Monthly Archives: February 2021

PETITIONS OF THE WEEK ByAndrew Hamm on Feb 5, 2021 at 5:59 pm

This week we highlight cert petitions that ask the Supreme Court to consider, among other things, the discharge of student-loan debt for undue hardship and the statute of limitations for IDEA child-find violations.

The Bankruptcy Code allows the discharge of student-loan debt if repayment would cause the borrower undue hardship. The U.S. courts of appeals, however, apply different tests to decide what counts as an undue hardship. One test tries to look holistically at the totality of the circumstances. In McCoy v. United States, however, the U.S. Court of Appeals for the 5th Circuit applied what is known as the Brunner test. This three-part test requires someone with student loans to show: (1) that [she] cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that [she] has made good faith efforts to repay the loans. Because Thelma McCoy had secured a part-time job, among other things, the 5th Circuit found that she did not satisfy the Brunner tests second prong. Arguing that the circuit split is often outcome-determinative, McCoy asks for the justices review.

Independent School District No. 283 v. E.M.D.H. ex rel. L.H. and S.D. presents the justices with a procedural question under the Individuals with Disabilities Education Act: How long do parents have to complain about a school districts alleged failure to provide a free appropriate public education to a child with a disability? The statute gives parents two years, but a question remains as to when the two-year clock starts running. In this case, a Minnesota child with various psychological disorders entered a psychiatric day-treatment facility in May 2015. In June 2017, the childs parents filed an administrative complaint that the district had failed in its child-find obligation, a districts duty to ensure [a]ll children with disabilities residing in the State are identified, located, and evaluated. In response, the district argued that two years had elapsed. However, the U.S. Court of Appeals for the 8th Circuit ruled that the violation was not isolated to May 2015 but continued day after day into the limitations period. In its petition, the district argues that this decision created a circuit split and asks for the justices review.

These and otherpetitions of the weekare below:

McCoy v. United States20-886Issue: Whether the U.S. Court of Appeals for the 5th Circuit erred in applying the test fromBrunner v. New York State Higher Education Services Corp., which prohibits discharge unless the debtor can prove, among other things, a total incapacity to repay the debt in the future, instead of the totality test to determine whether a debtor would suffer an undue hardship absent discharge of her student loan debt.

Independent School District No. 283 v. E.M.D.H. ex rel. L.H. and S.D.20-905Issue: Whether the continuing-violation doctrine applies to the two-year statutory time limit to file an administrative complaint under theIndividuals with Disabilities Education Act.

Alaska v. Wright20-940Issue: Whether, when an offender has fully served the sentence imposed pursuant to a state conviction, a federal habeas court has jurisdiction to consider a28 U.S.C. 2254challenge to that conviction merely because it served as a predicate for an independent federal conviction under which the offender is now in custody.

Atkins v. Williams20-941Issues: (1) Whether the unavailability of funds or other resources negates the subjective component of a deliberate indifference claim under the Eighth Amendment; and (2) whether, if lack of funds is a valid defense at all, a defendant can assert this defense when sued in his or her official capacity for injunctive relief.

Stewart v. City of Euclid, Ohio20-951Issue: Whether, when a municipal employee has violated the Constitution, a plaintiff must point to clearly established law (such as would overcome a defense of qualified immunity by an individual officer) in order to prove deliberate indifference for municipal liability purposes.

Ellis v. Liberty Life Assurance Company of Boston20-953Issue: What the correct test to apply is in deciding whether an otherwise applicable state lawhere, a state law prohibiting discretion-conferring provisions in insurance contractscan be displaced by an Employee Retirement Income Security Act of 1974 plans choice-of-law clause.

