Category Archives: Bankruptcy

Mere hours after TPC Group announced it filed for bankruptcy protection in a Delaware courtroom, Beaumont attorney Brent Coon held a news conference to explain how his firm would continue working to recuperate funds for more than 1,000 Southeast Texans who filed claims against the chemical plant.

Coon said lawsuits filed against the company also included other groups affiliated with TPC, such as engineering firms and chemical companies.

A large number of Coons clients still have damage and unpaid medical bills and have yet to receive any compensation, he said.

After the explosion occurred, TPC initially set up a compensation program to pay property owners that program lasted a couple of months, then TPC quit that program, he said. The reason they quit the compensation program was because they ran out of the money to do so.

Payouts began soon after a major loss of containment of butadiene produced a vapor cloud that ignited at 12:56 a.m. Nov. 27, 2019. The explosion caused damage to homes, schools and other structures in the immediate area, with debris as far as Bridge City. A second explosion the following day forced a mandatory evacuation for a four-mile radius.

Coon said his firm has been looking over TPCs financial records for a while, and also has been working with procure bankruptcy counsel for more than a year in the event TPC filed for bankruptcy.

The company, he said, filed thousands of thousands of pages of documents requesting relief. That, he added, meant TPC would still be setting aside huge amounts of money for ongoing operations and business relationships.

TPC released a statement soon after the bankruptcy announcement saying unprecedented events such as COVID-19, supply chain issues, higher energy costs and Winter Storm Uri caused financial strain. The 2019 explosion was also cited.

We have been working diligently to address the impacts of these events in close coordination with our financial stakeholders to consider the best path forward for our business and our stakeholders to ensure we strengthen our capital structure and position us to be a stronger, more competitive business, setting us up for long-term success and future growth opportunities, the company said in the statement.

To that end, today, TPC Group took the next step in our journey to secure a stronger financial future by filing for voluntary protection under Chapter 11 of the U.S. Bankruptcy Code to begin the transformational recapitalization of our business. This process will allow us to expand upon the progress weve already made as we work to put TPC Group on the path to sustained, profitable growth and achieve the potential we know our business has with an appropriate underlying financial structure.

TPC said the action will allow for stronger business in the future.

TPC Group is dedicated to continually improving all aspects of our operations and driving our environmental performance to meet or exceed regulatory requirements and industry practice, the statement said. Our commitment to community, being a good neighbor, and operating safely and in an environmentally sound manner is unwavering.

Coon disagreed.

TPC hasnt been good to our community, he said. They abandoned our community.

Link:

TPC Group files for bankruptcy with thousands still awaiting payouts; attorney Brent Coon responds - Port Arthur News - The Port Arthur News

This entry is part of Nelson Mullinss ongoing Bankruptcy Basics blog series that is intended to address foundational aspects of bankruptcy for non-bankruptcy practitioners and professionals. This entry will discuss lease rejection in chapter 11 bankruptcy cases.

One critical component of chapter 11 bankruptcy cases is the debtors ability to assume or reject certain executory contracts, including leases of nonresidential real property. Under section 365 of the Bankruptcy Code, a chapter 11 debtor has 120 days (currently 210 days pursuant to an extension in the CARES Act) to assume or reject leases. This assumption/rejection window can be extended by court order for an additional 90 days. Any further extension requires agreement of the debtor and the landlord.

Assumption of a lease in chapter 11 allows for the lease to remain ongoing throughout the life of the bankruptcy case. In order to assume a lease, the debtor must cure any arrears and show adequate assurance of future performance under the lease.

Similarly, a debtor may assume and assign a lease. Assumption and assignment may occur under the Bankruptcy Code even if the lease includes a clause preventing assignment. Assumption with an intent to assign still requires curing all arrears and a showing by the assignee of adequate assurance of future performance. If cure and adequate assurances are satisfied, the lease will be assumed under the current terms of the lease.

If a lease is not assumed in the timeframe provided by the Bankruptcy Code, it shall be deemed rejected. Rejection results in the termination of the lease. Upon rejection, either by affirmative action by the debtor to reject the lease or by expiration of the assumption window, the lease is deemed terminated as of the date that the debtor filed for bankruptcy. The landlord may retake possession of the property upon rejection and is owed breach damages to be calculated starting from the petition date.

