We finally obtained copies of a host of filings with the Supreme Court in the case of Anna Nicole Smith (besides the US Amicus brief noted here) (pdf), including the opening brief filed by Anna’s lawyers (pdf).
The respondent’s brief is due to be filed on January 20, 2006. Oral argument is scheduled for February 28, 2006.
Four questions are presented:

1. What is the scope of the probate exception to federal jurisdiction?
2. Did Congress intend the probate exception to apply where a federal court is not asked to probate a will, administer an estate, or otherwise assume control of property in the custody of a state probate court?
3. Did Congress intend the probate exception to apply to cases arising under the Constitution, laws, or treaties of the United States (28 U.S.C. § 1331), including the Bankruptcy Code (28 U.S.C. § 1334), or is it limited to cases in which jurisdiction is based on diversity of citizenship?
4. Did Congress intend the probate exception to apply to cases arising out of trusts, or is it limited to cases involving wills?

An amicus brief in support (further discussed here) was also submitted by an all-star lineup of bankruptcy academicians (Richard Aaron, Jagdeep S. Bhandari, Susan Block-Lieb, Ralph Brubaker, Erwin Chemerinsky, Robert D’Agostino, S. Elizabeth Gibson, Robert M. Lawless, Charles Mooney, C. Scott Pryor, Nancy Rapoport, Robert K. Rasmussen, Keith Sharfman, Ettie Ward and Robert M. Zinman) (pdf).
Additionally, counsel for both petitioner and respondent submitted an approximately 250 page joint appendix containing excerpts from various relevant judgments, answers, opinions, briefs, jury instructions, and transcripts.
Anna’s lawyers summarize her position before the Court on these questions as follows:

Continue Reading Anna Nicole Smith Position Revealed in an Opening Brief to the US Supreme Court

Delphi announced today that the motion to approve the executive compensation program (discussed in yesterday’s post) “is being adjourned to January 5, 2006 pursuant to an agreement between the Debtors and the Creditors’ Committee.” No big surprise here given the opposition aligned against the motion, including an objection filed today by the US Trustee.
Here you’ll find a 20 page agenda identifying all 32 matters set for hearing on November 29, 2005. Of these 32 matters: 17 are continued or adjourned, 6 are uncontested, agreed, or settled; 8 are contested non-evidentiary matters; and 1 is a contested evidentiary matter.
This last one, a motion for entry of a proposed order approving procedures to assume certain amended and restated sole source supplier agreements, is an interesting one. In it, Delphi seeks authority to assume agreements covering the supply of goods that Delphi determines–

are absolutely critical to their on-going business operations; in other words, those goods that are not readily available from another supplier in quantities sufficient to avoid an interruption in the Debtors’ manufacturing operations and the Debtors’ supply of products to their customers (generally sole sourced Goods) and without which the Debtors would face an imminent shutdown of business operations at one or more of the Debtors’ business locations that would affect the operations of the Debtors’ customers.

This motion drew scores of objections from affected suppliers left out of the deal, as well as from the Creditors’ Committee. In support of the motion, Delphi filed supporting declarations from John Sheehan, Randy Eisenberg, and David Nelson. The DIP lenders filed a statement in support, though it was hardly a ringing endorsement of the proposal.
In the preliminary statement to its objection, the Creditors’ Committee summed up its concerns as follows:

Continue Reading Facing Stiff Opposition, Delphi Reschedules Hearing on Controversial “Key Executive Compensation Plan” to January 5, 2006