Owens v. Stirling20-975Issues: (1) For claims of ineffective assistance of trial counsel, what standard is to be used by federal courts of appeals for determining whether the underlying constitutional claim is substantial underMartinez v. Ryan, and how does it relate to the determination that a petitioner has met the requirements to obtain a Certificate of Appealability, under28 U.S.C. 2253(c)and as described by the Supreme Court inMiller-El v. Cockrell; and (2) whether, under theMartinezstandard, it is proper for courts of appeals determining the substantial quality of the underlying constitutional claim to rely on an imbalanced consideration of the record, including ignoring evidence in the record in support of a petitioners underlying constitutional claimas happened in Freddie Owenss case.

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Student-loan discharges in bankruptcy and public education for disabled kids - SCOTUSblog - SCOTUSblog

As discussed in previous posts, the Consolidated Appropriations Act of 2021 (the Act) was signed into law on December 27, 2020, largely to address the harsh economic impact of the COVID-19 pandemic. For bankruptcy litigators or any business which has been frustrated to receive a demand letter after one of its customers filed bankruptcy one particular amendment stands out in the sprawling 5,593-page bill. The Act amended Section 547 of the Bankruptcy Code to provide suppliers and landlords with an additional potential challenge to actions brought to claw back payments made by a debtor in the 90 days preceding bankruptcy.

Generally speaking, Section 547 of the Bankruptcy Code enables a bankruptcy trustee (or debtor-in-possession) to claw back certain payments made by a debtor to its creditors in the 90 days preceding a bankruptcy case, unless the creditor can establish one of the statutory defenses, including: (1) the payment was made at the same time as the creditor provided goods or services to the debtor (i.e., a contemporaneous exchange); (2) the payment was made in the ordinary course of business (i.e., in the same manner as payments were made before the debtor experienced financial distress) or according to ordinary business terms; or (3) the creditor provided additional goods and services to the debtor on credit after receiving the payment. The purpose of Section 547 is to prevent creditors from racing to dismantle a financially distressed company, and more importantly, to ensure certain creditors are not receiving preferential treatment by the company while others are left holding the bag.

The Act added a new subsection 547(j) to the Bankruptcy Code, generally providing that a trustee (or debtor-in-possession) may not avoid and recover as a preferential transfer:

This new provision, which sunsets on December 27, 2022, is subject to certain limitations, including:

The policy objectives underlying new Section 547(j) seem apparent: (i) ensuring landlords and suppliers are not penalized for accepting deferred payments (out of the ordinary course) under arrangements they have entered into with businesses hit hard by the global pandemic, and (ii) incentivizing landlords and suppliers to explore financial accommodations with their distressed counterparties going forward, instead of exercising default and termination rights under existing agreements. While salutary, these policy objectives are, to some extent, in conflict with Section 547s general purpose of ensuring equal distributions for all creditors of businesses in distress. Notably, the statute does not protect certain types of creditors such as lenders even though an agreement by any creditor to accept a deferred payment would, presumably, benefit a distressed business just as much as a suppliers or landlords agreement to do so.

In any event, the actual language adopted by Congress leaves plenty of room for interpretation. For instance, a payment to a supplier must be made pursuant to an executory contract. But it is unclear whether the contract need still be executory on the petition date. If the supplier accepts an otherwise exempt deferred payment and then terminates the contract prior to bankruptcy, does the supplier still have the benefit of Section 547(j)?

In addition, it is likely the courts will face questions regarding what constitutes a deferral agreement or arrangement for purposes of the statute, and whether such agreement or arrangement qualifies for protection if deferring or postponing payment of arrearages is part of a larger agreement to restructure the parties business relationship involving various forms of consideration. Finally, the language of the statute may leave room for parties to potentially game the system. For instance, Section 547(j) is an exception from the avoidance power under 547(b), not a defense, meaning payments to insider landlords and suppliers during the year preceding the bankruptcy appear to also be subject to the exemption. Thus, affiliated companies with intercompany debts may be incentivized to enter into friendly agreements to defer payments for the purpose of ensuring catch-up payments are exempted from avoidance.

