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February 21, 2005
Bush Signs Class-action Legislation
President Bush on Friday signed the class-action bill and pledged to
work with Congress for asbestos litigation and medical liability
overhaul, CongressDaily reported. The class-action bill, he
said, is “a critical step toward ending the lawsuit culture in our
country.” But, he added: “There’s more to do.
…Small business owners across America fear that one junk lawsuit
could force them to close their doors for good,” the newswire
reported. The class-action measure, approved by the House last week,
moves many class-action lawsuits from state to federal courts, where
more stringent rules would govern the cases.
Amtrak Calls Bush Budget ‘Right Message,’ Wrong
Number
The board of directors that oversees Amtrak told Congress on Thursday
that the Bush administration’s FY06 budget contained “the
right message” but the wrong solution for the beleaguered national
passenger rail system, CongressDaily reported. The Bush
budget proposes eliminating Amtrak subsidies in an attempt to force
lawmakers to make sweeping changes. But, the Amtrak Reform Board wrote
in its annual report to Congress, “To effect needed reforms at
Amtrak…zero is not the right number at this juncture.”
Without government money, the directors said, changes cannot be made.
While acknowledging the need for improvement, “the threat of
insolvency or bankruptcy can undermine the stability of any business; in
Amtrak’s case the disruption of the financial and operating
stability Amtrak has achieved over the last two years could stop our
reform effort in its tracks,” the report said.
U.S. Economy: Wholesale Prices Rise, Consumer Confidence Falls
U.S. wholesale prices rose in January and costs excluding food and
energy had the biggest gain since 1998, the government said, Bloomberg
reported. Signs of rising inflation helped erode consumer confidence
this month, a university report showed. The 0.3 percent increase in
prices paid to producers reflected higher costs for cigarettes, vehicles
and business equipment and followed a 0.3 percent drop in December, the
Labor Department said Friday. Treasury notes fell after the report
showed a 0.8 percent increase excluding food and energy. The University
of Michigan’s index of consumer sentiment fell for a second
straight month to 94.2 in February from January’s 95.5. The report
showed a rise in inflation expectations, and a measure of
Americans’ outlook dropped to the lowest since May.
$89K to Predict Future Abuse Cases Irks Judge
The judge in the federal bankruptcy case of the Roman Catholic
Diocese of Tucson said Friday that he remains skeptical about paying
$88,983 to statisticians to predict the number of future reports of
sexual abuse by local clergy, the Arizona Daily Star
reported. Estimating the number of victims who will later report abuse
poses a crucial, and tricky, question in the early stages of the case,
the newspaper reported. The diocese’s bankruptcy plan sets aside
money for people who don’t report abuse by the April 15
deadline—either because of repressed memories or because the
victims are minors. An attorney for the diocese, one for the committee
representing victims and the case’s “unknown-claims
representative” all said they wanted to pay an out-of-state
consulting firm to predict how many more victims are out there. The
estimated price was $88,983. Judge James M. Marlar said that was too
expensive. Marlar had another big concern besides the cost, namely that
the $88,983 might accomplish absolutely nothing, the Star
reported. Fred Allison, diocese spokesman, said the Tucson diocese is
the first in the nation to grapple with the question of how to estimate
future claims of abuse during its bankruptcy case. The Portland, Ore.,
and Spokane, Wash., dioceses also have declared bankruptcy.
UAL
UAL Says Court Agrees to Extend Financing
UAL Corp., parent of United Airlines, on Friday said the bankruptcy
court had approved an amendment to its debtor-in-possession financing
facility with its current lenders, including JP MorganChase, Citigroup,
CIT and GE Capital, Reuters reported. Key terms of the amendment include
an extension of the maturity date from June 30, 2005, through Sept. 30,
2005, and a significant reduction in the interest rates that United must
pay under the loan. UAL said it still had several difficult issues to
address, but this amendment would continue its access to the financing
while it moves ahead with other restructuring initiatives in the months
ahead.
United Airlines Targeting Fall 2005 for Bankruptcy Exit
United Airlines on Friday confirmed it had received four
“preliminary” proposals for exit financing in the range of
$2 billion to $2.5 billion from four separate institutions,
Smartmoney.com reported. The airline also said in court documents filed
in its bankruptcy case that it will seek court action to terminate the
pension plans of several unions if it can’t reach consensual
agreements by April 11. UAL Corp.’s United said after the April
deadline, it would file paperwork with the U.S. Bankruptcy Court for the
Northern District of Illinois to have the plans shut down. The situation
applies only to employees represented by the Aircraft Mechanics
Fraternal Association, the International Association of Machinists and
Aerospace Workers and the Association of Flight Attendants. United, now
targeting an exit from bankruptcy sometime this fall, said it had
reached a deal with its bankruptcy-loan lenders to extend the maturity
date of its so-called club debtor-in-possession financing loans to Sept.
30. The change also waives special rules related to the company’s
earnings levels and resets those levels for future months.
