Monthly Archives: September 2012

Vitro Update: Texas District Court Clears the Way for Noteholders to File Involuntary Bankruptcy Petitions Against Vitro’s Subsidiary Guarantors

On August 28, 2012, the United States District Court for the Northern District of Texas vacated a series of bankruptcy court rulings that had blocked Vitro SAB’s noteholders from filing involuntary bankruptcy petitions against Vitro’s non-debtor subsidiary guarantors. In a decision authored by Chief Judge Sidney A. Fitzwater, the District Court struck down two of the subsidiary guarantors’ most important affirmative defenses to the involuntary bankruptcy, holding that petitioning creditors’ guaranty claims were not contingent and the subsidiary guarantors were not generally paying their debts as they came due. Knighthead Master Fund, L.P. v. Vitro Packaging LLC (In re Vitro Asset Corp.), No. 3:11-CV-263-D (N.D. Tex. Aug. 28, 2012). This marks another major victory for Vitro noteholders, who – as reported by Restructuring Review here – just weeks ago persuaded the Bankruptcy Court for the Northern District of Texas not to enforce a Mexican plan of reorganization that purported to release Vitro’s non-debtor subsidiaries of the same guaranties at issue in the District Court’s decision. Continue reading

Fifth Circuit Holds that Fixed Quantities are Not Required to Satisfy the “Forward Contracts” Safe Harbor Defense

On August 2, 2012, the United States Court of Appeals for the Fifth Circuit held that a requirements contract for the supply of electricity constituted a “forward contract” under the Bankruptcy Code and, therefore, was exempt from preference avoidance actions. The Fifth Circuit held that the contract in this case met the plain language definition of a “forward contract,” notwithstanding the fact that it lacked fixed quantity and delivery date terms. Lightfoot v. MXEnergy Elec., Inc. (In re MBS Mgmt. Servs., Inc.), 2012 WL 3125167 (5th Cir. Aug. 2, 2012). Continue reading

Tribal Gaming Enterprise Held Ineligible to File for Chapter 11

Since the passage of the Indian Gaming Regulatory Act in 1988, casinos owned by Native American tribes have proliferated across tribal lands and have generated billions of dollars in revenue annually. While casinos such as Mohegan Sun and Foxwoods are among the largest and well-known tribal casinos, over 60 exist in the State of California, where many dozen small properties have sprung up throughout the state in recent years, in some cases built in part with the proceeds of high-yield bond debt. This recent growth spurt juxtaposed with the prolonged downturn in consumer spending has clearly demonstrated that numerous tribal casinos, like their mainstream competitors, are overleveraged and need to restructure their financial obligations in order to sustain their operations. Continue reading

Second Circuit Adopts Abuse of Discretion Standard of Review for Equitable Mootness Decisions

On August 31, 2012, the United States Court of Appeals for the Second Circuit published its first decision expressly adopting an abuse of discretion standard for reviewing equitable mootness determinations by district courts. In In re Charter Communications, Inc., the Second Circuit followed the Third and Tenth Circuits, while also reaffirming the Second Circuit’s rebuttable presumption of equitable mootness upon substantial consummation of a debtor’s plan. The Charter court ultimately held that the presumption applied but was not overcome and therefore dismissed the appeal at issue as equitably moot. In re Charter Commc’ns Inc., 2012 WL 3764706 (2d Cir. Aug. 31, 2012). Continue reading

Third Circuit Reiterates Narrow Application of Equitable Mootness Doctrine

The United States Court of Appeals for the Third Circuit recently reiterated its position that the doctrine of equitable mootness should only apply if granting relief on appeal would undermine a consummated bankruptcy plan. In In re Philadelphia Newspapers, LLC, the Third Circuit held that the United States District Court for the Eastern District of Pennsylvania abused its discretion when summarily finding that the appeal at issue was equitably moot simply because the appellants failed to seek a stay and the debtors’ plan had been substantially consummated. Upon a more careful review of the equitable mootness test enunciated by the Third Circuit en banc in In re Continental Airlines, 91 F.3d 553 (3d Cir. 1996), the Philadelphia Newspapers court found that the appeal should proceed. However, it ultimately affirmed the ruling of the district court that managers of a charter school were not entitled to an administrative expense claim for the debtors’ postpetition internet publication of an article that linked to other allegedly defamatory articles that the debtors published prepetition. See In re Philadelphia Newspapers, LLC, 2012 WL 3038578 (3d Cir. July 26, 2012). Continue reading

Patriot Coal Update: Mining For Venue

Late last week, Judge Shelley C. Chapman of the Bankruptcy Court for the Southern District of New York heard arguments from a number of parties regarding whether the New York bankruptcy court is the proper venue for Patriot Coal Corporation’s bankruptcy cases. In re Patriot Coal Corp., Case No. 1:12-bk-12900. Judge Chapman did not rule on the venue question from the bench. Instead, the parties will wait for a ruling while proceeding with the bankruptcy case. Continue reading

Implications of the D.C. Circuit Court Decision in EPA Cross-State Air Pollution Rule

The August 21, 2012 decision of the U.S. Court of Appeals for the D.C. Circuit to vacate EPA’s Cross-State Air Pollution Rule marks a material interpretation of EPA’s authority under the Clean Air Act – an “unsettling” departure from judicial restraint (according to the dissent). To consider what this means for power producers and other energy market participants, Cadwalader held a teleconference discussion on Tuesday, September 4 about the implications of this important decision.
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AMR Update: Judge Authorizes American Airlines to Reject Pilots’ CBA

On September 4, 2012, Judge Sean H. Lane granted American’s renewed motion to reject its CBA with the Allied Pilots Association. As discussed HERE, on August 15, the court denied American’s original motion to reject the CBA on narrow grounds, but allowed American to submit a renewed motion that remedied the codesharing and furlough defects identified by the court. American submitted a revised proposal to the APA the following day and renewed its motion on August 17. Notably, the APA did not argue that American’s modifications to the codesharing and furlough provisions were not necessary. Instead, the APA argued that new information regarding (i) a potential American-US Airways merger, (ii) American’s labor costs as compared to the rest of the airline industry, and (iii) American’s decision to accept a reduced amount of labor savings from its non-pilot employees made American’s proposed changes to the CBA unnecessary to its reorganization. Continue reading

In re Ashapura: Southern District of New York Holds that Proceeding Under Repealed Foreign Law is Entitled to Chapter 15 Recognition

On June 28, 2012, Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York affirmed the order of the United States Bankruptcy Court for the Southern District of New York granting Ahapura Minechem Ltd.’s petition for recognition of its Indian insolvency proceeding as a foreign main proceeding under chapter 15 of the Bankruptcy Code. Armada v. Shah (In re Ashapura Minechem Ltd.), 2012 WL 2478467 (S.D.N.Y. June 28, 2012). In so holding, the District Court approved the recognition of a proceeding governed by a statute, The Sick Industrial Companies Act (“SICA”), that Indian legal scholars have sharply criticized and that the Indian legislature actually repealed in 2003. Continue reading