Below you’ll find our weekly roundup for the week ending 11/27/05 of some recently decided bankruptcy cases. More to follow, so stay tuned!
Automatic Stay – Nondebtors: In re Gemini Equipment Business Trust, 2005 WL 3050174 (M.D. Pa., 11/14/05)
Claims Objections – Choice of Law – Circuits’ Split: Global Indus. Techn., Inc. v. Ash Trucking Co., Inc. (In re Global Indus. Techn., Inc.), 2005 WL 3074184 (Bankr. W.D. Pa., 11/2/05)
Claims Objections – Evidentiary Issues // Derivative Suits – Standing: Carey v. Ernst, 2005 WL 3018334 (S.D.N.Y., 11/8/05)
Claims Objections – Preclusion: Kadish v. K-Mart Corp., 2005 WL 3077605 (N.D.Ill., 11/14/05)
Discharge – Willful and Malicious: Norm Gershman’s Things to Wear, Inc., v. Peterson (In re Peterson), 2005 WL 3046491 (Bankr. D. Del., 11/15/05)
Fee Applications – Objections: Hennigan Bennett & Borman LLP v. Goldin Associates, LLC (In re Worldwide Direct Inc.), 2005 WL 3071275 (D. Del., 11/16/05)
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Continue Reading Notable Reported Cases for the Week Ending 11/27/05

We’ve heard a lot in the news about the fight between management and labor in the Delphi case. What gets in front of the Bankruptcy Court, however, is evidence and legal argument, not newspaper stories and press releases.
With a hearing before the Bankruptcy Court on Delphi’s Motion to approve its “Key Employee Compensation Program” set for November 29, I thought readers of this blog would appreciate having the opportunity to see exactly what the parties are telling the Court in their filed pleadings.
Click the links to find Delphi’s motion in support, the accompanying Watson Wyatt report, and the objections filed by the UAW, the PBGC, JPMorgan Chase (a “limited objection” as agent for 250 senior secured lenders), Wilmington Trust (as indenture trustee), and the Lead Plaintiffs (in the pending shareholder class action).
Bottom line, the proof is in the pudding, and it’s hard to see the debtor winning on the measly submissions it has before the Court right now. The UAW appears to have the better side of the law in arguing that the Court should scrutinize the insider compensation plan under the “inherent fairness” standard, not the deferential “business judgment” standard advocated by Delphi’s counsel. The UAW also rightly points out that:

Under [BAPCPA’s new amendments to the Bankruptcy Code], a retention-type obligation incurred for the benefit of an insider “shall neither be allowed nor paid” absent findings by the court, based upon evidence in the record, that the individual has a job offer at the same or greater rate of compensation, that the services provided by the individual are “essential to the survival of the business” and that the payments meet a strict monetary test.

Although BAPCPA’s amendments technically don’t apply because Delphi filed before these amendments became effective, it’s still a solid argument as they probably represent the proof that a litigator generally would want to introduce anyway under the “inherent fairness” standard governing insider transactions.
Still, while it’s common for parties to reach agreement on the eve of trial, it’s difficult imagining the unions caving on this one and agreeing to anything. Instead, I suspect, the unions will make the Court cram this one down their throats if the Court really wants management to benefit here (though this too seems unlikely given the weak generalized evidence presently before the Court and the equally shaky legal grounds upon which Delphi relies).
In the end, nothing is guaranteed for the workers being asked to sacrifice and stay, so why should anything be guaranteed to the 500 management employees who are being asked to do the same (other than the fact that they control the debtor’s lawyers who are instructed to file these kinds of motions)? But maybe expecting that management will refrain from self-dealing while asking for workers to take severe pay cuts is asking too much of some people.
Stay tuned.
© Steve Jakubowski 2005

Below are notable blog posts on the following topical bankruptcy issues of interest to the bankruptcy litigator and practitioner for the week ending 11/25/05.
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Judge Alito’s Bankruptcy Jurisprudence
The Portland Archdiocese Disclosure Statement Filing
The Problem of Legal Valuation Uncertainty
Asbestos Trust Fund Talk
The UK Housing Bubble and Its Lessons
Management-Labor Disputes Spilling Into Bankruptcy Courts
Professional Feasting in Bankruptcy
Derivative Risks
Entergy’s Failure, Katrina, and a Dark New Orleans
Delphi and GM’s Woes, from a Union Perspective (with lots of good news stories from the Detroit Free Press, Automotive News, and other great newspapers)
Delta Bankruptcy Judge Beatty’s “Live-Wire” Comments
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Continue Reading Weekly Blog Roundup on Bankruptcy-Related Topics for the Week Ended 11/25/05

