| February 2006 issue: Washington Hot News Bankruptcy Pension Surcharge Goes to President and Filing Fees to Increase (February 6) Last Wednesday, the House of Representatives passed S.1932, the Deficit Reduction Act of 2005; which includes the bankruptcy pension surcharge imposing a $1250 employer-paid plan termination premium, assessed per plan participant for three consecutive years for companies that terminate their pension plans. The premium provision will sunset after five years. Your Name Here! The Bankruptcy Section Newsletter Committee is looking for volunteers to write a Case Analysis for an upcoming addition. The Case Analysis is typically based on Court of Appeals or Supreme Court decisions, although you can use your discretion to discuss relevant BAP, District Court and Bankruptcy Court decisions -- especially those interpreting BAPCPA's amendments to the Code. If you are interested or would like to learn more, please send an email to the Managing Editor. You can view the archive here. Your subscription You have been subscribed to this list as part of your membership in the Bankruptcy Section of the Commercial Law League of America. CLLA 70 East Lake Street, Suite 630 Phone: 312-781-2000 Newsletter design by: |
Sua SponteCathy Pike, Chair Jump In and Swim—Don't Worry, You Won't Drown! The Executive Council of the Bankruptcy Section has vacancies which need to be filled by energetic, dependable and intelligent members such as you. The vacancies are for three-year terms. There are many people in our pool of members who could add insight, fresh ideas and wisdom to the Council. Case AnalysisKaren J. Porter Summary: In, In re Refco Inc., 2005 WL 3693339, 336 B.R. 187 (Bankr. S.D.N.Y. 2006), the Bankruptcy Court clarifies the Creditors' Committee obligation under section 1103(b)(3) of the BAPCPA to provide "information" to creditors that are not members of the Committee. The motion was presented before the Committee was involved in an actual controversy with a creditor over its dissemination of information about the Refco cases. The court entered an order which established a protocol for the Committee to fulfill its duty under section 1103(b). Case Law UpdatePaula Lucas Failure to show adequate exigent circumstances results in dismissal. Debtor submitted certification failing to certify exigent circumstances (11 U.S.C. § 109 (h)(3)(i)) which would merit the statutory waiver of the prebankruptcy briefing requirement. DePaul Symposium SponsorshipErica Henry We are proud to acknowledge that a number of our members have volunteered to sponsor the 4th Annual DePaul Symposium. The event, cosponsored by DePaul University Law School and the CLLA, takes place on Thursday, April 27, the day before CLLA's Chicago Meeting officially begins. This year's Symposium explores the issues of deepening insolvency and ethics challenges raised by the new bankruptcy law, as well as a look at the first six months of BAPCPA. Call for NominationsErica Henry The Bankruptcy Section Nominating Committee will meet in April 2005 to select a slate of candidates for the July election. Candidates must be willing to commit themselves to a three-year term of active involvement in Council and Section Affairs and be able to attend four Council meetings.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Sua SponteJump In and Swim—Don't Worry, You Won't Drown! The Executive Council of the Bankruptcy Section has vacancies which need to be filled by energetic, dependable and intelligent members such as you. The vacancies are for three-year terms. There are many people in our pool of members who could add insight, fresh ideas and wisdom to the Council. Not only does one benefit from knowing that he or she has provided input into the direction the Bankruptcy Section takes, becoming involved opens doors to new friendships and business opportunities. The Nominating Committee consists of: Alan Nahmias, Chair; Rick Johanson; Wanda Borges; Dan Goldberg; and Jeffrey Schatzman. The deadline for submitting nominations to the Nominating Committee is March 15, 2006. Go ahead, take the plunge! You'll be glad you did. The Midwestern Region meeting of the CLLA goes into full swing beginning with the Annual DePaul Symposium at 11:00 a.m. on Thursday, April 27, 2006. See the January edition of the Bankruptcy Section Newsletter for more details on the excellent program which will be offered. The following day, the Bankruptcy Section is sponsoring excellent outstanding programs. The first program, co-sponsored with the Creditors' Rights Section, is entitled "A Lesson on the ABCs (Assignments for the Benefit of Creditors): A Discussion on How They Work and Why They Are a Better Alternative to Chapter 