COMMENTARY: U.S. TRUSTEE PROGRAM'S PROFESSIONAL FEE PROPOSAL WOULD HELP THE BANKRUPTCY PROCESS
As the U.S. Trustee Program proposes to shed more light on professional fees and increase accountability among corporate bankruptcy firms, many law firms are bristling at the proposal, according to an editorial in Sunday's New York Times. The U.S. Trustee Program's proposal covers how judges should determine compensation for lawyers representing the debtor, creditors and others involved in chapter 11 reorganizations of companies with $50 million or more in assets. They are designed to make the opaque world of bankruptcy fees more transparent and make law firms more accountable. However, at a contentious meeting at the Justice Department last week, law firms with big bankruptcy practices made clear that they were not about to accept the new guidelines willingly. The proposals the lawyers find most upsetting would require them to provide data on what their firms charge in other specialties and submit budgets at the outset as a benchmark for any fee increases later in the process. They insist that providing this kind of fee data means giving out confidential client information. Budgeting for their work, they say, is “virtually impossible,” though many firms do this routinely at clients' request. Read more.
BANKERS CITE CONFUSION OVER FEDERAL RESERVE STRESS TEST
A group of U.S. bankers that advises the Federal Reserve urged supervisors last month to reduce the "uncertainty and confusion" posed by the most recent test of banks' ability to weather financial turmoil, Bloomberg News reported yesterday. Members of the Federal Advisory Council, including Vikram Pandit, Citigroup Inc.'s chief executive officer, said that the uncertainty was generated by the "significant differences" between the analysis used by the Fed in its stress-test models and those used by participating banks, said the memo describing the May 11 meeting released yesterday by the Fed. "Those disparities place bank boards in a highly vulnerable position," the memo said. "Board members are literally compelled to 'fly blind,' in effect guessing about high-stakes capital distribution decisions that can tip the balance between the success of passing" the stress test and "the market punishment associated with failure." Read more.
COMMENTARY: DODD-FRANK'S LIQUIDATION PLAN IS WORSE THAN BANKRUPTCY
Some of the key provisions of the Dodd-Frank Act of 2010, advertised as crucial to preventing a new financial crisis, will not live up to the claims of its sponsors, according to a Bloomberg News commentary yesterday by American Enterprise Fellow Peter J. Wallison. An example of this, according to Wallison, is in the plan that the Federal Deposit Insurance Corp. revealed last month for how it expects to deal with troubled financial institutions under the Orderly Liquidation Authority outlined in the new law. Under the plan, the agency would create a bridge institution to assume the assets and liabilities of a failed firm and could force some creditors to take equity in place of their debt holdings. The firm's subsidiaries would continue operating with funds the FDIC is permitted to borrow from the U.S. Treasury. Whatever costs the FDIC incurs would be assessed against the largest members of the financial community. The powers granted by the liquidation authority to the secretary of the Treasury are unprecedented, according to Wallison. With the concurrence of the Federal Reserve and the FDIC, the secretary can seize any financial firm if he believes its failure would cause instability in the U.S. financial system. If the firm's directors object to the seizure, the secretary can apply to a U.S. district court for an order authorizing him to appoint the FDIC as receiver. The court has one day to decide whether the secretary’s judgment was correct. If the court takes no action within this window, the firm is turned over to the FDIC. There is no appeal, according to Wallison, and the secretary's seizure is not subject to a stay or injunction, and once the firm has been delivered into the arms of the FDIC, it is as good as dead. Read more.
FEDERAL RESERVE SURVEY SAYS U.S. WEALTH FELL 38.8 PERCENT IN 2007-10 ON HOUSING LOSSES
A Federal Reserve study released yesterday showed that the financial crisis wiped out 18 years of gains for median U.S. household net worth, with a 38.8 percent plunge from 2007-10 that was led by the collapse in home prices, Bloomberg News reported yesterday. Median net worth declined to $77,300 in 2010, the lowest since 1992, from $126,400 in 2007, the Fed said in its Survey of Consumer Finances. Mean net worth fell 14.7 percent to a 9-year low of $498,800 from $584,600, the central bank said yesterday. Almost every demographic group experienced losses, which may hurt retirement prospects for middle-income families, Fed economists said in the report. Read more.
