Supreme Court Today: Insurance Neutrality Doesn’t Deprive an Insurer of Standing​​​

Reversing the Fourth Circuit today, the Supreme Court held that a chapter 11 plan that is “insurance neutral” does not deprive the insurer of standing to raise objections to the plan, according to an analysis by ABI Editor-at-Large Bill Rochelle. For a unanimous Court, Justice Sonia Sotomayor said, “Courts must determine on a case-by-case basis whether a prospective party has a sufficient stake in reorganization proceedings to be a ‘party in interest’ ” under Section 1109(b).

Given that Congress intended for a “party in interest” in Section 1109(b) to be applied “broadly,” Justice Sotomayor held that insurers “with financial responsibility for bankruptcy claims are parties in interest” with standing to object to plans.

Justice Sotomayor said that “the Court today does not opine on the outer bounds of §1109.” Quoting the Collier treatise, she said that “a party in interest is ‘not intended to include literally every conceivable entity that may be involved in or affected by the chapter 11 proceedings.’ ”

To read the opinion in Truck Insurance Exchange v. Kaiser Gypsum Co. Inc., 22-1079 (Sup. Ct. June 6, 2024), click here.

ABI will publish a more thorough discussion of Truck Insurance by tomorrow. 

U.S. Trustee Program Updates Safeguards for Bankruptcy Funds Through Modernized Depository Agreement​​​

The Justice Department’s U.S. Trustee Program (USTP) recently updated safeguards for bankruptcy funds by introducing a revised and modernized form depository agreement for banks and financial institutions that accept bankruptcy estate deposits, according to a DOJ press release. On June 3, the USTP began transmitting the new agreement to existing authorized depositories and any banks that have expressed interest in signing up. The modernized agreement reflects the evolution in the way that the USTP, Department of the Treasury and financial institutions conduct business. The agreement was last revised in 2013. “Banks that serve as authorized depositories provide vital foundational support to the bankruptcy system by safeguarding critical recoveries,” said Director Tara Twomey of the Executive Office for U.S. Trustees. “In modernizing this agreement, the USTP remains dedicated to ensuring broad access to banking services for debtors, including those in rural and remote areas.” The new agreement accommodates advances in technology and the reorganization of the Treasury, and it reflects changes in the methods used for safeguarding certain deposits and in applicable laws and regulations. Additionally, the new agreement aims to simplify the process for banks to become authorized depositories and streamlines two versions of the prior agreement into a single document. The changes come as the USTP continues to strengthen important safeguards for bankruptcy estate funds following recent banking instability. As the banking turmoil unfolded, the USTP undertook a comprehensive review of its systems for monitoring the deposit and collateralization of funds by trustees and other fiduciaries whom the USTP is charged to supervise. The USTP’s policies and procedures worked as intended. Even in the absence of federal intervention, all bankruptcy funds were protected from a risk of loss except where bankruptcy courts waived the safeguards. Still, the USTP found areas where changes would be beneficial due to technological updates and modernized banking practices. Read more.

Commentary: Insights on Recent Disqualification Decisions*​​​

Our thinking about conflicts of interest, especially in large chapter 11 cases involving a battle of BigLaw firms, has gone all catawampus, according to a commentary by Prof. Nancy Rapoport of UNLV's William S. Boyd School of Lawin a Creditor Rights Coalition special feature. We are now seeing court decisions on section 327(a) employment applications that, though they quite properly focus on disinterestedness and the disclosures of connections required by Bankruptcy Rule 2014, manage somehow to skip over the fact that, if we’re talking about law firms seeking employment, the lawyers in those firms are bound by the ethics rules of the bars in which they hold membership. The law firms — and every lawyer in those firms — have to address the issues of conflicts with concurrent clients, former clients, or prospective clients. Two recent conflicts in opinions with very different results have highlighted the challenges of parsing conflicts of interest. One of those opinions is the not-for-publication opinion in In re Invitae Corp. The other is In re Enviva, Inc. In Invitae, the court approved the employment of BigLaw Firm 1 as attorneys for the DIP; in Enviva, the court declined to approve the employment of BigLaw Firm 2. Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Private Equity Puts Brakes on Healthcare Roll-Ups After Government Scrutiny​​​

Private-equity firms have sharply slowed their serial acquisitions of smaller medical businesses, deals that U.S. antitrust regulators say often unfairly reduce competition and harm patients, the Wall Street Journal reported. This year there have been 180 private-equity add-on deals — transactions in which a buyout firm acquires a company to combine with one the firm already owns — in the U.S. healthcare sector through May 28, just 23% of last year’s full-year total, according to data-tracking firm PitchBook Data. While all private-equity activity is down this year, healthcare roll-ups are down more sharply. All private-equity investment by deal value stands at 34% of last year’s total through May 28, while add-on deals in all industries are running at 33% of last year’s total by number of deals as of the same date, according to the PitchBook data. Biden administration regulators have for the past year sought to curtail healthcare roll-ups, arguing that they can lead to less competition, higher medical costs for patients and lower quality of medical care. The Federal Trade Commission and Justice Department on May 23 began a formal inquiry to identify harmful effects of roll-ups in the U.S. economy. Other steps the antitrust enforcers have recently taken to curtail these types of deals include launching an investigation into healthcare profiteering, writing new merger guidelines to scrutinize more buyout roll-up deals and suing a buyout firm for allegedly seeking to fix prices through a healthcare roll-up. (Subscription required.) Read more.