11." This program will focus on assignments for the benefit of creditors and other out-of-court insolvency proceedings, which are gaining popularity throughout the country. Many states, including California and Florida, have state laws governing assignments for the benefit of creditors. Illinois is presently considering legislation concerning these procedural vehicles which enable creditors to gain control of a debtor's assets without the need for bankruptcy court intervention. Francis X. Buckley, Jr. of Thompson Coburn LLP, St. Louis, Missouri, will serve as moderator of this program. Our outstanding speakers are William A. Brandt, President and CEO, Development Specialists Incorporated, Chicago, Illinois; James A. Chatz, Arnstein & Lehr, LLP, Chicago, Illinois; Randal D. Crocker, Esq., von Briesen & Roper, SC, Milwaukee, Wisconsin; Illinois State Rep. Louis I. Lang; and Lawrence Schantz, Esq., Adorno & Yoss, PA, Coral Gables, Florida. This two and one-half hour program begins at 9:00 a.m., and should not be missed! Later that day, the second program, which also features a distinguished panel, will be held from 3:00 - 4:30 p.m. It is entitled "Seeking Emergency Relief from the Bankruptcy Court: When is Your Problem Considered an Emergency?" This presentation will cover the substantive and procedural bases for seeking emergency relief from the bankruptcy courts, including first day motions, relief from the automatic stay, dispositions of property, and injunctive relief. The program is geared to practitioners of every level of expertise who are continually confronted with problems which their clients perceive as a crisis, and which demand immediate relief. The knowledge gained from this program will assist practitioners in analyzing situations and issues to determine the best method of obtaining relief from the bankruptcy courts. Judge Judith Fitzgerald, United States Bankruptcy Judge for the Western District of Pennsylvania, will serve as moderator. Our speakers are Judge John H. Squires, United States Bankruptcy Judge for the Northern District of Illinois, Brian S. Behar, Behar, Gutt and Glazer, P.S., Aventura, Florida; and Mark A. McDermott, Skadden, Arps, Slate, Meagher & Florn LLP, Chicago, Illinois. Don't miss this opportunity to gain valuable insight into how to put out fires without going up in flames. Mark your calendars now to take advantage of the many opportunities which will be offered at the Midwestern Region meeting. See you in Chicago! Cathy S. Pike Case AnalysisSummary: In, In re Refco Inc., 2005 WL 3693339, 336 B.R. 187 (Bankr. S.D.N.Y. 2006), the Bankruptcy Court clarifies the Creditors' Committee obligation under section 1103(b)(3) of the BAPCPA to provide "information" to creditors that are not members of the Committee. The motion was presented before the Committee was involved in an actual controversy with a creditor over its dissemination of information about the Refco cases. The court entered an order which established a protocol for the Committee to fulfill its duty under section 1103(b). Factual Background: On October 17, 2005, the day that the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") became effective, Refco, Inc., Refco Capital Management, Inc. and 22 related entities filed chapter 11 cases in the Southern District of New York. The Refco cases were filed shortly after the companies' CEO became embroiled in a criminal investigation and its largest unregulated subsidiary imposed a moratorium on customer withdrawals. Under the management of a newly appointed CEO, Refco immediately attempted to satisfy regulators, prevent the further erosion of its asset value, and to handle the demands of customers requesting the return of money and securities. Refco began making preparations to quickly sell its largest asset, which was its regulated futures business. Refco also intended to sell other significant assets, as soon as possible. The Committee was appointed on October 28, 2005. The Committee worked closely with the Debtor on the sale of the Refco's assets. Refco's regulated future's business was successfully sold. The Committee exchanged confidential information with Refco and its advisors regarding the assets it was selling and the strategies for evaluating the competing bids. The Committee also acquired information about the claims of Refco's customers to money and Under this backdrop, the mandate imposed upon the Committee by section 1102(b)(3)(A) of the BAPCPA proved problematic. Section 1102(b)(3) provides: "A committee appointed under subsection (a) shall—(A)provide access to information for creditors who—(i) hold claims of the kind represented by that committee; and (ii) are not appointed to the committee. The Committee