Below is our initial take on recent bankruptcy-related developments:
Johnson & Johnson's latest bankruptcy attempt faced immediate opposition from cancer victims' attorneys. They argued that the bankruptcy was a sham and urged the judge to dismiss the case or move it to New Jersey.
S&K Take: Back at it in a J&J subsidiary bankruptcy case, this time deep in the heart of Texas. Quick recap—LTL files in North Carolina, and venue is transferred to New Jersey. New Jersey bankruptcy court declines to dismiss the case as a bad faith filing. That decision is ultimately overturned by the Third Circuit, which finds a “financial distress” requirement for a debtor to demonstrate that its case was filed for a “valid bankruptcy purpose” under section 1112. LTL files again in NJ with tweaks to its support letter from J&J. That case is dismissed by the NJ bankruptcy court based on the Third Circuit’s decision. LTL becomes LLT and floats a prepack to certain creditors (ovarian cancer claimants and NOT mesothelioma claimants) which ultimately garners the support of 83% of claimants based on a $9 billion claim settlement pool. LLT becomes Red River, and Red River files in S.D. Tex. The UST and dissenting claimants have sought to have the case sent back to NJ, where the Third Circuit financial distress requirement looms over an inevitable motion to dismiss the case. Judge Kaplan (D.N.J.) has already ruled that Judge Lopez (S.D. Tex.) should decide the venue issue, and Judge Lopez has set that hearing for October 11. It is the ultimate battle of form versus substance. The Red River filing is technically (per 28 USC 1408) appropriate in Texas. The question is whether the “interests of justice” and/or the ”convenience of the parties” dictate that the case should be sent back to NJ per 28 USC 1412. Given the history and the machinations undertaken to date to generate (what might be perceived to be favorable) jurisdiction by LTL and its successors, it seems like the debtor has an uphill battle. That being said, there is some appeal to the argument that 83% of claimants want the case to be in Texas and have consented to that jurisdiction. Tough one. We will certainly cover Judge Lopez’s decision in these pages.
U.S. Bankruptcy Judge Marvin Isgur found that U.S. law firm Jackson Walker violated its ethical duties for not disclosing a relationship between Houston bankruptcy judge David Jones and one of its partners.
S&K Take: It feels like we cover the SD Tex drama on what is essentially a weekly basis here (and we are trying to diversify our coverage when we can), but this felt like a big deal. It isn’t every day that you see one of the most prominent bankruptcy judges in the U.S. refer one of the most prominent Texas bankruptcy firms to the District Court for disciplinary proceedings for defiling “the very temple of justice,” but here we are. Judge Isgur found that Jackson Walker had a duty to disclose the Freeman-Jones relationship to its clients and the Court and failed to do so. The language of the letter is quite direct, so we would recommend you read it for yourselves.
On Wednesday, bankrupt food container maker Tupperware Brands Corporation reached a brief deal with lenders, reinstating the company’s access to cash accounts in order to finance employee payroll and other upcoming expenses.
S&K Take: When we checked in on the Tupperware case last week we noted that the ad hoc group of lenders wanted the case dismissed so that they can foreclose (which they were ready to do prepetition). Their basic argument was that this was all a big waste of time. A fourth sale process would not yield any bids that came anywhere close to the secured debt, and moreover, the Debtors are admin insolvent. So what are we doing here? Wexford, a minority lender scorned by the ad hoc group, subsequently piped up and said it fully supported the use of cash collateral and the sale process should go forward (as opposed to the ad hoc group taking the Debtors’ asserts for a pittance). Well the parties have figured it out, at least for the time being. The ad hoc group has agreed to a cash collateral bridge which will allow the Debtors to make payroll and pay other critical expenses while the parties try to sort out a settlement. Debtors’ counsel says there is a lot of wood to chop, but we will see if they can get it done by Oct. 11, which is the hearing date on the ad hoc group’s motion to dismiss.
A Delaware bankruptcy judge ruled that the U.S. Supreme Court's decision in the Purdue Pharma case prohibits the use of "opt-out" waivers in certain circumstances in bankruptcy restructuring plans.
S&K Take: With apologies for the paywalled article, we thought this one was important. We have a new data point in post-Purdue plan releases from Judge Goldblatt, who found that omission is not consent. Obviously, Purdue prohibits nonconsensual third-party releases. So one of the questions that naturally arises is when can a party be deemed to “consent.” Judge Goldblatt found that “opt-out” releases (meaning that a third-party grants a release unless it affirmatively opts out) are not effective unless the third-party returns a ballot. Parties in interest that are unimpaired and thus are not permitted to vote, or parties that don’t return a ballot are not deemed to consent in the opt-out context. Said another way, silence is not consent—consent requires an affirmative act. This distinction is going to be critical post-Purdue.
