004 and serves on the advisory board of ABI’s Central States Bankruptcy Workshop; Mr. Kochenderfer has been an ABI member since 2011; Mr. Kochis has been an ABI member since 2009; Ms. Bass joined ABI in 2017; and Mr. Kelly has been an ABI member since 2014. John D. Penn, a partner in the Dallas and New York offices of Perkins Coie LLP, was named as chair of the firm’s Bankruptcy and Restructuring Practice Group. An ABI member since 1988, he served as ABI President in 2005-06 after serving three years as its Vice President-Publications. Hilco Global announced that it has named David Peress to the new position of executive vice president of Hilco Retail Services. He will provide critical oversight and coordination among all Hilco retail valuation and monetization client teams, and collaborate with the leadership at Hilco Merchant Resources and Hilco Valuation Services. Mr. Peress adds this new role to his existing responsibilities at Hilco Streambank, and he will be responsible for supporting and building the overall Hilco Global retail valuation and monetization platform. He has been an ABI member since 2011 and is based in Dedham, Mass. Paul, Weiss, Rifkind, Wharton & Garrison LLP announced that Paul M. Basta has joined the firm as co-chair of its Bankruptcy and Corporate Reorganization Department in New York. He advises debtors, creditors and investors in complex restructurings. Mr. Basta has represented debtors and creditors in some of the highest-profile chapter 11 cases of the past two decades. He has also represented private-
Kathryn Harmon
Jon J. Lieberman
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Inside ABI
Lisa S. Gretchko
Patrick M. O’Keefe
Richard P. Carmody
Douglas C. Bernstein
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Award in 2009 and previously served as secretary to the board of directors. He has been an ABI member since 1999 and is an advisory committee member of ABI’s Commission on Consumer Bankruptcy. Howard & Howard Attorneys PLLC announced that Lisa S. Gretchko has been selected for inclusion in The Best Lawyers in America for 2018 for bankruptcy and creditor/ debtor rights/insolvency and reorganization law, as well as commercial litigation. Her practice includes creditors’ rights and commercial litigation, and she has represented nearly every constituency in bankruptcy courts, including secured creditors, unsecured creditors’ committees, landlords, licensors of intellectual property, customers, suppliers, business debtors and trustees, and has litigated many of the issues that arise in the context of bankruptcy law. Ms. Gretchko has also lectured on various creditors’ rights issues and was recently named as a Michigan Super Lawyer for 2017 for creditor/ debtor rights. An ABI member since 1992, she serves on ABI’s Board of Directors and as an executive editor of the ABI Journal. Epiq Systems, Inc. announced the appointment of Eric M. Kerwood and Wesley Appell as managing director and director, respectively, within its Corporate Restructuring Services Practice in New York. Mr. Kerwood will focus on strategic growth initiatives and managing key relationships with leading industry firms in both the legal and financial sector. He is a 20-year veteran in the restructuring industry and spent 15 years as a financial advisor in distressed workouts and turnarounds, assisting with outof-court solutions and formal bankruptcy proceedings, and several years with a claims agent before joining Epiq. An ABI member since 2009, Mr. Kerwood serves on the board of the Association of Insolvency and Restructuring Advisors (AIRA) and is a Certified Turnaround Professional (CTP) and Certified Insolvency and Restructuring Advisor (CIRA). Mr. Appell is a 12-year veteran in the restructuring industry who recently served as a financial advisor to distressed companies and their creditors. He joined ABI in 2017. The judges of the U.S. District Court for the District of Maryland presented Richard L. Wasserman, a senior partner with Venable LLP’s Bankruptcy and Creditors’ Rights Group in Baltimore, with an Exceptional Service Award. He served for more than 20 years as the chair of the Bankruptcy Bar Association/ U.S. District Court Liaison Committee. Mr. Wasserman’s practice includes bankruptcy and bankruptcy-related litigation, creditors’ rights, secured transactions, workouts, reorganizations and restructurings. An ABI member since
1985, he has represented clients in major business, commercial and real estate bankruptcies, and in workout and reorganization matters, and has served as a chapter 7 and 11 trustee, a court-appointed examiner and a mediator in bankruptcy adversary proceedings and claimsresolution proceedings. Patrick M. O’Keefe, founder/CEO of O’Keefe, has been named CEO of Grow Michigan, LLC. Grow Michigan extends the capabilities of senior debt providers by offering an efficient, cost-effective and complimentary capital structure for growing Michigan small businesses, and O’Keefe, a financial and strategic advisory firm specializing in enterprise consulting, litigation support, strategic advisory and turnaround and restructuring, provides administrative and loan-management functions. Mr. O’Keefe has been an ABI member since 1999 and is based in Bloomfield Hills, Mich. Richard P. Carmody of Adams and Reese LLP in Birmingham, Ala., received the 2017 Albert Vreeland Pro Bono Award from the Alabama State Bar Committee on Volunteer Lawyer Programs. An ABI member since 1985, he previously served as vice chair of ABI’s Ethics Standards Task Force and is a fundraising committee member of ABI’s Regional Development Committee. Midwest-based Plunkett Cooney announced that Douglas C. Bernstein has been named to Michigan Super Lawyers’ 2017 list of “Super Lawyers” for bankruptcy. He is managing partner of the firm’s Banking, Bankruptcy and Creditors’ Rights Practice Group in Bloomfield Hills, Mich., and his practice includes commercial litigation, commercial loan restructuring and documentation, creditors’ rights, commercial and municipal bankruptcy, receiverships and other banking-related litigation, and appeals on behalf of national and regional lenders and special servicers. Mr. Bernstein has been an ABI member since 1997. abi
Got News? Send your announcements to be featured in Members in the News. Email Elizabeth at estoltz@ abi.org.
What’s Happening at ABI ABI Welcomes Newest Members of Executive Committee
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ABI Sign a New Image on Potomac
In late October, the ABI brand made a bold appearance on its office building overlooking the Potomac River just outside Washington, D.C. The sign is visible to planes landing or taking off at nearby Reagan National Airport. ABI occupies the entire sixth floor of Canal Center Plaza in Alexandria, Va.
Award-winning political journalist, chief national correspondent for Fox News and New York Times bestselling author Ed Henry will keynote the Friday luncheon at ABI’s Annual Spring Meeting, to be held April 19-22 at the Marriott Marquis in Washington, D.C. As a Fox News chief national correspondent, Mr. Henry is often flying Ed Henry with the president on Air Force One, posing questions in the press room or chairing the annual White House Correspondents Dinner. Drawing from his experiences and his best-selling book, 42 Faith: The Rest of the Jackie Robinson Story, he offers examples from the past and the present to encourage audiences to bridge the gap of individual, cultural and ideological differences and come together as one united community. A former congressional and senior White House correspondent for CNN and former co-editor of Roll Call, Mr. Henry’s expertise and professionalism have resulted in several honors, including the Merriman Smith Award for excellence in presidential coverage under pressure. His unique position covering the Clinton, Bush, Obama and Trump presidential elections and the nation’s prominent political news has given him valuable insight into the commonalities that we all share, versus the differences often featured in media headlines. With a seasoned knowledge of Washington’s inner workings and power players, he shares an overwhelmingly positive message that leaves listeners rejuvenated and encouraged that a harmonious and diplomatic future is attainable — even in Washington. Make plans to be in Washington this spring to attend this and other exceptional networking and learning sessions! More information will be posted at abi.org/events.
Inside ABI
ursuant to ABI’s bylaws, the Nominating Committee may fill vacancies to the Executive Committee with the approval of the Executive Committee. At its October meeting, the Nominating Committee moved the appointment of Judge Kevin J. Carey (D. Del.) to fill a vacancy in the position of Vice President-Membership Hon. Kevin J. Carey created by the passing of Mark G. Stingley. The committee also recommended that Judge Carey’s position as an at-large member of the Executive Committee be filled by Judge Michael A. Fagone (D. Maine). Both recommendations were then adopted unanimously by the Executive Committee, effective immediately upon approval. Both positions are for two years, beginning in Hon. Michael A. Fagone 2017. Judges Carey and Fagone have served two terms on the ABI Board of Directors; Judge Carey has also served on the Membership Committee.
Fox News Correspondent to Keynote an Annual Spring Meeting Luncheon
Interactive Code and Rules Website Updated to Reflect Dec. 1 Rule Changes
ABI’s Bankruptcy Code and Federal Rules of Bankruptcy Procedure website (law.abi.org) is current with the Dec. 1 Rule changes. Practitioners should pay close attention to all the new rules, but specifically amended Rule 3015, which provides for the use of the long-anticipated Model Chapter 13 Plan (Official Form 113), subject to a district “opt-out” under certain conditions; amended Rule 3002, which now provides an explicit requirement that secured creditors file a proof of claim and provides for a proof of claim bar date tied to the bankruptcy filing date;
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Inside ABI
amended Rule 2002, which establishes deadlines related to plan confirmation; and amended Rule 3012, which now provides for the express recognition of certain processes for determining the amount of secured and priority claims. Find all the updated rules at law.abi.org and a more detailed analysis on p. 20 of this issue. The U.S. Supreme Court also approved revisions to the Official Bankruptcy Forms. Information regarding the revisions can be found at uscourts.gov/rules-policies/ pending-rules-and-forms-amendments/pending-changesbankruptcy-forms.
reception to benefit relief efforts on the island on Feb. 2 at the Ritz-Carlton Coconut Grove in Miami. Puerto Rico’s bankruptcy judges will be invited to attend as ABI’s guests. All proceeds from the event will benefit the territory’s recovery efforts. In addition, ABI is planning another event to assist Puerto Rico’s relief efforts, in connection with the youth charity sponsored by former Yankee baseball great Mariano Rivera. This will be held in New York in early April. Details to follow at abi.org/events.
Add ABI’s Business Creditors’ Guide to Your Legal Library
The ABI Commission on Consumer Bankruptcy held its fifth public hearing, in Chicago on Nov. 10. The following witnesses appeared in person to deliver statements (all from Chicago unless otherwise noted): Hon. Deborah L. Thorne, Hon. Janet S. Baer, Nathan E. Delman, David P. Leibowitz, Rachel L. Foley (Kansas City, Mo.), David S. Yen and Saskia Bryan. The next public hearing will be at the ABI Winter Leadership Conference on Dec. 1 in Palm Springs, Calif. Excerpts will be published in the next issue of the Journal. The Commission on Consumer Bankruptcy is charged with researching and recommending improvements to the consumer bankruptcy system that can be implemented within its existing structure. These changes might include amendments to the Bankruptcy Code, changes to the Federal Rules of Bankruptcy Procedure, administrative rules or actions, recommendations on proper interpretations of existing law, and other best practices that judges, trustees and lawyers can implement. Learn more at ConsumerCommission.abi.org and follow the Commission on social media @ConsumerCommBK. Recommendations are due from the Commission’s three committees (on chapter 7 issues, chapter 13 issues,
One of the worst outcomes for a business owner is having a major customer file for bankruptcy and leave behind a large unpaid account receivable. Business owners are often left wondering, “What could I have done to prevent this?” The answer is to preplan for potentially distressed vendors and customers who may ultimately have to file for bankruptcy. Prebankruptcy planning is necessary in this business-centric, capitalist society in which we operate. ABI’s latest publication — A Business Creditor’s Guide to Distressed Vendors, Debt Collection and Bankruptcy — provides an insider’s look into the options available to help screen a business’s customers, plan for worst-case scenarios, and, if the situation does arrive, efficiently handle the fallout. Written by Christopher A. Ward (Polsinelli; Wilmington; Del.) and Ryan G. Foley (Shook, Hardy & Bacon LLP; Philadelphia), this book offers background and insight into such matters as why businesses fail, the Fair Debt Collection Practices Act and other statutes that affect a business’s relationship with its vendors, relevant chapters of the Bankruptcy Code that affect debt settlement, out-of-court alternatives to bankruptcy that might come into play, and several other concepts that business owners should be aware of when dealing with distressed vendors. The book is available for pre-order at store.abi.org, but be sure to log in first with your ABI credentials to receive the discounted member pricing.
Puerto Rico Relief Benefit Events Coming to Miami and New York in 2018
ABI’s annual Caribbean Insolvency Symposium was scheduled to be held on Feb. 1-3 in San Juan, Puerto Rico. The devastating impact of Hurricane Maria caused the cancellation of the event, and it has since been postponed to February 2019. In its place, ABI will instead hold a
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Consumer Commission Update
“Eye on Bankruptcy” Now Streaming
The October episode of “Eye on Bankruptcy” featured Hon. Keith Phillips (U.S. Bankruptcy Court (E.D. Va.); Richmond) (l) conversing with Erika L. Morabito (Foley & Lardner LLP; Washington, D.C.) about the impact of the month’s important opinions. The show’s host is Prof. Juliet M. Moringiello (Widener Commonwealth Law School; Harrisburg, Pa). Watch this show and other archived episodes at eyeonbankruptcy.com.
and administration of the estate) by the end of January 2018. The 21 Commissioners will deliberate on proposals during 2018, with a final report set for publication at the 2018 Winter Leadership Conference in Scottsdale, Ariz.
Workshop Held at Brooklyn Law
The Young Scholars Work-in-Progress Workshop is an
ABI Law Review Celebrates 25 Years
The ABI Law Review marked its silver anniversary as a top scholarly publication in bankruptcy during a cere-
Anne Fleming (Georgetown), Rory Van Loo (Boston University), Kara Bruce (University of Toledo College of Law), Jared Ellias (UC Hastings Law), Bob Lawless (University of Illinois College of Law) and Danielle D’Onfro (Washington University in St. Louis) (l-r) participated in the Young Scholars Workshop in Brooklyn, N.Y.
mony in October. The reception, held at the New York Athletic Club in Manhattan, was hosted by St. John’s University School of Law and featured remarks by law school Dean Michael Simons and current editor-in-chief Dean Katsionis. The special guests of honor were Prof. Emeritus Robert M. Zinman and Prof. G. Ray Warner.
Young Scholars’ Work-in-Progress ABI Gets Into the Halloween Spirit
invitation-only event hosted by the Brooklyn Law School Center for the Study of Business Law and Regulation and sponsored by ABI. At the November event, several young bankruptcy scholars presented research and a pre-publication draft of the work. The papers were reviewed by more senior scholars, who provided critical guidance and feedback as the work was developed. Papers were presented this year by Profs. Chris Bradley of the University of Kentucky College of Law, Kara J. Bruce of the University of Toledo College of Law, Danielle F. D’Onfro of Washington University School of Law in St. Louis, Jared Ellias of the University of California Hastings College of Law, Anne Fleming of Georgetown Law Center, Sally McDonald Henry of Texas Tech School of Law and Rory Van Loo of Boston University School of Law. Senior scholars providing valuable comments on the papers were Profs. Melissa B. Jacoby of the University of North Carolina School of Law, Robert M. Lawless of the University of Illinois College of Law, Ed Morrison of Columbia Law School, Troy A. McKenzie of New York University School of Law and Jay L. Westbrook of the University of Texas School of Law, as well as program organizer Prof. Edward Janger of Brooklyn Law School.
Inside ABI
ABI Executive Director Sam Gerdano (r) is pictured with Prof. G. Ray Warner (l) and Prof. Emeritus Robert M. Zinman during a ceremony to celebrate the 25th anniversary of the ABI Law Review.
New ABI Committee Launched
ABI staffers celebrated Halloween by donning creative costumes, including (from left) Office Manager Leah Weston, Membership Engagement Manager Robin Davis, Media Technology Assistant Natalie Gerdano, Media Operations Manager Matthew Lukban, Staff Assistant Marie White, Membership Program Manager Martha Lowe and Senior Designer Patrick McGrath.
ABI recently launched its Commerical Regulatory Law Committee. The new committee combines and broadens the subject-matter scope of the former ABI committees on Bankruptcy Taxation and Labor and Employment. The new committee will study and analyze the intersection of insolvency law and various regulatory schemes that affect commerce, including (but not limited to) tax, labor and employment, antitrust, securities, the Uniform Commercial Code and environmental laws. The slate of leaders include Co-Chairs Mark V. Bossi (Thompson Coburn LLP; St. Louis), Bradford J. Sandler
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(Pachulski Stang Ziehl & Jones LLP; Wilmington, Del.) and Donald A. Workman (BakerHostetler; Washington, D.C.); Education Directors Vernon Calder (Berkeley Research Group, LLC; Salt Lake City) and S. Jason Teele (Cullen and Dykman LLP; Garden City, N.Y.); Newsletter Editors Amanda Demby (Province, Inc.; Henderson, Nev.) and Peter J. Young (Proskauer; Chicago); Communications Manager Jay D. Crom (Bachecki, Crom & Company, LLP; San Francisco); Special Projects Leader David R. Seligman (Kirkland & Ellis LLP; Chicago); and Member Relations Director Susan A. Berson (Berson Law Group LLP; Overland Park, Kan.). Visit abi.org/membership/committees to get involved with this and other ABI committees.
Inside ABI
ABI Journal Thanks Outgoing Editorial Board Members
With 2018 approaching, the ABI Journal Editorial Board is saying goodbye to some dedicated contributors. Our deepest thanks go to these ABI members for their service and dedication in making the Journal the top bankruptcy-related publication for bankruptcy practitioners: • Margaret A. Burks (Office of the Trustee; Cincinnati) as a coordinating editor of the Trustee Talk column; • Robert A. Guy, Jr. (Polsinelli; Nashville, Tenn.) as a coordinating editor of the Intensive Care column; • Dion W. Hayes (McGuireWoods LLP; Richmond, Va.) as an associate editor; • Prof. Juliet M. Moringiello (Widener University School of Law; Harrisburg, Pa.) as a coordinating editor of the Student Gallery column, who now serves as host of ABI’s “Eye on Bankruptcy” series; • Christian C. Onsager (Onsager | Fletcher | Johnson LLC; Denver) as a coordinating editor of the Litigator’s Perspective column; and • Justin R. Storer (Lakelaw; Chicago) as a coordinating editor of the Consumer Point/Counterpoint column. In addition, Jane E. Limprecht, who served as the long-standing point of contact between ABI and the U.S. Trustee Program and coordinated articles for the On Our Watch column, is retiring from the Executive Office for U.S. Trustees at the end of 2017.
