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Business Bankruptcy Issues Recent Developments

Bankruptcy Judge’s Research Binder Now Updated And Available

I have posted in the past about the helpful research binder that Chief Judge Randall J. Newsome of the United States Bankruptcy Court for the Northern District of California makes available to bankruptcy professionals and the public. Fortunately, Chief Judge Newsome has again updated his binder as of December 1, 2009, covering cases through Volume 410 of Bankruptcy Reports. Follow the links in this sentence to access the entire binder in PDF format and the HTML version organized by topic. The PDF version is capable of being searched using a key word or phrase.

The primary focus of the research binder is on Ninth Circuit law, as Chief Judge Newsome presides in the Northern District of California, but some out-of-circuit law is also included. The disclaimer Chief Judge Newsome includes puts the binder’s use in context:

The following list of cases and supplemental information is presented for informational and educational purposes only. Though it represents the aggregation of 19 years of research, the Court makes no claims as to its current level of accuracy. Some of the cases set forth may very well have been superseded, reversed, or otherwise may no longer be good law. The Court has posted it with the intention to educate and assist those who may find it helpful. Accordingly, users should consider it a first, but by no means final, research tool, and should cite check all cases listed herein for continued viability prior to relying on such cases in practice.

With those caveats, and especially when used in combination with the new Google Scholar legal research tool, the binder is a helpful place to start when researching bankruptcy law issues in Ninth Circuit.

Business Bankruptcy Issues Recent Developments

Powerful, Free Legal Research Tool Now Available

Last week, Google launched a new feature on its Google Scholar specialized search engine that enables full-text searching of published federal and state court opinions, as well as articles in certain legal journals. Users can access the new features by selecting the "Legal opinions and journals" bullet on the Google Scholar main search page. The cases in the Google Scholar database generally include official reporter citation page numbers throughout the decision. The other main search category available is "Articles," including or excluding patents.

By using the Advanced Scholar Search feature, you can engage in more tailored searches, such as within just federal court decisions, decisions from one or more individual states, or articles by specific authors, or in designated journals, date ranges, or subject matter fields. Google’s official blog post on the new search feature gives additional information.

At the moment, it appears that not all unpublished decisions are available in Google Scholar search results, and Google’s disclaimer states that it does not represent that results are complete or accurate. In addition, among other features, Google Scholar lacks the key number system, headnotes, cite-checking ability (although the "How Cited" link gives some information on follow-on citations), and access to a full range of legal journals available from long-standing legal search services such as LexisNexis and Westlaw. Still, as a supplement to Google’s standard web search, the Google Scholar legal opinion and journal search engine is a powerful new — and free — place to start when doing bankruptcy or other legal research.

Business Bankruptcy Issues Recent Developments

Second Circuit Decides Whether Unsecured Creditors Can Recover Post-Petition Attorney’s Fees

On November 5, 2009, the U.S. Court of Appeals for the Second Circuit became the second court of appeals to answer the question left open in the U.S. Supreme Court’s March 2007 decision in Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., 549 U.S. 443 (2007): Can unsecured creditors recover post-petition attorney’s fees as part of their unsecured claims? For more on the Travelers decision, follow the link to this earlier post.

The Ninth Circuit’s Earlier SNTL Corp. Decision. In June 2009, the Ninth Circuit, in a per curiam decision in In re SNTL Corp., 571 F.3d 826 (9th Cir. 2009), held that post-petition attorney’s fees were allowable as part of an unsecured prepetition contract claim. The Ninth Circuit adopted the December 2007 opinion of the Ninth Circuit Bankruptcy Appellate Panel, In re SNTL Corp., 380 B.R. 204 (9th Cir. BAP 2007), which is available by following the link in this sentence. You may find this earlier post on the SNTL Corp. case of interest as well.