Rejection damages are subject to a statutory cap under Bankruptcy Code section 502(b)(6). This statutory cap is intended to ensure that potentially large landlord rejection damages do not disproportionately affect other unsecured creditors upon rejection. The cap is the greater of (1) one years rent or (2) the rent for 15 percent, not to exceed three years, of the remaining term of the lease. Typically, the cap takes the place of mitigation factors, as courts treat the imposition of the cap as a form of mitigation, meaning that other mitigation issues are not considered when calculating the capped damages.

In sum, the Bankruptcy Code allows for a debtor to assume or reject commercial leases in a chapter 11 bankruptcy. The debtor can also freely assign leases, provided the cure and adequate assurances of future performance are provided. The decision to reject a lease may result in substantial, albeit capped, rejection damages claims for any landlord whose lease is rejected.

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Bankruptcy 101: Lease Assumption, Assignment, and Rejection - Bankruptcy Basics for New and Non-Bankruptcy Attorneys - JD Supra

Amber Heard will have to figure out a way to generate a couple of millions because according to the verdict, she can't use bankruptcy to escape paying her ex-husband Johnny Depp.

Heard was found guilty of defaming the actor in a 2019 op-ed in the Washington Post by a seven-person jury on Wednesday.

El jurado falla a favor de Johnny Depp en su demanda contra la actriz Amber Heard

The jury concluded that Heard published the statements with malice, implying that she did not tell the truth.

For a total of $15 million, the actress was ordered to pay Depp $10 million in compensatory damages and $5 million in punitive damages.

The judge stated that Virginia only allows for $350,000 in punitive damages, which means the $5 million will be reduced. Heard was awarded $2 million in her countersuit against Depp for press statements made by his lawyer.

Given that she admitted her acting roles dried up after Depp sued her, the $10-$15 million judgment will be difficult for Heard to pay. She also won't be able to discharge the debt through bankruptcy.

In a interview for RadarOnline.com, "The award is not dischargeable," says Los Angeles attorney Ronald Richards. Punitive damages are never deductible or dischargeable. Intentional torts like defamation are typically not dischargeable."

Heard's team will almost certainly file an appeal, attempting to reduce the amount awarded or overturn the entire verdict. The actress has remained tight-lipped about her legal options.

Depp issued a statement after the verdict was read, thanking the jury for giving him his "life back."

He expressed his gratitude by saying, "I am truly humbled. My decision to pursue this case, knowing very well the height of the legal hurdles that I would be facing and the inevitable, worldwide spectacle into my life, was only made after considerable thought."

Heard expressed her dissatisfaction with the outcome. "I'm heartbroken that the mountain of evidence still was not enough to stand up to the disproportionate power, influence, and sway of my ex-husband," she said.

"I'm sad I lost this case. But I am sadder still that I seem to have lost a right I thought I had as an American - to speak freely and openly," she ended.

Excerpt from:

Amber Heard can't file for bankruptcy to wipe $15 million she now owes Johnny Depp - Marca English

The worst of the pandemic may (hopefully) be behind us, but the effects of two years of crazy disruption are still very much with us. Companies and teams continue to tussle over remote vs. in-person work, individuals are rethinking their priorities and looking for better options en masse, and burnout is at historical highs.

Also, as of Memorial Day, summer is (unofficially) upon us and with itthe urge to spend less time at workand more time outside in front of a barbecueor at the beach.

All of which adds up to a single conclusion. Many entrepreneurs out there are in the middle ofrenegotiating their relationship to their work and having a deep think about how many hours they put in, where, and with what goals in mind. I've covered a bunch of suggestions and exercises to help you use the winding down of the pandemic as a springboard to reconsider your life, but I just ran across another good idea in the MIT Sloan Management Review: Now might just be the perfect time to declare "meeting bankruptcy."

Like email or social media bankruptcy, but for meetings

You may already have heard of "email bankruptcy."The idea is, when you are hopelessly overwhelmed by your out-of-control inbox, you simply delete everything and wait to see what issues come up and who writes you again. It's a simple if brutal way to clear some space for a fresh start and find out which of your 6,587 unread messages really matters.

Computer science professor and author Cal Newport has also applied the bankruptcy concept to social media, calling it a 'digital detox.'On his blog hesuggested quitting all your platforms for a month to see not just how you feel (science suggests the answer is likely to be better) but what social media uses and activities you actually miss.