Only time (and the courts) will tell whether this new provision will accomplish the intended Congressional objectives, and what avenues parties may exploit to take advantage of this otherwise well-intentioned response to the fallout from the coronavirus pandemic. In the meantime, landlords and suppliers who have deferred payments during the pandemic should ensure they document these deferrals and avoid charging interest or penalties prohibited by statute in order to take advantage of Section 547(j) should their tenant or customer file bankruptcy.

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Consolidated Appropriations Act of 2021 Amends Bankruptcy Code - Part 3: Congress Gives Suppliers and Landlords a Shiny New Arrow in their Quiver to...

(Reuters) - U.S. shale oil and gas producer Chesapeake Energy Corp plans to cut 15% of its workforce, an email sent to employees revealed, as it closes on new financing that will allow it to emerge from bankruptcy court protection next week.

Once the second-largest U.S. natural gas producer, Chesapeake was felled by a long slide in gas prices. The company is resetting our business to emerge a stronger and more competitive enterprise, according to the email to employees by Chief Executive Doug Lawler dated Tuesday, and reviewed by Reuters.

Most of the 220 layoffs will happen at the Oklahoma City headquarters, the email said.

Chesapeake on Tuesday said it planned to raise $1 billion in notes to complete its bankruptcy exit.

The companys bankruptcy plan was approved by a U.S. judge last month, giving lenders control of the firm and ending a contentious trial.

Chesapeake filed for court protection in June, reeling from overspending on assets and from a sudden decline in demand and prices spurred by the coronavirus pandemic.

As we prepare to conclude our restructuring, we continue to prudently manage our business and staffing levels to adapt to challenging market conditions and position Chesapeake for sustainable success, company spokesman Gordon Pennoyer said by email, when asked about the planned layoffs.

People losing their jobs will be given severance packages and career assistance, according to Lawlers email. The companys headquarters was closed on Wednesday and workers were notified by phone about layoffs because of the current health concerns known to all, the email said.

Reporting by Jennifer Hiller; editing by Richard Pullin and Marguerita Choy

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Chesapeake Energy cuts 15% of workers as it emerges from bankruptcy - Reuters

This year started where 2020 finished, with another bankruptcy record.

Some 56 New Hampshire individuals and businesses filed for bankruptcy in January, the lowest number seen in any January indeed, any month since January 1988. The total was 11 fewer than December 2020 and four fewer than November 2020.

The low number of bankruptcies persists despite the resurgence of the pandemic in December and January and the states relatively high unemployment, particularly in the hospitality industry, with some restaurants and hotels going into hibernation following a muted Christmas.

Bankruptcy filings in the state have been in the double digits for 10 straight months, dropping in April just after the pandemic first struck and after a generation of monthly bankruptcy filings in the hundreds.

For months, bankruptcy attorneys have predicted an increase in filings, but that hasnt happened. Businesses and individuals, bolstered by federal and state aid and sheltered from most evictions and foreclosures, have managed to hang on, with the hope of future assistance or an easing of the pandemic as the vaccine rollout continues. Others particularly brick-and-motor retailers might have been hanging on at least until Christmas before making any decision.

But Christmas is long gone, and most businesses and individuals are not throwing in the towel.

Januarys total is less than a sixth of the 381 that were filed in January 2010, in the midst of the last recession. It was less than half of the 121 filed in January of 2020, a 54% decrease.

In all of total there was a total of 1,054 filings, or an average of 88 a month. In 2019, the total was 1,774, for a monthly average of 148. In 2010 the yearly total was 5,507, or 459 a month. You have to go back to 1988 in the midst of a booming economy to get a lower annual total 835, or 70 a month.

In January there were three bankruptcy filings with business-related debt, but only one was filed by the business directly, and it is conjunction with a sale free and clear of all liens:

Parrillo Designs LLC, dba Derailed Boutique, Kingston, filed Jan. 15, Chapter 7. Assets: $37,405. Liabilities: $82,201.