was legitimately concerned that the "premature, unguarded or selective disclosure of information" that it obtained in performing its tasks could jeopardize the Committee results, violate the securities laws or violate a court order. Id. at *2. Therefore, three days after it was appointed, the Committee asked the court for a protocol to govern its compliance with section 1102(b)(3)(A) of the new bankruptcy law. Discussion: The court's first inclination was to deny the Committee's motion due to the lack of a case or controversy. The court noted that section 1102(b)(3) provides for a review process and there did not appear to be an adverse consequence if the Committee initially failed to comply with a request for information. "Until a creditor contended that the Committee was being too stingy with information, the Committee could be left to make reasonable efforts to provide access to relevant information consistent with its resources and any conflicting duties." Id. at *1. However, the court determined that the Refco cases were large and rapidly moving. Information provided by the Committee could become stale during litigation over the Committee's disclosure duties. In addition, unsecured creditors were pressing the Committee for information in an environment where there was no statutory authority or case law to provide the Committee with guidance. The court noted that the legislative history of section 1102(b)(3)(A) was ambiguous and not particularly helpful. The legislative history did not provide the court with guidance "regarding the type of information to which access must be given [or] the manner in which it should be communicated." Id. at fn1. There was not much case law or commentary concerning the creditors' committee information providing role. Therefore, the court turned to the long standing duties placed upon bankruptcy trustees and debtors in possession as codified in sections 704(7), 1106(a)(1) and 1107(a) of the Code. The court also noted that section 339(1) of the Bankruptcy Act of 1898 required that a creditors' committee report to creditors from time to time. The court relied most heavily upon section 704(7) and the duty of bankruptcy trustees to provide information to parties in interest. The court found that there were few differences between section 704((7) which requires a trustee to provide information and the new section 1102(b)(3), except that section 1102(b)(3) requires that the committee volunteer information rather than wait to respond to specific requests. In each section the court has a role in resolving any disputes over the information provided. A trustee's duty is limited to providing information concerning the estate and its administration. The trustee's duty to provide information is not unlimited. The trustee can obtain a protective order against disclosure of information that would result in a waiver of the attorney-client privilege or information that is confidential or proprietary. The court concluded that the protections afforded trustee's would appear to apply equally to a creditors' committee under section 1102(b)(3). "[A] committee should not have to forward all of the raw data that it receives and considers as if it were a virtual information bank for its constituents." Id. at *5. The court recognized that a creditors' committee plays a vital role in the bankruptcy process. "[I]n performing its oversight and negotiation functions, a committee acts as the voice for all of the unsecured creditors many of whom lack the resources to speak for themselves and all of whom benefit from the committee's representative role. "Id. at *6. However, the court also considered the reality that the creditors' committee in the performance of its duties may receive commercially sensitive, proprietary, or other non-public information about the debtor and/or its financial affairs. In addition, when a debtor, such as in the Refco cases, has public stock or debt, the securities laws may place restrictions on debtors disclosing material non-public information to committee members without a binding confidentiality agreement. The court was compelled to recognize the inherent danger posed by unfettered disclosure under section 1102(b)(3). "The selective possession of material information can equate to very large swings in value and, therefore, creditors may seek such information not for legitimate purposes related to their position in the case but, rather, to obtain an unfair trading edge." Id. at *7. The court found that permitting the Committee to establish a protocol before disputes arose was an acceptable mechanism to achieve a balance between the policy of open inspection established by the Code and protecting access to sensitive