Writing in the MIT Sloan Management Review, a trio of executives from the Slack sponsored Future Forum, suggest an analogous idea excerpted from their new book, How the Future Works. Just as you might declare email or social media bankruptcy, why not try declaring meeting bankruptcy and see what happens?

"At Slack, our executives led by example on this by declaring 'calendar bankruptcy.'They removed all recurring meetings and one-on-ones from their calendars so that they could consider each one and add back only what was truly necessary,"Brian Elliott, Sheela Subramanian, and Helen Kupp write.

The idea isn't to permanently eliminate meetings, though research suggests you would get a lot more done if you did ban meetings at least a couple of days a week. Instead, the goal of declaring meeting bankruptcy is to take meetings off autopilot and force you to actively justify each one you add to your calendar.

However, the authors suggest that done properly an email bankruptcy will probably result in more open time for focused work.

"We found that so many meetings could be eliminated or broken up into parts. For example, your monthly sales meeting might start with a status update. Why not send that out beforehand? Presentations can be shared as decks or asynchronous videos so people can review them in their own time. Tactics like these can lessen your meeting time considerably, and then time together can be more meaningfully spent on meaty discussions or team building,"they report.

Whynow?

This is an idea that could work just about any time, but it seems particularly well suited to our current moment. The pandemic has already thrust most of us into deep consideration of whether our careers are healthy, sustainable, and in line with our values. Declaring meeting bankruptcy feels like a natural extension of thatprocess of reconsideration.

Plus, it's summer time, traditionally a slower period for many industries. That may make declaring meeting bankruptcy now a little easier to manage logistically. And as a not so small bonus, you might just win yourself a few more hours to enjoy the sun with family and friends. So why not try cutting every meeting from your calendar and seeing which ones you actually miss?

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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Why Now Is the Perfect Time to Declare 'Meeting Bankruptcy' and Rethink Your Schedule - Inc.

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It's the Law: What can I keep in bankruptcy? - Post Register

The company purchasing Donald Trump's media network, Truth Social, warned investors on Monday that there might be a bankruptcy risk given the former president's history of failed business ventures.

A regulatory filing by Digital World Acquisition Corp. highlighted several examples of bankruptcy associated with Trump while noting that there is "no guarantee" Truth Social will be successful.

Digital World announced a merger with Trump Media and Technology Group (TMTG), which owns Truth Social, in October. The social media network was launched in February after the former president was barred from mainstream social media platforms in the aftermath of the January 6, 2021, riot at the U.S. Capitol.

In Monday's filing, Digital World outlined the bankruptcies of several Trump ventures, including Trump Taj Mahal, Trump Plaza and Trump Castle in Atlantic City, as well as the failures of Trump University, Trump Vodka, Trump Steaks and GoTrump.com.

"A number of companies that had license agreements with President Trump have failed. There can be no assurances that TMTG will not also fail," the filing states. "While all of the foregoing were in different businesses than TMTG, there can be no guarantee that TMTG's performance will exceed the performance of those entities."

Trump will maintain significant influence over TMTG, controlling roughly 47 to and 58 percent of the company and serving as its chairman, according to the filing. The agreement also states that Trump has pledged to post on Truth Social six hours before making similar posts on other platforms, in order to maximize exposure on the site. After that, Trump may post on any other social media platform he has access to.

In the first few months after its launch, Truth Social was largely deemed a disaster by users who reported that the site was overrun by bots and technical errors, while hundreds of thousands of people were put on waitlists to join. Trump and his family didn't even appear to be enthusiastic about the app in its early days. The former president remained largely silent on the platform until April, while some of his children have maintained a heavier presence on Twitter.

Truth Social has been criticized for having an interface that closely resembles Twitter, from which Trump has been suspended. However, Tesla CEO Elon Musk, who has had an offer accepted to buy Twitter for $44 billion, said he would reinstate Trump's account if the deal is complete.

In response to its rocky start, Truth Social announced last month that it would attempt to undergo "major capacity upgrades" to improve the "performance and reliability" of the app.

Newsweek reached out to TMTG for comment.

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Truth Social Buyer Warns of Bankruptcy Risk Given Trump's Past Failures - Newsweek

Business bankruptcies in Canada moved closer to pre-pandemic levels in the first quarter of 2022, jumping almost 34 per cent year-over-year in what some experts warn could be the start of a growing wave of failures.

