educational materials€¦ · they spent lots of money on gadgets andgear people bought whatever...

EDUCATIONALMATERIALS

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2020 MID-ATLANTIC VIRTUAL BANKRUPTCY WORKSHOP

TABLE OF CONTENTS

ABI Talks ............................................................................................................................................................................................................. 5

Cannabis in Bankruptcy ......................................................................................................................................................................49

Bax Decision .................................................................................................................................................................................................81

The Pros and Cons of Transactions Involving Distressed Hospitals and Health Care Providers ....97

Ethics: How to Get Retained as Debtors’ Attorneys .....................................................................................................121

Judicial Round-and-Round............................................................................................................................................................. 143

Faculty Biographies ...............................................................................................................................................................................147

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2020 Mid-Atlantic Virtual Bankruptcy Workshop

ABI Talks

ABI Talks

Hon. Stacey L. Meisel, ModeratorU.S. Bankruptcy Court (D. N.J.) | Newark, N.J.

Retail ShutdownsG. David DeanCole Schotz P.C. | Wilmington, Del.

Intersection of Bankruptcy and Social IssuesKathryn L. HarrisonCampbell & Levine, LLC | Pittsburgh

Insolvency Throughout HistoryThomas M. HoranFox Rothschild LLP | Wilmington, Del.

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AMERICAN BANKRUPTCY INSTITUTE

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There were stores andmallsfilled to therim

Once upon atime…

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They spent lots of money on gadgets andgear

People bought whatever they wanted, even if it was on a whim


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They pranced, theyfrolicked

and huddled inlinesfar andnear

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Touching and buying every iteminsight

They even rode around in unsanitized shoppingcarts


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Stores were open every day of theweek

All the worries in the world were so far out ofsight

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This brought much glee to retailers and landlordsalike

Even on a holiday you could buy what youseek


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With a blink of aneye

Little did they know a new virus wouldstrike

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The virus had come and they shuttered their doors

The world as they knewitsaid good bye


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People suddenly stoppedbuyingwhat theywanted

Everything had closed even all the retailstores

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No one quite knows what the future willhold

And things that were necessary became desperatelyhunted


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Presentation byDavidDean

Navigatingbankruptcywith a retail debtor during a global pandemic

As the story I tell is continuing tounfold

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Modell’s Chapter11uses Section 305(a) to temporarily

suspend all deadlines, includingSection 365(d)(3)

Craftworks Chapter11attempts to block landlords

while case moves forward


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Many casesbecomea tug of war between lenders (506(c)

waiver; cash collateral usage) and landlords (365(d)(3), (e)).

Pier 1 Chapter 11Approves budget to pay landlords later

Section 365(d)(3) not remedial

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There are incentives for parties to negotiate and settle.

Neither side usually wantsconversion.

If tensions aren’t resolved a case can spiral into a Chapter 7.


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Keytakeaways.

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“I believe that lawyers have a special opportunity and duty to demonstrate leadership in bringing about the reforms in legislation and law enforcement practices that are needed to address the abusive practices perpetrated by some police.”

-Michael Reed, Esq.

Photograph by Joshua Franzos for the Heinz Endowments


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{C1118442.1 }

AMERICAN BANKRUPTCY INSTITUTE BANKRUPTCY TALKS

Social Issues in Bankruptcy Resources-Kathryn L. Harrison, Esq.

I. Black Lives Matter: Housing Fairness, Environmental Justice, and Bankruptcy

“A Black Father’s Letter to His Black Son: My Mission is to Keep you Safe” A. Michael Pratt (June 16, 2020) https://www.law.com/americanlawyer/2020/06/18/a-black-fathers-letter-to-his-black-son-my-mission-is-to-keep-you-safe/

“A World of Water Woes: One Water Meter for 425 Clairton Homes, Plus Three Bankruptcies,” Joyce Gannon, Kate Giammarise, PITTSBURGH POST GAZETTE (June 10, 2018).

“Clairton Homeowners Association Seeks Property Auction to Pay Creditors,” Joyce Gannon, Kate Giammarise, PITTSBURGH POST GAZETTE (July 2, 2020).

II. “Me too.”: Funding Payments to Victims in Bankruptcy

In re: Archdiocese of St. Paul and Minneapolis, 578 B.R. 821 (Bankr.D.Minn. 2017).

In re: The Weinstein Company Holdings, LLC, Bankr. No. 10601-MFW (Bankr. D. Del.) at Docket Nos. 2856, 2884.

“

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A WORLD OF WATER WOES: ONE WATER METER FOR..., 2018 WLNR 17825980

© 2020 Thomson Reuters. No claim to original U.S. Government Works. 1

6/10/18 Pitt. Post-Gazette A12018 WLNR 17825980

Pittsburgh Post-Gazette (PA)Copyright (c) 2018 Pittsburgh Post-Gazette

June 10, 2018

Section: LOCAL

A WORLD OF WATER WOES: ONE WATER METER FOR425 CLAIRTON HOMES, PLUS THREE BANKRUPTCIES

Kate Giammarise and Joyce Gannon, Pittsburgh Post-Gazette

Water still flows from the faucets at Century Townhomes, a 425-unit apartment complex in Clairton.

But an ongoing legal battle in bankruptcy court over hundreds of thousands of dollars in unpaid water bills could shape thesite's future and have lasting impact on residents there.

When Pennsylvania American Water shut off the taps at the complex for about six hours last month, it was the latest twist ina years-long utilities saga for the properties.

For residents, the problem has meant unexpected water shutoffs and ongoing uncertainty.

"You never know from day to the next if you're going to wake up with water," said Lu Ann McLachlan, who has lived in herapartment on Lincoln Avenue for about six years.

The issue is on the minds of residents.

"They always ask, 'Is the water going to be shut off again?' " said Polly Dale, known to residents as "Grandma Polly."

The water was shut off May 10 with no warning to residents at the Desiderio Boulevard complex.

Legally, the case is a complex tangle - multiple bankruptcies, numerous owners of hundreds of both owner-occupied and rentaltownhomes, and perhaps most problematically, only one water meter. A substantial debt

At a hearing in federal bankruptcy court Tuesday, attorneys for the water utility and the Century Townhomes homeowners'association agreed to continue working toward a long-term resolution to getting the bills paid - without any surprise shutoffs -and finding a way to provide individual water meters for each of the 400-plus units in the complex.

The homeowners association owes Pennsylvania American Water $353,040.33 as of May 21, according to court documentsfiled by the utility.


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Much of that debt, however, accumulated under a previous owner.

Century Arms Townhomes LLC, which owned 165 of the 425 units, filed for bankruptcy protection in 2014.

At the time of the filing, its principal, David Geisler, was delinquent in water and sewage charges of about $275,000, accordingto a court filing.

Like other owners in the complex, he was supposed to pay the homeowners association for water and sewage because theassociation handles the monthly bills from Pennsylvania American Water and the Clairton Municipal Authority.

Because the meters weren't separated, collecting payments from residents and paying the water bill has been an ongoingchallenge at the community.

Homeowners and renters throughout the complex for years have been charged a standard fee - it's now $150 per month to coverwater and sewage - no matter how much they use.

"There's no way that me and the cat use $150 of water," said Ms. McLachlan, who lives alone with her pet.

When some don't pay, the association has been forced to cover their share.

Sister Mary Parks is the volunteer secretary of the association and also runs nonprofit Sisters Place, which aids single parentswho would otherwise be homeless.

The nonprofit owns 16 units and rents another 16 in the complex. It also rents a couple units for its programs.

After Mr. Geisler invested in the site, his debts piled up and the properties deteriorated, so Sister Mary stepped up to try toreorganize the homeowners association.

But the back bills, fees and penalties were so steep that the association also filed for Chapter 11 protection May 10 after thewater was shut off. A single water meter

At a 2015 hearing, an attorney for Mr. Geisler told a bankruptcy judge the cost to separately meter all the units would be inexcess of $300,000.

"At this point, the cost is prohibitive," the attorney said, according to a transcript of the court hearing.

An attorney for the Clairton Municipal Authority, which provides sewage service, emphasized to U.S. Bankruptcy JudgeGregory Taddonio how problematic it was that the units were not individually metered.

"Your Honor, we have begged them to separately meter," she said at the same 2015 hearing.

As part of a settlement reached in 2015 in Mr. Geisler's bankruptcy case, individual water meters were supposed be installed"immediately," according to court documents that spelled out a detailed plan for the properties.

It's unclear why, years later, the homes are all still operating with one water meter.

The settlement plan called for Mr. Geisler's California-based mortgage lenders to take over 165 units he owned, renovate manythat were in disrepair, install individual water meters and re-sell them.

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Other property owners would also pay for meters for their units.

As part of the bankruptcy settlement, local taxing authorities that were owed more than $800,000 in taxes and fees - includingthe Clairton Municipal Authority, the school district and Allegheny County - agreed to forgo the full amount of their claimsagainst Mr. Geisler in order to get the homes upgraded and eventually sold.

However, Pennsylvania American Water did not participate in those settlement talks because its delinquent bills were owed bythe homeowners association, not Mr. Geisler.

"They never accepted that the old debt from Mr. Geisler had to go away," said Chaim Davidson, broker-owner of Aishel RealEstate, which manages the 165 units owned by WJA Secure Real Estate Fund of Laguna Hills, Calif.

"They stayed out of the discussion in 2015 and now they are coming back for their money."

A spokesman for the utility said Pennsylvania American has not been an obstacle to the units being individually metered.

"Pennsylvania American Water does not own the water facilities such as the water mains in the street and the owners' pipeslocated on property and within the units," he wrote in an email.

After Aishel started managing the site for WJA, Mr. Davidson said he met with representatives of Pennsylvania American Waterabout installing water meters for each home.

WJA paid engineering and legal fees "to have it drawn the way Pennsylvania American wanted it," he said.

Mr. Davidson estimated individual metering would run about $3,500 per unit. He proposed that if Pennsylvania American wouldnot cover the cost, they could assess tenants a monthly fee of roughly $30 over 10 years to pay for the work.

But discussions stalled in 2017. Since then, WJA also filed for Chapter 11 bankruptcy.

"I don't know why the ball dropped," said Mr. Davidson, who believes many units in the complex are empty because of thewater meter issue.

The utility, he said, "is big enough to do this for everybody's benefit, especially their own."

A spokesman for the utility said it attended meetings with some of the property owners and an engineering consultant; however,the property owners did not provide a plan to separate the property owners' pipes.

When Pennsylvania American persisted in trying to collect all that was owed from the homeowners association, the associationlast year hired an attorney to try to negotiate a settlement with the utility.

Pennsylvania American Water Co. sent the Century Townhomes homeowners association a notice in April that it planned toshut off water to the Clairton apartment complex because of unpaid bills. An attorney for the homeowners association said itdid not expect a shutoff while it was negotiating with the utility over the bills

Despite those talks, the water was shut off without warning May 10.

Kathryn Harrison, an attorney for the homeowners association, said the most recently proposed settlement did not include aplan to install separate meters for the units.


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"Without re-metering, we're just kicking the can down the road," she said.

At Tuesday's hearing, U.S. Bankruptcy Judge Jeffery Deller also inquired about the status of separating the meters, saying thatmove could "certainly reduce the headaches" for homeowners and residents.

Options for getting the meters separated, according to Ms. Harrison, include obtaining federal grants or the sale of the complexto "the right developer . someone willing to invest in the Mon Valley and invest in metering."

State Rep. Austin Davis, D-McKeesport, who represents the area, said he's hoping to introduce legislation in Harrisburg toaddress the issue.

"In my view, Pennsylvania American Water needs to invest in putting in individual meters for every unit in that complex ...that's the only way we're going to solve this problem," he said.

Having hundreds of units with various owners and only one meter is very unusual.

"How it is currently configured, it's very difficult to [make it] work," said Mark Haak, a local landlord and attorney whoconsidered buying 165 of the units after Mr. Geisler filed for bankruptcy, but ultimately didn't purchase any.

"I have never seen that anywhere else. I've been doing this 30 years. I've never seen a complex like that," said Larry Graham,maintenance supervisor for Aishel Real Estate. Hurting the children

When he filed for Chapter 11 bankruptcy, Mr. Geisler said he couldn't make payments on high-interest mortgage loans and hadnot expected a spike in municipal sewage rates that occurred after he invested in the properties.

The Allegheny County District Attorney's office investigated Mr. Geisler because of his exorbitant debts and neglect of theproperties, but never charged him. The DA "is still keeping an eye on the situation," a spokesman said.

Meanwhile, the situation continues to take a toll on residents.

In March, Ginny Hunt, superintendent of the Clairton City School District, wrote a letter to Pennsylvania American's president,Jeffrey McIntyre, asking the utility to resolve its issue with the townhomes and to avoid shutting off the water again.

"It will have a negative impact on children already struggling in their daily lives," Ms. Hunt wrote.

Kate Giammarise: [email protected] or 412-263-3909. Joyce Gannon: [email protected] or412-263-1580.

The following CORRECTION/CLARIFICATION appeared on June 13, 2018.

Pennsylvania American Water Co. sent the Century Townhomes homeowners association a notice in April that it planned toshut off water to the Clairton apartment complex because of unpaid bills. An attorney for the homeowners association said itdid not expect a shutoff while it was negotiating with the utility over the bills. A story Sunday on longstanding water problemsin the complex did not include that information.

---- Index References ----

Company: PENNSYLVANIA AMERICAN WATER CO

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News Subject: (Bankruptcies (1BA08); Business Management (1BU42); Corporate Events (1CR05))

Industry: (Energy & Fuel (1EN13); Power Meters & Building Energy Management (1PO37); Utilities (1UT12); UtilitiesTechnology (1UT40); Water Utilities (1WA58))

Region: (Americas (1AM92); North America (1NO39); Pennsylvania (1PE71); U.S. Mid-Atlantic Region (1MI18); USA(1US73))

Language: EN

Other Indexing: (WJA Secure Real Estate Fund) (David Geisler; Austin Davis; Mark Haak; Jeffrey McIntyre; Polly Dale; MaryParks; Jeffery Deller; Craig Lawrence Graham; Craig Graham; Chaim Davidson; Joyce Gannon; Kate Giammarise; KathrynHarrison; Lu Ann McLachlan; Ginny Hunt; Ann McLachlan; Gregory Taddonio)

Edition: FIVE STAR

Word Count: 1646

End of Document © 2020 Thomson Reuters. No claim to original U.S. Government Works.


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CLAIRTON HOMEOWNERS ASSOCIATION SEEKS..., 2020 WLNR 18797932


7/2/20 Pitt. Post-Gazette WEB2020 WLNR 18797932

Pittsburgh Post-Gazette (PA)Copyright (c) 2020 Pittsburgh Post-Gazette

July 2, 2020

Section: LOCAL

CLAIRTON HOMEOWNERS ASSOCIATION SEEKS PROPERTY AUCTION TO PAY CREDITORS

KATE GIAMMARISE AND JOYCE GANNON, Pittsburgh Post-Gazette

The homeowners association for a 425-unit complex in Clairton has submitted a plan to bankruptcy court calling for foreclosingon some properties in the complex on which the association has liens and then paying off creditors with the proceeds of the sale.

The Century Townhomes complex on Desiderio Boulevard has struggled in recent years with some large property ownersdeclaring bankruptcy, as well as issues related to all of its housing units being tied to the same water meter.

The World War II-era complex also has a mix of owners for its hundreds of townhomes, which has made improvements achallenge. About 33 units are owner-occupied, about 150 units are owned by small landlords, 16 are owned by nonprofit SistersPlace, and 149 units are owned by an out-of-state company that is involved in a separate bankruptcy case.

The plan, filed Wednesday in U.S. Bankruptcy Court for the Western District of Pennsylvania, calls for the foreclosureof approximately 75 unoccupied properties that have not paid their homeowners' assessments. If a buyer can be found,Pennsylvania American Water and the Clairton Municipal Authority ? which provides sewage service ? would receive proceedsfrom the sale.

As bankruptcy case winds down, investors have yet to emerge for troubled Clairton community

According to court documents, the association believes the aggregate fair market value of the properties is $375,000.

Residents and homeowners' association officials have been hoping for a buyer who will invest in the community and makeimprovements.

Gary Lobaugh, a spokesman for Pennsylvania American Water, said the company has not yet reviewed the plan and could notcomment.

An attorney for the Clairton Municipal Authority could not be reached for comment.

First Published July 2, 2020, 7:53pm Kate Giammarise: [email protected] or 412-263-3909. Joyce Gannon:[email protected] or 412-263-1580.

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CLAIRTON HOMEOWNERS ASSOCIATION SEEKS..., 2020 WLNR 18797932


---- Index References ----

Company: PENNSYLVANIA AMERICAN WATER CO

News Subject: (Bankruptcies (1BA08); Business Management (1BU42); Corporate Events (1CR05))

Industry: (Energy & Fuel (1EN13); Housing (1HO38); Real Estate (1RE57); Residential Real Estate (1RE67); Utilities (1UT12);Water Utilities (1WA58))

Region: (Americas (1AM92); North America (1NO39); Pennsylvania (1PE71); U.S. Mid-Atlantic Region (1MI18); USA(1US73))

Language: EN

Other Indexing: (Joyce Gannon; Gary Lobaugh; Kate Giammarise)

Edition: WEB ONLY

Word Count: 295



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In re Archdiocese of Saint Paul and Minneapolis, 578 B.R. 821 (2017)65 Bankr.Ct.Dec. 17


578 B.R. 821United States Bankruptcy Court, D. Minnesota.

IN RE: The ARCHDIOCESE OF SAINTPAUL AND MINNEAPOLIS, Debtor.

BKY 15–30125|

Signed December 28, 2017

SynopsisBackground: Hearing was held on confirmation of Chapter11 plan proposed by creditors' committee and by bankruptarchdiocese against which proofs of claim had been filed byindividuals allegedly injured by sexual abuse committed bypriests and other employees of archdiocese.

[Holding:] The Bankruptcy Court, Robert J. Kressel, J., heldthat court could not confirm plan as proposed, but wouldrequire all constituencies to return to mediation to attempt tonegotiate a consensual plan providing appropriate and timelycompensation to those who had suffered sexual abuse.

Confirmation denied.

West Headnotes (1)

[1] Bankruptcy Confirmation; Objections

Bankruptcy court would not confirm jointChapter 11 plan filed by both by creditors'committee and by bankrupt archdiocese againstwhich proofs of claim had been filed byindividuals allegedly injured by sexual abusecommitted by priests and other employees ofarchdiocese; rather, in recognition of seriousharm suffered by claimants, of fact that burden ofpaying these claims under plan would fall, not onwrongdoers, but on completely different groupof people, and of size of contingent fee claimsasserted by claimants' attorneys simply for filingproofs of claim, would require all constituenciesto return to mediation to attempt to negotiatea consensual plan providing appropriate and

timely compensation to those who had sufferedsexual abuse.

Attorneys and Law Firms

*822 Richard D. Anderson, Benjamin Gurstelle, Bryce D.Jasper, John R. McDonald, Charles B. Rogers, Aaron G.Thomas, Briggs and Morgan PA, Minneapolis, MN, CharlesE. Nelson, Lindquist & Vennum LLP, Minneapolis, MN, forDebtor.

JOINT MEMORANDUM TO ORDERS DENYINGCONFIRMATION OF PLANS FILED BY THE

DEBTOR AND THE CREDITORS COMMITTEE

ROBERT J. KRESSEL, UNITED STATES BANKRUPTCYJUDGE

Poor Nancy Joan Galatowitsch! On July 28, 2015, she filedher proof of claim. In her proof of claim, she described thesexual abuse that she suffered at the hands of a priest. In herown words she describes the horrors that she endured. Shethen goes on to describe, without the generalities found inmost claims prepared by lawyers, the lifelong damage thatshe suffered as a result of her abuse. While the confidentialitypromised to claimants prevents me from sharing any of thedetails of her story, it is a moving and compelling narrative.

Now she is dead. In the three years since this case was filed,Nancy Galatowitsch and at least seven other people whohave filed proofs of claim have died, essentially deprivingthem of any meaningful compensation for the pain that theyhave endured. During that three year period, attorneys forthe Archdiocese, the parishes, insurance companies, and thecommittee appointed to represent her interests have battledfor victory.

Every chapter 11 case affects people. However, none has moreto do with people than this one. 342 men and 111 women havefiled proofs of claim. Most of those claims describe sexualabuse by priests. However, brothers, deacons, nuns, bishops,and lay teachers and coaches are among those described inproofs of claim. Eight claimants speak of sexual abuse duringthe 1940s; 66 describe abuse in the 1950s; 145 describe abusein the 1960s; 161 claims describe abuse in the 1970s; 52describe abuse in the 1980s; 9 people describe abuse in the

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In re Archdiocese of Saint Paul and Minneapolis, 578 B.R. 821 (2017)65 Bankr.Ct.Dec. 17


1990s; 8 people describe abuse in the in the 2000s; and 3people describe abuse in the 2010s. Approximately ten of theclaimants are now in their 80s, while there are about 60 whoare in their 70s, and 50 who are in their 60s. It seems inevitablethat as this case drags on and the battle among the partiesendures, more people will die.

