Legislation

BARNEY FRANK RESPONDS TO GOP'S CRITICISM OF DODD-FRANK

Retired congressman Barney Frank, former chairman of the U.S. House Financial Services Committee, returned to Washington yesterday to defend 2010's regulatory overhaul, the Dodd-Frank Act that bears his name, following a report released this week by House Republicans criticizing the law, Bloomberg News reported yesterday. The hearing split along partisan lines in support of and in opposition to the wide-ranging law, which was passed in response to the 2008 financial crisis. Frank largely defended the law while endorsing some changes. He said that the Volcker Rule, which limits risky trading by banks, could be limited to larger institutions. Asset managers, he said, shouldn't be designated as systemically important, which would subject them to additional oversight by the Federal Reserve. Republicans on the panel countered that the law created a regulatory burden that has stunted lending and job growth. "Thanks to Dodd-Frank, it is now harder for low- and moderate-income Americans to buy a home," said current Committee Chairman Jeb Hensarling (R-Texas). Frank replied that Republicans' calls for more lending run counter to their past complaints of too much lending to lower-income borrowers. The hearing follows a report, released July 21 by House Republicans on the four-year anniversary of the Dodd-Frank Act, that concluded that the law actually strengthened the perception that some banks are too big to be allowed by the government to fail. Frank dismissed this notion, however, stating that "[t]he Dodd-Frank Act is clear: Not only is there no legal authority to use public money to keep a failing entity in business, the law forbids it." Click here to read the full article.

ANALYSIS: THE LINGERING, HIDDEN COSTS OF THE BANK BAILOUTS

The rescue of incumbent investors in the government bailout of the largest U.S. banks in the autumn of 2008 has been widely viewed as unfair for the way it applied different rules to different players. The use of the Troubled Asset Relief Program has been credited by the Federal Reserve and Treasury with preventing a financial collapse of the economy. The rescue, however, had a hidden cost for the economy that is difficult to quantify, but can be crippling, according to an analysis in yesterday's Wall Street Journal. New economic activity is hobbled if it is not freed from the burden of sharing its return with investors who bore risks that failed. The demand for new economic activity is enlarged when its return does not have to be shared with former claimants protected from the consequences of their risk-taking. This is the function of bankruptcy in an economic system organized on loss as well as profit principles of motivation, according to the analysis. Financial failure and the restructuring of assets and liabilities motivates new capital to flow directly into new enterprise activity at the cutting edge of technology — the source of new products, output and employment that in turn provide new growth and recovery. However, with only two balance-sheet crises in the U.S. in the past 80 years, 1929-33 and 2007-09, we have little experience against which to test alternative policies and economic responses. Click here to read the full analysis.

ANALYSIS: WILL DETROIT BE ABLE TO PAY ITS BILLS AFTER BANKRUPTCY?

Detroit is known by its most unwelcome attributes: Along with one of the highest murder and violent crime rates in the country, it currently is known as the most populous U.S. city to ever seek bankruptcy protection. But can it also enjoy the biggest recovery? According to an analysis in today's mlive.com, so much is still up in the air that it's not clear whether Detroit will be positioned to succeed a year from now. Does the city generate enough money to fix what ails Detroit if billions in debt are cut? Are the city's costs too high? Does it pay its workers too much? Are pensions too generous? Can the city endure a reduction in both spending and revenue and revive what is by most measures the most dysfunctional large city in America? At first blush, Detroit doesn't suffer from a revenue problem. It can count tax sources that most Michigan cities cannot (casino, utility and income taxes), and it gets the largest chunk of the state's revenue sharing. Its general fund (excluding money raised and spent by the water and sewerage department) generated nearly $1.7 billion in taxes and other revenues in 2011. At $2,346 generated per city resident, that's 42 percent higher than the median ($1,650) of the country's largest cities, according to a report last year by the Pew Charitable Trusts. Yet in documents filed with the bankruptcy court, Emergency Manager Kevyn Orr's experts have forecast that property tax revenues, which were $163.7 million in 2009, will fall below $100 million in 2017 and continue to fall until 2020. Utility taxes are also falling. Those (mostly downward) fluctuating revenue streams are what makes the city's fiscal future hard to predict. Click here to read the full analysis.

HISTORICALLY BLACK COLLEGES FACE UNCERTAIN FUTURE

For generations, historically black colleges and universities have played a key role in educating young African-Americans. However, facing often-steep declines in enrollment, these schools are struggling to survive, the Associated Press reported Tuesday. Over the last 20 years, five historically black colleges and universities — or HBCUs — have shut down, and about a dozen have dealt with accreditation issues. South Carolina State University, that state's only public historically black higher education institution, had its accreditation placed on probation last month after the school was cited for financial problems. Morris Brown College, a 133-year-old private institution in Atlanta, filed for bankruptcy in August 2012 and has received court approval to sell some of its property. Last year, North Carolina elected officials flirted with the idea of merging Elizabeth City State University, a public historically black college, with another institution after its enrollment had dropped by 900 students in three years. Historically black colleges were once the only option for most black students, who made up almost 100 percent of their enrollment in 1950. Now that black students have a much wider choice of schools, only 11 percent of African-American college students choose a historically black college or university. Click here to read the full analysis. (Free subscription required.)

