Dallas Bar Association
HEADNOTES |
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Focus | Antitrust & Trade/Bankruptcy & Commercial Law
June 2021 Volume 46 Number 6
Virtual Law Day
On May 3, the DBA hosted a Virtual Law Day program, at which Louis J. Freeh, former FBI Director, was the keynote speaker. Mr. Freeh was interviewed by DBA President Aaron Tobin on the topic of “Advancing the Rule of Law Now.” The program was supported by 11 Bar Associations around the state.
Focus
Bankruptcy & Commercial Law
Creditor Options: Involuntary Bankruptcy vs. Receivership BY LYNDEL ANNE VARGAS AND EMILY WALL
Clients want results. Creditors in Texas have several options to collect significant business debts from individuals or entities holding non-exempt assets. This article is a brief overview of two types of remedies that can bring results when collecting business debts. Although involuntary bankruptcies make up less than 1 percent of total bankruptcy filings, they can be a useful tool for creditors interested in benefitting from the collective bankruptcy process. A bankruptcy case and oversight can minimize a loss or transfer of assets available to pay debts. The requirements for filing an involuntary bankruptcy differ depending on how many creditors a debtor has and how much the creditors are owed. If the debtor has more than 12 creditors, three or more creditors can commence an involuntary bankruptcy if the creditors (a) each hold a non-contingent, undisputed, unsecured claim and (b) are collectively owed at least $16,750. If the debtor has fewer than 12 creditors, only one petitioning creditor is required, so long as the creditor holds a noncontingent, undisputed, and unsecured claim of at least $16,750. A debtor has 21 days to respond to an involuntary petition, and absent consent, the bankruptcy court will then hold a hearing to determine whether to grant the involuntary petition and enter an order for bankruptcy relief. At the hearing, petitioning
creditors must show that (a) the debtor is generally not paying its debts as they become due; or (b) a custodian was appointed or took possession of the debtor’s property within 120-days before the involuntary petition was filed. The second option can present a scenario where bankruptcy law trumps a state law receivership or similar proceeding. Involuntary bankruptcies are only available under chapter 7 (liquidation) and chapter 11 (reorganization), and the debtor must be eligible to be a debtor under the designated chapter. Typically, chapter 11 debtors remain in control of their operations and assets—although a trustee could be appointed—whereas chapter 7 results in the automatic appointment of a trustee to oversee the liquidation process and make distributions to creditors. Creditors considering an involuntary filing should be aware that all creditors of the debtor (not just those that initiate the petition) will benefit and share pro-rata in distributions, subject to priorities. Any creditor considering filing an involuntary bankruptcy petition should proceed with caution. In the event the court dismisses the petition (unless all parties consent to dismissal) the court can enter judgment against the petitioning creditors for the debtor’s costs and attorney fees. Additionally, creditors who are found to have filed an involuntary petition in bad faith could be liable for damages caused by the filing or even punitive damages.
Bar None 2021 Presents Remotely Entertaining This Summer BY MICHELLE M. ALDEN
Join the cast and crew of Bar None this summer as they present Bar None 2021: Remotely Entertaining. Bar None’s annual variety show promises to be a great one, although it will be virtual and shorter than usual. Watch Dallas area lawyers and judges sing, dance, and make you laugh so hard your sides hurt. As much as the cast and crew love performing and making people laugh, their real motivation is to support the Sarah T. Hughes Diversity Scholarship program. The scholarship program was established in honor of U.S. District Judge Sarah T. Hughes, a former trustee of the Dallas Bar Foundation, who devoted herself to improving the rights of women and minorities. The Hughes Scholarship provides tuition and fees for deserving minority students each year. Students at SMU Dedman School of Law, UNT Dallas College of Law, and Texas A&M School of Law are eligible to apply for the scholarship. The Dallas Bar Foundation takes
its responsibility for finding deserving recipients seriously. If you have ever met a Hughes Scholar, you know how impressive these students are. The scholarships continue during the pandemic, so the show must go on! Many volunteer hours go into putting on this production each year. The hours come from lawyers all over the metroplex including 35-year veteran Director Martha Hardwick Hofmeister and Producer Tom Mighell, as well as the choreographers, script writers, committee members, actors, and numerous behind-the-scenes staff. Show your support for the Dallas legal community and the Hughes Scholars by becoming a Friend of Bar None or purchasing another sponsorship opportunity. To learn more, visit www.barnoneshow.com; for sponsorship and information, contact Elizabeth Philipp at (214) 220-7487 or ephilipp@dallasbar.org. HN Michelle Alden is the Director of the Dallas Volunteer Attorney Program and a Member of the Marketing Committee of the Bar None Production Company. She can be reached at aldenm@lanwt.org.
continued on page 12
Inside 6 Even During A Pandemic, Bankruptcy Courts “Do Equity” 14 First Criminal Charges for Wage-Fixing & No-Poach Agreements 19 Avoiding Stay Violations in a Bankruptcy Case 21 DBA Golf Tournament
Need Help? You’re Not Alone. Texas Lawyers’ Assistance Program…………...(800) 343-8527 Alcoholics Anonymous…………………………...(214) 887-6699 Narcotics Anonymous…………………………….(972) 699-9306 Al Anon…………………………………………..…..(214) 363-0461 Mental Health Assoc…………………………….…(214) 828-4192 Crisis Hotline………………………………………..1-800-SUICIDE Suicide Crisis Ctr SMU.…………………………...(214) 828-1000 Metrocare Services………………………………...(214) 743-1200 More resources available online at www.dallasbar.org/content/peer-assistance-committee
2 He a d n o t e s l D a l l a s B a r A s s o ciation
June 2021
All programs are presented virtually. Check the DBA Online Calendar (www.dallasbar.org) for webinar links and the most up-to-date information.
Calendar June Events
Visit www.dallasbar.org for updates on Friday Clinics and other CLEs.
LGBTQ PRIDE MONTH
June is LGBTQ Pride Month. For additional resources, visit www.americanbar.org/groups/diversity/ sexual_orientation or www.lgbtbar.org. To find out more about the Dallas LGBT Bar Association, visit https://dlgbtba.org. For more on the DBA’s Diversity Initiatives, log on to www.dallasbar.org.
JUNE 4 Noon
“Zoom 2.0: Beyond the Basics,” Bill Richmond. (MCLE 1.00)*
JUNE 18 Noon
“New Civil Jurisdictional Limits of $20,000 for JP Courts,” Hon. Paul Raleeh. (MCLE 1.00)*
TUESDAY, JUNE 1 Noon
Corporate Counsel Section “Lawyers as (Ethical) Leaders,” Jane McBride and Sterling Miller. (MCLE 1.00, Ethics 0.50)*
Tort & Insurance Practice Section “Understanding the Pending Changes to the Texas Disciplinary Rules: How Will Law Practice Change in Texas?” Claude Ducloux. (Ethics 1.00)*
WEDNESDAY, JUNE 2 Noon
Solo & Small Firm Section “The Property Tax Explosion and what you should know about Property Taxes,” John Brusniak, Jr. (MCLE 1.00)*
Juvenile Justice Committee
Public Forum/Media Relations Committee
4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact sbush@dallasbar.org. 4:30 p.m. Equality Committee
THURSDAY, JUNE 3 Noon
Construction Law Section “Contracting Through a Supply Chain Crisis,” Kimber Davison. (MCLE 1.00)*
Admissions & Membership Committee
6:00 p.m. Dallas LGBT Bar Association Social JR’s Bar and Grill, 3923 Cedar Springs Road. For more information log on to https://dlgbtba.org.
Noon
Noon
Legal Ethics Committee
WEDNESDAY, JUNE 9
Bankruptcy & Commercial Law Section “Bankruptcy Code Deadlines: Don’t Push Your Luck,” Jane Gerber, Audrey Hornisher, Dylan Ross, and Grayson Williams. (MCLE 1.00, Ethics 0.50)* Family Law Section “How to Effectively Try Your Case Within the Court’s Time Limits,” Rebecca Armstrong and Reagan Riddle. (MCLE 1.00)*
Blockchain Law Study Group “Update on Quantum Computing and the Future of Blockchain,” Harold Heard.
Dallas LGBT Bar Association How to be an Ally: The Vocabulary and Why It Matters from a Mental Health Perspective,” Jennifer Gay. (MCLE 1.00)*
Bench Bar Conference Committee
4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact sbush@dallasbar.org.
THURSDAY, JUNE 10 Noon
Friday Clinic “Zoom 2.0: Beyond the Basics,” Bill Richmond. (MCLE 1.00)*
Tax Law Section “Tax Considerations in SPAC Transactions,” Mark Melton. (MCLE 1.00)*
TUESDAY, JUNE 8 Noon
Employee Benefits & Executive Compensation Law Section “Compensation Considerations for Traditional IPOs & SPAC Acquisitions,” Allison Hoeinghaus. (MCLE 1.00)*
FRIDAY, JUNE 4
MONDAY, JUNE 7 Noon
Living Legends Program “Nina Cortell, interviewed by Michelle Jacobs and Laura Whitley.” Pre-recorded program. (MCLE 1.00)*
Trial Skills Section “Topic Not Yet Available,” Tom Melsheimer and Dan Webb. (MCLE 1.00)*
MONDAY, JUNE 14
FRIDAY, JUNE 11
DVAP Summer Associates Pro Bono Webinar Patrick Lewis, Hon. Lela Lawrence Mays,
EXCITED TO SEE YOU SOON
Alternative Dispute Resolution Section “Keeping the Peace During Times of Racial, Political, Cultural and Social Strife,” Lisbeth Bulmash and Sharmeen Ladhani. (MCLE 1.00)* Real Property Law Section “Art Commissions, Art Collections and Artist’s Rights: The Intersection of Art Law and Real Estate,” Sammetria L. Goodson. (MCLE 1.00, Ethics 0.50)*
Peer Assistance Committee
TUESDAY, JUNE 15 Noon
Franchise & Distribution Law Section “Pivot Pitfalls and Successes – the Legal Impact on System Changes During Covid-19,” Trish MacAskill. (MCLE 1.00)*
International Law Section “Basics of Blockchain and its Use in the Future Including in International Transactions,” Taylor Rex Robertson. (MCLE 1.00)*
Community Involvement Committee
WEDNESDAY, JUNE 16 Noon
Energy Law Section “The Commingling Doctrine & Horizontal Wells: Whose Burden is it Anyway?” Ricardo Morales. (MCLE 1.00)*
Health Law Section “Protecting the Gift of Life: Organ and Tissue Donation in Texas,” Bradley Adams. (MCLE 1.00)*
Dallas LGBT Bar Association “How to be an Ally: For Your Client,” Kyle Velte. (MCLE 1.00)*
Law in the Schools & Community Committee
Pro Bono Activities Committee
4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact sbush@dallasbar.org.