On the other side of the human equation are the individualswho committed the abuse and the individuals at theArchdiocese who exacerbated the problem by reassigningabusive members of the clergy and minimizing or suppressingthe complaints of the victims. While the creditors committeeseeks retribution for the wrongs suffered by victims, noneof the people who committed the abuse in the first place orexacerbated it in the second place will suffer. The financialcost of compensation falls not on any of these people,but a completely different group of people. It falls oncurrent employees, including priests, teachers, coaches, andon retired school librarians and others who have workedfor the Archdiocese and the parishes and earned a modestretirement. The cost may fall on students at Catholic schoolsand their parents. It will fall on thousands of parishioners. Andthe cost *823 will be born by beneficiaries of the charity andother good works by the Archdiocese and the parishes. So forall of the discussion about “the Archdiocese,” “the creditorscommittee,” “the parishes,” “the insurance companies,” thisis really a case about people.

[1] As I hope the orders denying confirmation havedemonstrated, a resolution of this case will require anagreement among the Archdiocese, the victims, the parishes,and the insurance companies. It means that those partiesand their lawyers must put aside their desire to win, anddecide to put together a resolution that is fair to all of thepeople involved. The committee must put aside its desire forretribution. After all, whatever else the Archdiocese is, it isa corporation. Corporations do not suffer; only people suffer.The Archdiocese must put aside its desire to minimize pain,realizing that the personal pain its employees inflicted upon

victims is inevitably going to result in financial pain beingsuffered by a new generation of parishioners and employees.The parishes who have been quick to blame the Archdiocesefor the mess in which they find themselves, must considerthe possibility of contributing something to compensatethe victims of sexual abuse. The fact that the abuse maynot be the legal responsibility of the parishes, which theyvociferously argue, is hardly the point, anymore than theirwork to help the hungry and homeless are motivated bylegal responsibilities. Even though the insurance companieshave reached settlements, they too will have to return tothe mediation process, in particular, those that reachedsettlements with the debtor without the agreement of thecreditors committee. While there is nothing nefarious aboutwhat they did, those settlements have certainly contributed tothe creditors committee's animosity.

Another source of funds for sexual abuse victims could betheir own lawyers. All but 39 of the claimants hired lawyers tocomplete their proofs of claim for them. In exchange, virtuallyall of them agreed to pay their lawyers 1/3 or so of theirrecovery. Because of the complex formula for compensatingvictims, it is difficult to determine with precision what thetotal attorneys fees for victims' lawyers could be. Evenunder the debtor's current plan, attorneys fees for the victimsindividual lawyers could easily run between $30 million and$40 million, which is pretty hefty sum for completing proofsof claim. It could be even more under a future plan.

Therefore, I expect all of the parties to return to mediation.I expect them to mediate in good faith and I expect themto reach a resolution which will result in a consensual planproviding appropriate and timely compensation to those whohave suffered sexual abuse at the hands of those employed byor affiliated with the Archdiocese.

All Citations

578 B.R. 821, 65 Bankr.Ct.Dec. 17



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“Owe No Man Anything”: Evolving Views of Debt

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Ancient Religion and Debt: Christianity´ Luke 6:35 – Love your enemies, and do good,

and lend, and expect nothing in return, and your reward will be great

´ Romans 13:8: Owe no man anything save to love one another

Ancient Religion and Debt: Judaism

´ Deuteronomy 15:1 – 3 (the Year of Jubilee): At the end of every seven years you must cancel debts. This is how it is to be done: Every creditor shall cancel any loan they have made to a fellow Israelite. They shall not require payment from anyone among their own people, because the Lord’s time for canceling debts has been proclaimed. You may require payment from a foreigner, but you must cancel any debt your fellow Israelite owes you.

´ Deuteronomy 23:20–23:21: On loans to a foreigner you may charge interest, but on loans to another Israelite you may not charge interest, so that the Lord your God may bless you in all your undertakings in the land that you are about to enter and possess.

´ Exodus 22:25: If you lend money to my people, to the poor among you, you shall not deal with them as a creditor; you shall not exact interest from them.

´ Leviticus 25:36–25:37: You shall not lend them your money at interest taken in advance, or provide them food at a profit.

´ Deuteronomy 24:10 – 11: Exempting Clothing from Collection


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Ancient Rome and Debt

´ “On the third market day, let them cut the parts. If they cut more or less, the law will not take account of it”´(“Tertiis nundinis partis secanto: Si plus minusve

secuerunt, se fraude e”) - Twelve Tables

Ancient Religion and Debt: Islam

´ The Quran 2:280: And if someone is in hardship, then [let there be] postponement until [a time of] ease. But if you give [from your right as] charity, then it is better for you, if you only knew.

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English Bankruptcy Laws´ Statute of Bankruptcy 1542

´ Addressed “crafty debtors”

´ Bankruptcy Act of England 1705´ “bankruptcy was caused not so much by reasons of losses

and unavoidable misfortunes, but rather by an intent to defraud and hinder [creditors] of their just debts . . . ."

´ Lord Chancellor had power to grant discharge´ Death penalty for fraudulent debtors

Stigmatization of Debtors Outside of the United States


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´ Bankruptcy Act of 1867 (Repealed in 1878)

´ Voluntary and involuntary cases

´ Individuals and corporations

´ Included “composition arrangements”

´ State law exemptions permitted

´ Bankruptcy Act of 1898

´ Election of trustees and appointment of creditors committee

´ Avoidance power

´ More generous discharge provisions

Stigmatization of Debtors within the United States´ Bankruptcy Act of 1800 (Repealed in 1803)

´ Only permitted involuntary bankruptcies of merchant debtors

´ Bankruptcy Act of 1841 (Repealed in 1843)´ Establishment of voluntary bankruptcy´ Included new federal exemptions

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Bankruptcy Reform in the Late 20th Century: 1978 Bankruptcy Act

´ Prohibition of Employment Discrimination

´ Change in nomenclature from “bankrupts” to

“debtors”

External Factors for Decreasing Stigmatization in the 20th Century´ Debtors prisons were completely abolished by 1920s.

´ Significant increase in bankruptcy filings´ Retail industry placed an emphasis on fulfilling desires

rather than fulfilling needs. ´ Common literature towards debtors shifted placing blame

from moral depravity onto external factors out of one’s control

´ Middle class and working families became more reliant on high installment credit payments for household goods


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Modern Perceptions of Debt

´ Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

´ Credit counseling for consumer debtors

´ Financial management training to get a discharge

´ Limited discharge of student loan and some credit card debts

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Thomas Horan302-388-6709

[email protected]

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Cannabis in Bankruptcy

Cannabis in Bankruptcy

Hon. Ashely M. Chan, ModeratorU.S. Bankruptcy Court (E.D. Pa.) | Philadelphia

Andrea E. ColenderSevern Savings Bank | Annapolis, Md.

Jesse M. HarrisFox Rothschild LLP | Philadelphia

Mark A. SalzbergSquire Patton Boggs | Washington, D.C.

CO

NC

URR

ENT

SESS

ION

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51

Historical Use, and Eventual Criminalization, of Cannabis

August 6, 2020

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Historical Use of Hemp Fiber in Cannabis• The cannabis plant is the oldest known

cultivated fiber plant and, before its medicinal properties became known, the fibrous plant was commonly used for textile manufacturing.

• Hemp fiber from cannabis plants can be used to make clothing, paper, sails and rope, and its seeds were used as food.

Terminology: Hemp vs. Marijuana• Cannabis plants have varying levels of tetrahydrocannabinol (THC), which is

the primary psychoactive compound in the cannabis plant that is responsible for the plant’s mind-altering effects.

• Both “hemp” and “marijuana” are derived from the cannabis plant. However, hemp is typically used as a term to classify varieties of cannabis plants that contain 0.3% or less THC content, and marijuana is used to classify cannabis plants that contain more than 0.3 percent THC content.


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Early Colonial Use of Hemp from Cannabis Plants

• Cannabis plants were first introduced in North America during the arrival and settlement of European colonists who used it primarily for the strength and the resistance of its fibers.

• In fact, during the early 1600s, farmers in Virginia, Massachusetts and Connecticut were actually required to grow cannabis plants and, in some colonies, hemp was actually exchanged as legal tender.

Hemp is the Strongest Natural Fiber in the World• It is known to have over 50,000 different uses!

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• In the 1830s, an army surgeon who had served in India, Sir William Brooke O’Shaughnessy, found that cannabis extracts could help decrease stomach pain and vomiting in people suffering from cholera.

• In Victorian times, it was widely used for many ailments, including muscle spasms, menstrual cramps, rheumatism, and the convulsions of tetanus, rabies and epilepsy; it was also used to promote uterine contractions in childbirth, and as a sedative to induce sleep.

Medicinal Use of Cannabis

• About 5,000 years ago, cannabis was first used for its medicinal benefits by the “father” of Chinese agriculture, emperor Shen Nung, who prescribed it for “gout, fatigue, rheumatism and malaria.”


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• During the late 1800s, cannabis extracts were routinely sold in pharmacies and doctors’ offices throughout Europe and the United States to treat stomach problems and other ailments.

• By 1850, cannabis made its way into the United States Pharmacopeia which listed it as a treatment for numerous afflictions, including: neuralgia, tetanus, typhus, cholera, rabies, dysentery, alcoholism, opiate addiction, anthrax, leprosy, incontinence, gout, convulsive disorders, tonsillitis, insanity, excessive menstrual bleeding, and uterine bleeding, among others.

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The Beginning of the Criminalization of Cannabis

• The Federal Narcotics Bureau (the precursor to the DEA) was established in 1930 and led by Harry Anslinger between 1930-1962. When Prohibition ended in 1933, some believe that Angslinger was worried that he would be out of a job and, therefore, felt compelled to manufacture a drug war. Initially, Anslinger focused on cocaine and heroin, but relatively few people used those drugs. He then turned to marijuana and followed the unsubstantiated claims previously made by anti-drug campaigners that “weed” was connected to violence in order to try to criminalize it, saying “You smoke a joint and you’re likely to kill your brother.”

Negative Sentiment Against Cannabis Develops

• After the Mexican Revolution of 1910, Mexican immigrants fled to the U.S. and the term "marijuana" suddenly came into popular usage, apparently because anti-cannabis factions wanted to underscore the drug's "Mexican-ness.” These groups claimed that marijuana incited violent crimes, aroused a "lust for blood," and gave its users"superhuman strength." In addition, anti-drug campaigners who supported Prohibition warned against the encroaching "Marijuana Menace” which, they claimed, was personified by “inferior races and social deviants.”

• A 1917 Treasury Department report noted that its chief concern was the fact that “Mexicans and sometimes Negroes and lower class whites” smoked marijuana for pleasure, and that they could harm or assault upper-class white women while under its influence.”


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The Marihuana Tax Act of 1937• Anslinger’s campaign against marijuana

led to the enactment of the Marihuana Tax Act of 1937 which imposed registration and reporting requirements, as well as a significant tax, on the growers, sellers, and buyers of marijuana. Although marijuana was not banned outright under this law, its effect was the same.

• From the beginning, Anslinger conflated drug use, race, and music and said “Reefer makes darkies think they’re as good as white men. . .There are 100,000 total marijuana smokers in the U. S., and most are Negroes, Hispanics, Filipinos and entertainers. Their Satanic music, jazz and swing result from marijuana use. This marijuana causes white women to seek sexual relations with Negroes, entertainers and any others.”

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• In 1942 – Cannabis was removed from the US Pharmacopeia in 1942.

• In 1944, the New York Academy of Medicine issued the La Guardia Committee report which confirmed that marijuana was not physically addictive, not a gateway drug and that it did not lead to crime. Harry Anslinger labeled the report as unscientific.

• The American Medical Association had opposed the Proposed

Marihuana Tax Act and its legislative counsel, Dr. William C.

Woodward, argued that cannabis “might have important uses

in medicine and psychology.” He also stated that “[t]here is

nothing in the medicinal use of Cannabis that has any relation

to Cannabis addiction. I use the word 'Cannabis' in preference

to the word 'marihuana', because Cannabis is the correct term

for describing the plant and its products...To say… as has been

proposed here, that the use of the drug should be prevented by

a prohibitive tax, loses sight of the fact that future investigation

may show that there are substantial medical uses for

Cannabis.”


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• As part of the “War on Drugs,” President Richard Nixon signed the Controlled Substances Act of 1970 which repealed the Marijuana Tax Act and provisionally listed marijuana as a Schedule I drug—along with heroin, LSD and ecstasy—with no medical uses and a high potential for abuse.

President Nixon’s ”War On Drugs”

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• At the direction of Congress, Nixon appointed the bipartisan Shafer Commission which considered laws regarding marijuana. The Schafer Commission ultimately determined that personal use of marijuana should be decriminalized…

• Nixon rejected the recommendation.


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• Beginning in 1996 with California legalizing medical marijuana, political and public sentiment has evolved and medical marijuana is now legal in 33 U.S. states and the District of Columbia.

• Recreational use of marijuana is now legal in 11 states and the District of Columbia.

“The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar left and black people…We knew… by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.”

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Introduction: Federal Law, Bankruptcy Cases related to Cannabis, and State Law Options

Bankruptcy in the Cannabis Industry:

A Cross-Border Perspective


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Bankruptcy Code Provisions At Issue With Cannabis Companies▪ Focusing on Chapter 11, although similar provisions are applied in Chapter 7 and 13 proceedings▪ Courts are concerned with condoning post-confirmation business operations that are illegal under

federal law▪ Courts have dismissed cases under multiple Code provisions:

§ 1112(b)(1) – dismissal for “cause”§ 1129(a)(3) – plan has to be proposed in “good faith”§ 1129(a)(11) – plan has to be feasible

▪ Motions have been brought by Office of United States Trustee (“UST”) and other parties in interestInvoluntary debtors have also moved to dismiss involuntary petitions on cannabis grounds

▪ Chapter 15Cross border cases§ 1506 public policy exception

Applicable Federal Law (Non-Bankruptcy)▪ Cultivators and Dispensaries (28 U.S.C. § 841(a)(1))

“. . . it shall be unlawful for any person knowingly or intentionally to manufacture, distribute, dispense, or possess with intent to manufacture, distribute or dispense, a controlled substance”

▪ Ancillary Companies (28 U.S.C. § 843(a)(7))“It shall be unlawful for any person knowingly or intentionally to manufacture, distribute, export, or import any . . . equipment, chemical, product, or material which may be used to manufacture a controlled substance . . . knowing, intending, or having reasonable cause to believe, that it will be used to manufacture a controlled substance . . .”

▪ Landlords (21 U.S.C. § 856(a)(1)) “. . . it shall be unlawful to knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance”

▪ Management (21 U.S.C. § 856(a)(2))“. . . it shall be unlawful to manage or control any place, whether permanently or temporarily, either as an owner, lessee, agent, employee, occupant, or mortgagee, and knowingly and intentionally rent, lease, profit from, or make available for use, with or without compensation, the place for the purpose of unlawfully manufacturing, storing, distributing, or using a controlled substance”

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First, the bad news...

Guidance from Department of Justice▪ Ogden Memorandum (Oct. 2009)

▪ Prioritizes prosecution over traffickers and disruption of illegal drug manufacturing.▪ DOJ will not focus resources on individuals acting in compliance with state laws.

▪ Cole Memoranda▪ First Cole Memorandum (June 2011) clarified that Ogden Memorandum was not meant to shield large-scale cultivation centers

from federal enforcement even if acting in compliance with state law.▪ Second Cole Memorandum (Aug. 2013) identifies enforcement priorities and states that DOJ will rely on state/local governments

to enact laws relating to cannabis.▪ Third Cole Memorandum (Feb. 2014) links violation of Bank Secrecy Act and money laundering statutes to the Second Cole

Memorandum’s enforcement priorities.Puts onus on financial institutions to monitor.

▪ Sessions Memorandum (Jan. 2019) rescinds prior DOJ guidance and directs federal prosecutors to weigh all relevant considerations in determining cannabis-related prosecutions.

▪ Attorney General Barr recently said that he would “not go after” cannabis companies in states where cannabis is legal.


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In re Way to Grow, Inc. (cont’d)

▪ District Court affirmed holding:

▪ A cannabis company cannot, in violation of section 1129(a)(3) of the Bankruptcy Code, propose a good-faith

reorganization plan that relies on profits generated from marijuana.

▪ The inability to propose a plan not reliant on cannabis income is cause for dismissal under section 1112(b).

▪ Even if the debtors were able to extricate themselves from cannabis, it would be impossible to

monitor/ensure compliance.

▪ The District Court questioned the narrow interpretation of section 1129(a)(3) given by the Ninth

Circuit in Garvin.

▪ The court ultimately avoided opining on what it means for a plan to be “proposed … not by any means

forbidden by law” by grounding its holding on section 1129(a)(3)’s requirement that a plan be “proposed in

good faith.”

▪ Because the plan relied on profits generated by the cannabis business, the plan could not be proposed in

good faith.

In re Way to Grow, Inc., 610 B.R. 338 (D. Colo. 2019)▪ Debtors sold indoor hydroponic and gardening-related supplies.

▪ Expansion plans were tied to the cannabis industry, although the debtors also had customers using the hydroponic products to grow other crops.

▪ A secured creditor moved to dismiss the cases, citing the CSA.▪ The bankruptcy court found that the debtors were violating section 843(a)(7) of the CSA.

▪ Debtors had reasonable cause to believe that the equipment and product they sold would be used, by at least some of their customers, to manufacture marijuana.

▪ The bankruptcy court dismissed the cases “for cause” under section 1112(b) of the Bankruptcy Code.▪ District court discussed “three basic propositions” gleaned from the case law:

▪ “[A] party cannot seek equitable bankruptcy relief from a federal court while continuing in violation of federal law.”▪ “[A] bankruptcy case cannot proceed where the court, the trustee or the debtor-in-possession will necessarily be required to

possess and administer assets which are either illegal under the CSA or constitute proceeds of activity criminalized by the CSA.”▪ “[T]he focus of this inquiry should be on the debtor’s marijuana-related activities during the bankruptcy case, not necessarily

before the bankruptcy case is filed.”

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In re Basrah Custom Design, Inc., 600 B.R. 368 (Bankr. E.D. Mich.2019)▪ Debtor was a custom cabinet manufacturer, which occupied two conjoined buildings.▪ The buildings were owned by an affiliate of the Debtor’s principal, which entered into a

lease with a purchase option with a dispensary.▪ There was an issue regarding which entity was the owner or lessor of the buildings and the

UST moved to dismiss the case “for cause” on the basis that owning or renting a place operating as a dispensary violates CSA.

▪ Debtor alleged it filed bankruptcy to disentangle itself from the cannabis space by rejecting the dispensary lease.

In re Rent-Rite Super Kegs West Ltd., 484 B.R. 799 (Bankr. D. Colo. 2012)▪ Landlord/debtor derived approx. 25% of revenue from tenants engaged in state-legalized marijuana cultivation.▪ Secured creditor, with lien on warehouse, moved to dismiss the bankruptcy arguing that the debtor was barred

from seeking relief under unclean hands doctrine and because the bankruptcy was filed in bad faith.▪ The bankruptcy court held that the debtor’s conduct violated the CSA and justified application of the unclean hands

doctrine:▪ “The Debtor has knowingly and intentionally engaged in conduct that constitutes a violation of federal criminal law and it has

done so with respect to its sole income producing asset. Worse yet, every day that the Debtor continues under the Court’s protection is another day that [the secured creditor’s] collateral remains at risk.”

▪ The bankruptcy court held therefore that the debtor’s actions constituted “gross mismanagement” for purposes of § 1112(b) and that “cause” existed.

▪ The court also did not believe the debtor could propose a plan because section 1129(a)(3) prohibits confirmation of a plan that relies in any part on income derived from criminal activity.

▪ Court scheduled further hearing to consider whether dismissal or conversion was appropriate.


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Basrah Custom Design, Inc. (cont’d)

▪ Court also acknowledged that while the § 1129(a)(3) good faith issue was not before the Court, it nevertheless felt compelled to address Garvin in a footnote stating:

▪ “The decision of the Ninth Circuit Court of Appeals in Garvin is not binding on this Court, and, with respect, this Court does not necessarily agree with the Garvin court’s holding about § 1129(a)(3). And, respectfully, one might reasonably question whether the Garvin court should have refused to decide the § 1112(b) dismissal issue. That refusal on waiver grounds arguably is questionable, because it allowed the affirmance, by a federal court, of the confirmation of a Chapter 11 plan under which a debtor would continue to violate federal criminal law under CSA.”

In re Basrah Custom Design, Inc. (cont’d)▪ Although the Court found that the lease was not property of the estate and the debtor was not the

lessor, the Court found that: (a) the sole purpose of the filing was to facilitate the principal’s efforts to avoid the dispensary lease and (b) the debtor filed bankruptcy with unclean hands.

▪ Court found that cause existed under § 1112(b)(1) to dismiss the case.▪ Court speculated that if the dispensary requested stay relief to evict the debtor, the court would have

to refuse because the dispensary would also have to have unclean hands.▪ “Just as a federal court cannot be asked to enforce the protections of the Bankruptcy Code in aid of a Debtor

whose activities constitute a continuing federal crime,” Rent-Rite, 484 B.R. at 805 (footnote omitted), neithercan a federal court be asked to enforce any creditor protections under the Bankruptcy Code, such as therelief-from-stay provisions of II U.S.C. § 362(d), in aid of a creditor’s commission of a federal crime.”

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Now, let’s turn to some good news . . .