GENERATION GAP HITTING GOLF INDUSTRY HARD

A drop in participation rates and disinterest among young people, particularly millennials, has sent both the retail and sporting ends of the golfing industry scrambling for a new business strategy, the Wall Street Journal reported yesterday. For the fifth year, overall participation in golf fell in 2014 as measured by the number of U.S. individuals who reported playing on a course at least once, according to Sports & Fitness Industry Association data. "It's slow, takes a long time to play; it's expensive," said Matt Powell, a SportsOneSource analyst. "As a sport, it doesn't reflect the kind of values millennials like — diversity, inclusion. Golf tends to not be those things." The drop-off in tee times has been taking a toll. On Wednesday, a bankruptcy judge approved the liquidation of Edwin Watts Golf Shops, a chain founded 46 years ago in Fort Walton Beach, Fla., that filed for chapter 11 bankruptcy protection in November. It blamed a decline in golf's popularity leading to slowing sales in the $5 billion U.S. golf-retail industry, as well as several "lackluster" product launches. Click here to read the full article.

NEW HOME SALES DECLINE IN JUNE

Sales of newly constructed homes fell by 8.1 percent (seasonally adjusted) in June compared to the prior month, and May's reported massive sales jump disintegrated due to revised numbers, Forbes reported today. Compared to June of last year, new home sales were down 11.5 percent, according to today's U.S. Commerce Department report. May's downwardly revised numbers — to an annualized rate of 442,000 from the initial 504,000 — mean that the reported 18.6 percent surge in new home sales was an overstatement. The housing recovery continues to be mixed: Prices continue to rise, helping underwater homeowners, but the pace of gains is slowing. Inventory is up, but we are still not back to the six-month supply that is considered a healthy market. Earlier this week, the National Association of Realtors released data showing that sales of existing (or previously owned) homes rose 2.6 percent in June. However, housing starts dropped by 9.3 percent that month. Housing economists point out that underlying economic factors — below-average growth in median household income, labor force participation, bank lending and household formation — may be stalling the housing recovery. Click here to read the full article.

NEW CASE SUMMARY ON VOLO: STUART V. MENDENHALL (IN RE MENDENHALL, 6TH CIR.)

Summarized by Kathleen DiSanto of Jennis & Bowen, P.L.

The Eleventh Circuit held that (1) the bankruptcy court did not abuse its discretion in interpreting its order granting a 60-day extension of the Rule 4007(c) deadline to file a complaint to determine the dischargeability of debt to mean that the extension ran from the date of the original deadline under Rule 4007(c); (2) the bankruptcy court properly denied Stan Stuart's untimely motion for extension of the Rule 4007(c) deadline because the bankruptcy court had no discretion to retroactively extend the deadline to file a complaint under § 523 of the Bankruptcy Code after it expired, as a bankruptcy court may only enlarge the time for filing a complaint to determine dischargeability if a motion for extension is filed before the time expires; and (3) the bankruptcy court's interpretation of its order did not violate Stan Stuart's constitutional rights.

There are more than 1,300 appellate opinions summarized on Volo, and summaries typically appear 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: BANKS MIGHT NOT BE PREPARED FOR THE NEXT RECESSION

A recent blog post posits that the next downturn might pose different problems that the Federal Reserve's stress tests might not be designed to detect.

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

Credit-bidding should not be allowed in a bankruptcy sale.

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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2014

July
- Mid-Atlantic Bankruptcy Workshop
    July 31-August 2, 2014 | Cambridge, Md.

August
- ABI Endowment Baseball Event
    Aug. 13, 2014 | Baltimore, Md.
- Fourth Hawai'i Bankruptcy Workshop
    Aug. 13-16, 2014 | Maui, Hawai'i

September
- Southwest Bankruptcy Conference
    Sept. 4-6, 2014 | Las Vegas, Nev.
- abiLIVE Webinar: Understanding Make-Whole and No Call Provisions
    Sept. 9, 2014 |
- Golf & Tennis Outing
    Sept. 9, 2014 | Maplewood, N.J.
- CARE Financial Literacy Conference
    Sept. 11-13, 2014 | Dallas, Texas
- ABI Workshop: Lending to Distressed Companies
    Sept. 15, 2014 | Alexandria, Va.
- Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization
    Sept. 17-18, 2014 | New York, N.Y.

