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by Prof. Drew Dawson, ABI Resident Scholar

On March 23, 2017, Bankruptcy Judge Christopher Klein (C.D. Cal.) slapped Bank of America with $45 million in punitive damages for willful and repeated violations of the automatic stay, in addition to actual damages of slightly more than $1 million. Such a large punitive damage award was necessary, according to the court, because this tale was not one of low-level corporate incompetence but instead “one of corporate culture...driven by direction from senior management.” The court’s opinion opens with a reference to Franz Kafka as it begins to recount the nightmarish tale of Bank of America’s conduct toward a California couple over the course of nearly eight years. Click here to read the analysis. 

Alabama’s Attorney General is joining colleagues from 12 other states in investigating asbestos bankruptcy trusts’ failure to pay out Medicaid payments as federal law requires, Alabama Today reported today. Lawsuits have sent more than 60 manufacturers of asbestos or asbestos-containing products into bankruptcy and have paid out more than $17 billion since 2008. The attorneys general claim that the bankruptcy trusts, which are often overseen by plaintiff lawyers, are not giving Medicare and Medicaid their fair due when making payments to claimants. The 13 attorneys general sent demand letters to bankruptcy trusts for Armstrong World Industries, Babcock & Wilcox, DII and Owens Corning/Fibreboard back in December, and after receiving no response elected to file a civil suit in Utah this month to move forward on recovering Medicaid payments.

The trustee in Spice Modern Steakhouse’s bankruptcy case is asking the court to liquidate the Orlando restaurant after its third bankruptcy reorganization filing in seven years, the Orlando Sentinel reported on Saturday. Court documents filed in federal bankruptcy court in Orlando by the trustee said the company might have been involved in “criminal activity consisting of underreporting sales and the amount of sales tax due.” The documents say Spice Modern Steakhouse and parent company Level 1 Inc., owe $262,105 to Florida Department of Revenue for back sales-tax payments. That number has accumulated starting with the company’s first bankruptcy filing in 2009, court records show. The most recent bankruptcy reorganization petition was filed by Spice ownership in November. Read more. 

Why is your favorite restaurant closing? A panel of experts at ABI’s Annual Spring meeting will discuss and analyze the various and peculiar restructuring issues related to restaurant chapter 11 cases, and forecast whether this industry will continue to incur financial distress. Click here to register- rates go up Friday! 

Failed brokerage MF Global Holdings Ltd. and accounting firm PricewaterhouseCoopers LLP said yesterday that they have settled their high-profile accounting-malpractice lawsuit in which the brokerage contended bad advice from PwC contributed to its 2011 collapse, the Wall Street Journal reported today. Terms of the settlement weren’t disclosed. Both sides said the case has been settled to “the mutual satisfaction of the parties” and declined to discuss the agreement further. The settlement came during the third week of an expected five-week trial in federal court in New York, in which MF Global’s bankruptcy administrator had sought $3 billion in damages and interest from PwC. MF Global contended that PwC had advised it to treat its “repo-to-maturity” trades involving European sovereign debt as sales rather than borrowings. This move enabled MF Global to record $100 million in immediate profit and take $6.3 billion in securities off its balance sheet, reducing its leverage and making the firm look less risky. PwC insisted it had given MF Global the correct accounting advice, and that MF Global collapsed because of its own faulty strategy and bad decision to bet on the risky European debt.

Rebel creditors of Peabody Energy Corp.'s reorganization plan have said they intend to appeal a bankruptcy judge's decision to allow the world's largest private sector coal producer to exit chapter 11 protection, Reuters reported yesterday. Bankruptcy Judge Barry Schermer in St. Louis approved last week a plan by Peabody, which has valuable coal assets both in the U.S. and Australia, to emerge from bankruptcy in early April with about $2 billion of debt. In a notice of appeal filed with the bankruptcy court in St. Louis, about a dozen money managers who voted against the plan asked an appellate court to review six issues decided by Judge Schermer in approving Peabody's reorganization. Their complaints mostly center around the terms of a private stock sale that formed part of Peabody's plan to slash more than $5 billion of debt and exit bankruptcy. To participate in the private offering, Peabody required creditors to support the reorganization plan. The objecting creditors have said this "premature" buy-in violated the U.S. Bankruptcy Code.

Nick Denton will leave bankruptcy, having weathered a multimillion-dollar judgment from an invasion-of-privacy lawsuit that forced the chapter 11 sale of his Gawker media business, the Wall Street Journal reported today. Bankruptcy Judge Stuart Bernstein said yesterday that he will dismiss Denton’s personal chapter 11 case and approve a legal settlement extinguishing his remaining personal liability to Terry Bollea, a former wrestler also known as Hulk Hogan. The bulk of the judgment was resolved in a separate settlement between Bollea and Gawker Media LLC. The decision concludes Bollea’s litigation against Denton, who along with Gawker and editor A.J. Daulerio were sued in 2012 after the online media company published portions of a sex tape featuring Bollea. Denton was jointly liable with Gawker and Daulerio for $115 million in compensatory damages. Denton was also assessed $10 million in punitive damages individually.

A mining company’s debt-cutting plan will leave taxpayers facing a bigger bill for cleaning up nearly two dozen hazardous sites primarily in the central U.S., including a swath of northeast Oklahoma that once produced lead ore for bullets in both World Wars, the Wall Street Journal reported today. The 22 properties will be shed by miner Peabody Energy Corp. when it leaves bankruptcy with a plan that shifts cleanup costs to the government. Peabody’s chapter 11 plan, approved on March 17 by a federal judge, and related settlements allow the company to provide about 2 percent of as much as $2.7 billion in environmental liabilities asserted by federal, state and tribal authorities for the sites polluted from lead and zinc mining that ended decades ago.