Arenas v. United States Trustee (In re Arenas), 535 B.R. 845 (10th Cir. B.A.P. 2015)▪ Debtors operated a licensed growhouse and medical dispensary, and leased space to a licensed

dispensary.▪ The debtors originally filed under Chapter 7, but later sought to convert to Chapter 13.▪ The UST objected to the conversion and argued that the cases should be dismissed for cause under §

707(a).▪ The bankruptcy court denied conversion and dismissed for cause.▪ BAP affirmed denial of conversion motion, holding that the debtors were unable to propose a plan in

good faith because:▪ Plan would be funded with rental income generated in violation of CSA.▪ Chapter 13 trustee would commit federal crimes by administering the plan.▪ Unfairness since the debtors would receive a discharge but the trustee could not pay claims with illegally

generated funds.


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Northbay Wellness Group, Inc. v. Beyries, 789 F.3d 956 (9th Cir. 2015)▪ The debtor was an attorney accused of converting client trust funds. The client (Northbay) was a

medical marijuana dispensary and the funds were proceeds of sales.▪ The bankruptcy court dismissed the complaint seeking to declare the client’s debt non-dischargeable,

on the basis that the doctrine of unclean hands barred Northbay from seeking to recover funds which were the proceeds of marijuana sales.

▪ The Ninth Circuit held that the doctrine of unclean hands does not automatically bar relief, but requires balancing of the alleged wrongdoing of each party.

▪ “Had the bankruptcy court weighed the parties’ respective wrongdoing, it necessarily would have concluded that (the attorney’s) wrong doing outweighed Northbay’s, both as to harm caused to each other and as to harm caused to the public.” 789 F.2d at 960.

▪ Northbay was permitted to bring its action in the bankruptcy court.

Garvin v. Cook Investments NW SPNWY LLC, 922 F.3d 1031 (9th Cir. 2019)▪ Affirmed confirmation of a Chapter 11 plan where the debtor derived lease income from a tenant in the

business of growing marijuana.▪ The UST argued that the plan should not have been confirmed because it was proposed by means forbidden

by law in violation of section 1129(a)(3).▪ The Ninth Circuit rejected the UST’s argument and held that section 1129(a)(3) forbids confirmation of a

plan that is proposed in an unlawful manner, but does not forbid confirmation of a plan that has substantive provisions that depend on illegality.

▪ Court should only to look to the proposal of a plan and not the terms of the plan. ▪ Because there was nothing in the proposal of the plan at issue that was unlawful, confirmation was affirmed.

▪ Not a complete victory for cannabis industry.▪ UST failed to preserve the “gross mismanagement” argument – result may have been different if motion was renewed.▪ Court made clear that confirmation of a plan does not insulate a debtor from prosecution for criminal activity, even if that

criminal activity is part of the plan itself.

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Olson v. Van Meter (In re Olson), 2018 Bankr. LEXIS 480 (9th Cir. B.A.P. Feb. 5, 2018)▪ Chapter 13 case.▪ The debtor was a 92-year-old woman who was legally blind and residing in an assisted living facility. Prepetition, the

debtor indirectly owned a shopping center and one of the tenants was a state licensed marijuana dispensary.▪ The evidence included the declaration from the debtor that she wished to end her relationship with the tenant and

sell the property.▪ Nonetheless, the bankruptcy court dismissed the case sua sponte because the debtor was accepting cannabis rental

income post-petition.▪ In vacating the dismissal order the 9th Cir. BAP noted that dismissal should be considered pursuant to the statutory

framework of the Bankruptcy Code. The BAP stated that dismissal of a case for “cause” under § 1307(c), although not listed, can include “bad faith.” However, the BAP held that such an analysis required both consideration of the “totality of the circumstances” and specific findings. The BAP stated that there had been no finding that the trustee would be administering the proceeds of an illegal business, and no evidence that the rents were to be used to fund the plan.

In re Johnson, 532 B.R. 53 (Bankr. W.D. Mich. 2015)

▪ Chief Judge Scot W. Dales considered a Chapter 13 filed by a 55-year old facing foreclosure on a residence the debtor had owned for four years.

▪ The debtor supplemented his Social Security income by providing, under a state law license, medical marijuana to three patients and a licensed dispensary.

▪ The debtor testified that all plan payments would come from his Social Security income. ▪ Court was, however, concerned with allowing the debtor to remain in a bankruptcy that assisted in the

advancement of an illegal activity. ▪ Nothing that “(t)he country’s relationship with marijuana is changing, slowly, and one person’s pusher is another’s

caregiver,” Judge Dales rejected the UST’s request to dismiss the case, provided that the debtor cease operating in the marijuana business.

▪ Recognizing that the “(t)he Debtor’s business is patently incompatible with a bankruptcy proceeding, but his financial circumstances are not”, the court concluded that the debtor had to choose between continuing the marijuana business and continuing with his bankruptcy case. 532 B.R. at 57.


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In re Cwnevada LLC, 602 B.R. 717 (Bankr. D. Nev. 2019).▪ Exhaustive analysis of the cannabis cases.▪ Debtor was engaged in cannabis and CBD industries.

▪ Cannabis activity violated the CSA.▪ CBD activity was likely excluded from the CSA.

▪ Creditors moved to dismiss under section 1112(b) or for abstention under section 305(a)(1).▪ Bankruptcy court concluded that, under the particular facts of that case, dismissal was warranted

under section 305(a)(1).▪ Debtor had not opened banking accounts.▪ Debtor did not have disinterested legal counsel.▪ Governance and management issues.▪ Financial issues may have been understated by management.

In re Olson, (cont’d)▪ Judge Tighe wrote a separate concurring opinion in which she:

▪ Stressed the question of whether the debtor had “knowingly and intentionally” violated federal law:▪ “I concur in the memorandum and write separately to emphasize (1) the importance of evaluating whether the Debtor is

actually violating the Controlled Substances Act and (2) the need for the bankruptcy court to explain its conclusion that dismissal was mandatory under these circumstances. With over twenty-five states allowing the medical or recreational use of marijuana, courts increasingly need to address the needs of litigants who are in compliance with state law while not excusing activity that violates federal law. A finding explaining how a debtor violates federal law or otherwise provides cause of dismissal is important to avoid incorrectly deeming a debtor a criminal and denying both debtor and creditors the benefit of the bankruptcy laws.”

▪ Slightly opened the door to cases where cannabis may not play a central role:▪ “Bankruptcy courts have historically played a role in providing for orderly liquidation of assets, equal payment to creditors,

and resolution of disputes that otherwise would take many years to resolve. Although debtors connected to marijuana distribution cannot expect to violate federal law in their bankruptcy case, the presence of marijuana near the case should not cause mandatory dismissal.” (emphasis added)

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Chapter 15 – A Potential Work Around?▪ U.S. Courts recognize and enforce foreign insolvency

proceedings▪ Chapter 15 could be used to support insolvency proceedings

instituted outside of the U.S. by cannabis companies with affiliates or operations in the U.S.

▪ US Trustee is certain to object▪ Arguments in favor of Chapter 15

▪ Section 1506 – public policy exception▪ “Manifestly contrary to the public policy of the United

States”▪ No estate to be administered in the U.S.

▪ Never been tested

In re Cwnevada LLC, (cont’d)▪ However, the court may have opened the door to cannabis filings:

▪ “There may be cases where Chapter 11 relief is appropriate for an individual or a non-individual entity directly engaged in a marijuana-related business. For the reasons discussed above, this case is not one of them.”

▪ “If there are 8,700 residents of Nevada employed by the marijuana industry, … then the impact of automatically denying a bankruptcy fresh start to those resident and their dependents would be unconscionable.”


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Alternatives to Bankruptcy

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Alternatives to Bankruptcy, cont’d.▪ Assignment for the Benefit of Creditors

▪ State law remedy▪ Simple procedure – allows for sale of assets▪ Licensing issues

▪ Article 9 Sale▪ Available to secured creditors▪ Licensing issues

Alternatives to Bankruptcy▪ State Court Receiverships

▪ Creditors and/or shareholders can seek appointment of receiver▪ Receiver takes control of all property at issue▪ Receiver can operate the business and run a sale process▪ Certain states allow Receivers to operate a cannabis growing/sale business

▪ Oregon Administrative Rules § 845-025-1260“The Commission may issue a temporary authority to operate a licensed business to a trustee, the receiver of an insolvent or bankrupt licensed business, the personal representative of a deceased licensee, or a person holding a security interest in the business for a reasonable period of time to allow orderly disposition of the business.”

▪ Washington Administrative Code § 314-55-137Addresses role of receiver when licensee is placed in receivership


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SB 1028 STATES (Strengthening the Tenth Amendment Through Entrusting States) Act▪ Introduced by Senators Cory Gardner and Elizabeth

Warren on April 4, 2019▪ Would amend the Controlled Substances Act to

recognize legality of marijuana where legalized pursuant to state or tribal law

▪ Referred to Committee on the Judiciary (4/4/19)▪ Companion Bill HR 2093 referred to Subcommittee on

Crime, Terrorism, and Homeland Security (5/15/2019)▪ Essentially, STATES Act has been dormant

Pending Legislation

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HR 1595 SAFE (Secure and Fair Enforcement) Banking Act▪ Opens banking and insurance to cannabis

companies▪ Passed the House by a vote of 321-103 on

Sept. 25, 2019▪ Was included by Speaker Pelosi in the

HEROES Act that was passed by the House in May 2020

▪ HEROES Act is proposed sequel to CARES Act▪ Unclear whether SAFE Banking Act will

ultimately be in the next consensus COVID-19 measure signed into law


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• Banks that provide accounts for marijuana related businesses undertake a heavy burden, to monitor compliance with federal law, state law, regulations and regulatory guidance. In order to do that, banks need to significantly augment their usual policies and procedures, and follow them precisely under the watchful eyes of the regulators. This requires a staff of trained professionals dedicated to the cause, specialized software, and a system for managing cash.

• The Cole Memoranda, Bank Secrecy Act, Anti-money Laundering Act, and guidance from the Financial Crimes Enforcement Network (FinCEN) puts the onus on banks to monitor marijuana related businesses.

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• A marijuana banking program involves a commitment on the part of the bank to devote the necessary resources. The costs involved are not insignificant, and are passed on to the customers. Prospective customers should expect to pay an onboarding fee, and a monthly fee.

• Marijuana related businesses that are looking for a bank account have to demonstrate a commitment to compliance during the onboarding process. They should be prepared to provide documentation to prove their commitment, both initially and on an on-going basis. They should know that every aspect of their business will be monitored and analyzed, and that currency transaction reports (CTRs) and Suspicious Activity Reports (SARs) will be filed with the government on a regular basis. They should expect periodic site visits, frequent reviews, and limitations on their ability to use typical banking services such as checks and wires. Compliance violations or deviations from the bank’s requirements could result in the termination of the account.

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20


Bax Decision

Bax Decision

Amanda R. Steele, ModeratorRichards, Layton & Finger, PA | Wilmington, Del.

Hon. Michael B. KaplanU.S. Bankruptcy Court (D. N.J.) | Trenton

Stacy A. LutkusMcDermott Will & Emery | New York

Curtis S. MillerMorris, Nichols, Arsht & Tunnell LLP | Wilmington, Del.

CO

NC

URR

ENT

SESS

ION

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Today’s Panel

1

Amanda R. Steele, ModeratorRichards, Layton & FingerDirector

Hon. Michael B. Kaplan, PanelistU.S. Bankruptcy Court (D. N.J.) Chief Judge

Stacy A. Lutkus, PanelistMcDermott Will & EmoryCounsel

Curtis S. Miller, PanelistMorris, Nichols, Arsht & TunnellPartner

Bax DecisionMid-Atlantic Virtual Bankruptcy WorkshopAugust 6, 2020

Amanda R. Steele – Richards, Layton & Finger, PAThe Honorable Michael B. Kaplan – U.S. Bankruptcy Court (D. N.J.)Stacy A. Lutkus – McDermott Will & EmeryCurtis S. Miller – Morris, Nichols, Arsht & Tunnell LLP

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CML V LLC v. Bax, 6 A.3d 238 (Del. Ch. 2010):JetDirect Chancery Court Action

CML – junior secured creditor of JetDirect Aviation Holdings, LLC CML brought derivative claims in Delaware Court of Chancery against JetDirect’s

present and former managers for:1. Breach of standard of care in approving four major acquisitions despite

lacking sufficient information regarding JetDirect’s financial condition2. Acting in bad faith by failing to maintain and monitor adequate internal

controls3. Breach of duty of loyalty against certain managers for negotiating self-

interested sales of assets to entities they controlled during JetDirect’sliquidation process

Chancery Court granted defendants’ motion to dismiss Ruling: CML, as a creditor, lacked standing under Section 18–1002 of Delaware’s LLC

Act to pursue derivative claims− The plain meaning of the statute is unambiguous − Comparable derivative standing provisions in Delaware’s LP Act and the

statutory origins of Delaware’s alternative entity standing provisions support the Court’s ruling

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Overview of Bax Decision

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Cases Addressing CML V, LLC v. Bax and the Ability of Bankruptcy

Estate Representatives to Pursue Derivative Claims

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CML V LLC v. Bax, 28 A.3d 1037 (Del. 2011):Delaware Supreme Court Decision CML Affirmed Chancery Court’s decision

The plain language of 6 Del. C. §18–1002 is unambiguous and limits derivative standing in LLCs exclusively to “member[s]” or “assignee[s].” Id. at 1041.

Plain reading of the statute does not produce an absurd result− LLCs and corporations are different legal entities that offer different bundles of rights− LLCs afford creditors flexibility in negotiating their rights through the LLC agreement− Logical for Delaware General Assembly to limit derivative standing in the LLC context

Section 18–1002 is constitutional− Delaware Constitution only prohibits the Delaware General Assembly from limiting the

Chancery Court’s equity jurisdiction to prevent failures of justice in the corporate context

− Even if Chancery Court had jurisdiction to extend derivative standing for LLCs, this jurisdiction should be exercised only absent an adequate remedy at law• Creditors of LLCs have the opportunity to negotiate their remedies by contract • A creditor’s failure to adequately protect its remedies does not “threaten the

interests of justice” to justify extending the Chancery Court’s equity jurisdiction (Id. at 1046)

4

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Bank of Am., N.A. v. Knight, 875 F. Supp. 2d 837 (N.D. Ill. 2012), aff'd, 725 F.3d 815 (7th Cir. 2013).

Lender brought action against borrower limited liability companies (LLCs) and their directors, officers, controlling members, and auditors, alleging that individual defendants abused their positions of authority and control to loot the LLCs by diverting assets and opportunities to other companies they owned or controlled. Lender had been assigned claims by the bankruptcy trustee for the holding company. Defendants argued that under Bax, lender had no standing to pursue claims. The Court noted that debtor, as a member, held a right under Delaware law to bring derivative suits, but that the lender had not brought the claims derivatively on behalf of all creditors, but, rather, sought to recover its specific damages only for itself, and, thus, the claims were direct actions unavailable under Delaware law.

7

Tow v. Amegy Bank N.A., 976 F. Supp. 2d 889, 904 (S.D. Tex. 2013)

Partnership's bankruptcy trustee brought action against former limited partner and his affiliated companies, alleging that defendants conspired with general partner to breach fiduciary duties owed to partnership. District court granted SJ in favor of Defendants finding, in part, that the bankruptcy trustee lacked derivative standing to sue limited partner for breach of fiduciary duties allegedly owed to partnership (“Read literally, the provisions prevent creditors from suing on behalf of the partnership, and Delaware courts historically have interpreted” the provisions as giving the partners exclusive rights to sue for breach of another party's fiduciary duties to them. CML V, LLC v. Bax, 6 A.3d 238, 245 (Del.Ch.2010), aff'd 28 A.3d 1037 (Del.2011)).

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In re Golden Guernsey Dairy, LLC, 548 B.R. 410 (Bankr. D. Del. 2015)

In this case, Judge Gross determined that a trustee could pursue fiduciary duty claims held by the debtor LLC as the “sole representative of the estate, with the authority to sue and be sued. Judge Gross ruled that the Trustee has a statutory mandate to pursue the estate's interests, including all direct and derivative claims. Thus, the trustee has standing when he is stepping into the debtor's shoes, asserting a fiduciary duty claim that belonged to the debtor. Likewise, a debtor in possession should have the same ability to pursue a claim held by the debtor for breach of fiduciary duty.

9

Refco Grp. Ltd., LLC v. Cantor Fitzgerald, L.P., No. 13 CIV. 1654 RA, 2014 WL 2610608 (S.D.N.Y. June 10, 2014)

Reorganized Debtor (“RGL”) brought a variety of claims under Delaware and N.Y. law on behalf of nominal defendants, as well as its own behalf, alleging that defendants orchestrated self-interested transactions to siphon assets away from the subsidiaries of a limited partnership in which RGL held a 10% interest. Defendants move to dismiss for lack of standing. Defendants argued that RGL did not have standing to maintain action because the Plan governing RGL's bankruptcy had assigned all of RGL's claims to a Litigation Trust. RGL contends that, while the Plan could be read as assigning RGL's direct claims to the Litigation Trust, it could not have assigned RGL's derivative claims. Citing to Bax, the Court concluded that the Delaware Revised Uniform Limited Partnership Act (“DRULPA”) imposes strict limits on derivative standing The Litigation Trust was neither a partner nor an assignee of any partnership interest and therefore would lack standing to bring RGL’s derivative claims. The Court found it implausible that the Plan would have transfer RGL's derivative claims separately from the underlying partnership interest and thereby extinguish them entirely.

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In re PennySaver USA Publ'g, LLC, 587 B.R. 445 (Bankr. D. Del. 2018)

Judge Sontchi in In re Pennysaver held that a trustee could not seek to assert claims on behalf of the creditors of the LLC under Delaware law. Although it was not clear whether the trustee was seeking to assert direct or derivative fiduciary duty claims, the court held that the trustee did not have standing in either scenario. It held that creditors of an LLC are prohibited from pursuing direct claims against LLCs, their members, managers and officers under Bax. If the claims were derivative in nature, those claims were also barred because such claims “can only be brought by members or assignees of LLCs.” Thus, unless the creditors were also members or assignees, the trustee was prohibited from asserting breach of fiduciary duty claims because “[t]he Trustee does not have standing to sue on behalf of the creditors who themselves have no standing.”

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In re HH Liquidation, LLC, 590 B.R. 211, 284 (Bankr. D. Del. 2018)

In HH Liquidation, LLC, the Delaware bankruptcy court (Judge Gross) considered whether an official committee of unsecured creditors had standing to pursue derivative claims on behalf of a Delaware LLC. In that case, the committee asserted a seventy-eight count complaint, which included claims for fraudulent transfer, breach of fiduciary duty and unjust enrichment. The bankruptcy court ruled that the LLC Act is “clear and unambiguous about who can bring a derivative action: the plaintiff ‘must be a member or an assignee.’” citing 6 Del. C. § 18-1002. The court reasoned that because the committee was neither a member nor an assignee, it did not have standing to bring a breach of fiduciary duty claim. Judge Gross distinguished his earlier ruling in In re Golden Guernsey by noting that unlike a Chapter 7 trustee, which is empowered by statute to act as “the sole representative of the estate”, a creditors committee is a collection of unsecured creditors whose rights to assert derivative claims are limited to the derivative standing of its members, none of whom have to assert derivative claims of breach of fiduciary duty on behalf of the company.

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Questions Raised by the Bax Decision

13

In re Citadel Watford City Disposal Partners, 2019 Bankr. LEXIS 1375

In Citadel, Judge Carey extended the rationale of In re Pennysaver and In re HH Liquidation in recognizing the similarities between the LLC Act and the Delaware Revised Uniform Limited Partnership Act and concluded that the creditors' committee was not permitted to pursue claims against a Delaware limited partnership. He also threw out the committee's claims against a Wyoming LLC under the Wyoming Limited Liability Company Act because the Wyoming Supreme Court had followed Bax in holding that creditors of a Wyoming LLC were not permitted to bring fiduciary duty claims, limiting derivative actions to members at the time an action is commenced. Finally, he also dismissed the committee's claims against a North Dakota LLC determining that the language of the North Dakota statute was “sufficiently similar to the Delaware LLC Act” and applied Delaware cases in interpreting North Dakota law. While the claims at issue were ultimately assigned to the liquidation trustee under the debtor's plan, the trustee was not permitted to pursue any of these claims because they were originally commenced by the committee, who lacked standing to bring them in the first place.

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In re Furie Operating Alaska, LLC

Standing motions filed by two royalty interest holders prior to expiration of challenge period

Two-day evidentiary hearing on merits of claims

Court letter to parties prior to closing arguments

− Is Bax being imported correctly into the bankruptcy context?

− If Bax does not prevent a Committee or a creditor from bringing the debtor/LLC estate causes of action, do creditors get more rights in bankruptcy than outside of bankruptcy?

− Is the Court empowered to approve another estate representative to bring causes of action when the debtor is a debtor-in-possession?

− How does Bax impact first day DIP hearings?