Attention Clerks: Scholarships Available for the Byrne JCI at Pepperdine in March
ABI will once again offer scholarships to incoming bankruptcy clerks to attend the annual Byrne Judicial Clerkship Institute, which will be held at Pepperdine University School of Law March 15-16. Each year, Pepperdine, supported by ABI and the Federal Judicial Center, brings law students from across the nation to its campus for the Wm. Matthew Byrne, Jr. Judicial Clerkship Institute (Byrne JCI). Through the Byrne JCI, students who have been accepted into federal judicial clerkship positions have the opportunity to gain distinctive and comprehensive training by federal judges. For almost 20 years, students from more than 130 law schools clerking for more than 320 differ-
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ent judges have attended the program, making it a unique resource for promoting the administration of justice in our federal courts. ABI has developed a full bankruptcy curriculum for incoming bankruptcy clerks, with scholarship funding support provided by the Anthony H.N. Schnelling Endowment Fund. Bankruptcy Judges should encourage their new clerks starting in 2018 to apply for scholarship consideration by contacting ABI Meeting Planner Bethany Spencer at bspencer@abi.org. Be sure to visit law.pepperdine.edu/ judicial-clerkship-institute/2018 for more information.
CARE Corner
CARE Chicago Exhibits at the CBA Pro Bono Fair and Holds a Fall Training Session Chicago CARE held a table at the Chicago Bar Association’s Pro Bono Fair, hosted by Kirkland & Ellis LLP in late October. Chapter volunteers Erica Tukel Wax (U.S. Bankruptcy Court (N.D. Ill.); Chicago) and Joseph U. Schorer (Kirkland Joseph Schorer (second from right) is pictured & E l l i s L L P ; with guests who stopped by the CARE table at Chicago) recruited the Chicago Bar Association’s Pro Bono Fair at volunteers for CARE Kirkland & Ellis in Chicago. presentations. Chicago CARE thanks William J. Barrett (Barack Ferrazzano Kirschbaum & Nagelberg, LLP; Chicago) for hosting a CARE training program for new volunteers. CARE also thanks Karen R. Goodman and the Taft Stettinius & Karen Goodman, along with Bankruptcy Hollister LLP team Judge Janet S. Baer and Erica Tukel Wax of for hosting the CARE the U.S. Bankruptcy Court of the Northern District of Illinois (l-r), welcomed guests to Fall 2017 Social. This past year, the CARE Fall Social. Chicago CARE volunteers reached more than 4,000 people in 155 presentations at 38 different venues. This is an almost 20 percent increase since the previous school year. Their presenters included 77 volunteers, counting at least 38 volunteers who presented more than once. Of the 38 venues, 14 were new to CARE. Join CARE Chicago and show that you CARE! Learn more at carechicago.org. CARE Chapter Attends South Carolina Finance Forum In late October, CARE South Carolina participated in the 2017 South Carolina Finance Forum, hosted by the
Bankruptcy Judge Rebecca Buehler Connelly (W.D. Va.; Harrisonburg) as they facilitated a breakout session about CARE and its programs. The hour-long session included a breakdown of CARE’s presentations, a presentation from Judge Connelly on the CARE difference and an open-ended exploration of CARE’s presentation materials.
Pamela Simmons-Beasley (Chapter 13 Trustee), Janet Haigler (Haigler Law Firm, LLC) and Jane Downey (Moore Taylor Law Firms, PA) (l-r) worked the table during the South Carolina Finance Forum last October.
Jump$tart Coalition for Personal Financial Literacy National Educators Conference In early November, CARE National Staff Anna Flores and Ian Redman attended the Jump$tart Coalition for Personal Financial Literacy’s National Educators Conference in Washington, D.C., where they pitched teachers and other educators about the benefits of CARE. On Saturday, Nov. 4, Anna and Ian were joined by Chief
ABI Graphic Designer Earns Awards
Patrick McGrath
ABI Senior Designer Patrick McGrath recently won two graphic design awards: a MarCom Platinum Award for his design of the AlixPartners Fun Run shirt for the Annual Spring Meeting in April 2017, and a MarCom Gold Award for his design of the event poster of the Southwest Bankruptcy Conference in September 2017. Congratulations, Patrick!
Get Involved with CARE Have you been following CARE Corner and always wanted to get involved? Please email Executive Director Anna Flores at aflores@care4yourfuture.org or Program Coordinator Ian Redman at iredman@care4yourfuture.org to volunteer with a local chapter, create a new chapter or make a donation. You can also learn more online at care4yourfuture.org, and be sure to “Like” and “Follow” CARE at facebook.com/careforyourfuture.
ABI Endowment Fund Update
Give by Year End to Benefit the Endowment (and You!) If you have been considering making a donation to the ABI Anthony H.N. Schnelling Endowment Fund, you might benefit by making your contribution by year’s end. Checks mailed to a charity are considered delivered on the date that you mail them. In addition, you can pay in two convenient methods: by credit card at endowment.abi.org/contribute or by calling (703) 739-0800 by Dec. 31 for your donation to be considered tax-deductible for 2017. Donors at the Sustaining Member Level ($2,000) and up will be recognized at ABI’s Annual Spring Meeting April 19-22 at the Marriott Marquis in Washington, D.C. More information will be posted at abi.org/events. In addition, contributions to the Endowment Fund are tax-deductible. ABI is a 501(c)(3) tax-exempt organization. If you have been considering making a donation to the ABI Endowment Fund, you may benefit by making your contribution to Combined Federal Campaign #11391. Your funds will be used to support research and education on insolvency. Please consider contributing during the current campaign season (the 2017 CFC Open Season runs through Jan. 12, 2018).
Inside ABI
S.C. Council on Economic Education. Four CARE South Carolina volunteers presented to more than 40 teachers and educators about the nature of the CARE program with the hope of being invited to their classrooms. Jane Harris Downey (Moore Taylor Law Firm; West Columbia, S.C.), Pamela A. Simmons-Beasley (Chapter 13 Trustee; Columbia, S.C.), Janet B. Haigler (Haigler Law Firm LLC; Chapin, S.C.) and Eddye L. Lane (Eddye Lane Law, PA; Columbia, S.C.) presented twice during the one-day forum to share the CARE program’s website and presentations, as well as answer questions about CARE.
Make CARE Your Year-End Gift Recipient As an independent 501(c)(3) nonprofit, the Credit Abuse Resistance Education (CARE) program is dependent on and grateful for the financial support of individuals and corporations who share CARE’s vision for a financially smart future. Please consider making CARE a recipient of your year-end giving and supporting an organization that works closely with the bankruptcy community to provide pro bono and community service opportunities. Giving to CARE is easy: Visit care4yourfuture.org to make a one-time donation, or mail a check to the following address: 66 Canal Center Plaza, Suite 600, Alexandria, VA 22314. Checks should be made out Credit Abuse Resistance Education (CARE).
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Inside ABI
For questions about payment options, please contact ABI Chief Financial Officer Kathy Sheehan at (703) 7390800 or ksheehan@abiworld.org. Thank you for considering a contribution to support the ABI Anthony H.N. Schnelling Endowment Fund! Liquidating Trusts Support ABI Liquidating trusts commonly receive nominal payments (such as tax rebates or returned utility deposits) where distribution would either require a wasteful administrative expense or violate a de minimis payment provision in a reorganization plan. The Bankruptcy Code currently provides no direct solution on how to dispose of surplus funds (also referred to as “remnant funds”) in such circumstances. As liquidating chapter 11 plans become increasingly common, it will become more important for plans to specify how remnant funds should be distributed. Surplus assets can be donated to the ABI Endowment Fund, a 501(c)(3) charity. The Endowment has prepared model plan language, available at abi.org/endowment/ ways-to-give (click on “Unclaimed Funds” to download the information). Endowment Donors Enjoy Wine Dinner in Chicago An evening of networking with colleagues while raising money for the ABI Endowment Fund was held on Nov. 9 at River Roast in Chicago. A huge thank you goes to Richard S. Lauter of Lewis Brisbois Bisgaard & Smith LLP, Vincent E. Lazar of Jenner & Block, the late Mark G. Stingley of Bryan Cave LLP and Elizabeth B. Vandesteeg of Sugar Felsenthal Grais & Hammer LLP for spearheading this event. Event sponsors included Adelman & Gettleman, Ltd.; Alvarez & Marsal Holdings, LLC; Birch Lake; Bryan Cave LLP; Conway MacKenzie, Inc.; Development Specialists, Inc.; FrankGecker, LLP; Freeborn & Peters LLP; Greenberg Traurig, LLP; Hiltz & Zanzig LLC; Jenner & Block LLP; The Law Offices of Roger Higgins, LLC; Lewis Brisbois Bisgaard & Smith LLP; MorrisAnderson; Perkins Coie LLP; Proskauer; Saul Ewing Arnstein & Lehr LLP; Shaw Fishman Glantz & Towbin LLC; Sugar Felsenthal Grais & Hammer LLP; and UpRight Law LLC.
Pictures from this event will appear in the January 2018 issue of the ABI Journal. Hockey Fans: Support the ABI Endowment in Philly! Join us at the Wells Fargo Center in Philadelphia at 7 p.m. on Jan. 2 for a divisional hockey match-up between the hometown Flyers and five-time Stanley Cup Champions Pittsburgh Penguins. Watch the game from a luxury suite generously donated by Gavin/Solmonese LLC, complete with food and open bar. Thanks also go to McGuireWoods LLP, Polsinelli and Shook, Hardy & Bacon LLP for sponsoring this event. Act fast; this event is sure to sell out! Register today at abi.org/events, or contact ABI Marketing Manager Sharisa Sloan at ssloan@abi.org (see also the ad on p. 69). Join ABI in Atlanta for a “Tribute to Service” Make sure to leave Jan. 11 open on your calendar: ABI will be hosting a special tribute at the Atlanta offices of King & Spalding to honor Bankruptcy Judges Mary Grace Diehl and C. Ray Mullins of the Northern District of Georgia, who are both retiring in 2018. Additional information is forthcoming and will be posted at abi.org/events (see also the ad on p. 79). New Endowment Donor Recognized Visionary Member: Donald A. Workman BakerHostetler Levels of Support for the ABI Endowment Millennium Level $50,000+ 30th Anniversary Circle $30,000-$49,999 Century Council Member $25,000-$29,999 Visionary Member $20,000-$24,999 Legacy Member $15,000-$19,999 Lifetime Member $10,000-$14,999 Benefactor $5,000-$9,999 Sustaining Member $2,000-$4,999 Leadership Club $1,000-$1,999 Donor $100-$999 Donate online at abi.org/endowment. Donations are tax-deductible and can be paid over five years. Call (703) 739-0800 for more information. abi
New Members August (partial list) David G. Perdue Perdue Law Offices Winchester, Ky.
Mark Risser Seymour, Ind.
Eric M. Pheneger Badnell & Dick Co., LPA Lima, Ohio
Alan Root Archer & Greiner Wilmington, Del.
Alesha Powell Bronx, N.Y.
Andrew Rosenblatt Norton Rose Fulbright US LLP New York
Faye C. Rasch Seattle Edward H. Rasp, III Milbank, Tweed, Hadley & McCloy LLP London
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Charles Riddle St. Louis
Nathalie A. Rouzier Conway MacKenzie Pembroke Pines, Fla.
Robert J. Sampson, III PitBullTax Software Fort Lauderdale, Fla.
Brittany Smith U.S. Bankruptcy Court (E.D. Ky.) Lexington, Ky.
Vasilios Sanios Highland, Mich.
Susan Green Taylor Law Office of Susan G. Taylor Austin, Texas
Dominic Santos FTI Consulting, Inc. Los Angeles Ellen W. Slights U.S. Attorney’s Office Wilmington, Del. Norman L. Slutsky Slutsky & Slutsky Co LPA Cincinnati
Andrew M. Temin Temin Law Office LLC Hamilton, Ohio Chris Tennenbaum FTI Consulting, Inc. Los Angeles David W. Tiffany CR3 Partners, LLC Scottsdale, Ariz.
Thomas P. Tinker Office of the U.S. Trustee Wilmington, Del.
Meeko A. Chislom Eaton Corp. Cleveland
Andrew Hofland Crowe & Dunlevy Tulsa, Okla.
Leslie R. Masterson U.S. Bankruptcy Court (E.D. Tex.) Dallas
Jeffrey D. Tuttle Snell & Wilmer, LLP Salt Lake City
Nicholas G. Chmurski O’Neil, Cannon, Hellman, et al. Milwaukee
Kevin Holden U.S. Bankruptcy Court (D. N.J.) Camden, N.J.
James McGrath Rawlinson & Hunter Ltd. Grand Cayman, Cayman Islands
Javier Vilarino Vilarino and Associates LLC San Juan, Puerto Rico
Edward A. Clarkson Andrews Kurth LLP Houston
Bretton Jarvis University of Idaho College of Law Boise, Idaho
Kimberly Miller U.S. Bankruptcy Court (N.D. Ga.) Atlanta
Bryan T. Voss Blackwell & Associates, PC O’Fallon, Mo.
Marsha Coghlan A&L Goodbody Dublin
Jacob Johnson Bryan Cave LLP Atlanta
Tim Mitchell Wilmington, Del.
Hannah Willett U.S. Bankruptcy Court (D. Ariz.) Tucson, Ariz.
Conor Colpoys Houlihan Lokey Chicago
Elizabeth Justison Young Conaway Stargatt & Taylor, LLP Wilmington, Del.
Catherine Woltering Baker Hostetler LLP Columbus, Ohio
Lauren Crump Doroshow, Pasquale, Krawitz, et al. Wilmington, Del.
Elizabeth A. Kane Law Office of Elizabeth A. Kane Honolulu
Stuart Wright Washington, D.C.
Travis J. Cuomo Richards Layton & Finger, PA Philadelphia
Rahul Kejriwal Kejriwal Group International New York
Terence Desouza U.S. Bankruptcy Court (W.D. Tex.) Austin, Texas
Megan Kenney Wilmington, Ohio
Erik G. Navrocky Salusse Marangoni Advogados São Paulo, Brazil
Mary E. Kors U.S. Bankruptcy Court (C.D. Cal.) Woodland Hills, Calif.
Trudy R. Nelson Tucker Legal Clinic Ocean Springs, Miss.
Tony Kullen Portland, Ore.
Jessica N. Nowak Univeristy of Miami School of Law Miami
Holly Zukaitis Kansas City, Mo.
September (partial list)
Corinne Aftimos U.S. Bankruptcy Court (S.D. Fla.) Miami Roopesh K. Aggarwal Ankura Consulting Centennial, Colo. Andrea L. Anderson Conway MacKenzie Birmingham, Mich. Conan Bardwell Keegan, Linscott & Kenon, PC Tucson, Ariz. Michelle Bass Wolfson Bolton PLLC Troy, Mich. Alan Bennett Ashfords LLP Exeter, U.K. Crystal Berry University of Idaho College of Law Boise, Idaho Mary E. Bianco Getzler Henrich & Associates LLC New York Janna Birch University of Idaho College of Law Moscow, Idaho Richard Burstein Brutzkus Gubner Rozansky, et al. Woodland Hills, Calif. Andrew Butler U.S. Bankruptcy Court (D. Del.) Wilmington, Del. George Casper University of Idaho College of Law Boise, Idaho
Jason A. Enright Munsch Hardt Kopf Harr, PC Dallas Nicole Ferreira Univeristy of Idaho College of Law Boise, Idaho Louize Muller Fiore University of Miami School of Law Pompano Beach, Fla. Christopher Ganan MedMen Culver City, Calif. Rodney Gayle Phoenix Management Services New York Hannah Gethin Rawlinson & Hunter Ltd. George Town, Cayman Islands Andrew S. Golden Morris Nichols Arsht & Tunnell LLP Wilmington, Del. Nava Hazan Squire Patton Boggs New York Joseph Harrington University of Idaho College of Law Boise, Idaho Theodore S. Heckel University of Minnesota Law School Minneapolis Carrie L. Henry Univeristy of Miami School of Law Miami Sophia Hepheastou Griffin Hamersy LLP New York
Eric S. Kurtzman BMS Irvine, Calif. Ryan Lamb Washington, D.C. Charles Langerhans Rutgers University Newark, N.J. Garrett Leatham U.S. Bankruptcy Court (E.D. Cal.) Fresno, Calif. John Levitske Huron Consulting Group Chicago Tuula Hannele Linna Helsinki, Finland Salvador J. Lopez Robson & Lopez LLC Chicago Jordan E. Lubin Lubin Law, PC Atlanta David J. Lund Law Office of David J. Lund, LLC Wichita, Kan. Roger Maldonado Faegre Baker Daniels Minneapolis Samuel H. Mass The Semard Law Firm Chicago
John L. Morrell Douglas Wilson Companies San Diego Holly Musselman Law Office of Holly A. Musselman Phoenix, Md.
Chris Ogden University of Idaho College of Law Boise, Idaho Morgan Pappas Univeristy of Idaho College of Law Moscow, Idaho Justin Pitcher U.S. Bankruptcy Court (D. Del.) Wilmington, Del. Rosamond Posey Mitchell, McNutt & Sams, PA Oxford, Miss.