THURSDAY, JUNE 17 Noon
Appellate Law Section “Business Litigation in the Dallas Court of Appeals, June 2020-2021,” David Coale. (MCLE 1.00)*
Minority Participation Committee
Criminal Justice Committee
Publications Committee 2:00 p.m. CLE Committee
Noon
Noon
FRIDAY CLINICS
Committee. Questions? Contact mgarcia@ dallasbar.org. (MCLE 6.00, Ethics 2.00)*
Saedra Pinkerton, and Aaron Tobin. (MCLE 1.00)* To register, email martinm@lanwt.org.
3:30 p.m. DBA Board of Directors
FRIDAY, JUNE 18
9:00 a.m. Virtual Child Welfare Conference Presented by the DBA Juvenile Justice
Noon
Friday Clinic “New Civil Jurisdictional Limits of $20,000 for JP Courts,” Hon. Paul Raleeh. (MCLE 1.00)*
MONDAY, JUNE 21 Noon
Labor & Employment Law Section “Agency Roundtable: Government Insights on Labor & Employment Law,” Robert Canino and Christopher Lopez. (MCLE 1.00)*
Science & Technology Law Section “Cryptocurrency Enforcement: Past, Present, Future,” Jessie K. Liu. (MCLE 1.00)*
TUESDAY, JUNE 22 Noon
Criminal Law Section “Crimmigration: What to Keep in Mind When Handling Criminal Cases of Immigrants and Non-US Citizens,” Haim Vasquez. (MCLE 1.00)*
WEDNESDAY, JUNE 23 Noon
Entertainment, Art & Sports Law Section Topic Not Yet Available
Judiciary Committee
4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact sbush@dallasbar.org.
THURSDAY, JUNE 24 Noon
Government Law Section Topic Not Yet Available
Environmental Law Section Topic Not Yet Available
Intellectual Property Law Section “Assessing the Impact of Defend Trade Secrets Act on Trade Secrets Litigation 5 Years After It Went into Effect,” Elisaveta (Leiza) Dolghih. (MCLE 1.00)*
FRIDAY, JUNE 25 Noon
Minority Clerkship Webinar “Navigating Transition: Practice and Professionalism During Reopening,” Vicki Blanton, Kelly Chen, Rocio Cristina Garcia Espinoza, Neil Issar, and moderator Tamara Baggett. (Ethics 1.00)*
MONDAY, JUNE 28 Noon
Securities Section Topic Not Yet Available
TUESDAY, JUNE 29 No DBA Events Scheduled
WEDNESDAY, JUNE 30
4:00 p.m. LegalLine E-Clinic. Volunteers needed. Contact sbush@dallasbar.org.
Living Legends
The DBA plans to open to smaller meetings such as committees in July, and to reopen for all meetings in September. Keep your eye on DBA Online and Headnotes for reopening information.
On April 30, the DBA presented the second in the Living Legends series featuring Judge Maricela Moore, interviewed by Maria “Marifer” Aceves and Kandace Walter (left).
If special arrangements are required for a person with disabilities to attend a particular seminar, please contact Alicia Hernandez at (214) 220-7401 as soon as possible and no later than two business days before the seminar. All Continuing Legal Education Programs Co-Sponsored by the DALLAS BAR FOUNDATION. *For confirmation of State Bar of Texas MCLE approval, please call the DBA office at (214) 220-7447. **For information on the location of this month’s North Dallas Friday Clinic, contact yhinojos@dallasbar.org.
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4 He a d n o t e s l D a l l a s B a r A s s o ciation
June 2021
President’s Column
Headnotes
Before Transitioning Back to “Normal,” Ask the Important Questions BY AARON TOBIN
We have a rule in our firm. When asked why something was done a particular way, it is never acceptable to respond, “Because, that’s what the form said”, or “That’s the way we always do it.” Just because one practice was used in a different case at a different time does not mean that same approach makes sense for the case at hand. Many of us are focusing on transition and trying to predict what the new normal will look like. Some will go back to a work environment that is similar to what was in place pre-pandemic. Others will never return to the office. But for most of us, the answer will lie somewhere in between. No matter where you fall on this spectrum, I would suggest that you base your decisions on something other than, “That’s the way we have always done it.” Gradual transitions will make sense for many of us. But, when will we know the transition is over? What will the new norm be? In order to get to the new normal, it is important to examine the past and ask the important “why” questions. Why did it make sense for support staff to be in the office Monday through Friday from 8:30 to 5:30 fiftytwo weeks a year? Why did it make sense to travel across the country for every court appearance and deposition? Why did it make sense to be in business formal or even business casual attire while in the office? No doubt there was a basis for each and every one of these rituals, but does that basis still hold water today? Does the stability and certainty of having 95 percent of the workforce show up and leave in the same window of time every day all dressed similarly override the value and productivity the organization receives by having a possibly happier workforce that is more productive with some portion of their day/ week being remote. Every aspect of an organization should be reexamined as we navigate through transition.
Recruiting, Training and Managing Personnel
Will reverting to old form help you attract and retain the best talent? Will firms that offer a more flexible work schedule for lawyers and support personnel recruit talent away from you? Will employees be able to give more quality time to the organization if they are not spending 2-3 hours a day on the road commuting? Do some lawyers and support staff need to be in the office more than others? Jimmy Johnson, the legendary football coach used to maintain that there should be different rules for different players. He would argue why should Emmitt Smith and Charles Haley live by the same rules, procedures and rituals when they have different needs to be able to perform at their best. Both were great players who had to be managed very differently. Does a single parent lawyer who lives in Frisco need a different arrangement than a lawyer who has been practicing the same amount of time in the same field but who happens to be single and living in uptown, 3 blocks from the office? Do they need to be managed differently to be able to perform at their best? On the other hand, will too much flexibility cause you to lose your organizational identity and culture? How will you train young lawyers and new hires without some semblance of the traditional office environment? Will personnel remain as loyal to the organization without that inherent bond that can only come from consistent in-person collaboration? How will younger employees, in particular younger lawyers, advance within an organization if they do not have the opportunity to collaborate with the partners who are making those decisions? These questions certainly were present before the pandemic, but the difference is now firms can no longer afford to avoid analyzing what the best solutions are.
Technology
Organizations must evaluate the value they receive from investing in technology. The best evidence of this is the pandemic itself.
Our profession had to pivot on a dime last spring. Think about how firms that were already in the cloud were able to transition much more quickly just by having cloud-based technology. Will firms need to spend less of their budgets on real estate and travel for business development and more on technology in order to be able to keep up? Will clients demand more virtual meetings? Will they stop paying for lawyer travel when, with proper technology depositions, hearing and even trials can be taken effectively remotely? I just finished a twoweek bench trial in New York City that our team handled from our conference room, and I cannot say that much was lost by conducting the proceedings remotely.
Client Development
We have been forced to be more creative in our efforts to stay in touch with our clients and to stay top of mind. Are some of the methods employed during the pandemic actually more comfortable and less intrusive for clients? Did our clients feel just as connected to our firms without the scheduling challenges that go with the quarterly lunch? Did marketing budgets go down while client satisfaction and retention remain the same? But if we do opt for less facetime, will this make us vulnerable to competitors who are able to get in front of our clients?
All Organizations Should Evaluate These Questions
It is not just law firms that are trying to achieve the new normal. Governmental agencies, corporate America, courts, and even bar associations are all asking what is the new normal and how do we get there? Courts are considering what aspects of remote practice are here to stay. Will there continue to be virtual motion dockets? Courts are resuming jury trials, but how long will it be before George Allen, for instance, can accommodate over 1,000 people in the central jury room to safely conduct a full slate of jury trials. How long will it be before all of our community can safely travel to the courthouses to participate in our jury system? Like all organizations, the Dallas Bar Association is asking the tough questions when examining a return to normal. Thanks to the DBA’s visionary leaders who in the seventies bought a dilapidated home in a challenging section of town that had at one time functioned as a funeral parlor, for over 40 years our membership has had the benefit of a centralized location to collaborate, educate, and train. Thanks to the mansion expansion in the early part of the century it will be a long time before the DBA struggles for space. Our building has long been considered a strategic advantage for our Bar Association. Members appreciate and welcome the opportunity to train, network, and develop relationships in person in our downtown home. Yet, what does it say when our association turned on a dime and pivoted from almost exclusively in-person meetings to entirely virtual, and our attendance and participation levels actually increased. It probably means there is a need for virtual programming for our members. That is why when we return to the building, we will continue to offer virtual programming as an option for our members. All organizations are about to embark on a transition back to the new normal. This journey will take some time before we understand what will truly work best for each of our organizations. If the right questions are raised and analyzed, then transition could be an opportunity to achieve more efficiency and productivity, and thus more value for our respective organizations and for the profession going forward. Good luck, my friends. Aaron
MINORITY CLERKSHIP WEBINAR
Thursday, June 10 | Noon | MCLE: 1.00 Hosted virtually on Zoom. Register at Dallasbar.org.
