Monthly Archives: August 2012

SDNY Bankruptcy Court Rules That Borders Gift Card Holders Are Not “Known Creditors” Entitled To Actual Notice Of A Bankruptcy Bar Date

Judge Martin Glenn of the Bankruptcy Court for the Southern District of New York recently ruled that Borders gift card holders did not qualify as “known creditors.” The Court concluded that the gift card holders were entitled only to publication notice rather than actual notice of the bar date for filing bankruptcy claims in Borders’ chapter 11 case. Because potential gift card claims often constitute a significant portion of the unsecured claims in retail bankruptcy cases, the treatment of gift cards and the type of notice to which their holders are entitled can significantly impact the recoveries of other unsecured creditors including bondholders. In re BGI, Inc., f/k/a Borders Group, Inc., No. 11-10614, 2012 Bankr. LEXIS 3724 (Bankr. S.D.N.Y. Aug.14, 2012). Continue reading

Court Denies American Airlines’ Motion to Reject CBAs; Provides Roadmap to Future Rejection

On August, 15, 2012, Bankruptcy Judge Sean H. Lane of the Southern District of New York denied American’s motion to reject its collective bargaining agreement with the Allied Pilots Association (“APA”) on narrow grounds. The Court held that American had not demonstrated that its proposals to eliminate contractual restrictions on pilot furloughs and enter into essentially unlimited codesharing arrangements were necessary to its reorganization. However, the court rejected the vast majority of the APA’s broader arguments, found that the CBA was “a burden that American is unable to maintain” and that American had met the standards for rejecting a CBA under section 1113 of the Bankruptcy Code. Specifically, the court held that (i) American could reject the CBA even though a potential merger between American and US Airways may have resulted in fewer sacrifices by the APA; (ii) American’s business plan was a sufficient basis to reject the CBA; (iii) American’s proposal was fair and equitable; and (iv) American negotiated in good faith. Accordingly, the court denied American’s motion without prejudice to remedying the furlough and codesharing shortcomings.
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Gaming Alert – Eastern District of New York Rules Poker Is Not Gambling Under IGBA

In a decision that could have a significant impact on distressed gaming companies, Judge Jack B. Weinstein of the U.S. District Court for the Eastern District of New York ruled on Tuesday that poker does not constitute gambling under the Illegal Gambling Business Act (“IGBA”), a federal statute that makes the operation of any “illegal gambling business” a criminal offense. See U.S. v. Dicristina, No. 1:11-cr-00414-JBW (E.D.N.Y. Aug 21, 2012). While poker operations remain illegal under the laws of the vast majority ofU.S. states, includingNew York, the decision may lend support to the argument that online poker operations should be considered outside the scope of certain other federal laws regulating online gaming. Continue reading

The DC Circuit Court Vacates Cross-State Air Pollution Rule

On Tuesday August 21, 2012, the D.C. Circuit Court overturned the E.P.A.’s proposed Cross-State Air Pollution Rule. Cadwalader’s Commodities and Environmental teams took a look at the ruling in a recent Clients and Friends’ Alert. The ruling could impact the many distressed power plants, particularly coal-fired plants, by reducing environmental burdens (and the CAPEX required to address those burdens). Continue reading

SDNY Bankruptcy Court Holds that “Soft Dollar” Claims Are Not Customer Claims Under SIPA

On July 10, 2012, Judge James M. Peck of the Bankruptcy Court for the Southern District of New York ruled that so-called “soft dollar” claims do not qualify for treatment as customer claims under the Securities Investor Protection Act. The decision represents the first time that any court has been asked to determine the status of “soft dollar” claims under SIPA. In re Lehman Brothers Inc., No. 08-01420, 2012 Bankr. LEXIS 3103 (Bankr. S.D.N.Y. July 10, 2012). Continue reading

Hostess Court Dismisses Motion to Reject Expired Collective Bargaining Agreements Under Bankruptcy Code Section 1113

On June 22, 2012, Judge Robert Drain of the United States Bankruptcy Court for the Southern District of New York granted the motion of the Bakery, Confectionary, Tobacco Workers and Grain Millers International Union to dismiss Hostess’s motion to reject certain expired collective bargaining agreements. The court held that section 1113 of the Bankruptcy Code no longer applied to key portions of the CBAs because the agreements had expired – certain CBA obligations remained in force only by operation of the National Labor Relations Act. In re Hostess Brands, Inc., 2012 WL 2374235 (Bankr. S.D.N.Y. June 22, 2012). Continue reading

Finding that Underlying Development Agreement was Terminated, Delaware Bankruptcy Court Disallows Claim for Rejection Damages

On July 9, 2012, Judge Mary F. Walrath of the Bankruptcy Court for the District of Delaware disallowed a claim for rejection damages related to a real estate development agreement, because the claim had been released upon the termination of an LLC Agreement, and the underlying ground lease never came into existence. In re Magna Entm’t Corp., 2012 Bankr. LEXIS 3089 (Bankr. D. Del. July 9, 2012). Continue reading

Stockton: Bankruptcy Court Upholds Municipal Debtor’s Power to Impair Retiree Contracts

On August 6, 2012, Judge Christopher M. Klein of the Bankruptcy Court for the Eastern District of California dismissed a group of retirees’ adversary proceeding and held that under its pendency plan, a chapter 9 debtor has the power to … Continue reading

Jefferson County: Court Rejects Expansive Carve Out of “Net Operating Expenses” From Special Revenue Bond Payments

On June 29, 2012, Judge Thomas B. Bennett of the Bankruptcy Court for the Northern District of Alabama held that operating expenses as determined under Jefferson County’s sewer warrants indenture do not include (i) a reservation for depreciation, amortization or future expenditures or (ii) an estimate for professional fees and expenses and that the monies remaining in the sewer system’s revenue account after the payment of actual operating expense should be paid to the warrant holders in accordance with the Indenture. This decision represents an unequivocal win for special revenue lenders because it ensures that special revenue bonds will continue to be secured and serviced in accordance with the underlying indenture during a municipality’s Chapter 9 case. The Bank of New York Mellon v. Jefferson Co., Ala. (In re Jefferson Co., Ala.), Case No. 12-00016-TBB (Bankr. N.D. Ala. June 29, 2012). Continue reading