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Analysis: The Courts Weigh In on the Definition of a “Whistle-Blower”

The vagaries of the Dodd-Frank Act have left much room for interpretation of what protections Congress intended to provide financial fraud whistle-blowers, according to an analysis on the New York Times DealBook blog yesterday. One of the central questions of the provision has been whether a whistle-blower has to first report information about questionable practices to the Securities and Exchange Commission in order to be protected from firing, demotion or harassment. The federal courts have been split on this question. But the anti-retaliation provision in the Dodd-Frank Act provides a strong and important protection for whistle-blowers. To encourage disclosure of corporate wrongdoing, the SEC has taken an expansive view that would protect from retaliation any employee who reports information either internally or to a government agency. The legal problem is that Congress appeared to require reporting to the SEC as a prerequisite to applying the anti-retaliation provision. The law defines a whistle-blower as someone who provides "information relating to a violation of the securities laws to the commission." The U.S. Court of Appeals for the Fifth Circuit found in Asadi v. G.E. Energy that the law "clearly expresses Congress's intention to require individuals to report information to the SEC to qualify as a whistle-blower under Dodd-Frank." Read more.

DELAWARE RULINGS UPHOLD STATE COURT DISCRETION

The Delaware Supreme Court held in December that a lower court could limit a plaintiff's use of a books and records inspection to litigation in the state. On Jan. 2, a Chancery Court judge held that he didn't have to permit an interlocutory appeal of a ruling to prevent a shareholder vote on the Family Dollar Stores Inc. merger in the face of a competing offer, Bloomberg News reported yesterday. The Delaware Supreme Court case resulted from the fallout from a federal investigation into United Technologies Corp. for allegedly exporting technology to China illegally. The company entered into a deferred-prosecution agreement settling the case in 2012. Two shareholders subsequently sued. One sought to inspect the company's records under section 220(c) of Delaware's corporate law, but United Technologies argued to limit the use of the information to litigation in Delaware. The lower court held that it lacked the power to restrict the use, but the Supreme Court reversed and sent the case back to the lower court. The court also said that corporate bylaws that restrict litigation to Delaware — which United Technologies had — are valid even if adopted after a plaintiff has purchased the shares in the company. Separately, in the case involving Family Dollar, judge Andre Bouchard denied an appeal of his decision last month in which he refused to block Family Dollar Stores Inc. shareholders from voting on Dollar Tree Inc.'s $8.5 billion takeover bid. That vote was nonetheless postponed until Jan. 22. Read more.

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WHY NEW CREDIT CARDS MAY FALL SHORT ON FRAUD CONTROL

Big U.S. banks are steering clear of an advanced security measure used in credit cards around the world, opting for a system that is more convenient for shoppers but may leave them vulnerable to fraud, the Wall Street Journal reported yesterday. This year, firms ranging from JPMorgan Chase & Co. to Discover Financial Services Inc. are expected to roll out more than a half-billion new credit cards embedded with computer chips that create a unique code for each transaction, making counterfeiting much more difficult. In a retreat for the industry, however, the new cards don't use some technology that could prevent fraud if a card is lost or stolen. Instead of requiring customers to put in a personal identification number, or PIN, the new cards need users to authenticate credit card transactions the same way they often do now, with a signature. PINs are widely considered to be more secure than signatures, which can be easily copied. Read more. (Subscription required.) For more on cybersecurity and financial products, be sure to watch Winter Leadership speaker Theresa Payton, former White House CIO, provide her perspectives on cybersecurity and privacy.

