The First Two Delaware Decisions. In the past two months, I have reported on decisions by two Delaware bankruptcy judges in the In re Washington Mutual, Inc. case and in In re Premier International Holdings, Inc. (aka, the Six Flags case), taking opposing views on whether Federal Rule of Bankruptcy Procedure 2019 requires ad hoc committees and informal groups to disclose their trading activities. The Court in the Washington Mutual case held that it does, while the Court in the Six Flags case came out strongly with the opposite view. Follow the links in the prior sentence for more on both decisions, including copies of the respective opinions, as well as the earlier Northwest Airlines and Scotia Pacific decisions from the Southern Districts of New York and Texas, respectively.
A Third Delaware Decision. Two days after the Six Flags opinion was issued, Delaware Bankruptcy Judge Brendan L. Shannon issued a short order granting a motion to compel an Ad Hoc Noteholder Group in the In re Accuride Corporation Chapter 11 case to disclose details of their trades. A copy of Judge Shannon’s two-page order is available by clicking on the link in this sentence. The ruling reflects the Court’s comments from the bench agreeing with the conclusions in the Northwest Airlines and Washington Mutual decisions, although Judge Shannon stated that he did not necessarily concur that fiduciary obligations arise in this context, as the Washington Mutual opinion had stated.
The Philadelphia Newspapers Court Weighs In. Then last week, on February 4, 2010, Judge Stephen Raslavich, Chief Judge of the U.S. Bankruptcy Court for the Eastern District of Pennsylvania, issued another opinion on the issue, this time involving a "Steering Group of Pre-petition Lenders" in the In re Philadelphia Newspapers, LLC Chapter 11 bankruptcy case. After reviewing the analysis in each of the prior decisions from the Delaware, New York, and Texas courts, Chief Judge Raslavich held that Rule 2019 does not require such disclosure by the Steering Committee, essentially agreeing with the reasoning of Delaware Bankruptcy Judge Sontchi in the Six Flags case. Follow the link in this sentence for a copy of Chief Judge Raslavich’s 28-page opinion in the Philadelphia Newspapers case.
More To Come? We have now had six opinions or orders on the Rule 2019 issue involving ad hoc committees or informal groups, with three judges holding disclosure is required (Northwest Airlines, Washington Mutual, and Accuride Corporation) and three holding it is not (Scotia Pacific, Six Flags, and Philadelphia Newspapers). Although the issue may gain more clarity on appeal or the question may be superseded by an amended version of Rule 2019, now under consideration by the Advisory Committee, in the meantime more courts will likely be asked to decide this thorny Rule 2019 issue. Given the split in authority — with each judge finding that the "plain meaning" of Rule 2019 supports its view — it has become even more difficult to predict how the next court will rule.