15

In re Furie Operating Alaska, LLC

First-day motion seeking approval of DIP financing to be provided by affiliates of certain prepetition secured parties

No committee appointed in the cases (“[i]nsufficient response to the United States Trustee communication/contact for service on the committee”)

Contested final DIP hearing

− Objecting parties included royalty interest holder

− “Not having a committee who could take a look at this financing is quite frankly unhelpful”

− DIP approved on final basis, including customary debtor stipulations and releases

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Creditor Rights In/Outside of Bankruptcy

In re Timberline Prop. Dev., Inc., 136 B.R. 382, 385 (Bankr. D.N.J. 1992) (“[T]he Supreme Court has determined that a bankruptcy court is not empowered to give a creditor rights that state law withholds.”) (citing Butner v. United States, 440 U.S. 48 (1979))

− Individual creditor’s rights limited to what state law allows and what the creditor negotiated for outside bankruptcy

17

Bax in Bankruptcy

Official Comm. of Unsecured Creditors of Cybergenics Corp. ex rel. CybergenicsCorp. v. Chinery, 330 F.3d 548, 566 (3d Cir. 2003)

− Official creditors’ committee could be granted standing to bring fraudulent transfer claims on behalf of the estate

− Holding did not extend to individual creditors

− Facts and circumstances did not involve unambiguous statute and definitive ruling from state’s highest court

• 6 Del. Code § 18-1002: plaintiff in a derivative action must be a “member or an assignee” of the LLC

• Delaware Supreme Court: Delaware LLC Act “denies derivative standing to LLC creditors” CML V, LLC v. Bax, 28 A.3d 1037, 1046 (Del. 2011)

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Impact on First-Day Hearings

Parties in interest entitled exercise their rights under 11 U.S.C. §1109(b) to object to proposed DIP financing

Creditors presumed “capable of protecting themselves through the contractual agreements that govern their relationships with” their contract counterparties Bax, 6 A.3d 238, 250 (Del. Ch. 2010)

19

Estate Representatives

Appointment of a chapter 11 trustee for the sole purpose of bringing estate causes of action overly “drastic”; would amount to “replacing the scalpel of derivative suit with a chainsaw” Official Comm. of Unsecured Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery, 330 F.3d 548 (3d Cir. 2003)

− disruption and “immense costs” of “replacing current management with a team that is less familiar with the debtor specifically and its market generally”

Conversion “would amount to instructing management: ‘Pursue this action, or we will move to dissolve your company.’” 330 F.3d at 579

Examiner with expanded powers: “§ 1106(b)’s broad grant is most naturally interpreted to authorize only acts relating directly to investigation.” 330 F.3d at 578

18


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In re Payless Holdings LLCCase No. 19-40883

Final DIP Order “punted” the issue until a later date

Parties were authorized to file either (a) standing motion or (b) fiduciary motion (examiner, chapter 11 trustee, etc.)

If filed a fiduciary motion and the Court granted the motion, the challenge period was tolled until 45 days after appointment of fiduciary.

If filed both a standing motion and a fiduciary motion, then challenge period was extended until 45 days after Court granted fiduciary motion.

If the Court confirmed a plan prior to challenge deadline then causes of action were transferred to a trust, the challenge period was extended to the later of (i) challenge deadline or (ii) 45 days after effective date.

21

How are creditors (and Courts) are drafting to protect against the Bax decision?

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In re Techniplas, LLCCase No. 20-11049

To address Judge Silverstein’s concerns in Rudy’s the lenders agreed to the following language in the DIP Order:

− The Prepetition Secured Parties stipulate and agree that each of the Prepetition Secured Parties will not raise as a defense in connection with any Challenge the ability of creditors to file derivative suits on behalf of limited liability companies. If the Committee pursues or brings forth a Challenge, the defendant of such Challenge shall not object on the grounds that the Committee lacks standing. (emphasis added).

23

In re Rudy’s Barbershop Holdings, LLCCase No. 20-10746

Judge Silverstein raised the Bax issue at the First Day Hearing. DIP Lenders agreed to the following language to be included in the Final DIP Order: − Court Condition to Approving Motion.

− “As a condition to granting the Motion, the Court insisted that the Challenge Period and any lawsuit or contested matter stemming therefrom or in connection therewith not be illusory.”

− “Prepetition Secured Parties will not raise as a defense in any Challenge Proceeding or any adversary proceeding or contested matter brought in connection with matters related to (as delineated in Paragraph 5.10 of this Order) the Prepetition Loan Documents, the Prepetition Secured Obligations, the Prepetition Liens and the Prepetition Collateral the ability of creditors to file derivative suits on behalf of limited liability companies.”

− “ . . . agree that the Amended and Restated Limited Liability Company Agreement of Rudy’s Barbershop Holdings, LLC is hereby amended to permit a Challenge Proceeding or any adversary proceeding or contested matter against a Prepetition Secured Party to be commenced by a creditor or an official committee appointed in these bankruptcy cases.”

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Questions?

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The Pros and Cons of Transactions Involving Distressed Hospitals and Health Care Providers

The Pros and Cons of Transactions Involving Distressed Hospitals and Health Care Providers

Hon. Patricia M. MayerU.S. Bankruptcy Court (E.D. Pa.) | Reading

Dr. Achintya MoulickCarePoint Health Systems | Philadelphia

Scott PhillipsHealthcare Management Partners, LLC | Washington, D.C.

Cynthia RomanoCohnReznick LLP | New York

CO

NC

URR

ENT

SESS

ION

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99

The Pros and Cons of Transactions Involving Distressed Hospitals and

Health Care Providers

An analysis of current levels of financial distress across the hospital, skilled-nursing and home-health sectors

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Healthcare Pre-Pandemic:a physician-administrator’s view

Agenda

1. Healthcare pre-pandemic

2. Healthcare in distress: data

3. Healthcare post-pandemic

3. Timely topics in healthcare distress and transactions


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Smaller hospitals and systems under duress

• More than ½ the hospitals hit by COVID were showing losses in 2017

• COVID merely accelerated the distress in healthcare

• This trend will accelerate as more than 80% of rural hospitals have less than on month cash on hand

• Number in beds reduced in US from 924 K in 2018 from 1.5 MM in 1978

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Factors causing distress pre-pandemic• Financial management• Unintended effect of ACA – hospital consolidation• Insurance companies – large system interplay• CMS policies not directly supporting smaller / rural systems• Bureaucracy and red tape preventing innovation • No patient first approach• Lack of involvement of Physicians/ Nurses in financial decisions• Using outsiders to restructure instead of engaging and trusting the internal team• Bad contracts and poor financial/ revenue cycle management • Real estate play• Legal


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Healthcare in Distress:an overview of the data

Achintya Moulick MD, MBA, MCh

104


Distress in Hospitals and Bed Size

• 2/3 of distressed hospitals have 100 or fewer beds

• Critical access hospitals with 25 beds or fewer account for 25% of distressed hospitals

• Distress level decreases as hospital bed size increases

Distress in Hospitals by Type

• 20% of hospitals across the U.S. are in financial distress

• Nearly 1/3 of government-owned hospitals across the U.S. are financially distressed

• Short-term acute care hospitals and critical access hospitals account for nearly 86% of distressed hospitals

• Investor-Owned and NFP Hospitals experience similar levels of distress at 15%


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Distress in Hospitals by State

• Over 33% of the hospitals in Kansas, New York, Mississippi, Montana and Alabama are financially distressed.

• With the exception of New York, the distress is located in small, rural government owned, stand-alone hospitals. New York is a combination of many factors including chronic over bedding.

• Less than 10% of the Hospitals in Delaware, Massachusetts, New Jersey, New Mexico, South Dakota and West Virginia are financially distressed.

Distress in Hospitals by Rural/Urban and System vs Stand-Alone Ownership

• 2/3 of hospitals in the U.S. are urban

• 72% of all hospitals and almost 90% of all hospital beds are system owned

• 28% of rural hospitals or stand-alone hospitals are in financial distress compared to 16% of urban hospitals or system-owned hospitals

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Distress in SNFs by State

• Over 40% of the SNFs in Illinois, Massachusetts, Nebraska, New Hampshire, Pennsylvania, Washington and Wisconsin are financially distressed.

• Less than 15% of the SNFs in Delaware, Hawaii, North Carolina and Oregon are financially distressed.

Distress in Skilled Nursing Facilities (SNF)

• Unlike hospitals urban SNFs are more likely to be distressed than rural facilities

• Similarly, large SNF (over 150 beds) are more likely to be distressed than smaller facilities (60 or fewer beds)

• Of almost 15,000 SNFs, 72% are Investor owned, 7% are owned by local governments and 21% are owned by traditional NFP entities.

• 30% of all SNFs are financially distressed (26% Investor Owned, 33% Local Government and 39% NFP)


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Healthcare Post-Pandemic:challenges & opportunities

Distress in Home Health Agencies and Hospice Providers

• Hospice providers (31%) are more likely to be financially distressed than Home Health Agencies (19%)

• Over 45% of the Home Health and Hospice Providers in New York, Vermont, Hawaii, North Dakota, Connecticut and Iowa are financially distressed.

• Less than 15% of the Home Health and Hospice Providers in Claifornia, Montana, Nevada and Utah are financially distressed.

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Post-COVID Challenges (con’t)

• New risks with communications and information management• Compliance with “social distancing” and other state and city requirements• Employee issues

• Safety/availability• Training• Furlough/termination• Pay reductions• Hazard pay

• Shoring up supply (independent of payment, some supplies limited)• Leadership vs management

Post-COVID Challenges

• All subsectors have had patient volume drop dramatically with only some rebounding on restart• Hospitals lost elective procedures • ERs and ICUs were/are overloaded (depending on location)• SNF/ALF census dropped dramatically• Home health care staffing is challenged• Physician practices are limited (like restaurants)

• Demand disruption is expected to be temporary but rebound time is unknown• Revenue and cash are down while fixed overhead remains high• Liquidity is in jeopardy (although temporarily helped by stimulus of PPP, HHS, CMS, etc)


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Timely topics in healthcare restructuring and transactions

• Restructure/sell in or out of court

• Anti-trust concerns vs creditor benefit

• Low income access to healthcare in rural and inner-city areas

• Reimbursement rates vs cost to operate

• Professional ethics and fees

Healthcare Post-Pandemic:challenges & opportunities

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Thank you and be safe


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Mid-Atlantic Virtual Bankruptcy Workshop

August 6th - 7th, 2020

FINANCIAL DISTRESS ACROSS HEALTH CARE PROVIDERS

IN THE UNITED STATES:

• HOSPITALS;

• SKILLED NURSING FACILITIES;

• HOME HEALTH AGENCIES AND HOSPICE PROVIDERS.

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Table of Contents

About This Report........................................................................................................................... 3 HOSPITALS ................................................................................................................................... 4 Figure 1: Distress in Hospitals by Ownership Type ....................................................................... 4 Figure 2: Distress in Hospitals by Bed Size .................................................................................... 5 Figure 3: Distress in Hospitals by Rural/Urban .............................................................................. 6 Figure 4: Distress in Hospitals by System Ownership.................................................................... 6 Figure 5: Distress in Hospitals by State .......................................................................................... 7 SKILLED NURSING FACILITIES ............................................................................................... 8 Figure 6: Distress in Skilled Nursing Facilities by Bed Size .......................................................... 8 Figure 7: Distress in Skilled Nursing Facilities by Rural/Urban .................................................... 8 Figure 8: Distress in Skilled Nursing Facilities by State ................................................................ 9 HOME HEALTH AGENCIES AND HOSPICE PROVIDERS .................................................. 10 Figure 9: Distress in Home Health Agencies and Hospice Providers by State ............................ 10


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About This Report This report provides an overview of the distress level across health care providers in the United States, including hospitals, skilled nursing facilities and hospice and home health agencies, by various categories including bed size, ownership type, rural/urban designation and state. Q: What is a financially distressed provider? A: A hospital, skilled nursing facility or a hospice/home health provider is financially distressed after producing a net loss from continuing operations for the last 3 consecutive cost report periods (FY 2017 – 2019). Q: What are cost reports? A: All Medicare-certified providers, including hospitals, skilled nursing facilities and hospice and home health agencies, are required to submit annual cost reports. Each cost report contains provider specific data, including utilization and financial information, such as costs and charges. Q: Where are cost reports maintained? A: Data from the cost reports are maintained in the Healthcare Provider Cost Reporting Information System (HCRIS). For more information, please refer to the Centers for Medicare & Medicaid Services (CMS) at https://www.cms.gov/Research-Statistics-Data-and-Systems/Downloadable-Public-Use-Files/Cost-Reports. Q: What is HMP Metrics? HMP Metrics is a proprietary database containing integrated Medicare cost report, quality, billing, and socio-economic data for all Hospitals, Nursing Homes and Home Health and Hospice agencies in the United States. The data featured in this report is one example of the insights that can be accessed through HMP Metrics. More information on HMP Metrics is available at hmpmetrics.com.

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HOSPITALS Figure 1: Distress in Hospitals by Ownership Type

Source: HMP Metrics, a proprietary database containing integrated Medicare cost report, quality, billing, and socio-economic data for all Hospitals, Nursing Homes and Home Health and Hospice agencies in the United States, available online at hmpmetrics.com

Distressed Investor Owned Government Not for profit All HospitalsChildrens Hospitals 4 4Critical Access Hospitals 20 244 115 379Long-Term Hospitals 53 2 23 78Psychiatric Hospitals 29 11 21 61Rehabilitation Hospitals 16 1 4 21Short-Term Hospitals 130 186 275 591

Distressed Total 248 444 442 1,134

Non-distressed Investor Owned Government Not for profit All HospitalsChildrens Hospitals 3 11 45 59Critical Access Hospitals 49 357 561 967Long-Term Hospitals 214 8 65 287Psychiatric Hospitals 257 13 83 353Rehabilitation Hospitals 225 8 45 278Short-Term Hospitals 668 548 1,497 2,713

Non-distressed Total 1,416 945 2,296 4,657

Investor Owned Government Not for profit All Hospitals1,664 1,389 2,738 5,791

Distressed# Hospitals 248 444 442 1,134

% Hospitals 15% 32% 16% 20%Non-distressed

# Hospitals 1,416 945 2,296 4,657% Hospitals 85% 68% 84% 80%

All Hospitals

Insights: • 20% of hospitals across the U.S. are in financial distress • Nearly 1/3 of government-owned hospitals across the U.S. are financially

distressed • Short-term acute care hospitals and critical access hospitals account for

nearly 86% of distressed hospitals


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Figure 2: Distress in Hospitals by Bed Size

Note: Although Critical Access Hospitals cannot exceed 25 acute care beds, they may have additional distinct part units, such as rehabilitation or psychiatric, which increases the total number of beds beyond 25. Source: HMP Metrics, a proprietary database containing integrated Medicare cost report, quality, billing, and socio-economic data for all Hospitals, Nursing Homes and Home Health and Hospice agencies in the United States, available online at hmpmetrics.com

Insights: • 2/3 of distressed hospitals have 100 or fewer beds • Critical access hospitals with 25 beds or fewer account for 25% of distressed hospitals • Distress level decreases as hospital bed size increases

Distressed 25 Beds or Fewer 26 to 100 Beds 101 to 200 Beds 201 to 300 Beds 301 to 400 Beds 401 to 500 Beds More Than 500 Beds # Hospitals # Beds

Childrens Hospitals 1 2 1 4 701Critical Access Hospitals 286 85 8 379 11,878Long-Term Hospitals 4 55 14 5 78 6,170Psychiatric Hospitals 7 39 12 3 61 4,872Rehabilitation Hospitals 2 15 2 2 21 1,423Short-Term Hospitals 32 232 164 68 42 21 32 591 103,807

Distressed Total 331 427 202 78 43 21 32 1,134 128,851

Non-distressed 25 Beds or Fewer 26 to 100 Beds 101 to 200 Beds 201 to 300 Beds 301 to 400 Beds 401 to 500 Beds More Than 500 Beds # Hospitals # Beds

Childrens Hospitals 1 10 11 11 16 6 4 59 15,767Critical Access Hospitals 717 203 45 2 967 34,253Long-Term Hospitals 24 229 23 8 1 2 287 19,037Psychiatric Hospitals 63 148 120 17 4 1 353 32,944Rehabilitation Hospitals 13 232 28 4 1 278 18,821Short-Term Hospitals 140 689 718 470 293 145 258 2,713 624,546

Non-distressed Total 958 1,511 945 510 315 152 266 4,657 745,368

25 Beds or Fewer 26 to 100 Beds 101 to 200 Beds 201 to 300 Beds 301 to 400 Beds 401 to 500 Beds More Than 500 Beds # Hospitals # Beds

1,289 1,938 1,147 588 358 173 298 5,791 874,219Distressed

# Hospitals 331 427 202 78 43 21 32 1,134 128,851% Hospitals 26% 22% 18% 13% 12% 12% 11% 20% 15%

Non-distressed# Hospitals 958 1,511 945 510 315 152 266 4,657 745,368

% Hospitals 74% 78% 82% 87% 88% 88% 89% 80% 85%

All Hospitals

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Figure 3: Distress in Hospitals by Rural/Urban

Figure 4: Distress in Hospitals by System Ownership


Hospital Type Standalone System Owned All Hospitals #

Distressed# Non-

Distressed All Hospitals

% Distressed

Childrens Hospitals 32 31 63 4 59 63 6%Critical Access Hospitals 697 649 1,346 379 967 1,346 28%Long-Term Hospitals 47 318 365 78 287 365 21%Psychiatric Hospitals 112 302 414 61 353 414 15%Rehabilitation Hospitals 32 267 299 21 278 299 7%Short-Term Hospitals 730 2,574 3,304 591 2713 3,304 18%All Hospitals 1,650 4,141 5,791 1,134 4,657 5,791 20%

Standalone System Owned All Hospitals1,650 4,141 5,791

Distressed# Hospitals 462 672 1,134

% Hospitals 28% 16% 20%Non-Distressed

# Hospitals 1,188 3,469 4,657% Hospitals 72% 84% 80%

All Hospitals

Insights: • 2/3 of hospitals in the U.S. are urban • 28% of rural hospitals are in financial distress compared to 16% of urban hospitals

Insights: • 72% of U.S. hospitals are part of a system • 28% of standalone hospitals are in financial distress compared to 16% of system owned

hospitals

Hospital Type Rural Urban All Hospitals#

Distressed# Non-

Distressed All Hospitals % Distressed

Childrens Hospitals 63 63 4 59 63 6%Critical Access Hospitals 1,082 264 1,346 379 967 1,346 28%Long-Term Hospitals 17 348 365 78 287 365 21%Psychiatric Hospitals 38 376 414 61 353 414 15%Rehabilitation Hospitals 10 289 299 21 278 299 7%Short-Term Hospitals 782 2,522 3,304 591 2,713 3,304 18%All Hospitals 1,929 3,862 5,791 1,134 4,657 5,791 20%

Rural Urban All Hospitals

1,929 3,862 5,791Distressed

# Hospitals 533 601 1,134% Hospitals 28% 16% 20%

Non-distressed# Hospitals 1,396 3,261 4,657

% Hospitals 72% 84% 80%

All Hospitals


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Figure 5: Distress in Hospitals by State


StateChildrens Hospitals

Critical Access Hospitals

Long-Term Hospitals

Psychiatric Hospitals

Rehabilitation Hospitals

Short-Term Hospitals

All Hospitals # Distressed # Non-distressedAll

Hospitals% Distressed

Alabama 1 4 6 5 7 90 113 38 75 113 34%Alaska 8 1 6 15 2 13 15 13%Arizona 1 12 7 16 13 53 102 11 91 102 11%Arkansas 2 30 8 7 8 43 98 23 75 98 23%California 7 34 18 33 6 294 392 60 332 392 15%Colorado 1 35 8 8 5 50 107 16 91 107 15%Connecticut 1 2 1 1 33 38 6 32 38 16%Delaware 1 1 3 1 6 12 12 12 0%District of Columbia 1 2 1 1 7 12 2 10 12 17%Florida 3 11 22 25 16 165 242 34 208 242 14%Georgia 2 32 11 8 5 104 162 38 124 162 23%Guam 2 2 2 2 0%Hawaii 1 2 1 1 7 12 4 8 12 33%Idaho 27 2 2 2 15 48 13 35 48 27%Illinois 2 52 7 8 4 135 208 34 174 208 16%Indiana 35 9 26 8 88 166 23 143 166 14%Iowa 82 2 1 34 119 36 83 119 30%Kansas 1 83 2 4 6 53 149 74 75 149 50%Kentucky 29 8 7 4 60 108 19 89 108 18%Louisiana 1 26 29 37 21 93 207 35 172 207 17%Maine 13 1 1 13 28 7 21 28 25%Maryland 2 3 2 47 54 3 51 54 6%Massachusetts 2 3 9 11 6 55 86 13 73 86 15%Michigan 1 36 14 9 2 101 163 19 144 163 12%Minnesota 2 79 2 2 48 133 14 119 133 11%Mississippi 31 6 3 1 60 101 35 66 101 35%Missouri 3 37 9 6 7 72 134 35 99 134 26%Montana 46 1 1 13 61 21 40 61 34%Nebraska 2 64 5 1 3 22 97 20 77 97 21%Nevada 14 6 7 4 23 54 7 47 54 13%New Hampshire 14 1 2 13 30 3 27 30 10%New Jersey 1 7 7 9 65 89 8 81 89 9%New Mexico 9 2 4 5 21 41 3 38 41 7%New York 16 3 6 1 149 175 63 112 175 36%North Carolina 21 8 7 2 87 125 15 110 125 12%North Dakota 36 2 2 6 46 7 39 46 15%Ohio 5 33 22 25 14 129 228 29 199 228 13%Oklahoma 39 10 7 5 76 137 23 114 137 17%Oregon 26 1 1 37 65 15 50 65 23%Pennsylvania 3 17 17 18 18 158 231 41 190 231 18%Puerto Rico 5 3 44 52 11 41 52 21%Rhode Island 1 1 11 13 4 9 13 31%South Carolina 3 6 6 8 53 76 17 59 76 22%South Dakota 38 1 16 55 3 52 55 5%Tennessee 17 9 12 10 92 140 29 111 140 21%Texas 12 86 63 48 61 293 563 132 431 563 23%United States Virgin Islands 1 1 1 1 100%Utah 1 11 3 4 2 30 51 7 44 51 14%Vermont 8 1 6 15 2 13 15 13%Virginia 1 8 5 4 9 72 99 19 80 99 19%Washington 1 39 2 6 2 49 99 27 72 99 27%West Virginia 21 2 2 5 30 60 5 55 60 8%Wisconsin 2 63 5 10 4 63 147 19 128 147 13%Wyoming 16 1 2 11 30 9 21 30 30%All Hospitals 63 1,346 365 414 299 3,304 5,791 1,134 4,657 5,791 20%

