Author Archives: Christopher J Updike

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

Approval of Key Employee Retention Plans: Did Global Aviation Get It Right?

We recently commented on the standard for reviewing key employee incentive plans (KEIPs) and the approval of the KEIP in the Velo Holdings chapter 11 cases pending in the Southern District of New York. On July 24, Bankruptcy Judge Carla Craig of the Eastern District of New York approved a KERP (a key employee retention plan) in the Global Aviation bankruptcy cases aimed at retaining five employees deemed critical to the consolidation of the debtors’ U.S. headquarters in Peachtree City, Georgia by August 31, 2012. In re Global Aviation Holdings, Inc., 2012 WL 3018064 (Bankr. E.D.N.Y. July 24, 2012). While the Global Aviation court likely reached the correct outcome, its analysis wasn’t quite right. Continue reading

Velo Holdings KEIP Approved by SDNY Bankruptcy Court

On June 6, 2012, Bankruptcy Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York approved a $2.875 million key employee incentive plan (“KEIP”) in the Velo Holdings bankruptcy cases over the objection of the U.S. Trustee finding that it was primarily incentivizing and a sound exercise of the debtors’ business judgment. In re Velo Holdings Inc., Case No. 12-11384 (MG), 2012 Bankr. LEXIS 2535 (Bankr. S.D.N.Y. 2012). The decision follows well-settled law in the Southern District and Delaware regarding approval of KEIPs. Continue reading

Federal-Mogul Court Confirms That Bankruptcy Law Trumps Anti-Assignment Provisions in Insurance Policies

On May 1, 2012, the United States Court of Appeals for the Third Circuit in In re Federal–Mogul Global, Inc. confirmed that anti-assignment provisions in a debtor’s insurance liability policies are preempted by the Bankruptcy Code to the extent they prohibit the transfer of a debtor’s rights under such policies to a personal-injury trust pursuant to a chapter 11 plan. In re Federal-Mogul Global Inc., — F.3d —, 2012 WL 1511773 (3d Cir. 2012). In so holding, the Third Circuit follows its prior dicta as well as the precedent of its sister circuits, and provides its most definitive ruling on the issue to date. Continue reading

SDNY Bankruptcy Court Holds that Venue of Houghton Mifflin Case is Improper, But Delays Transfer

On June 22, 2012, Judge Robert E. Gerber of the United States Bankruptcy Court for the Southern District of New York granted the U.S. Trustee’s motion to transfer the chapter 11 cases of Houghton Mifflin Harcourt Publishing Company and its affiliates to a different venue, notwithstanding the fact that the debtor’s prepackaged plan had been confirmed with unanimous support from its creditors, the cases were projected to conclude within 30 days of filing, and the debtors’ primary creditor constituencies supported venue in New York. While the Court found itself bound by the applicable venue statutes, the Court nevertheless held that because the statutes did not dictate when the Court must transfer the case, it would order the transfer at a time that would minimize the prejudicial effect to creditors – the first to occur of the effective date of the prepackaged plan or three weeks from the date of entry of the confirmation order. In re Houghton Mifflin Harcourt Publ’g Co., 2012 Bankr. LEXIS 2868 (Bankr. S.D.N.Y. June 22, 2012). Continue reading

Loose Lips Sink Hostile Bids: Delaware Chancery Court Enforces Non-Disclosure Agreement with Injunctive Relief

In an eloquent account of consensual merger negotiations between Martin Marietta and Vulcan Materials, the two largest players in the domestic aggregates business, Chancellor Leo Strine of the Court of Chancery of Delaware recently prohibited Martin Marietta from using information shared by Vulcan in connection with consensual merger negotiations to pursue a hostile takeover bid and related proxy contest. Martin Marietta Materials, Inc. v. Vulcan Materials Company, 2012 Del. Ch. LEXIS 93 (Del. Ch. May 4, 2012).
The decision offers a real world application of the limitations on use and information gained in non-disclosure agreements. While the court decided this case in the Delaware corporate law context, restructuring parties in and out of bankruptcy frequently obtain information under similar restrictions. Indeed, information may be exchanged in connection with the marketing and sale of assets, or in connection with out-of-court work outs. Recipients of this information should exercise caution when using information obtained consensually to pursue non-consensual or aggressive strategies.
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The Ninth Circuit Affirms Inflexible Standard of Finality for Purposes of District Court Appeals

On March 6, 2012, the United States Court of Appeals for the Ninth Circuit held that the flexible standard for finality generally applied in bankruptcy cases does not apply to appeals from orders of a district court sitting in bankruptcy. Klesdadt & Winters, LLP v. Cangelosi, 642 F.3d 809 (9th Cir. 2012). In so holding, the Ninth Circuit reaffirmed its position as the only circuit that applies less flexible jurisdictional standards to appeals from district courts sitting in bankruptcy as compared with appeals from bankruptcy courts. Continue reading

A Practitioner’s Guide to Resolving Late Claims

Proofs of claim play a critical role in bankruptcy cases. Debtors use them to determine their liabilities; creditors use them to preserve their rights to distribution. Accordingly, the Bankruptcy Rules require that all unsecured creditors file a proof of claim in order for their claims to be allowed. Missing the bar date to file claims can have severe consequences, but don’t panic; there are options when clients approach you with late claims. Continue reading

Second Circuit Resolves Choice of Law Rules for Bankruptcy Claims

On February 28, 2012, in a case of first impression, the U.S. Court of Appeals for the Second Circuit considered which choice of law rules should apply when a bankruptcy court sitting in one state is resolving a bankruptcy claim arising from a state-law action previously filed in another state. The Second Circuit held that where (1) a claim before the bankruptcy court is wholly derived from another legal claim pending in a parallel non-bankruptcy proceeding in another state, and (2) the pending original claim was filed in a court prior to the commencement of the bankruptcy case, the bankruptcy court must apply the choice of law rules of the state where the underlying prepetition claim was filed. Statek v. Development Specialists, Inc. (In re Coudert Brothers LLP), 2012 U.S. App. LEXIS 4019 (2d Cir. 2012). Continue reading