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Christopher N. Ackeret Debt & Injury Law Center, LLC Chicago
Joshua S. Morgan University of Miami School of Law Miami
Alexandria Quinn U.S. Bankruptcy Court (S.D. Iowa) Des Moines, Iowa Omid Rahnama George Washington Univ. Law School Bethesda, Md. Linda Riffkin U.S. Trustee Summit, N.J. Mai Lan Rodgers Pension Benefit Guaranty Corp. Washington, D.C. Kendra A. Rodwell Womble Carlyle Sandridge & Rice, LLP Wilmington, Del. Michael Rollings Rollings Oliver LLP London Edward L. Rothberg Hoover Slovacek LLP Houston abi
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Management Incentive Plans Under a Microscope from page 31
chase common stock) made under a chapter 11 plan, whether the MIP awards dilute, or are diluted by, such equity-based plan distributions should be made clear. Awards granted under an MIP are typically dilutive of — not diluted by — other equity-based plan distributions that are made on the effective date of a chapter 11 plan. Emergence Grants Awards issued under an MIP at or shortly after the adoption of the MIP and the reorganized company’s emergence from chapter 11 are referred to as “emergence grants.” Whether to issue emergence grants to existing members of a management team and, if so, in what forms and amounts are among the more difficult points negotiated in connection with a restructuring. Failure to provide for emergence grants might alienate a company’s existing management as it embarks on its restructuring process or breed mistrust between a management team and the entities that will become the majority owners of the reorganized company. Conversely, pre-agreeing to issue a certain amount of equity-based awards to an existing management team before a new board of directors is impaneled has the effect of reducing the size of the overall MIP pool from which the new board might wish to grant future awards to other or new executives, and potentially giving awards to executives who the new board might want to terminate. If emergence grants are contemplated in a restructuring, the key issues negotiated are (1) the percentage of the MIP pool that will be awarded as emergence grants; (2) the recipients of the emergence grants or, if the recipients are not preselected, the person(s) responsible for selecting the recipients, and whether any consultation or consent rights over the selection are given to other parties (such as the existing CEO); and (3) the forms of the emergence grants.9 In the course of negotiations, the forms, amounts and key terms of the emergence grants might be adjusted in parallel in order to reach a deal. For example, the percentage of the MIP pool awarded as emergence grants might be reduced in exchange for an increase in the percentage of full-value awards — as opposed to appreciation awards — that make up the emergence grants. Alternatively, the amount of the emergence grants might be increased in exchange for longer vesting periods or more challenging performance conditions. Change in Control The definition of “change in control” — in particular, the exceptions carved out of the definition — set forth in an MIP might be of great consequence to the future owners of a reorganized company. Generally speaking, a “change in control” is defined to include (among other events) a stock sale, a merger, a sale of all or substantially all assets, or a board takeover. From the executives’ perspective, a broad 9 A survey by the authors of 13 companies in the energy sector that recently filed for chapter 11 found that for those companies issuing emergence grants, the average percentage of total shares of common stock of the post-chapter 11 reorganized company granted as emergence grants, either to all employees or only to members of a senior executive teams, ranged from 1.8 to 7.5 percent, with the majority of emergence grants taking the form of a mix of full value and appreciation awards.
66 December 2017
definition of “change in control” protects them from uncertainty over the status of unvested awards following a strategic transaction. However, a potential acquirer or other strategic actor might view an expansive “change in control” definition as an anti-takeover measure that benefits an ensconced management team and would generally prefer a narrow “change of control” definition instead in order to avoid the associated costs with honoring unvested awards that accelerate. A clash between competing visions for a reorganized company — such as where the future owners are intent on consummating a strategic transaction post-emergence, but the management team wishes to instead pursue a more traditional business plan — could lead to disputes over the definition of change in control and the degree to which certain transactions are carved out.
The definition of “change in control” ... set forth in an MIP might be of great consequence to the future owners of a reorganized company. Termination of Employment The circumstances in which unvested awards granted under an MIP vest or are forfeited on termination of employment are also hotly negotiated, with executives (who have an interest in protecting their unvested awards) often advocating for an expansive range of scenarios that trigger accelerated vesting. Vesting often accelerates if an executive is terminated without “cause.” The definition of “cause” is negotiated to balance the company’s interest in deterring misfeasance with the executive’s interest in ensuring that the company cannot unfairly rescind previously granted unvested awards by terminating the executive. In most cases, mere poor performance is not sufficient to trigger a company’s right to terminate an employee for cause, and the negotiation typically centers around the types of bad acts (e.g., crimes, misconduct, violations of company policies, etc.) that constitute cause, and any cure rights or other procedural protections afforded to the executives. Executives often push for their MIP awards to accelerate also on resignation for “good reason,” which is typically defined to include events that are adverse to the executives, such as a reduction in compensation, relocation or diminution in duties.
Conclusion
As companies seek to build consensus among creditor constituencies in order to avoid the costs that are associated with protracted chapter 11 cases, MIPs will remain at the forefront of restructuring negotiations, requiring practitioners and bankruptcy participants to consider how best to structure an MIP and resolve certain hotly negotiated issues. abi ABI Journal
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Legislative Update: Thirty Years of Asking, “Are We There Yet?” from page 8
BAPCPA’s Fix Tested in Court
In 2005, then-President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).8 Immediately, the special de-prioritization tax provisions of § 1222(a)(2)(A) were available to the BFFs. The first case to utilize § 1222(a)(2)(A), In re Knudsen, was filed in the Northern District of Iowa.9 Questions surrounding § 1222(a)(2)(A) were daunting. Since neither debtors’ counsel nor the Internal Revenue Service (IRS) had faced litigating a new statute, they collaborated to identify potential issues. An IRS attorney, IRS special procedures agent and debtors’ counsel met and spent the afternoon whiteboarding potential issues, including the following: • Which “farm assets” qualified for the special tax provision?; • What did the term “used in” mean?; • What was the debtor’s “farming operation?”; and • How was the tax to be de-prioritized to be calculated? While they did not agree on the answers to these questions, they outlined the parameters of their disagreements. Primarily, the IRS proposed utilizing a proportional methodology to calculate the tax that could be de-prioritized, while debtors’ counsel proposed using a marginal methodology adapted from a special-use valuation method used in estate tax. The proportional method valued each type of tax proportionately, resulting in a higher-priority, nondischargeable tax. The marginal methodology resulted in a lower-priority, nondischargeable and a much higher de-prioritized dischargeable tax. In Knudsen, debtors’ counsel faced the question of how to ensure that the IRS would be forced to litigate its issues with the plan at the confirmation hearing rather than attacking the plan after confirmation. The plan delineated the marginal methodology for the assets sold in the tax year before the filing. The plan was feasible without the further sales of assets; however, it was more feasible if additional land was sold, provided that the income taxes could be de-prioritized and discharged in the chapter 12. Given debtors’ counsel’s belief that § 1222(a)(2)(A) would not survive a strict statutory interpretation to de-prioritize taxes on post-petition sales, the plan provided that there would be no post-petition sales unless there was a final court ruling that the tax occasioned by the post-petition sale of land would qualify for de-prioritization and discharge. In July 2006, Hon. William Edmonds held a three-day confirmation hearing in Knudsen and denied confirmation of the plan.10 He held that the debtors could only treat capital gains taxes owing on the disposition of capital assets of the farm, not their market hogs; the tax claims subject to § 1222(a)(2)(A) would be discharged upon completion of the payments under the plan; and the debtors could sell assets post-petition and have the taxes qualify for treatment under § 1222(a)(2)(A). After this ruling, the answer to the BFFs’ question then became, “I’m not sure.” 8 Pub. L. 109-8. 9 The author had the privilege of serving as debtors’ counsel. 10 In re Knudsen, 356 B.R. 480 (Bankr. N.D. Iowa 2006).
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The Knudsens and IRS both appealed Judge Edmonds’ ruling. District Court Judge Mark W. Bennett heard the three-and-a-half hour appellate argument and reversed the bankruptcy court’s ruling denying plan confirmation.11 Among other things, Judge Bennett held that the portion of the federal tax debt to be paid in full as a priority tax claim and the portion to be treated as a mere unsecured claim was to be determined utilizing the “marginal method” of allocation; post-petition sales of farm assets qualified for treatment as an unsecured claim; and taxes on income earned by the debtors during their chapter 12 case were taxes “incurred by the estate,” even though the chapter 12 estate was not a separate taxable entity. The IRS appealed Judge Bennett’s decision to the Eighth Circuit Court of Appeals. The Circuit Court ruled on several issues, including that § 1222(a)(2)(A) was not restricted to pre-petition claims owed to creditors, and that taxes on postpetition sales qualified for de-prioritization.12 After this ruling, the answer to BFFs’ question in the Eighth Circuit was, “Yes, we have arrived.”
Supreme Court Weighs In
Dark clouds were on the horizon in the Ninth Circuit, however, where the bankruptcy court in In re Hall13 held that the post-petition sale of the Halls’ farm, which generated a significant tax, did not qualify for de-prioritization. In Hall, the bankruptcy court relied on In re Brown,14 a chapter 13 case in which the debtor sold his interest in rental real estate to his ex-spouse after confirmation of his chapter 13 plan, which provided for payment of 100 percent of the unsecured claims. If the chapter 13 trustee were required to pay the capital gains taxes due to the Commonwealth of Massachusetts and the federal government, there would have been insufficient funds to pay the balance of the unsecured claims in full. The bankruptcy court in Hall adopted Brown’s reasoning in determining that the analysis in Knudsen was flawed regarding the post-petition applicability of § 1222(a)(2)(A). The debtor in Hall faced the prospect of being liable for the capital-gains taxes generated by the post-petition sale of the farm. On appeal, the district court reversed the bankruptcy court.15 The district court’s decision was appealed to the Ninth Circuit, which affirmed the bankruptcy court’s ruling.16 Thus, the next answer to the Ninth Circuit BFFs’ question was, “No.” With a split in the circuits regarding the post-petition deprioritization of governmental claims, the Supreme Court granted certiorari to Hall v. United States.17 On May 14, 2012, in a 5-4 ruling containing a strong dissent, the Court decided Hall v. United States.18 It affirmed the Ninth Circuit’s 11 In re Knudsen, 389 B.R. 643 (N.D. Iowa 2008). 12 Knudsen v. Internal Revenue Serv., 581 F.3d 696 (8th Cir. 2008). 13 375 B.R. 741 (Bankr. D. Ariz. 2007). 14 No. 05-41071, 2006 Bankr. LEXIS 3156 (Bankr. D. Mass. Nov. 20, 2006). 15 United States v. Hall, 393 B.R. 857 (D. Ariz. 2008). 16 United States v. Hall, 617 F.3d 1161 (9th Cir. 2010). 17 564 U.S. 1003 (June 13, 2011). 18 132 S. Ct. 1882 (2012).
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decision, holding that the taxes arising from the post-petition sale of the Hall’s farm did not qualify for de-prioritization because no separate bankruptcy estate19 was created in a chapter 12. The Court stated, “Certainly, there may be compelling policy reasons for treating post-petition income tax liabilities as dischargeable. But if Congress intended that result, it did not so provide in the statute. Given the statute’s plain language, context, and structure, it is not for us to rewrite the statute, particularly in this complex terrain of interconnected provisions and exceptions enacted over nearly three decades.... As the Court of Appeals noted, ‘Congress is entirely free to change the law by amending the text.’”20 After the Supreme Court’s ruling in Hall, the answer for all BFFs’ question again was, “No.”
The Legislative Response
Suggestions to amend the Bankruptcy Code to rectify the effects of Hall were presented to Sen. Grassley the afternoon that Hall was decided. Beginning in June 2012, Senate staffers, Ms. Freeman (the attorney who argued Hall) and the Knudsens’ counsel discussed corrective legislation. In September 2012, Sens. Grassley and Al Franken (D-Minn.) introduced S. 3545, which was referred to the Senate Finance Committee, where it died when the 112th Congress adjourned. In the next Congress, Sens. Grassley and Franken introduced S. 1427, the Family Farmer Bankruptcy Clarification 19 A separate bankruptcy estate is established by 26 U.S.C. § 1398(d) for debtors that can have a short tax year. 20 132 S. Ct. 1893.
Act of 2013. This bill provided a legislative basis to allow family farmers to utilize chapter 12 to de-prioritize taxes incurred on the disposition of farm assets and treat them as pre-petition general unsecured claims. However, this bill also died in committee, as did successor bill S. 194 in the 114th Congress. With persistence, on May 25, 2017, Sens. Grassley and Franken introduced S. 1237, the Family Farmer Bankruptcy Clarification Act. It was assigned to the Senate Judiciary Committee in the current Congress. In early August 2017, Sens. Grassley and Ranking Democrat Christopher Coons (D-Del.) discussed their legislative wants. Sen. Coons wanted the House-passed bankruptcy judges bill that made the temporary bankruptcy judgeships in Delaware (and other districts) permanent, and Sen. Grassley wanted Hall reversed.21 Interestingly, a White House press release referred to the disaster-relief appropriations and the bankruptcy judges’ provisions, but ignored the chapter 12 provisions of the bill. Again, the BFFs are asking, “Are we there yet?,” and the answer this time is, “We hope so.” The resulting compromise included a five-year extension of the temporary judgeships together with the legislative reversal of Hall. abi 21 After Congress’s August recess, S. 1107 (the Senate version of the Bankruptcy Judges Bill with the antiHall language included) passed the Senate by unanimous consent. The Administrative Office of the U.S. Courts (AOUSC) found issues in the judgeship language, however. To address these problems, the Senate utilized House bill H.R. 136, which had passed the House earlier. The AOUSC’s preferred language was added, and S. 1107 passed, then was sent to the House for action. On Oct. 12, 2017, H.R. 2266 passed the House. The House utilized S. 1107 as a vehicle to attach the hurricane and wildfire supplemental appropriations bill. It was then sent to the Senate, which passed it on Oct. 24, 2017, with an 82-17 vote after significant parliamentary gamesmanship. Two days later, President Trump signed the bill into law.
abi.org/events
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ABI HOCKEY ENDOWMENT EVENT
TUESDAY, JANUARY 2, 2018
Wells Fargo Center • Philadelphia, PA • 7:00 p.m.
Please join us for a night of great hockey and fun networking in a luxury suite, complete with food and open bar. Tickets are $200 and benefit the ABI Anthony H.N. Schnelling Endowment Fund. For details about sponsoring this event, please email Sharisa Sloan at ssloan@abi.org.
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December 2017 69
Straight & Narrow: How Teams Can Help (or Hurt) You from page 24
Even if we were immune to cognitive errors — and we are not — there would still be problems with decision-making and dysfunctional teams. Unless you are very lucky, you have probably worked with jerks and bullies. Sometimes you outrank them and can ignore their toxicity, but they are often your peers, or, worse yet, they outrank you. What happens when you allow jerks and bullies to fly their freak flags? For one thing, your team is likely to pretend to come to consensus rather than actually to agree on a course of action. Patrick Lencioni7 has described the cascade of horribles that develop when members of a team do not trust each other. They withhold information, hold back their own criticisms of a proposal, give lip service to implementation of the idea, do not hold each other accountable and often never accomplish whatever they set out to do in the plan. His book has common-sense examples of how team members protect themselves from jerks and bullies, and his conclusion is clear: Jerks and bullies make teams less effective. However, there is more to the problem of jerks and bullies. Here is a management rule for all of us: What we tolerate, we endorse. Let’s assume that you have a rainmaker in your firm who is responsible for a significant proportion of your rev7 Patrick Lencioni, The Five Dysfunctions of a Team: A Leadership Fable at p. 83 (2002).
enues, and let’s assume that the rainmaker falls into the “jerk/ bully” category. At what point is it worth it to you to start disciplining the rainmaker? When you start losing clients? What about when you start losing junior colleagues? What about when you notice a lot of absences from those who work with the rainmaker? At some point, the rainmaker is costing you — literally, costing you — revenues. Even if you have not yet put a price tag on your colleagues’ health (or their departures), you should worry about copycats: those who think that the reason the rainmaker is still at the firm is because of his behavior, not in spite of it. Jerks and bullies create a combination of fear, demoralization and aggressive responses. They also make your place of business miserable to be around. Happy, healthy teams create synergistic effects. They come up with great ideas and do not mind working long hours (most of the time) because they genuinely enjoy working with each other. On the other hand, dysfunctional teams hide information and they hide from each other. They give each other ulcers, headaches and rashes. They develop suboptimal ideas. There are too many good places to work, and your best colleagues will eventually hightail it out of miserable work environments. Pay attention to team dynamics, and you are more likely to get not just a better work environment, but better work. abi
Chapter 8 Humor: Perspectives on Practicing Law While Parenting from page 39
Working Remotely
Fenning: The difference in working remotely — well, let me just give you some perspective. When I first started practicing [in the early 1970s], any internal office memos were still duplicated on mimeo machines because photocopying was too expensive. The office had a few “word processors” in a central computer room that fed in decks of punched cards. The secretaries had IBM Selectric typewriters that miraculously remembered two lines of text. Attorneys could use dictaphone machines, or ask their secretaries to bring their steno pads to take dictation. Of course, there were no cellphones. At court recesses, everyone ran out to the banks of pay phones to call their offices. In the early 1990s, as a security measure, federal judges were issued the early Motorola cellphones that weighed almost a pound, cost thousands of dollars to buy and too much to use to make ordinary calls. Boufadel: Like Michael Douglas in Wall Street, right?5 Fenning: Yes, but only for the rich and federal judges, as affordable cellphones didn’t become commonplace until the mid-1990s. The late 1990s brought the internet and email, but no electronic filing. Now we have electronic filing and full access electronically, coupled with video conferencing and the equivalent of a 1960s-era room-sized supercomputer that fits in your pocket.6 5 For a quick refresher and brief clip, see “Wall Street (1987) - Wake-Up Call (Drop It),” YouTube, available at youtube.com/watch?v=UDCmNFD18nQ.