NAVIGATING TRANSITION: PRACTICE AND PROFESSIONALISM DURING REOPENING FRIDAY, JUNE 25, NOON ONLINE WEBINAR | ETHICS 1.00 Vicki Blanton, AT&T Kelly Chen, Toyota Motor North America, Inc.
Nina Cortell
Haynes and Boone, LLP
Interviewed by Lindsey Hughes, Michelle Jacobs and Laura Whitley with Haynes and Boone, LLP
Rocío Cristina García Espinoza, Rosewood Property Company Neil Issar, Haynes and Boone, LLP Moderator: Tamara D. Baggett, Baker Hostetler Register at www.dallasbar.org Questions? Email bavina@dallasbar.org
Published by: DALLAS BAR ASSOCIATION
2101 Ross Avenue Dallas, Texas 75201 Phone: (214) 220-7400 Fax: (214) 220-7465 Website: www.dallasbar.org Established 1873 The DBA’s purpose is to serve and support the legal profession in Dallas and to promote good relations among lawyers, the judiciary, and the community. OFFICERS President: Aaron Z. Tobin President-Elect: Krisi Kastl First Vice President: Cheryl Camin Murray Second Vice President: Bill Mateja Secretary-Treasurer: Ebony Rivon Immediate Past President: Robert L. Tobey Directors: Vicki D. Blanton (Chair), Rob Cañas, Jonathan Childers (Vice Chair), Stephanie G. Culpepper, Whitney Keltch Green (President, Dallas Association of Young Lawyers), Marissa Hatchett (President, J.L. Turner Legal Association), Stacey Cho Hernandez (President, Dallas Asian American Bar Association), Hon. Martin Hoffman, Kate Kilanowski, Jennifer King (President, Dallas Women Lawyers Association), Hon. Audrey Moorehead, Javier Perez (President, Dallas Hispanic Bar Association), Hon. Monica Purdy, Lindsey Rames, Kelly Rentzel, Bill Richmond, Sarah Rogers, Mary Scott, Amy M. Stewart, and Mary Walters Advisory Directors: Ashlei Gradney (President-Elect, J.L. Turner Legal Association), Andy Jones (PresidentElect, Dallas Association of Young Lawyers), Jonathan Koh (President-Elect, Dallas Asian American Bar Association), Elsa Manzanares (President-Elect, Dallas Hispanic Bar Association), Derek Mergele-Rust (President, Dallas LGBT Bar Association), and Marisa O’Sullivan (President-Elect, Dallas Women Lawyers Association) Delegates, American Bar Association: Rhonda Hunter, Mark Sales Directors, State Bar of Texas: Chad Baruch, Rebekah Brooker, Rob Crain, Michael K. Hurst, Mary Scott HEADNOTES Executive Director/Executive Editor: Alicia Hernandez Communications/Media Director & Headnotes Editor: Jessica D. Smith In the News: Judi Smalling Display Advertising: Annette Planey, Jessica Smith PUBLICATIONS COMMITTEE Co-Chairs: James Deets and Beth Johnson Vice-Chairs: Elisaveta (Leiza) Dolghih and Joshua Smeltzer Members: Logan Adcock, Benjamin Agree, Dallas Andersen, Andrew Botts, David Brickman, Catherine Bright Haws, Ian Brown, Srinivasan Chakravarthi, Lindsay Drennan, Alexander Farr, Dawn Fowler, Candace Groth, Ted Huffman, Neil Issar, Alexandra Jones, Krisi Kastl, Katherine Kim, Brian King, Jared Knight, John Koetter, Margaret Lyle, Majed Nachawati, Keith Pillers, David Ritter, Carl Roberts, John Shipp, Jared Slade, Sarah Spires, Jay Spring, Sarah-Michelle Stearns, Scott Stolley, Robert Tarleton, Paul Tipton, Anastasia Triantafillis, Pryce Tucker, Kathleen Turton, Peter Vogel, Benton Williams, Jason Winford DBA & DBF STAFF Executive Director: Alicia Hernandez Accounting Assistant: Shawna Bush Communications/Media Director: Jessica D. Smith Controller: Sherri Evans Events Director: Rhonda Thornton Executive Assistant: Liz Hayden Executive Director, DBF: Elizabeth Philipp LRS Director: Biridiana Avina LRS Program Assistant: Marcela Mejia LRS Interviewer: Viridiana Rodriguez Law-Related Education & Programs Coordinator: Melissa Garcia Marketing Coordinator: Mary Ellen Johnson Membership Director: Kimberly Watson Director of Legal Education: Kathryn Zack Publications Coordinator: Judi Smalling Receptionist: Araceli Rodriguez Staff Assistant: Yedenia Hinojos DALLAS VOLUNTEER ATTORNEY PROGRAM Director: Michelle Alden Managing Attorney: Holly Griffin Mentor Attorneys: Kristen Salas, Katherine Saldana Paralegals: Whitney Breheny, Miriam Caporal, Star Cole, Tina Douglas, Carolyn Johnson, Andrew Musquiz, Alicia Perkins Community Engagement Coordinator: Marísela Martin Copyright Dallas Bar Association 2021. All rights reserved. No reproduction of any portion of this publication is allowed without written permission from publisher. Headnotes serves the membership of the DBA and, as such, editorial submissions from members are welcome. The Executive Editor, Editor, and Publications Committee reserve the right to select editorial content to be published. Please submit article text via e-mail to jsmith@dallasbar.org (Communications Director) at least 45 days in advance of publication. Feature articles should be no longer than 750 words. DISCLAIMER: All legal content appearing in Headnotes is for informational and educational purposes and is not intended as legal advice. Opinions expressed in articles are not necessarily those of the Dallas Bar Association. All advertising shall be placed in Dallas Bar Association Headnotes at the Dallas Bar Association’s sole discretion. Headnotes (ISSN 1057-0144) is published monthly by the Dallas Bar Association, 2101 Ross Ave., Dallas, TX 75201. Non-member subscription rate is $30 per year. Single copy price is $2.50, including handling. Periodicals postage paid at Dallas, Texas 75260. POSTMASTER: Send address changes to Headnotes, 2101 Ross Ave., Dallas, TX 75201.
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6 H e a d n o t e s l D a l l a s B a r A s s o ciation
Focus
June 2021
Antitrust & Trade Regulation/Bankruptcy & Commercial Law
Even During A Pandemic, Bankruptcy Courts “Do Equity” BY LIZ BOYDSTON AND TRINITEE G. GREEN
U.S. bankruptcy courts have equitable powers and, as a result, are often described as courts of equity. Courts of equity, such as the English Courts of Chancery, originated as a solution to a problem. Simply put, the commonlaw system, if strictly applied under certain circumstances, would result in injustice. Like these English Courts of Chancery, U.S. bankruptcy courts have long possessed—and used—equitable powers where the facts and circumstances justify particular results and where nothing in the Bankruptcy Code or applicable law would otherwise prevent such equitable relief. During the COVID-19 pandemic, a number of U.S. bankruptcy courts were asked to apply new procedural statutes that, if strictly applied, would have deprived small business debtors (as defined under the Bankruptcy Code) of
the very benefits that these new Bankruptcy Code statutes were intended to provide small business debtors. The Small Business Reorganization Act of 2019 (SBRA), which amended the Bankruptcy Code to include new Subchapter V, became effective on February 19, 2020 and was designed to enable small business debtors to reorganize their financial affairs in a more efficient and cost-effective manner while also maintaining control over their businesses and, ultimately, ownership interests. In retrospect, it is clear that the SBRA could not have gone into effect at a better time, given that on March 11, 2020, the COVID19 crisis was declared a pandemic. Many small business debtors that had commenced their bankruptcy cases prior to February 19, 2020 sought to “retroactively elect” to proceed under the SBRA’s new Subchapter V of the Bankruptcy Code. Because Subchapter V cases are
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intended to be streamlined in comparison to traditional Chapter 11 cases, Subchapter V of the Bankruptcy Code imposes certain mandatory deadlines on small business debtors that, generally speaking, must be satisfied within the first 90 days of the case. Specifically, a status conference must be conducted within 60 days from the date of entry of the order for relief, which is typically the petition date, and the debtor must file its plan not later than 90 days after the date of entry of the order for relief. However, Subchapter V does not include a provision to adjust or waive these deadlines if an existing non-Subchapter V case is converted to Subchapter V. Thus, the most frequently addressed SBRA issue that Bankruptcy Courts have grappled with to date is whether small business debtor cases that commenced prior to SBRA’s effective date could be converted to and proceed under Subchapter V even though Subchapter V deadlines would technically already have expired. Indeed, this issue was addressed in the first published SBRA opinion from a California bankruptcy court, wherein the debtor was permitted to proceed under Subchapter V even though its case had been pending for approximately 15 months. To illustrate the procedural predicament in that case, all of the Subchapter V statutory deadlines would technically have expired roughly one year before the request to convert and designation to proceed under Subchapter V were made. Like the California court above, the overwhelming majority of bankruptcy courts that have considered this issue
have used their equitable powers to find in favor of debtors where the facts and circumstances warranted. Similarly, a majority of the bankruptcy courts that have declined to permit a “retroactive” election have done so where the debtors had unclean hands (because of negligence, bad faith, or the mere failure to show that the request was made for reasons that were outside of the debtor’s control or that should not be attributed to the debtor). For instance, a court did not permit a debtor to make a retroactive Subchapter V election because it found that the debtor made the election in bad faith only after failing to confirm its Chapter 11 Plan. In short, there is nothing under the Bankruptcy Code or any other law that prevents bankruptcy courts from resetting or extending Subchapter V statutory deadlines in order to provide due process for pre-SBRA effective date debtors, so long as such equitable relief is warranted. And, as time passes, this particular issue will necessarily become a historic one. Therefore, the rule of law that permits pre-SBRA effective date debtors to convert their cases to Subchapter V cases is not one that bankruptcy lawyers must commit to memory. Nevertheless, all lawyers would be well served (and perhaps comforted) to note that even during a pandemic, and, perhaps especially during a pandemic, bankruptcy courts still “do equity.” HN Liz Boydston is a Shareholder at Polsinelli PC, and can be reached at lboydston@polsinelli.com. Trinitee Green is an Associate at the firm and can be reached at tggreen@ polsinelli.com.