The Second Circuit’s New Decision. In its November 5, 2009 opinion in Ogle v. Fidelity & Deposit Company of Maryland, the Second Circuit held — as the Ninth Circuit did in the SNTL Corp. case — that an unsecured creditor can include post-petition attorney’s fees authorized under a prepetition contract valid under state law. In Ogle, the Second Circuit extended its holding in United Merchants & Manufacturers, Inc. v. Equitable Life Assurance Society of the United States, 674 F.2d 134 (2d Cir. 1982), a case decided under the Bankruptcy Act, and concluded that United Merchants survived both the statutory revisions made by the Bankruptcy Code and the Supreme Court’s Travelers decision.

In reaching this result, the Second Circuit analyzed the issues presented, in part, as follows:

All of the fees at issue in Travelers were incurred post-petition; so the amount was necessarily unknown when the bankruptcy petition was filed. It follows that if an unsecured claim for post-petition fees was for that reason unrecoverable, the Travelers Court could have disposed of the claim on that simple, available ground alone. Travelers, therefore, proceeds along lines that, reasonably extended, would suggest (notwithstanding the Court’s express disclaimer) that section 502(b)’s requirement–that the court “shall determine the amount of such claim . . . as of the date of the filing of the petition”–does not bar recovery of post-petition attorneys’ fees.

In the present appeal, as in Travelers: The underlying contract is valid as a matter of state substantive law; none of the section 502(b)(2)-(9) exceptions apply; and the Code is silent as to the particular question presented–in Travelers, whether the Code allows “unsecured claims for contractual attorney’s fees incurred while litigating issues of bankruptcy law,” 549 U.S. at 453; and here, whether the Code allows unsecured claims for “fees incurred while litigating issues of” contract law more generally.

Accordingly, we hold that an unsecured claim for post-petition fees, authorized by a valid pre-petition contract, is allowable under section 502(b) and is deemed to have
arisen pre-petition.  Accord SNTL, 571 F.3d at 844 (“[W]e reject the position . . . that section 502(b) precludes such fees.”).
 

The Court then turned to the question of whether Section 506(b) of the Bankruptcy Code expressly disallows the recovery of attorney’s fees as part of an unsecured claim:

As Travelers makes clear, the question is whether the Code disallows post-petition attorneys’ fees, and does so expressly. It was therefore decisive in Travelers that “the Code says nothing about unsecured claims for contractual attorney’s fees incurred while litigating issues of bankruptcy law.” 459 U.S. at 453 (emphasis in original). And while Travelers declined to address section 506(b) (because the parties had not raised the issue below), see id. at 454-56, it is decisive here that the Code says nothing about such fees incurred litigating things other than issues of bankruptcy law. The teaching of Travelers is therefore fully consonant with our decision in United Merchants.

Accordingly, we hold that section 506(b) does not implicate unsecured claims for post-petition attorneys’ fees, and it therefore interposes no bar to recovery.

Finally, the Second Circuit rejected arguments that (1) Section 502(b)(2)’s disallowance of unmatured interest bars claims for post-petition attorney’s fees, (2) Section 502(e)(2) regarding claims for reimbursement or contribution implicitly forecloses post-petition attorney’s fees, and (3) as a policy matter it would be unfair to allow contract creditors to recover post-petition attorney’s fees when tort claimants and many trade creditors cannot.

Conclusion. We now have two U.S. Court of Appeals decisions this year holding that, after Travelers, post-petition attorney’s fees are allowable as part of an unsecured claim if otherwise recoverable under a prepetition contract. Particularly given the major bankruptcy cases filed in the Southern District of New York, within the Second Circuit, unsecured creditors may make a point of including post-petition attorney’s fees as part of their claims when their contracts so provide. This decision raises questions as well:

  • Will the potential allowance of post-petition attorney’s fees for bankruptcy-related issues impact a debtor’s reorganization prospects?
  • What procedures will debtors propose for managing the process as unsecured creditors amend their claims to add attorney’s fees incurred in protecting their rights during the course of a bankruptcy case?
  • Will individual unsecured creditors become more active in Chapter 11 cases, particularly in those cases in which a large distribution is likely?
  • What standards will bankruptcy courts use to assess the reasonableness of an unsecured creditor’s post-petition attorney’s fees for bankruptcy-related issues?
  • Will claims buyers pay more for unsecured claims based on contracts providing for recovery of post-petition attorney’s fees now that bankruptcy-related fees are recoverable?
  • Will creditors be more insistent on including attorney’s fees provisions in contracts?

