The ABI Journal article “On the Edge,”...
The ABI Journal article “On the Edge,” authored by Elizabeth Gunn and Vincent Roldan, discusses the background of the 22-year-old Roussos case, which involves SulmeyerKupetz Members Howard Ehrenberg and Daniel Lev. The case continues to be ongoing.
The bankruptcy cases were reopened in July 2015 to investigate a fraud allegedly perpetrated on the bankruptcy court in 1994 by two brothers, Theodosios Roussos and Harry Roussos. As a result of their investigation, Mr. Ehrenberg, who was appointed chapter 7 trustee of the reopened cases, recently obtained an order from the presiding bankruptcy court approving a comprehensive settlement which, among other things, voided a sale order entered in 1994 and revested two valuable apartment buildings in the brothers’ reopened bankruptcy estates.
“Ultimately, the widow’s persistent battle to overturn a 22-year-old sale order obtained through fraud would have a fairytale ending,” Ms. Gunn and Mr. Roldan wrote. “The sword in this case was Rule 60(d)(3) of the Federal Rules of Civil Procedure, which authorizes a court to set aside a final judgment for fraud on the court, and for which there is no statute of limitations.”
Golf course communities were established in the mid-1920s, but gained momentum in the ’70s and ’80s, when developers capitalized on the popularity of golf at a time when many Americans were happy to pay large premiums for a golf course home. However, golf communities are now far less desirable than they were thirty years ago. In the article “The Rise and Fall of Golf Club Communities Could Mean Big Bucks for Homebuilders,” Bisnow turned to Steven Werth to provide insight on this trend.
“The problem is that developers sometimes build golf courses to sell houses with golf course views, and not to create a profitable long-term golf course,” Mr. Werth said. “The golf course premium that a homebuyer pays to be near a golf course may be too high, given the high-risk nature of the golf course business in that revenue structure.”
In the past, golf course-adjacent homeowners paid a monthly fee in exchange for course membership and added privileges. In turn, these fees paid for the course’s upkeep. However, as Mr. Werth pointed out, the declining popularity of golf means that many homebuyers no longer feel that extra membership fees are worthwhile. The sport’s lack of popularity, coupled with an overabundance of golf courses, has caused the demand for golfing community homes to plummet.
In the recent case Czyzewski v. Jevic Holding Corp (Jevic), the Supreme Court ruled that bankruptcy courts do not have the legal power to approve the structured dismissal of a Chapter 11 bankruptcy case “that provides for distributions that do not follow ordinary priority rules without the affected creditors’ consent.” In the Daily Journal article “When Courts Can Approve Structured Dismissals,” David Kupetz analyzed the Jevic ruling and discussed the interaction between the priority rules of the Bankruptcy Code and dismissal of a Chapter 11 case.
The Supreme Court emphasized that the Bankruptcy Code’s priority system is a “fundamental underpinning of business bankruptcy law,” and found that allowing structured dismissals to circumvent this system would nullify protections Congress has granted certain classes of creditors (e.g., employee wage claims), increase the risk of collusion, and make settlements more difficult to achieve. Finding no significant bankruptcy-related justification for violating priority rules through structured dismissal, the Court rejected the 3rd Circuit’s limited approval of nonconsensual priority-violating structured dismissals in “rare cases.”
The Supreme Court declined to express any view regarding the legality of structured dismissals in general. Implicitly, the court acknowledged them to be appropriate where creditors consent. Further, it is standard practice to violate ordinary priority rules during the course of Chapter 11 cases with, for example, “first-day” wage orders, “critical vendor” orders, and “roll-ups” in debtor in possession financing. The court recognized that such out-of-priority distributions, however, are found necessary to enable successful reorganization and benefit even disfavored creditors. In contrast, the priority-violating distribution under the Jevic structured dismissal is a final disposition that did not make the disfavored creditors better off.
SulmeyerKupetz was proud to be a sponsor of the Turnaround Management Association (TMA) event “Navigating the Retail Meltdown,” presented by Mike Nowlan of Mackinac Partners and Sam Newman of Gibson Dunn.
The panel covered the 2017 outlook for retail restructurings, as well as how to maximize the opportunities of the expected wave of restructurings and identify key issues affecting the next wave of restructurings. It also included strategies to preserve stakeholder value and turnaround efforts to stabilize and rebuild a brand.
TMA is an organization with a network of more than 9,000 turnaround practitioners, bankruptcy attorneys, lenders, bankers, workout officers, investors and other related professionals worldwide.
Compensation of professionals, including attorneys, employed in bankruptcy cases is subject to court approval. Under Bankruptcy Code section 330(a), the court is authorized to award “reasonable compensation for actual, necessary services” rendered by attorneys and other professionals employed by the bankruptcy estate’s representative. The clear intent underlying the Code is that attorneys and other professionals serving in bankruptcy cases be compensated no less favorably in bankruptcy cases than they would for performing comparable services in non-bankruptcy cases. The Code contains a specific provision providing for compensation for preparing a fee application required to be filed with the court. However, the Bankruptcy Code lacks any explicit, specific language authorizing compensation to professionals for work performed in defending a fee application.
Outside of the bankruptcy context, there is a long-established and familiar “American Rule” that each side must pay its own attorney’s fees, unless a statute or contract provides otherwise. In his Los Angeles Lawyer article “Is the American Rule ‘American’?” David Kupetz discusses the ASARCO case, in which the U.S. Supreme Court addressed a collision between the American Rule and the intent underlying the Bankruptcy Code that attorneys in bankruptcy cases be compensated at the same rate they would be outside of bankruptcy court.
The Supreme Court considered “whether §330(a)(1) permits a bankruptcy court to award attorney’s fees for work performed in defending a fee application in court.” Justice Thomas delivered the opinion of the Court holding that a departure from the American Rule was not warranted and, accordingly, the rule precluded the award of fees. The dissenting opinion filed by Justice Breyer asserts, among other things, that “the American Rule is a default rule that applies only where ‘a statute or contract’ does not ‘provid[e] otherwise.’ And here, the statute ‘provides otherwise.'”
In his article, David Kupetz suggests that an amendment to section 330 of the Bankruptcy Code specifically authorizing the court to award fees for the successful defense of a fee application would address the threat to comparable compensation posed by ASARCO. While the Bankruptcy Code already directs the court to consider all relevant factors when determining reasonable compensation, the Supreme Court finds that inadequate to overcome the American Rule. As a result, bankruptcy professionals face a significant risk of fee dilution when forced to address objections to their fees. This risk is heightened by the asymmetrical nature of bankruptcy cases in contrast to the ordinarily bilateral litigation from which the America Rule arose.
Member David Goodrich is a Program Chair for the Orange County Bankruptcy Forum’s CLE panel “The End of Brick and Mortar Retail As We Know It, and I Feel Fine?” The program features panelists J. Michael Issa from GlassRatner Advisory & Capital Group, Whitman L. Holt of Klee, Tuchin, Bogdanoff & Stern and United States Bankruptcy Judge Scott H. Yun, as well as moderator Richard A. Marshack from Marshack Hays.
The Orange County Bankruptcy Forum is a non-profit organization located in Orange County, California. For more than 25 years, the OCBF has provided services and education for its members and the legal community of the greater Southern California area. Mr. Goodrich has served on OCBF’s Board of Directors since 2011 and as President of OCBF for the 2016 – 2017 term.
The panel will be held Wednesday, April 19 at 12:15 PM at Avenue of the Arts Costa Mesa. Register now.