Special RDW Report: Supreme Court Reverses Purdue: No Nondebtor, Third-Party, Nonconsensual Releases​​​

In a 5/4 decision today, the Supreme Court reversed the Second Circuit’s Purdue decision and prohibited nonconsensual, nondebtor third-party releases as adjuncts to a chapter 11 plan, according to a special report in Rochelle’s Daily Wire. Writing the opinion of the Court, Justice Neil M. Gorsuch ended his 20-page opinion by saying, "[W]e hold only that the bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants." Justice Gorsuch described the question as being “whether a court in bankruptcy may effectively extend to nondebtors the benefits of a Chapter 11 discharge usually reserved for debtors.” The outcome was evident in the first paragraph of the opinion, when Justice Gorsuch said, “A debtor can win a discharge of its debts if it proceeds with honesty and places virtually all its assets on the table for its creditors.” By way of contrast, Justice Gorsuch said that the owners of the Purdue opioid manufacturer would have received the equivalent of a discharge “without securing the consent of those affected or placing anything approaching their total assets on the table for their creditors.” Click here to read more.

A full analysis will appear in tomorrow's Rochelle's Daily Wire.

To read the Supreme Court's opinion in Purdue Pharma, please click here.
 

Commentary: Bankruptcy Venue-Shopping Breaks Perceptions of Judicial Fairness​​​*

While once doubting claims that chapter 11 forum-shopping produced some benefits, Prof. Robert Lawless of the University of Illinois College of Law wrote in a Bloomberg Law commentary yesterday that evidence has convinced him otherwise and that changes are needed. For any court process to be seen as fair, people must see the judge as unbiased and believe that the judge has based their decision only on the evidence presented, Lawless writes. Parties also should have had an opportunity to make their arguments, and the judge must have considered those arguments even if they ultimately rule the other way. Most importantly, people must perceive the judge as being motivated only by a desire to be fair and not by motives extraneous to the issues at hand. Chapter 11 forum-shopping violates most of these criteria, according to Lawless. Some bankruptcy judges have openly admitted wanting to attract large chapter 11 cases. For particularly large companies, venue rules have become functionally nonexistent, Lawless writes. Corporations have cited law firm retainers, office leases or PO boxes as their “principal assets” in a preferred venue, but they are “assets” only in a legalistic sense. They have no tangible form and can exist wherever we might want to imagine them to be, especially if that place is convenient for their chosen venue. These sorts of assets rarely have any connection to the purpose of the venue statute, which was to put chapter 11s where the debtor conducted its business. The bankruptcy system has also become increasingly public-facing with such cases as Johnson & Johnson, Alex Jones/Infowars, the National Rifle Association, Purdue Pharma and numerous Catholic dioceses. If we expect the public to accept the bankruptcy system’s decisions as legitimate, Lawless writes that we need to fix the chapter 11 venue rules. 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.

Applications for ABI’s 2024 “40 Under 40” Program Due Sunday!

June 30 is the deadline for nominations and applications for ABI’s annual "40 Under 40" program, which 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! Click here for more information and to submit a nomination or application. 

Supreme Court Curbs SEC’s In-House Judges in Fraud Cases​​​

The Supreme Court curbed the Securities and Exchange Commission’s ability to press complaints before in-house judges, saying that defendants have a constitutional right to make their case to a federal jury when the agency is seeking financial penalties, Bloomberg News reported. The 6-3 decision could reduce the commission’s leverage to extract high-dollar settlements. It deals a blow to an administrative system the SEC once used to adjudicate more than 100 cases a year before scaling back amid legal challenges. The ruling could ripple across the government, potentially affecting the Federal Trade Commission, Agriculture Department and Environmental Protection Agency. A Justice Department lawyer said during arguments that more than two dozen agencies now impose penalties through administrative proceedings and that only some of those bodies have the option to go to federal court instead. The dispute is part of a Supreme Court term likely to have broad implications for federal regulators. The justices are also considering whether to overturn a precedent that gives agencies leeway when they interpret ambiguously as to congressional commands. The court’s conservative majority has been broadly skeptical of what it views as overreach by regulatory agencies. The majority said that the SEC’s “antifraud provisions replicate common law fraud” and that it was “well established” that those types of claims should be heard by a jury. “A defendant facing a fraud suit has the right to be tried by a jury of his peers before a neutral adjudicator,” Chief Justice John Roberts wrote for the majority. “Rather than recognize that right, the dissent would permit Congress to concentrate the roles of prosecutor, judge, and jury in the hands of the Executive Branch. That is the very opposite of the separation of powers that the Constitution demands.” Roberts was joined by Justices Clarence Thomas, Samuel Alito, Brett Kavanaugh and Amy Coney Barrett. Justice Sonia Sotomayor wrote a dissenting opinion, joined by Justices Elena Kagan and Ketanji Brown Jackson. Read more.

Click here to read the full opinion in SEC v. Jarkesy.
 

U.S. Recurring Jobless Claims Rise to Highest Since End of 2021​​​

Recurring applications for U.S. jobless benefits rose to the highest level since the end of 2021, a warning sign suggesting that it’s taking longer for unemployed people to find a job, Bloomberg News reported. Continuing claims, a proxy for the number of people receiving benefits, increased to 1.84 million in the week ended June 15, according to Labor Department data released Thursday. Meanwhile, first-time claims ticked down to 233,000 last week, a period that included the Juneteenth holiday. Hiring has slowed significantly from the pandemic-recovery era of widespread labor shortages, and the unemployment rate ticked up last month to 4% for the first time in two years. Initial claims before adjustment for seasonal influences decreased by 3,570 to about 224,400. Minnesota, Texas and Pennsylvania saw the highest declines. New Jersey had a sizable gain in claims. In the 20 years preceding the COVID-19 pandemic, weekly initial applications averaged about 345,000, and continuing claims averaged roughly 2.9 million. Read more.