70 December 2017
There were also no faxes. Faxes became commonplace in the late 1980s, but only after they started printing on regular paper, not thermostatic rolls. In the Central District, bankruptcy judges weren’t able to get fax machines in the chambers until years after we moved into our new quarters in the Roybal Building in 1992. No overnight mail delivery service, no FedEx or anything like that, not until the late 1970s. On the other hand, the post office did deliver the mail in two days. Gradually, the secretaries received more functional word processors, and then firms somewhat reluctantly allowed lawyers who demanded it to have word processing computers at their own desks. Older lawyers were generally horrified at the idea of lawyers doing their own typing. When I went on the bench in 1985, we only had one master paper file. Even more problematic, each file docket was a single cardstock document, with only one copy. If I wanted to look something up on the docket, I had to have the docket delivered from the clerk’s office to chambers and then only if it wasn’t in use by someone making docket entries. It was nearly two years after taking the bench before I had a definitive list of the cases that were transferred to me and their status. Now, anybody anywhere can 6 Tibi Puiu, “Your Smartphone Is Millions of Times More Powerful Than All of NASA’s Combined Computing in 1969,” ZME Science (Sept. 10, 2017), available at zmescience.com/research/technology/smartphonepower-compared-to-apollo-432.
continued on page 72
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Chapter 8 Humor: Perspectives on Practicing Law While Parenting from page 70
log onto PACER and get instant access to court filings. The difference is pretty mind-boggling. And then adding email communications, e-service and electronic tentatives — it’s a totally different world. Boufadel: Now, the technology that has closed the gap for smaller firms to compete with larger firms is the same that permits a time-scrapped parent to work productively and efficiently without having to be in the office. Smartphones are, well, smart, powerful and becoming more useable as tools of productivity rather than exclusively as tools of consumption. Cloud computing is affordable and allows documents to be accessed, edited and shared in real time. Location seems to be less of a factor. But what goes missing? I believe the personal interaction with other attorneys to discuss legal issues, case strategies and the like go missing. I don’t believe law should be practiced in a vacuum. While technology and cloud computing have made collaboration much easier, it is not a perfect replacement for in-person discussions.7
Drafting and Editing Documents
Fenning: When I was a law clerk in the Seventh Circuit in 1974, we only had electric typewriters. The judge’s secretary would literally cut and paste when we made edits. She was an expert at taping the edges down so you couldn’t see the seams when they were photocopied. So, yes, the “cut-and-paste” function in Word comes from literal cutting and pasting. Boufadel: I like today’s options better. I remember one time when I was in sitting in my car after an appointment. We were preparing for trial, and I received a call from cocounsel, who wanted to review a few items in a motion to be filed. I edited the document on my phone, forwarded 7 See Daisy Wademan Dowling, “How to Work from Home When You Have Kids,” Harvard Business Review (Sept. 14, 2017), available at hbr.org/2017/09/how-to-work-from-home-when-you-have-kids (discussing benefits and challenges that working parents face when working remotely).
the changes, then drove back to the office with co-counsel none the wiser.8
Commuting on the Train
Boufadel: We both commute to downtown Los Angeles on the train. You did it for more than 30 years. How did you manage that? Fenning: The biggest advantage of being a judge rather than a litigator while the kids were little was my ability to control my time. I tried to manage my court time effectively, and usually left chambers around 4:15 p.m. to make it home by around 6 p.m. As one of my colleagues would say, “Court doesn’t start till you get there, and it ends when you leave.” While I was a judge, I commuted with a rolling briefcase jammed full of papers, because I would use my 2.5 hours a day on the train to prepare for hearings, so I would be ready for homework with the kids when I got home or, at the other end, ready for court when I got to Los Angeles. On one occasion, that turned out to be handy when the train hit a car and we sat on the tracks for hours between stations. That morning, I had my usual 10 a.m. relief-from-stay calendar. Fortunately, we had the capability for telephonic appearances. Earlier in my career, it wouldn’t have worked. I effectively made a telephonic appearance into my own court and conducted the hearing based on the papers from my briefcase. The lawyers appreciated not having to return for a continued hearing due to the train accident. Boufadel: I can only imagine how strange that would be to hear your voice booming from the speakers while arguing to an empty chair. Well, thank you for sitting down with me. I find it amusing that if Emma becomes an attorney in 2045, I’m sure her avatar will look back at this conversation in shock. abi 8 As adroitly put in Zoolander (Paramount Pictures 2001): (Talking about the files) “They’re in the computer?... We’ve got 30 years worth of files, right here in this computer, they’re gonna bring you down!” Throws the computer off the balcony, still thinking that the files are in the computer. After the computer is smashed up on the ground: “Where’d all the files go?”
Last in Line: Third Circuit Applies Plain Meaning to “Receipt” Under § 503(b)(9) from page 14
mercial terms used in international trade known as “Incoterms.” 16 According to the Incoterm governing FOB contracts, the risk of loss of or damage to the goods passes to the buyer when the seller transfers the goods to the common carrier’s vessel at a designated location.17 Therefore, the debtor was deemed to have constructively received the goods when the goods were delivered to the vessels at the China ports and the risk of loss had passed to the debtor.18 The district court affirmed the decision of the bankruptcy court, substantially adopting the reasoning of the lower court.19 16 Id. at 744-45. 17 Id. at 745. 18 Id. at 745-46. 19 See World Imports, 549 B.R. at 824.
72 December 2017
The Third Circuit’s Holding
The Third Circuit held that the debtor received the sellers’ goods when the debtor took physical possession of them in the U.S. within 20 days of the debtor’s bankruptcy filing, and not when title and risk of loss had passed to the debtors prior to the 20-day period. 20 As a result, the sellers satisfied the requirements of § 503(b)(9), and their claims were entitled to administrative priority status. The Third Circuit applied a plain-meaning analysis, by first reviewing two well-known dictionaries,21 which defined “received” as requiring physical possession.22 The dictionary definitions were consistent with the UCC’s definition 20 World Imports, 862 F.3d at 346. 21 Id. at 342 (citing Black’s Law Dictionary and Oxford English Dictionary). 22 World Imports, 862 F.3d at 342.
ABI Journal
of “receipt of goods,” requiring “taking physical possession of them.”23 Congress intended to adopt this well-understood meaning of the term “receipt,” particularly because the UCC provision was the governing law in 49 states when § 503(b)(9) was enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).24 The Third Circuit noted that the “reclamation” provision in BAPCPA (1) clarified the rights of parties exercising reclamation rights under § 546(c) and (2) created § 503(b)(9).25 Because § 503(b)(9) provides an alternative remedy to reclamation, the court interpreted creditors’ priority rights under § 503(b)(9) consistently with creditors’ reclamation rights under § 546(c).26 The Third Circuit relied on its pre-BAPCPA 1984 decision, In re Marin Motor Oil Inc., which had applied the UCC’s definition of receipt, namely, “taking physical possession” of goods to creditors’ reclamation rights under § 546(c).27 In World Imports, the Third Circuit applied the same meaning of the term “received” — taking physical pos23 Id. at 342; see also U.C.C. § 2-103(1)(c). 24 Id. at 342. 25 Id. at 342-43. 26 Id. at 343. 27 Id. (quoting Montello Oil Corp. v. Marin Motor Oil Inc. (In re Marin Motor Oil Inc.), 740 F.2d 220, 224-25 (3d Cir. 1984)).
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session of the goods — to § 503(b)(9) claims based on the interrelationship between §§ 546(c) and 503(b)(9).28 The Third Circuit rejected the lower courts’ holding that the debtor had “constructively received” the sellers’ goods upon delivery of the goods to the common carrier’s vessels in China.29 Instead, the Third Circuit relied on Comment 2 to UCC § 2-103, which distinguishes physical “receipt” from the “delivery” of goods.30 A seller may “deliver” goods to a common carrier, transfer title to the goods and pass the risk of loss prior to the buyer obtaining physical possession of — and thereby receiving — the goods.31 The Third Circuit also found that a buyer receives goods when a seller can no longer stop delivery of the goods.32 28 Id. at 343-44. 29 See id. at 345. 30 Id. at 344; U.C.C. § 2-103 cmt. 2 (“‘Receipt’ must be distinguished from delivery, particularly in regard to the problems arising out of shipment of goods, whether or not the contract calls for making delivery by way of documents of title, since the seller may frequently fulfill his obligations to ‘deliver’ even though the buyer may never ‘receive’ the goods.”). 31 Id. at 345. 32 Id.; see also U.C.C. § 2-705(2) (“As against such buyer the seller may stop delivery until (a) receipt of the goods by the buyer; or (b) acknowledgment to the buyer by any bailee of the goods except a carrier that the bailee holds the goods for the buyer; or (c) such acknowledgment to the buyer by a carrier by reshipment or as warehouseman; or (d) negotiation to the buyer any negotiable document of title covering the goods.”).
continued on page 74
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Last in Line: Third Circuit Applies Plain Meaning to “Receipt” Under § 503(b)(9) from page 73
According to UCC § 2-705, a seller can stop delivery of goods in the possession of a carrier, warehouse or other third party that is holding or transporting the seller’s goods. 33 Stoppage-of-delivery rights terminate when a buyer or its agent takes physical possession of the goods — not when the title or risk of loss of the goods passes to the buyer.34 The Third Circuit held that although a buyer is deemed to have constructively received goods when its agent obtains physical possession of goods, a common carrier does not qualify as a buyer’s agent.35 The Third Circuit’s decision left unresolved whether a seller that drop-ships goods directly to a debtor’s customer is eligible for priority status under § 503(b)(9). To succeed on such a claim, a seller would have to persuade a court that a carrier or the debtor’s customer was acting as the debtor’s agent to prove physical possession of the seller’s goods. Just three days after the Third Circuit’s World Imports ruling, the U.S. Bankruptcy Court for the District of Delaware, in In re SRC Liquidation LLC,36 considered whether a seller’s claim based on its drop-shipment of goods directly to the debtor’s customers within 20 days of the debtor’s bankruptcy filing was eligible for priority status under § 503(b)(9). One of the debtor’s vendors, International Imaging Materials Inc. (IIMAK), drop-shipped goods (at the debtor’s instruction) to the debtor’s customers by using the debtor’s carrier, United Parcel Service (UPS).37 IIMAK argued for a broad interpretation of “received” that takes into account different types of delivery arrangements, such as drop shipments of goods involving a seller, buyer and the buyer’s customer, and the commercial realties surrounding § 503(b)(9) priority claims.38 IIMAK asserted that the debtor should be deemed to have constructively received the drop-shipped goods when the title to the goods had passed from IIMAK to the debtor upon IIMAK’s transfer of the goods to UPS.39 The purchaser of the debtor’s business, having agreed to pay all allowed § 503(b)(9) claims, opposed priority status for IIMAK’s § 503(b)(9) claim because the debtor had not obtained physical or, through its agent, constructive possession of the drop-shipped goods that would have otherwise cut off IIMAK’s stoppage-of-delivery rights under UCC § 2-705(2)(a)-(d). UPS’s possession of the drop-shipped goods did not change the outcome because UPS, as a carrier, was not the debtor’s agent.40 The SRC court, relying on the Third Circuit’s holding in World Imports, denied priority status for IIMAK’s § 503( b)( 9) claim and ruled that the debtor had not 33 See id. at 345. 34 Id. 35 Id. at 345-46; see also Cargill Inc. v. Trico Steel Co. LLC (In re Trico Steel Co. LLC), 282 B.R. 318, 323 (Bankr. D. Del. 2002); Mayer Pollock Steel Corp. v. London Salvage & Trading Co. Ltd. (In re Mayer Pollock Steel Corp.), 157 B.R. 952, 960 (Bankr. E.D. Pa. 1993); Marin, 740 F.2d 225. 36 In re SRC Liquidation LLC, No. 15-10541 (BLS), 2017 WL 2992718 (Bankr. D. Del. July 13, 2017). 37 Id. at *1. 38 Id. at *4. 39 Id. 40 Id. at *4.
74 December 2017
“received” the drop-shipped goods because neither the debtor nor its agent had obtained physical possession of the goods. 41 The court explained that the debtor did not receive the drop-shipped goods when title to or risk of loss of the goods had passed to the debtor upon their transfer to UPS, nor had the debtor constructively received the goods upon their delivery to UPS because UPS, as the carrier, was not the debtor’s agent.42 In addition, the court found that the word “received” should have the same meaning, “obtaining physical possession,” for reclamation rights under § 546(c) and priority claims under § 503(b)(9).43 The SRC court denied priority status under § 503(b)(9) without analyzing whether the debtor’s customer could be deemed to be the debtor’s agent for purposes of physical receipt of the drop-shipped goods. 44 In particular, the court never addressed Comment 2 to UCC § 2-705, which states that a “[r]eceipt by the buyer includes receipt by the buyer’s designated representative, the sub-purchaser, when shipment is made direct to him and the buyer himself never receives the goods.” 45 It remains to be seen whether any court will rely on Comment 2 to support the allowance of a § 503( b)( 9) claim under a drop-ship arrangement.
Conclusion
The premise underpinning the lower courts’ rulings in the World Imports case — that goods delivered on FOB terms are “constructively received” by a buyer when transferred to a common carrier — risks defining “received” under § 503(b)(9) based on a passage of title or risk of loss. Even more troubling, the lower courts left open the possibility that different meanings would apply to the term “received” depending on the happenstance of whether parties to the transaction were residents of different countries that were signatories to the CISG. The Third Circuit’s holding rejecting the applicability of the CISG in determining the meaning of “received” eliminates this uncertainty and instead provides a single definition of “received” that is derived from the UCC and grounded on the physical possession requirements established by stoppage-of-delivery and reclamation case law. The Third Circuit’s decision is binding upon the U.S. Bankruptcy Court for the District of Delaware, a popular venue for business chapter 11 cases, and will likely influence the arguments of future litigants and courts as § 503(b)(9) jurisprudence continues to develop. abi 41 Id. 42 Id. IIMARC did not appeal the bankruptcy court’s order, which is now final. 43 Id. at *3; see also Ningbo Chenglu Paper Products Mfg. Co. Ltd. v. Momenta Inc., No. 11-cv-479, SM, 2012 WL 3765171 at *6 (D.N.H. Aug. 29, 2012); In re World Imports, 516 B.R. 296, 300 (Bankr. E.D. Pa. 2014). 44 See SRC Liquidation LLC, 2017 WL 2992718, at *4. The SRC court held that “as a carrier, UPS does not qualify as an agent.” However, this prohibition on a carrier as an agent appears to be a broader reading than the Third Circuit’s ruling that “common carriers” do not qualify as agents. See World Imports, 862 F.3d at 345. This distinction could be significant to future litigation because Article 2 of the UCC does not define “common carrier,” and Black’s Law Dictionary distinguishes between a “common carrier” and a “private or contract carrier.” 45 Cmt. 2, U.C.C. § 2-705 (emphasis added).
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Dicta: Did You Really Just Say That? Listening and the Art of Advocacy from page 37
maintain objectivity and independence, bringing the full weight of your training and experience to the task at hand. As part of your continuing preparation and presentation of your case, listen — and listen carefully — to your client, your colleagues, your adversaries and the court. Each of these suggestions is completely within your control. The effort, care and attentiveness you bring to the task are solely within your control. The effort and time expended in developing listening skills is also exclusively within your control. In the context of the practice of law, these are the only things within your control. You can only control what you do and say, and the quality of your listening skills. Among many other things, you do not control the facts, the testimony, your adversary, the process or the court.
Research indicates that one reason why the practice of law is so stressful is due to the inability of the discrete actors in the process (that is you) to exert meaningful control over many of the variables presented in the trial system. Research also indicates that stress is reduced when the variables that might be controlled are managed in a disciplined way. Managing the variables that you can control will reduce stress as much as possible, thus improving the quality of your advocacy and your life. I always thought that one of the reasons it is called the “practice of law” is because it is never exactly right and could always be improved. Improving one’s listening skills can — and hopefully will — lead to an improvement in your practice. abi
Evaluating LLC Operating Agreement Constraints on Voluntary Filings from page 27
rights, future litigants might consider whether the validity of operating agreement provisions is a question existing outside of bankruptcy, or is a core matter such that a final judgment might be entered by the bankruptcy court. Future decisions might also find it necessary to further develop the bridge, if any, between the public policies at issue with contractual waivers of specific bankruptcy rights (such as the automatic stay or the discharge) and those at issue with restricting voluntary filings, or between the public policies at issue with preserving a fresh start for individuals with preserving going-concern value for creditors of a corporate entity and may also consider prior case law on decisionmaking by corporate fiduciaries in other bankruptcy-related contexts. For example, courts have held that (1) bad-boy/ springing guaranties are not unenforceable on public policy grounds,23 (2) lenders can validly enforce pledge agreements to obtain voting control of defaulting borrowers and thereby prevent valid authorization of a voluntary bankruptcy,24 and (3) in certain circumstances, a borrower might be prohibited from voluntarily commencing bankruptcy to repudiate postdefault restructuring agreements with its lender.25 22 See, e.g., Price v. Gurney, 324 U.S. 100 (1945) (holding that chapter X petition filed by shareholder was without authority and requiring dismissal despite allegations of substantial conflicts due to majority of debtor stock being held in voting trust controlled by bondholders, noting availability of state law remedies for such conflicts); Chicago Title & Trust Co. v. Forty-One Thirty-Six Wilcox Bldg. Corp., 302 U.S. 120 (1937) (holding that corporation in dissolution proceedings and lacking authority under state law to initiate proceedings could not file voluntary petition). See also, e.g., Bruce A. Markell, “Fool’s Gold?: Opting Out of Bankruptcy by Manipulating State Entity Law,” 36 No. 8, Bankruptcy Law Letter (August 2016) (questioning application of bankruptcy policies to override LLC authority limitations valid under state law in light of Price and Chicago Title decisions); Marshall E. Tracht, “Contractual Bankruptcy Waivers: Reconciling Theory, Practice and Law,” 82 Cornell L. Rev. 301, 308-09 (1997) (noting “missing analysis” from decisions invalidating contractual provisions prohibiting voluntary filings on public policy grounds). 23 See, e.g., F.D.I.C. v. Prince George Corp., 58 F.3d 1041, 1046 (4th Cir. 1995) (holding that springing guaranty upon bankruptcy is not unenforceable as against public policy since “the [guaranty] did not prohibit [the guarantor] from resorting to bankruptcy”) (quoting Twin City Pipe Line Co. v. Harding Glass Co., 283 U.S. 353, 356-57 (1931) (“The principle that contracts in contravention of public policy are not enforceable should be applied with caution and only in cases plainly within the reasons on which that doctrine rests.”)). 24 See, e.g., Keenihan, 19 F.3d at 1258 (where borrower had pledged controlling equity stake to its lender as collateral, with voting proxy for such shares and power of attorney to record transfer after default, court held that lender had prevented borrower from validly filing for bankruptcy after exercising on pledged shares, recording such transfers and displacing officer attempting to file).