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D al l as Bar A ssoci ati on l Headnotes 7
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8 He a d n o t e s l D a l l a s B a r A s s o ciation
Focus
June 2021
Antitrust & Trade Regulation/Bankruptcy & Commercial Law
Proofs of Claims: Essentials & Pitfalls BY HON. HARLIN D. HALE, ANDREW G. EDSON, AND BRAXTON MARKLE
In most bankruptcy cases, a proof of claim is the required filing for a creditor to receive payment from the debtor. The proof of claim provides the legal basis for repayment with supporting documentation. The “Official Form 410” is filed with the bankruptcy court where the debtor’s case was filed. However, creditors beware: strict deadlines exist for filing a proof of claim. A creditor’s missed filing likely means the creditor has waived any right to payment.
When is a Proof of Claim Required?
Creditors are required to file a proof of claim in cases under chapter 7, chapter
12, or chapter 13 of the Bankruptcy Code to receive any payment. Filing a proof of claim in a chapter 11 case is required if the debtor’s bankruptcy schedules omit the creditor’s claim, improperly list the amount owed, or list it as contingent or disputed.
What are the Deadlines for Filing?
The proof of claim bar date, or deadline, is set by the Federal Rules of Bankruptcy Procedure. A creditor must file a proof of claim no later than 70 days from the filing date in a voluntary chapter 7, chapter 12, or chapter 13 case. For an involuntary chapter 7 case, the creditor must file their proof of claim no later than 90 days after entry of the order of relief. The bar date for filing a proof of claim in a chapter 11 case is set by the bankruptcy judge via a filed notice on the docket.
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What Happens if you Miss a Claim Deadline?
Failure to file by the claim deadline, except in Chapter 11 cases when the claim is correctly scheduled and not contingent or disputed, will prevent the creditor from receiving any payment through the bankruptcy case. However, certain exceptions exist: excusable neglect, an additional 30-day window for a debtor, and the doctrine of the informal proof of claim. In limited circumstances, bankruptcy courts will extend the bar date to file a proof of claim if excusable neglect is present. Excusable neglect is allowed in chapter 11 cases but prohibited in chapter 7, chapter 12, and chapter 13 cases. To utilize this exception, a creditor must demonstrate that its failure to file before the bar date was the result of excusable neglect, such as acts outside of the filer’s control, or confusing notice language. Bankruptcy courts will then weigh the equities to determine if the creditor is entitled to additional time to file a claim. The second exception occurs when the debtor or trustee files a proof of claim on behalf of the creditor within 30 days of the expiration of the bar date. A debtor may want to file a proof of claim on behalf of the creditor if the claim is a priority claim or a secured claim that the debtor wants to address in the bankruptcy case. Mortgage claims or non-dischargeable claims are examples of when a debtor may want to file a claim. A creditor’s last chance of saving its claim rests with the doctrine of the “informal proof of claim.” This doctrine creates a safe harbor for creditors whereby the bankruptcy court takes into consideration filed documents that satisfy the information requested on an Official Form 410. This situation can occur when
the creditor previously filed a motion or response, asserting its claim and including exhibits that substantiate the claim.
Other Claim Considerations
The Official Form 410 allows the claim to be executed by an agent or counsel to the creditor. However, the better practice is for an officer or director of the client to execute the claim because it is signed under penalty of perjury. Counsel can put themselves in a precarious position when simply relying on claims calculations from clients when the amount of the claim is incorrect or simply false. Creditors should also be aware that filing a proof of claim will likely submit it and its claims to the jurisdiction of the bankruptcy court, including any counterclaims by the debtor. Most often, that is not a concern for a creditor looking for payment, but occasionally, a creditor wants to preserve its right to a jury trial on claims that may involve co-defendants and may want those claims to be decided by a non-bankruptcy court. In those instances, the creditor may intentionally forgo filing a claim. The authors hope this brief primer on proofs of claim will be helpful, particularly to lawyers who do not practice bankruptcy law. Proofs of claim in a bankruptcy case can be tricky, require a lot of documentation, and have rather fixed deadlines. However, as mentioned above, if a problem arises in the proof of claim process, there are sometimes fixes available. HN
Judge Hale serves as a bankruptcy judge in the Northern District of Texas. Andrew G. Edson is a member in the firm of Clark Hill Strasburger. Braxton Markle is a law student at UNT Dallas and an extern for Judge Hale. They can be reached at judge_harlin_hale@txnb.uscourts.gov, aedson@clarkhill.com, and braxton_markle@txnb.uscourts.gov, respectively.
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10 H e a d n o t e s l D a l l a s B a r A s s ociation
Column
June 2021
Ethics
Is it Ethical to Threaten Bankruptcy on Behalf of a Client? BY HERSHEL R. CHAPIN
Threatening Bankruptcy, i.e., saying “My client demands X, or else my client will seek bankruptcy relief,” usually in the context of a negotiation, can have advantages. It can be an expedient way to communicate an impending reality. It can be a useful enticement to reach a “workout deal” outside of a formal bankruptcy process. And in the “pre-packaged” bankruptcy, it is necessary to forecast bankruptcy. But predictions can be dangerous business. The mere act of forecasting bankruptcy during the course of advocacy might be unethical or create grounds for disciplinary action when done in an inappropriate manner. Here are a few of the ways this position can introduce complications into the Advocate’s professional role: A threshold concern is confidentiality. TDRPC 1.05 essentially requires that the lawyer have been pre-authorized to reveal the client’s intention to file bankruptcy based on informed consent. Another consideration must be the utterance’s truthfulness. TDRPC 8.04(a) (3) provides: “A lawyer shall not… engage
in conduct involving dishonesty, fraud, deceit or misrepresentation”. To discern truth from lie in this context, one must have, at minimum, a working understanding of the terminology involved. Here, bankruptcy is generally understood to have a specific meaning and set of laws, rules, and constraints that govern this legal process. “Filing bankruptcy” means literally submitting a “petition” to a United States Bankruptcy Court of competent jurisdiction and venue to initiate a process (“a case”) under Chapter 7, 11, 12, 13, or 15 of Title 11 of the United States Code (a.k.a. the “Federal Bankruptcy Code”). Alternatively, the phrases “to be bankrupt” or “to go bankrupt” could be susceptible of having alternative meanings, such as to be insolvent or to dissolve under state law proceedings, although playing semantics with the word “bankruptcy” is likely a recipe for confusion. If federal bankruptcy is contemplated, it will probably be necessary to have consulted with competent bankruptcy counsel prior to deciding if such a process would be desirable or even applicable. Assuming the factors of eligibility/ability/intention are
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present, substantial truth might still not be as simple as a binary “true or false” in a rapidly evolving, dynamic situation. Before making such a statement, it is incumbent on the attorney objectively to consider the actual likelihood of bankruptcy if the condition is or is not satisfied. This will require an understanding and examination of the client’s economic situation, which will require the counselor to “poke his/her nose” in the client’s financial affairs. What if the prediction turns out to be wrong—for whatever reason? Before casting the die, the lawyer ideally should consider the consequences of the other party relying on the lawyer’s statement and later finding out that it was false—including reliance damages-based types of claims against the client and/or a grievance against the lawyer. Threatening bankruptcy is likely to be interpreted as a declaration of insolvency or breach by a creditor, and this can have adverse consequences for a client if, for instance, the bankruptcy filing is stalled, delayed, or does not occur. Additionally, the mention of bankruptcy or anything adjacent to insolvency to a creditor could trigger fiduciary duties on the part of the client to creditors. See Beware the Zone of Insolvency and Unexpected Fiduciary Duties for more information about the Texas lawyer’s responsibilities to inform the client of such risks. Thus, prematurely signaling bankruptcy could be an instance of disregard toward a client’s best interests in violation of Rule 1.01(b)
(1). Moreover, the issue of credibility may be relevant in the future for advocate and client. If the lawyer makes a statement on behalf of a client that later turns out not to be true, it could impugn the integrity of both lawyer and client. This could create problems later when either of their testimony becomes necessary. Another major issue is that this phrase could introduce evidentiary-related complications into the lawyer’s relationship. TDRPC Rule 3.08’s “Lawyer as Witness” responsibilities and limitations could be triggered by the lawyer’s statement, especially in a context where insolvency or breach has not previously been declared/ discovered. If the lawyer finds him or herself in the center of a controversy over whether the lawyer’s statement formed the element of breach or insolvency to a cause of action, it could place the lawyer in a position where he or she might no longer be able to defend/represent the client in a legal proceeding over such issues. As Yogi Berra once said, “It’s tough to make predictions, especially about the future.” Threatening “the B-word” is a gambit that should never be done casually—strategic and ethical considerations might take overriding priority. For these reasons, many experienced Texas bankruptcy lawyers frequently opt not to make bankruptcy threats. HN Hershel Chapin is the managing attorney of H. R. Chapin, Attorney & Counselor, PLLC. He may be reached at hchapin@gmail.com.