OBAMA SAID TO PICK FORMER HAWAII COMMUNITY BANKER TO BE FED GOVERNOR

President Barack Obama plans to nominate Allan Landon, the former chief executive officer of the Bank of Hawaii Corp., to be a Federal Reserve Board governor, Bloomberg News reported today. Landon was chairman and CEO of Bank of Hawaii from September 2004 to July 2010, according to a biography on the website of the University of Hawaii at Manoa's William S. Richardson School of Law, which lists him as a lecturer with a degree from Iowa State University. While the Fed Board traditionally has had a community banker or supervisor on the seven-seat board, that role hasn't been filled since Governor Elizabeth Duke, a former executive at a Virginia community bank, retired in August 2013. The Fed Board has had two empty seats since the departure of governors Sarah Bloom Raskin in March and Jeremy Stein in May. Obama hasn't yet nominated a Fed vice chairman for supervision, a new position created by the Dodd-Frank Act of 2010. The role has been unofficially performed by Fed Governor Daniel Tarullo. Read more.

COMMENT DEADLINE FRIDAY: USTP NOTICE OF PROPOSED RULEMAKING ON CHAPTER 11 MONTHLY OPERATING REPORTS

Section 602 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) authorizes the U.S. Trustee Program (USTP) to issue rules requiring uniform periodic reports by debtors in possession or trustees in non-small business cases under chapter 11. The USTP just published in the Federal Register a notice of proposed rulemaking seeking public comment on the proposed rule and periodic report forms. The proposed rule is published in the Federal Register at 79 FR 66659 (Nov. 10, 2014) (to be codified at 28 C.F.R. pt. 58). The proposed rule, along with the proposed periodic report forms and instructions, may be viewed on the USTP's website. The proposed rule may also be accessed at www.regulations.gov. All public comments must be submitted on or before January 9, 2015, via www.regulations.gov. Please note that the proposed rule and forms only apply in chapter 11 cases filed by debtors that are not small businesses. Small business debtors are already required to use Official Form 25C, "Small Business Monthly Operating Report."

DON'T MISS THE ACB FOURTH CIRCUIT FREE PROGRAM EXAMINING ABI'S REPORT ON CHAPTER 11 REFORM ON FEB. 13 IN WASHINGTON, D.C.

Register today for the American College of Bankruptcy Fourth Circuit Program, "Considering ABI's Report on Chapter 11 Reform," being held held on Feb. 13 on Capitol Hill. The free event will take place in Room 226 of the Rayburn House Office Building from 9:30 a.m. to 1:00 p.m. (EST). The program will include discussion of:

- The Commission's overall philosophy and approach

- Treatment of SMEs

- 363 sales, DIPs, safe harbors, and labor issues

- Valuation and distribution issues. Faculty will include:

- Hon. Thomas Ambro, U.S. Court of Appeals for the Third Circuit

- Michael Bernstein, Arnold Porter

- Mark Ellenberg, Cadwalader

- Professor Michelle Harner, University of Maryland Francis King Carey School of Law

- Craig Goldblatt, WilmerHale

- Bob Keach, Bernstein Shur

- Danielle Spinelli, WilmerHale

- Steven Schwarcz, Duke Law

Additional faculty to be announced.

For more information and to register, please click here.

NEW CASE SUMMARY ON VOLO: ARAYA V. JPMORGAN CHASE BANK, N.A., ET AL. (D.C. CIR.)

Summarized by Bruce Weiner of Rosenberg, Musso & Weiner

The U.S. Court of Appeals for the D.C. Circuit ruled that the federal district court abused its discretion when it maintained jurisdiction over a removed case involving only state law and common law claims after the federal claims were dismissed. There are more than 1,500 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.

NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: THE KEY TO WIPING OUT OLD TAX LIABILITY

A recent blog post examines how to wipe out old tax liability in a bankruptcy case. Be sure to check the the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

"Executoriness" should be dropped as a threshold requirement in § 365.

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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2015

January
- New Orleans Consumer Bankruptcy Conference
    Jan. 19, 2015 | New Orleans
- Rocky Mountain Bankruptcy Conference
    Jan. 22-23, 2015 | Denver

February
- Caribbean Insolvency Symposium
    Feb. 5-7, 2015 | Grand Cayman, Cayman Islands
- VALCON 2015
    Feb. 25-27, 2015 | Las Vegas
 

March
- Paskay Bankruptcy Seminar
    March 5-7, 2015 | Tampa, Fla.
- Bankruptcy Battleground West
    March 24, 2015 | Los Angeles, Calif.