76 December 2017
Both borrowers and lenders will continue to have incentives when arranging financing to pursue bankruptcy remote structures as a credit enhancement to manage risks and lower borrowing costs.26 In certain situations, both borrowers and lenders will also continue to have incentives to implement bankruptcy remote structures to induce additional extensions of credit or forbearance as an alternative to bankruptcy or the exercise of lender remedies. Accordingly, courts might eventually be required to engage in an increasingly complex balancing of competing policies when considering such arrangements. At the margins, courts might be called upon to determine whether under any circumstances (1) a fiduciary may bargain away any consent rights over a voluntary filing to a creditor, (2) a creditor may acquire the otherwise-valid rights of a non-fiduciary to consent to a voluntary filing, and (3) corporate authority to voluntarily commence bankruptcy might be conditioned on non-fiduciary member or creditor consent.
Structural Features
Parties seeking to improve the bankruptcy remoteness of their financing arrangements might be better to distinguish certain prior decisions with structural features like the following: • The operating agreement should limit the manager to act in the ordinary course, with other actions (explicitly including bankruptcy) requiring independent director or unanimous/supermajority member consents. • The operating agreement should be structured to validly eliminate fiduciary duties for the blocking director, 25 See, e.g., United States v. Royal Bus. Funds Corp., 724 F.2d 12, 15-16 (2d Cir. 1983) (where borrower attempted to file for bankruptcy after having defaulted on its Small Business Administration (SBA) loans and agreeing to substantial additional financing from SBA and receivership by SBA, court reasoned that “no public or private interest is served by allowing [the borrower] to repudiate the arrangements it made with the SBA” and rejecting “absolute right to file a bankruptcy petition” under circumstances). Cf. United States v. Kras, 409 U.S. 434, 446-47 (1973) (“There is no constitutional right to obtain a discharge of one’s debts in bankruptcy.”). 26 See generally, e.g., In re Doctors Hosp. of Hyde Park Inc., 507 B.R. 558, 701, 704-05 (Bankr. N.D. Ill. 2013) (discussing potential benefits of bankruptcy remote financing for borrowers and lenders).
ABI Journal
manager or member (and other duties between members in making such decisions, to the extent possible). Such persons should be required to consider only the interests of the LLC itself (and its creditors), not the interests of other members, parents/affiliates or guarantors, in making the bankruptcy decision. The circumstances for removal of such persons should be constrained, with associated requirements for lender notification and consent. • As an alternative to a blocking-director structure, the LLC might be structured with multiple classes of shares/interests, with the consent of each class being required to voluntarily file, and with one class being held by independent third parties without other managerial responsibilities. • Lender interests in the LLC should have equity characteristics rather than being ineligible for economic participation or automatically reverting to the LLC or other members upon loan satisfaction. Other rights, such as tagalong rights or put options, might facilitate lenders’ exit upon repayment. • If the LLC may seek financing in the future, members or sponsors should consider forming the LLC with features facilitating bankruptcy remoteness in advance of any such creditor request. • The lender may obtain a pledge or transfer of key LLC interests or voting rights upon default, with associated powers of attorney or automatic effectiveness. • Bad-boy/springing guaranties should remain enforceable and effective means of disincentivizing voluntary fil-
ings. Such guaranties could also be structured to become effective upon court order, voiding other lender protections, such as the blocking director structure. • The lender or blocking director could seek a declaratory judgment in state/federal court, in advance of bankruptcy, on authority to file without operating agreement compliance. Obtaining a confession of judgment to hold pending default might facilitate such relief.
[P]arties seeking improved bankruptcy remoteness might benefit from factually distinguishing their structures from those at issue in Lake Michigan, Intervention Energy and Lexington Hospitality.
Conclusion
In advance of further development of the relevant public policy questions, parties seeking improved bankruptcy remoteness might benefit from factually distinguishing their structures from those at issue in Lake Michigan, Intervention Energy and Lexington Hospitality. Regardless, borrowers and lenders can be expected to continue pursuing bankruptcy remoteness to realize mutual benefits. abi
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December 2017 77
Affairs of State: Domestic-Support Exceptions Are Not Clear-Cut from page 17
On appeal, DOR argued, consistent with McGrahan, that the plan and confirmation order in the case were silent as to the impact of confirmation on the right of DOR to continue to act under the § 362(b)(2) exceptions to the automatic stay, and therefore the intercept was not prohibited. Focusing on the legislative history of the BAPCPA modifications to § 362(b)(2), DOR emphasized that Congress had several objectives with respect to domestic-support obligations, including (1) interfering as little as possible with the establishment and collection of ongoing support obligations; (2) providing a broad and comprehensive definition of “support” in the Bankruptcy Code, under which support would receive favored treatment; and (3) ensuring that the bankruptcy process would provide for the continued payment of ongoing support and support arrearages with minimal need for participation by support creditors.10 As such, the modifications to § 362(b)(2)(C) were intended to “allow the use of estate property to pay support through the wagewithholding process without any bankruptcy-imposed limitation.”11 DOR argued that this intent to allow for collection of support obligations without bankruptcy-imposed limitations showed Congress’s intent to allow domestic-support collection efforts to continue without modification, despite the confirmation of a chapter 13 plan. The Eleventh Circuit was not willing to extend the intent of Congress, as stated in § 362(b)(2)(C), to allow for the post-petition collection of arrears from wages to the postconfirmation ability to continue to intercept tax refunds pursuant to § 362(b)(2)(F). The court found that the § 362(b)(2) exceptions to the automatic stay were valid only until confirmation of a chapter 13 plan. After confirmation, the court stated, § 1327(a) is clear that the confirmed plan is binding upon all creditors. The court specifically rejected McGrahan’s ruling that the issue has to be specifically or sufficiently evidenced to the creditor in order to preclude the right of DOR to intercept. Instead, it found that the language of § 1327(a) and relevant case law state that a confirmed plan is binding on those issues that were actually litigated and those issues that could have been litigated, notwithstanding whether the issue was “sufficiently evidenced.”12 Therefore, because DOR’s right to continue to intercept refunds could have been litigated as part of the plan confirmation, the silence as to the issue was not determinative. The court upheld the finding of contempt. Examining the cases makes it clear that the intercept of tax refunds by a domestic-support creditor during the post-petition, but pre-confirmation, period is authorized by § 362(b)(2)(F). If the plan addresses the ongoing right to intercept, then under each ruling, that also appears to be determinative. The question remains as to whether silence in a plan as to the termination of the intercept rights under § 362(b)(2)(F) are on the domestic-support creditor. 10 See id. at 1254. 11 Id. (quoting 146 Cong. Rec. S11683-02 (daily ed. Dec. 7, 2000)). 12 Id. at 1257-58.
78 December 2017
Further, if a confirmed plan is binding, what happens to those intercepts initiated prior to confirmation but completed after confirmation where the plan is silent as to the funds? It further extends the question as to whether, if the confirmed plan provides for payment of all arrears, the plan will override the non-monetary collection/enforcement mechanisms under the other subsections of § 362( b)( 2), such as license suspension or credit reporting of overdue support. Following the logic of the Eleventh Circuit that such actions are taken (at least in part) in furtherance of collection of a pre-petition arrearage provided for in the plan, so it is arguable that the continuance of these actions is a violation of a confirmation order, although they are not directly related to the repayment of the claim. If this is the case, it seems that Congress has done just the opposite of one of its stated goals with BAPCPA: allowing for the provision of payment of support obligations with very little participation of support creditors. If continuing to utilize each of the exceptions to the automatic stay for support obligations after confirmation of a plan that is silent on the issue could be a violation of the confirmation order, the result is that support creditors will have to be more involved and seek authority for such actions in each case where they are otherwise not provided for in the plan. The interplay between exceptions to the automatic stay for support creditors and the effect of confirmation of a plan is less than clear. The best practice at this point is for support creditors to not “rest on their laurels” as support creditors and address and approach their role in a bankruptcy, especially a chapter 13 case, just as would any other creditor that will be bound by a confirmed plan and confirmation order. In light of the conflicting opinions in McGrahan and Gonzalez, the only foolproof way to ensure that a confirmed plan does not unintentionally limit domestic-support collection activities is to object and have the issue determined by the bankruptcy court. abi
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ABC Insights: Reduced Risk of Grievances and State Bar Disciplinary Actions from page 41
certification programs in business bankruptcy, consumer bankruptcy and creditors’ rights law. The ABC is sponsored by [ABI] and the Commercial Law League of America. All three ABC programs are accredited by the [ABA] and several states have accredited the ABC programs.”27 Becoming board certified is not for the faint of heart. An attorney applicant must pass a rigorous day-long exam. In addition, the applicant must show that he/she has (1) devoted a minimum of 400 hours and 30 percent of their practice for the last three years to the specific area for which they seek to become board certified, (2) had substantial and wide experience in matters unique to their desired certification, (3) attended a minimum of 60 hours of continuing legal education during the past three years in bankruptcy law, (4) submitted a grievance history for all jurisdictions in which they are admitted (including the resolution of any grievances that may have been submitted) and (5) provided references from nine attorneys (four of whom must be familiar with the applicant’s practice and the other five of whom have served as opposing counsel to the applicant).28 Once an attorney becomes board certified, he/she must renew that certification every five years by showing that he/she continues to meet the five foregoing requirements.
With respect to grievance matters, attorneys who are seeking certification or recertification as ABC members must detail whether they have been “disbarred, suspended, reprimanded or otherwise disciplined by the state bar of any state, by a state or federal court, or by any other entity that has authority over attorney discipline.”29 The attorneys must also disclose whether they have been the subject of “(1) a disciplinary lawsuit or action; (2) a complaint or inquiry with a grievance committee of any bar association or with the designated disciplinary entity of any state; (3) a finding or admission of legal malpractice; [or] (4) a criminal indictment or information for a felony crime.”30 Finally, attorneys must detail any conviction, probation or fine for a felony crime.31 The initial and ongoing certification standards are an objective “weeding-out” process designed to identify exceptional lawyers in the bankruptcy and creditors’ rights bars. This commitment to excellence has tangible results. As of Dec. 31, 2013, there were 916 total certifications. None of the attorneys holding a certification reported any 29 ABC Application for Certification in Bankruptcy Law, Item VI.A; ABC Application for Recertification in Bankruptcy Law, Item VI.A. 30 ABC Application for Certification in Bankruptcy Law, Item VI.B; ABC Application for Recertification in Bankruptcy Law, Item VI.B. 31 ABC Application for Certification in Bankruptcy Law, Item VI.C; ABC Application for Recertification in Bankruptcy Law, Item VI.C.
27 “About the American Board of Certification,” available at abcworld.org/about. 28 The specific requirements for becoming board certified can be found at abcworld.org/downloads.
continued on page 80
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ABC Insights: Reduced Risk of Grievances and State Bar Disciplinary Actions from page 79
grievances against them that year. As of Dec. 31, 2014, there were a total of 895 certifications. Only two grievances were reported that year, with the two grievances being associated with the same attorney. Finally, as of Dec. 31, 2015, there were 788 attorneys who held 885 certifications (approximately 100 attorneys hold two or even all three types of certifications). Of those 788 attorneys, none of them reported any state grievances in 2015.32 Succinctly stated, in the course of a three-year period, only one board-certified attorney reported any state bar grievances being reported.
Why Such a Stark Contrast?
The survey results for attorneys generally stand in stark contrast to the results reported by ABC attorneys. Why is this? Aspiring and existing ABC members are held to higher standards than most attorneys. They are required to demonstrate significant and substantive experience in their field(s) of expertise. They must pass a rigorous exam to ensure that they meet objective levels of competence. Each year, they must take a sizeable number of continuing legal hours that are specifically focused on their area(s) of practice. An attorney who meets the criteria is clearly someone who is concerned about the quality of his/her practice. Is it any wonder that these conscientious, focused attorneys are significantly less likely to have a grievance filed or disciplinary action taken against them? 32 To be clear, the figures the from 2015 SOLD survey are based on slightly different criteria than what the ABC requires its prospective and existing members to report. The 2015 SOLD survey lists the specific definitions and questions that were provided to the various state bar entities. For example, a “complaint” is defined as “[a]ny information received by the disciplinary agency regarding lawyer conduct that requires a determination as to whether the disciplinary agency has jurisdiction over the lawyer or matters(s) complained of, or whether sufficient facts are alleged that would, if true, constitute misconduct.” 2015 SOLD Survey, “Terms and Phrases.” The SOLD survey takes a very expansive definition of a “complaint.” In contrast, various state bar entities do not consider a “complaint” or grievance to have been made against an attorney unless the allegations are such that some sort of response by the attorney is required. In other words, a disgruntled and angry client could make a “complaint” (as defined by the SOLD survey) to a state bar, but if on the face of the “complaint” itself the state bar determines that nothing wrong occurred, then there would be no “complaint” from the state bar’s perspective, which, in turn, would not trigger any reporting requirement to the ABC.
How Do Clients Benefit?
Clients receive several benefits by engaging a board-certified attorney. Board certification is a simple way to objectively verify that an attorney has met objective certification criteria in a very specialized area of law. In other words, the certification designation enables a client to know that they are engaging someone who is in the cream of the crop. This helps a prospective client quickly narrow the search for legal counsel. Anecdotally, it is the author’s experience that the practices of board-certified attorneys are focused on their area of certification. For example, someone who is certified as a business bankruptcy specialist would likely be found to be spending at least 1,200-1,500 hours each year on business bankruptcyrelated matters. Similarly, one who is certified as a consumer bankruptcy specialist in all likelihood would be found to spend at least 60-80 percent of their practice on consumer bankruptcy-related matters. The benefits that clients receive from such extensive, focused practice cannot be overstated.
Conclusion
According to its website, “ABC certification serves the public by allowing potential clients to make an informed decision in choosing bankruptcy and creditors’ rights counsel. In addition, ABC certification encourages attorneys to strive toward excellence and recognizes those attorneys who have met the rigorous ABC standards.”33 To be certain, engaging a board-certified attorney on a bankruptcy or creditors’ rights matter does not guarantee that the engagement is risk-free, but clients who engage an ABC attorney know that they are getting someone who meets exacting standards and focuses a substantial amount of their practice in that area of law. abi 33 See supra, fn.27.
Value & Cents: The Investigation of Financial Statements for Fraud from page 33
of relevant data and information, any restrictions that would preclude accessing it, and the steps necessary to preserve and ensure its safekeeping. As a starting point, analysis of this information will indicate whether the alleged activity and its effects are confined or dispersed throughout an entity, requiring a broader scope and consideration of tangential implications. An understanding of the significance of the allegation and of the individuals potentially involved in the alleged conduct will guide the selection of parties to direct and conduct the investigation. Allegations that have the potential to be highly significant are best overseen by the board or a special committee of independent directors. In this regard, individuals charged with leading or conducting the investigation should not be those alleged to have been involved in the wrongful conduct. Consequently (in order to maintain objectivity, avoid costly errors and preserve the attorney/client work-product privi80 December 2017
lege), it can be necessary to engage outside counsel to conduct the investigation and retain forensic accountants having the required capabilities. Further, the entity should establish procedures for use in deciding what, how and when the information should be communicated to employees, external auditors, regulators, creditors and investors. Collection of Evidence Relevant data and information can be found in hard copy and electronic formats.7 Hard copy information includes files and related communications pertaining to contracts, purchase orders and invoices, checks, receipts and accounts payable records, statements of account, contact and appointment books, audit work papers, and shipping and receiving notices. Electronic information includes structured data from the 7 Id. at 37.10.
ABI Journal
general ledger, master vendor file and sales, cash receipts and cash-disbursements journals, and unstructured data in emails and instant messages. Both types can be found on a variety of devices, including laptops and desktop PCs, applications, email and file servers, removable storage media (including USB flash drives, external hard disks, optical disks, memory cards and magnetic tapes), and the entity’s managementinformation systems. Acquiring electronic information requires the use of professionals who are specifically trained in the forensic collection and processing of electronic data. Obtaining such information necessitates having access to the entity’s information systems, awareness of documents and transactions stored within the systems, an understanding of how the systems interface and how the data moves from one system to another, and the ability to retrieve data in a way that is suited to forensic analysis, maintaining the integrity of metadata and considering the prospect of recovering data that has been deleted. Once extracted, the data must be aggregated and formatted to conform to the relevant framework and reconciled with applicable management reports prior to use in the analysis contemplated. The actions to preserve and collect relevant data and information should be taken promptly and documented. This includes the measures that have been taken to preclude the deletion and overwriting of the data, as well as issuance of preservation notices to the individuals in possession. Delay should be avoided to mitigate the risks associated with the destruction or spoliation of evidence. Spoliation by nonexperts can lead to fines, awarding of attorneys’ fees and
expenses, citations for contempt, preclusion of evidence, disqualification of counsel and the loss of attorney/client privilege. Spoliation by an expert can result in a tort allegation or disallowance of the expert’s testimony.