Originally posted here:

Bankruptcy filings continue their record lows in New Hampshire - New Hampshire Business Review

Background

The Commodity Futures Trading Commission (CFTC) recently adopted final amendments to Part 190 of the CFTC's regulations (the "Final Rules"), governing bankruptcy proceedings with respect to commodity brokers.1 The Final Rules represent the first comprehensive update to the CFTC's bankruptcy rules since the Part 190 rules were initially adopted in 1983. Approved unanimously, the Final Rules serve to modernize and revise the CFTC's regulations to reflect changes in the commodity brokerage industry over that time.

Subchapter IV, chapter 7 of the Bankruptcy Code ("Code") sets out the essential provisions governing the liquidation of a commodity broker in bankruptcy. However, the CFTC is authorized under section 20 of the Commodity Exchange Act (CEA), "notwithstanding the Code," to adopt rules that provide, among other things: (1) that certain cash, securities, other propertyor commodity contracts are to be included in or excluded from customer property or member property; and (2) the method by which the business of such commodity broker is to be conducted or liquidated after the date of the filing of the petition under the Code. Part 190 of the CFTC's regulations are promulgated under this authority as well as the CFTC's general rulemaking authority under section 8a(5) of the CEA.

Since the initial adoption of the Part 190 rules, there have been significant developments in practices with respect to commodity broker bankruptcies, including as a result of judicial decisions and certain high-profile bankruptcies (like that of MF Global Inc. and Peregrine Financial Group Inc.). As emphasized in former Chairman Heath Tarbert's statement in support of the Final Rules, they seek to clarify and codify key principles and approaches or practices that have developed over time as the existing Part 190 rules were applied to real-world bankruptcy situations.

Highlights of the Final Rules

At a high level, the Final Rules address the following major topics:

Statutory Authority, Organization, Core Concepts, Scope and Construction. The Final Rules adopt new CFTC Rule 190.00, which sets forth the statutory authority, organization, core concepts, scope and rules of construction for Part 190 of the CFTC's regulations. In particular, new CFTC Rule 190.00 sets out the CFTC's intent regarding bankruptcies for the benefit of market participants, trustees and the general public.

Default of a Derivatives Clearing Organization. The Final Rules adopt new Subpart C to Part 190 of the CFTC's regulations, which governs the bankruptcy of a DCO. Among other things, new Subpart C provides that the trustee should follow, to the extent practicable and appropriate, the DCO's pre-existing default management rules and procedures and recovery and wind-down plans that have been submitted to the CFTC. These rules, procedures and plans will, in most cases, have been developed pursuant to Part 39 of the CFTC's regulations, subject to CFTC staff oversight. This approach relieves the trustee of the burden of developing, in the moment, models to address an extraordinarily complex situation.

Priority of Customers and Customer Property. The Final Rules clarify that shortfalls in segregated property should be made up from the general assets of the FCM. The Final Rules also clarify that, with respect to customer property, public customers are favored over non-public customers.

Securities Investors Protection Act (SIPA) and Federal Deposit Insurance Corporation (FDIC). The Final Rules confirm the applicability of Part 190 of the CFTC's regulations in the context of an FCM that also is registered with the Securities and Exchange Commission (SEC) as a broker-dealer and subject to a proceeding guided primarily by the SIPA. Likewise, the Final Rules clarify the applicability of Part 190 in the context of a proceeding in which the FDIC is acting as receiver.

Letters of Credit as Collateral. The Final Rules confirm the treatment of letters of credit used as collateral. Specifically, the Final Rules make clear that customers posting letters of credit as collateral will be subject to the same pro rata loss as customers that post other types of collateral, such as cash and securities, both during business as usual and during bankruptcy.The pro-rata loss would be calculated based on the face value of the posted letter of credit, even if only a portion was drawn down by a customer at the time of the bankruptcy.

Greater Trustee Discretion. The Final Rules grant trustees greater discretion by, among other things, permitting the trustees to treat public customers on an aggregated basis. This greater discretion generally favors the cost effective and prompt distribution of customer property over the precision of valuing each customer's entitlements on an individual basis.

Transferring Rather Than Liquidating Customer Positions. The Final Rules further confirm the CFTC's longstanding preference for transferring positions of public customers rather than liquidating the positions.