Below are some notable news posts for the week ended 11/25/05 on the following topical bankruptcy issues of interest to the bankruptcy litigator and practitioner:
Management-Labor Bankruptcy Issues at Northwest, Delta, and Delphi
Delta Bankruptcy News
GM News
Delphi News
US Air Post-Confirmation Results
Calpine News
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Continue Reading Weekly News Roundup on Bankruptcy-Related Topics for the Week Ended 11/25/05

Here’s a link to the amicus brief filed on 11/21/05 by the US in support of Anna Nicole Smith in her case before the US Supreme Court, Marshall v. Marshall, No. 04-1454 (referenced here) (<a href="pdf). Looks like this is the first brief filed since the Court granted Anna’s petition for certiorari last September.
The “Question Presented” is:

Whether a claim that falls within the scope of the jurisdiction conferred upon the federal courts and that seeks neither to probate a will nor to administer or assume control over the property in a decedent’s estate is nevertheless excepted from federal jurisdiction if it involves the adjudication of rights related to property that is the subject of an ongoing state probate proceeding.

The “Interest of the United States” is described as follows:

Continue Reading US Supports Position of Anna Nicole Smith in Amicus Brief Filed with the US Supreme Court

The following six bankruptcy-related working papers can be downloaded from the Social Science Research Network:
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University of Texas Law School’s A. Mechele Dickerson: “Words that Wound: Defining, Discussing, and Defeating Bankruptcy ‘Corruption’.”
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Harvard Law School’s Ethan Bernstein: “All’s Fair in Love, War & Bankruptcy?: Corporate Governance Implications of CEO Turnover in Financial Distress.”
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Boston College Law School’s Catharine P. Wells: “Who Owns the Local Church? A Pressing Issue for Dioceses in Bankruptcy.”
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Syracuse University Law School’s Gregory L. Germain: “Income Tax Claims in the Year of Bankruptcy: A Congressionally Created Quagmire.”
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University of Reading’s Charles Grant and Institute for the Study of Labor’s Winifried Koeniger: “Redistributive Taxation and Personal Bankruptcy in US States.”
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Texas A&M’s Li Gan and Washington University’s Tarun Sabarwal: “A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy.”
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Abstracts for each of these working papers follow:

Continue Reading Six Bankruptcy-Related Working Papers Available for Downloading from SSRN

The Bankruptcy Court for the District of Columbia has released about 16 opinions for publication this year, and five of them have related to the litigation spawned by the Greater Southwest Community Hospital Corp. (“GSCH”) bankruptcy. GSCH’s bankruptcy case commenced in November 2002, and its reorganization plan was confirmed in April, 2004. Under the plan, the debtor’s operations vested in the “Reorganized Debtors,” and the debtor’s litigation assets vested for the benefit of pre-confirmation creditors in the “DCHC Liquidating Trust” (the “Trust”). Sam J. Alberts was named Trustee, and the Trust was funded with $1 million to cover some of the litigation expense.
Judge Teel, the bankruptcy judge assigned to the case, recently issued a lengthy opinion in the case, Alberts v. Tuft (In re Greater Southeast Community Hospital Corp.), 2005 WL 3036507 (Bankr. D.D.C., 10/31/05), in which he addressed the defendants’ Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted.
The Court summarized the complaint’s allegations as follows:

The Trust alleges that DCHC’s former directors and officers (the “D & O Defendants”), with assistance from two law firms (collectively the “Law Firm Defendants”), Epstein Becker & Green P.C. (“Epstein Becker”) and Kutak Rock LLP (“Kutak Rock”), negligently and in some instances intentionally drove the Debtors further into debt in furtherance of a Ponzi scheme perpetrated by the Debtors’ primary if not sole lender, National Century Financial Enterprises (“NCFE”), and its subsidiary and affiliated lenders (collectively the “NCFE Entities”). It seeks recovery not only for assets actually drained out of the Debtors’ estates prior to their bankruptcy filings, but also for the debt accumulated by the Debtors in the years leading up to DCHC’s bankruptcy filing–an amount totaling $242 million.