Not every unsecured creditor will have the right to attorney’s fees, and most may not incur significant fees after a bankruptcy is filed. However, those that do now have another important arrow in their quiver when seeking to add those fees to their unsecured claims. It will be interesting to see how these issues play out in the months ahead.

 

Business Bankruptcy Issues Recent Developments

A Matter Of Time: Important Amendments To The Bankruptcy Rules Are Coming December 1st

Nearly every year, changes are made to the set of rules that govern how bankruptcy cases are managed — the Federal Rules of Bankruptcy Procedure. Normally, the changes address issues identified by an Advisory Committee made up of federal judges, bankruptcy attorneys, and others. This year, the amendments to the national bankruptcy rules are mainly the result of statutory changes enacted by Congress. The new amendments will take effect on December 1, 2009.

Timing Changes Across The Board. For years, the standard time periods for many actions in bankruptcy cases have been measured in round numbers — 10 days for some, 20 days for others. Sometimes this has led to confusion about deadlines, especially when time periods straddle weekends or holidays. To simplify the calculation of bankruptcy time periods, and those in other non-bankruptcy laws, earlier this year Congress enacted the Statutory Time-Periods Technical Amendments Act of 2009. The main purpose of the Act is to switch to 7, 14, 21, and 28 day intervals for most bankruptcy procedures. Here’s how the changes will be implemented in the Federal Rules of Bankruptcy Procedure:

  • 5 day periods become 7 day periods;
  • 10 day periods become 14 day periods;
  • 15 day periods become 14 day periods;
  • 20 day periods become 21 day periods;
  • 25 day periods become 28 day periods.

For example, a motion set for hearing on a Friday will now have objection and reply deadlines fall on Fridays. It also means that the era of the "20 day notice" in bankruptcy is over — but it’s just being replaced with the era of the "21 day notice." The change should make calculating due dates easier, although be aware that it will shorten or lengthen most of the previously standard notice periods under prior law. Rule 9006 is being revised extensively to reflect the new way of accounting for weekends and holidays. Periods that were 30 days or longer are essentially unchanged.

A Longer Appeal Period. So where is this going to have the biggest effect in the business bankruptcy realm? I think the impact will be felt most in the time to file an appeal from a bankruptcy court order. Amendments to Rule 8001 will extend the time for filing a notice of appeal by four days — from 10 days to 14 days. This means that an order approving a settlement under Rule 9019, authorizing a Section 363 sale of assets, or confirming a plan of reorganization, among others, will not become final and no longer appealable until the 15th day following entry compared to the 11th day following entry under current law. After years of counting on bankruptcy court orders being final after only 10 days, parties will need to adjust their expectations on the finality of orders.

How To Access The Amended Rules. Bankruptcy attorneys and other professionals should review the amended rules to see the full range of the changes.

Local Rule Changes Are Also Coming. Expect to see bankruptcy courts around the country adopt conforming changes to their local rules. Two examples: the Northern District of California has already done so and the Southern District of New York is proposing to do so.

Conclusion. Although these timing changes are not as significant as amendments made a few years ago, they will affect virtually all time periods in the national, and in time local, bankruptcy rules that are currently less than 30 days. With under a month to go before they take effect, now is a good time to get on top of these amendments.