April
- Annual Spring Meeting
    April 16-19, 2015 | Washington, D.C.

REPORT: MANY CAN'T PAY THEIR DIRECT FEDERAL STUDENT LOANS

Just about four in 10 borrowers with direct federal student loans are paying them back, according to a report released yesterday that offers the first comprehensive snapshot of the program since the government created it in 2010, the Wall Street Journal reported today. Many of the 27.8 million borrowers with these newer direct federal loans aren't yet required to make payments: About 35 percent are still in school or within a six-month grace period after graduation, the report said. But about 18 percent are in programs designed to help distressed borrowers or have returned to school. Nearly 8 percent are in default, meaning the borrower hasn't made a payment in at least a year, according to the Consumer Financial Protection Bureau, the federal regulator that released the report. The report indicates that a significant number of borrowers in the new program are unable to repay. Excluding borrowers who don't yet have to make payments because they are still in school or within the grace period, more than a fifth -- about 22 percent -- are in default or forbearance. Read more. (Subscription required.)

Click here to read the CFPB's report.

COMMENTARY: MOTOWN'S PENSION SHOWDOWN

Detroit's unions have found an unlikely ally in Michigan's Republican Attorney General Bill Schuette, who has taken up their argument that the state constitution precludes federal bankruptcy court from reducing pension benefits, according to an editorial in the Wall Street Journal today. If this view holds, according to the editorial, unions and politicians in financially strapped cities will be able to use chapter 9 as a new political default to shed their bond debts. The Detroit case is likely to set precedents because it's the first large city that has tried to force haircuts on pensioners through bankruptcy. Politicians in the bankrupt cities of Vallejo and Stockton, Calif., sidestepped the issue of whether federal bankruptcy law pre-empts state pension protections after the California Public Employees' Retirement System threatened an expensive legal fight. But with $3.5 billion in unfunded pension liabilities, Detroit can't afford to duck. While the U.S. Constitution's Supremacy Clause would seem to give federal bankruptcy law the upper hand, Congress has traditionally sought to straddle the U.S. system of dual sovereignty by including explicit pre-emptory language in statutes that are intended to supersede state laws. Chapter 9's language doesn't explicitly pre-empt state laws, according to the editorial, but there's a strong case to be made that pre-emption is intrinsic to municipal bankruptcy. The legal tension comes because Michigan's constitution, which passed in 1963, holds that "accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby." Read more. (Subscription required.)

A similar commentary in yesterday's New York Times finds that while it isn't politically feasible for the federal government to bail out Detroit, President Obama and Congress must step in to avert the worst fiscal collapse in urban American history. The commentary makes the case that the government must intervene because the symptoms of the municipal illness that made Detroit, with an estimated $18 billion in liabilities, the largest city in American history to declare bankruptcy are showing up in other cities. Emergency response times are lengthening in cash-starved cities. Libraries, parks and recreation facilities are shortening their hours or closing. Potholes go unfilled, sidewalks unrepaired and trees untrimmed. All that makes urban life rewarding and uplifting is under increasing pressure, in large part because of unaffordable public employee pension and health care costs. Read the full commentary.

For the latest information and analysis about the Detroit case, be sure to visit ABI's dedicated website, http://news.abi.org/Detroit.

PRIVATE-EQUITY PAYOUT DEBT SURGES

Private-equity firms are adding debt to companies they own in order to fund payouts to themselves at a record pace, as fears are mounting that the window for these deals will close if interest rates rise, the Wall Street Journal reported today. So far this year, $47.4 billion of new loans and bonds have been sold by companies to pay dividends to the private-equity firms that own them, according to data provider S&P Capital IQ LCD. That is 62 percent more than the same period last year, which wound up being the biggest year on record, with $64.2 billion sold to fund private-equity payouts. The added debt, known as a recapitalization, can increase companies' risk of default, according to a recent study by Moody's Investors Service. As dividend deals increase, many also are unusually risky lately, carrying low credit ratings and paying historically low interest rates to investors. "This is the leveraged-finance debt market that you can't quite kill," said Richard Farley, a lawyer with Paul Hastings LLP who represents banks in buyouts. Read more. (Subscription required.)