There were 807 business bankruptcies and proposals in Q1, up from 733 in the previous quarter and 603 in the first quarter of 2021. Business bankruptcies have stayed significantly lower than normal during the pandemic thanks to government subsidies and loans, but the business community and experts have been saying the lull couldnt and shouldnt last.

In comparison, bankruptcies and insolvencies in the first quarter of 2019 totalled 972, meaning this quarters numbers are still almost 17 per cent down from the last full pre-pandemic Q1.

The question is whether insolvencies will rise back to pre-pandemic levels and stay there or whether they will go higher.

According to the Canadian Association of Insolvency and Restructuring Professionals (CAIRP), inflation and rising interest rates could push insolvency fillings up further as the year progresses.

Dan Kelly, president of the Canadian Federation of Independent Business, said he knew that business insolvencies would climb back up from their pandemic lows, but he expects the numbers to keep climbing above pre-pandemic levels as the year progresses.

Now that the subsidies are drying up, many business owners are trying to figure out whether its worth it to stay open, said Kelly. Less than half of CFIB members are back to pre-sales, he noted, and many are tens of thousands of dollars in debt.

Were in for several rough quarters, said Kelly, adding that the government could help ease the hangover by forgiving some or all of the loans it gave out during COVID-19. It could be a couple years of reckoning.

But David Macdonald, senior economist with the Canadian Centre for Policy Alternatives, has a more optimistic outlook.

Despite its current challenges, the Canadian economy is steady right now, he said, and that stability could help businesses get back on their feet, especially since summer is around the corner, a strong time of year for many sectors.

The latest uptick in bankruptcies could just be the return to pre-pandemic normal, he said, and not a sign of a coming tsunami.

Jean-Daniel Breton, chair of CAIRP, said theres no telling what will happen next. It all depends on a variety of measurable factors, like supply chain problems, inflation, and interest rates; as well as on immeasurable factors like consumer and business confidence.

Kellys concern is justified, said Breton, but he doesnt think bankruptcies will spiral out of control. Any backlog from the pandemic lull is likely to shake out over time, not all at once, he said.

The sectors with the biggest yearly increase in insolvency filings were construction and transportation and warehousing, the latter likely linked to rising gas prices, said Macdonald.

Inflation will certainly be a challenge for many businesses, said Macdonald, but it could actually be a boon for some industries.

However, a wave of bankruptcies significantly above pre-pandemic levels is not impossible, said Macdonald. If there is a recession, for example, then filings will likely go up.

Of course, bankruptcies dont tell the whole picture. Kelly noted that many small businesses dont bother to file for bankruptcy, instead choosing to simply close.

If anything, a bankruptcy filing is the funeral, not the death, he said, and the full scope of the pandemics economic effect is harder to quantify.

Breton said struggling business owners can benefit from early intervention, even saving their business from complete closure.

Insolvencies are part of the life cycle of a healthy economy, said Macdonald, and can help business owners exit a failing company less painfully.

It should be positive to get out from underneath this debt burden, he said.

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Canadian businesses bankruptcies surge and some fear this is just the beginning - Toronto Star

The recent case of In re Micah Cade McKinney, Case No. 21-50046-rlj-11 (Bankr. N.D. Tex., April 28, 2022) provides insight as to violations of the bankruptcy discharge injunction.

Contempt litigation in bankruptcy court is occasionally driven by intentional, willful conduct on the part of a creditor perhaps out of spite that the debtor who owed them money had filed for bankruptcy in the first place. But more often than not, violations of the automatic stay or the discharge injunction occur out of a misunderstanding of the applicable law. This case represents an example of the latter.

Since December, 2018, the Debtor, Micah McKinney, and his wife Leslie McKinney, were parties to a divorce case in State Court. On March 31, 2021, the State Court held a hearing on two motions filed by Leslie McKinney in the divorce case: a motion for enforcement of temporary orders and a motion to allocate a tax refund. The State Court orally granted Leslie McKinneys requested relief on the record, holding Micah McKinney in contempt and ordering that he transfer approximately half of a $3 million tax refund to Leslie McKinney.