US Airways Reaches $125 Million Deal for Restructuring
Arlington, Va.–based US Airways Group Inc. on Friday said it
had reached a $125 million deal with an investor group to fund its
restructuring under bankruptcy protection, Reuters reported. The company
said it reached the agreement with Eastshore Aviation, an investment
entity owned by Air Wisconsin Airlines, a privately held regional
airline. The $125 million facility will be made in the form of a
debtor-in-possession term loan, US Airways said. US Airways filed its
second bankruptcy petition in two years last September. It hopes to
emerge as a leaner airline with a new route structure and substantially
lower costs. It plans to operate as a low-cost carrier domestically,
with premium routes to Latin America and Europe. The airline has until
the end of March to submit its new business plan and has said it hopes
to file the plan by March 15.
Orange County on Fast Track to Ease Debt
Orange County, shaken by the nation’s largest municipal
bankruptcy in 1994, is preparing to pay off its debts—11 years
early, the Los Angeles Times reported. After filing for
bankruptcy, the county took on $1 billion in debt, expecting to pay it
off over 30 years. Now, under a plan that a majority of county
supervisors say they support, the county would refinance, taking
advantage of lower interest rates and a stockpile of $116 million in
savings to pay off the debt by 2015, the online newspaper reported. Like
homeowners who refinance their homes and pay off their mortgages early,
the county would enjoy large savings—$450 million, officials
estimate. The decision would be a final chapter to a decade of firings,
criminal charges, credit problems and huge debt payments for the county.
The county still needs to make sure the refinancing plan meets Internal
Revenue Service guidelines because it involves the sale of tax-exempt
bonds, the newspaper reported.
Judge Delays WorldCom Investors Trial until March
A federal judge on Friday delayed until March 17 the start of a trial
brought against Wall Street firms by investors who lost money in the
collapse of WorldCom Inc., the Associated Press reported. The trial had
been scheduled to begin Feb. 28. U.S. District Judge Denise Cote granted
the delay so lawyers in the civil trial can interview witnesses from the
criminal trial of former CEO Bernard Ebbers when that trial ends, likely
in the next two weeks. In the civil case, investors are suing 12 former
WorldCom directors, now-defunct auditing firm Arthur Andersen and major
investment banks, including J.P. Morgan Chase & Co. and Bank of
America Corp. The investors claim the defendants should have known about
the fraud before WorldCom collapsed in an accounting scandal in 2002. It
has since emerged from bankruptcy under the name MCI. Cote set jury
selection in the civil trial for March 17 and said opening statements
would likely be March 24 or March 28.
HealthSouth Audit Chairman Resigns from Board
HealthSouth Corp., which is trying to emerge from an accounting
scandal, said on Friday that Lee Hillman, chairman of the board’s
audit committee and a member of the finance committee, resigned from the
board, effective immediately, Reuters reported. The company did not
immediately say why Hillman was leaving the board. Hillman, president of
Liberation Investment Advisory Group, is a former chairman and chief
executive of Bally Total Fitness Holding Corp. Last week, Bally said it
was facing a criminal probe into accounting issues and fired two
executives. The health club operator also said it would make no further
severance payments to Hillman, who resigned in 2002, and former chief
financial officer John Dwyer, who quit last April, and would consider
its legal options concerning the pair, the newswire reported. The
resignation comes at a time when the company’s founder and former
chief executive is facing 58 charges in a criminal trial as the accused
mastermind of a $2.7 billion accounting fraud.
Testa Hurwitz to Fight Involuntary Chapter 11
Testa, Hurwitz & Thibeault, a Boston law firm that voted last
month to disband, on Friday said a move by former partners to force the
firm into involuntary bankruptcy will be “vigorously
contested,” Reuters reported. Testa Hurwitz, a former legal
powerhouse serving the technology and venture capital industries,
responded to a surprise move on Thursday by eight former partners who
petitioned the U.S. Bankruptcy Court for the Eastern District of
Massachusetts to put the firm into chapter 11. If accepted by the court,
this would put the firm under court-monitored reorganization. This
leaves open the possibility that in the future it could lead to
liquidation under chapter 7 of the U.S. Bankruptcy Code. John
Monaghan, a Holland & Knight lawyer who represents the former
Testa Hurwitz partners in the bankruptcy action, defended the move,
saying his clients were concerned they wouldn’t receive what they
were due in the in-house liquidation process. “They are just
asking for a chapter 11 instead of a wind down out of court,” said
Monaghan in an interview. “There is less hassle if you put the
company into chapter 11.”
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Judge to Rule Feb. 25 on Parmalat’s Citigroup Suit
A New Jersey state judge plans to rule on Feb. 25 whether Parmalat
Finanziaria SpA, the insolvent Italian dairy company, may proceed with
its $10 billion fraud lawsuit against Citigroup Inc., the world’s
largest bank, Reuters reported. Judge Jonathan Harris of Bergen County
Superior Court heard arguments on Friday in which Parmalat maintained
Citigroup was partially responsible for the dairy company’s
collapse. Citigroup has maintained it was a victim of Parmalat’s
own fraud and is seeking to have the lawsuit dismissed. The
judge’s decision may have repercussions for similar lawsuits filed
by Parmalat’s administrator, Enrico Bondi, against Bank of America
Corp. and auditors Deloitte & Touche and Grant Thornton, which also
worked with Parmalat. Parmalat collapsed under the weight of about
€14 billion (US$18 billion) of debt in one of Europe’s
biggest financial scandals. It filed for insolvency in Italy in December
2003, and its U.S. dairy units filed for chapter 11 bankruptcy
protection last February.