October
- abiWorkshop: Government Contracting and Bankruptcy
    Oct. 6, 2014 | Alexandria, Va.
- Midwestern Bankruptcy Institute
    Oct. 16-17, 2014 | Kansas City, Mo.
- Views from the Bench
    Oct. 24, 2014 | Washington, D.C.
- Claims-Trading Program
    Oct. 30, 2014 | New York, N.Y.
- International Insolvency & Restructuring Symposium
    Oct. 30-31, 2014 | London

November
- Complex Financial Restructuring Program
    Nov. 6, 2014 | Philadelphia
- Corporate Restructuring Competition
    Nov. 6-7, 2014 | Philadelphia
- Chicago Consumer Bankruptcy Conference
    Nov. 11, 2014 | Chicago, Ill.
- Detroit Consumer Bankruptcy Conference
    Nov. 11, 2014 | Troy, Mich.

SENATE PANEL APPROVES BILL TO EASE SMALL BUSINESS BANKRUPTCIES

The Senate Judiciary Committee today approved bipartisan legislation that would modify the chapter 11 bankruptcy process to help small companies remain in business and preserve jobs, AccountingToday.com reported. The bill was introduced last month by Sens. Sheldon Whitehouse (D-R.I.) and Charles Grassley (R-Iowa) and was passed by the Judiciary Committee today. "Chapter 11 was designed for large publicly-traded corporations and does not work for many small businesses," Whitehouse said. S. 2370, the "Small Business Reorganization Efficiency and Clarity Act," would give debtors and courts 45 additional days (for a total of 90) to confirm their bankruptcy plans. While the current 45-day deadline was intended to expedite small business cases, it has proven to be an insufficient amount of time for many debtors and courts, according to the bill's authors. The bill would also eliminate an ambiguous "catch all" reporting requirement that results in unnecessary filings and wasted attorney hours. In addition, the bill would allow small business debtors to retain pre-filing counsel and other professionals even if such professionals have small claims against the estate. Read more.

For the full text of S. 2370, the "Small Business Reorganization Efficiency and Clarity Act," please click here.

SURVEY: MEDICAL COSTS PUSHING AMERICANS FURTHER INTO CREDIT CARD DEBT

Left-leaning research and policy center Demos released the results of a survey showing that many low- and middle-income Americans are paying for medical bills with their credit cards, the HuffingtonPost.com reported today. The survey sampled 997 adults in February and March who had carried credit card debt for at least three months and found an average debt of $7,145 with $1,678 attributable to medical costs. Almost 50 percent of American households bought out-of-pocket medical expenses on credit, the survey found. Even though the average credit card debt reported this year decreased from its $9,887 level in 2008, the percentage of American families taking on credit card debt for spending related to necessities remains about the same as during the financial crisis. About two in five households used their credit cards for basic living expenses such as groceries and rent, according to the Demos survey. To read the full survey, please click here.

COMMENTARY: FULL DISCLOSURE FOR STUDENT BORROWERS

Nationally, about two-thirds of bachelor's degree recipients now borrow from either public or private lenders, up significantly from the early ’90s, when about 45 percent of graduates borrowed from all sources, including family, according to an editorial in yesterday's New York Times. According to an analysis by the Federal Reserve Bank of New York, the average debt for student borrowers last year was about $23,300, while 10 percent owed more than $54,000 and 3 percent owed more than $100,000. Federal law requires schools to provide students minimal "entry" and "exit" loan counseling. Many schools market themselves to students without explaining the real costs of attendance. Letters informing them about financial aid awards often blur the distinction between loans and grants to make the school look like a better deal than it is, according to the editorial. The Obama administration has taken some important steps to address these problems. A proposal would require colleges to clearly disclose costs in a standardized "shopping sheet" that would let students see the aid they are receiving and the debt that they would incur. Later this year, it plans to post an Internet "scorecard" that rates each college nationally on affordability and value — defined by graduation rates and whether graduates earn enough on average to repay their debts. Read more.

SENATORS SEEK TO REMOVE BANKERS FROM 12 REGIONAL FED BOARDS

Senators Bernie Sanders (I-Vt.), Barbara Boxer (D-Calif.) and Mark Begich (D-Alaska) introduced legislation on Tuesday that would remove banking industry executives from the 12 regional Fed banks' boards of directors, Bloomberg News reported yesterday. "Allowing currently employed banking industry executives to serve as directors on the boards of directors of Federal Reserve banks is a clear conflict of interest that must be eliminated," according to the text of the bill, released today by Sanders. The structure of the central bank is under new scrutiny following a $2 billion trading loss at JPMorgan Chase & Co., whose chief executive officer, Jamie Dimon, is on the board of directors of the New York Fed. This is "not a perceived conflict, but a real conflict of interest when bank presidents and employees of banks sit on the very boards that regulate them and sometimes bail them out," Boxer said. Read more.