On April 5, 2021, before any written order was issued by the State Court, Micah McKinney filed this chapter 11 bankruptcy case. The case was primarily filed because Micah McKinney did not have the funds to comply with the State Courts March 31 ruling.

On August 22, 2021, after a lengthy mediation, Micah McKinney and Leslie McKinney entered into a settlement agreement that resolved all their divorce disputes save for certain SAPCR (suits affecting the parent-child relationship) issues. The terms of the settlement agreement were incorporated into Micah McKinneys bankruptcy plan (Plan). On November 4, 2021, the Plan was confirmed. Under the Plan, and the settlement agreement incorporated therein, Leslie McKinney released all claims against Micah McKinney, including claims in the divorce case, except for certain post-petition SAPCR issues. The Plan also states that all claims of the Lanfear Firm, which represented Leslie McKinney in the divorce case, were released. The order confirming the Plan includes a broad injunction (Discharge Injunction) barring all actions to enforce any pre-confirmation claims against Micah McKinney in a manner inconsistent with the terms of the Plan. At the time of the hearing the subject of this case, Micah McKinney had satisfied all his obligations to Leslie McKinney under the Plan.

On February 17, 2022, Leslie McKinney, through the Lanfear Firm, filed a motion in the divorce case requesting entry of two orders related to the State Court hearing held on March 31, 2021 (Motion to Enter). The orders, as proposed, provide that Micah McKinney be incarcerated if he fails to pay several pre-bankruptcy claims to Leslie McKinney, the Lanfear Firm, and others; they also required that Micah McKinney place the $3 million tax refund in escrow for payment of a claim to the Lanfear Firm. Each of the claims addressed by the proposed orders were discharged through the order confirming Micah McKinneys Plan. After counsel for Micah McKinney emailed Leslie McKinneys counsel on February 17, 2022, voicing Micah McKinneys objection to the Motion to Enter as a violation of the Discharge Injunction, counsel for Leslie McKinney said she did not intend to seek the relief in the Motion to Enter but simply wanted a clear record to ease the adjudication of the remaining

SAPCR issues in State Court. Subsequently, Leslie McKinney filed an amended motion on February 28, 2022 (Amended Motion to Enter) that added language to the orders stating that their entry was not an attempt to enforce relief but, rather, to accurately reflect the record. A hearing on the Amended Motion to Enter was set in State Court for March 22, 2022.

On February 25, 2022, Micah McKinney filed a motion seeking to hold Leslie McKinney and the Lanfear Firm in contempt for violating the Discharge Injunction by filing the Motions to Enter. On March 1, 2022, he filed a motion for a preliminary injunction, which was granted on March 8, 2022, enjoining Leslie McKinney and the Lanfear Firm from pursuing their Motion to Enter and Amended Motion to Enter (collectively Motions to Enter) and enjoining the State Court from entertaining the Motions to Enter at the March 22 hearing. The Court took the motion for contempt under advisement.

When a creditor violates the discharge injunction in a bankruptcy case, a bankruptcy court may hold the creditor in contempt to compensate the debtor for the violation and to coerce the creditor into compliance with the injunction. Placid Refining Co. v. Terrebonne Fuel & Lube, Inc. (In re Terrebonne Fuel & Lube, Inc.), 108 F.3d 609, 61213 (5th Cir. 1997). This authority derives from 11 U.S.C. 105, which allows a bankruptcy court to enter any order necessary to carry out the provisions of the Bankruptcy Code. Cirillo v. Valley Baptist Health Sys. (In re Cirillo), No. 09-10324, 2014 WL 1347362, at *4 (Bankr. S.D. Tex. Apr. 3, 2014). To determine whether a party should be held in contempt for violating a discharge injunction, courts employ an objective standard, and contempt is appropriate when there is not a fair ground of doubt as to whether the creditors conduct might be lawful under the discharge order. Taggart v. Lorenzen, 139 S. Ct. 1795, 1804 (2019).

Under Taggart, three elements must be proven for a court to hold a party in contempt: (1) the party violated a definite and specific order of the court requiring him to refrain from performing particular acts; (2) the party did so with knowledge of the courts order; and (3) there is no fair ground of doubt as to whether the order barred the partys conduct. In re City of Detroit, Mich., 614 B.R. 255, 265 (Bankr. E.D. Mich. 2020).