non-public information. Under the terms of the order, the Committee would not be required, without further order of court to disclose information "(a) that could reasonably be determined to be confidential and non-public or proprietary, (b) the disclosure of which could reasonably be determined to result in a general waiver of the attorney-client or other applicable privilege, or (c) whose disclosure could reasonably be determined to violate an agreement, order or law, including applicable securities laws. Because many, if not all, of the adverse consequences of releasing certain information discussed above may be acceptably reduced or eliminated by the requesting party's agreement to be bound by confidentiality and/or trading constraints, however, the order further provides that the Committee shall take into account the requesting party's willingness to agree to such constraints when the Committee determines whether to release otherwise protected information." Id. at *8. The order entered by the court puts in place a comprehensive protocol which addressed many issues such as (1) the Web site to be established and maintained by the Committee; (2) monthly Committee written reports; (3) responding to creditors questions and (4) releasing the confidential information of third parties. Comment: Before the effective date of the new bankruptcy law there were concerns that disclosures required by section 1102(b)(3) would have a chilling effect on the filing of larger chapter 11 cases. The swift approach used by the creditors committee in the Refco cases enabled the committee to eliminate uncertainty about its obligations under section 1102(b)(3) and prevent expensive litigation over its disclosure of information. The Refco case illustrates that the bankruptcy courts can be responsive to a party's legitimate request to clarify the application of the new law to insure that the administration of an estate can proceed efficiently. Karen J. Porter Case Law UpdateFailure to show adequate exigent circumstances results in dismissal. Debtor submitted certification failing to certify exigent circumstances (11 U.S.C. § 109 (h)(3)(i)) which would merit the statutory waiver of the prebankruptcy briefing requirement. Failure of the debtor to demonstrate required exigent circumstances properly resulted in ineligibility to be a debtor, case dismissal affirmed. Dixon v. LaBarge (In re. Dixon), 2006 Bankr. LEXIS 196 (8th Cir. B.A.P. Feb. 17, 2006). Failure to make proper proof of claim argument waives right to appeal. Creditor having purchased debt, submitted claim in debtor's bankruptcy proceeding. Debtor objected, stating that the amounts claimed by creditor differed from the amounts they had recorded. Creditor failed to offer proof of amount it had paid for the claims. The court sustained debtor's objections. On appeal, debtor stipulated to the amounts and proofs of claim, failed to direct arguments to creditor motion to amend and conceded resolution of other objections. The court, finding no exceptional circumstances available to allow for consideration of waived arguments, reversed; creditor's claims were allowed. Burnett v. Resurgent Capital Services 2006 U.S. App. LEXIS 671 (9th Cir. Jan. 12, 2006) Creditor fails to call into question the correctness of lower court rationale. The district court's reimposition of automatic stay of proceeding was found to be proper where creditor failed to argue the impropriety of the court's decision to reimpose the stay based upon what it estimated to be a change in the underlying circumstances, without formal remand to the bankruptcy court. Miles v. Beneficial Massachusetts, Inc. In pari delicto bars trustee's RICO claims. The court dismissed plaintiff trustee's complaint alleging the defrauding of corporate investors by corporate officials. The court found the state of Georgia had no provisions for claims of aiding and abetting and thus breaching fiduciary duties. Additionally because the doctrine of pari delicto bars RICO claims, dismissal was affirmed. Official Committee of Unsecured Creditors of PSA, Inc. v. Edwards, 2006 U.S. App. LEXIS 2227 (11th Cir. Jan. 30, 2006). Patent infringement claim reversed. Plaintiff creditor alleged patent infringement by debtor. Court reversed dismissal of plaintiff claims finding the alleged acts to have occurred following defendant's discharge in bankruptcy. Hazelquist v. Guchi Moochie Tackle Co., 2006 U.S. App. LEXIS 3101 (U.S. App. Feb. 9, 2006). Preferential payments affirmed with modification. Court determined that preference payments to specific supplier/creditors failed to meet the standards required under the business defense. Creditor claims were modified and advance defense applied. G.H. Leidenheimer