Insights: • The states with the highest % of distressed hospitals include Kansas, New York, Mississippi,

Montana and Alabama

Childrens Hospitals

Critical Access Hospitals

Long-Term Hospitals

Psychiatric Hospitals

Rehabilitation Hospitals

Short-Term Hospitals

All Hospitals

63 1,346 365 414 299 3,304 5,791Distressed

# Hospitals 4 379 78 61 21 591 1,134% Hospitals 6% 28% 21% 15% 7% 18% 20%

Non-Distressed # Hospitals 59 967 287 353 278 2713 4,657

% Hospitals 94% 72% 79% 85% 93% 82% 80%

All Hospitals

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SKILLED NURSING FACILITIES Figure 6: Distress in Skilled Nursing Facilities by Bed Size

Figure 7: Distress in Skilled Nursing Facilities by Rural/Urban


Insights: • Over 1/3 of government owned and not for profit Skilled Nursing Facilities are distressed • Distress level increases with bed size

Insights: • Nearly a 1/3 of urban Skilled Nursing Facilities are distressed compared to 27% of urban Skilled

Nursing Facilities

Ownership Type Unreported 60 Beds or Fewer 61 to 150 Beds More Than 150 Beds All SNFs # Distressed# Non-

distressedAll SNFs % Distressed

Investor Owned 230 1,494 7,150 1,885 10,759 2,844 7,915 10,759 26%Local government 7 170 694 193 1,064 348 716 1,064 33%Not for profit 92 681 1,659 683 3,115 1,215 1,900 3,115 39%All SNF 329 2,345 9,503 2,761 14,938 4,407 10,531 14,938 30%

Unreported 60 Beds or Fewer 61 to 150 Beds More Than 150 Beds All SNFs329 2,345 9,503 2,761 14,938

Distressed# SNFs 40 668 2,804 895 4,407% SNFs 12% 28% 30% 32% 30%

Non-distressed# SNFs 289 1,677 6,699 1,866 10,531% SNFs 88% 72% 70% 68% 70%

All SNFs

All SNFs Rural Urban All SNFs # Distressed# Non-


Investor Owned 2,793 7,966 10,759 2,844 7,915 10,759 26%Local government 439 625 1,064 348 716 1,064 33%Not for profit 810 2,305 3,115 1,215 1,900 3,115 39%

All SNF 4,042 10,896 14,938 4,407 10,531 14,938 30%

Rural Urban Total All SNF4,042 10,896 14,938

Distressed# SNFs 1,083 3,324 4,407

% SNFs 27% 31% 30%Non-distressed

# SNFs 2,959 7,572 10,531% SNFs 73% 69% 70%

All SNFs


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Figure 8: Distress in Skilled Nursing Facilities by State


State Unreported 60 Beds or Fewer 61 to 150 Beds More Than 150 Beds All SNFs#

Distressed# Non-


Alabama 4 15 150 53 222 42 180 222 19%Alaska 3 3 6 1 5 6 17%Arizona 7 20 82 38 147 35 112 147 24%Arkansas 4 1 201 15 221 48 173 221 22%California 29 205 644 193 1,071 173 898 1,071 16%Colorado 3 45 136 25 209 41 168 209 20%Connecticut 3 33 144 39 219 85 134 219 39%Delaware 1 4 25 9 39 5 34 39 13%District of Columbia 1 3 10 14 4 10 14 29%Florida 4 66 460 162 692 199 493 692 29%Georgia 2 32 229 63 326 108 218 326 33%Hawaii 3 5 19 7 34 1 33 34 3%Idaho 18 45 6 69 11 58 69 16%Illinois 9 58 419 206 692 277 415 692 40%Indiana 2 74 381 92 549 183 366 549 33%Iowa 2 185 205 24 416 102 314 416 25%Kansas 5 145 119 14 283 95 188 283 34%Kentucky 3 41 226 26 296 86 210 296 29%Louisiana 5 5 196 57 263 19 244 263 7%Maine 11 19 61 4 95 29 66 95 31%Maryland 1 13 140 67 221 80 141 221 36%Massachusetts 4 45 285 73 407 191 216 407 47%Michigan 5 53 296 79 433 145 288 433 33%Minnesota 16 129 152 27 324 70 254 324 22%Mississippi 1 67 105 11 184 30 154 184 16%Missouri 84 351 82 517 185 332 517 36%Montana 11 9 42 9 71 13 58 71 18%Nebraska 3 71 112 13 199 82 117 199 41%Nevada 2 6 26 15 49 11 38 49 22%New Hampshire 4 11 47 10 72 30 42 72 42%New Jersey 7 25 168 159 359 114 245 359 32%New Mexico 2 8 57 5 72 21 51 72 29%New York 21 27 208 314 570 71 499 570 12%North Carolina 5 24 334 60 423 157 266 423 37%North Dakota 21 10 28 4 63 12 51 63 19%Ohio 11 179 714 106 1,010 316 694 1,010 31%Oklahoma 48 41 183 17 289 71 218 289 25%Oregon 3 30 79 12 124 17 107 124 14%Pennsylvania 5 78 362 229 674 282 392 674 42%Puerto Rico 1 1 2 2 2 0%Rhode Island 6 17 44 18 85 16 69 85 19%South Carolina 26 107 30 163 48 115 163 29%South Dakota 11 42 24 2 79 26 53 79 33%Tennessee 2 19 217 63 301 86 215 301 29%Texas 2 95 1,014 167 1,278 417 861 1,278 33%Utah 33 53 10 96 32 64 96 33%Vermont 1 11 22 2 36 9 27 36 25%Virginia 33 155 77 265 44 221 265 17%Washington 6 39 146 22 213 106 107 213 50%West Virginia 1 20 74 6 101 18 83 101 18%Wisconsin 31 116 199 28 374 158 216 374 42%Wyoming 1 8 11 1 21 5 16 21 24%All SNFs 329 2,345 9,503 2,761 14,938 4,407 10,531 14,938 30%

Unreported 60 Beds or Fewer 61 to 150 Beds More Than 150 Beds All SNFs329 2,345 9,503 2,761 14,938

Distressed# SNFs 40 668 2,804 895 4,407

% SNFs 12% 28% 30% 32% 30%Non-distressed

# SNFs 289 1,677 6,699 1866 10,531% SNFs 88% 72% 70% 68% 70%

All SNFs

Insights: • States with the highest % of distressed SNFs (over 40%) include Washington,

Massachusetts, Wisconsin, Pennsylvania, New Hampshire, Nebraska and Illinois

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HOME HEALTH AGENCIES AND HOSPICE PROVIDERS Figure 9: Distress in Home Health Agencies and Hospice Providers by State


State HHA HospiceTotal All HH&H

# Distressed# Non-

distressedAll HH&H % Distressed

Alabama 99 134 233 65 168 233 28%Alaska 6 5 11 2 9 11 18%Arizona 106 150 256 46 210 256 18%Arkansas 66 61 127 53 74 127 42%California 1,092 966 2,058 313 1,745 2,058 15%Colorado 87 90 177 70 107 177 40%Connecticut 54 25 79 37 42 79 47%Delaware 12 11 23 4 19 23 17%District of Columbia 9 4 13 5 8 13 38%Florida 751 65 816 165 651 816 20%Georgia 82 238 320 97 223 320 30%Guam 4 3 7 1 6 7 14%Hawaii 10 10 20 12 8 20 60%Idaho 31 53 84 19 65 84 23%Illinois 520 117 637 124 513 637 19%Indiana 136 93 229 57 172 229 25%Iowa 73 68 141 66 75 141 47%Kansas 61 79 140 50 90 140 36%Kentucky 87 18 105 21 84 105 20%Louisiana 174 183 357 99 258 357 28%Maine 12 17 29 7 22 29 24%Maryland 41 26 67 21 46 67 31%Massachusetts 93 99 192 77 115 192 40%Michigan 354 150 504 107 397 504 21%Minnesota 60 51 111 26 85 111 23%Mississippi 33 117 150 44 106 150 29%Missouri 90 139 229 95 134 229 41%Montana 6 15 21 3 18 21 14%Nebraska 29 35 64 12 52 64 19%Nevada 107 59 166 20 146 166 12%New Hampshire 9 25 34 12 22 34 35%New Jersey 21 77 98 36 62 98 37%New Mexico 43 48 91 25 66 91 27%New York 76 44 120 82 38 120 68%North Carolina 137 87 224 73 151 224 33%North Dakota 2 6 8 4 4 8 50%Ohio 275 166 441 126 315 441 29%Oklahoma 207 174 381 65 316 381 17%Oregon 31 47 78 27 51 78 35%Pennsylvania 184 223 407 64 343 407 16%Puerto Rico 33 50 83 14 69 83 17%Rhode Island 17 14 31 12 19 31 39%South Carolina 54 95 149 37 112 149 25%South Dakota 10 16 26 6 20 26 23%Tennessee 112 77 189 49 140 189 26%Texas 1,532 697 2,229 572 1,657 2,229 26%United States Virgin Islands 2 2 4 4 4 0%Utah 58 104 162 20 142 162 12%Vermont 1 10 11 6 5 11 55%Virginia 169 110 279 65 214 279 23%Washington 39 25 64 12 52 64 19%West Virginia 46 20 66 19 47 66 29%Wisconsin 45 72 117 28 89 117 24%Wyoming 12 9 21 8 13 21 38%Northern Marianas 2 2 2 2 0%All HH&H 7,402 5,279 12,681 3,080 9,601 12,681 24%

HHA HospiceTotal All HH&H

7,402 5,279 12,681Distressed

# HH&H 1426 1654 3,080% HH&H 19% 31% 24%

Non-distressed# HH&H 5976 3,625 9,601

% HH&H 81% 69% 76%

All HH&H

Insights: • States with the highest % of distressed Home Health Agencies and Hospice providers (over 45%)

include New York, Vermont, Hawaii, North Dakota, Connecticut and Iowa

20

20


Ethics: How to Get Retained as Debtors’ Attorneys

Ethics: How to Get Retained as Debtors’ Attorneys

Shanti M. Katona, ModeratorPolsinelli PC | Wilmington, Del.

Brett D. FallonMorris James LLP | Wilmington, Del.

Hon. Robert E. GrossmanU.S. Bankruptcy Court (E.D.N.Y.) | New York

George R. HowardVinson & Elkins LLP | New York

Christopher A. JonesWhiteford Taylor Preston LLP | Falls Church, Va.

CO

NC

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ENT

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Fee Application & Compensation Issues

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In re Boy Scouts of America, et al.,Case No. 20-10342 (LSS) (Bankr. D. Del. May 29, 2020)Facts

• Century Indemnity Company and its parent, Chubb Insurance (collectively, “Century”) sought to disqualify Sidley Austin (“Sidley”) as Debtors’ lead counsel based on Sidley’s prior representation of Century.

• Sidley represented the Debtors in restructuring matters since approximately early 2019, although it obtained no

conflict waiver from either the Debtors or Chubb/Century.

• Sidley withdrew as counsel for Chubb/Century in all matters, the last shortly after the bankruptcy filing.

Applicable Bankruptcy Code Sections and Bankruptcy Rules• The primary Bankruptcy Code Sections are 327, 329, and 330, although other Sections also

apply (e.g., 11 U.S.C. § 504).

• The Bankruptcy Rules are generally 2014 and 2016.

• Also, bankruptcy courts often have local rules that govern employment and compensation of attorneys.

• United States Trustee’s Guidelines may be applicable.


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In re Boy Scouts of America, et al. (cont’d)Court Analysis of Section 327• Section 327(a) creates a two-part test, a professional (1) may not hold or represent an adverse

interest, and (2) must be disinterested. BSA Op. at 3.

• The Court followed the Third Circuit’s holdings in In re BH&P, 949 F.2d 1300 (3d Cir. 1991), In re Pillowtex, Inc., 304 F.3d 246 (3d Cir. 2002), and In re Marvel Entertainment Group, 140 F.3d 463 (3d Cir. 1998)

• The two-part test in Section 327 is written in the present tense, and therefore does not apply to prior representations; Sidley’s representation of Century had ended and Sidley did not hold an interest adverse to the Debtors.

• Sidley could adequately represent the interest of the estates.

In re Boy Scouts of America, et al. (cont’d)Arguments of the Parties

• Century argued that Debtors cannot retain Sidley because Sidley could not satisfy the requirements of Section 327 because it had violated Rule 1.7 of the Model Rules of Professional Responsibility by representing Century against another client, the Debtors.

• Sidley made the following arguments in support of its retention:

• Rule 1.9, not Rule 1.7, controls because Century is a former client, and Sidley does not need a waiver as representation of Debtors’ restructuring is not substantially related to Sidley’s previous representation of Century;

• Sidley does not represent an adverse interest and is disinterested; and

• Sidley was never adverse to Century while Century was still a client because Haynes & Boone represented Debtors’ insurance matters related to restructuring. Debtors argued they would be substantially prejudiced if they had to retain new counsel.

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In re Boy Scouts of America, et al. (cont’d)Court Rules that Sidley is saved by Conflicts Counsel.• The Court held that Sidley’s previous representation might be substantially related to some aspects of Debtors’

bankruptcy cases. • The Court found no conflict issue because Debtors retained Haynes & Boone as counsel for insurance matters before

the bankruptcy filing and Sidley placed an ethical screen between its insurance group and restructuring group so that confidential information could not pass between the two.

• In perhaps the Court’s most crucial statement, the judge concluded that, “this decision is consistent with the numerous cases cited to me addressing disqualification of counsel [. . . .] Indeed, I was surprised by the overwhelming body of case law [. . .] in which courts deny disqualification motions in the face of what appear to be obvious conflicts.” BSA Op. at 13. The Court therefore denied Century’s motion to disqualify Sidley as Debtors’ lead counsel.

• The Court noted that “retroactive ethical screen may not work for purposes of violations of the Rules of Professional Conduct” leaving open whether Sidley may have violated a Rule of Professional Conduct by simultaneously representing Chubb and the Debtors prior to the screen being established on November 4, 2019.

In re Boy Scouts of America, et al. (cont’d)Was Sidley’s work “substantially related” to its prior work for Century? • Chubb also argued that the Court should disqualify Sidley because “insurance issues in a mass tort case are so

pervasive that Sidley’s inability to be adverse to Chubb means Sidley’s retention cannot be approved.” • The Court also considered whether Sidley’s engagement ran afoul of Rule 1.9 of the Rules of Professional

Responsibility because it is representing a new client adverse to a former client on a “substantially related” matter. • Courts generally look at three factors to analyze whether a “substantial relationship” exists:

• the nature and scope of the prior representation; • the nature and scope of the current representation; and • the possibility that the former client disclosed confidences to his attorney in the prior representation which

could be relevant to the current action and used to the detriment of the former client in the current action.


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In re D.C. Diamond Corp. (cont’d)Arguments of the Parties• Weber Rector argued that it did not act as a dual agent pursuant to Virginia law because it did not represent Hugill

in this transaction. • Objecting creditor argued that it is likely Weber Rector shared confidential information to Hugill during sale

negotiations.

Court Analysis and Ruling • The Court agreed that Weber Rector did not act as a “dual” agent. But, that is not enough.• All professionals employed by Trustee should be “disinterested,” meaning that a broker cannot hold or represent an

interest adverse to the bankruptcy estate. • The Court found that Weber did not meet the disinterested test, therefore, was not entitled to its commission.• The Court terminated Weber Rector’s employment by Trustee. • The Court stated that it did not find any fraud, however it still lacked confidence in Weber Rector based on its

disclosure deficiencies.

In re D.C. Diamond Corp., Case No. 12-16730-BFK (Bankr. E.D. Va. Oct. 7, 2019)

Facts and Background

• In 2012, the Debtor, a real estate investment company, filed a Chapter 11 and hired Weber Rector (“Weber Rector”), to market and sell its properties.

• In 2015, the Debtor’s case converted to Chapter 7 and the trustee employed Weber Rector to continue its work selling the Debtor’s properties.

• Weber Rector listed for sale a property on Lucky Hill road (the “Lucky Hill Property”).

• Thomas Hugill (“Hugill”) learned of Lucky Hill Property and inquired about it from his friend, Chuck Rector who owned a 50% interest in Weber Rector.

• Hugill agreed to buy Lucky Hill Property and additional properties for $1.55 million (the “Parcels”).

• In August 2019, the Court held a hearing on approval of the sale of the Parcels where Weber Rector disclosed for the first time that it also represented Hugill in the sale of the Quarry Road property, the proceeds of which would be used to close on the Parcels.

• The Court approved the sale. The Court also issued an order directing Weber Rector to supplement its 2014 disclosures and set a hearing to consider whether Weber Rector was “disinterested” in light of its work for Hugill.

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In re NNN 400 Capitol Center LLC (cont’d)Arguments of the Parties

• Defendants sought disqualification of Rubin & Rubin, P.A. from the cases and disgorgement of all fees for numerous violationsof Rule 2014 disclosures as well as the failure to the disclose impermissible fee sharing arrangement among the legal entities within the Rubin & Rubin umbrella.

• The following issues were relevant to the Court in support of the Rubins’ retention:

• Florida allows the practice of law under fictitious trade names;

• The Rubins are not bankruptcy practitioners; and

• The firms under the Rubin umbrella shared fees based on the number of hours spent and not under a retainer or referral fee arrangement.

NNN 400 Capitol Center LLC v. Wells Fargo Bank, N.A., et al., Adv. Pro. No. 18-50384, (Bankr. D. Del.) Facts

• Adversary proceeding was initiated in the underlying In re NNN 400 Capital Center 16, LLC cases. Defendants took deposition of attorney from Rubin & Rubin, P.A. law firm, 327(e) retained counsel, to determine plaintiffs’ assertion of attorney/client privilege over numerous documents. During discovery, it was determined that Rubin & Rubin, P.A. was a fictitious trade name and not a legal entity.

• The Rubins admitted to providing “inaccurate information” in retention application.


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In re NNN 400 Capitol Center LLC (cont’d)Rubin & Rubin’s Woes Do Not End

• US Trustee moves to revoke and terminate Rubin & Rubin and deny all fees and expenses:

• Failed to disclose pre-petition fee sharing agreement with loan broker and filed affidavit that no such agreement exists

• Failed to seek Court approval of loan broker’s retention

• Failed to disclose impermissible post-petition fee-sharing arrangement with loan broker

• The Court has granted non-client litigants standing to enforce technical violations of conflict of interest rules because the asserted allegations affect “the fair and efficient administration of justice”

In re NNN 400 Capitol Center LLC (cont’d)Court Analyzes Rule 2014 and Section 504

• Failure to adhere to duty to disclose under Rule 2014 is grounds for disqualification and/disgorgement of fees. However, disqualification for failure to fully disclose is not required in all cases.

• Disqualification here would deprive the Plaintiffs of chosen counsel with the most knowledge and understanding of the facts

• Even with full disclosure, the retention application would not have been denied since Florida allows law firms to operate under fictitious names and the Rubins are not bankruptcy practitioners

• The firms operating under Rubin & Rubin umbrella are for all intents and purposes a partnership, with fee sharing among its partners, not impermissible fee sharing arrangement

• The Lawyers were directed to update disclosures but were barred from collecting fees to comply with disclosure requirements, had to disgorge prior fees relating to disclosures, and had to pay attorneys’ fees incurred by Defendants’ attorneys

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In re Lewis Road, LLCFacts and Background (cont’d)

• In December 2010, a dispute arose between the Debtor and its tenant on the Parcels over return of the property to the Debtor following expiration of the lease.

• To resolve the dispute, the tenant agreed to transfer an adjacent lot to the Debtor and to pay the Debtor $350,000, of which $74,000 was to go to Talley for its attorneys’ fees and $25,000 to the Debtor for maintenance of the Parcels (the “Settlement”).

• The Debtor sought and obtained approval of the Settlement.• After approval of the Settlement, the Debtor sought approval of an offer to purchase the Parcels (the

“Proposed Sale”). • At the hearing to approve the potential sale, the UST informed the Court that it had recently learned that the Firm

had been representing both the Debtor and Talley during the bankruptcy case including during the negotiation of the Settlement.

In re Lewis Road, LLC,2011 WL 6140747 (Bankr. E.D. Va. Dec. 29, 2011)

Facts and Background• The Debtor filed a Chapter 11 petition in February 2009.

• The Debtor’s only assets consisted of two parcels of land (the “Parcels”) with lenders secured by the Parcels, EVB and Talley.

• In December 2009, Debtor retained Ayers & Stolte as counsel (the “Firm”).