ANALYSIS: BANKS FEAR BECOMING COLLATERAL DAMAGE IN CFPB-CAR DEALER PROXY FIGHT
The Consumer Financial Protection Bureau is probing whether the country's largest banks are party to discriminatory car loans, according to industry participants and attorneys, American Banker reported today. The previously undisclosed investigation focuses on indirect auto lending, a business in which auto dealers underwrite car loans and then sell them to banks. Consumer advocates allege that auto dealers gouge borrowers on loan pricing and that minorities suffer the worst of the excesses. Allegations of discriminatory lending may appear to be a natural fit for the CFPB, but its inquiries into banks' auto lending practices come with a significant wrinkle. Since banks do not originate the loans, they are not well positioned to rein in the alleged misconduct on their own, according to both consumer advocates and outside attorneys working on the issue for banks. Rules prohibiting banks from paying more for loans that carry "marked up" interest rates would do more than enforcement actions to prevent misconduct, they argue. Politically, however, attempting to impose a ban would put the CFPB into direct conflict with the powerful auto dealers' lobby. The Federal Trade Commission is also looking at auto lending, and last year it held a series of roundtables where it called for participants to submit data on auto lending, but it received little in return. Read more.
WEBINAR ON JUNE 26 TO EXAMINE SUPREME COURT'S RULING IN RADLAX CASE
Having already examined the oral argument in a previous ABI media teleconference, panelists will reconvene for an ABI and West LegalEd Center webinar on June 26 to discuss the Supreme Court's ruling in RadLAX Gateway Hotel LLC v. Amalgamated Bank. CLE credit will be available for the webinar, which will be held from 2:00-3:30 p.m. ET.
Experts on the program include:
• David Neff of Perkins Coie LLP (Chicago), the counsel of record for petitioner RadLAX Gateway Hotel LLC and participant in the argument.
• Jason S. Brookner of Andrews Kurth LLP (New York), whose article was cited in the brief for the respondent.
• Prof. Charles Tabb, the Alice Curtis Campbell Professor of Law at the University of Illinois College of Law, who recently published a paper titled "Credit Bidding, Security, and the Obsolescence of Chapter 11."
ABI Resident Scholar David Epstein will be the moderator for the webinar.
The webinar costs $115 and purchase provides online access for 180 days. If you are purchasing a live webcast, you will receive complimentary access to the on-demand version for 180 days once it becomes available. Click here for more information.
LATEST CASE SUMMARY ON VOLO: STATE OF FLORIDA DEPT. OF REVENUE V. DAVIS (IN RE DAVIS; 11TH CIR.)
Summarized by Walter Kelley of Kelley, Lovett & Blakey, PC
The Eleventh Circuit affirmed the district court's reversal of an order entered by the bankruptcy court that enjoined the Florida Department of Revenue from attempting to collect a past due child support claim that had been disallowed in the bankruptcy proceeding. The Eleventh Circuit held that the Department of Revenue is not barred from pursuing post-confirmation collection of the debtor's nondischargeable child support obligations. Res judicata and collateral estoppel do not apply.
More than 500 appellate opinions are summarized on Volo typically within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.
NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: MAKING BANKS BORING
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post by Prof. Adam Levitin of Georgetown University Law School finds that making the banking industry "more boring" will not prevent an economic downturn, but it would do a lot to mitigate the fallout that was seen in the 2008 economic downturn.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
ABI Quick Poll First-day orders authorizing full and immediate payment of the claims of ‘critical vendors’ should be prohibited; all pre-petition unsecured creditors should be subjected to the same rules.Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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ABI'S Webinar to Discuss the Supreme Court's Forthcoming Ruling in RadLAX Gateway Hotel LLC v. Amalgamated Bank
June 26, 2012 Register Today!