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D al l as Bar A ssoci ati on l Headnotes 11
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12 He a d n o t e s l D a l l a s B a r A s s ociation
Focus
June 2021
Antitrust & Trade Regulation/Bankruptcy & Commercial Law
Dividend Recaps Can be Lucrative for Bankruptcy Lawyers BY MICHAEL S. HELD AND J. MACHIR STULL
The utilization of dividend recapitalizations—recaps, for short—surged in late2020 and into 2021, particularly among private equity-owned businesses. Generally, a dividend recap is when a company takes on new debt to pay a special dividend to investors or shareholders. It is a popular tool among private equity firms, as it allows them to extract value from a business before selling it. Dividend recaps from high-yield bonds and leveraged loans for North America and Western and Southern Europe totaled about $21 billion in Q4 2020—a volume not seen since 2016, according to data provided by White & Case in partnership with Debtwire. Among the most active industries were financial services, healthcare, and technology. And, all signs point to the frenzied pace continuing through 2021. To be sure, much of the uptick in dividend recaps can arguably be traced to the economic fallout from the pandemic. The M&A markets were rattled as most businesses focused on asset preservation in the face of the unknown. However, the ensuing rock-bottom interest rates provided a tailwind for leveraged finance. Dividend recaps were relied upon to provide many private equity-owned businesses a means to
return cash to investors, without selling the company. But the strategy is controversial. Dividend recaps incur debt to pay investors and owners, rather than to position a company for growth or to stockpile cash for emergencies. When a business is high-performing with relatively little debt, a recap may be inconsequential. But in other situations, recaps can saddle businesses with unnecessary (and sometimes unsustainable) debt, while proving ripe for potential fraudulent-transfer litigation. From the perspective of a bankruptcy practitioner, the latter can be lucrative. It is no secret that many recent corporate bankruptcies featured businesses that struggled with unsustainable debt loads after dividend recaps. One of the most high-profile recaps dates back to 2005, when a group of three private equity firms purchased Hertz from Ford Motor Company. Six months after the purchase, Hertz completed a $1 billion dividend recap. While Hertz did not fail in the immediate aftermath of the transaction, the recap was highly publicized, and the company arguably suffered. It filed its chapter-11 petition on May 22, 2020. Dividend recaps were also a point of contention in the (first) Payless ShoeSource bankruptcy in 2017. There, the creditors’ committee alleged that the cumulative effect of two dividend recaps was an
increase of the debtor’s secured debt burden from $382 million in 2012 to $838 million when the bankruptcy was commenced in April 2017. After what was likely much behind-the-scenes negotiating, the Payless plan of reorganization ultimately incorporated a $21.19 million contribution from certain sponsor entities. The plan described the contribution as follows: [A] settlement, without admitting any wrongdoing of any kind, of any potential claims, including without limitation claims for breach of fiduciary duty arising in connection with the authorization and payment of certain dividends in 2013 and 2014[.] When not settled prior to litigation, dividend recaps may be challenged as constructively fraudulent under section 548 of the Bankruptcy Code and corresponding state laws. Specifically, it will likely be argued that the company received less than reasonably equivalent value in exchange for taking on the debt to pay dividends. To the extent the plaintiff—often a creditors’ committee or trustee—can prove that the subject company became insolvent or was left with unreasonably small capital as a result of the dividend recap, litigation is likely to advance beyond the motion to dismiss or summary judgment stage. From a company perspective, however, there are ways to lessen the risk of litigation.
First, dividend recaps should typically only be considered for companies without excessive debt and with a strong track record and the ability to weather downturns. Second, a solvency opinion from an outside advisor is arguably the most important step a company can take. This will demonstrate that the business has sufficient capital to service its debt after the recap. Third, a clear record of the decision-making process in approving the dividend recap can also be helpful. Directors and officers should be able to demonstrate that they engaged in a thorough and careful process—with the input of outside advisors—before approving the dividend. Finally, plaintiffs asserting causes of action related to dividend recaps—such as breaches of fiduciary duty—could potentially argue the claims include personal liability. As a result, directors and officers should consider if they have adequate D&O insurance. The popularity of dividend recaps will surely continue through much of 2021 and likely beyond. While these recaps can be lucrative for private equity firms, they also provide fertile ground for potential litigation in a subsequently-filed bankruptcy proceeding. HN Michael S. Held is a Partner at Jackson Walker LLP and may be reached at mheld@jw.com. J. Machir Stull is Senior Counsel at the firm and may be reached at mstull@jw.com.
Creditor Options: Involuntary Bankruptcy vs. Receivership CONTINUED FROM PAGE 1
Alternatively, the appointment of a
receiver to assist in collecting a debt is one of the oldest remedies and may be a swift and effective collection option for creditors.
Texas receivership options can be viewed in three broad categories: 1) presuit appointment of a receiver often in connection with an injunction order; 2) receivership over a particular asset in which a creditor holds an interest; and 3) appointment of a receiver over a judgment debtor, his business, or a specific asset postjudgment to reach and potentially liquidate non-exempt assets. Putting assets in the hands of a receiver to preserve the status quo while litigation is pending can ensure that the asset will be available to pay the creditor once litigation is complete. Although a pre-judgment injunction is often considered sufficient protection, the appointment of a receiver to run the business may be warranted to maintain the status quo. One example of this is a divorce proceeding in which both parties claim interest in a business operated by one party. A receiver overseeing operations, with controls on expenditures, can be critical to preserving value prior to sale or other division. Statutorily, the receiver is a citizen, a Texas resident, and not a party or attorney
for a party to the controversy. The initial cost to seek receivership includes the legal fees to prepare the requisite motion and attend the hearing plus the bond amount. Bonds are set based on the value of the property coming under the receiver’s control. Although the receiver posts her bond, the creditor usually agrees to cover that expense. The receiver is then paid from the income of the assets that she administers, usually at an hourly rate set forth in the appointment order. Receivers may seek assurance from the creditor that the fees will be paid. The biggest downside to this collection option is that the receiver’s fees and expenses come ahead of recovery by the creditor and may eat into the ultimate recovery more than anticipated. Receiverships and involuntary bankruptcy each have associated risks, but when used effectively, they can be utilized to capture assets before a debtor takes action to transfer them out of reach. HN Lyndel Anne Vargas is a Shareholder at Cavazos Hendricks Poirot, P.C. She can be reached at lvargas@chfirm.com. Emily Wall is an Associate at the firm and can be reached at ewall@chfirm.com.
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June 2 0 2 1
D al l as Bar A ssoci ati on l Headnotes 13
14 H e a d n o t e s l D a l l a s B a r A s s o ciation
Focus
June 2021
Antitrust & Trade Regulation/Bankruptcy & Commercial Law
First Criminal Charges for Wage-Fixing & No-Poach Agreements BY TOM YORK AND JUAN ANTONIO SOLIS
In recent years, the Department of Justice (DOJ) has promised aggressive enforcement of anticompetitive agreements affecting American labor markets. Now, in two first-of-their-kind enforcement actions, DOJ has brought criminal indictments against North Texas individuals and companies for wage-fixing and “no-poach” agreements. Both actions reaffirm DOJ’s commitment to prosecuting anticompetitive agreements involving employment-related issues.
Background to DOJ’s Enforcement Actions
The federal Sherman Act prohibits price-fixing, bid-rigging, and market allocation. Individuals convicted face up to 10 years’ imprisonment and a fine of $1 million.
Wage-fixing agreements are a type of pricefixing, in which DOJ analogizes wages to the “price” of labor. No-poach and non-solicit agreements are related, typically when executives from different companies agree not to solicit or hire each other’s employees. No-poach and nonsolicit agreements can sometimes appear as part of a larger legitimate business agreement between companies, such as a joint venture, and can be lawful when they are reasonably related to a pro-competitive collaboration. However, when no-poach and non-solicit agreements are not necessary to any legitimate business collaboration, they are viewed by DOJ as per se unlawful. In the past, both DOJ and the Federal Trade Commission have brought civil actions challenging wage-fixing and “naked” no-poach agreements. That changed in 2016, when DOJ made clear that it will criminally investigate charges that employers have agreed to fix compensation or not
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solicit or hire employees and, where prudent, pursue criminal charges against culpable individuals and companies.
Wage-Fixing and No-Poach Indictments
It took DOJ a little more than four years to file its first criminal charges for antitrust violations involving labor, but filed two in short order—and both involve North Texas individuals. First, in December 2020, DOJ indicted Neeraj Jindal, the owner of a North Texas therapist staffing company, for conspiring with competitors to fix prices by decreasing “pay rates” paid to their physical therapists. According to the indictment, Jindal and owners of competing therapist staffing companies communicated through text messages, and it quoted statements by Jindal to owners of four competitors urging them to “collectively … move together” to lower pay rates for their employees. Second, and just one month later, DOJ brought a criminal indictment against Surgical Care Affiliates LLC (SCA), an outpatient medical care center operator. DOJ’s indictment charges SCA for conspiring with two competing outpatient medical center operators not to solicit each other’s senior level employees. The indictment further quotes internal emails and other communications from senior executives of SCA and its competitors that describe an “agreement to not poach” each other’s employees, including instructions to third-party recruiters that such employees were “off limits.” Criminal antitrust prosecution often leads to private plaintiffs challenging the same conduct in civil litigation seeking damages; even companies or executives that cooperate with DOJ and obtain “leniency” from criminal prosecution face this civil risk. And even if the government does not criminally enforce wage-fixing or other employment-related collusion, such con-
duct remains subject to civil challenge by the antitrust agencies or private plaintiffs. Indeed, civil cases have already been filed in both the Jindal and SCA cases.
