Oral arguments occur on April 24, 2023, before the U.S. Supreme Court in Lac Du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, Case No 22-227. Here is a link to the oral arguments transcript.
What follows is an attempt to, (i) summarize the facts and issue in the case, and (ii) provide a sampling of questions and comments from the justices during oral arguments.
Facts
Here’s what happened:
“within three (3) business days of termination of the mediation, the Debtors shall publicly disclose the terms of the last offers extended by each of the Mediation Parties, respectively.”[Fn. 1]
Say what!?
Whoever heard of such a thing—a requirement that the “last offers” of the mediating parties be publicly disclosed?
And this requirement is in a “consensual” mediation order entered in the Genesis Global Holdco, LLC, bankruptcy.[Fn. 2]
Context
Here’s the context.[Fn. 3]
Dismissal of a bankruptcy—for bad faith filing—is a rarity.
So, how a bankruptcy court grapples with the bad faith issue . . . and ends up dismissing the bankruptcy . . . can provide a lesson for us all.
What follows is a summary of how a Chapter 11 bankruptcy is dismissed when the Court is convinced that the bankruptcy is intended for the benefit of a non-debtor . . . and not for the benefit of the debtor or its creditors.
It’s a defense v. offense distinction:
- Defense—An objection and counterclaim designed to diminish or zero-out a proof of claim in bankruptcy is not subject to arbitration; but
- Offense—An objection or counterclaim designed to do anything more . . . can be compelled to arbitrate.
That’s the essence of a recent opinion in Johnson v. S.A.I.L. LLC (In re Johnson), Adv. No. 22 -172, Northern Illinois Bankruptcy Court (issued March 28, 2023; Doc. 18). What follows is a summary of that opinion.
Facts
Johnson & Johnson filed bankruptcy back in 2021 (In re LTL Management, Case No. 21-30589, New Jersey Bankruptcy Court).
That bankruptcy is now dismissed—on order of the U.S. Third Circuit Court of Appeals.
So, Johnson & Johnson refiles its bankruptcy (In re LTL Management, Case No. 23-12825, New Jersey Bankruptcy Court).
New and Improved
Here’s what’s new and improved about the second bankruptcy[fn. 1]:
Yes, says the Delaware Bankruptcy Court in the case of CII Parent, Inc., cementing the advice routinely given by bankruptcy counsel to borrowers in default. We always counsel borrower clients in default of the risk associated with lenders taking unilateral actions pre-filing, stripping debtors of valuable options and assets. Thus, we normally recommend to always obtain a forbearance and undertake the preparations required to file a bankruptcy petition immediately upon forbearance termination, although whether or not to file depends on variety of factors that should be considered.
The Second Circuit recently held that a non-party to an assumed executory contract is not entitled to a cure payment (although it may be so entitled if is a third-party beneficiary of the contract). The result would have seemed obvious to bankruptcy practitioners. So, what in the world made the party pursuing payment take this to the Second Circuit? Well, surprisingly, as the Second Circuit decision shows, the answer is not found in the plain text of the Bankruptcy Code. And while it was argued prior to the Supreme Court’s ruling in Bartenwerfer v. Buckley, No. 21-908, 598 U.S.
A mortgage loan repurchase facility (more casually referred to as a "repo") is a financing structure commonly utilized to finance mortgage loans. These facilities are utilized by both residential and commercial mortgage loan originators and aggregators to finance mortgage loans that they originate or acquire. The structure is favored by liquidity providers in the mortgage loan finance arena due to its preferential "safe harbor" treatment under the United States Bankruptcy Code (the "Bankruptcy Code"), as further described below.
“The trustee may avoid . . . any obligation . . . incurred by the debtor, that was madeor incurred“ with actual fraudulent intent or as constructive fraud.
–From § 548 of Bankruptcy Code (emphasis added).
Similar language is contained in the Uniform Voidable Transactions Act—and in its predecessor acts—for 100+ years. [Fn. 1]
But actions to avoid debts as fraudulent transfers are rare—and largely unknown, it seems.
A Bad Experience
Boy Scouts of American achieved a confirmed plan of reorganization in its bankruptcy.
That confirmation is now affirmed on appeal by the U.S. District Court in Delaware[fn. 1]—and is heading to the Third Circuit Court of Appeals for further review.
The District Court’s affirming opinion is 155 pages long and highly detailed. This article tries to summarizes the opinion’s highlights—attempting to make the complex clear.
100% Payment Plan
The core of the opinion, around which most everything else revolves, is this: