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Supreme Court Hears Argument on Stale Claims and the FDCPA

“I have a great deal of trouble with this business model,” Justice Sonia Sotomayor said yesterday near the outset of oral argument in the Supreme Court on Midland Funding LLC v. Johnson, the case to decide whether debt collectors violate the federal Fair Debt Collection Practices Act by purchasing stale claims for pennies and then filing proofs of claim when the underlying debt is barred by the statute of limitations. According to an analysis by ABI editor-at-large Bill Rochelle, the observation by Justice Sotomayor was the high point for debtors, because the justices seemed divided along the usual ideological lines. The Court will not likely be split 4/4, because Justice Stephen G. Breyer, who is often allied with the liberal wing on bankruptcy cases, repeatedly seemed concerned that ruling for debtors would transfer disputes into federal district courts that should be in bankruptcy courts. Read more

Watch a video recap of Rochelle and ABI Resident Scholar Prof. Drew Dawson discussing yesterday’s Supreme Court oral argument in Midland Funding LLC v. Johnson

Caesars Unit Wins Court Approval for Chapter 11 Exit Plan

Bankruptcy Judge A. Benjamin Goldgar yesterday approved the restructuring plan for Caesars Entertainment Corp.’s operating unit, paving the way for the operator of the Caesars Palace Las Vegas and other casinos to emerge from chapter 11 protection later this year, the Wall Street Journal reported. Judge Goldgar yesterday confirmed the chapter 11 reorganization plan for Caesars Entertainment Operating Co.(CEOC) two years after the casino operator sought court protection. The plan, which will cut CEOC’s $18 billion debt load by about $10 billion, is the culmination of hard-fought negotiations among the company, its creditors, parent Caesars Entertainment and the parent’s private-equity backers — Apollo Global Management and TPG. At the heart of the plan is a settlement of CEOC and its creditors’ legal claims against parent Caesars and its private-equity backers related to a series of disputed asset transfers in the months leading up to CEOC’s Jan. 15, 2015, bankruptcy filing. In return for settling the claims, which an independent investigator said could be worth up to $5.1 billion, Caesars and its owners will contribute more than $5 billion to the CEOC financial restructuring.

Puerto Rico Needs Urgent Congress Action: U.S. Treasury, Health Chiefs

The secretaries of the U.S. Treasury and Health and Human Services called for fast congressional action to help Puerto Rico out of its economic mess, and said a bipartisan task force report failed to go far enough on recommending a low-income tax credit for the commonwealth, Reuters reported yesterday. In a letter to U.S. House Speaker Paul Ryan yesterday, Treasury Secretary Jacob Lew and Health and Human Services Secretary Sylvia Burwell reaffirmed calls to step up health care funding for Puerto Rico. They noted that 900,000 Puerto Ricans could risk losing health care unless Congress takes action by April. The U.S. territory is hampered by $70 billion in debt, unemployment more than twice the U.S. average, a 45 percent poverty rate and a decreasing population as locals flock to the U.S. mainland. A congressional task force of U.S. senators and congressmen in December recommended several fixes for Puerto Rico, including boosting health care funding and exploring giving the island access to the federal Earned Income Tax Credit. The benefit for low- to moderate-income workers has been used to combat poverty, and the Obama Administration has proposed expanding it to Puerto Rico. If the credit exceeds a worker's income tax liability, the government would refund the balance. The report did not go far enough with the tax credit, Lew and Burwell said, calling the benefit a "powerful economic driver." Read more

ABI’s Caribbean Insolvency Symposium, taking place Feb. 9-11 in the Cayman Islands, has two sessions examining these issues. You will not want to miss:

- Zika in the Caribbean, and Other Stinging Health Care Insolvency Issues

- Puerto Rico’s Financial Crisis: The Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) in Action

Click here for more information and to register. 

Zohar CLO Funds Target Lynn Tilton in $1 Billion Lawsuit

The Zohar investment funds at the heart of Lynn Tilton’s $2.5 billion distressed-debt empire sued their founder Monday, accusing Ms. Tilton of pillaging more than $1 billion from investors and the troubled companies she manages, the Wall Street Journal reported. Through a “toxic mix of fraud, theft and mismanagement,” Tilton stole money from the Zohar funds and from the troubled companies, siphoning hundreds of millions of dollars in fees and assets from a souring loan portfolio and failing businesses, according to the lawsuit filed in federal court in New York. Tilton denied the allegations in the suit. The Zohar funds are collateralized loan obligations created by Tilton and packed with loans to troubled companies managed by her and her New York-based Patriarch Partners investment firm. Read more. (Subscription required.) 

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case

Commentary: Sears Clings to Catalog Thinking in an Online World

The Sears Holdings Corporation, which is projected to lose more than $2 billion this year, may seem to be another morality tale for bricks-and-mortar retailers in the age of Amazon, according to a New York Times editorial today. Like other retailers, the company is scrambling to adapt to today’s internet market. The question is whether it can do so before its cash runs out and the deal-making of its hedge fund chief executive, Edward S. Lampert is not enough to create more. Sears started as a catalog business, the Amazon of a century ago, where you could buy just about anything. But in recent years, Sears has struggled. The company has lost over $9 billion in the last five years. Since 2011, it has shut more than 150 of its big Sears stores and over 350 Kmart stores, and it has just announced the closing of another 150 stores. Its revenue has fallen to a projected $25 billion in 2016, from $42.6 billion in 2011, according to Standard & Poor’s Global Market Intelligence.

Senate Democrats Shun Restructuring CFPB as Trump Mulls New Director

Three influential Senate Democrats on Tuesday said they oppose converting the Consumer Financial Protection Bureau into a bipartisan commission because it could bring the agency’s operations to a halt, MorningConsult.com reported yesterday. The remarks come amid concerns that President-elect Donald Trump will fire CFPB Director Richard Cordray. Senate Minority Leader Chuck Schumer (N.Y.), Banking Committee ranking member Sherrod Brown (Ohio) and Sen. Elizabeth Warren (Mass.) said that changing the agency’s structure would defeat the wishes of lawmakers who passed the 2010 Dodd-Frank Act and wanted the CFPB to stay strong and independent. For years, Republicans have pushed for a transition to a commission-based structure for the CFPB. Conservative lawmakers and CFPB critics also have argued that Democrats will eventually come around to the same point of view because they fear the impact of a single director appointed by a Republican president like Trump.

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Not My Client, Not My Problem. The Duty of Attorney’s to Non-Clients

By: Daniel Quinn

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In 2015, the United States Court of Appeals for the Second Circuit found that attorneys at May-er Brown, LLP had inadvertently terminated certain liens granted by General Motors (“GM”) in favor of J.P. Morgan Chase (“JPM”). GM repaid the Term Loan agreement in full in accordance with the bankruptcy court order and therefore made the retirement plaintiffs and Term Loan members subject to clawback provisions under the Bankruptcy Code. The members of the Term Loan agreement and retirement plaintiffs filed a lawsuit against Mayer Brown, the law firm responsible for the erroneous termination of liens, for negligent mis-representation and legal malpractice in the United States District Court of Northern District of Illinois.

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