Baking Co., Ltd. v. Sharp 2006 U.S. App. LEXIS 2826 (5th Cir. Feb. 7, 2006). "There is no right to redundant relief." Creditor attempted to purchase debtor's insurance rights from Chapter 7 estate. Court refused to authorize the sale finding no appellate standing to challenge the court order this despite the fact that a prior court had in fact granted the creditor relief from stay and assigned the insurance rights to them. In re Shkolnikov 2006 Bankr. LEXIS 113 (1st Cir. BAP Feb. 6, 2006). A land sale installment contract is an executory contract. The court denied motion to compel a bankruptcy debtor to make land installment contract payments finding that to assume or reject the contract within a specified time period is improper. The court likened the land installment contract to an "executory contract" within the meaning of 11 U.S.C. § 365 as the seller is obligated to deliver title once all payments are made, thus payment is material obligation. O'Brien v. Ravenswood Apartments, Ltd. (In re Ravenswood Apartments, Ltd.), 2006 Bankr. LEXIS 195 (6th Cir. B.A.P. Feb. 17, 2006). Trustee has absolute discretion to disburse trust funds. State law requires that the underlying trust agreement define the duties of a trustee. Title to the trust funds passes to the beneficiary as per the terms of the trust with the trustee having complete discretion to disperse trust funds. U.S. Bank v. United Airlines (7th Cir. Feb. 13, 2006). Paula Lucas Washington Hot NewsBankruptcy Pension Surcharge Goes to President and Filing Fees to Increase (February 6) Last Wednesday, the House of Representatives passed S.1932 , the Deficit Reduction Act of 2005; which includes the bankruptcy pension surcharge imposing a $1250 employer-paid plan termination premium, assessed per plan participant for three consecutive years for companies that terminate their pension plans. The premium provision will sunset after five years. The Statement of Managers accompanying the conference report also directs the GAO study the effect of the surcharge on plan sponsors and members. The report is due back to Congress in 2007. The measure also increases bankruptcy filing fees, effective two months of enactment. Chapter 7 fees would be increased to $245, and chapter 13 fees would be increased to $235. AFL-CIO Supports Bankruptcy Trust "Opt-Out" Provision (February 6) The AFL-CIO has indicated support for a position advanced by several trustees of asbestos bankruptcy trust funds that S. 852 , the bill which creates a $140 billion national trust fund to compensate workers exposed to asbestos, should include an "opt-out" provision for the private trusts. AFL-CIO President John Sweeney stated in his February 2nd letter to the US Senate that the proposed national trust fund would immediately cut off all current legal avenues for asbestos victims, including those who have filed no-fault claims under private, court-approved trusts. "[T]he bill also provides for immediate shutdown of the so-called ‘524(g)' bankruptcy trusts established by companies like Halliburton and Johns Manville to pay asbestos claims--trusts that are currently providing compensation to tens of thousands of asbestos victims per year, using funds specifically set aside in bankruptcy proceedings expressly for the purpose of paying asbestos claims." "At a minimum, the bill should permit the asbestos bankruptcy trusts to remain in place to pay all impaired claimants who qualify under those trusts, until the national trust fund is fully operational," the letter said. Debate in the Senate on a motion to proceed to the consideration of the bill is expected to begin today, and Senators are scheduled to spend most of this week working on the bill. House Commerce Committee to Markup DATA (February 9) The House Commerce Committee Chairman announced that the Committee is expected to markup the "Data Accountability and Trust Act (DATA)" (H.R. 4127) during the week of Feb. 13th. The bill would require companies to notify consumers of data security breaches that pose a "significant risk" of harm to consumers. Two key sticking points have been the issue of state enforcement and Committee Democrats and Republicans working to resolve their differences over the bill. FCC Supports New Law to Bar "Pretexting" (February 15) On February 1, Federal Communications Commission Chairman Kevin Martin testified to the House Committee on Energy and Commerce that the FCC supports new legislation to criminalize the sale of phone records obtained through fraud without consumer consent or permission - a practice known as "pretexting." The hearing, "Phone Records for Sale: Why Aren't Phone Records Safe From Pretexting?" was held the day after two bills aimed at