ANALYSIS: RETURN OF MEGA-MERGERS REFLECTS GROWING CONFIDENCE IN ECONOMY



Analysts say that the recent spike in merger activity reflects the return of the mega-merger and a gradual uptick in business confidence in the economy, the Washington Post reported today. It has been most evident in the ongoing battle for Dell computers, with founder Michael Dell upping his bid for the company to $25 billion Friday, and the high-profile buyout of H.J. Heinz by Warren Buffett's Berkshire Hathaway. Although the number of mergers is down compared with the corresponding period last year, a series of mega-mergers has helped increase the value of merger activity in 2013 to $607 billion from $486 billion during the corresponding period in 2012. Activity is picking up after an uneventful 2012, when no mega-mergers were announced, analysts said. But it is still far from 2011 levels, when low valuations contributed to a rush for deals. Read more.

CONSUMER SPENDING, INCOME CLIMB IN JUNE



U.S. consumer spending increased and inflation pushed higher in June, which could strengthen expectations that the Federal Reserve will curtail its bond purchases later this year, Reuters reported on Friday. The Commerce Department said on Friday that consumer spending rose 0.5 percent, lifted by automobile purchases and higher gasoline prices. May's increase was revised down to 0.2 percent from a previously reported 0.3 percent. June's increase in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was in line with economists' expectations. With prices picking up, consumer spending adjusted for inflation nudged up 0.1 percent. The consumer spending numbers were included in the second-quarter GDP report on Wednesday, which showed that the economy grew at a 1.7 percent annual pace after expanding at a 1.1 percent rate in the first three months of the year. Read more.

IN CASE YOU MISSED IT - abiLIVE WEBINAR DISCUSSING § 1111(b) ELECTION, PLAN FEASIBILITY AND CRAMDOWN ISSUES RECORDING IS NOW AVAILABLE!



If you were not able to attend ABI's recent abiLIVE webinar examining § 1111(b), a recording of the program is now available for downloading! Utilizing a case study, ABI's panel of experts explored the issues surrounding a lender's decision on whether or not to make an election under § 1111(b), plan feasibility and voting. The abiLIVE panel also walked attendees through the necessary mathematical analyses used to examine these issues. The 90-minute recording is available for the special price of $75 and can be purchased here.

abiLIVE WEBINAR ON AUGUST 20: HOW WILL THE NEW U.S. TRUSTEE FEE GUIDELINES IMPACT YOU?



The new U.S. Trustee Fee Guidelines will affect all attorneys and firms who work on larger chapter 11 cases filed on or after Nov. 1. ABI's Ethics & Professional Compensation Committee will present a panel of experts, including Clifford J. White, the director of the U.S. Trustee Program, to discuss some of the ways the new guidelines could change day-to-day operations in firms, issues relating to the new market rate benchmarks, and how these changes might alter insolvency practice. Register today to hear government, attorney and academic perspectives speak on this important and timely topic.

ABI GOLF TOUR UNDERWAY; NEXT STOP IS THE MID-ATLANTIC BANKRUPTCY WORKSHOP ON FRIDAY



The 5th stop for the ABI Golf Tour is the Hershey Country Club, held in conjunction with this week's Mid-Atlantic Bankruptcy Workshop. Final scoring to win the Great American Cup — sponsored by Great American Group — is based on your top three scores at seven scheduled ABI events, so play as many as you can before the tour wraps up at the Winter Leadership Conference in December. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! A 22-handicapper won the tour event at July’s Southeast Conference. There's no charge to register or participate in the Tour.

ABI IN-DEPTH

ASSOCIATES: ABI'S NUTS & BOLTS ONLINE PROGRAMS HELP YOU HONE YOUR SKILLS WHILE SAVING ON CLE!