The Trust’s Complaint contained a total of twenty-one counts, broken down as follows as to the various defendants:

As Against All Defendants: (A) Deepening insolvency claims (Counts X-XII); (B) Claims as a hypothetical judgment lien creditor under § 544(a) (which, according to the complaint, “permits it to (1) to pursue claims that such creditors would hold for breach of fiduciary duty and (2) garnish or ‘seize’ the Trust’s own claims and prosecute those claims as a creditor rather than as a representative of the estate”) (Count XV)
As Against the D&O Defendants: (A) Breach of fiduciary duty (Counts I-V); (B) Corporate waste (Counts V-IX)
As Against the Law Firm Defendants: (A) Aiding and abetting fiduciary duty (Count XIII); (B) Malpractice (Count XIV); (C) Aiding and abetting “deepening insolvency” (Count XI); (D) Fraudulent conveyance (Counts XVI-XXI)

As to the defendants’ motion to dismiss, the Court’s holdings are summarized as follows:
(1) The Court dismissed the “deepening insolvency” claims (Counts X-XII), stating that they were a mere “re-packaging” of the breach of fiduciary claims with respect to the D&O Defendants and the malpractice claims with respect to the Law Firm Defendants.
(2) The Court further dismissed the Section 544(a) claim (Count XV), stating that “the Trust cannot use § 544(a) to bring claims separate from those of the estate or to constructively “seize” the estate’s claim in the guise of a creditor.”
(3) The Court dismissed the breach of fiduciary duty claims with respect to the D&O Defendants relating to the NCFE Entities’ lending practices (Counts I and I-V), as well as the claims alleging corporate waste (Counts V-VII and IX).
(4) The Court did not dismiss Count VIII with respect to loans made to officers for which no consideration was provided in exchange.
(5) The legal malpractice claim (Count XIV), which challenged the sufficiency of the opinion letters that the Law Firm Defendants prepared, survived the motion to dismiss. The Court stated that the allegations regarding these opinion letters were “far from precise,” but that they were sufficient at this stage of litigation to state a claim for malpractice.
(6) Finally, the Court rejected the Law Firm Defendants’ res judicata and judicial estoppel arguments, as well as the statute of limitations and in pari delicto affirmative defenses that were common to all Defendants.
Excerpts from the Court’s opinion on the Court’s dismissal of the “deepening insolvency” and section 544 claims follow:

Continue Reading DC Bankruptcy Court Rejects Deepening Insolvency Claims as Duplicative, But Allows Other Related Counts in Trustee’s Serpentine Complaint Against Debtors’ Former D&O’s and Lawyers

Here’s our popular weekly roundup of significant recently decided cases involving complex bankruptcy disputes for the week ended 11/20/05. Enjoy!
Administrative Claim – Critical Vendor – Setoff: In re TSLC I., Inc., 332 B.R. 476 (Bankr. M.D. Fla., 11/1/05)
Plan – Feasibility: In re Repurchase Corp., 332 B.R. 336 (Bankr. N.D. Ill., 10/31/05)
Plan – Third Party Release: Simmons v. 22 Acquisition Corp., 2005 WL 3018726 (E.D. Tex., 11/10/05)
Preference – Ordinary Course: In re Terry Manufacturing Company, Inc., 2005 WL 3003701 (M.D. Ala., 11/9/05)
Setoff – Mutuality: Universal Guaranty Life Ins. Co. v. Health Receivables Management, Inc. (In re Health Management Limited Partnership), 332 B.R. 360 (Bankr. C.D. Ill., 11/2/05).
Bonus Supplement: Reed Smith’s guide to recent bankruptcy decisions.

Continue Reading Notable Reported Cases for the Week Ending 11/20/05