Business Restructuring Review Vol. 21 No. 4 July–August 2022
In This Issue:
Lawyer Spotlight: Bruce Bennett
Bruce Bennett, a partner in the Los Angeles and New York offices, has been at the helm of many of the largest corporate reorganizations in the United States. He has acted as counsel for major creditors in the chapter 11 cases for iHeart Communications, Caesars Entertainment Operating Corp., Energy Future Holdings, and General Motors; and in out-of-court negotiations and in insolvency cases for instrumentalities of Puerto Rico. He was also co-lead counsel for the City of Detroit in its historic chapter 9 debt adjustment cases.
In 2021, Bruce was honored with the "Mega Company Turnaround/Transaction of the Year" award by the Turnaround Management Association. He was selected for his role as a principal member of the team of legal counsel and financial advisors who represented holders of approximately 40% of the equity interests of PG&E Corp., the owner of Pacific Gas and Electric Company ("PG&E") in connection with their chapter 11 reorganization cases. PG&E is the largest utility in California and one of the largest public utilities in the United States, and the bankruptcy cases were among the largest in U.S. history.
Bruce recently stepped down as Global Practice Leader of the Firm's Business Restructuring & Reorganization Practice, a role in which he had served since 2016, now held by Heather Lennox. He continues to advise clients as a partner in the practice.
U.S. Supreme Court Bankruptcy Roundup
The U.S. Supreme Court held unconstitutional certain aspects of a 2017 enactment that drastically increased the quarterly fees charged by the U.S. Trustee in large chapter 11 cases, but left open the question of the remedy, an issue it remanded to courts below in two separate cases. For the term beginning in October 2022, the Court agreed to review a decision to resolve a circuit split regarding whether a debt based on fraud committed by, or a false representation made by, the debtor's partner or agent is nondischargeable in the debtor's bankruptcy case. It also agreed to review a case addressing the doctrine of statutory mootness of an appeal of an unstayed order authorizing the sale of a lease in bankruptcy. It declined petitions to review rulings addressing the doctrine of equitable mootness and the standard for imposing contempt sanctions for repeated violations of bankruptcy court orders. [read more …]
Buyer's Bad Faith in Failing to Inform Court of Adverse Interest in Property Precludes Statutory Mootness of Bankruptcy Sale
In Archer-Daniels-Midland Co. v. Country Visions Cooperative, 29 F.4th 956 (7th Cir. 2022), the U.S. Court of Appeals for the Seventh Circuit affirmed lower court rulings denying the motion of a buyer of property from a chapter 11 estate to bar an entity holding a right of first refusal on the property from continuing state court litigation seeking to enforce its right. According to the Seventh Circuit, because the buyer had actual and constructive knowledge of a right of first refusal held by a party who had not received notice of the bankruptcy, yet never informed the bankruptcy court, the buyer had not acted in good faith and was not entitled to the protections of section 363(m). [read more …]
Liquidating Chapter 11 Debtor Excused from Providing WARN Act Notification of Employee Layoffs Due to Pandemic Natural Disaster
In In re Art Van Furniture, LLC, 638 B.R. 523 (Bankr. D. Del. 2022), the U.S. Bankruptcy Court for the District of Delaware ruled that, although a debtor-employer did not qualify as a liquidating fiduciary because it continued operating after the petition date, the debtor was excused from full compliance with the Worker Adjustment and Retraining Notification Act requirement to give employees 60 days' advance notice of layoffs due to the COVID-19 pandemic, which represented both an unforeseeable business circumstance and a natural disaster. [read more …]
Florida Bankruptcy Court: Chapter 11 Creditors' Committee Has No Unconditional Right to Intervene in Adversary Proceeding
In Dillworth v. Diaz (In re Bal Harbour Quarzo, LLC), 638 B.R. 660 (Bankr. S.D. Fla. 2022), the U.S. Bankruptcy Court for the Southern District of Florida rejected the approach followed by a majority of courts, ruling that a committee established under a chapter 11 liquidating trust did not have an unconditional right to intervene in an adversary proceeding commenced by the liquidating trustee to avoid fraudulent transfers. The court also denied the committee's request for permissive intervention, finding that its interests as well as the interests of the trust's beneficiaries were adequately represented by the trustee in the litigation. [read more …]