What You Need to Know
These are DOJ’s first criminal enforcement actions in the labor context, and reinforce three key points. Expect continued antitrust scrutiny in employment issues. DOJ has reiterated in recent years that it intends to prosecute anticompetitive conduct in labor markets, which these latest actions demonstrate. This is unlikely to change in the Biden administration. DOJ’s recent enforcement actions underscore the need for inside counsel to be attentive to decisions made by the human resources department, which in the past may not have been a priority. DOJ will criminally prosecute wage-fixing, no-poach, and non-solicit agreements. DOJ will criminally prosecute “naked” wagefixing and related agreements between competitors that courts today treat as inherently anticompetitive. Similar restrictions that are part of otherwise pro-competitive collaborations will continue to be assessed under the rule of reason, a more lenient standard that balances the agreement’s potential anticompetitive harm with its procompetitive benefits. Criminal cases require strong evidence. DOJ brought both indictments with strong evidence, including explicit text messages and emails that reflect undisguised attempts to fix wages and control hiring. Any antitrust investigation, criminal or civil, will rely heavily on ordinary-course documents by the alleged participants in the conspiracy. A careless approach to communication always creates risk. HN
Tom York is a Partner at Jones Day, and Juan Antonio Solis is an Associate at the firm. They can be reached at tdyork@jonesday.com and jsolis@jonesday.com, respectively.
June 2 0 2 1
D al l as Bar A ssoci ati on l Headnotes 15
16 H e a d n o t e s l D a l l a s B a r A s s o ciation
June 2021
Tales from a First-Time Poll Worker BY TERAH MOXLEY
I spent Election Day 2020 in the happiest place on earth. Not in Orlando. Not in Anaheim. But in a rec center gymnasium in East Dallas serving as a poll worker for the first time. I never imagined that walking into that rec center gym would be like traveling through the wardrobe, Narnia-style, into a magical bubble devoid of partisanship and divisiveness. But it was. Everyone was just so happy to be there. All the poll workers. All the voters— all 360 we checked in that day. Discussion of the candidates and partisan issues were off limits that day. And, I embarked on a media blackout for the day (which lasted until about
4:00 p.m.—I just could not make it the whole day). With the politically charged year we have had, that was a little disorienting. But it was also wonderful. Regardless of which candidates the voters supported, we treated them all the same. We thanked them for coming out to vote. They thanked us for our service. In the little down time we had, the poll workers had discussions about non-partisan things. Restaurants we liked—I found out about a great, family-owned diner in my neighborhood. TV shows we were binging— I got the push I needed to finally watch Schitt’s Creek. In a year as far removed from normal as anyone could imagine, we had extremely normal human interactions that day.
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Belinda Boling is an Assistant Vice President and Senior Legal Counsel at AT&T. She is also the Co-Chair of the AT&T Legal Department’s Pro Bono Committee.
1. What types of cases have you accepted? I have accepted a variety of matters, including divorces, a guardianship of an incapacitated person, a veteran’s discharge upgrade application, asylum cases, DACA applications, and U-visa petitions.
2. Which clinics have you assisted with? I have assisted with the DVAP virtual clinics, the Veterans legal clinics, and the legal clinics held in East, South, and West Dallas. 3. Why do you do pro bono? I do pro bono because I am thankful for the many blessings I have received throughout my life, including the good fortune and privilege of holding a law degree that allows me help those who desperately need access to lawyers. Providing pro bono services is a two-way street—not only does it benefit those trying desperately to get back on their feet, but I also gain immense satisfaction as a contributor to the public good. I am thankful that the AT&T Legal Department supports my colleagues and me in these efforts. 4. What impact has pro bono service had on your career? I think that pro bono service has made my legal career more much more rewarding. During my legal career, I have experienced stressful and busy periods. It is during those times that my pro bono clients have brought me joy. A sincere “thank you” or “gracias” is good for my soul, especially when the pro bono client’s appreciation of your help is all they can afford to pay. I can’t imagine my legal career without doing pro bono. 5. What is the most unexpected benefit you have received from doing pro bono? The most unexpected benefit I have received from doing pro bono is to have learned how using my legal skills can change the course of an individual or family’s life. The legal degree is a powerful tool for the good.
Pro Bono: It’s Like Billable Hours for Your Soul. To volunteer or make a donation, call 214/748-1234, x2243.
I worked alongside an incredible team of poll workers during our 14-hour shift on Election Day. There were three lawyers in the group—our election judge, our official Spanishspeaking poll worker, and me. Like most of our crew, the three of us were first-time poll workers. We had two student workers, both of whom had worked as poll workers for most of early voting and, as the veterans of the group, very ably showed us newbies the ins and outs of the voting equipment and helped us troubleshoot the few issues that arose during the day. Two more lawyers joined us throughout the day as official poll watchers—politely and professionally observing our interactions with the voters and conversing with the election judges as appropriate. In addition to being a politics-free zone, the polling station was filled with lovely examples of the best our community has to offer. Applause for frontline workers coming in after long shifts to cast their ballots. Cheers for first time voters. Grandchildren assisting their grandparents into and around the polling station. Mothers teaching their children the importance of voting by bringing them into the polling station. We even had a voter bring an acoustic guitar with him and enjoyed the sounds of him serenading us as he exited the building. First-time voters were definitely a highlight of the day. One of my favorite stories of a first-time voter, though, comes courtesy of another first-time poll worker—Maegan Whitehead, another Dallas attorney. Maegan served as a poll worker at Solar Preparatory School for Girls. Maegan recounted a story of their very last voter who came into the polling sta-
tion about 25 minutes before the polls closed. Though he had been eligible to vote in prior elections (he was 38 years old), he was a first-time voter. He did not have his identification with him, though. Undeterred, he physically ran home and back to the polling station, ID in hand, in time to cast his ballot with three minutes to spare. Maegan and her fellow poll workers gave him a standing ovation. I know I am biased, but I think lawyers are especially suited to be poll workers. As lawyers, we are professional communicators. We are trained to take confusing and sometimes scary issues and explain them to clients in understandable terms, conveying as much reassurance as the situation demands. Those skills came in very handy on Election Day. Many voters expressed some nervousness with the process, especially first-time voters. We were able to provide them guidance and help them get comfortable with the process. Other voters had questions about various forms they needed to fill out to remedy certain issues before we could issue them a ballot (e.g., updating an address, surrendering an absentee ballot). We were able to walk them through those forms step-by-step to ensure they were completed properly. In addition to feeling civically useful (especially during a pandemic), serving as a poll worker was incredibly rewarding. Reach out to your county elections officials to find out how you can serve. I highly recommend it. HN Terah Moxley is Partner at Estes Thorne & Carr. She is Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization and can be reached at tmoxley@ estesthornecarr.com.
DBA/DAYL Moms in Law Being a working mom can be challenging. Being a working lawyer mom can be a different ballgame with its own unique challenges. Moms in Law is a no pressure, no commitment, informal, fun, support group for lawyer moms. Email cpleatherberry@gmail.com to join the Moms in Law email listserv.
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June 2 0 2 1
D al l as Bar A ssoci ati on l Headnotes 17
KOONSFULLER NORTH TEXAS TEAM ROW 1: Heather King,* Rick Robertson,*
Ike Vanden Eykel,* Charla Bradshaw,* Liz Porter* ROW 2: Jessica Janicek,*
Brian Loughmiller,* Neda Garrett,* Julie Crawford* ROW 3: Deron Sugg, Sean Abeyta,*
Dana Manry,* Chris Meuse,* Fred Adams,* Sally Pretorius,* Rob McEwan* ROW 4: Jonathan Bailey,
James Logue, Courtney Walker, Richard Gray, Jessica Perroni, Tom Daley, Paul Leopold, Lauren Shaw
ROW 5: Kevin Segler,* Lauren Harris, Regan Donnenfield, Lindsey Vanden Eykel, Drew Williamson, Taylor Joeckel
As recognized among Tier 1 U.S. News – Best Lawyers® “Best Law Firms” in Dallas/Fort Worth for Family Law by U.S. News & World Report L.P.
FAMILY LAW IS NOT ONLY WHAT WE DO. IT’S ALL WE DO.
With more than thirty proven attorneys in four offices across North Texas, KoonsFuller is one of the largest family law firms in the Southwest offering a level of clout and range of resources unmatched by any other family law firm. Working together, as a fully integrated team, there is no case too large or complex for us to manage. To learn more about KoonsFuller, visit koonsfuller.com.
DALLAS** | 1717 McKinney Avenue, Suite 1500 | Dallas, Texas 75202 | 214.871.2727 DENTON | 320 West Eagle Drive, Suite 200 | Denton, Texas 76201 | 940.442.6677 PLANO | 5700 W. Plano Parkway, Suite 2200 | Plano, Texas 75093 | 972.769.2727 SOUTHLAKE | 550 Reserve Street, Suite 450 | Southlake, Texas 76092 | 817.481.2710 *Board certified in family law by the Texas Board of Legal Specialization. **Principal office.
KO O N S F U L L E R : D I V O R C E , C H I L D C U S T O D Y, P O S T- D I V O R C E M O D I F I C AT I O N S , C H I L D S U P P O R T, M A R I TA L P R O P E R T Y A G R E E M E N T S , E N F O R C E M E N T S , G R A N D P A R E N T ’ S R I G H T S , P A T E R N I T Y, C O L L A B O R A T I V E L A W , A N D A P P E A L S
18 H e a d n o t e s l D a l l a s B a r A s s o ciation
June 2021
2021 DBA 100 CLUB – GET ON THE LIST The Dallas Bar Association would like to recognize the following firms, government agencies, organizations/schools and corporate legal departments for their support of the DBA along with their commitment to the advancement of the legal profession and the betterment of the community. The DBA 100 Club is a distinguished membership recognition category that consists of Firms, Law Schools, Organizations, and Government agencies with two or more attorneys, as well as corporate legal departments that have 100% membership in the DBA. Recognition is given to the 2021 DBA 100 Club members in our June, July, and August Headnotes, and at our Annual Meeting. Not a DBA 100 Club member yet? This is the perfect time to encourage your newly hired attorneys to join the DBA and take advantage of our many member benefits—such as 350+ FREE CLE programs including 6 hours of online CLE access each year, networking opportunities, community projects and many other member benefits as well as the opportunity to qualify for the DBA 100 Club. Please note that the DBA 100 Club is open for renewal annually to every firm. We do not automatically renew a firm’s membership due to changes in firm rosters from year to year. How do you get on the list? To become a 2021 DBA 100 Club member, please submit your request via email and include a list of all lawyers in your Dallas office to Kim Watson, kwatson@dallasbar.org. We will verify the list with our member records and, if eligible, we will add your firm to the 2021 DBA 100 Club! If we receive your qualifying list by June 4, your firm will be included on the July and August DBA 100 Club recognition list in Headnotes.