Investigative Techniques
Data Mining Data mining is the process of sorting through large data sets electronically to identify fact patterns and establish relationships.8 In large complex cases requiring the collection and processing of what can amount to millions of electronic and hard copy records and documents, data mining is uniquely effective in expediting the selection of important information as compared to a manual review. Applied to the analysis of unstructured data, the technology involves using queries on keywords and concepts derived from a document sample to identify, classify and map communication hierarchies and patterns. This analysis can uncover key dates, individuals, relationships, meetings and locations. With structured data, data mining allows for the use of fraud-related queries and the creation of customized charts, graphs and interactive tools to identify data trends and potential fraudulent activity. The results are used to look for “red flags” indicative of potential wrongdoing. Indicators of corruption and bribery include large, unsupported expense reimbursements around the time of a contract award, expense reimbursements at or just below the allowed 8 Id. at 37.13.
continued on page 82
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Value & Cents: The Investigation of Financial Statements for Fraud from page 81
limit, transactions in a region known for corruption, and consulting contracts where the scope of the engagement differs from the consultant’s business. Among the red flags for FFR are related party transactions, sales growth in excess of competitors despite industry downturns, changes in valuation methods, and assumptions used to measure fair value and the transfer of liabilities to unconsolidated affiliates prior to a period’s end. The telltale gauges of MOA, aside from lack of internal controls over expenses, payables and IT security, include payments to vendors not on the vendor master file, large differences between budgeted and actual payroll costs, disproportionate inventory write-downs between periods, and a high volume of expenses in amounts right below what would have brought further review. Financial Statement Analysis Financial statement analysis is used to identify and analyze unexpected relationships.9 The approach is premised on the construct that, absent unusual or nonrecurring events and transactions, or changes in accounting, technology or environment, the relationships among economic events reported on an entity’s balance sheet, income statement and cashflow statements are relatively stable. Variances in expected relationships that do not appear reasonable might indicate fraudulent accounting. The assessement of whether the relationships reported in an entity’s financial statements are reasonable is accomplished based on comparisons of current-period information with prior periods, budgets, forecasts and industry benchmarks by means of vertical, horizontal and ratio analyses. A vertical analysis examines the relationships among items over a single reporting period. In a vertical-income-statement analysis, net sales are set to 100 percent, with everything else expressed as a percentage of net sales. Horizontal analysis measures the percentage change in an item between years by dividing the amount of increase or decrease by its value the previous year. A ratio analysis is used to analyze an entity’s efficiency, liquidity, profitably and solvency by measuring the relationship between two specific items. The relationships analyzed are those among assets and liabilities, sales and profit margins, and among sales, cost of goods sold, accounts receivable and inventory. Interviews Interviews 10 are used to gather additional facts and insights into relevant data, information and documents, and to further shape the scope of an investigation as new facts are learned and issues clarified. Documents should be reviewed in advance to identify topics, focus questioning and develop a baseline for testing the witness’s credibility. For strategic reasons, interviews are typically conducted sequentially, 9 Association of Certified Fraud Examiners, “How to Detect and Prevent Financial Statement Fraud” (No. 99-5401) 106 (2d ed. 2009). 10 “Conducting Effective Interviews,” AICPA, available at aicpa.org/InterestAreas/ForensicAndValuation/ Resources/PractAidsGuidance/DownloadableDocuments/10834-378_interview%20whiite%20paperFINAL-v1.pdf.
82 December 2017
moving from neutral third parties to individuals suspected of involvement and finally to primary actors. The types of questions asked might vary to advance the discovery process, though double-negative and compound questions are best avoided to prevent confusion. Informational questions seek to achieve an understanding of events, open questions are intended to elicit a narrative, and closed questions require a precise answer. Leading questions include an answer, and sentiment is suggested by the structure of attitudinal questions, while admission-seeking queries pursue confessions to the wrongful conduct. Throughout, the interviewer should act with courtesy, respect, integrity and professionalism, remain objective and fair, and ensure that the interviewee has unobstructed access to an exit to support that their responses were voluntary.
Reporting Findings
Assorted stakeholders, including an entity’s employees, board, external auditors, counsel and regulators, should be informed of the investigation’s findings over its pendency.11 However, care must be taken to avoid compromising the integrity of the investigation. Where a special board committee has been appointed to oversee the investigation, the committee will need to consider the propriety of disclosures to members who also hold management positions. In situations requiring an entity’s external auditors to evaluate the adequacy of the investigation, absent the information necessary for the auditor to conclude as to the sufficiency of the process, the entity might be required to repeat it. An entity may also consider voluntarily disclosing information from the investigation to regulators, who then might provide feedback directing future actions. Taking this path requires those leading the investigation to confer with outside counsel in order to understand the associated benefits and risks.
Conclusion
Financial statement investigations are brought in response to concerns over misconduct that affect an entity’s financial statements, disclosures and public filings. The two types of misstatements relevant to analyzing fraud are misstatements due to FFR and those due to MOA. The misstatement of financial information is often motivated by a desire to achieve or maintain access to capital markets. The first step in an investigation is to define its scope and purpose, which, if significant, is best overseen by a special committee of the board, with assistance from outside counsel and forensic accountants to maintain objectivity, avoid errors and preserve the attorney/client privilege. The collection and processing of evidence might be accomplished through data mining, financial statement analysis and interviews. Caution must be exercised when informing an entity’s stakeholders of the investigation’s findings to avoid compromising the investigator’s integrity. abi 11 See supra n.2, “Financial Statement Investigations,” at 37.17.
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Gawker Court Keeps Defamation Suit and Rejects SLAPP Statute from page 18
death” appear adjacent to one another in the same sentence and therefore construed “personal-injury tort” in a manner similar to wrongful death: requiring physical trauma. The court also found that the legislative history was consistent with a narrow interpretation of the definition of “personal-injury tort.” The personal-injury tort/wrongful-death exception was added as part of the 1984 amendments to the Bankruptcy Code at the pressing of personal-injury lawyers involved in Johns-Manville and other asbestos cases. They urged Congress that the bankruptcy court is not the appropriate forum to adjudicate thousands of personal-injury asbestos cases and that Congress should protect plaintiffs’ right to a jury trial, especially in light of the then-still recent Northern Pipeline case.10 Then-Sen. Dennis DeConcini (D-Ariz.), in his comments in support of the 1984 amendments, argued that personalinjury tort creditors “do not voluntarily become involved” with a debtor and therefore should not be forced to adjudicate their claims in bankruptcy court — citing, as an example, claims arising from car accidents.11 Then-Rep. Robert Kastenmeier (D-Wis.), the ranking majority member on the House Judiciary Committee, described the proposed exceptions to core jurisdiction, including personal-injury tort/ wrongful death, as a “narrow category of cases.”12 Congress ultimately adopted the language urged by testifying members of the asbestos litigation group and those speaking in favor of the amendments. The court found this persuasive because “[w]here Congress adopts language urged by a witness, it may be assumed that Congress also adopted the intent voiced by the witness.”13 Relying on both the canons of statutory construction and the legislative history, the court adopted the narrow interpretation, which requires that for a personal-injury tort to exist, there must be trauma, bodily injury or psychic injury beyond mere shame or humiliation. Using the narrow interpretation, the court held that the claims alleged against Gawker and its two employees (defamation, false light and injurious falsehood) were not personal-injury torts.
Does the California Anti-SLAPP Statute Apply to the Claims Objections?
Having decided that the claims did not fall within the “personal-injury tort” exception to core jurisdiction, the court turned its attention to the applicability of the California antiSLAPP statute to the claim objections. This was an issue of significant importance, since the California anti-SLAPP statute provides SLAAP defendants (such as Gawker and its employees) with an expedited procedure for short-circuiting SLAAP lawsuits: A cause of action against a person arising from any act of that person in furtherance of the person’s right 10 Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). 11 130 Cong. Rec. 17, 154 (1984). 12 130 Cong. Rec. 20, 227-28 (1984). 13 In re Gawker, 2017 Bankr. LEXIS 2364 at *18 (quoting In re Teligent Inc., 268 B.R. 723, 737 (Bankr. S.D.N.Y. 2001)).
84 December 2017
of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.14 Once a SLAPP defendant demonstrates that the plaintiff’s claim arises from a protected activity (e.g., publication of a news article), the burden shifts to the plaintiff to show a probability of success. All discovery is stayed until the motion to strike is resolved (unless the court orders otherwise). If the plaintiff cannot meet its burden, the defendant is entitled to recover its fees and costs. By arguing that the California anti-SLAPP statute applied to the claim objections, Gawker sought to utilize this expedited procedure before progressing to an evidentiary hearing on the objections if the motion to strike was denied.
[T]he [Gawker] decision provides a tutorial on how to discern the meaning of an ambiguous statutory provision, interpreting 28 U.S.C. § 157(b)(2)(B) using the noscitur a sociis canon of statutory construction[.] Because the claims at issue were based primarily on state law and were pending in state court when the bankruptcy was filed, the court applied the rules applicable to diversity actions to determine the applicability of the California antiSLAPP statute. Thus, three questions had to be answered. First, would the California anti-SLAPP statute apply to the claimants’ suit if it were brought in state court? Second, is the California anti-SLAPP statute substantive within the meaning of Erie Railroad Co. v. Tompkins?15 Third, is the California anti-SLAPP statute displaced by a valid federal law or rule governing the same issue? The court made short work of the first two questions, holding that the statute is procedural as a matter of California state law but substantive under Erie.16 The lone remaining question was whether the California statute conflicted with federal law. A conflict exists between a state and federal rule “when, fairly construed, the scope of [the federal rule] is sufficiently broad to cause a direct collision with the state law or, 14 Cal. Civ. Proc. Code § 425.16(b)(1). 15 304 U.S. 64 (1938). 16 The court held that the California anti-SLAPP statute is substantive under Erie for two primary reasons. First, failure to apply the statute would encourage forum-shopping, since a plaintiff would always choose to bring its claim in federal court if it could avoid the motion to strike and the fee-shifting provisions of the anti-SLAPP law. Second, failing to apply the California anti-SLAPP statute to federal cases could lead to different results on the same claim depending on whether the claim was brought in state or federal court. The court found further support in a prior decision by the Second Circuit Court of Appeals in Adelson v. Harris, 774 F.3d 803, 809 (2014), where the appellate court had determined that the immunity and mandatory fee-shifting provisions in the similar Nevada anti-SLAPP statute were substantive under Erie.
ABI Journal
implicitly, to control the issue before the court, thereby leaving no room for the operation of that [state] law.”17 In other words, “If a federal rule answers the question in dispute, it governs notwithstanding the state law.”18 Thus, “even if a state rule is substantive under Erie, the short of the matter is that a Federal Rule governing procedure is valid whether or not it alters the outcome of the case in a way that induces forum-shopping.”19 The issue before the court was whether — and to what extent — some of the Federal Rules of Civil Procedure (FRCP) conflict with the provisions of the California antiSLAPP statute. Of particular concern were Rules 56 (governing motions for summary judgment) and 12 (governing pre-answer motions). Rule 56 is automatically applicable to contested matters, while the bankruptcy court has the discretion to apply Rule 12 to contested matters.20 Thus, the question arose as to whether the special motion and fee-shifting provisions of the California anti-SLAPP statute conflicted with Rules 12 and 56. Guidance on this issue is mixed. In United States ex rel. Newsham v. Lockheed Missiles & Space Co., the Ninth Circuit held that there was no “direct collision” between the California anti-SLAPP statute and Rules 12 and 56 since, if the special motion was denied, motions under Rules 12 and 56 could still be brought.21 Furthermore, the California 17 Burlington Northern R. Co. v. Woods, 480 U.S. 1, 4-5 (1987). 18 In re Gawker, 2017 Bankr. LEXIS 2364 at *35 (citing Shady Grove Orthopedic Assocs. PA v. Allstate Ins. Co., 559 U.S. 393, 398 (2010)). 19 Id. at *35-36 (citing Shady Grove Orthopedic, 559 U.S. at 416). 20 Fed. R. Bankr. P. 9014(c). 21 190 F.3d 963, 972 (9th Cir. 1999).
anti-SLAPP statute served a special purpose not addressed by the FRCP, namely the protection of constitutional rights to freedom of speech and petition for redress of grievances.22 Similarly, the First Circuit upheld the applicability of Maine’s anti-SLAPP statute, holding that the anti-SLAPP statute applied in only a limited class of cases and that the tests for dismissal under the statute are substantively and materially different from the standards under Rules 12 and 56.23 In contrast, other courts have found a direct conflict between state anti-SLAPP statutes and Rules 12 and 56. In fact, judges within the Ninth Circuit have opined that Newsham, although still binding, was wrongly decided and that there is a direct conflict between the California antiSLAPP statute and the FRCP.24 Judge Bernstein sided with those courts that found a direct conflict between the anti-SLAPP statute and Rules 12 and 56, and found Hon. Alex Kozinski’s concurrences in Travelers and Trump University particularly compelling. Accordingly, even though the California anti-SLAPP statute was substantive under Erie, Judge Bernstein held that the statute conflicts with Rules 12 and 56 and would not be applied since “the literal application of the California statute would require a federal court to dismiss a lawsuit that would not be subject to dismissal under Federal Rules 12 and 56.”25 22 Id. 23 Godin v. Schencks, 629 F.3d 79, 88-89 (1st Cir. 2010). 24 E.g., Travelers Cas. Inc. Co. of Am. v. Hirsch, 831 F.3d 1179, 1183 (9th Cir. 2016) (Kozinski, J., concurring); Makaeff v. Trump Univ. LLC, 715 F.3d 254, 274 (9th Cir. 2013) (Kozinski, J., concurring). 25 In re Gawker, 2017 Bankr. LEXIS 2364 at *44.
continued on page 86
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Gawker Court Keeps Defamation Suit and Rejects SLAPP Statute from page 85
Conclusion
The Gawker decision is important for a number of reasons. First, the decision provides a tutorial on how to discern the meaning of an ambiguous statutory provision, interpreting 28 U.S.C. § 157(b)(2)(B) using the noscitur a sociis canon of statutory construction and relying both on comments made at congressional hearings by elected representatives and on testimony given at these hearings that has since been adopted by Congress. Second, while there is no binding precedent from the Second Circuit Court of Appeals, the court’s adoption of the narrow inter-
pretation of “personal-injury tort” is likely to be cited as persuasive authority by other courts within the Second Circuit. Courts outside of the Second Circuit may also follow the same reasoning, especially given the influence of the courts within the Southern District of New York. Third, the court’s decision not to apply the California antiSLAPP statute to the claim objection will potentially be important in future media-related bankruptcy cases, as it prevents the bankrupt SLAPP defendant from taking advantage of the special motions/fee-shifting provisions found in the statute. abi
Intensive Care: False Claims Liability in Cases Filed by Health Care Organizations from page 23
viduals to become whistleblowers, many health care providers have found themselves facing FCA liabilities. Settlements and judgments stemming from FCA allegations can be catastrophic to the financial condition of a company. A health care organization found to be in violation of the FCA might be liable for the costs associated with the action in addition to damages, with mandatory penalties ranging from $10,781.40 and $21,562.80 per claim, plus three times the government’s damages. For health care organizations that cannot afford to defend against an FCA action, a finding of false-claims liability might force the company out of business and into bankruptcy proceedings. If the company does file for bankruptcy, several considerations may present themselves for careful analysis. Dischargeability of FCA Liability Initiating a bankruptcy proceeding is not a surefire way to discharge FCA-related debts against a health care provider. To determine whether FCA liability would be dischargeable, an organization would have to consider various facts and circumstances attendant to the debt. Section 1141(d)(6)(A) of the Bankruptcy Code excludes from discharge debt that is either (1) owed to a “person” as the result of an action filed pursuant to the FCA or a similar statute, or (2) owed to a domestic governmental unit due to certain fraud-related acts. The first portion of the exception suggests that debts owed to an individual qui tam relator as a result of an FCA matter would not be discharged through bankruptcy. Under this language, awards of reasonable expenses and attorneys’ fees owed directly to the relator may not be subject to discharge. Questions arise as to whether debts relating to the underlying FCA judgment could also be excepted from discharge given the reference to “person” in 11 U.S.C. § 1141(d)(6)(A). The term “person” is defined by the Bankruptcy Code as an “individual, partnership and corporation, but does not include governmental unit.”14 Notwithstanding that definition, it has 14 11 U.S.C. § 101(41).
86 December 2017
been argued that the DOJ is a “person” under this exception because the exception specifically relates to the FCA, and FCA judgments are always awarded to the government, never to the individual relator.
A health care organization found to be in violation of the FCA might be liable for the costs associated with the action in addition to damages, with mandatory penalties ... plus three times the government’s damages. Some decisional authority does indicate that the government is the “real party-in-interest” in FCA matters because relators bring qui tam actions on the government’s behalf and are only entitled to a portion of the proceeds.15 However, other courts have opined that any debt owed to the government would not be excepted from the discharge set forth in 11 U.S.C. § 1141(d)(6)(A).16 The latter part of the exception bars from discharge certain debts owed to the government for various types of fraud. It requires a fact-based analysis of the allegations set forth in the FCA litigation relating to the conduct of the health care organization. Section 1141(d)(6)(A) specifically excludes from discharge a liability that arises out of fraudrelated acts as described in § 523(a)(2)(A) of the Bankruptcy Code, which are “debts arising for money, property, [or] services ... to the extent obtained by false pretenses, a false representation, or actual fraud.” In applying this statute, courts have generally employed state law fraud standards 15 See U.S. ex rel. Milam v. Univ. of Texas M.D. Anderson Cancer Ctr., 961 F.2d 46, 48 (4th Cir. 1992) (noting that FCA is concerned solely with false claims submitted to government and does not provide for suits brought by individuals but only qui tam relators “in the name of the government,” thus U.S. is real party-in-interest). 16 See In re Hawker Beechcraft Inc., 515 B.R. 416, 424–25 (S.D.N.Y. 2014) (holding that “Congress’s parallel use of the phrases ‘owed to’ in ‘owed to a domestic governmental unit’ and ‘owed to a person,’ rather than using ‘owed to a domestic governmental unit or person,’ means that ‘the only reasonable reading ... is to create two separate clauses’”).
