Asbestos Class Action Bill Faces Steep Senate Hurdle

A bill to limit class actions and restrict alleged illegitimate asbestos bankruptcy trust claims is predicted to sail through the House this week but is unlikely to muster sufficient votes in the Senate, according to Bloomberg BNA today. The Fairness in Class Action Litigation Act (H.R. 1927), which includes the Furthering Asbestos Claims Transparency Act (formerly H.R. 526), is scheduled for a floor vote today or tomorrow. Then it's on to the Senate, where the bill is expected to stall. "It does not seem likely that the FACT Act will pass the Senate," Rachel Reynolds with Sedgwick Law LLP told Bloomberg BNA in a Jan. 4 e-mail. Reynolds defends companies against product liability, environmental and toxic tort claims. "There is a strong lobby against the legislation that asserts that the bill is designed to unfairly deny injured individuals compensation to which they are due," she said.

The "Legislative Update" column of the February ABI Journal will have an a overview of bankruptcy and debt legislation pending at the start of the new session of the 114th Congress.

Commentary: Fixing Puerto Rico's Debt Mess

While permitting Puerto Rico to file for bankruptcy under chapter 9 would be a simple way to help the territory resolve its debt crisis, it would be far better if Congress reformed municipal bankruptcy law to avoid the kind of inequities that occurred in Detroit, according to a Wall Street Journal commentary yesterday by Prof. David Skeel. The rule of law took a beating in the Detroit bankruptcy, according to Skeel. Holders of the city's general-obligation bonds, which had the same priority as pensions, got stiffed, receiving roughly 41 percent of what they were owed, while pensioners got at least 60 percent. Those holding Puerto Rico's municipal bonds are right to worry that they too could get mistreated, according to Skeel. If they do, future investors may refuse to lend to troubled municipalities, including Puerto Rico, no matter how well protected the bonds seem to be. (Subscription required.)

Join experts in San Juan to discuss Puerto Rico's economic distress and other important cross-border insolvency topics at ABI's Caribbean Insolvency Symposium, Feb. 4-6, 2016. Click here to register!

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress' webpage.

Student Loan Guarantor Takes Agency Dispute to Supreme Court

The country's largest student loan guarantor has asked the U.S. Supreme Court to consider a case that began as a seemingly routine debt dispute but now grapples with a question at the heart of administrative law: How much deference should judges give to agencies' interpretations of federal regulations? In a petition filed this week, United Student Aid Funds Inc. urged the high court to grant review of its case against a woman who sued the company for charging her $4,500 in collection costs after she defaulted on her student loans and agreed to a debt-rehabilitation program, according to the National Law Journal today. The woman, Bryana Bible, has argued that she cannot be charged for collection costs because she accepted a rehabilitation agreement within 60 days and successfully completed it by making nine on-time payments of $50. USA Funds contends that, under the Higher Education Action, guarantors like itself are required to assess such costs. Bible, it argues, has conflated the terms of a rehabilitation agreement with those of a repayment agreement -- a separate option that the Department of Education lists on its website for bringing student loans out of default. A federal judge in an Indiana federal court dismissed the case. When Bible appealed, a three-judge panel of the U.S. Court of Appeals for the Seventh Circuit invited the Department of Education to file an amicus brief clarifying whether guarantors can assess collection costs against a first-time defaulted borrower who quickly agreed to a rehabilitation agreement and met its requirements. (Subscription required.)

Commentary: A Growing Conflict in Wall St. Buyouts

Over the last several years, a new relationship has quietly developed between the nation's largest private-equity firms, the banks that lend them billions to fund their buyouts and the law firms that advise on these deals, according to a commentary in Monday's New York Times DealBook blog. Historically, when a bank, like JPMorgan Chase, made a loan to a private-equity firm planning a big acquisition, like the Blackstone Group, the bank would hire an outside law firm to scrutinize the loan and the transaction. The Federal Reserve, which worries about these kinds of loans, has since the financial crisis sought to make it tougher for big banks to make highly leveraged loans by issuing rules that determine the amount of money they can lend. But neither the Federal Reserve nor any other regulator has addressed this latest private-equity maneuver. Instead of allowing a bank to hire its own lawyers to vet a potential loan, many large private equity firms -- Blackstone, Apollo Global Management, Kohlberg Kravis Roberts and Carlyle Group among them -- now regularly require the banks to use a specific law firm that they designate, hence the term "designated lender counsel." The private-equity firms pay for the law firm's services, too.