Send in your list TODAY! DBA 100 Club Members as of May 13, 2021 Law Firms with 2 to 5 Attorneys Adair, Morris & Osborn, P.C. Adam L. Seidel, P.C. Albert & Stobaugh, PLLC Anderson & Riddle, LLP Arnold & Freeman Atwood Gameros LLP Blankenship, Wiland & O’Connor, P.C. Booth Albanesi Schroeder PLLC Bower PLLC Chris Lewis & Associates, P.C. Crain Brogdon Rogers, LLP Fisher & Welch, P.C. Fuller Mediations FurgesonMalouf Law PLLC Gauntt Koen Binney & Kidd, LLP Horton & Archibald, P.C. Hosch & Morris, PLLC Johnston Tobey Baruch, P.C. Kastl Law, P.C. Langley LLP Lawrence Law PLLC Marshall & Kellow, LLP Mincey-Carter, PC Murchison Law Firm Peeples & Kohler, P.C.
Prager & Miller, P.C. Quaid Farish, LLC RegitzMauck PLLC Russell & Wright, PLLC Sawicki Law Sheils Winnubst, PC Skierski Jain PLLC Smith, Stern & Friedman, P.C. Turton & Pinkerton, PLLC Voge Rohe PLLC Walker & Long Waranch & Nunn PLLC Woolley <> Wilson, LLP. Yarbrough & Elliott, P.C. Law Firms with 6 or More Attorneys Bradley Arant Boult Cummings, LLP Burford & Ryburn, L.L.P. Calabrese Budner LLP Canterbury, PC Cavazos Hendricks Poirot, P.C. Cobb Martinez Woodward PLLC Cooper & Scully, P.C. Cowles & Thompson, P.C. Cozen O’Connor DeHay & Elliston, L.L.P. Durham, Pittard & Spalding, LLP Estes Thorne & Carr PLLC Godwin Bowman PC
Guida, Slavich & Flores, P.C. Hall Render Killian Heath & Lyman Harper & Bates LLP JAMS Johnston Clem Gifford PLLC K&L Gates LLP Kilgore & Kilgore, PLLC KoonsFuller Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P. Parsons McEntire McCleary PLLC Passman & Jones, P.C. Payne Mitchell Ramsey Law Group L.L.P. Peckar & Abramson, P.C. Sargent Law, P.C. Shackelford, Bowen, McKinley & Norton, LLP Stacy Conder Allen LLP Staubus & Randall, L.L.P. Steed Dunnill Reynolds Bailey Stephenson LLP Tollefson Bradley Mitchell & Melendi, LLP Touchstone Bernays Winstead PC Zelle LLP
Corporate Legal Departments Arcosa, Inc. Borden Dairy Company Capital Senior Living, Inc. Compatriot Capitol Inc. Dunhill Partners, Inc. El Rancho Inc. Gaedeke Energy GFR Holdings, LP LALA U.S., Inc. North Texas Tollway Authority Rosewood Resources, Inc. Tenaska, Inc. The Rosewood Corporation Government Agencies, Organizations & Law Schools CitySquare LAW Dallas County Probate Courts Federal Reserve Bank of Dallas Mosaic Family Services Inc. UNT Dallas College of Law Special Recognition Students of the UNT Dallas College of Law
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June 2 0 2 1
Focus
D al l as Bar A ssoci ati on l Headnotes 19
Antitrust & Trade Regulation/Bankruptcy & Commercial Law
Avoiding Stay Violations in a Bankruptcy Case BY JASON ENRIGHT
When the specter of bankruptcy arises, if there is one thing most nonbankruptcy practitioners know, it is that they do not want to violate the automatic stay. This fear is well founded. In addition to actual damages, violations of the stay can result in a finding of contempt by the bankruptcy court and an award of sanctions if the violator had actual notice of the bankruptcy case and the stay. Let’s examine the scope of the stay and how to avoid becoming ensnared in a troublesome stay violation. Two very important things immediately happen when a bankruptcy case is filed. First, everything that the debtor owns, whether by legal or equitable title—including intangible property, such as causes of action—becomes property of the bankruptcy estate (subject to exemption from the estate by individual debtors under state or federal exemption laws). Second, the automatic stay arises under section 362 of the Bankruptcy Code. The automatic stay is a statutory injunction, which effectively stays all actions against the debtor and property of the estate. The purpose of the stay is to preserve the status quo in order to protect the debtor’s assets, provide temporary relief from creditors, and help further an equitable distribution among creditors by preventing a race to the courthouse to collect on unpaid debts. With the status quo preserved, the bankruptcy court and creditors have an opportunity to evaluate the debtor’s financial condition, and the court can adjudicate creditors’ claims in the case. The scope of the automatic stay is broad. Formal service of process is not required to effectuate the stay and no particular notice need be given to subject a party to the stay. Generally, the stay precludes any act to obtain possession of, or exercise control over, property of the estate, as well as any act to collect, assess, or recover any claim from the debtor that arose prior to the filing of the bankruptcy case. All proceedings that could have been commenced at the time of the filing are stayed, including arbitration, administrative, and judicial proceedings. The stay also prohibits the enforcement of pre-petition judgments and any act to create, perfect, or enforce a lien against property of the estate or prop-
erty of the debtor. The stay is sufficiently broad to cover a wide variety of routine and informal collection activities, including telephone calls, demand letters, and other forms of “dunning” the debtor. It even goes so far as to preclude offset of debts owing to the debtor with claims against the debtor. Section 362(b) contains 29 exceptions to the stay, which include the commencement of criminal actions, divorce actions, actions by a governmental unit to enforce police or regulatory powers, and actions involving setoff in connection with securities, commodities and forward contracts, among many other exceptions. Does the automatic stay extend to non-debtor parties, such as principals or guarantors of the debtor? Generally, no. In the Fifth Circuit, the stay may extend to non-debtors only under unusual circumstances, such as when the debtor and non-debtor have interests so intertwined that an action
against the non-debtor would essentially be an action against the debtor, or when an action against the nondebtor would detrimentally impact the debtor’s ability to reorganize. Ordinarily, a non-debtor must take affirmative steps to obtain stay protection, such as filing a motion to extend the stay, but such motions are not often granted. Even though the stay does not usually cover actions against non-debtors, counsel should still exercise caution against non-debtors. The Fifth Circuit has held that even attempting to exercise control over “arguable” property of the estate violates the stay. Thus, while taking action against a non-debtor, you may unwittingly be attempting to exercise control over property of the estate. For example, if you are suing a nondebtor for property fraudulently transferred by the debtor, even though you are not suing the debtor, if the property is subject to clawback, it is property of the estate. Also, in the Fifth Circuit,
alter ego claims are property of the estate—so an alter ego action against a non-debtor can violate the stay. And with insurance claims, suing a nondebtor when insurance proceeds are payable to the debtor (and are therefore property of the estate) can violate the stay. The key here is to make sure the property subject to the action is not property of the estate or even “arguable” property of the estate. So, after carefully reading through section 362, what should you do if there is any doubt the stay applies? Out of an abundance of caution, file a motion with the bankruptcy court to lift or modify the stay to take the desired action. If there is one thing to remember with respect to the automatic stay—it is always best to ask the court for permission rather than forgiveness. HN Jason Enright is an Associate at Winstead PC and can be reached at jenright@winstead.com.
AT THE HEART OF DALLAS
THE RIGHT MOVE Thomas Haskins Litigation Partner
Tommy Haskins knows quality when he sees it. “I came from a very large firm and was immediately impressed with the people at Barnes & Thornburg,” he says. “We have former U.S. attorneys and in-house counsel, and other outstanding lawyers, plus a talented and supportive back-office team. “We also represent some of the most sophisticated companies and individuals in the world, handling their most critical legal needs. Yes, our rates are competitive, but that doesn’t come at the expense of quality.” As for his transition to the firm, Tommy says the emphasis on lateral integration “is like nothing I’ve ever seen. I was given the resources needed to make personal connections in our offices across the country. Within a few months, I had established relationships with someone in every office, and years later I work on matters with those same individuals. “Here we truly think and act as one firm, all dedicated to the same goal: delivering the highest quality service to our clients. And our deep bench across the country provides incredible opportunities for me and my clients. “That’s been a huge ignitor for my practice and book of business,” Tommy says. He’s also been impressed with Barnes & Thornburg’s deep commitment to diversity, equity and inclusion. “Early on, one of our highly successful partners converted fulltime to developing and implementing market-leading DEI policy and programming. I think that puts us ahead of the pack and demonstrates a commitment beyond lip service. “Importantly, it’s not simply because our clients and communities demand it, but because it’s the right thing to do, which is why we have been committed to these efforts for years. I am very proud of that, and it solidifies why Barnes & Thornburg is the right firm — for me and my clients.”
NEED TO REFER A CASE? The DBA Lawyer Referral Service Can Help. Log on to www.dallasbar.org/ lawyerreferralservice or call (214) 220-7444.
Tommy Haskins is a proud partner in the Dallas office of Barnes & Thornburg, one of the largest law firms in the country, with more than 700 attorneys and other legal professionals serving clients worldwide.