ABI Journal
applicable to fraud claims brought under the governing laws of the subject jurisdiction. Fraudulent Transfers A claim that includes items or services resulting from a violation of the anti-kickback statute constitutes a false or fraudulent claim for purposes of the FCA.17 In some FCA cases, the defendant health care organization is alleged to have provided remuneration to health care providers in the form of illegal inducement. For example, in United States v. Berkeley Heart Lab Inc., et al., 18 the DOJ argued that the defendant, Health Diagnostic Laboratories, and others knowingly and willfully offered and paid money to doctors in the form of process and handling fees to induce them to refer lab tests to the defendant, which tests were reimbursed by Medicare and TRICARE. For such violations, the government sought an award of damages under the FCA and federal anti-kickback statutes. Following the defendant’s settlement with the DOJ, the defendant filed a chapter 11 proceeding, and its liquidating trustee alleged that such transfers constituted avoidable transfers under various laws, including §§ 548 and 544 of the Bankruptcy Code. Directors’ and Officers’ Considerations On Sept. 9, 2015, Deputy Attorney General Sally Yates issued a memorandum, referred to informally as the “Yates 17 42 U.S.C. § 1128B(g); 31 U.S.C. § 3729. 18 225 F. Supp. 3d 487 (D.S.C. 2016).
memo,” that addressed individual accountability in corporate fraud.19 Issued in response to years of criticism that the more culpable players contributing to the financial crisis evaded punishment, the memorandum outlined the importance of individual responsibility. One of the key points emphasized in the Yates memo is that in order to qualify for any cooperation credit, corporations must provide all relevant facts relating to the individuals responsible for the misconduct, and all individuals involved in the wrongdoing or fraudulent conduct must be identified through the corporation’s cooperation, regardless of position, title, seniority or status.20 A meaningful level of cooperation is imperative to a corporation seeking to reduce the potential for treble damages within the landscape of an FCA action. On Oct. 19, 2015, less than two months after the Yates memo was issued, Millennium Health agreed to pay $256 million to resolve fraud and false-claim allegations.21 In contrast to the individual responsibility underscored throughout the memo, Millennium founder James Slattery contributed $178 million toward the settlement, but was given protection from any potential lawsuits stemming 19 “Individual Accountability for Corporate Wrongdoing,” U.S. Dep’t. of Justice (Sept. 9, 2015), available at https://www.justice.gov/archives/dag/file/769036/download. 20 Id. 21 See “Millennium Health Agrees to Pay $256 Million to Resolve Allegations of Unnecessary Drug and Genetic Testing and Illegal Remuneration to Physicians,” U.S. Dep’t. of Justice (Oct. 19, 2015), available at justice.gov/opa/pr/millennium-health-agrees-pay-256-million-resolve-allegations-unnecessarydrug-and-genetic.
continued on page 88
abi.org/events
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December 2017 87
Intensive Care: False Claims Liability in Cases Filed by Health Care Organizations from page 87
from the $1.8 billion loan obtained by the corporation just one year prior.22 Two matters in particular have underscored the effect of the Yates memo on FCA lawsuits by requiring certain corporate executives to make significant monetary payments to settle their culpability. In United States v. North American Health Care Inc.,23 the DOJ settled with the corporation and with the chairman of the board and the vice president, individually.24 The settlement agreement released only the
corporation and the two individuals, and it required those same parties to continue to cooperate with the DOJ going forward. Similarly, in United States ex rel. Drakeford v. Tuomey Healthcare System,25 the DOJ first obtained a judgment against the defendant, Tuomey Healthcare System, in 2015 for $237 million and subsequently settled with the former CEO for an additional $1 million. The CEO was prohibited from participating in federal health care programs for four years as part of the settlement.26 abi
22 Of the $1.8 billion, it is estimated that Slattery walked away with more than $600 million from the 2014 loan obtained on behalf of Millennium. 23 No. 3:14-cv-02401-WHO (N.D. Cal. Jan. 17, 2014). 24 See “North American Health Care Inc. to Pay $28.5 Million to Settle Claims for Medically Unnecessary Rehabilitation Therapy Services,” U.S. Dep’t. of Justice (Sept. 19, 2016), available at justice.gov/opa/pr/ north-american-health-care-inc-pay-285-million-settle-claims-medically-unnecessary.
25 976 F. Supp. 2d 776 (D.S.C. 2013). 26 See “Former Chief Executive of South Carolina Hospital Pays $1 Million and Agrees to Exclusion to Settle Claims Related to Illegal Payments to Referring Physicians,” U.S. Dep’t. of Justice (Sept. 27, 2016), available at justice.gov/opa/pr/former-chief-executive-south-carolina-hospital-pays-1-million-and-agreesexclusion-settle.
Lien on Me: Keeping Consigned Merchandise Away from Consignee’s Creditors from page 29
perfect and prioritize the consignor’s PMSI, will provide the consignor with the greatest opportunity to realize the benefit of its bargain.
Consignment Interests in Bankruptcy
Despite its best efforts and due diligence, a consignor might nevertheless find itself dealing with a consignee that falls on hard times and commences a bankruptcy case. For the consignor that properly perfects its interests and satisfies the requirements that are necessary for its interests to have priority over other creditors, its rights will be protected in the consignee’s bankruptcy case. The consignee will not be able to use or sell the consigned goods, and the consignor’s rights to those goods will not be subject to the interests of other creditors.8 However, what about the interests of a consignor that did not satisfy the requirements of Article 9 at the outset of the consignment relationship? This issue has arisen in recent retail bankruptcy cases, and results suggest that all might not be lost for the consignor.
Whitehall Jewelers
In Whitehall Jewelers,9 a retailer of fine jewelry operated numerous retail stores across the U.S. A substantial portion of the debtor’s inventory was obtained through consignment arrangements with suppliers who, as a group, were the debtor’s largest creditors. The consignment agreements between the debtor and its suppliers were purported to be governed by the UCC and provided that the consignor owned and retained title to the consigned goods until their sale. Whitehall Jewelers’ interests in the consigned goods were limited to its possession and a right to sell the merchandise. The consignment agreements also provided that 8 See, e.g., 11 U.S.C. § 363(b)(1) (“The trustee, after notice and a hearing, may use, sell, or lease ... property of the estate.” (emphasis added)); In re Radioshack Corp., et al., No. 15-10197 (BLS), D.I. 455 (Bankr. D. Del. Feb. 20, 2015). 9 In re Whitehall Jewelers Holdings Inc., No. 08–11261, 2008 WL 2951974 (Bankr. D. Del. July 28, 2008).
88 December 2017
the consigned goods were “sold” to Whitehall Jewelers on a “sale-or-return” basis. When Whitehall Jewelers filed for chapter 11 relief, it sought bankruptcy court approval to sell substantially all of its assets, free and clear of all liens and interests, to a group of liquidators for the purpose of conducting store-closing sales. Included in the assets that the debtor sought to sell free and clear was the consignment inventory. Certain of the consignors objected to the extent that the sale included the consigned inventory.
Failure to satisfy the UCC requirements can — at a minimum — result in significant legal and other expense to the consignor to defend its interest in the consigned goods[.] The debtor took the position that the consignors were mere unsecured creditors because they failed to file or improperly filed financing statements, they did not comply with the UCC Article 9 requirements to perfect their interests, and/or they were parties to consignment agreements that were governed by UCC Article 2 and were subject to the claims of other creditors. The debtor argued that the consignor’s interests in the consigned inventory were in bona fide dispute, therefore the consigned inventory could be sold pursuant to § 363( f)( 4) of the Bankruptcy Code. 10 The bankruptcy court determined that it could not approve a sale of property without first determining whether the consigned inventory was property of the 10 Section 363(f)(4) provides: The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if … (4) such interest is in bona fide dispute.
ABI Journal
estate.11 Moreover, the bankruptcy court determined that consigned inventory could not be sold under § 363( b) or (f) until the consignors’ interests were successfully avoided, which requires commencement of an adversary proceeding to determine the validity, priority or extent of the consignors’ interests.12 The bankruptcy court denied the debtor’s request to sell the consigned inventory under § 363( f)( 4) because, among other things, the consignment agreements provided that the consignors remain owners of the consigned inventory, the debtor failed to meet its heavy burden of proving the elements necessary to sell property under § 363(b), and the debtor had not challenged the consignors’ interests via adversary proceeding. Following the bankruptcy court’s ruling, in order to avoid a significant delay of its sale process that would result from bringing an adversary proceeding against each of its consignors, the debtor and consignors entered into a settlement whereby consigned goods and certain proceeds were returned to the consignors, even though the consignors had not perfected their interests as required by the UCC.
Sports Authority
Similar to Whitehall Jewelers, when Sports Authority Holding Inc. and its affiliates13 filed for chapter 11 relief, Sports Authority was in possession of approximately
$85 million in consigned goods from 170 consignors. The consignment agreements were expressly purported to be governed by the UCC and provided for the consignor to retain title to the consigned goods until the goods were sold. At the outset of its chapter 11 cases, Sports Authority moved for the authority to continue selling consigned goods that it received prior to filing for bankruptcy. In its motion, Sports Authority proposed to sell these goods free and clear of all liens and interests, including those of the consignors, and proposed granting a replacement lien in the sale proceeds only to those consignors who had satisfied the UCC Article 9 requirements to perfect their interests before Sports Authority entered bankruptcy, subject to any senior creditor claims. Sports Authority’s secured term lenders, who held a perfected blanket security interest in the inventory, supported Sports Authority’s position and argued that their interests were superior to any interests held by the consignors. Many of the consignors objected to the proposed sale on the basis that the consigned inventory was not property of the bankruptcy estate because under the consignment agreements, the consignors retained title to the inventory. Further, the consignors asserted that the consigned inventory could not be sold unless the bankruptcy court determined that the consignors did not have a perfected interest therein. Sports Authority initiated adversary proceedings against more than 150 of its consignors, seeking a determination that the consignors did not hold perfected priority inter-
11 Whitehall Jewelers, 2008 WL 2951974, at *4. 12 Id. at *6. 13 TSAWD Holdings, 565 B.R. 292.
continued on page 90
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Lien on Me: Keeping Consigned Merchandise Away from Consignee’s Creditors from page 89
ests in the consigned inventory. With respect to the proposed sale, the bankruptcy court provided Sports Authority with the following options: (1) settle with the consignors; (2) return the consigned goods to the consignors; or (3) continue selling the consigned goods in accordance with the consignment agreements — with the payments made to the consignors being subject to clawbacks by the term lenders in the event that the term lenders held senior interests in the consigned goods. On July 7, 2016, after various attempts at settlement, the bankruptcy court approved a settlement agreement among Sports Authority, many of the consignors and the term lenders.14 Among other things, the settlement agreement provided for the settling consignors to receive a percentage of proceeds from the sale of their consigned inventory. The percentage was determined based on the strength of each consignor’s arguments with respect to its priority under the terms of its consignment agreement. 14 TSAWD Holdings, No. 16-10527 (MFW), D.I. 2434 (Bankr. D. Del. July 7, 2016).
Conclusion
Despite the leverage gained by consignors in these and other decisions, and the fact that many debtors cannot afford the disruption and delay associated with challenging unperfected consignment interests, consignors would be wise not to become complacent, relying on the likelihood that they will receive at least some recovery even if they make no effort to perfect their interests. Failure to satisfy the UCC requirements can — at a minimum — result in significant legal and other expense to the consignor to defend its interest in the consigned goods, and, unless the consignor and party challenging the consignment interest reach a settlement, the consignor might lose not only its defense costs, but the entirety of its ownership interest, and be relegated to an unsecured creditor (receiving, at best, pennies on the dollar in exchange for the value of the consigned goods). These risks and costs could easily be avoided by simply filing a financing statement and sending the requisite notice under Article 9 at the outset of the consignment relationship. abi
Clerk Commentary: Amended Federal Rules Effective Dec. 1, 2017 from page 20
meets the requirements set out in new Rule 3015.1.9 The Advisory Committee first considered a chapter 13 official plan form in 2011 shortly after the Supreme Court’s decision in Espinosa,10 which held that an order confirming a procedurally improper chapter 13 plan was nevertheless entitled to preclusive effect and that bankruptcy judges must independently review chapter 13 plans for conformity with applicable law. With different plans in each district, it was difficult for creditors to know where to look for their treatment. The Advisory Committee saw the adoption of a national form for chapter 13 plans as bringing uniformity to chapter 13 practice and thus simplifying review of chapter 13 plans by debtors, courts, trustees and creditors. The Advisory Committee considered approximately 120 comments submitted in response to the proposal, many of which (including the joint comments of 144 bankruptcy judges) strongly opposed a mandatory national form for chapter 13 plans. In the face of the substantial opposition by bankruptcy judges and other bankruptcy constituencies, the Advisory Committee decided to proceed with a compromise that involved promulgating a national plan form and related rules, but that allowed districts to opt out of the use of the official form if certain conditions were met. Amended Rule 3015(c) requires that plans filed in chapter 13 cases must “be prepared as prescribed by the appropriate Official Form,” and that provisions deviating from the Official Form are effective only if placed in the part of the form reserved for nonstandard provisions. 9 Requirements for a Local Form for Plans Filed in a Chapter 13 Case. 10 United Student Aid Funds Inc. v. Espinosa, 559 U.S. 260 (2010).
90 December 2017
Amended Rule 3015(f) requires that objections to plan confirmation be made at least seven days before the date set for the confirmation hearing. Amended Rule 3015(g) makes clear that the valuation of a secured claim in a confirmed plan is binding on the holder of the claim. Rule 3015.1 is new and sets out features required for all local chapter 13 plan forms. Under this rule, only one local form may be adopted by a district, and adoption of such form must be preceded by public notice and a comment period. Ninety-three percent of the bankruptcy courts surveyed planned on using their own local form. Rules 2002, 3002, 3007, 3012, 3015, 4003, 5009, 7001 and 9009 were amended to conform to amended Rule 3015 and new Rule 3015.1.
Rule 2002
Amended Rule 2002 requires 21 days’ notice of the time to object to confirmation of a chapter 13 plan and 28 days’ notice of the date of the confirmation hearing.
Rule 3002
Amended Rule 3002 includes two significant changes. Rule 3002(a) states that the holder of a secured claim must file a proof of claim to have an allowed claim. Amended Rule 3002(c) shortens the bar date in a voluntary chapter 12 or 13 case to 70 days after the petition is filed but provides an additional period of 50 days to allow holders of mortgage claims to file the supplemental documents required by Rule 3001(c)(1) and (d). Upon motion, the court may extend the time to file a proof of a claim for insufficient notice. ABI Journal
Amended Rule 3002 also added language to clarify that the failure of an entity to file a proof of claim does not void a creditor’s lien. The Advisory Committee received objections to the addition of this language based on the belief that the provision strayed into an area of substantive law. Nevertheless, the Advisory Committee chose to retain the language, which is drawn directly from § 506(d)(2) of the Bankruptcy Code.
Rule 3007
Under amended Rule 3007(a), service of a claim objection is made on most claimants by mailing a notice to the person listed on the proof of claim. However, service on federal government and insured depository institution claimants must be made according to the applicable provisions of Rule 7004. The amended rule also clarifies that a hearing need not be held on every claim objection so long as the claimant received notice and an opportunity for a hearing.
Rule 3012
Rule 3012 governs the valuation of secured claims and priority claims. Amended Rule 3012(b) provides that a request to determine the amount of a secured claim may be made in a chapter 12 or 13 plan, as well as by a motion or claim objection. The rule requires service in the manner provided in Rule 7004(b) for requests made in a plan, but leaves to Rules 3007(a) and 9014(b) the method of service for claim objections and motions to determine the amount of a secured claim, respectively. Amended Rule 3012(c) clarifies that a request to determine the amount of a secured claim of a government entity may be made only by motion or claim objection after the governmental unit files a claim or its time for filing has expired.
use.” Amended Rule 9009 is more restrictive and requires the use of Official Forms “without alteration, except as otherwise provided in these rules or in a particular Official Form.” As explained by the Advisory Committee, this morerestrictive version of Rule 9009 was prompted by the confluence of the committee’s Forms Modernization Project and the publication of the chapter 13 plan form project. For each project, the Advisory Committee devoted a great deal of attention to the format, sequencing and presentation of information. In particular, the official chapter 13 plan form requires nonstandard provisions to appear only in one portion of the form, and it would defeat the purpose of that feature if the form could be rearranged freely. However, the rule allows deviations from an Official Form if permitted by the national instructions for the form in addition to those deviations permitted by the Bankruptcy Rules or the form itself. It also allows “minor changes not affecting wording or the order of presenting information” on a form. abi Editor’s Note: Need easy access to the Bankruptcy Code and Rules? Be sure to bookmark ABI’s Interactive Code and Rules website at law.abi.org.
Rule 4003
Amended Rule 4003(d) permits a lien-avoidance proceeding under § 522(f) of the Bankruptcy Code to be commenced through a chapter 13 plan, as well as by motion. Only the creditors affected by the request need to receive the heightened service provided under Rule 7004.
Rule 5009
Amended Rule 5009(d) includes a procedure for the debtor to obtain an order declaring that a secured claim has been satisfied and that the lien has been released under the terms of a confirmed plan.
Rule 7001
Amended Rule 7001 makes clear that requests for determinations of the amount of a secured claim under Rule 3012 or lien avoidance under Rule 4003( d) do not require an adversary proceeding.