Fearing Losses, Banks Are Quietly Dumping Real Estate Loans​​​

Some Wall Street banks, worried that landlords of vacant and struggling office buildings won’t be able to pay off their mortgages, have begun offloading their portfolios of commercial real estate loans hoping to cut their losses, the New York Times reported. It’s an early but telling sign of the broader distress brewing in the commercial real estate market, which is hurting from the twin punches of high interest rates, which make it harder to refinance loans, and low occupancy rates for office buildings — an outcome of the pandemic. Late last year, an affiliate of Deutsche Bank and another German lender sold the delinquent mortgage on the Argonaut, a 115-year-old office complex in Midtown Manhattan, to the family office of billionaire investor George Soros, according to court filings. Around the same time, Goldman Sachs sold loans it held on a portfolio of troubled office buildings in New York, San Francisco and Boston. And in May, Canadian lender CIBC completed a sale of $300 million of mortgages on a collection of office buildings around the country. “What you are seeing right now are one-offs,” said Nathan Stovall, director of financial institutions research for S&P Global Market Intelligence. Stovall said sales were picking up as “banks are looking to shrink exposures.” In terms of both number and value, the troubled commercial loans that banks are trying to offload are a sliver of the roughly $2.5 trillion in commercial real estate loans held by all banks in the U.S., according to S&P Global Market Intelligence. Read more.

Analysis: Wildfire Threats Make Utilities Uninsurable in U.S. West​​​

Trinity Public Utilities District’s power lines snake through the lower reaches of the Cascade Range, a rugged, remote and densely forested terrain in Northern California that has some of the highest wildfire risk in the country. But for several years, the company has been without insurance to protect it from such a threat. Trinity’s equipment was blamed for causing a 2017 wildfire that destroyed 72 homes, and three years later its insurer, a California public agency called the Special District Risk Management Authority, told the utility that it would no longer cover it for fires started by its electrical lines. Trinity could find no other takers. The utility’s exposure comes as wildfires are already flaring up across the U.S. West in what could be a dangerous and prolonged fire season, Bloomberg News reported. “If a fire were to start now that involved one of our power lines, it would likely bankrupt the utility,” said Paul Hauser, general manager of the local government-owned utility that serves about 13,000 rural customers in Trinity County, 200 miles (322 kilometers) north of Sacramento. That’s because without insurance, a lawsuit could put the utility on the hook to pay for damages to private homes and businesses, which could easily top the utility’s annual revenue of about $16 million. Western utilities and beyond are finding it prohibitively expensive, if not impossible, to insure against potential fire-related claims. The trouble comes after power companies from Hawaii to Texas have collectively faced tens of billions of dollars in damages from wind-driven wildfires linked to their equipment. The issue will become more pressing as climate change makes droughts more intense and frequent, heightening the chances of more destructive infernos. Wildfire risk is the number one issue for utilities,” said Michael Kolodner, the practice leader for the U.S. power and renewables industry at Marsh & McLennan Companies Inc., a U.S. insurance broker. “This is impacting every single utility in North America.” The insurance companies set up by the utilities are now limiting how much coverage they will provide to power companies exposed to wildfire risk, leaving them at the whim of the commercial marketplace, where premiums are rising. Overall, commercial wildfire insurance rates have gone up as much as 30% this year, with premiums also increasing the past several years, according to Marsh. Portland General Electric, based in Oregon, said that their fire insurance premiums have doubled. Read more.

Donate to the Kevin J. Carey Memorial Scholarship ​​​

Hon. Kevin J. Carey (ret.), who served as ABI’s President from 2022-23 after previously having served as ABI’s Vice President-Membership, among other leadership roles, died on April 11 at his home in Devon, Pa., at the age of 69. An ABI member since 1997, he had served as a U.S. Bankruptcy Judge for the District of Delaware from 2001-19, then as senior counsel at Hogan Lovells in Philadelphia from 2019 until his death. The Carey family is grateful for the continued prayers and support they have received since Judge Carey’s passing, and have since formed a scholarship in his name at Villanova University School of Law, which will be awarded to academically talented students enrolled in the Charles Widger School of Law with demonstrated financial need. To donate in support of the Kevin J. Carey Memorial Scholarship, please send a check to Villanova University at 299 North Spring Mill Road, Villanova, PA 19085, with “The Kevin J. Carey Memorial Scholarship” in the memo. Donations also can be made online at givecampus.com/campaigns/36916/donations/new. From there, select “Other/Your Choice” to write in “The Kevin J. Carey Memorial Scholarship.”  

Pick Up Your Copy of Driving the Recovery Bus​​​

Make sure to pick up your copy of Driving the Recovery Bus: Augmenting Creditor Recoveries Through Claims Brought by a Litigation Trustee. Written by Gordon Z. Novod, this book is not only for litigation trustees, but also for creditors who serve on official committees of unsecured creditors, attorneys and other professionals who frequently represent official committees of unsecured creditors, and others with a general interest in the pursuit of causes of action by litigation trustees. Get your copy of Driving the Recovery Bus. 
 

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.

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!

Tap into Rochelle’s Daily Wire via the ABI Newsroom and 'X' (Formerly known as Twitter)!