See what sets us apart in Dallas at btlaw.com
20 H e a d n o t e s l D a l l a s B a r A s s o ciation
June 2021
29th Annual DBA Golf Tournament Though it was a rainy day, spirits were bright at the 2021 socially distanced DBA Golf Tournament, benefiting Access to Justice. Held at the new Texas Rangers Golf
Club, the tournament raised funds for the Entrepreneurs in Community Lawyering program, which provides resources and mentoring to new attorneys in the Dallas area
who serve clients of modest means. Congratulations to the Winstead PC team—the 2021 Law Firm Challenge winner! Thank you to everyone who sup-
ported and sponsored the tournament, and a big thank you to our Golf Committee and Co-Chairs Steven Aldous and Brad Monk. We appreciate you!
June 2 0 2 1
D al l as Bar A ssoci ati on l Headnotes 21
29th Annual DBA Golf Tournament
22 H e a d n o t e s l D a l l a s B a r A s s o ciation
June 2021
Foundation’s Virtual “Evening With” Fundraiser Surpasses Goal BY TALMAGE BOSTON
Among its many charitable endeavors, the Dallas Bar Foundation raises funds for the Sarah T. Hughes Scholarships, which are awarded annually to outstanding minority students at the three North Texas law schools. Prior to 2011, the Foundation raised scholarship funds entirely from Bar None performances, which have awarded almost $2.2 million in Hughes Scholarships since its inception in 1986. Entering 2011, Foundation leaders Rob Roby and Mark Shank knew that because of consistently rising law school tuition, in order to maintain the scholarship program, the Foundation would have to come up with a new source of revenue. They had an idea: host an annual fundraising dinner, and attract law firm, business, and law school tablebuying sponsors by building the evening around a nationally-renowned speaker. The title for the dinner would be “An Evening With …,” and they asked me to get the speakers, knowing that I had done it many times for the State Bar of
Texas. We started the series with David Brooks in 2011, and in the years following, the DBF has featured Doris Kearns Goodwin, Bill Bradley, Ken Burns, David McCullough, Bob Woodward, Jon Meacham, Ron Chernow, and Evan Thomas. And everything was in place to host historian Walter Isaacson in the fall of 2020 when the pandemic hit, requiring the cancellation of the dinner, and, thus, losing a critical source of revenue to fund the scholarships. With the uncertainty of COVID still in place entering 2021, the Foundation’s board had a decision to make: Should we schedule a live dinner in the fall, hoping we could fill the ballroom without creating a health risk? Or should we try a virtual fundraiser, knowing that without the food, beverage, and AV costs at the prior Evening With events, we might net
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as much profit as we had in prior years, though we expected the number of sponsors to decline because of the program’s being virtual instead of live. A key factor in the decision was whether Walter Isaacson would reduce his honorarium if the program was virtual. There we got lucky. Walter’s new book The Code Breaker was to come out March 9, 2021, and he said that if the Foundation purchased a large quantity of it upon its release, then he would waive the honorarium. He also said he would sign all the books we purchased, and we hoped having autographed books would help attract sponsors since The Code Breaker was expected to be a #1 bestseller like his prior books. Like magic, everything fell into place. Toyota Financial Services/Toyota Motor North America, Inc. and the ever-generous Leon Carter stepped up as $10,000 presenting sponsors. Dozens of Dallas law firms maintained their past commitments, and seemed not bothered by the shift from live to virtual. Elizabeth Philipp, the Foundation’s longtime Executive Director, did her usual great job of organizing every aspect of the event, and Walter Isaacson made a terrific presentation on April 28, which was viewed by
hundreds of lawyers. After covering our reduced costs, the net return to the Foundation from the Isaacson event was the highest in Evening With history. The Foundation has now presented 10 events in the series since 2011, and they have netted a total of $722,000, thereby ensuring the continuation of the Sarah T. Hughes Diversity Scholarships, while also increasing the number of Hughes Scholarships to now include students attending all three area law schools. U.S. District Judge Barbara M.G. Lynn and her husband Mike have been major supporters of the Evening With program since its inception. Here is Judge Lynn’s take on why she and Mike support the program every year: “The event is fabulous. The interviews are always insightful. The speakers are at the top of the literacy world, and the cause is mission critical. Mike and I have been thrilled to be part of it for so many years.” On behalf of the Foundation board, I want to say “Thank You” to all our 2021 Evening With sponsors. You have again provided the resources that allow the Sarah T. Hughes Scholarships to continue at SMU, UNT, and Texas A&M Law Schools, thereby enriching the Hughes Scholars’ lives and greatly enhancing our legal community. HN Talmage Boston is the 2021 Chair of the Dallas Bar Foundation’s Board of Trustees.
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The Dallas Bar Foundation thanks the following sponsors for their support of A Conversation with Walter Isaacson benefitting the Sarah T. Hughes Diversity Scholarships. Presenting Sponsors
WHAT IS THE DBA 100 CLUB? The DBA 100 Club is a special membership category that recognizes firms, agencies, law schools, and organizations that give 100% membership support to the DBA! WHAT IS THE COST TO JOIN THE DBA 100 CLUB? IT’S FREE! HOW DO YOU JOIN? Firms, government agencies, and law schools with two or more lawyers as well as corporate legal departments can qualify if all of their Dallas office attorneys are DBA members. To join the 2021 DBA 100 Club, please submit a list of all lawyers in your Dallas office to Kim Watson, kwatson@dallasbar.org. Once approved, we will add your organization to the 2021 DBA 100 Club member recognition list! WHAT ARE THE PERKS? Our 2021 DBA 100 Club members will be recognized in Headnotes, the 2022 DBA Pictorial Directory, and at our Annual Meeting.
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D al l as Bar A ssoci ati on l Headnotes 23
Antitrust & Trade Regulation/Bankruptcy & Commercial Law
The Intersection of Antitrust and the False Claims Act BY M. SEAN ROYALL AND RACHAEL A. REZABEK
In recent years, there have been several cases filed in federal courts where a plaintiff and purported “whistleblower” asserted that the federal government was overcharged for pharmaceutical purchases reimbursed through various government programs. While the claims arise under the False Claims Act, these cases are based on a variant of well-established antitrust theories, usually involving claims that branded pharmaceutical manufacturers took improper actions to delay market entry of generic drug products. One of the first such cases was brought in 2009 by generic manufacturer Amphastar Pharmaceuticals Inc. (Amphastar) against brand manufacturer Aventis Pharma S.A. (Aventis). Amphastar alleged that Aventis had committed fraud on the United States Patent and Trademark Office (PTO) in connection with the prosecution of its patent application for the anticoagulant medication enoxaparin. Amphastar further alleged that by committing such fraud, Aventis obtained an illegal monopoly over the drug and, thus, knowingly overcharged the United States for its branded enoxaparin purchases, which (but for the fraud) would have been substituted with cheaper generic drugs. This suit was never litigated on the merits. Instead, the district court dismissed the complaint for lack of subjectmatter jurisdiction based on the FCA’s “public disclosure bar,” which prohibits relators from bringing suits based on fraud that has already been disclosed publicly, including through judicial pro-
ceedings or news reports. The public-disclosure bar applied because the fraud had already been disclosed through prior patent litigation. Moreover, the plaintiff did not establish that the “original source” exception to the public-disclosure bar applied. In particular, Amphastar failed to show both (1) that it had direct, firsthand knowledge of the alleged fraud, and (2) that it obtained such knowledge before the evidence of the fraud was made public. The Ninth Circuit subsequently affirmed the dismissal. Two more recent FCA cases, each brought by former patent attorney Zachary Silbersher as the named plaintiff, are now pending on appeal before the Ninth Circuit. In one of these two cases, the plaintiff alleged that the defendant drug manufacturers, Valeant Pharmaceuticals Int’l, Inc., fraudulently obtained a follow-on patent that allowed them to maintain a monopoly on the sale of Apriso, an anti-inflammatory drug used to treat ulcers. The plaintiff contended that the defendants violated the FCA by certifying to the United States government that the prices the defendants were charging for Apriso were “fair and reasonable,” when allegedly the defendants were knowingly charging artificially high prices for the drug as a result of their alleged patent fraud. As in Amphastar, the district court in Valeant dismissed the complaint based on the public disclosure bar, concluding that the facts underlying the complaint’s allegations of fraud had all been previously disclosed in public proceedings before the Patent Trial and Appeal Board and by various news outlets years before plaintiff brought his complaint. Sepa-
rately, the district court raised serious concerns about the plaintiff’s role as a relator, citing the plaintiff’s involvement as an attorney in the underlying patent proceedings, which also raised ethical questions. Similarly, in the other of the two pending Ninth Circuit cases, the plaintiff alleged that the defendants fraudulently procured patents for their dementia products, which served to artificially inflate the prices charged for such products. In turn, the plaintiff alleged that this rendered false the defendants’ certifications to a government agency that such prices were “fair and reasonable.” The defendants moved to dismiss, arguing (among other things) that the publicdisclosure bar applied because the allegations in the complaint were obtained from patent prosecution files that were
public for years before the plaintiff filed his complaint. Admitting it was a “difficult” issue, the district court nevertheless rejected this argument on the basis that the patent prosecution files did not expressly fall into one of “public sources” recognized by the FCA. The district court subsequently granted the defendants’ motion to certify the order for an immediate appeal. While the outcome of these appeals remains to be seen, both cases raise interesting questions and could, depending on their resolution, influence the degree to which these types of case theories may be viable in the False Claims Act context. HN Sean Royall and Rachael Rezabek are Partners at Kirkland & Ellis. They can be reached at sean.royall@kirkland.com and rachael.rezabek@kirkland.com, respectively.
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24 H e a d n o t e s l D a l l a s B a r A s s o ciation
June 2021