Another Circuit Rules that Taggart Standard for Contempt Applies Beyond Violations of Bankruptcy Discharge Injunction
In 2021, the U.S. Court of Appeals for the Second Circuit ruled in PHH Mortgage Corp. v. Sensenich (In re Gravel), 6 F.4th 503 (2d Cir. 2021), petition for cert. denied, No. 21-1322 (U.S. June 13, 2022), that the standard articulated by the U.S. Supreme Court in Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), for the imposition of contempt sanctions due to a violation of the bankruptcy discharge injunction in a chapter 7 case also applied to contempt sanctions imposed for repeated violations of bankruptcy court orders declaring a home mortgage current. In 2022, the Fourth Circuit expanded the reach of Taggart even further. In Beckhart v. Newrez LLC, 2022 WL 1122534 (4th Cir. Apr. 15, 2022), a three-judge panel of the Fourth Circuit ruled that "Taggart also applies when a court is considering whether to hold a creditor in civil contempt for violating a plan of reorganization of debts entered under Chapter 11." More broadly, the court wrote, "Nothing about the Supreme Court's analysis in Taggart suggests it is limited to violations of Chapter 7 discharge orders … or that the Court's decision turned on considerations unique to the Chapter 7 context." [read more …]
Judgment Claim and Lien Securing It Were Properly Subordinated Under Section 510(b) of the Bankruptcy Code
In Kurtin v. Ehrenberg (In re Elieff), 637 B.R. 612 (B.A.P. 9th Cir. 2022), a bankruptcy appellate panel for the Ninth Circuit affirmed a bankruptcy court order categorically subordinating secured judgment claims asserted against the debtor by an individual with whom the debtor co-owned certain investments. The panel agreed with the bankruptcy court that the claims, although transformed into a secured judgment, were for damages arising from the purchase or sale of the securities of the debtor or an affiliate and were therefore properly subordinated under section 510(b) of the Bankruptcy Code. The panel further held that the liens securing the claims should also have been subordinated under section 510(b). [read more …]
First Circuit Deepens Split on Waiver of Tribal Sovereign Immunity in Bankruptcy
In Coughlin v. Lac du Flambeau Band of Lake Superior Chippewa Indians (In re Coughlin), 33 F.4th 600 (1st Cir. 2022), a divided panel of the U.S. Court of Appeals for the First Circuit deepened a circuit split, ruling as a matter of first impression that section 106(a) of the Bankruptcy Code expressly provides for a waiver of tribal sovereign immunity in bankruptcy cases. The widening circuit split may be a compelling invitation to U.S. Supreme Court review. [read more …]
At the Berkshire Hathaway annual shareholders' meeting on April 30, 2022, Berkshire Vice Chairman Charlie Munger selected as his "Pick for 2022" The Caesars Palace Coup: How a Billionaire Brawl Over the Famous Casino Exposed the Power and Greed of Wall Street, by Sujeet Indap and Max Frumes (2021). The book chronicles what it describes as "the most brutal corporate restructuring in Wall Street history," the "bankruptcy brawl for the storied casino giant, Caesars Entertainment." The book summarizes how a team of Jones Day lawyers across many areas of practice—led by Business Restructuring & Reorganization partner Bruce Bennett (Los Angeles and New York)—achieved a historic victory for clients Oaktree Capital, Appaloosa Management, and other second-lien lenders, who saw their recoveries increase from less than 10 cents on the dollar to more than 66 cents on the dollar in "one of the great upset victories in the history of Wall Street." The increase in recovery for Jones Day's clients totaled more than $3 billion. Caesars Palace Coup describes in detail "the six-month sweep by the second-lien group who had, against all odds, prevailed on virtually every crucial issue in the case." Jones Day's team, legal strategies, and courtroom prowess in achieving that result feature prominently in the book.
The restructuring of Avianca, the Latin American airline, received the Restructuring Deal of the Year award from Latin Lawyer at its 2022 Deals of the Year ceremony. Avianca emerged from chapter 11 in December 2021 with a more efficient business model and eliminated debt worth more than US$1 billion. Avianca, founded in 1919, is the second-largest airline in Latin America and the largest in Colombia. It provides air travel and cargo services in Latin America and globally. A team of lawyers from Jones Day's Mexico City Office that included Arturo de la Parra (Financial Markets; Mexico City) and Mariana de Maria (Financial Markets; Mexico City) advised Avianca on Mexican law.
