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Bankruptcy Headlines

High Court Wrestles With Bankruptcy Fallout for Trademark Licensees

Supreme Court justices grappled yesterday with a question at the intersection of bankruptcy and trademark law that has split the circuits and stumped Congress, the National Law Journal reported.The question posed by Mission Product Holdings v. Tempnology is what happens when a bankrupt entity “rejects” its trademark licenses. New Hampshire-based Tempnology LLC argues that the licenses are swept into the bankruptcy estate as would any other “executory” contract, leaving the licensee with a pre-petition claim for damages that’s typically worth pennies on the dollar. New York-based Mission Products Holdings Inc. and a squadron of amici curiae are calling on the Supreme Court to adopt the Seventh Circuit’s position that licensees should be free to continue using the marks they’ve bargained for and, in many cases, invested their own money in. Assistant to the Solicitor General Zachary Tripp asked the justices to imagine a McDonald’s franchisee who spends millions developing a restaurant. Under the rule adopted by the First Circuit in this case, “they can pull the rug out from under every single one of its franchisees and basically put them to an extortionate choice between paying a higher royalty payment or shutting down their business and firing all their workers.” Read more

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Soured Pension Investments Spark Lawsuit Against Ex-Newspaper Owners

Back in 2012, when California’s Orange County Register was struggling in the aftermath of a pass through bankruptcy, former greeting card executive Aaron Kushner and Eric Spitz, now a leading light of California’s cannabis industry, had a plan for reviving the newspaper, WSJ Pro Bankruptcy reported. Part of that plan involved financing the newspaper’s turnaround by boosting performance with the help of the company’s pension plan. But the pension plan suffered and the newspaper found itself back in bankruptcy. Now Kushner and Spitz are facing two lawsuits over their handling of the affairs of Freedom Communications, the company that once owned the Orange County Register. A suit filed by Freedom’s creditors in 2017 is still making its way through bankruptcy court, and last week the Pension Benefit Guaranty Corp. filed its own lawsuit in federal court in California.

Wildfire Victims May Become Low Priority in PG&E Bankruptcy Case

A group of Butte County wildfire victims have filed a class action complaint against PG&E as part of the embattled utility’s bankruptcy case, but a 50-year-old court ruling could place wildfire victims near the bottom of the stack of priorities in PG&E’s insolvency proceeding, according to a market researcher and a Bay Area bankruptcy expert, the East Bay Times reported. A 1968 U.S. Supreme Court ruling in connection with a fire that burned down an industrial building, if applied to the PG&E bankruptcy case, potentially would place the claims of the victims of the infernos of recent years at a lower priority than victims of any PG&E-caused wildfires that began after the company’s bankruptcy filing this year. “Any wildfire victims whose claims arise — meaning, their property catches on fire — from the date of PG&E’s bankruptcy onward will have first priority in the bankruptcy case,” said Jared Ellias, a bankruptcy expert and law professor with the UC Hastings College of the Law. Prof. Ellias assessed whether that 1968 Supreme Court decision could come into play in the PG&E bankruptcy case which is being supervised by U.S. Bankruptcy Court Judge Dennis Montali. That would produce an inferior status for the claims of victims of fires that occurred in 2017, such as the infernos that scorched the North Bay Wine Country and nearby regions; and the 2018 wildfire that roared through Butte County and essentially destroyed the town of Paradise, he said. PG&E listed $51.69 billion in debts and $71.39 billion in assets in its Jan. 29 bankruptcy filing, seeking to reorganize its shattered finances that have been overshadowed by a mountain of potential liabilities arising from the lethal infernos of the last two years. Read more

In related news, PG&E Corp., which filed for bankruptcy last month in the wake of potential liabilities from California’s catastrophic wildfires, today extended the deadline by which investors must file paperwork if they want to install their directors on the board, Reuters reported. Investors will now have until March 1 to nominate director candidates, the utility said in a regulatory filing here early on Thursday only hours before its original deadline was set to expire on Feb. 21. Last month, PG&E shareholder BlueMountain announced plans to try and unseat all board members, criticizing the company for filing for chapter 11 protection, a move it called unnecessary and harmful to investors. The New York-based hedge fund, which owns roughly 8 million shares of PG&E, said last week that it was ready to announce its director candidates by the Feb. 21 deadline. Read more

Payless Owner Alden Global Takes Heat From Other Creditors

Lawyers for creditors of Payless ShoeSource Inc. blasted the hedge fund that took control of the troubled retailer after its first bankruptcy, saying it drove the company back into chapter 11 less than two years later, WSJ Pro Bankruptcy reported. Creditors took aim at Alden Global Capital during a Tuesday court hearing, alleging Payless was the victim of a series of insider transactions designed to benefit the hedge fund at their expense. “During this time [under Alden’s control], the business burned a substantial amount of capital and deteriorated from the reorganized company that it was when it emerged from bankruptcy to the chapter 22 filer that it is today, where its North American operations are liquidating,” attorney Stephen Zide said in court. Payless sought chapter 11 protection on Monday, the retailer’s second trip through bankruptcy in less than two years. As part of its first restructuring, a group of lenders, including Alden, converted their debt into equity for a 91 percent stake in the reorganized shoe seller. Although Alden was a minority holder at the time of the chain’s exit from the first bankruptcy, it has since increased its position to 66.5 percent as of the Monday bankruptcy filing, court papers show.

Charlotte Russe Still Searching For Buyer as Possible Liquidation Looms

Women’s fashion retailer Charlotte Russe Holdings Corp. is still searching for a buyer that can purchase the cash-strapped chain out of bankruptcy, but is preparing to liquidate if it can’t find a deal in the next couple of weeks to save the business, the Wall Street Journal reported. Charlotte Russe has signed a stalking-horse agreement with liquidators Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC, according to papers the company filed on Tuesday in the U.S. Bankruptcy Court in Wilmington, Del. The agreement with liquidators, which is subject to higher bids, starts the clock on a crucial two-week window that likely will determine the fate of Charlotte Russe. The company could close the chain if a buyer doesn’t place a better bid to keep the retailer operating out of bankruptcy as a going concern.

Bankruptcy Judge Rejects Sale of Palm House Hotel to Creditor

A bankruptcy judge has rejected the proposed sale of the Palm House Hotel to a former owner who claimed a $37.3 million secured interest in the unfinished hotel-condominium in tony Palm Beach, reported. A dispute between the owner and a key creditor KK-PB Financial LLC, which is managed by Wellington developer Glenn Straub, has jammed up the proceedings on a property tainted by civil allegations of EB-5 investment visa fraud. The owner and debtor, 160 Royal Palm LLC, filed for chapter 11 protection last August, putting the Palm House Hotel in line for auction. KK-PB Financial wants to place a credit bid, saying it holds a senior mortgage on the property where a 79-unit development was planned. Straub bought the property at auction for $10 million in 2009 and sold his membership interest in the company in 2013. KK-PB Financial maintains 160 Royal Palm defaulted on the $27.5 million mortgage issued with the 2013 sale and now claims a security interest of $37.3 million. The stalking horse bid for the bankruptcy auction is $32 million. KK-PB asked U.S. Bankruptcy Judge Erik Kimball to estimate its secured claim to get a credit from the auction. 160 Royal Palm’s court-appointed manager Cary Glickstein, a former Delray Beach mayor, responded by asking the court to limit KK-PB’s ability to credit bid.