The Court had no trouble finding that Leslie McKinney and the Lanfear Firm violated the Discharge Injunction by filing the Motions to Enter. The Discharge Injunction states:

AS OF THE EFFECTIVE DATE ALL HOLDERS OF CLAIMS AGAINST THE DEBTOR ARE HEREBY PERMANENTLY ENJOINED AND PROHIBITED FROM THE COMMENCING OR CONTINUATION IN ANY MANNER, DIRECTLY OR INDIRECTLY, OF ANY ACTION, CASE, LAWSUIT OR OTHER PROCEEDING OF ANY TYPE OF NATURE AGAINST THE DEBTOR OR THE ESTATE, WITH RESPECT TO ANY SUCH CLAIM OR INTEREST ARISING OR ACCRUING BEFORE THE EFFECTIVE DATE, INCLUDING WITHOUT LIMITATION THE ENTRY OR ENFORCEMENT OF ANY JUDGMENT, OR ANY OTHER ACT FOR THE COLLECTION, EITHER DIRECTLY OR INDIRECTLY, OF ANY CLAIM OR INTEREST AGAINST THE ESTATE OR THE DEBTOR.

The proposed orders on the Motions to Enter directed that Micah McKinney was to make payments to Leslie McKinney for a portion of the $3 million tax refund and payments to the Lanfear Firm for attorneys feesobligations that were expressly discharged by confirmation of the Plan. The Discharge Injunction enjoins the continuation in any manner of the entry or enforcement of any judgment on a prepetition claim. As an action that continues to seek entry in State Court of a prepetition claim, Leslie McKinney and the Lanfear Firms filing of the Motions to Enter plainly violated the Discharge Injunction. So too would a hearing on the motions or the State Courts issuance of an order on the motions. The Court rejected the notion that the inclusion of a disclaimer in the motion saying that it was not an attempt to collect any of the monetary relief or awards therein saved the conduct from contempt. And the Court flatly rejected any thought that the requested State Court order was needed to accurately reflect the record. Any further proceedings in the State Court were stayed by Micah McKinneys bankruptcy filing. In addition, the savings language did nothing to solve the critical issue, which is that any continuation of a discharged claim violates the Discharge Injunction regardless of the purpose of the continuation. The Court made clear that Entry of an order against a debtor on a prepetition claim during the pendency of a bankruptcy case violates the automatic stay; and entry of an order against a debtor on a prepetition claim after the debtor receives a discharge violates the Discharge Injunction.

Turning to the second prong of the Taggart test, the Court easily found the existence of knowledge, as Leslie McKinney and the Lanfear Firm did not dispute that they were aware of the Discharge Injunction when they filed the Motions to Enter. Both were claimants under the plan, actively negotiating with Micah McKinney before its approval. They both received distributions under the plan post-confirmation. The Amended Motion to Enter expressly recognized that the Plan resolves the monetary relief sought through their motions.

Turning to the final prong under Taggart, the Court found that Leslie McKinney and the Lanfear Firm had no objectively reasonable basis for concluding that [their] conduct might be lawful. Despite Leslie McKinneys belief that she was acting

lawfully, the Court found no objective basis for concluding that her and the Lanfear Firms continued prosecution of claims in State Court on a prepetition claim would not violate the Discharge Injunctionsuch conduct directly violates the injunctions clear and plain language.

Finding that all three elements of the Taggart test had been met, the Bankruptcy Court found Leslie McKinney and the Lanfear Firm in contempt. The Court therefore turned to fashioning an appropriate sanction. The Court found that evidence made clear that neither Leslie McKinney nor the Lanfear Firm intended to violate the Discharge Injunction. Therefore, the Court found that, while she never had an objectively reasonable basis for concluding she was not violating the Discharge Injunction, she had shown that she was not proceeding in bad faith but, instead, under a misguided understanding of how she was restrained under the Discharge Injunction. Therefore, despite a request for attorneys fees and punitive damages, the Court ultimately limited its damage assessment to a sanction of $250/day for every day after the date that this order became final that Leslie McKinney failed to file a notice in State Court withdrawing the Motions to Enter.

The refusal to grant attorneys fees to Micah McKinney was somewhat surprising, but the Court determined that, in this case, further sanction was not necessary or appropriate under the circumstances.

[View source.]

