All items from A Texas Bankruptcy Lawyer's Blog

The Supreme Court doesn't take many cases on bankruptcy issues.  It has only ruled on attorney's fees in bankruptcy once since the Code was adopted and that ruling was on the narrow issue of whether a chapter 7 debtor's attorney could recover fees from the estate.    As a result, it was big news when the Court granted cert in  No. 14-103, Baker Botts, LLP v. ASARCO, LLC on October 2, 2014.    The issue in ASARCO is whether an attorney can recover fees for defending his fee application or whether those expenses are merely "a cost of doing business" as held by the Fifth Circuit.   The issue matters in the particular case because Baker Botts spent $5 million in time defending its $113 million application.   
What Happened

Posted 1 day 16 hours ago

Saturday concluded NCBJ with ethics and the Supreme Court review.   (There was also a program on scientific studies of mindfulness which I missed).
Wait, Wait, Don’t Tell Me! An Ethics Game Show:  Retired Judge James H. Haines as Peter Segal, Christine Devine (DeMaillie & Lougee), Judge Benjamin Goldgar, Timothy Nixon (Godfrey & Kahn), Judge Neil Olack, Prof. Nancy Rapoport and Judge Erithe Smith.  

Posted 2 weeks 4 days ago

Jeffrey Lacker, President of the Richmond Federal Reserve Bank, made the case for why large financial institutions should subject to bankruptcy as the ABI Luncheon Keynote Speaker.  He started his address with the question "Why is a central banker interested in bankruptcy?"  His answer was that during the financial crisis of 2007-2008, the government played a role by distorting incentives of market players with multiple discretionary interventions which destabilized expectations.   He called on the government to realign incentives of major market participants by using bankruptcy instead of discretionary government interventions.
Mr. Lacker said that the advantages of the bankruptcy system are that it is a collective proceeding, it is subject to judicial supervision and is a predictable, rules-based system.    He described the bankruptcy process as "one of the best tools we have for reconciling the goals of creditors and debtors."   He said that the probability of bankruptcy versus the benefits of risk taking would change the incentives of large banks.

Posted 2 weeks 5 days ago

I spent the morning listening to presentations on very disparate topics:  hedge funds, examining an expert witness and the balance between secured creditors and unsecured creditors.   I was not able to capture the full extent of the discussions and in some cases my descriptions below may be a bit cryptic.   My intent is not to provide a transcript, but rather to provide a flavoring of issues being discussed at NCBJ. 
However, the day began with the 5th annual Berkley-Bernstein 5k race.    As usual, I finished near the back of the back.   However, there is something perversely fun about seeing the sun come up over the water while gasping for breath with fellow bankruptcy practitioners and judges.   Kudos to Berkley-Bernstein for sponsoring this event.   
Watching the Hedges Grow: Inside the Mind of Distressed Investors:  Ret. Judge James Peck, William Derrough (Moelis & Co.), Bruce Bennett (Jones Day), Mark Brodsky (Aurelius Capital) and Ken Liang (Oak Hill Advisors)

Posted 2 weeks 5 days ago

William A. Strauss, an economist with the Chicago Fed, delivered the keynote address for the Commercial Law League of America's luncheon Thursday.   His overall forecast was for slow but steady growth, declining unemployment and low interest rates as the country digs its way out of the Great Recession.    In other words, he predicted a good climate for reorganizing debtors.

His only reference to bankruptcy was in his opening remarks when he stated:Bankruptcy is good.  Unemployment is good.   They are necessary evils. . . . Unemployment makes workers available to industries that are rising.   Bankruptcy makes resources available to industries that are rising.He described the economic picture as a good news, bad news story.   He said that the United States has the strongest economy in the world, although its growth is not impressive.   He said that we should see positive growth this year.   However, he tempered his remarks by pointing out that the relevant metric is not zero.   Each year the labor force grows by 1% while productivity can be expected to grow by 1.0-1.25%.   Thus, a growth in GDP of 2.0-2.25% is the expected trend line.
He said that the outlook for the next five years was growth at:

Posted 2 weeks 5 days ago

NCBJ is in Chicago this year.   The weather is pleasantly cool compared to the continuing Austin heat and the first day of CLE had some interesting programs.   Here is a wrap of Day 1, which included Chapter 9, reorganization for closely held companies, e-discovery, an economist from the Chicago Fed, claims trading and treatment of "interests" in section 363 sales.     I will divide the day between separate posts on the educational seminars and the economist's prognostications.  There will be another Fed economist speaking tomorrow.
Chapter 9:  Judge Steven Rhodes, Daniel Heimowitz (RBC Capital Markets), Marc Levinson  (Orrick, Herrington & Sutcliffe, LLP), Ron Oliner (Duane Morris) and Judge Elizabeth Perris
While Chapter 9 may seem exotic and unusual, three California Cities, as well as Detroit and Jefferson County, Alabama have all used this mechanism.   In Texas, it has been used on a smaller scale for many road and water districts.    
Municipal finance is big business.   There is about $3.7 trillion of municipal bonds outstanding with 11,464 issued during 2013.  Nevertheless, only about 4-5 default in any given year.   However, when they do, it creates a big stir.

Posted 2 weeks 6 days ago

Today I had the opportunity to debate venue reform at the National Conference of Bankruptcy Judges in Chicago.   We had two excellent teams of debaters.   Arguing for the pro-reform position were Prof. Samir Parikh, retired Bankruptcy Judge Leif Clark and myself.   The pro-status quo team consisted of Prof. Douglas Baird, retired Bankruptcy Judge Arthur Gonzalez and Dennis DeFranceschi of Richards, Layton & Finger, P.A.   Jamie Sprayregen of Kirkland & Ellis moderated the debate.  We had a good, vigorous debate.     There was at least some agreement that venue for preference actions should be reformed.    The debate was sponsored by the Commercial Law League of America.
Here is the opening statement that I gave for the pro-reform side:
Good afternoon, my name is Steve Sather. My colleagues, retired Bankruptcy Judge Leif Clark and Prof. Samir Parikh and I will be arguing that the current bankruptcy venue law, 28 U.S.C. § 1408, should be reformed to prevent forum shopping in Chapter 11 cases.
By forum shopping we mean filing in a venue where the company has little or no physical presence.   Examples would include the Los Angeles Dodgers and the Chicago Tribune filing bankruptcy in Delaware.

Posted 3 weeks 13 hours ago

The importance of alternate dispute resolution to resolve cases is enshrined in federal law, 28 U.S.C. §651(a), and is encouraged by most judges.   However, one bankruptcy judge recently told lawyers in a case that they would mediate “over my dead body.”    While the court’s ruling was triggered by the parties’ failure to request permission to expend estate funds, his comments expressed a high level of skepticism toward mediation in general.  The case is In re Cody Smith, No. 12-32096 (Bankr. S.D. Tex. 9/3/14).
What Happened

Posted 3 weeks 3 days ago

The Fifth Circuit had several bankruptcy-related decisions during September.   This month, it dealt with jury trials, mootness, subject matter jurisdiction,  "quasi-estoppel" and the difference between civil and criminal contempt.   Click on the style of the case to read the underlying opinion.

Posted 3 weeks 6 days ago

The Supreme Court may add another bankruptcy case to its agenda this term in a case where both the Petitioner and the Respondent support the grant of cert.    No. 13-1416, Gordon v. Bank of America.   The Petition can be found here and the Response in Support is here.   Of course, the parties want to reverse the Tenth Circuit for very different reasons.

Posted 7 weeks 2 days ago