Rule 9009
Former Rule 9009, which governed the use and alteration of Official Forms, required only substantive compliance with Official Forms, providing that “[f]orms may be combined and their contents rearranged to permit economies in their ABI Journal
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care4yourfuture.org December 2017 91
Benchnotes from page 7
stay, concluding that because debtor had rejected contract under dispute in state court, plaintiff’s primary claim in state court — specific performance — was no longer available as remedy in state court; because all other Curtis factors weighed in favor of administering the claims through bankruptcy court, court denied motion); and • In re Mendiola, 2017 Bankr. LEXIS 3127 (Bankr. E.D. Wis. Sept. 15, 2017) (court granted extraordinary relief under §§ 362( d)( 4) and 1307( c), concluding that
serial bankruptcy filer who had filed six chapter 13 cases in six years was using bankruptcy as a “scheme” to hinder or delay creditor collection efforts (all six cases were dismissed shortly after filing due to debtor’s failure to make plan payments); as a result of serial filing “scheme,” court lifted the stay and held that there would be no stay against enforcement of property for a period of two years; court then dismissed case with prejudice to debtor’s ability to refile for period of 180 days). abi
Problems in the Code: Making Chapter 12 More Viable for Family Farmers from page 12
apparent stability, important structural changes have taken place.15 Farm production has consolidated, and farmers have increasingly specialized in fewer crops or livestock. Since the early 1980s, consolidation of cropland has resulted in an increase in the number of both very large and very small farms, as well as a reduction in the number of medium-sized farms.16 In the early 1980s, most cropland was operated by farms with less than 600 acres, but by 2013, that measure had nearly doubled to 1,100 acres.17 15 Id. 16 Id. 17 Id.
This consolidation has been driven by advances in technology that have made it possible for families to operate larger farms without additional labor. In the years since chapter 12 was enacted, genetically engineered seeds, high-efficiency equipment, and advanced chemical herbicides and pesticides have become available and widely adopted. Technological changes have led to an innovation in management, including “no-till” practices and data-driven “precision-farming” management systems. As a result, the amount of labor dedicated to farming dropped by about 30 percent for hired labor and 40 percent for
Figure 1: Farm Sector Debt, Inflation-Adjusted (1970-2017F) $ Billions (2017) 500
400
300
200 Non-Real Estate Debt
100 Real Estate Debt 0 1970
1975
1980
1985
1990
1995
2000
2005
2010
2017F
Note: F = forecast. The GDP chain-type price index is used to convert the nominal (current-dollar) statistics to real (inflation-adjusted) amounts (2017 = 100). Source: USDA, Economic Research Service, Farm Income and Wealth Statistics. Data as of Aug. 30, 2017. 92 December 2017
ABI Journal
self-employed labor between 1982 and 2007.18 Over the same period, farm output increased by 35 percent.19 Family farmers have chosen to either adopt the new technologies and farm more acres using the same family labor, or operate smaller farms and supplement income with off-farm employment. More than half of the farms in America are small farms, whose operators report being retired or having a major occupation other than farming. Most of these family farmers earn more from off-farm employment than they do from farming and therefore will not meet the “farm-income” test of chapter 12. 20 Approximately 40 percent of farms in America are operated by full-time family farmers.21 To remain competitive, these full-time farmers have consolidated cropland and adopted new and expensive technologies, often with increased debt. The farming economy has also continued a trend toward greater specialization. In the first half of the 20th century, most American farms kept a variety of livestock and raised feed crops for their animals in addition to cash crops for sale.22 Since 1960, however, the shift away from widespread and diversified livestock production has accelerated.23 By 2000, less than 10 percent of farms had chickens, milk cows or hogs.24 Farms that did raise livestock typically only raised one species. The separation of livestock from crop farming allowed farmers to devote labor and time to expanded crop production. Cropland with common soil and climatic attributes favors specialization in a single crop. 25 Although 18 The Changing Organization of U.S. Farming, USDA (2011). 19 Id. 20 America’s Diverse Family Farms, USDA (2015). 21 Farm Size and the Organization of U.S. Crop Farming, USDA (2015). 22 Id. 23 Id. 24 Id. 25 Id.
specialization allows for greater efficiencies and profitability, it exposes farmers to more risk than would occur with diversification.
The Need for Chapter 12 Relief Will Likely Increase
Over the past decade, the farm economy has experienced another boom, fueled by record export levels, government policies and incentives for renewable fuels.26 From 2006-11, total real U.S. agricultural exports nearly doubled, due in large part to surging demand from China.27 The combination of strong exports and demand for biofuels caused agricultural commodity prices to soar and produced the highest farm incomes since the mid-1970s.28 As shown in Figure 1, farm debt has also expanded with increased production. The world’s farmers have responded to high global demand by adding significant amounts of cropland, which, once in production, is rarely reduced 29 (see Figure 2). By 2014, the problem had shifted from “too little production” to “burdensome levels of global grain inventories,” causing commodity prices to fall, as shown in Figure 3.30 Total farm expenses have not fallen at the rate of commodity prices, partly due to the high proportion of fixed expenses in farming, including equipment and land. Farmers have faced a “margin squeeze” that has caused declining net farm income for three consecutive years.31 Net farm income 26 Jason Henderson, Brent Gloy and Michael Boehlje, “Agriculture’s Boom-Bust Cycles: Is This Time Different?,” Federal Reserve Bank of Kansas City. 27 Id. 28 Id. 29 “Federal Agricultural Mortgage Corp.,” The Feed (Fall 2016). 30 Id. at 4. 31 Brent Gloy, “Farm Income Down, Expenses Up,” Agricultural Economics Insights (August 2016), available at ageconomists.com.
continued on page 94
Figure 2: World Agricultural Acreage 2,400 2,300
Acres Harvested (Millions)
2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1960/1961 1965/1966 1970/1971 1975/1976 1980/1981 1985/1986 1990/1991 1995/1996 2000/2001 2005/2006 2010/2011 2015/2016 Data Source: USDA PSD Database; 13 primary crops (1960-2017). ABI Journal
December 2017 93
Problems in the Code: Making Chapter 12 More Viable for Family Farmers from page 93
was projected to decline by 11.5 percent in 2016, and net cash income was projected to decline by 13 percent.32 In turn, lower farm incomes will lead to declining cash rental rates and land values, which are both projected to fall in 2017. As incomes have fallen, more farmers have sought financing for operating expenses. About 70 percent of non-real estate farm loans through the first three quarters of 2016 were used to finance operating expenses.33 There has also been a sharp increase in the use of farm real estate as collateral for non-real estate farm loans.34 Since 2014, loan repayment rates have continuously declined, while the demand for loan renewals and extensions has continued to rise.35 According to the Federal Reserve Bank of Kansas City, “Deteriorating credit conditions in the agricultural sector across the country have reflected ongoing weakness in each district’s agricultural economy and have further indicated a growing sense of risk in the farm sector.”36 A large number of current farmers are over age 65, and many do not have family members who will take over the farming business. The aforementioned structural changes mean that the next generation of family farmers will require more financing to begin and sustain farming. A new farmer in the Corn Belt who plans to operate at the median acreage and grow 600 acres of corn and 500 acres of soybeans will need more than $8 million worth of land, equipment and structures.37 To farm 300 acres of 32 Id. 33 Nathan Kauffman, “Farm Lending Declines, But Remains Elevated,” Ag Finance Databook (Oct. 27, 2016), Federal Reserve Bank of Kansas City. 34 Id. 35 Id. 36 Id. 37 Farm Size and the Organization of U.S. Crop Farming, USDA (2013).
irrigated fruits and vegetables in California, a new farmer will need more than $4 million worth of land, equipment and structures.38 While today’s family farmers are not facing the type of full-blown crisis that occurred in the 1980s, many are nonetheless facing significant income and cash-flow pressures. Overall, the USDA considers about three-fourths of U.S. farms to be in the “critical zone” for the rate of return on assets and about two-thirds to be in the “critical zone” for operating profit margins.39 If land values continue to fall as projected, or the economy experiences a shock in demand for exports or renewable fuels, many family farmers will need bankruptcy relief but will be ineligible for chapter 12.
Congress Should Raise the Debt Limit and Reduce or Eliminate the Income Limit
The purpose of chapter 12 is to allow family farmers to keep their land in times of financial distress. The vast majority of farms continue to be family-owned, but many family farmers whom Congress initially intended to be eligible for chapter 12 are not eligible today because their farms have become expensive operations with higher debt levels, or small operations supplemented with off-farm income. To maintain the stated purpose of making 90 percent of family farmers eligible for chapter 12, Congress should raise the debt limit and either eliminate or reduce the farm-income requirement. abi 38 Id. 39 Structure and Finances of U.S. Farms: Family Farm Report, USDA (2014).
Figure 3: Received and Paid Indexes, Annual Average (U.S.: 2011 = 100) Percent 120
110
100
90
80 Paid
Received
70 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: USDA, National Agricultural Statistics Services (September 2017). 94 December 2017
ABI Journal
Legislative Highlights from page 10
Excerpts of Public Law 115-72
Sec. 1005. Clarification of Rule Allowing Discharge to Governmental Claims Arising from the Disposition of Farm Assets Under Chapter 12 Bankruptcies (a) In General. —Subchapter II of chapter 12 ... is amended by adding at the end the following: “Sec. 1232. Claim by a governmental unit based on the disposition of property used in a farming operation “(a) Any unsecured claim of a governmental unit against the debtor or the estate that arises before the filing of the petition, or that arises after the filing of the petition and before the debtor’s discharge under section 1228, as a result of the sale, transfer, exchange, or other disposition of any property used in the debtor’s farming operation.... “(b) For purposes of applying sections 1225(a)(4), 1228(b)(2), and 1229(b)(1) to a claim described in subsection (a) of this section, the amount that would be paid on such claim if the estate of the debtor were liquidated in a case under chapter 7 of this title shall be the amount that would be paid by the estate in a chapter 7 case if the claim were an unsecured claim arising before the date on which the petition was filed and were not entitled to priority under section 507. “(c) For purposes of applying sections 523(a), 1228(a)(2), and 1228(c)(2) to a claim described in subsection (a) of this section, the claim shall not be treated as a claim of a kind specified in subparagraph (A) or (B) of section 523(a)(1). “(d)(1) A governmental unit may file a proof of claim for a claim described in subsection (a) that arises after the date on which the petition is filed....” (b) Technical and Conforming Amendments (1) In general. —Subchapter II of chapter 12 ... is amended — (A) in section 1222(a) — (i) in paragraph (2), by striking “unless —” and all that follows through “the holder” and inserting “unless the holder”; (ii) in paragraph (3), by striking “and” at the end; (iii) in paragraph (4), by striking the period ... and inserting “; and”; and (iv) by adding ... the following: “(5) subject to section 1232, provide for the treatment of ABI Journal
any claim by a governmental unit of a kind described in section 1232(a).”; (B) in section 1228 — (i) in subsection (a) — (I) in the matter preceding paragraph (1) — (aa) by inserting a comma after “all debts provided for by the plan”; and (bb) by inserting a comma after “allowed under section 503 of this title”; and (II) in paragraph (2), by striking “the kind” and all that follows and inserting “a kind specified in section 523(a) of this title, except as provided in section 1232(c).”; and (ii) in subsection (c)(2), by inserting “, except as provided in section 1232(c)” before the period at the end; and (C) in section 1229(a) — (i) in paragraph (2), by striking “or” at the end; (ii) in paragraph (3), by striking the period at the end and inserting “; or”; and (iii) by adding ... the following: “(4) provide for the payment of a claim described in section 1232(a) that arose after the date on which the petition was filed.” (2) Table of sections.--The table of sections for subchapter II of chapter 12 ... is amended by adding at the end the following: “1232. Claim by a governmental unit based on the disposition of property used in a farming operation.” (c) Effective Date. —The amendments made by this section shall apply to — (1) any bankruptcy case — (A) that is pending on the date of enactment of this Act; (B) in which the plan under chapter 12 ... has not been confirmed on the date of enactment of this Act; and (C) relating to which an order of discharge under section 228 of title 11 ... has not been entered; and (2) any bankruptcy case that commences on or after the date of enactment of this Act. abi December 2017 95
ABI Board Directory ABI Board of Directors Executive Committee Members
Chair James Patrick Shea Armstrong Teasdale LLP; Las Vegas Immediate Past President Jeffrey N. Pomerantz Pachulski Stang Ziehl & Jones LLP; Los Angeles President Hon. Eugene R. Wedoff U.S. Bankruptcy Court (ret.); Chicago President-Elect Edward T. Gavin Gavin/Solmonese LLC; Wilmington, Del. Vice President-Publications Alane A. Becket Becket & Lee, LLP; Malvern, Pa. Vice President-Membership Hon. Kevin J. Carey U.S. Bankruptcy Court (D. Del.); Wilmington Vice President-Education Douglas E. Deutsch Clifford Chance US LLP; New York Vice President-Research Grants Hon. Barbara J. Houser U.S. Bankruptcy Court (N.D. Tex.); Dallas Vice President-Development Robert P. Reynolds Reynolds, Reynolds & Little, LLC; Tuscaloosa, Ala. Vice President-International Affairs Annerose Tashiro Schultze & Braun GmbH; Achern, Germany Vice President-Communication & Information Technology Hon. Deborah L. Thorne U.S. Bankruptcy Court (N.D. Ill.); Chicago Secretary Hon. Dennis R. Dow U.S. Bankruptcy Court (W.D. Mo.); Kansas City Treasurer Michael L. Bernstein Arnold & Porter Kaye Scholer LLP; Washington, D.C.
At-Large Members
ABI Past Presidents
Hon. Michael A. Fagone U.S. Bankruptcy Court (D. Me.); Bangor Jay M. Goffman Skadden, Arps, Slate, Meagher & Flom LLP; New York
96 December 2017
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Jeffrey N. Pomerantz James Patrick Shea Brian L. Shaw Patricia A. Redmond James T. Markus Geoffrey L. Berman Melissa S. Kibler Robert J. Keach John W. Ames Reginald W. Jackson Hon. Wesley W. Steen John D. Penn Michael P. Richman
Douglas L. Lutz Frost Brown Todd LLC; Cincinnati Damian S. Schaible Davis Polk & Wardwell LLP; New York
Board Members
Derek C. Abbott Morris, Nichols, Arsht & Tunnell LLP; Wilmington, Del. Eric W. Anderson Parker, Hudson, Rainer & Dobbs LLP; Atlanta Hon. Martin R. Barash U.S. Bankruptcy Court (C.D. Cal.); Woodland Hills Lisa G. Beckerman Akin Gump Strauss Hauer & Feld LLP; New York Jessica C.K. Boelter Sidley Austin LLP; Chicago Jason S. Brookner Gray Reed & McGraw LLP; Dallas Kathryn A. Coleman Hughes Hubbard & Reed LLP; New York Hon. Daniel P. Collins U.S. Bankruptcy Court (D. Ariz.); Phoenix Paul H. Deutch Rust Omni; New York Hon. Mary Grace Diehl U.S. Bankruptcy Court (N.D. Ga.); Atlanta Lisa J. Donahue AlixPartners LLP; New York Daniel F. Dooley MorrisAnderson; Chicago Hon. Robert D. Drain U.S. Bankruptcy Court (S.D.N.Y.); White Plains Tinamarie Feil BMC Group; New York Douglas M. Foley McGuireWoods LLP; Washington, D.C. Lisa Sommers Gretchko Howard & Howard Attorneys, PLLC; Royal Oak, Mich. Hon. Michelle M. Harner U.S. Bankruptcy Court (D. Md.); Baltimore Hon. Bruce A. Harwood U.S. Bankruptcy Court (D. N.H.); Manchester William H. Henrich Getzler Henrich & Associates LLC; New York Thomas M. Horan Shaw Fishman Glantz & Towbin LLC; Wilmington, Del.
Hon. Laurel Myerson Isicoff U.S. Bankruptcy Court (S.D. Fla.); Miami Soneet R. Kapila KapilaMukamal, LLP; Fort Lauderdale, Fla. Eve H. Karasik Levene, Neale, Bender, Yoo & Brill, LLP; Los Angeles Teresa C. Kohl SSG Capital Advisors, LLC; West Conshohocken, Pa. David R. Kuney Whiteford Taylor Preston, LLP; Washington, D.C. Richard S. Lauter Lewis Brisbois Bisgaard & Smith LLP; Chicago Franklind Davis Lea Tactical Financial Consulting, LLC; Alpharetta, Ga. David P. Leibowitz Lakelaw; Chicago Prof. Lois R. Lupica University of Maine School of Law; Portland, Maine Mark M. Maloney King & Spalding; Atlanta Jerry M. Markowitz Markowitz, Ringel, Trusty + Hartog, P.A.; Miami Deirdre A. McGuinness Epiq Systems, Inc.; New York Nina M. Parker Parker & Associates; Winchester, Mass. James A. Peko Grant Thornton LLP; New York Hon. Pamela Pepper U.S. District Court (E.D. Wis.); Milwaukee Kathy Bazoian Phelps Diamond McCarthy LLP; Los Angeles Patricia A. Redmond Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A.; Miami Bradley D. Sharp Development Specialists, Inc.; Los Angeles Kelly Beaudin Stapleton Alvarez & Marsal; New York Christopher A. Ward Polsinelli; Wilmington, Del. R. Scott Williams Rumberger, Kirk & Caldwell, P.A.; Birmingham, Ala. Risa Lynn Wolf-Smith Holland & Hart LLP; Denver Samuel J. Gerdano Executive Director; Alexandria, Va.
2003-04 Bettina M. Whyte 2002-03 Andrew W. Caine 2001-02 Richardo I. Kilpatrick 2000-01 Keith J. Shapiro 1999-2000 Ford Elsaesser 1998-99 Deborah D. Williamson 1997-98 Robert M. Fishman 1996-97 Robert M. Zinman 1994-96 Robin E. Phelan 1991-94 Robert E. Feidler 1989-91 Hon. William L. Norton, Jr. 1987-89 Richard A. Gitlin 1982-87 L.E. Creel III
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