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Violations of the Bankruptcy Discharge Injunction | Freeman Law - JDSupra - JD Supra

On May 2, the U.S. Supreme Court added three more cases to its docket for next term. The first raises the question whether Spending Clause legislation may ever confer a privately enforceable right under Section 1983. The second concerns when an employee is highly compensated and thus not subject to federal overtime pay rules. And the third addresses whether the U.S. Bankruptcy Codes bar on discharging liabilities incurred from fraud applies when the debtor has no knowledge of the fraud.

The Spending Clause and overtime pay cases will be closely followed, as they are likely to affect thousands of public entities and private businesses. A number of amicus briefs were filed in these cases while they were pending before their respective circuit courts, and both cert. petitions had multiple supporting amicus briefs. And while the bankruptcy case drew no cert-stage amicus briefs, it too is likely to have significant consequences, especially for bankruptcy cases involving allegations of fraud.

Section 1983 provides a cause of action for the deprivation, under color of state law, of any rights secured by the Constitution and laws. This provision is famous as a tool for vindicating constitutional rights, but in 1980 the Supreme Court held that the reference to and laws means Section 1983 can be used to enforce certain statutory rights as well. InHealth and Hospital Corporation of Marion County v. Talevski, the Supreme Court will consider whether federal laws enacted under the Spending Clause which include a wide variety of statutes regulating Medicaid and other federal spending programs can create the sort of statutory rights that are privately enforceable via Section 1983.

Notably, in 1990, inWilder v. Virginia Hospital Association, the Supreme Court allowed private parties to use Section 1983 to enforce rights contained in Spending Clause statutes. But in the three decades sinceWilder, the Court has not found any other privately enforceable rights in Spending Clause legislation. And the defendants inHealth and Hospital Corporation of Marion County an Indiana long-term care facility, its public-entity owner, and its privately held management company asked the Court to reconsiderWilderand to hold categorically that Spending Clause statutes do not implicitly confer such rights. They insist that Spending Clause statutes function as contracts between the federal government and the recipient of federal funding, and they further contend that when Congress enacted Section 1983 contracts did not create rights enforceable by third-party beneficiaries. Accordingly, the defendants argue, Spending Clause statutes cannot create statutory rights within the meaning of Section 1983. If the Court were to disagree with that contention, the defendants also asked the Court to consider whether the Federal Nursing Home Reform Acts transfer and medication rules create such rights.

Opposing the cert. petition, the plaintiffs contended that there is no justification for reconsideringWilder, arguing that it has been ratified by Congress and that there is no reason to single out Spending Clause statutes for special treatment. The plaintiffs also pointed out that there is no circuit split on the Federal Nursing Home Reform Act question. Nevertheless, the Court has agreed to consider both questions. And because Spending Clause statutes regulate numerous entities across several extensive benefit programs such as Medicare and Medicaid, which in 2020 reached spending nationwide thatexceeded $829 billion and $670 billion, respectively the Courts decision will have considerable economic consequences.

InHelix Energy Solutions Group, Inc. v. Hewittthe Court will address when the overtime pay rules of the Fair Labor Standards Act (FLSA) apply to employees who are both highly compensated and paid on a daily basis. The FLSA generally requires employers to pay time and a half for time worked beyond the standard 40-hour workweek, but exempts from this requirement those employed in a bona fide executive, administrative, or professional capacity. Department of Labor regulations provide detailed rules governing which employees fall within this exception, andone such regulationdeems employees exempt if 1) they perform at least one of a set of defined executive, administrative, and professional duties, 2) earn at least $107,432 per year, and 3) earn at least $684 per week paid on a salary or fee basis.

This case which involves an employee who earned more than $200,000 per year supervising 12 to 14 other employees on offshore oil and gas operations turns on the last of these criteria, which is commonly known as the salary basis requirement. The employer paid the employee once every two weeks based on a daily rate of nearly $1,000 per day, without regard to how many hours he worked that day. And the employer argues that because the employee received nearly $1,000 in any week in which he worked, he earned at least $684 per week paid on a salary or fee basis and therefore satisfies the salary basis requirement.

The U.S. Court of Appeals for the Fifth Circuit issued a sharply divided, 12-6 en banc decision rejecting this argument. The Fifth Circuit majority held that the key fact was not the employees high compensation, but was instead the fact that his compensation was computed on a daily basis. Because he was paid a daily rate, it concluded, the employee could qualify as an exempt employee only pursuant toa separate regulationthat, the majority explained, provides a special rule that must be satisfied before an hourly or daily rate will be regarded as a salary. Because the employer did not argue that it met the requirements of this regulation, the Fifth Circuit majority held that the employee was not exempt and was thus entitled to retroactive overtime pay.