criminalizing pretexting were introduced in the House. Similar legislation already has been introduced in the Senate. Minnesota Bill to Tighten Consumer Protections (February 15) Minnesota Attorney General Mike Hatch has announced a package of new legislative measures intended to strengthen consumer privacy protection, including a bill that amends the state's consumer data breach notification law (the Security Breach Disclosure Act Amendment of 2006) to drop the exemption from state notice requirements for certain financial and health entities covered by federal laws. The consumer privacy legislation package will be introduced in the first few days when the state legislature reconvenes in March. Gov. Tim Pawlenty (R) June 2, 2005, signed the private sector breach notification bill (H.F. 2121) into law. The law exempted financial institutions covered by the Gramm-Leach-Bliley Act from the requirement to notify consumers of certain data security breaches. It also exempted health care entities covered by the Health Insurance Portability and Accountability Act from the breach notification requirements. According to a release from the AG's office, the federal breach disclosure guidelines implementing the GLB Act "do not adequately help consumers when their personal financial information is breached," and HIPAA has no notification requirements. Under the proposed amendment, businesses would also have to provide more detailed information about specific breaches and inform consumers of was to monitor or remedy the effects of a breach. The proposed amendment broadens the definition of "personal information" - the breach of which would trigger notification requirements - to include account passwords, biometric data and encrypted information, if it is accompanied by the encryption key. The "Consumer Privacy Protection Package" also includes bills designed to protect against the sale of telephone and cell phone records, increase limitations on use of Social Security numbers, allow credit report freezes, and increase data security during the destruction of documents and electronic files containing personal information. House Commerce Committee Not Ready to Markup DATA (February 15) The House Energy and Commerce Committee was expected to markup the "Data Accountability and Trust Act (DATA)" (H.R. 4127) this week, but an email notice from the House Commerce Committee counsel indicated that the legislation is not yet ready. "Until we're ready, we're not going to schedule a markup," the Committee spokesman said. The concerning issue dividing Democrats and Republicans has been determining the "notification trigger," as the bill currently requires companies to notify consumers of data security breaches posing a "significant risk" of harm to consumers. DePaul Symposium SponsorshipWe are proud to acknowledge that a number of our members have volunteered to sponsor the 4th Annual DePaul Symposium. The event, cosponsored by DePaul University College of Law and the CLLA, takes place on Thursday, April 27, the day before CLLA's Chicago Meeting officially begins. This year's Symposium explores the issues of deepening insolvency and ethics challenges raised by the new bankruptcy law, as well as a look at the first six months of BAPCPA. Panel 1 Speakers:
Luncheon:* Panel 2 Speakers:
Panel 3 Speakers:
Of course, The DePaul Symposium would not be possible without our generous member sponsors, who have together agreed to donate over $5,000 so far. Sponsors CLLA Patron Fund Luncheon Sponsor: Development Specialists, Inc. Behar, Gutt & Glazer, PA Cooper, White & Cooper, LLP Financial Services Network Lexis Nexis Nancy B. Rapoport Pelino & Lentz, PC Plotkin, Rapoport & Nahmias Shaw Gussis Fishman Glantz Wolfson & Towbin LLC Stahl, Cowen & Crowley, LLC The Symposium will be an excellent opportunity to earn CLE credits, while listening to and learning from some of the leading national and local experts. The symposium will be held at the Westin Michigan Avenue Hotel, 909 North Michigan Avenue, Chicago, Illinois. And at a mere $75, lunch included, it is a MUST! Click here to register now. Erica Henry Nominating Committee to Select Council CandidatesThe Bankruptcy Section Nominating Committee will meet in April 2005 to select a slate of candidates for the July election. Candidates must be willing to commit themselves to a three-year term of active involvement in Council and Section Affairs and be able to attend four Council meetings. Section members interested in being considered for an Executive Council position should immediately submit a letter stating their interest and indicating their qualifications. All letters or emails must be received by March 15, 2006. Alan I. Nahmias Erica Henry |