Associates looking to sharpen their bankruptcy knowledge should take advantage of ABI's special offer of combining general, business or consumer Nuts & Bolts online programs. Each program features an outstanding faculty of judges and practitioners explaining the fundamentals of bankruptcy, offering procedures and strategies tailored for both consumer and business attorneys. Click here to get the CLE you need at a great low price!

NEW CASE SUMMARY ON VOLO: CHARLES W. RIES V. SCARLETT & GUCCIARDO, PA, ET AL. (8TH CIR.)



Summarized by Michael Cooley of Akin Gump Strauss Hauer & Feld LLP

Applying the plain language of Fed. R. Civ. P. 15(c)(1), the Eighth Circuit affirmed the principle that whether the party seeking to amend a pleading knew, when the original pleading was filed, of the identity of the party left out is irrelevant to the question of whether the amended pleading may relate back to the date of the original pleading. Rather, the ability to relate back an amendment to the date of the original pleading depends on whether the party to be added knew or should have known that, but for the mistake, it would have been named in the original pleading. Additionally, this case serves as an important reminder of the value in structuring settlement agreements to safeguard against the possibility that a bankruptcy filing thereafter could leave the nondebtor party to disgorge settlement payments as preferential transfers without the ability to resurrect the claims originally settled in consideration therefore.

There are more than 900 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: ONLY CONGRESS THINKS MAIN STREET BANKS ARE "TBTF"

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. Removing the arbitrary size designation for systemically important financial institutions would reduce costly regulation for regional banks, encourage industrywide competition and concentrate regulators' efforts on firms that actually warrant attention, according to a recent blog post.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

A class of claims should not be considered impaired for purposes of § 1129(a)(10) if the impairment results from the plan proponents' exercise of discretion (i.e., artificial impairment) and not driven by economic need. (In re Village at Camp Bowie I LP).

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL



INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

Have a Twitter, Facebook or LinkedIn Account?

Join our networks to expand yours.

2013

August

- Mid-Atlantic Bankruptcy Workshop

    August 8-10, 2013 | Hershey, Pa.

- abiLIVE Webinar: How Will the New U.S. Trustee Fee Guidelines Impact You?

     August 20, 2013

- Southwest Bankruptcy Conference

    August 22-24, 2013 | Incline Village, Nev.

September

- ABI Endowment Golf & Tennis Outing

    Sept. 10, 2013 | Maplewood, N.J.

- ABI Endowment Baseball Game

    Sept. 12, 2013 | Baltimore, Md.

- Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization

    Sept. 18-19, 2013 | New York

- abiLIVE Webinar: Complex Requirements and Ethical Duties of Representing Consumer Debtors

     Sept. 24, 2013

- Bankruptcy 2013: Views from the Bench

    Sept. 27, 2013 | Washington, D.C.

October

- Midwestern Bankruptcy Institute Program and Midwestern Consumer Forum

    Oct. 4, 2013 | Kansas City, Mo.

- Professional Development Program

    Oct. 11, 2013 | New York, N.Y.

- Chicago Consumer Bankruptcy Conference

    Oct. 14, 2013 | Chicago, Ill.

- International Insolvency & Restructuring Symposium

    Oct. 25, 2013 | Berlin, Germany

November

- Complex Financial Restructuring Program

   Nov. 7, 2013 | Philadelphia, Pa.

- Corporate Restructuring Competition

   Nov. 7-8, 2013 | Philadelphia, Pa.

- Austin Advanced Consumer Bankruptcy Practice Institute

   Nov. 10-12, 2013 | Austin, Texas

- Detroit Consumer Bankruptcy Conference

   Nov. 11, 2013 | Detroit, Mich.

December

- Winter Leadership Conference

    Dec. 5-7, 2013 | Rancho Palos Verdes, Calif.

- ABI/St. John’s Bankruptcy Mediation Training

    Dec. 8-12, 2013 | New York