Reflect Changes to CFTC's Regulatory Framework. The Final Rules update Part 190 of the CFTC's regulations to better reflect changes to the CFTC's regulatory framework over the years, including the CFTC's recent revisions to its customer protection rules. The Final Rules also update cross-references to other CFTC rules.

Changes in Technology. The Final Rules also reflect changes in technology, including a recognition that many records are captured and stored electronically rather than on paper.

Non-Substantive Clarifications. The Final Rules provide non-substantive changes to clarify language in the CFTC's regulations. These clarifications are intended to address ambiguities that have complicated past bankruptcies.

A chart summarizing all of the provisions in the Final Rules is available in this advisory's appendix.

Effective Date of the Final Rules

The Final Rules are effective 30 days after publication in the Federal Register.

Principal Changes From the Proposed Rules and Supplemental Proposed Rules

The Final Rules differ from the proposed amendments2 and supplemental amendments,3 published in the Federal Register on June 12, 2020 and September 24, 2020, respectively, in a few key respects. In particular, the Final Rules clarify in CFTC Rule 190.11 that if a debtor clearing organization is organized outside the United States, then only selected provisions in Part 190 of the CFTC's regulations would apply, including (1) the general provisions in Subpart A to Part 190; (2) the reports and records requirements in CFTC Rule 190.12; and (3) the prohibition on avoidance of transfers in Rule 190.13 and the net equity calculation and treatment of property requirements in Rules 190.17 and 190.18, but only with respect to an FCM clearing member's public customers. The CFTC expressed its rationale in adopting the final scheme as a balance between protecting customers and mitigating conflict with foreign proceedings.

Additionally, the CFTC adopted a simplified CFTC Rule 190.14(b) that is consistent with DCO rules governing the default of the DCO. As originally proposed, Rule 190.14(b) included additional provisions that were intended to provide a brief opportunity, after the order for relief, to enable alternatives (i.e., resolution under Title II of the DoddFrank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") or the transfer of clearing operations to another DCO) in lieu of liquidation. In response to comments following the Proposed Rules, the CFTC withdrew proposed paragraphs (b)(2) and (b)(3) and issued the Supplemental Proposed Rules with an alternative approach to facilitate the potential resolution of a systemically important DCO under Title II of the Dodd-Frank Act. In adopting the Final Rules, the CFTC determined not to go forward with the Supplemental Proposed Rules. As adopted, Rule 190.14(b) provides only that subsequent to the order for relief, the DCO must cease making calls for variation settlement or initial margin. Relatedly, former Chairman Heath Tarbert noted that the CFTC will engage in "further analysis and development before proposing this, or any other, alternative approach."

Katten's prior advisory, "More Than a Refresh but Much Less Than A Substantial Overhaul: The CFTC Proposes Comprehensive Amendments to Its Bankruptcy Rules," includes a discussion of the Proposed Rules.

See the CFTC's Supplemental Proposed Rules.

_______________

Appendix: Chart Summarizing Changes to Part 190 of CFTC Regulations

Elias Wright, an associate in the Financial Markets and Funds practice and candidate for admission to the New York State bar, contributed to this advisory.

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The CFTC Adopts Comprehensive Amendments to Its Bankruptcy Rules - JD Supra

Law360 (February 5, 2021, 4:23 PM EST) -- A partner in the financial restructuring group at Akin Gump Strauss Hauer & Feld LLP has been appointed as U.S. bankruptcy judge for the Southern District of New York.

The Second Circuit Court of Appeals announced Friday that Lisa G. Beckerman will assume her judicial duties and be sworn in during a private ceremony on Feb. 26.

"After more than two decades at Akin Gump, it is bittersweet to be leaving the firm and my many colleagues and friends here," Beckerman told Law360 Pulse on Friday. "At the same time, though, I am honored to be joining such a distinguished bench...

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Akin Gump Partner Tapped As Bankruptcy Judge In SDNY - Law360