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| vol 15, num 3 | September, 2017 |
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| The Seventh Circuit: Law Firm Did Not Owe Duty to Third Party Non-clients Regarding 1.5 Billion Dollar Mistake |
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If you were looking for something else to worry about at night, ponder the following scenario that forms the basis for the putative class-action complaint brought by the lender group-plaintiffs (the “Plaintiffs”) that was dismissed by the United States District Court for the Northern District of Illinois and affirmed on appeal in Oakland Police & Fire Retirement System et.al. v. Mayer Brown.
Prior to its 2009 bankruptcy filing, General Motors (“GM”) entered into a secured transaction with JP Morgan (as agent for a lender group) that was structured as a sale and lease back of real property (the “2001 Synthetic Lease.”) In 2006, JP Morgan also served as the agent for a separate lender group in a loan transaction whereby GM borrowed $1.5 billion which was secured by different real property (the “2006 Term Loan.”) UCC-1 financing statements were filed for both transactions.
In 2008 GM was gearing up to pay off the $150 million remaining balance on the 2001 Synthetic Lease. Towards that end, it instructed its counsel, Mayer Brown, LLP, to prepare the appropriate documents to release the security interest in the real estate. According to the Plaintiffs, Mayer Brown included the 2006 Term Loan UCC-1 in the documents to be terminated upon the payment of the balance on the 2001 Synthetic Lease.
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| Don't Tug on Superman's Cape |
| What should you do when opposing counsel is acting like a jerk? Unless the conduct or action is egregious, in bad faith, and demonstrably harmful to your client, you generally should do nothing. Grow thicker skin. This is because most conduct endured by courts and litigants is not covered by a specific sanctions statute or rule, and most judges dislike sanctions motions as much if not more than discovery motions. They don’t relate to the merits; they don't move the case forward, and they usually make both attorneys look like disgruntled children. |
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| Court Upholds Involuntary Chapter 7 Case Finding Assignee for an ABC Failed to Comply with his Fiduciary Duties |
| The United States Bankruptcy Court for the District of New York (the “Bankruptcy Court”) recently ruled In re Scandia Seafood (New York), Inc. that an involuntary chapter 7 bankruptcy case filed against Scandia Seafood (New York), Inc. (“Scandia”) should proceed, notwithstanding the fact that Scandia had previously assigned its assets to an assignee pursuant to an assignment for the benefit of creditors (“ABC”) effectuated under governing state law. The Bankruptcy Court ruling was premised on strong evidence that the assignee failed to comply with his fiduciary duties, focusing more on
his own financial gain in prosecuting preference actions as opposed to ensuring a proper valuation of Scandia’s assets and that the value of the assets inured to Scandia’s creditors and not the company’s prior owners. This case is a strong reminder that a fiduciary must always uphold his obligations to the parties he is meant to protect as well as a reminder of the consequences that may follow when this does not occur. |
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| Counsel Beware; Chapter 11 Filing Solely to Avoid Receiver is Sanctionable |
| Rule 9011(b) provides that by presenting to the court a petition, pleading, written motion or other paper, an attorney is certifying that, to the best of the person’s knowledge, information and belief, it is not presented “for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.” In In re EHC, LLC the court found debtor’s counsel violated Rule 9011 when he filed chapter 11 bankruptcy petitions solely to avoid the appointment of a receiver in state court, causing delay and needless increase in the cost of litigation. In re EHC, LLC. The
court held that the filing of a bankruptcy petition for this purpose was inconsistent with the purpose of the bankruptcy system which is “designed to preserve enterprise value and to give deserving debtors a fresh start.” |
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| Privacy and Social Media: How it can Impact Law Firm Security, Ethics, and Compensation |
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This year's Winter Leadership Conference will be held November 30 - December 2, at the La Quinta Resort & Club, in Palm Springs, CA. The Ethics & Professional Compensation Committee will be pairing with the Commercial and Regulatory Law Committee, and speakers will explore the impact of privacy and social media issues on security, ethics and compensation.
Speakers include:
- Janine A. Bowen - LeClairRyan, PC; Atlanta
- Hon. Bruce A. Harwood - U.S. Bankruptcy Court, District of New Hampshire; Manchester
- Alan L. Friel - BakerHostetler LLP; Los Angeles
Register now for outstanding educational sessions, networking, and entertainers Drew Thomas Magic, and Iron Cowboy! |
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©2017 American Bankruptcy Institute . All rights reserved.
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