Contributed by Debra A. Dandeneau.
As we close out the week, we have our final summary of everything you need to know from the last two months. Enjoy the weekend and keep preparing for back to school bankruptcy!
Breathing New Relevance Into the Trust Indenture Act
We have witnessed a spate of lawsuits recently in which bondholders have attempted to derail out-of-court restructuring efforts using the Trust Indenture Act. Jessica Liou described one such notable decision in What Marblegate Can Teach Us About the Protections Available to Minority Noteholders in an Out-of-Court Restructuring. In Marblegate Asset Management, LLC v.. Education Management Corp., interpreted section 316(b) of the Trust Indenture Act, which prohibits the right of a bondholder to receive or sue for timely payment of principal or interest on its claim from being impaired without its consent. Jessica discussed the different meanings ascribed to section 316(b) and analyzed the SDNY’s broad reading of the section, essentially protecting against any actions that provide a lesser than originally bargained for under an indenture outside of bankruptcy. Keep an eye out for a future blog entry on yesterday’s decision by District Judge Scheindlin in BOKF, N.A. v. Caesars Entertainment Corporation, in which Judge Scheindlin denied the plaintiffs’ motion for summary judgment on their section 316(b) claims, but rejected many of the defenses raised by Caesars.”
When Has Publication Notice Generated This Much Paper?
The series of decisions in the New Century case have been interesting for their focus on the quality of publication notice, particularly as it pertains to potentially unknown consumer creditors. Debora Hoehne addressed the latest twist in the case in Known or Unknown? Third Circuit Questions Standing in New Century Appeal. In short, the Third Circuit punted on the issue of sufficiency of publication notice for unknown creditors. Because the district court had concluded that the publication notice was insufficient to afford due process to unknown creditors, the district court had not addressed whether the consumers in New Century were known or unknown creditors. Accordingly, the Third Circuit ruled, until and unless the district court considered that issue, any determination regarding the sufficiency of the publication notice would constitute an advisory opinion. The court kicked the case back down to the district court, where it awaits further decision (and more commentary from the Weil Bankruptcy Blog).
Chesapeake’s Decision on Make-Whole Damages Offers Lessons on Litigation-Based Financing
Brian Wells has been following the continuing saga of the consequences of Chesapeake Energy’s unfortunate decision to call an early redemption of certain notes. In his latest entry, Chesapeake Remand Decision Sets Damages at Make-Whole Price and Offers Food for Thought on Bankruptcy Litigation Strategy, Brian discussed the SDNY’s rejection of Chesapeake’s argument that it should only pay “restitution” damages (the present value of payments the noteholders would have received if the notes had not been redeemed), and not a make-whole (worth an additional $280 million), to noteholders. Chesapeake argued that such approach was equitable because Chesapeake had relied upon the district court’s judgment (later overturned on appeal) that Chesapeake was not required to pay the make-whole upon early redemption of the notes. In determining the damages, though, the district court followed the express language of the indenture and required Chesapeake to pay the entire make-whole. In addressing the decision, Brian noted how the ongoing litigation drove trading on the notes and compared those activities to the more complicated analyses that factor into trading on notes in a bankruptcy case.
Single Transaction Sets the Standard for Ordinary Course in the Tenth Circuit
Debra McElligott discussed the Tenth Circuit’s interpretation of what constitutes “ordinary course of business” for a preference defense in “Ordinary” Doesn’t Always Mean “Often”: Tenth Circuit Holds That First-Time Transaction Can Qualify for the Ordinary Course of Business Exception Under Section 547. Section 547(c)(2) allows a preference defendant to protect a transfer “(A) made in the ordinary course of business affairs of the debtor and the transferee; or (B) made according to ordinary business terms.” In interpreting subsection (A), the Tenth Circuit considered whether the language required that the ordinary course of transactions between the parties be established (which would require more than one transaction), or whether it was sufficient for the defendant to establish that the payment was in the ordinary course of each party’s business affairs. The Tenth Circuit adopted the latter approach and found that when the debtor made the payment two days before its due date and without any collection action by the preference defendant, the debtor’s payment fell within the “ordinary course” defense of section 547(c)(2)(A).
The Importance of Keeping Pace with PACER
Every now and then, we see a decision that reminds us of the importance of actively monitoring a case instead of sitting back and hoping that you will be served properly. Charlie Chen reported on such a case in Back to School Basics: Attorneys Should Confirm Their Address Information Is Correct and Monitor Their Case Docket. The decision at issue, In re Lezell, reads like a Series of Unfortunate Events (Lawyer’s Edition). Two months too late, the lawyer for the petitioning creditors in an unsuccessful involuntary filing sought to revisit court orders awarding attorneys’ fees to the debtors. His argument was that he had not received proper notice because he had not received e-mail notification of the orders. The court, however, found that the attorney had not actually registered for electronic filing and, therefore, could not complain of non-receipt. Moreover, the court found that the lawyer had insufficient grounds to rebut the certificate of service stating that a physical copy of the orders had been mailed to him, finding that the lawyer’s knowledge that his address was sometimes confused with another address imposed an obligation on the lawyer to monitor the docket by way of his PACER account.