• The Firm disclosed in its application that it had a connection with “a creditor” and that “[t]his potential conflict of interest has been waived . . .” but never filed a verified statement as required by Bankruptcy Rule 2014.

• The Firm “did not provide with its Application any information concerning the identity, nature, or scope of its ‘connections with a creditor’ nor did it provide any information concerning the waiver of the ‘potential conflict.’”


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In re Lewis Road, LLC (cont’d)Facts and Background (cont’d)

• The court appointed a Chapter 11 Trustee (the “Trustee”) and, after appointment of the Trustee, the Firm filed an application for compensation in representing the Debtor in the 9019 settlement.

• The Trustee and the U.S. Trustee objected and filed a Rule 60(b) motion seeking relief to prevent paying the Firm compensation for representing Debtor and the 9019 settlement money owed to Talley for its attorneys’ fees.

• At the hearing, the Court learned for the first time, that Charles Ayers held a 1/3 participation interest in Talley in the debt owed by Debtor to Talley.

• The U.S. Trustee also provided evidence that Talley never received the $74,000 under the Settlement Agreement because it had been paid to the Firm without Talley’s knowledge or consent, and that the Firm also retained the $25,000 that was supposed to go to the Debtor for maintenance of the Parcels.

• Finally, the U.S. Trustee also questioned whether the Firm’s time entries had been reconstructed to justify earlier payments.

In re Lewis Road, LLC (cont’d)Facts and Background (cont’d)

• In response, Alexander Ayers of the Firm explained that his father, Charles Ayers, had not been retained to represent Talley when the Firm filed its application for employment and that he believed it was not necessary to disclose the representation because “everyone was working together to achieve a positive resolution of this matter.”

• Further, counsel for EVB informed the court that the Firm claimed to have received an opinion from the Virginia State Bar permitting the joint representation of the parties with their consent. At the end of the hearing, the Court approved the Proposed Sale.

• The Court also issued an order to the Debtor to show cause why a Chapter 11 Trustee should not be appointed and set an evidentiary hearing on the matter (the “Show Cause Hearing”).

• Prior to the Show Cause Hearing, the Firm filed a letter with the Court attempting to justify its failure to disclose its dual representation during the bankruptcy case on three grounds: 1) the Court knew of the dual representation because both lawyers at the Firm had appeared at a prior hearing each representing different parties, 2) the Firm had disclosed connections to a “creditor” in the Application, and 3) the Firm had obtained a waiver from each client.

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In re Lewis Road, LLCCourt Analysis and Ruling

• The Court also granted the Trustee relief based on the catch-all provision in Rule 60(b)(6) used, “if such action is appropriate to accomplish justice.”

• The Court found that the Firm received the $74,000 payment for attorneys’ fees before the entry of the 9019 Order, and therefore was not authorized.

• In addition, the Court inferred that the Firm likely fabricated its billing records to justify the payment. • Finally, the Court found that the Firm violated the 9019 Order by taking the $25,000 meant for

Debtor to hold for maintenance. The Court held that relief under Rules 60(b)(3) and 60(b)(6) shall be granted and that Ayers must disgorge the $74,000 and the $25,000 to the Trustee.

In re Lewis Road, LLC• In its analysis, the Court considered the Trustee’s request for relief under Rule 60(b)

• Rule 60(b)(3) “permits a court to relieve a party from final judgment, order, or proceeding for fraud, misrepresentation, or misconduct by an opposing party.”

• To win on this ground, the movant must have (1) a meritorious defense, (2) been prevented from fully presenting defense before entry of judgment, and (3) been so prevented because of adverse party’s fraud, misrepresentation, or misconduct. The Trustee satisfied all three.

• Meritorious Defense - the Court held that the Firm had an adverse interest to Debtor by concurrently representing Talley, a secured creditor of theDebtor with a lien in property of the estate, and

• Prevented from Being Considered before Judgment - failed to properly disclose its connections with Talley, which would have informed the Court of the conflict much earlier.

• Prevented from Being Discovered because of Misrepresentation - The Firm failed to submit a verified statement of its connections, which is a per se violation of Rule 2014. The Firm’s application acknowledging its connection to a creditor was also too vague and failed to fully explicate its connections.

• The Firm’s conflict waiver not helpful - the conflict could not be waived under Virginia Rule of Professional Responsibility 1.7. Even if the waiver was effective, Ayers still had to meet the Section 327 requirements for employment.


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BEST PRACTICES

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A. Applicable Bankruptcy Code Sections and Bankruptcy Rules

Employment and payment of bankruptcy professionals is governed by various provisions of the Bankruptcy Code and Bankruptcy Rules. The primary Bankruptcy Code Sections are 327, 329, and 330, although other Sections also apply (e.g., 11 U.S.C. § 504). The Bankruptcy Rules are generally 2014 and 2016. Also, bankruptcy courts often have local rules that govern employment and compensation of attorneys.

The process for employment and payment differs slightly depending on the chapter of the Code under which the case is filed. For example, Bankruptcy Code Section 327 applies to employment of estate professionals (e.g., chapter 11 debtor’s counsel, chapter 7 trustee’s counsel) but does not apply to debtor’s counsel in a chapter 7 case. However, all attorneys must comply with Bankruptcy Rule 2016(b), which requires disclosure of compensation by attorneys within fourteen (14) days of the case being filed. Furthermore, various jurisdictions have adopted local rules containing district specific requirements that govern employment of professionals. See, e.g., Rule 2016-1, Local Rules for the District of Delaware (requiring a professional to disclose all compensation received within one year before the petition date for services rendered in contemplation of or in connection with the case and the source of such compensation; Rule 2015-1 of the Local Rules for the District of Maryland (governs compensation by debtor in chapter 11); Rule 2014-1(b)(1), Local Rules for the Southern District of Texas (requiring applications to be employ to be filed within 30 days if the professional seeks nunc pro tunc employment). Chapter 13 lawyers need to be familiar with the “no look” fee rules that are adopted in the various jurisdictions. See, e.g., Standing Order No. 17-2 (Bankr. E.D. Va.); App’x F to the Local Rules for the U.S. Bankruptcy Court for the District of Maryland entitled “Chapter 13 Debtor’s Counsel Responsibilities and Fees” (setting forth various fee arrangements that are pre-approved by the Court). Finally, counsel must be mindful of any United States Trustee’s Guidelines that may be applicable. See, e.g., “Guidelines Reviewing Applications for Compensation filed under 11 U.S.C. § 330 in (1) Larger Chapter 11 Cases by those Seeking Compensation Who are not Attorneys, (2) all Chapter 11 Cases Below the Larger Case Thresholds, and (3) cases under other chapters of the Bankruptcy Code” and “Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses Filed under 11 U.S.C. § 330 for Attorneys in Larger Chapter 11 Cases” which can be found at the following website: www.justice.gov/ust/fee-guidelines.

B. In re Boy Scouts of America, et al., Case No. 20-10342 (LSS) (Bankr. D. Del. May 29, 2020) (the “BSA Op.”)

In this Chapter 11 case, Century Indemnity Company (“Century”), an insurer of the Debtors, filed a motion to disqualify Sidley Austin (“Sidley”) as Debtors’ lead restructuring counsel based on Sidley’s prior representation of Century. After briefing and an evidentiary hearing, the Court denied Century’s motion to disqualify.

In 2015, Chubb, Century’s parent company, retained Sidley’s insurance group for reinsurance matters. In 2018 and 2019, Century hired Sidley for reinsurance matters relating to Debtors. In January 2020, Sidley informed Century and Chubb of its intention to withdraw from


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all representations and stated the last matter withdrawal will occur in February 20 or February 24. In February 18, 2020, Debtors filed their bankruptcy petition and retained Sidley as counsel.1

Century argued that Debtors cannot retain Sidley because Sidley could not satisfy the requirements of Section 327 because it had violated Rule 1.7 of the Model Rules of Professional Responsibility by representing Century against another client, the Debtors. BSA Op. at 2. Sidley argued made the following arguments in support of its retention:

(1) Rule 1.9 is the controlling ethics, not Rule 1.7, as Century is a former client, and Sidley does not need a waiver as representation of Debtors’ restructuring is not substantially related to Sidley’s previous representation of Century;

(2) it does not represent an adverse interest and is disinterested; and

(3) it was never adverse to Century while Century was still a client because Haynes & Boone represented Debtors’ insurance matters related to restructuring. Debtors argued they would be substantially prejudiced if they had to retain new counsel.

BSA Op. at 3.

In its analysis, the Court found that Section 327(a) creates a two-part test, a professional (1) may not hold or represent an adverse interest, and (2) must be disinterested. BSA Op. at 3. The Court followed the Third Circuit’s holdings in In re BH&P, 949 F.2d 1300 (3d Cir. 1991), In re Pillowtex, Inc., 304 F.3d 246 (3d Cir. 2002), and In re Marvel Entertainment Group, 140 F.3d 463 (3d Cir. 1998) that Section 327 does not vindicate the rights of non-debtors. The Court noted that the two-part test in Section 327 is written in the present tense, and therefore does not apply to prior representations. As Sidley’s representation of Century had ended, Sidley did not hold an interest adverse to the Debtors. Furthermore, the Court also found that Sidley could adequately represent the interest of the estates. The Court found that Century is not a current client and therefore Sidley satisfied the two-part test of Section 327. BSA Op. at 5

Even though the Court found that Sidley met the retention requirements of Section 327, Chubb also argued that the Court should disqualify Sidley because “insurance issues in a mass tort case are so pervasive that Sidley’s inability to adverse to Chubb means Sidley’s retention cannot be approved.” BSA Op. at 5-6. Thus, the Court also considered whether Sidley’s engagement ran afoul of either Rule 1.7 or 1.9 of the Rules of Professional Responsibility. As discussed above, Rule 1.7 protects current clients and is not applicable. Rule 1.9, however, applies to former clients and prevents a lawyer from representing a new client adverse to a former client on a “substantially related” matter. Courts generally look at three factors to analyze whether a “substantial relationship” exists:

(1) the nature and scope of the prior representation;

(2) the nature and scope of the current representation; and

1 Sidley represented the Debtors in restructuring matters since approximately early 2019, although it

obtained no conflict waiver from either the Debtors or Chubb/Century.

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(3) the possibility that the former client disclosed confidences to his attorney in the prior representation which could be relevant to the current action and used to the detriment of the former client in the current action.

BSA Op. at 8. After reviewing the evidence, the Court held that Sidley’s previous representation might be substantially related to some aspects of Debtors’ bankruptcy cases. However, the Court found no conflict issue because Debtors retained Haynes & Boone as counsel for insurance matters before the bankruptcy filing and Sidley placed an ethical screen between its insurance group and restructuring group so that confidential information could not pass between the two.2

In perhaps the Court’s most crucial statement, the judge concluded that, “this decision is consistent with the numerous cases cited to me addressing disqualification of counsel [. . . .] Indeed, I was surprised by the overwhelming body of case law [. . .] in which courts deny disqualification motions in the face of what appear to be obvious conflicts.” BSA Op. at 13. The Court therefore denied Century’s motion to disqualify Sidley as Debtors’ lead counsel.

C. In re D.C. Diamond Corp., Case No. 12-16730-BFK (Bankr. E.D. Va. Oct. 7, 2019) (“D.C. Diamond Op.”)

In 2012, the Debtor, a real estate investment company, filed a Chapter 11 bankruptcy. D.C. Diamond Op. at 2. In 2013, Debtor hired Weber Rector (“Weber Rector”), a commercial real estate brokerage firm, to market and sell its properties. In 2015, the Debtor’s case converted to Chapter 7. D.C. Diamond Op. at 3. The Chapter 7 Trustee employed Weber Rector to continue its work selling the Debtor’s properties.

In February 2016, Weber Rector listed for sale a property on Lucky Hill road (the “Lucky Hill Property”). Thomas Hugill (“Hugill”) learned of Lucky Hill Property and inquired about it from his friend, Chuck Rector who owned a 50% interest in Weber Rector. Hugill offered to buy the Lucky Hill Property and eventually settled with the Trustee to purchase it and additional properties for $1.55 million (the “Parcels”). D.C. Diamond Op. at 7.

In August 2019, the Court held a hearing on approval of the sale of the Parcelsand an objection filed by a creditor. Id. At the hearing, Weber Rector disclosed for the first time that, in addition to representing the Trustee, it also represented Hugill in the sale of the Quarry Road property, the proceeds of which would be used to acquire the Parcels in a Section 1031 exchange. The Court approved the sale. The Court also issued an order directing Weber Rector to supplement its 2014 disclosures and set a hearing to consider whether Weber Rector was “disinterested” in light of its work for Hugill. Id.

Weber Rector argued that it did not act as a dual agent pursuant to Virginia law because it did not represent Hugill in this transaction. Milic argued that it is likely Weber Rector shared

2 The Court noted that “retroactive ethical screen may not work for purposes of violations of the Rules of

Professional Conduct” leaving open whether Sidley may have violated a Rule of Professional Conduct by simultaneously representing Chubb and the Debtors prior to the screen being established on November 4, 2019. BSA Opinion at 11-12


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confidential information to Hugill during sale negotiations. D.C. Diamond Op. at 9. The Court agreed that Weber Rector did not act as a “dual” agent. Id.

The Court noted that Section 327(a) “requires more” in that all professionals employed by Trustee should be “disinterested,” meaning that a broker cannot hold or represent an interest adverse to the bankruptcy estate. Weber Rector’s representation of Hugill on a sale of the Quarry Road property put it adverse to the estate because Hugill could refuse to buy the Parcels if the Quarry Road sale didn’t close. D.C. Diamond Op. at 9-10. Furthermore, Bankruptcy Rule 2014(a) required Weber Rector to disclose all connections with the debtor, creditors, and any other parties-of-interest, which it failed to do. While the Court agreed with Weber that it did not act as a dual agent, that alone did not mean that Weber Rector met the “disinterested” standard. The Court, therefore found that Weber did not meet the disinterested test, therefore, was not entitled to its commission. D.C. Diamond Op. at 9-10. The Court went further, terminating Weber Rector’s employment by Trustee. The Court stated that it did not find any fraud, however it still lacked confidence in Weber Rector based on its disclosure deficiencies. D.C. Diamond Op. at 10.

D. In re Lewis Road, LLC, 2011 WL 6140747 (Bankr. E.D. Va. Dec. 29, 2011) (“Lewis Road Op.”)

The Debtor filed a Chapter 11 petition in February 2009. At the time of filing, the Debtor’s only assets consisted of two parcels of land (the “Parcels”). EVB and Talley had liens against the Parcels. Lewis Road Op., * 1.

In December 2009, Debtor retained Ayers & Stolte as counsel (the “Firm”). Lewis Road Op., * 1. In its application to be employed, the Firm disclosed that it had a connection with a with “a creditor” and that “[t]his potential conflict of interest has been waived . . . .” Id. The Firm never filed a verified statement as required by Bankruptcy Rule 2004. Moreover, the Firm “did not provide with its Application any information concerning the identity, nature, or scope of its ‘connections with a creditor’ nor did it provide any information concerning the waiver of the ‘potential conflict.’” Lewis Road Op., * 2.

In December 2010, a dispute arose between the Debtor and its tenant on the Parcels over return of the property to the Debtors following expiration of the lease. Id. To resolve the dispute, the tenant agreed to transfer an adjacent lot to the Debtor and to pay the Debtor $350,000, of which $74,000 was to go to Talley for its attorneys’ fees and $25,000 to the Debtor for maintenance (the “Settlement”). Id. The Debtor sought and obtained approval of the Settlement under Bankruptcy Rule 9019. Id.

After approval of the Settlement, the Debtor sought approval of an offer to purchase the Parcels (the “Proposed Sale”). Id. At the hearing to approve the potential sale, the UST informed the Court that it had recently learned that the Firm had been representing both the Debtor and Talley during the bankruptcy case including during the negotiation of the Settlement. Id.

In response, Alexander Ayers explained that his father, Charles Ayers, had not been retained to represent Talley when the Firm filed its application for employment and that he believed it was not necessary to disclose the representation because “everyone was working together to achieve a positive resolution of this matter.” Lewis Road Op., * 3. Further, counsel for EVB informed the court that the Firm claimed to have received an opinion from the Virginia State

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Bar permitting the joint representation of the parties with their consent. Id. At the end of the hearing, the Court approved the Proposed Sale. The Court also issued an order to the Debtor to show cause why a Chapter 11 Trustee should not be appointed and set an evidentiary hearing on the matter (the “Show Cause Hearing”). Id.

Prior to the Show Cause Hearing, the Firm filed a letter with the Court attempting to justify its failure to disclose its dual representation during the bankruptcy case on three grounds: 1) the Court knew of the dual representation because both lawyers at the Firm had appeared at a prior hearing each representing different parties, 2) the Firm had disclosed connections to a “creditor” in the Application, and 3) the Firm had obtained a waiver from each client. Lewis Road Op., * 3.The Firm did not present any evidence at the Show Cause Hearing and the court appointed a Chapter 11 Trustee (the “Trustee”). Id.

After appointment of the Trustee, the Firm filed an application for compensation in representing the Debtor in the 9019 settlement. Id. The Trustee and the U.S. Trustee objected and filed a Rule 60(b) motion seeking relief to prevent paying the Firm compensation for representing Debtor and the 9019 settlement money owed to Talley for its attorneys’ fees. Id. At the hearing, the Court learned for the first time, that Charles Ayers held a 1/3 participation interest in Talley in the debt owed by Debtor to Talley. Lewis Road Op., * 4. The U.S. Trustee also provided evidence that Talley never received the $74,000 under the Settlement Agreement because it had been paid to the Firm without Talley’s knowledge or consent, and that the Firm also retained the $25,000 that was supposed to go to the Debtor for maintenance of the Parcels. Id. Finally, the U.S. Trustee also questioned whether the Firm’s time entries had been reconstructed to justify earlier payments.

In its analysis, the Court found that Trustee was entitled to its Rule 60(b) relief because Ayers violated § 327 of the Bankruptcy Code and was thus not entitled to compensation. Lewis Road Op., * 5. Rule 60(b)(3) relief is an exception to the general policy of favoring final judgments and the movant must meet the following four threshold requirements by demonstrating, (1) timeliness of the motion, (2) lack of unfair prejudice to opposing party, (3) a meritorious defense, and (4) exceptional circumstances. Lewis Road Op., * 7. If the threshold requirements are met, movant must satisfy one of the six specific grounds in Rule 60(b) for relief to be granted. The one relied on by Trustee is Rule 60(b)(3) which, “permits a court to relieve a party from final judgment, order, or proceeding for fraud, misrepresentation, or misconduct by an opposing party.” To win on this ground, the movant must have (1) a meritorious defense, (2) been prevented from fully presenting defense before entry of judgment, and (3) been so prevented because of adverse party’s fraud, misrepresentation, or misconduct. Id..

In finding that Trustee had a meritorious defense, the Court held that the Firm had an adverse interest to Debtor by concurrently representing Talley, a secured creditor of the Debtor with a lien in property of the estate. Id. The Firm failed to properly disclose its connections with Talley, which would have informed the Court of the conflict much earlier. While the Court acknowledged that a professional under §327 is not disqualified solely because of its connections with a creditor, the Trustee timely objected and the Court found an actual conflict existed. Lewis Road Op., * 8. The Court found the Firm’s failure to properly disclose its connections to Talley prevented that issue from being considered by the Court before the 9019 Order. The Firm failed to submit a verified statement of its connections, which is a per se violation of Rule 2014. The Firm’s application acknowledging its connection to a creditor was also too vague and failed to fully


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explicate its connections. Lewis Road Op., * 9. Ayers’ purported conflict waiver did not save it either because the conflict could not be waived under the Virginia Rules of Professional Responsibility. Va. R. of Prof. Conduct 1.7. Lewis Road Op., * 10. And, the Court further held, even if the waiver was effective, Ayers still had to meet the Section 327 requirements for employment. Id.

The Court also granted the Trustee relief based on the catch-all provision in Rule 60(b)(6) used, “if such action is appropriate to accomplish justice.” Lewis Road Op., * 13. The Court found that the Firm received the $74,000 payment for attorneys’ fees before the entry of the 9019 Order, and therefore was not authorized. Lewis Road Op., * 14. In addition, the Court inferred that the Firm likely fabricated its billing records to justify the payment. Finally, the Court found that Ayers violated the 9019 Order by taking the $25,000 meant for Debtor to hold for maintenance. The Court held that relief under Rules 60(b)(3) and 60(b)(6) shall be granted and that Ayers must disgorge the $74,000 and the $25,000 to the Trustee.

E. NNN 400 Capitol Center LLC v. Wells Fargo Bank, N.A., et al., Adv. Pro. No. 18-50384, (Bankr. D. Del.)

In NNN Capitol Center LLC v. Wells Fargo Bank, N.A., et al, Adv. Pro. No. 18-50384, Dorsey, J. (August 9, 2019), the Defendants took the deposition of one of the Debtor attorneys in connection with his work for the Debtor in an effort to determine the legitimacy of Plaintiffs' assertion of attorney-client privilege over numerous documents and testimony. During his deposition, Debtors’ attorney testified that Debtor’s Florida law firm was not an actual legal entity, but, rather, a "fictitious trade name". Concerned about whether proper disclosure was made in connection with the Debtors’ attorneys’ retention, the Court requested briefing on what impact this information had on the retention of Debtors’ attorneys.