Roger Dobson (Sydney) and Katie Higgins (Sydney) were recognized in the practice areas Banking and Finance Law and Insolvency and Reorganization Law in the 2023 edition of The Best Lawyers in Australia.™ Roger was also recognized in the practice area Distressed Investing & Debt Trading Practice.
Heather Lennox (Cleveland and New York) and Corinne Ball (New York) were named "Leading Individuals" in the field of "Finance—Restructuring (including bankruptcy): corporate" in The Legal 500 United States 2022. Heather was also named a "Next Generation Partner" in the field "Finance: Restructuring (including bankruptcy): municipal."
Bruce Bennett (Los Angeles and New York) was named a "Hall of Fame" lawyer in the fields "Finance—Restructuring (including bankruptcy): corporate" and "Finance—Restructuring (including bankruptcy): municipal" in The Legal 500 United States 2022.
Dan T. Moss (Washington), Ben Larkin (London), and Barnaby C. Stueck (London) participated in the INSOL International June 2022 World Congress Meeting held in London June 26–28, 2022.
Ben Larkin (London) was recognized in the practice area Insolvency & Restructuring Law in the 2023 edition of The Best Lawyers in the United Kingdom.™
Corinne Ball (New York) was among the "Senior Statespeople" named in Chambers USA 2022 and Chambers Global 2022 in the field of Bankruptcy/Restructuring.
Bruce Bennett (Los Angeles and New York) was designated an "Eminent Practitioner" in the field of Bankruptcy/Restructuring in Chambers Global 2022.
Heather Lennox (Cleveland and New York), Bruce Bennett (Los Angeles and New York), Kevyn D. Orr (Washington), Gregory M. Gordon (Dallas), Paul M. Green (Houston), Carl E. Black (Cleveland), Daniel J. Merrett (Atlanta), Robert W. Hamilton (Columbus), Corinne Ball (New York), Thomas M. Wearsch (Cleveland), James O. Johnston (Los Angeles), Brad B. Erens (Chicago), Jeffrey B. Ellman (Atlanta), Dan T. Moss (Washington), and Charles M. Oellermann (Columbus) were recognized in the area of Bankruptcy/Restructuring in Chambers USA 2022.
An article written by Corinne Ball (New York) titled "Seventh Circuit Permits Prior Interest Holder To Challenge 'Free and Clear' Sale After the Fact" was published in the April 27, 2022, edition of the New York Law Journal.
An article written by Chares M. Oellermann (Columbus) and Mark G. Douglas (New York) titled "A Look at Finality in Substantially Consummated Ch. 11 Plans" was published in the June 14, 2022, issue of Law360.
An article written by Corinne Ball (New York), Brett P. Barragate (New York), I. Lewis H. Grimm (London), Heather Lennox (New York and Cleveland), Dan T. Moss (Washington), and Kevyn D. Orr (Washington) titled "Recent Trends in Corporate Debt and Reorganizations: Laying The Groundwork for Future Large Chapter 11 Cases or Just More Runway?" was published in Vol. 35, No. 2 of the AIRA Journal (June 2022).
An article written by Corinne Ball (New York) titled "Third Circuit Confirms that Bankruptcy Code Governs Retention of Debtor's Counsel and Recognizes that Bankruptcy Court Has Considerable Discretion" was published in the June 22, 2022, edition of the New York Law Journal.
An article written by Oliver S. Zeltner (Cleveland) and Mark G. Douglas (New York) titled "Fifth Circuit Weighs in on Bankruptcy Asset Sales Free and Clear of Leasehold Interests" was published on May 3, 2022, in Lexis Practical Guidance.
An article written by Corinne Ball (New York), Dan T. Moss (Washington), Michael C. Schneidereit (New York), Isel M. Perez (Miami), and Mark G. Douglas (New York) titled "Florida District Court: Foreign Debtor Need Not Have U.S. Residence, Assets or Place of Business to Be Eligible for Chapter 15 Recognition" was published on May 3, 2022, in Lexis Practical Guidance.
An article written by Daniel J. Merrett (Atlanta) and Mark G. Douglas (New York) titled "Delaware Bankruptcy Court Rejects Use of Tax Code Look-Back Period in Avoidance Action" was published on May 3, 2022, in Lexis Practical Guidance.
An article written by Paul M. Green (Houston) and Mark G. Douglas (New York) titled "Fifth Circuit Rules that Chapter 11 Debtors May Reject Filed-Rate Contracts Without FERC Permission" was published on May 3, 2022, in Lexis Practical Guidance.
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