“No State shall . . . pass any . . . Law impairing the Obligation of Contracts.”

–Art. I, Sec. 10, U.S. Constitution

Increasingly, states are expanding their laws on debtor/creditor relationships, such as receiverships and assignments for benefit of creditors.

Some of these expansions look suspiciously like a Bankruptcy Code Lite—e.g., adding “stay” provisions.

And that can be a constitutional problem, according to long-standing (and recent) opinions of the U.S. Supreme Court.

What follows is a brief summary of three such opinions.

There’s a new U.S. Circuit Court opinion on a person’s right to a jury trial, when sued by the Securities and Exchange Commission before one of its administrative judges.

And guess what:

This is reality:

• Small businesses reorganize, all the time, under Subchapter V;
• Farmers reorganize, all the time, under Chapter 12; and
• Large businesses reorganize, all the time, under regular Chapter 11.

That’s because all of those three types of debtors have bankruptcy reorganization processes designed specifically for them.

Middle Market Debtors

What the heck does this mean:

“(1) Debtor.—The term ‘debtor’— . . . (B) does not include— . . . (Iii) any debtor that is an affiliate of an issuer, as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)”

—from Subchapter V’s eligibility statute, § 1182 (emphasis added).

Since the inception of Subchapter V, I’ve been trying to figure that meaning out.

Here’s the progression of thinking:

How are private practice mediators compensated in a bankruptcy case—procedurally?

We have a new court order providing guidance on how such procedures can work.

The new guidance is from Sears Holding Corp. v. Lampert (In re Sears Holdings Corp.), Adv. Pro. No. 19-08250, SDNY Bankruptcy Court. 

Mediation Order

“Trillions of dollars”: That’s the amount of civil penalty claims a group of 40 States are asserting against Johnson & Johnson for consumer protection law violations. [Fn. 1]

Such civil penalty claims:

Johnson & Johnson (“J&J”) sold baby powder for decades.

Today, J&J is facing tens of thousands of lawsuits alleging that its baby powder causes cancer. And the number of new cancer claimants is increasing daily—with many thousands yet to be identified over decades to come.

So, J&J turns to bankruptcy to address this litigation threat, to protect future claimants, and to protect the going concern value of its global operations. [Fn. 1]

Johnson & Johnson and its affiliates (“J&J”) have been selling baby powder for decades.

Along the way, studies began showing that talc in J&J’s baby powder can cause ovarian cancer and mesothelioma. So, since 2016, over 38,000 lawsuits have been filed against J&J contending its baby powder talc causes cancer.

In July of 2018, the talc litigation against J&J built-up serious steam when a jury awarded 22 women a $4.69 billion (yes, with a “b”) verdict against J&J—an appellate court reduced the verdict to $2.25 billion.

“The trustee shall . . . appear and be heard at . . . any hearing that concerns . . . the value of property . . . confirmation of a plan . . . sale of property.” § 1183(b)(3) (emphasis added).

In every Subchapter V case, the trustee has a statutory duty to “appear and be heard” on certain issues. Often, a trustee can satisfy such duty, on many issues, by participating in a hearing and expressing a verbal opinion on the matter that’s before the Bankruptcy Court.

Business people value their reputations because they take pride in their good names, and “not for some nebulous financial gain.” They: