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Puerto Rico Board Takes Fight Over Members to Supreme Court

Puerto Rico’s federal oversight board is asking the U.S. Supreme Court to overturn a ruling that deemed its members unconstitutionally appointed and opened the door for President Donald Trump to appoint his own nominees to supervise the island’s record bankruptcy, Bloomberg News reported. The board said yesterday that it filed a petition with the High Court challenging a Feb. 15 decision by the U.S. Court of Appeals for the First Circuit that the appointments weren’t constitutional because the U.S. Senate didn’t approve them. That verdict was prompted by a lawsuit from investment firm Aurelius Investment and other creditors. The federal board plans to ask the appeals court to prolong a stay that prevents the ruling from taking effect. The current 90-day stay extends through May 16, said Matthias Rieker, spokesman for the federal board. Trump has yet to seek Senate confirmation for the board’s current members or for new ones, so it’s unclear how he would act if the verdict is allowed to stand. 

Supreme Court to Hear Oral Argument in Taggart v. Lorenzen

The Supreme Court will hear oral argument today in Taggart v. Lorenzen (18-489) to consider whether, under the Bankruptcy Code, a creditor’s good-faith belief that the discharge injunction does not apply precludes a finding of civil contempt. For more on the case, including petitions, briefs and the transcript of the oral argument (once available later in the day), please click here.  ABI Editor-at-Large Bill Rochelle will also be preparing a special analysis of the oral argument to be sent later via the Rochelle Daily Wire newsletter.

Former Subprime Home Lender WMC Mortgage Files for Bankruptcy

A remnant of the subprime mortgage lending boom, WMC Mortgage LLC, filed for bankruptcy yesterday to wrap up its final affairs a dozen years after shutting down operations and facing an onslaught of legal trouble, WSJ Pro Bankruptcy reported. A home lender for decades, WMC made subprime home loans on a wholesale basis as a subsidiary of GE Capital Corp. between 2004 and 2007, helping to fuel the mortgage-industry meltdown that unsettled the global economy, court papers said. The loans WMC produced in part backed the packaged securities that were sold to Wall Street and whose value plummeted during the subprime mortgage crisis. Chapter 11 bankruptcy will allow WMC to end remaining legal threats, court papers say. Despite billions of dollars worth of settlements, WMC is still being hit with legal fallout, such as claims for indemnification by others involved in the risky home loan debacle, according to court filings. WMC recently was part of a $1.5 billion settlement between the U.S. Department of Justice and General Electric Co. that ended a long-running probe into alleged subprime mortgage accounting violations. WMC was accused of misrepresenting the quality of the loans it produced. The Justice Department settlement contained no admission of wrongdoing. The case is In re WMC Mortgage LLC, U.S. Bankruptcy Court, District of Delaware, No. 19-bk-10879.

PG&E Gets Approval to Pay Employees $350 Million to Meet Safety Goals After Wildfires

PG&E Corp. can pay employees up to $350 million in bonuses this year to spur them to help meet the bankrupt California power provider’s safety goals to prevent wildfires, a judge said yesterday, Reuters reported. PG&E’s management has said the company needs to implement the bonus plan to carry out tasks such as clearing trees and branches around power lines to avert contact that triggers wildfires. While the maximum cost of the plan is $350 million, PG&E has said it expects the likely cost will be around $235 million. Bankruptcy Judge Dennis Montali said at yesterday's hearing he was persuaded to approve the bonus plan, which provides for quarterly payments, after hearing testimony from John Lowe, who is responsible for PG&E’s compensation programs. Lowe said that performance targets would be challenging to achieve and that targets for clearing trees and branches could be raised if PG&E’s state regulator requires it. Read more. 

In related news, Pacific Gas & Electric is asking state officials for permission to raise electricity rates to pay for safety improvements and to offset the financial risk of more wildfires, the New York Times reported. PG&E, working its way through its second bankruptcy in two decades, isn’t alone in its request. The state’s two other investor-owned utilities — Southern California Edison and San Diego Gas and Electric Company — are seeking similar rate increases, saying they need bigger profits to attract investment given their exposure to liability from fire-related damage claims. A California legal principle holds utilities responsible for damage from wildfires started by their equipment even when the companies were not negligent. In recent years, courts have ordered the state’s power companies to pay billions of dollars in damage to homeowners and businesses. PG&E, the state’s largest utility, estimates that it could be liable for an estimated $30 billion in damage for fires in 2017 and 2018. But consumer groups say the utilities are trying to shift the cost of their mistakes onto ratepayers. These groups point out that PG&E in particular has been cited by state investigators for not doing enough to trim trees and properly maintain its equipment. PG&E asked regulators to let it earn a 16 percent return on equity starting next year. If the regulators approve that request, the company’s return would be significantly higher than the national average for utilities. That change and a second request to raise rates to pay for equipment upgrades would together increase a $100 monthly electric bill by $22 to $23. Read more. 

Looming Wave of Sex Abuse Cases Poses Threat to Boy Scouts

Sexual abuse settlements have already strained the Boy Scouts' finances to the point where the organization is exploring “all available options,” including chapter 11 protection. But now the financial threats have intensified, the Associated Press reported. States have been moving in recent months to adjust their statute-of-limitations laws so that victims of long-ago sexual abuse can sue for damages. New York state has passed a law that will allow such lawsuits starting in August. A similar bill in New Jersey has reached the governor’s desk. Bills also are pending in Pennsylvania and California, although the Pennsylvania bill stalled in the Senate last fall. In New York, New Jersey and elsewhere, lawyers are hard at work recruiting clients to sue the Boy Scouts, alleging they were molested as youths by scoutmasters or other volunteers. Attorney Tim Kosnoff, a veteran of major sexual abuse lawsuits against the Roman Catholic Church, said Tuesday that he and his team have signed up 186 clients from dozens of states in just the past few weeks who want to be part of litigation against the Boy Scouts. Kosnoff said 166 of them identified alleged abusers who have not been named in any of the Boy Scout files made public in past years. Jeffrey Schwartz, a New York-based bankruptcy expert with the firm McKool Smith, said the Boy Scouts don't have a particularly large flow of cash and might be forced to sell off property in bankruptcy. The Boy Scouts have extensive land holdings, including camping and hiking terrain.

Jennifer Lopez-Backed Fuse Media Files for Bankruptcy

Fuse Media Inc., a cable company whose investors include Jennifer Lopez, filed for bankruptcy reorganization after missing a deadline to make a bond interest payment in the aftermath of struggles with Comcast, Verizon and DirecTV, WSJ Pro Bankruptcy reported. The Glendale, Calif.-based company, which made its chapter 11 filing Monday in U.S. Bankruptcy Court in Wilmington, Del., plans to allow bondholders to swap their $242 million in senior secured debt for equity in the reorganized business. The bondholders also will provide a new $45 million secured term loan that will mature in five years and carry a 12 percent annual interest rate. Bondholders or investment managers supporting the plan include Amzak Capital Management LLC, Ascribe III Alternative Investments LP, ICE Canyon LLC, Millstreet Capital Management LLC and Phoenix Investment Adviser LLC, court documents show. The case is Fuse LLC, 19-10872, U.S. Bankruptcy Court, District of Delaware.

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