Treasury Seeks Public Comments on AI Use in Financial Services Sector​​​

The U.S. Treasury Department said on Thursday it is seeking public comments on the use of artificial intelligence in the financial services sector, Reuters reported. The agency is looking to improve its understanding of the opportunities and risks presented by the development and application of AI within the sector. Regulators have cautioned that the rapid adoption of AI could create new risks for the U.S. financial system if the technology is not adequately monitored. U.S. Treasury Secretary Janet Yellen will warn that the use of AI in finance could lower transaction costs but comes with "significant risks," according to excerpts from a speech to be delivered to a Financial Stability Oversight Council and Brookings Institution AI conference on Thursday. The Treasury said that it is seeking inputs from a broad set of stakeholders and is particularly interested in understanding how AI innovations could help promote inclusive and equitable access to financial services. The agency has encouraged members of the public to submit their comments within 60 days. Click here for more information. 

Feeling Consumers’ Pain, Retailers Bring Back Discounts​​​

U.S. consumers, fatigued by a three-year bout of inflation, want lower prices. And large retailers that have increased prices, partly to contend with their own rising costs, appear to be responding to customer concerns — to an extent, the New York Times reported. Walgreens said last week that it was lowering prices on over 1,000 items. Target recently announced modest price cuts on 5,000 food products and household goods. Craft and furniture stores like Michael’s and Ikea have also said they will drop prices on popular items. A broader range of companies have indicated on quarterly earnings calls that they plan to slow price increases and seek other ways to expand profitability. Signaling empathy with customers facing higher living costs is an increasingly important marketing strategy, retail analysts say. But regardless of motivation, a shift is in motion that may help ease inflation in the coming months. “Retailers have recognized they have to make some movement on pricing because the customer now is getting to the point where they’re shopping around more, they’re cutting down on the amount that they buy,” said Neil Saunders, managing director at GlobalData Retail, a research and consulting firm. In some ways, the industry seems to be entering a new phase. After a slog for retailers during much of the 2010s, when they often resorted to heavy discounts to gain or maintain market share, the pandemic upended consumer habits. Suddenly, bank accounts were buoyed by emergency federal aid, and millions of consumers unable or unwilling to spend on in-person services shifted to buying goods. Read more.

Report: Child Care Cost Rising at Nearly Twice the Pace of Inflation​​​

Child care costs in the U.S. have been rising over the last few decades at nearly twice the rate of inflation, according to a new report by audit firm KPMG. KPMG’s report, which was published on Tuesday, showed that child care costs increased by 263 percent between 1990 and April of this year. During the same time period, the consumer price index, a parameter utilized for measuring inflation, rose by 133 percent. Women who have younger kids also have a lower labor force participation rate when compared to others, according to KPMG’s research. Mothers with children who are younger than 6 had a labor participation rate of 69 percent last year, compared to 95 percent of similar fathers. Women with kids between 6 and 17 had a labor participation rate of 78 percent, while with men it was 92 percent. The consumer price index published in February showed child care costs increased by 3 percent between December 2022 and December of last year. Preschool and day care costs rose by 4.5 percent during the same period. Read more.

Latest ABI Podcast Features Discussion Between Author and Editor of "Driving the Recovery Bus"​​​

ABI's newest podcast focuses on a recent book, Driving the Recovery Bus: Augmenting Creditor Recoveries Through Claims Brought by a Litigation Trustee. Author Gordon Z. Novod of Grant & Eisenhofer, and the book’s editor, Rosa Evergreen of Arnold & Porter, provide insights on the issues at play in Driving the Recovery Bus, the audiences the book was intended for and the process of how it was written. Click here to listen!

To pick up your copy of Driving the Recovery Bus, please click here.

Application and Nomination Period for ABI’s 2024 “40 Under 40” Class Open Through June 30 ​​​

The ABI "40 Under 40" annual program continues to highlight the best up-and-comers in the industry. If you are, or know of, a dynamic insolvency professional who is committed to growth and excellence both professionally and in your community, this is one opportunity not to be missed! Nominations and applications are due June 30. Click here for more information and to submit a nomination or application. 

Get Your Copy of The Purdue Papers to access Amicus Briefs and Commentaries Related to Purdue Pharma Case!​​​

A petition by the U.S. Trustee regarding the case of Purdue Pharma L.P. is currently being considered by the U.S. Supreme Court. Regardless of how the Court rules, the case has already generated a mountain of commentary in the form of amicus briefs, petitions and other related background material. ABI, guided by editor David R. Kuney (who represented one group of amicus filers), has gathered together all of this material in a fully searchable form — more than 3,000 pages worth! This collection will be updated with the final Supreme Court decision — expected later in 2024 — as well as a final commentary by ABI Editor-at-Large Bill Rochelle, who writes Rochelle’s Daily Wire. This collection is an invaluable resource for anyone working in the area of third-party releases, either as a practitioner, an academic or just an interested party. Get your digital copy for only $25!

Have an Idea for a Topic for an ABI Conference Session? Submit Your Proposal via ABI’s “Call for Abstracts” Page!​​​

ABI has launched an online portal for professionals to submit proposals for educational sessions at future ABI conferences. Submitters can describe their proposed topic, outline the session’s focus and learning goals, suggest speakers, and provide contact information via the portal’s detailed form. The portal can be accessed here.

All submissions will be reviewed by an internal Education Committee, which will contact the submitter to ask questions as needed and to discuss the status of the proposal. Submissions will be reviewed on a rolling basis.

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