The Supreme Court is now set to consider this complex question for itself. And as the cert. petition notes, the Courts answer will have widespread consequences, especially for the wide range of employers, such as those in the oil and gas industry, that often pay workers daily rates.

The U.S. Bankruptcy Code provides a way for debtors to discharge their debts and thereby obtain a fresh start yet the law exempts certain debts from discharge, among those debts for money or property obtained by false pretenses, a false representation, or actual fraud. And inBartenwerfer v. Buckley, the Court will decide whether this fraud exception applies to bar discharge of a liability for fraud committed by a debtors agent or business partner even when the debtor was unaware of the fraud.

The fraud at issue here arises from a husbands failure to disclose alleged defects in a house he and his wife sold together as partners. After the husband incurred a state court judgment for nondisclosure of material facts a judgment imputed to the wife under common law partnership principles the couple filed a joint bankruptcy case. The bankruptcy court held that the judgment against the husband was non-dischargeable under the fraud exception, but applying a knew or should have known standard developed by the U.S. Court of Appeals for the Eighth Circuit it held that the fraud exception did not apply to the wife because she was entirely unaware of the fraud. The U.S. Court of Appeals for the Ninth Circuit, however, reversed. In a brief, unpublished opinion, the Ninth Circuit departed from the Eighth Circuit and held that a debtors liability for fraud is non-dischargeable regardless of her knowledge of the fraud.

The Supreme Court will now resolve this inter-circuit dispute, and its answer likely will provide a uniform rule governing partner and agency relationships in a wide variety of contexts. Bankruptcy practitioners across the country will be watching for the Courts decision.

See more here:

SCOTUS To Review Spending Clause, Overtime, and Bankruptcy Fraud - The National Law Review

Amid a rather impressive speculative surge today in a number of meme socks,Bed Bath & Beyond (NASDAQ:BBBY) has also seen some impressive price action. At its highs earlier today, BBBY stock surged more than 14% higher, despite a lower overall market. Right now, most of those gains have been pared, with Bed Bath & Beyond now trading up only 1% as of 2:00 p.m. Eastern.

Source: Shutterstock

That said, BBBY stock is in the green. On a day like this, thats rather impressive. And perhaps its something to celebrate, with the retail crowd not giving up on their favorites like Bed Bath & Beyond.

As a favorite of retail investors (both investors who arent in the institutional bucket and those who favor retailers), Bed Bath & Beyond has been a fun stock to watch. This stock has surged from pandemic lows below $4 per share to nearly $54 per share at the peak of the previous meme-stock bubble. Since then, shares have trended in the opposite direction, now back to single-digit territory.

The pandemic reopening thesis with Bed Bath & Beyond didnt really play out as many expected. In some respects, increased confidence in retail stocks in general has helped BBBY stock and its competitors. However, with the economic outlook increasingly uncertain given the rising rate environment were now in, investors arent so certain. Accordingly, volatility has manifested mostly to the downside of late.

With that said, lets dive into one more potential headwind investors should be watching right now.

In addition to the aforementioned headwinds, Bed Bath & Beyond is a stock thats been in financial trouble for some time. The companys balance sheet isnt what many would call pristine. And given what one analyst is calling deteriorating financial performance, its possible investors may need to seriously consider endgame scenarios with BBBY stock.

Thats according to Anthony Chukumba of Loop Capital, who chimed in on Bed Bath & Beyond with a new note yesterday. In this note, Chukumba reiterated a sell rating, as well as a $5 price target on this stock.

Some of the factors playing into this analysis arent good. Chukumba believes that the company may be limited in the levers it has to pull to regain market share and improve the relevance of this company. Accordingly, this analyst sees the potential for a Chapter 11 bankruptcy filing as a very real scenario.

Thats not good for any stock. And while some investors may have been thinking this themselves, seeing it in a note certainly isnt encouraging.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.

Chris MacDonalds love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

Read more:

Is BBBY Stock Headed for Bankruptcy? One Analyst Thinks So. - InvestorPlace