Bankruptcy Update Blog

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Bankruptcy Update Blog provides current news and analysis of key bankruptcy cases and developments in US and cross-border matters. Patterson Belknap’s Business Reorganization and Creditors’ Rights attorneys represent creditors’ committees, trade creditors, indenture trustees, and bankruptcy trustees and examiners in US and international insolvency cases. Our team includes highly skilled and experienced attorneys who represent clients in some of the most complex cases in courts throughout the US and elsewhere.

Non-Consensual Third-Party Releases in Chapter 11 Plans: a Recent Decision

A recent decision of the United States Bankruptcy Court for the Southern District of New York provides important guidance on the limits of nonconsensual third-party releases in the Second Circuit. SunEdison, Inc. sought confirmation of a plan for itself and its affiliated debtors.  The plan included releases of claims against non-debtor third parties by any creditor that was entitled to but did not cast a vote on the plan. No party objected to the release at the confirmation hearing, but Judge Bernstein asked sua sponte whether he had authority to bind non-voting creditors to broad releases of claims against third parties.

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Fees for Fees: Testing the Limits of ASARCO

Unsecured creditors and other stakeholders sometimes challenge the reasonableness of fees incurred by estate professionals in a bankruptcy case.  Whether this is to augment unsecured creditor recoveries or serve as a check on the private bar is in the eye of the beholder.  Whatever the reason, fee litigation in bankruptcy caused many professionals to seek payment from the bankruptcy estate for any fees incurred defending against an objection to their fees. This practice was eventually challenged and, in 2014, the Supreme Court ruled that the Bankruptcy Code does not permit it.  The Court’s holding was grounded in the American Rule, which provides that “[e]ach litigant pays his own attorney’s fees, win or lose, unless a statute or contract provides otherwise.”  Section 330(a)(1)’s provision for “reasonable compensation for actual, necessary services rendered,” the Court announced, “neither specifically nor explicitly authorizes courts to shift the costs of adversarial litigation from one side to the other—in this case, from the attorneys seeking fees to the administrator of the estate—as most statutes that displace the American Rule do.”

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Hartford Bankruptcy Looming after Latest Downgrade

The City Once Dubbed “New England's Rising Star” Has Fallen on Hard Times

On Tuesday, two leading credit-rating agencies again downgraded the city of Hartford:  Moody’s Investors Service now rates the struggling city at Caa3, while S&P Global Ratings has lowered its rating to CC.  They attribute the junk classification to the increasing likelihood of a default by Hartford on its debt service obligations to bondholders. 

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Puerto Rico: Commonwealth-COFINA Dispute Teed Up for Resolution by Year’s End

On June 30, 2016, the Financial Oversight and Management Board for Puerto Rico (“Oversight Board”), which was established under the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), filed a voluntary petition for relief for the Commonwealth of Puerto Rico (the “Commonwealth”).  On May 5, Chief Justice Roberts appointed District Judge Laura Taylor Swain of the Southern District of New York to conduct the case.  Judge Swain was a bankruptcy judge in the Eastern District of New York before joining the district court in 2000. 

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No Easy Way Out: Legal Malpractice Defendants Desiring an Alternative Forum May Be Forced to Litigate in Bankruptcy Court until the Case is “Trial Ready”

Some legal malpractice defendants are content to litigate claims asserted by debtors in the bankruptcy court.  But many others, fearing that the debtor’s creditors may view them as a deep-pocketed resource to augment their own recoveries, would prefer to defend malpractice claims in what they view as a more neutral forum.  A recent decision by the United States District Court for the Southern District of Florida underscores how difficult it can be for lawyers and law firms in this latter group to move a legal malpractice case out of bankruptcy court, even when it is clear that the bankruptcy court cannot finally adjudicate the dispute.

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An Inconvenient Truth: Litigants’ Access to U.S. Bankruptcy Courts is Subject to Doctrine of Forum Non Conveniens

A recent decision of the United States Bankruptcy Court for the Southern District of New York confirms that despite the increasing frequency and ease with which foreign plaintiffs and defendants can gain access to Bankruptcy Courts in the United States (through Chapter 15 or otherwise), those courts will not hesitate to dismiss a case on the ground of forum non conveniens

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