Defendants sought an order disqualifying Debtors’ attorneys from the case and disgorgement of all fees paid to date.

The State of Florida's "Fictitious Name" statute provides that a person may engage in business under a fictitious name if the name is properly registered with the Florida Division of Corporations. The statute further provides that a fictitious name can include the term "P.A." if the person or business for which the name is registered is organized as a professional corporation.

The Court had entered an order approving the retention of the Debtors’ Florida law firm on March 1, 2017. The retention application and verified statement made no mention that the law firm was a fictitious trade name, nor did it identify any of the actual firms that operated under the fictitious name umbrella. The application also failed to disclose that two other attorneys, who would be working with the Debtor’s retained law firm.

The Court held that Bankruptcy Rule 2014 is the mechanism by which the Court enforces the provisions of Bankruptcy Code section 327. Rule 2014(a) requires, in relevant part, that: The application shall state the specific facts showing the necessity for the employment, name of the person to be employed, the reasons for the selection, the professional services to be rendered, any

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proposed arrangement for compensation, and, to the best of the applicant's knowledge, all of the person's connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee. Fed. R. Bankr. P.2014(a).

The Court noted that the disclosure mandated under Rule 2014 "goes to the heart of the integrity of the bankruptcy system". In re B.E.S, Concrete Prods., Inc.,93 B.R. 228, 236 (Bankr. E.D. Cal. I 988). The Court held that disclosure under Rule 2014 is of the upmost importance, as it allows the bankruptcy court to make an informed decision on whether employment of the particular professional is in the best interest of the estate. In re eToys, Inc.,33l B.R. 176, 189 (Bankr. D. Del. 2005) ("the duty to disclose under Bankruptcy Rule 2014 is considered sacrosanct because the complete and candid disclosure by an attomey seeking employment is indispensable to the court's discharge of its duty to assure the attorney's eligibility for employment"). Indeed, the professional must disclose all potential and actual connections, "not pick and choose which to disclose and which to ignore." In re Universal Bldg. Products, 486 B.R. 650, 663 (Bankr. D. Del. 2010).

Defendants’ attorneys conceded that they provided the court with "inaccurate information" in their application for retention. The Court found that Debtors’ attorneys should have clearly identified that the law firm sought to be retained was a fictitious trade name, it should have identified the different attorneys and law firms operating and associating under the fictitious trade name.

The Court held that duty to disclose under Rule 2014 is so important that the failure to disclose is an independent ground for disqualification and/or disgorgement of fees. In re Universal Bldg. Products, 486 B.R. at 663. ("[f]ailure to disclose connections itself is enough to warrant disqualification of counsel from employment."); In re Filene's Basement, Inc. 239 B.R. 845 (Bankr. D. Mass. 1999) (false Rule 2014 disclosure alone justified disqualification). However, the Court noted that disqualification for failure to fully disclose under Rule 2014 is not required in all cases. The bankruptcy court's power to disqualify a professional derives from its inherent authority to supervise the professionals in proceedings before it, and the exercise of such authority is within the sound discretion of the bankruptcy court. U.S. v. Miller,624 F.2d I198, 1201 (3rd Cir. 1980); Accord In re Leslie Fay Companies, Inc. 175 B.R. 525,663 (Bankr. S.D.N.Y. 1994) (declining to disqualify counsel but imposing economic sanctions for failure to adequately disclose).

Therefore the Court held that although it was clear that the disclosures filed in the retention of Debtors’ attorneys were defective, the Court did not disqualify counsel or require them to disgorge their fees. The Court said disqualification would deprive the Plaintiff Debtors of their chosen counsel, who have the most knowledge and understanding of the facts surrounding the proceeding. Moreover, even if all of the information had been properly disclosed, the Court did not believe that the application for employment would have been denied. The Defendants’ attorneys had been practicing in the State of Florida under the fictitious trade name for nearly 30 years. In Florida, it was legal to operate a law firm under a fictitious name in Florida. It was also not lost on the Court that these Debtors’ attorneys were not bankruptcy practitioners-and thus not accustomed to the


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stringent disclosure requirements mandated by the Bankruptcy Rules. The Court determined that the attorneys likely had no intent to deceive the court when they failed to adequately disclose the attorneys and entities that practice under the umbrella of the fictitious trade name.

Defendants also asserted that because the officially retained Debtors’ attorneys were a fictitious entity made up of separate law firms, the payment of fees to that fictitious entity constituted impermissible fee sharing. Section 504 of the Bankruptcy Code provides, in relevant part, that a professional receiving compensation from estate assets shall not share or agree to share that compensation with another person, unless that person is a member, partner, or regular associate of the professional's firm. 11 U.S.C. $ 504(a)-(b). Debtors’ attorneys argued that certain of the attorneys merely acted in an "of counsel" relationship and should be considered as employees of the firm for purposes of sharing compensation under section 504.

In Lemonedes v. Balaber-Strauss (In re Coin Phones, lnc.),226 B.R. 131,132 (S.D.N.Y. 1998), an attorney who was retained by a law firm to work on a case-by-case basis, each instance effectuated by a separate agreement. In In re Worldwide Direct Inc.,316 B.R. 637,648 (Bankr. D. Del. 2004), a law firm hiring temporary associate attorney employees through a staffing agency were held to be regular associates because the law firm directly supervised the attorneys and provided everything necessary to do the work. Though informative, the Court held that neither of these cases were directly on point.

The Court ultimately determined that the primary attorneys and the two primary law firms operating under the fictitious name were two distinct legal entities, but they shared the same office space and as a matter of longstanding practice, regularly represented themselves to the public one entity, which was the name displayed outside of the office building. Furthermore, the record established that the fees shared on every case were based on the hours each put into the case, as opposed to a retainer or a referral fee. The Court concluded that the two firms operating under the fictitious name were for all intents and purposes a partnership, with fee sharing among its partners. Thus, the Court found no impermissible fee sharing arrangement.

However, the negligent failure to disclose did not relieve the Debtors’ attorneys from the consequences of failing to make a fulsome and accurate disclosure. In re Hathaway Ranch Partnership, 116 B.R. 208,219-220 (Bankr. C.D. Cal. 1990); see also In re B.E.S Concrete Products, Inc., 93 B.R. at 237 ("Negligent omissions do not vitiate the failure to disclose."). While the Court was not willing to disqualify counsel, the Court exercised its inherent authority to supervise the professionals appearing before it and imposed sanctions. The attorneys were required to update their disclosures to provide full and accurate information. No fees would be allowed for updating the disclosures, and any fees collected by Debtors’ attorneys related to the initial disclosures were to be disgorged. The attorneys were to provide the Court with a sworn statement outlining the amount to be refunded to the Debtors within five (5) business days. Moreover, the Debtors’ attorneys were required to pay the Defendants' attorneys' fees and costs in bringing the Motion.

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Judicial Round-and-Round

Judicial Round-and-Round

Hon. Andrew AltenburgU.S. Bankruptcy Court (D. N.J.) | Camden

Hon. Ashely M. ChanU.S. Bankruptcy Court (E.D. Pa.) | Philadelphia

Hon. Jeffery A. DellerU.S. Bankruptcy Court (W.D. Pa.) | Pittsburgh

Hon. Eric L. FrankU.S. Bankruptcy Court (E.D. Pa.) | Philadelphia

Hon. Robert E. GrossmanU.S. Bankruptcy Court (E.D.N.Y.) | New York

Hon. Patricia M. MayerU.S. Bankruptcy Court (E.D. Pa.) | Reading

Hon. Jerrold N. Poslusny, Jr.U.S. Bankruptcy Court (D. N.J.) | Camden

Hon. Brendan L. ShannonU.S. Bankruptcy Court (D. Del.) | Wilmington

Hon. Christopher S. SontchiU.S. Bankruptcy Court (D. Del.) | Wilmington

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Materials for this panel may be distributed on

the day of the event and/or online at materials.abi.

org.

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Faculty Biographies

Faculty Biographies


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Hon. Andrew B. Altenburg, Jr. is a U.S. Bankruptcy Judge for the District of New Jersey in Cam-den, appointed on May 19, 2014. Prior to his appointment, he clerked for Hon. Daniel J. Moore, U.S. Bankruptcy Judge for the District of New Jersey in Newark; was an associate with the firm of Davis, Reberkenny & Abramowitz in Cherry Hill, N.J.; and was the sole shareholder of Andrew B. Alten-burg, Jr., Esquire P.C. in Marlton, N.J.

Hon. Ashely M. Chan is a U.S. Bankruptcy Judge for the Eastern District of Pennsylvania in Phila-delphia. Prior to taking the bench, she was a shareholder at Hangley Aronchick Segal Pudlin & Schiller and concentrated her practice in the areas of bankruptcy and corporate restructuring. From 1996-97, Judge Chan clerked for Hon. Gloria M. Burns of the U.S. Bankruptcy Court for the District of New Jersey. Before joining HASPS, she was an associate at Morgan, Lewis & Bockius LLP in its business and finance section, where she focused on bankruptcy, corporate restructuring and corporate finance. Judge Chan has received numerous recognitions, including being selected as a Leader in Bankruptcy/Restructuring by Chambers USA, being listed in The Best Lawyers in America for Bank-ruptcy and Creditor-Debtor Rights, and being listed as a Pennsylvania Lawyer on the Fast Track by The Legal Intelligencer and Pennsylvania Law Weekly. She also served as chair of the Eastern District of Pennsylvania Bankruptcy Conference and president-elect and board member of the Homeless Ad-vocacy Project. Judge Chan received her J.D. in 1996 from Rutgers School of Law – Camden, where she received Tax Honors with Distinction and the Rutgers Pro Bono Publico Award.

Andrea E. Colender is general counsel and corporate secretary with Severn Bank in Annapolis, Md., and focuses on banking and financing, regulatory compliance and corporate governance. She provides concierge-level banking services for attorneys, including escrow account services, 1031 ex-changes, trusts, estates, guardianships, receiverships, deposit account control agreements, and debtor-in-possession accounts in Maryland and Delaware. Ms. Colender helped establish Severn Bank’s medical cannabis banking program and assists in its implementation. She recently launched Severn Bank’s first advisory board, which is comprised of all women, to help promote the financial success of women in business. Ms. Colender received her B.A. from New College of the University of South Florida in 1985 and her J.D. with honors from the University of Maryland School of Law in 1988.

G. David Dean is the head of Cole Schotz P.C.’s Wilmington, Del., office and deputy co-chair of the firm’s Bankruptcy & Corporate Restructuring Department. He focuses in the areas of complex chap-ter 11 bankruptcy restructuring and litigation, and regularly serves as lead counsel to debtors, official committees of unsecured creditors, and other major parties in chapter 11 bankruptcy cases. Mr. Dean has represented clients in a variety of industries including retail, health care, oil and gas, technology, manufacturing, real estate, advertising, and events and entertainment. He is an active member of ABI and an advisory board member for its Mid-Atlantic Bankruptcy Workshop. Mr. Dean works on pro bono representations and is regularly recognized for his work by Chambers USA and The Best Law-yers in America. He was previously named a “Rising Star” by Super Lawyers and was named in M&A Advisor’s “40 Under 40 Legal Advisors.” Mr. Dean received his B.A. in 1999 from the University of Maryland and his J.D. summa cum laude in 2002 from the University of Baltimore.

Hon. Jeffery A. Deller is a U.S. Bankruptcy Judge for the Western District of Pennsylvania in Pitts-burgh, appointed in 2005. Prior to his appointment, he was a shareholder in the bankruptcy and insol-vency practice group at Klett Rooney Lieber & Schorling, P.C. While in private practice, some of his


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cases included representing the University of Pittsburgh Medical Center Health System (UPMC) in connection with its $100 million acquisition of the assets of St. Francis Hospital, serving as counsel to the unsecured creditors’ committees of various chapter 11 cases (including the cases filed by National Record Mart and Arcadia Energy Corp.), and serving as advisor to most of the Pittsburgh region’s banks and financial institutions with respect to bankruptcy and loan workout matters. Judge Deller is a prior recipient of the Allegheny County Bar Association’s Young Lawyer of the Year Award. He authored Looking Before You Leap Into an Involuntary Bankruptcy Case, 171 N.J. L. J. 446 (2003), and Examining the Examiner: Waiver Of the Attorney-Client Privilege and the Outer Limits of an Ex-aminer’s Powers in Bankruptcy, 43 Duq. L. Rev. 187 (2005), and co-authored “Putting Order to the Madness: BAPCPA and the Contours of the New Pre bankruptcy Credit Counseling Requirements,” 16 J. Bankr. L. & Prac. 1 Art. 5 (2007). He is also a contributing author to West’s Pennsylvania Forms: Debtor-Creditor, a forms guide and treatise for practitioners. Judge Deller received his B.A. in economics and political science from the University of Pittsburgh and his J.D. cum laude from Duquesne University School of Law, where he served as a member of The Duquesne Law Review and was the recipient of the American Bankruptcy Law Journal Prize awarded by the National Confer-ence of Bankruptcy Judges and the Gerald K. Gibson Memorial Award granted by the Bankruptcy and Commercial Law Section of the Allegheny County Bar Association.

Brett D. Fallon is a partner at Morris James LLP in Wilmington, Del., in its Bankruptcy and Credi-tor’s Rights practice group, and has over 30 years of litigation experience in all Delaware courts. His record includes a list of almost 100 published court decisions indexed by Lexis or Westlaw, including many seminal issues in bankruptcy and corporate law. Mr. Fallon represents the full range of parties in bankruptcy proceedings and litigates complex commercial disputes in the Court of Chancery, Su-perior Court and the U.S. District Court. Chambers USA has recognized him as a leader in Delaware Bankruptcy/Restructuring every year since 2010. He is also a Fellow of the American Bar Founda-tion and a member of ABI and its Mid-Atlantic Bankruptcy Workshop Advisory Board, the Delaware State Bar Association and the American Bar Association. Mr. Fallon received his B.A. summa cum laude and Phi Beta Kappa in 1983 from Duke University and his J.D. with honors in 1986 from Duke University Law School.

Hon. Eric L. Frank is a U.S. Bankruptcy Judge for the Eastern District of Pennsylvania in Philadel-phia, initially appointed in February 2006 and appointed Chief Judge from March 2013 to February 2018. Prior to taking the bench, he was a shareholder in DiDonato and Winterhalter, P.C., a partner in Miller, Frank & Miller and a supervising attorney at Community Legal Services, Inc. in Philadelphia. From 1998 to 2005, Judge Frank served as a member of the federal Judicial Conference Advisory Committee on the Federal Rules of Bankruptcy Procedure, where he served as chair of the subcom-mittee with primary responsibility for drafting numerous rules and forms amendments required by the enactment of BAPCPA in 2005. He is a past chair of the Steering Committee of the Eastern District of Pennsylvania Bankruptcy Conference and a past president of the board of directors of the Consumer Bankruptcy Assistance Project in Philadelphia, which provides referrals and representation in chapter 7 bankruptcy cases to low-income individuals on a pro bono basis. Since 1998, Judge Frank has been a contributing author to Collier on Bankruptcy. He received his B.A. from the State University of New York at Binghamton in 1973 and his J.D. from the University of Pennsylvania Law School in 1976, where he served on its law review. Following law school, he clerked for the late Justice Samuel J. Roberts of the Pennsylvania Supreme Court and for U.S. Bankruptcy Judge Bruce I. Fox.


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Hon. Robert E. Grossman is a U.S. Bankruptcy Judge for the Eastern District of New York in Central Islip, appointed in April 2008, and serves as a visiting judge in the Southern District of New York. Prior to taking the bench, he practiced in the areas of corporate law, business reorganization and litigation at Duane Morris, where a significant part of his practice focused on providing advice to troubled or newly restructured companies, as well as investors, with respect to their financing needs. Judge Grossman has extensive experience in complex bankruptcy and creditor-rights litigation for both individuals and institutions, and he has represented parties in the restructuring and transfer of assets in bankruptcy court. He is experienced in the intricacies of bankruptcy and restructuring mat-ters across a wide range of industries, including real estate and health care, and has represented bor-rowers, secured creditors, landlords and owners across the U.S. Prior to joining Duane Morris, Judge Grossman chaired the restructuring practice group of Arent Fox, directing almost 20 professionals in matters across the U.S. and in Europe. He began his legal career at the Securities and Exchange Commission in its Division of Enforcement in a group associated with the Division of Corporate Fi-nance. After leaving the SEC, he founded and served as general counsel to a large financial services company that focused on acquiring and operating distressed assets. Judge Grossman is an adjunct professor at Touro Law School and a member of the Judicial Conference of the U.S. Committee on the Administration of the Bankruptcy System and the Second Circuit Judicial Conference. He is also a past chair of the International Secured Transactions and Insolvency Committee of the American Bar Association’s Section of International Law and is a frequent speaker both in the U.S. and Europe. In addition, he is a past president of the Brooklyn Law School Alumni Association. He received his undergraduate degree from Rider University and his J.D. from Brooklyn Law School in 1973.

Jesse M. Harris is an associate in the Philadelphia office of Fox Rothschild LLP, where he focuses his practice on complex bankruptcy cases, financial restructuring and all aspects of the medical and recreational cannabis space. He represents secured and unsecured creditors, trustees, debtors and creditors’ committees. He also advises companies in need of financial restructuring outside of bank-ruptcy, provides guidance on lender workouts, and, when necessary, litigates unresolvable disputes. Named a national expert on cannabis law by Databird Research Journal, Mr. Harris understands the needs of businesses in the rapidly expanding and highly regulated market for legalized cannabis. He is part of a multidisciplinary team at Fox that provides services and guidance to legal marijuana businesses on issues including, but not limited to, licensing, shareholder and partnership agreements, banking and financial services, taxation and liability. Previously, Mr. Harris was a judicial intern to Hon. Theodore A. McKee of the U.S. Court of Appeals for the Third Circuit and Hon. Magdeline D. Coleman of the U.S. Bankruptcy Court for the Eastern District of Pennsylvania. Ha also served as a legal writing teaching assistant for first-year law students at Rutgers Law School, as well as a research assistant for the law professor Robert F. Williams. Mr. Harris is admitted to practice in Pennsylvania and New Jersey. He received his B.A. in 2013 from Rutgers University and his J.D. magna cum laude in 2017 from Rutgers Law School, where he served as executive editor of the Rutgers University Law Review and received the ABI Medal of Excellence. He also was a finalist in the Hunter Moot Court Competition.

Kathryn L. Harrison is an attorney at Campbell & Levine, LLC in Pittsburgh, where her practice is focused on the representation of commercial debtors, creditors, creditors’ committees, and trustees in chapter 7, 11 and 12 bankruptcy matters. Outside of practice, she serves as a member of the boards of directors of the Pittsburgh Action Against Rape and the Attorneys Against Hunger Committee of the Allegheny County Bar Association. In addition, she chairs the Uptown Legal Pro Bono Clinic and


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volunteers with the Homeless Experience Legal Protection Clinic. Ms. Harrison is a member of ABI, IWIRC, the Pennsylvania Bar Association’s Commercial Law Section Task Force on the Moderniza-tion of Pennsylvania’s Insolvency Laws, and the Allegheny County Bar Association’s Bankruptcy and Commercial Law Section Council. She was recently awarded a Certificate in Women’s Leader-ship from the University of Notre Dame, Mendoza College of Business, and she has been named a “Rising Star” in the area of business bankruptcy by Pennsylvania Super Lawyers every year since 2014. In addition, in 2014 she was named a finalist for the IWIRC “Rising Star” award, and in 2015, she was awarded the Jane F. Hepting Pro Bono Award by the Allegheny County Bar Foundation. Ms. Harrison received degrees from Saint Mary’s College and Notre Dame, and her J.D. from Duquesne University School of Law.

Thomas M. Horan is a partner with Fox Rothschild LLP in Wilmington, Del., in its Financial Re-structuring & Bankruptcy group. He frequently represents committees, debtors, secured lenders, trustees and unsecured creditors in complex chapter 11 cases. He also represents parties in litigation before Delaware’s Court of Chancery and Superior Court, and prepares opinion letters connected to Delaware transactions. His practice is divided between lead counsel roles and Delaware counsel en-gagements. Mr. Horan is ABI’s Vice President-Communications & Information Technology, co-chair of ABI’s Mid-Atlantic Bankruptcy Workshop, and is on the advisory board of ABI’s Views from the Bench conference. He is AV-Rated for Ethical Standards and Legal Ability by Martindale-Hubbell. Prior to joining Fox Rothschild in June 2018 via a merger with his prior firm, Shaw Fishman Glantz & Towbin LLC, Mr. Horan was a partner in Womble Carlyle Sandridge & Rice, LLP’s Wilmington, Del., office and an associate at Morris James LLP. He received his B.A. in 1989 and his M.A. in 1992 from Fordham University, and his J.D. cum laude from St. John’s University School of Law in 2002, where he was executive notes and comments editor for the ABI Law Review.

George R. Howard is a partner in the Restructuring and Reorganization Department of Vinson & Elkins in New York, where his practice involves representing debtors, creditors (including syndicated bank groups and agents), equityholders and distressed investors in all aspects of complex corporate restructurings, including chapter 11 cases, out-of-court restructurings, and special-situation invest-ments and acquisitions. Mr. Howard was honored in the 2019 class of ABI’s 40 Under 40 program and was named an Outstanding Young Restructuring Lawyer by Turnarounds & Workouts in 2019. In addition, he advised on the restructuring of Molycorp, which was recognized as 2017 Transaction of the Year: International by the Turnaround Management Association. Mr. Howard received his A.B. in German in 2002 from Princeton University, and his M.B.A. and J.D. magna cum laude in 2008 from the University of Arizona in 2008.