ANALYSIS: DEWEY'S DOWNFALL TOOK WEEKS; CLEAN-UP LOOMS FOR YEARS

Dewey & LeBoeuf LLP, a law firm with a 103-year history, collapsed in a matter of weeks, but cleaning up the debris may take years, Bloomberg News reported today. A trickle of partner defections in March turned into a torrent, with at least 250 of Dewey's 304 partners having now found new jobs. All five senior partners named to a new chairman’s office in March have left, and the firm faces a criminal probe. The staff at the firm’s Manhattan offices has been gone for more than a week. Joff Mitchell of Zolfo Cooper, a restructuring company, is winding the firm down while dunning former clients for bills they have little incentive to pay in full. That is bad news for the firm's creditors, including bank lenders owed at least $75 million and bondholders owed $125 million or more. Other creditors range from partners who got pay guarantees worth about $100 million to the firm's janitors, who have sued for about $300,000 in unpaid bills. Read more.

NEW-HOME SALES AMPLIFY OPTIMISM ABOUT HOUSING

Sales of newly built homes continued to pick up momentum, another sign that the long-beleaguered housing market is in recovery mode, the Wall Street Journal reported today. New-home sales for April rose 3.3 percent from March and were up 9.9 percent from a year earlier to a seasonally adjusted annual rate of 343,000, the Commerce Department said yesterday. While new homes account for about 10 percent of the housing stock sold each year, sales of previously owned homes have also shown strong gains recently, suggesting that the industry's improvements are widespread. The National Association of Realtors said on Tuesday that sales of previously owned homes, which make up the bulk of the housing market, rose 3.4 percent in April from the previous month. Read more. (Subscription required.)

For more, make sure to check out yesterday’s ABI Chart of the Day on new-home sales.

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 forthcoming ruling in RadLAX Gateway Hotel LLC v. Amalgamated Bank, expected to be handed down in June. CLE credit will be available for the webinar that will last 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.

ABI IN-DEPTH

JUNE 5 WEBINAR WILL EXAMINE HOW TO HANDLE AN ADMINISTRATIVELY INSOLVENT ESTATE

Panelists from one of the top-rated sessions at the 2011 Winter Leadership Conference are going to reconvene for an ABI and West LegalEd Center webinar on June 5 titled, "Handling the Administratively Insolvent Estate- What to Do When Your Chapter 11 Goes South." CLE credit will be available for the webinar, which will last from 11 a.m. - 12:30 p.m. ET.

Speakers include:

• Robert J. Feinstein of Pachulski Stang Ziehl & Jones LLP (New York)
• Cathy Rae Hershcopf of Cooley LLP (New York)
• Robert L. LeHane of Kelley Drye & Warren LLP (New York)

Robert J. Keach of Bernstein Shur (Portland, Maine) 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: WRIGHT V. OWENS CORNING (3D CIR.)

Summarized by Omid Moezzi from the Office of Chapter 13 Trustee Nancy Curry

The Court of Appeals affirmed the district court's ruling that the plaintiff's (Charles and Ethanne Waldo) claims could have been litigated in the federal bankruptcy action and previous state court actions. As such, the district court correctly granted defendant's (Ocwen Loan Servicing) motion to dismiss on the basis of claim preclusion due to previous lawsuits filed by the plaintiff.

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: SMALL-BANK M&A HINDERED BY FAULTY LOGIC ON VALUATIONS

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post said that merger and acquisition activity by small banks is still being hindered by faulty logic in thinking that valuations will return to their pre-financial crisis levels.

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
The few “net winners” in a bankrupt Ponzi scheme should be required to turn over to the trustee any returns in excess of their original investment (with no special defenses or exceptions), to be distributed to the many “net losers” victimized by the scheme. Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

Have a Twitter, Facebook or LinkedIn Account?

Join our networks to expand yours.

May
- ABI Labor and Employment Committee's "Evolving Labor Issues in Chapter 11" Webinar
     May 23, 2012

June
- Memphis Consumer Bankruptcy Conference
     June 1, 2012 | Memphis, Tenn.
- ABI'S "Handling the Administratively Insolvent Estate- What to Do When Your Chapter 11 Goes South" Webinar
     June 5, 2012
- Central States Bankruptcy Workshop
     June 7-10, 2012 | Traverse City, Mich.

July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 12-15, 2012 | Bretton Woods, N.H.

- Southeast Bankruptcy Workshop
     July 25-28, 2012 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
     August 2-4, 2012 | Cambridge, Md.

September
- Southwest Bankruptcy Conference
     September 13-15, 2012 | Las Vegas, Nev.
- Complex Financial Restructuring Program
     September 13-14, 2012 | Las Vegas, Nev.

October
- Bankruptcy 2012: Views from the Bench
     October 5, 2012 | Washington, D.C.