Fed's Lacker Urges Higher Rates as Inflation Heads Back to Goal

Federal Reserve Bank of Richmond President Jeffrey Lacker today expressed confidence that inflation will return to the central bank's target after oil prices and the U.S. dollar stabilize and called for a continued tightening in monetary policy, Bloomberg News reported today. "While there is uncertainty about the pace at which monetary policy rates will rise, the case for an upward adjustment in rates should be clear," Lacker said today in remarks delivered in Raleigh, N.C. The Fed's expectation that rate increases will be gradual suggests a 1 percentage point increase a year in rates, though the actual path will depend on how economic data come in, Lacker said. He was a voting member last year of the policy-setting Federal Open Market Committee, which decided Dec. 16 to raise the nation's benchmark lending rate target to a range of 0.25 percent to 0.5 percent from near zero.

Read Lacker's full speech.

The Ghosts of Baha Mar: How a $3.5 Billion Paradise Went Bust

Just how Bahamas' Baha Mar resort ended up in a bankruptcy so colossal that it is jeopardizing the island country's credit rating stretches far beyond the white beaches and across time zones to the State Council of China, according to a Bloomberg News feature on Monday. Baha Mar may have been dreamed up in the vacationland of the Bahamas, but the central government in Beijing controls the development bank and construction giant that will determine its fate. Bahamian officials have been counting on Baha Mar to invigorate the local tourist economy. The developers claimed the resort could single-handedly generate 12 percent of the country's gross domestic product -- provided it ever opens. The roots of the island's predicament stretch back more than a decade to 2005, when Prime Minister Perry Christie reached an agreement with a local businessman named Sarkis Izmirlian to help revitalize Cable Beach, the most popular beachfront destination on New Providence Island. Izmirlian sank nearly $900 million into Baha Mar and recruited marquee-name partners like a Caesars Resort hotel. When the 2008 financial crisis hit, would-be partners balked, so when China State Construction Engineering Corp., the world’s second-largest contractor, approached Izmirlian about stepping in, he said yes. The company directed him to Export-Import Bank of China, or Exim, which promotes trade and investment under the direction of Beijing. Seeing a way into U.S. markets, China State Construction promptly invested $150 million. Exim kicked in $2.45 billion in construction loans -- with the proviso that Izmirlian could never fire the Chinese builder, no matter what, and that workers from China would do the job. After contracting delays and concerned that China State Construction might gain a tactical advantage by filing first, Izmirlian secretly planned to have Baha Mar declare bankruptcy in the U.S. rather than the Bahamas, whose laws would make liquidation all but inevitable.

Don't Miss the Insights and Analysis of Important Case Decisions with Rochelle's Daily Wire

ABI Editor at Large Bill Rochelle this week started providing his exclusive perspectives and analyses of important case decisions. New summaries appearing on today's Daily Wire include:

- Ninth Circuit BAP Splits with Three Circuits on Dischargeability of Tax Debts

- Florida District Court Again Overrides the FDCPA on Time-Barred Claims

- Stripped-Off Mortgages Don't Count Toward Chapter 13 Unsecured Debt Limits

- Judge Properly Attached Strings to a Full-Payment Chapter 13 Plan

Tap into Rochelle's Daily Wire via the ABI Newsroom, Daily Headlines e-mail and Twitter!

USTP Announces Notice of Public Hearing and Reopened Comment Period for Proposed Procedures for Completing Uniform Periodic Reports in Non-Small Business Cases Filed Under Chapter 11 of Title 11

The U.S. Trustee Program (USTP) on Nov. 10 published in the Federal Register a notice of proposed rulemaking (NPRM) seeking public comment on the proposed rules requiring uniform periodic reports by debtors-in-possession or trustees in non-small business cases under chapter 11 and the proposed periodic report forms. After analyzing the comments to the NPRM and proposed forms, and because certain public commenters asked to meet with representatives of the USTP to discuss the NPRM and proposed forms, the USTP has decided to hold a public hearing on Feb. 17, 2016, from 10:00 a.m. to 1:00 p.m. ET in the Executive Conference Center in the Executive Office for U.S. Trustees in Washington, D.C. The hearing on the NPRM will provide an opportunity for interested parties to express their views directly to USTP officials. The USTP has also reopened the comment period and will accept new and supplemental comments from the public on or before Feb. 22, 2016, via www.regulations.gov. Those who register to attend and make a presentation at the public hearing must have either a written comment or statement on file by the registration deadline of Jan. 6, 2016. For more information, please click here.