Christopher A. Jones is a managing partner with Whiteford Taylor & Preston, LLP in its Falls Church, Va., office, where he focuses his practice in the insolvency area, regularly dealing with finan-cial restructuring, distressed-asset transactions, business turnarounds and bankruptcy law, including related litigation. His experience includes representing all major constituencies in the distressed busi-ness arena, including companies and their owners, directors and officers, ad hoc and official commit-tees, trade creditors and vendors, and court-appointed fiduciaries. Mr. Jones has worked with clients in a variety of industries including commercial real estate, retail, automotive, government contract-ing, mortgage lending, consumer electronics, hospitality, convenience store, construction and electri-cal contracting. He has been involved in many of the “mega” chapter 11 cases filed in the Richmond,


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Va., Division, including Toys “R” Us, Gymboree, LandAmerica Financial Group, Circuit City Stores, RoomStore, Inc. and Heilig-Meyers Corp. Mr. Jones has been recognized by Chambers and Partners as a leading bankruptcy attorney in Virginia, and he has been listed in Virginia Business Magazine’s “Legal Elite – Virginia’s Best Lawyers,” The Best Lawyers in America, and as one of Washington, D.C.’s Best Lawyers (Bankruptcy) by Washingtonian Magazine. In addition to his law practice, Mr. Jones serves on the board of the Northern Virginia Bankruptcy Bar Association and is a past president of the association. He is a member of the advisory board for the ABI’s 16th Annual Mid-Atlantic Bankruptcy Workshop. Previously, Mr. Jones served as chair of the Board of Governors of the Bank-ruptcy Law Section for the Virginia State Bar and as chair of the VBA’s Bankruptcy Law Section Council. He is AV-Rated by Martindale-Hubbell. Mr. Jones received his undergraduate degree in 1992 from Duke University and his J.D. in 1996 from the University of Richmond School of Law.

Hon. Michael B. Kaplan is Chief U.S. Bankruptcy Judge for the District of New Jersey in Trenton, appointed on Oct. 3, 2006, and named Chief Judge on May 1, 2020. Prior to taking the bench, he served as a standing chapter 13 bankruptcy trustee, as well as an appointed trustee in chapter 7, 11 and 12 cases. Judge Kaplan has spoken to numerous bar associations and business organizations over the last 30 years, including the New Jersey Judicial College, National Association of Chapter 13 Trust-ees, National Association of Bankruptcy Trustees, Turnaround Management Association, New York Institute of Credit, Bloomberg, L.P., Federal Reserve Bank of Philadelphia, ABI, Pennsylvania Bar Institute and the New Jersey Institute for Continuing Legal Education. He is also an adjunct professor at Rutgers University School of Law, has authored several articles relating to bankruptcy issues and is a co-author of West’s Consumer Bankruptcy Manual and Consumer Bankruptcy Handbook. He also serves as on the editorial board and as business manager of the American Bankruptcy Law Journal. Judge Kaplan is the recipient of the National Association of Chapter 13 Trustees’ 2006 Distinguished Service Award and the New Jersey State Bar Association’s 1999 Legislative Recognition Award. He has been appointed by the Director of Administrative Office of the Courts (AO) to a term as the Third Circuit representative to the Bankruptcy Judges Advisory Group, in addition to appointments as the bankruptcy judge representative on both the Human Resources Advisory Council and Budget & Finance Advisory Council to the AO. In addition, he is an officer of the National Conference of Bankruptcy Judges and member of the Turnaround Management Association, ABI and the Com-mercial Law League of America. Judge Kaplan previously served as mayor and councilman for the Borough of Norwood, N.J., and as a member of the Norwood Planning Board. He received his A.B. from Georgetown University in 1984 and his J.D. from Fordham University School of Law in 1987.

Shanti M. Katona is a shareholder in Polsinelli PC’s Finance Services Department in Wilmington, Del., and vice chair of the firm’s national Bankruptcy and Restructuring practice. She regularly rep-resents debtors, creditors, purchasers, sellers and other interested parties in all capacities and stages. Ms. Katona has litigation experience in both federal and state courts, including fiduciary duty and avoidance action litigation. She co-chairs the Mid-Atlantic Bankruptcy Workshop and speaks fre-quently on various topics relating to bankruptcy and judgment enforcement, as well as women in the law. Ms. Katona was one of the primary drafters of the inaugural Polsinelli/TrBK Healthcare Distress Indices, which has been widely cited across industries. She also is a member of Polsinelli’s Women’s Empowerment Committee and co-wrote an article on bridging the gender gap in the restructuring industry for The Wall Street Journal. Ms. Katona is a member of the ABI’s Diversity and Inclusion Working Group, and also serves on the executive boards for the Delaware chapter for the Internation-al Women’s Insolvency & Restructuring Confederation and the South Asian Bar Association of Dela-


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ware. Prior to becoming a lawyer, Ms. Katona was a social science research analyst with the Social Security Administration working on policy initiatives relating to supplemental income programs. She was named a Delaware Super Lawyers “Rising Star” and was selected as one of the inaugural class of ABI’s “40 Under 40” in 2017. Ms. Katona received her undergraduate degree from the University of Pennsylvania and her J.D. from Washington University in St. Louis.

Stacy A. Lutkus is counsel in the Restructuring & Insolvency Practice Group at McDermott Will & Emery LLP in New York, where she focuses her practice on all aspects of complex reorganiza-tion matters. She advises clients preparing chapter 11 matters for filing and negotiating restructur-ing transactions, including distressed assets sales and purchases, debtor-in-possession financing and exit financing. Ms. Lutkus has represented debtors, hedge funds and bank lenders in the oil & gas, financial services, real estate, telecommunications, retail, and travel and gaming industries. She has extensive government experience, including her work for the U.S. Bankruptcy Court for the Southern District of New York as the lead law clerk on the Lehman Brothers chapter 11 and SIPA liquidation cases. Prior to her legal career, Ms. Lutkus spent several years working as a special agent for the U.S. Department of the Treasury in the Criminal Investigation Division of the Internal Revenue Service, where she conducted witness interviews, participated in enforcement operations, prepared special agent reports recommending prosecution, and testified in court proceedings. She also maintains an active pro bono practice, where she focuses on child advocacy, and she serves as a volunteer court-appointed Special Advocate for Children in child abuse and neglect cases. Ms. Lutkus received her B.S. magna cum laude in 1997 from Drexel University and his J.D. in 2002 from the University of Pennsylvania Law School.

Hon. Patricia M. Mayer is a U.S. Bankruptcy Judge for the Eastern District of Pennsylvania in Reading, appointed on March 11, 2020. Prior to joining the bench, she focused her practice on rep-resenting individuals and small business owners in consumer bankruptcy cases, IRS collection mat-ters and mortgage foreclosure defense. Judge Mayer is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA), for which she served as the Third Circuit Community Leader. She was also a member of the board of directors for the Consumer Bankruptcy Assistance Project (CBAP) and recently served as past chair of the Eastern District of Pennsylvania Bankruptcy Conference. In March 2014, Judge Mayer was selected to serve on the Eastern District of Pennsyl-vania Local Rules Committee and was tasked with drafting the new model chapter 13 plan currently being used in the district, along with revisions to other local procedures and rules. Judge Mayer holds an AV-Preeminent rating by Martindale Hubbell. She is a frequent lecturer and course planner for the Pennsylvania Bar Institute and the Eastern District of Pennsylvania Bankruptcy Conference. Judge Mayer is admitted to practice in Pennsylvania and New Jersey, and before the Third Circuit Court of Appeals, the U.S. Tax Court and the U.S. Supreme Court. She received her B.A. magna cum laude in politics in 1991 from De Sales University and her J.D. from Temple University School of Law in 1997, where she received the Barrister’s Award for Excellence in Trial Advocacy.

Hon. Stacey L. Meisel is a U.S. Bankruptcy Judge for the District of New Jersey in Newark and is the first African-American selected for this position in New Jersey. Before joining the bench, she was a founding member of Becker Meisel LLC and co-chaired its bankruptcy, insolvency and creditors’ rights practice. Prior to her appointment, Judge Meisel served on the New Jersey Panel of Bankruptcy Trustees and thrice served on the committee that recommends candidates to the Third Circuit for New


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Jersey bankruptcy judgeship vacancies. She also served on the New Jersey Court Registry of Media-tors and the Lawyers Advisory Committee to the Board of Judges of the U.S. Bankruptcy Court for the District of New Jersey. Judge Meisel previously served as trustee to the Association of the Federal Bar of New Jersey, on the ABI Advisory Board for the Mid-Atlantic Bankruptcy Workshop, and as chair of the 2011 Workshop Attendance Committee. She helped launch the New Jersey Bankruptcy Lawyers Foundation, volunteered with Volunteer Lawyers for Justice and served on the board of directors for Legal Momentum – The Women’s Legal Defense and Education Fund. Judge Meisel is a co-author of the Consumer Bankruptcy Manual and the Consumer Bankruptcy Handbook, both Thomson Reuters publications. She is also serving a three-year term on the National Conference of Bankruptcy Judges’ Rules Committee, and she serves on the National Association of Women Judges’ Color of Justice Program Committee and the U.S. District Court, District of New Jersey Committee on Court Security. Judge Meisel received her Bachelor’s degree from Rutgers The State University of New Jersey and her J.D. from Villanova University School of Law.

Curtis S. Miller is a partner with the Business Reorganization & Restructuring Practice of Morris, Nichols, Arsht & Tunnell LLP in Wilmington, Del. He has been involved in bankruptcy proceedings and litigation on behalf of a variety of national and regional clients, including debtors, creditors and official committees, private-equity firms, hedge funds and lenders. Mr. Miller acts as counsel for both plaintiffs and defendants in various bankruptcy-related litigation matters, including preference, fraudulent-transfer, turnover actions and breach-of-contract actions. He also advises clients in out-of-court restructurings, including assignments for the benefit of creditors, Article 9 foreclosures and state law dissolutions. These representations have involved debtor and creditor representations in a wide range of industries, including the food, manufacturing, wastewater treatment, retail, construc-tion and manufacturing industries. Mr. Miller is listed in Chambers USA: America’s Leading Lawyers for Business as a leading Delaware bankruptcy/restructuring practitioner for 2019, in The Best Law-yers in America as a leading Delaware attorney for bankruptcy litigation from 2019-20, in Delaware Super Lawyers as a Rising Star from 2013-17 and in Benchmark Litigation’s “Under 40 Hotlist” for 2017, and The M&A Advisor named him a “40 Under 40 Emerging Leader” in the legal advisor cat-egory for 2015. Mr. Miller received his J.D. from the College of William and Mary Marshall-Wythe School of Law, where he was a member of the Order of the Coif and served on the William & Mary Law Review. He subsequently clerked for Hon. Joseph J. Farnan, Jr. of the U.S. District Court for the District of Delaware.

Dr. Achintya Moulick is a clinical, business and thought leader with CarePoint Health Systems in Philadelphia and has 20 years of hospital leadership experience. He has built administrative and clinical teams globally with C-suite leaders in the U.S., Europe, Middle East and Southeast Asia. He is currently helping lead a three-hospital system through transition and transformation, and heads its COVID-19 task force, which is responsible for transforming one of the hospitals as a COVID hos-pital. Dr. Moulick is a heart surgeon by profession, with a history of building programs and institu-tions around the world. He has started both adult-acquired and neonatal/congenital pediatric surgical programs and a heart institute both in mainland USA and internationally. He also has performed more than 5,000 open-heart surgeries. In 2015, Dr. Moulick launched his own population health platform for connected care, remote monitoring, tele-health and patient communication. Previously, he was with Fortis Heart Institute (FHI) in India. He returned to the U.S. in January 2005 to continue his career in advanced neonatal heart surgery and was appointed the program director in Nations Chil-dren Hospital in Washington, D.C. He also worked as an attending surgeon at Georgetown University


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and George Washington University Hospitals, and The Washington Adult Congenital Heart Program appointed him as its surgical director in 2006, now an established program in the DC, Virginia and Maryland region. Dr. Moulick has lectured extensively on patient centricity and quality all over the U.S. and has three patents pending on biomedical engineering projects with the University of Drexel, where he is an associate professor of cardiac surgery. He completed his M.B.A. in finance and healt care at George Washington University in 2009.

Scott Phillips, CPA is managing director of Healthcare Management Partners, LLC in Nashville, Tenn., and has more than 30 years of health care industry management and consulting experience. Prior to founding HMP in 1997, he served as the president and CEO of a 636-bed academic medi-cal center, as national partner and regional health care practice director for Touche Ross & Co. (now Deloitte), and as the CFO of a faith-based multihospital system operating 12 hospitals across seven states. Mr. Phillips has experience with government, tax-exempt, and investor-owned health care service providers. He has executive-level experience with mergers, acquisitions and turnaround situa-tions, including restructuring in bankruptcy. Over the past several years, Mr. Phillips has served as the chairman and CEO of an investor-owned health care provider with operations in 15 states and as CEO of a publicly traded medical staffing company with more than 2,000 employees. Both turnaround as-signments included crisis management of complex organizations in the early stages of high-profile criminal and civil fraud investigations by multiple federal agencies. Mr. Phillips has expert knowl-edge of the bankruptcy process, as well as its implications and obligations on an operating provider of health care services. He recently led the successful financial turnaround and chapter 9 reorganiza-tion of a 179-bed county-owned hospital, and in 2016 he was appointed the CRO for a large hospital company in chapter 11 bankruptcy that had a portfolio of five critical-access hospitals, a billing and management company and a therapy services company. Mr. Phillips has been the financial advisor to 18 tax-exempt continuing-care retirement communities, with more than 20,000 residents in 12 states, that were affected by the bankruptcy and sale of Erickson Retirement Communities. He also has been the testifying expert, lead investigator or arbitrator in many high-profile health care industry legal disputes. Mr. Phillips received his B.S. in accounting from the University of Florida.

Hon. Jerrold N. Poslusny, Jr. is a U.S. Bankruptcy Judge for the District of New Jersey in Camden, appointed in June 2015. Prior to his appointment, he clerked for Hon. E. Stephen Derby and Hon. James F. Schneider, U.S. Bankruptcy Judges for the District of Maryland, then worked as an associate and member with the firm of Cozen O’Connor P.C. in Cherry Hill, N.J. He then was a shareholder of Sherman, Silverstein, Kohl, Rose & Podolsky, P.A. in Moorestown, N.J., where he concentrated his practice in bankruptcy law, workouts and commercial litigation. Judge Poslusny is admitted to the state bars and district courts of Delaware, Maryland and New Jersey, and the Third and Fourth Circuit Courts of Appeal. He is a member of the National Conference of Bankruptcy Judges, ABI, the As-sociation of Insolvency and Restructuring Advisors and the Camden County Bar Association. He has served as an editor, author and frequent lecturer to professional and educational organizations. Judge Poslusny received his B.S. from Pennsylvania State University and his J.D. from the University of Maryland School of Law.

Cynthia Romano, CTP is the global director of CohnReznick LLP’s Restructuring and Dispute Resolution practice in New York and has 30 years of experience in performance improvement, turn-around management, transaction support and investment analysis. She has worked with middle-mar-


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ket companies in a variety of industries, including health care, manufacturing, education, technology, security, distribution, professional services and nonprofit. Ms. Romano’s prior credits include alum of CR3 Partners, Bain’s Corporate Renewal Group and CRG Partners, as well as CEO of a technol-ogy company and analyst for an angel investor in charge of the group’s diligence. She is well known in the market and the recipient of numerous awards, including the Smart CEO Brava Award, which honors top female CEOs, and co-winner of the Turnaround Management Association (TMA) Small Company Turnaround of the Year and a finalist for the 2020 Middle Market Transaction of the Year. She also has numerous board seats, panels and publications to her credit, including for ABI, TMA, HBS, MIT, the Nassau County and Boston Bar Associations, Exit Planning Exchange, Debtwire and the ABF Journal. Ms. Romano received her B.A. in educational policy in 1993 and her M.B.A. in international management from the Massachusetts Institute of Technology Sloan School of Manage-ment in 2002.

Mark A. Salzberg is a partner in the Washington, D.C. office of Squire Patton Boggs and a member of the firm’s Restructuring & Insolvency practice group. He focuses his practice on bankruptcy litiga-tion, creditors’ rights, debtor reorganizations and complex commercial litigation. Mr. Salzberg has experience representing debtors, creditors’ committees, financial institutions, secured and unsecured creditors, franchisors and distributors in bankruptcy matters throughout the U.S. He has served as the lead appellate counsel in multiple bankruptcy appeals at both the district court and bankruptcy appellate panel levels, and he regularly counsels clients on intellectual property matters arising un-der the Bankruptcy Code. In addition to his bankruptcy work, Mr. Salzberg has represented parties in a wide variety of complex commercial litigation cases in both state and federal courts, including lender-liability suits and other business tort actions, breach-of-contract, trade secret and noncompete actions. He was a member of the D.C. Bar Board of Governors from 2014-15 is currently serving as chair of the D.C. Bar Regulations/Rules/Board Procedures Committee. Mr. Salzberg was a member of the Law 360 Bankruptcy Editorial Advisory Board from 2014-17. He received his B.A. in 1987 from Swarthmore College and his J.D. in 1992 from the University of Virginia School of Law.

Hon. Brendan L. Shannon is a U.S. Bankruptcy Judge for the District of Delaware in Wilmington. He was appointed in 2006 and served as Chief Judge from 2014-18. Prior to his appointment to the bench, Judge Shannon was a partner with Young Conaway Stargatt & Taylor, LLP in Wilmington, where he primarily represented corporate debtors and official committees in chapter 11 cases. Since taking the bench, he has managed a full chapter 11 docket and also handles all chapter 13 consumer bankruptcy cases filed in the State of Delaware. Judge Shannon is an adjunct professor in the Bank-ruptcy LL.M. Program at St. John’s University School of Law in New York and at Widener School of Law in Delaware. He serves on the board of editors of Collier on Bankruptcy (16th ed.) and is a con-tributing author for Collier Forms and for several chapters covering the Federal Rules of Bankruptcy Procedure. In addition, he serves on the advisory board for the ABI Law Review. In 2011, Judge Shan-non was appointed to serve as a member of the National Bankruptcy Conference, and in 2020, he was inducted as a member of the American College of Bankruptcy. He is a member of the Delaware State Bar Association, the American Bar Association, ABI and the Rodney Inns of Court in Wilmington, Del. He is also a member of the board of directors of the Delaware Council on Economic Education. Judge Shannon received his undergraduate degree from Princeton University and his J.D. from the Marshall-Wythe School of Law at the College of William and Mary in Williamsburg, Va.


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Hon. Christopher S. Sontchi is Chief U.S. Bankruptcy Judge for the District of Delaware in Wilm-ington, initially appointed in 2006, and is a frequent speaker in the U.S. and abroad on issues relat-ing to corporate reorganizations. Prior to his appointment, Judge Sontchi was in private practice, representing a wide variety of nationally based enterprises with diverse interests in most of the larger chapter 11 reorganization proceedings filed in Delaware. Judge Sontchi is a lecturer in law at the Uni-versity of Chicago Law School and teaches corporate bankruptcy to international judges through the auspices of the World Bank and INSOL International. He is also a member of the International Insol-vency Institute, Judicial Insolvency Network, National Conference of Bankruptcy Judges, ABI and INSOL International. Judge Sontchi served on the ABI Commission to Study the Reform of Chapter 11’s Financial Contracts, Derivatives and Safe Harbors Committee and testified on safe harbors for financial contracts before the Subcommittee on Regulatory Reform, Commercial and Antitrust Law of the House Committee on the Judiciary. He has also published articles on creditors’ committees, valuation, asset sales and safe harbors. Following law school, Judge Sontchi clerked for Hon. Joseph T. Walsh in the Delaware Supreme Court. He received his B.A. Phi Beta Kappa with distinction in political science from the University of North Carolina at Chapel Hill and his J.D. from the Univer-sity of Chicago Law School.

Amanda R. Steele is a director with Richards, Layton & Finger, PA in Wilmington, Del., where she focuses her practice on corporate bankruptcy, restructuring and other insolvency matters. She rou-tinely represents both creditors and debtors in all aspects of chapter 11 cases. She is also a member of the firm’s substantive nonconsolidation opinion team. During law school, Ms. Steele interned for Hon. Justice Henry duPont Ridgely and for the Villanova University School of Law’s Federal Tax Clinic. She also received the Dr. Arthur Clement Pulling Award for Outstanding Contribution to the Villanova Law Review. Ms. Steele has been listed in Chambers USA from 2017-2020 and in Super Lawyers from 2018-2020, and she was a 2016 International Women’s Insolvency & Restructuring Confederation Rising Star Award Finalist. In addition, she was vice chair of the Delaware State Bar Association’s Young Lawyers Section from 2013-15 and chairs the Delaware Network of the Inter-national Women’s Insolvency and Restructuring Confederation. Ms. Steele is a guardian ad litem with the Delaware Division of Family Services. She received her B.A. magna cum laude in political science in 2006 from American University and her J.D. magna cum laude in 2010 from Villanova University School of Law, where she was a member of the Order of the Coif and managing editor of Special Projects for the Villanova Law Review.