Business Bankruptcy Issues Recent Developments

Major Amendments To The CCAA, Canada’s Reorganization Law, Are Now In Force

In a post last year entitled "North Of The Border: Reorganization Under Canada’s Companies’ Creditors Arrangement Act," I discussed the various types of bankruptcy and insolvency proceedings available under Canadian law. Included in the discussion was the Companies’ Creditors Arrangement Act, known as the CCAA, used by many Canadian companies to reorganize. At that time, although significant amendments had been enacted to the CCAA and other Canadian bankruptcy laws, those amendments had not "come into force," the final act necessary under the Canadian system before the changes in the law would become effective.

That changed on September 18, 2009, when these revisions to the CCAA and to the Bankruptcy and Insolvency Act, or BIA, finally came into force (joining a few other changes that came into force in July 2008). Canadian bankruptcy law has now been modified in a number of important ways, applicable to cases filed going forward.

For more on the new law, and Canadian bankruptcy issues generally, be sure to check out the website of the Office of the Superintendent of Bankruptcy Canada.

Business Bankruptcy Issues Recent Developments

Fall 2009 Edition Of Absolute Priority Now Available

The Fall 2009 edition of the Absolute Priority newsletter, published by the Cooley Godward Kronish LLP Bankruptcy & Restructuring group, of which I am a member, has just been released. The newsletter gives updates on current developments and trends in the bankruptcy and workout area. Follow the links in this sentence to access a copy of the newsletter or to register to receive future editions. You can also subscribe to the blog to learn when future editions of the Absolute Priority newsletter are published, as well as to get updates on other bankruptcy topics.

The latest edition of Absolute Priority covers a range of cutting edge topics, including:

  • Developments in the General Growth Chapter 11 cases;
  • Updates on the General Motors and Chrysler bankruptcies;
  • Efforts in Congress to repeal certain of BAPCPA’s business bankruptcy provisions; and
  • The "settlement payment" defense to fraudulent transfer claims against shareholders in leveraged buyouts.

This edition also reports on some of our recent representations, including debtors Pacific Ethanol Holding Co. and Crabtree & Evelyn, Ltd., and our work for official committees of unsecured creditors in Chapter 11 bankruptcy cases involving major retailers. Recent committee cases include Eddie Bauer, Ritz Camera, Filene’s Basement, BT Tires Group, Boscov’s, Gottschalk’s, KB Toys, BTWW Retail, and G.I. Joe’s, among others. Also discussed is our work for Levi Strauss & Co. in purchasing 73 outlet stores from the Anchor Blue Retail Group case and for Rackable Systems, Inc. (now known as Silicon Graphics International) in purchasing substantially all of the assets of Silicon Graphics, Inc. in its recent Chapter 11 case.

In addition, a note from my colleague, Jeffrey Cohen, the editor of Absolute Priority, discusses how Section 363 asset sales have become the chief means for companies to restructure in bankruptcy, and how the number of "going concern" sales has grown over the past few months compared to the period following the bankruptcy of Lehman Brothers in September 2008.

I hope you find this Fall’s edition of Absolute Priority to be of interest.

Business Bankruptcy Issues Recent Developments

New Site Features Free Insolvency Charts And Information

The American Bankruptcy Institute has launched a new site called "ABI’s Chart of the Day," featuring a new insolvency-related economic or financial chart daily, plus a collection of prior charts. The topics covered range from FDIC information showing potentially troubled financial institutions, to the percentage of real estate owned properties sold in certain markets, to economic statistics in comparison to past recessions.

ABI describes the site as follows:

This resource is provided to give insolvency professionals a daily visual peek at the state of the economy.

The charts include links to related news items and other data, covering trends in retailing, housing, commercial real estate, personal income, employment and other indicators important to insolvency professionals.

Please visit abiworld.org for a full suite of tools to stay informed.

This site joins other helpful, free offerings from ABI, such as the Bankruptcy Code Wiki, with the entire current Bankruptcy Code, and a Bankruptcy Rules site, with a handy search feature enabling you to search all of the Federal Rules of Bankruptcy Procedure using key words.