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Breaking with a Sixth Circuit decision to the contrary, in a March 2021 decision in Stewart v. Holland, the District Court for the Western District of Pennsylvania held that unfair labor claims brought by the Department of Labor against a debtor under the Fair Labor Standards Act (“FLSA”) were not barred by the automatic stay but could instead proceed under the “police powers exception.”1
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Continue Reading Opinion of Interest – When the Automatic Stay is No Shield – Pennsylvania Court Holds that Government’s Unfair Labor Claims Are Subject to Police Power Exception

A recent New York Times article highlights the challenges oftentimes faced by smaller vendors in large bankruptcy cases.  The article profiles a couple, who owns a warehouse leased to Brooks Brothers, who were left holding a $240,000 cleanup fee bill when Brooks Brothers rejected their warehouse lease and refused to clear the equipment and other…

Bloomberg Law reports that that the U.S. Trustee’s Office is working to combat the recent rise of “pre-packaged” chapter 11 bankruptcy filings. A pre-packaged bankruptcy or a “pre-pack” refers to the circumstances in which a debtor negotiates its reorganizational agreements with key stakeholders before filing its chapter 11 case and then files and confirm its…

On Friday, March 19, 2021, Congressional lawmakers introduced a bill that would amend the U.S. Bankruptcy Code to prohibit bankruptcy judges from permanently enjoining or releasing legal claims of states, tribes, municipalities or the U.S. government against non-debtors.

According to media reports, the bill, which is named the “SACKLER Act,” (i.e., the “Stop Shielding Assets from Corporate Known Liability by Eliminating Non-Debtor Releases Act”) is specifically designed to prevent members of the Sackler family, who own OxyContin-maker Purdue Pharma LP, from using the bankruptcy process to obtain legal releases from government lawsuits.  Purdue Pharma LP filed for bankruptcy in September 2019, but none of the members of the Sackler family have filed for bankruptcy as individuals.  Nevertheless, the Sacklers have offered to contribute roughly $4.28 billion as part of a proposed bankruptcy plan to fund payouts to victims who suffered injuries linked to Purdue Pharma’s opioids over the next decade in exchange for legal releases that would enjoin claims against the Sackler family.  If approved, those legal releases would shield the Sackler family from further liability related to the opioid crisis, something that many state attorneys general have ardently opposed.  …
Continue Reading Wither Non-Debtor Releases? Purdue Pharma and the Proposed SACKLER Act

The American Bankruptcy Institute reported that President Biden signed the “COVID-19 Bankruptcy Relief Extension Act” into law Saturday, March 27, 2021, which extends through March 27, 2022, provisions providing financially distressed consumers and small businesses with greater access to bankruptcy relief.  The provisions were included in the original CARES Act that was passed in the wake of the Covid-19 outbreak and were originally set to expire this month. [ABI; March 29, 2021].
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Continue Reading What We’re Reading This Week [March 29, 2021]

In mid-February, Winter Storm Uri brought frigid air across the US from the Pacific Northwest to the Gulf Coast.  Most notably, Winter Storm Uri passed through Texas, resulting in large snowfalls and reducing temperatures to historic levels.  In advance of the storm, plants and utilities responsible for providing vital electricity and natural gas to Texas residents sought to prepare for the extreme conditions—but then, diesel fuel began to gel, generators and turbines froze, and electricity became scarce—leaving many market participants and end-user consumers with astronomical bills for power.  Some entities have since disputed the bills, while others have even declared bankruptcy or indicated the need for future bankruptcy court protection.
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Continue Reading Texas Utilities Continue to Deal With Aftermath of Winter Storm Uri: CPS Energy Sues the Electric Reliability Council of Texas Alleging One of the “Largest Illegal Wealth Transfers” in Texas History

Bloomberg reports that HighPoint Resources Corp. received approval for its chapter 11 reorganization plan, clearing the way for its merger with Bonanza Creek Energy Inc. less than one week after filing for bankruptcy protection.  The fully-consensual plan, which carried the support of more than 99% of impaired claimants, deleverages HighPoint’s balance sheet by approximately $625 million vis-à-vis an unsecured debt-for-equity swap and an issuance of new unsecured notes totaling $100 million.  Existing equityholders are even slated to receive 1.6% of the new equity in the combined company.  [Bloomberg; Mar. 18, 2021].
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Continue Reading What We’re Reading This Week [March 22, 2021]

On March 10, 2021, the parent company of sports club and gym-operator Town Sports International, LLC, filed a motion seeking to set aside a purported $250,000 settlement agreement between Town Sports and the New York Attorney General arguing that the agreement (1) was barred by the terms of Town Sports’ confirmed chapter 11 plan and (2) in any case, not authorized by Town Sports but instead only by one of its prior attorneys.

As noted in our prior post on the case, Town Sports has been embroiled in litigation with the New York Attorney General since September 2020, when the attorney general’s office filed a lawsuit against Town Sports arguing that it improperly failed to honor certain of its members’ cancellation requests, and instead continued to assess monthly membership fees, during the disruptions caused by the COVID-19 pandemic and related government shutdown orders.  The parties appeared to have settled their lawsuit on March 4, 2021, when a New York state court …
Continue Reading Settled or Not? Town Sports Challenges Settlement it Purportedly Entered into with New York Attorney General

Reporting from CNBC indicates that Purdue Pharma, the maker of OxyContin, has proposed a $10 billion plan to exit bankruptcy.  According to sources, the exit plan not only includes a significant contribution of more than $4 billion from members of the Sackler family who own the Connecticut-based pharmaceutical giant, but also calls for the pharmaceutical…

In its recent decision in Matter of First River Energy, LLC,1 the Fifth Circuit resolved a priority dispute between lienholders regarding their competing claims to cash held by the debtor, First River Energy, LLC. The cash at issue was the proceeds of a pre-bankruptcy sale of crude oil that the debtor purchased from certain producers (located in Texas and in Oklahoma) and then sold on to certain downstream purchasers. Following the debtor’s filing, each of the producers asserted a first-priority lien on the cash proceeds, as did the administrative agent for certain of First River Energy’s secured lenders. The administrative agent subsequently filed an adversary proceeding seeking to confirm its first priority status (senior to the producers), based on its perfection by the filing of a first-in-time UCC-1 financing statement with the Delaware Secretary of State in 2015. The two issues before the Bankruptcy Court were what law applied to the priority dispute (as between Delaware, First River’s state of organization, or Texas or Oklahoma, the locations of the producers and the oil sold) and, based on such choice of law, the priority of the parties’ liens. The Bankruptcy Court ruled that Delaware law applied and found that, under Delaware law, the administrative agent’s lien had priority over the lien of the Texas producers, but that the administrative agent’s lien did not have priority over the Oklahoma producers’ lien. The Fifth Circuit took an interlocutory appeal of the decision.
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Continue Reading Opinion of Interest – Matter of First River Energy: Some State-Specific Liens May be no More than “Amazing Disappearing Security Interests”