Scott Alberino, the Honorable Judith Fitzgerald, Scott Greenberg, Gary Marsh, the Corporate Bankruptcy Panel: Hot Chapter 11 Plan Issues

• Publication year: 2011

CORPORATE BANKRUPTCY PANEL HOT CHAPTER 11 PLAN ISSUES

Scott Alberino*

The Honorable Judith Fitzgerald** Scott Greenberg***

Gary Marsh****

MR. ZISHOLTZ: Thank you, Dean Schapiro, for those remarks. We’re going to kick things off now with our corporate panel. I’d like to introduce our moderator, Gary Marsh. Gary is a partner in the Atlanta office of McKenna Long & Aldridge. He focuses on bankruptcy, workouts, and debtor/creditor law. Gary graduated cum laude from American University and received his

J.D. here at Emory University School of Law. Gary has published scholarly

articles on stalking horse bidders and reopening of bankruptcy auctions, and serves as an adjunct faculty member here at Emory University School of Law. He serves on our Advisory Board and as Chair of the Southeastern Bankruptcy Law Institute. Thanks for joining us, Gary.

MR. MARSH: Thanks, Jeremy. It’s my honor to be here again at Emory University School of Law. I wanted to introduce my distinguished panel. To my right is Judge Judith Fitzgerald. Judge Fitzgerald has been a bankruptcy judge for twenty-five years, so my guess is she’s seen it all and done it all. She’s a bankruptcy judge in the Western District of Pennsylvania. She sits by designation in Delaware and the Virgin Islands. That’s not too shabby there. And she’s on the Board of the American Bankruptcy Institute. She’s a Fellow in the American College of Bankruptcy and she lectures frequently on bankruptcy evidence and litigation topics.

To her right is Scott Greenberg, another Emory Law grad, class of 2002. Scott was recently named by Turnarounds & Workouts as one of the Outstanding Young Restructuring Lawyers. He graduated with honors from Emory University School of Law and was Order of the Coif. Scott Greenberg is a partner at Cadwalader, Wickersham & Taft in New York.

* Partner, Akin Gump Strauss Hauer & Feld LLP.

** U.S. Bankruptcy Judge for the Western District of Pennsylvania.

*** Partner, Cadwalader, Wickersham & Taft LLP.

**** Partner, McKenna Long & Aldridge LLP.

To his right is Scott Alberino. Scott Alberino is a partner at Akin Gump in D.C., another graduate of Emory Law, so you’ve got an almost-all-Emory panel. Scott graduated with honors from Emory University School of Law in 2000. Before moving to D.C., he was a judicial extern for Judge Massey. After he graduated, he clerked for Judge Mullins, who is here today, and he learned quite a bit from Judge Mullins.

One quick disclaimer. We’re going to talk about three hot chapter 11 topics. Nothing we say is binding on us or our clients. Particularly for the judge, nothing she says is binding on how she might rule on these issues were she presented with an actual case with facts and arguments. This is an academic environment, and we’re going to have a discussion about these topics. We’re going to talk about In re Washington Mutual, Inc. [WaMu]. Scott Greenberg’s going to lead us through that. We’re going to talk about the In re Tribune Co. case. Scott Alberino is going to lead us through that, and, time permitting, structured dismissals.

In our preparation discussions, it’s become clear to me we have two sophisticated, high-powered chapter 11 bankruptcy lawyers who are aggressive and innovative and are trying to stretch the Bankruptcy Code to suit their clients’ needs. Judge Fitzgerald is fighting hard to interpret the Bankruptcy Code and Rules, and make sure Congress is permitting what it is that Scott and Scott are trying to do. With that, I’ll turn it over to Scott Greenberg to start on WaMu. And we thought about, after each topic, taking questions. So when he’s done with WaMu, if any of you have questions, we could take some then, then do Tribune. That might make it more lively. So with that, Scott, thanks.

MR. GREENBERG: Thanks, Gary, and good morning, everyone. Thank you for having us. It’s nice to be back and see so many familiar faces. Just before I get into WaMu and Hot Chapter 11 Plan Issues, I wanted to share just a little bit of background. Other than trying to be a catchy title, we picked these two cases and the issue of structured dismissals because, as practitioners, these are recent decisions of which we’re really dealing with the ramifications. When you’re dealing with your clients and either preparing for chapter 11 or you’re in chapter 11, you’d be surprised how in touch your clients are with these decisions and the ramifications they have on the way that they act. So you’re going to hear a lot of back-and-forth today, and we’ve had a couple of prep sessions. I think we’ve already seen it with the judge, where you’re going to see the practitioner’s view of the world and then the judge’s view of the world because we’re faced with very different approaches to things. We have to deal

with the client, and as Gary alluded to, we’re trying to reach a certain result. Ultimately, the judge is the one that has to deal with the rule of law and interpreting that law. There’s often a tension there in reaching that right result. So I think these were two good cases and hopefully the panel will prove interesting.

I wanted to start off with WaMu.1 I think it’s worth spending a few minutes just running through the facts for everyone’s benefit. It’s a long decision. I’m not so sure everyone has had the opportunity to read it. So just by way of background, WaMu filed in Delaware in September of 2008 during the height of the financial crisis. Upon the filing, the FDIC was appointed as the receiver in the case and quickly sold WaMu’s assets to JPMorgan [JPM] for approximately $1.9 billion. It’s a common theme in a lot of the financial cases that played out. We were involved in Bear Stearns and had sold JPMorgan prior to the filing. Obviously, Lehman Brothers was a couple of months later, so not an unfamiliar set of facts.

Upon this happening, WaMu and JPM quickly ended up in litigation about the appropriateness of the FDIC seizure and the subsequent sale of the WaMu assets. In March of 2009, about eight or nine months into the case, the parties started to enter into settlement negotiations to try to settle their disputes and resolve the litigation. As part of that settlement negotiation between JPM, the debtors, and the FDIC, there were also certain hedge funds involved in the settlement negotiations. Specifically as it relates to the decision, there were four hedge funds that held both bonds and convertible securities—I’ll just refer to them collectively as the Noteholders—that were party to these negotiations and entered into “confis,” or confidentiality agreements, as part of the settlement negotiations.

Just by way of background, that’s often how this plays out. The lawyers who are involved, and your clients to the extent they, as we often say, “get under the tent” or start actually participating in the negotiations directly (versus just the lawyers being party to the negotiations), they have to sign a confidentiality agreement because they’re getting information that otherwise is not available to the public.

JUDGE FITZGERALD: In other words, inside information.

1. In re Washington Mutual, Inc., 442 B.R. 314 (Bankr. D. Del. 2011).

   MR. GREENBERG: Correct. That much we can agree on. In any event, the negotiations included, among other things, as is often the case, term sheets exchanged back-and-forth, and the parties negotiated material terms in the term sheet. Sometimes just counsel was participating in the negotiations, and at other times, the Noteholders themselves participated. As a practitioner, this is common to me, but just to explain: a lot of times in these cases the debtors and the senior lenders, etc., have their counsel and usually have a financial advisor as well. A lot of times it’s just us negotiating with the other lawyers. Quite frankly, your clients will say to you, “I don’t want to know. Anything that’s material, nonpublic information—don’t tell me. I’m trusting you to go out. You know what my goal is; now you go execute it.” And the reason they don’t want to know that is because as soon as they get that information, they’re now restricted from trading. They can’t trade the securities, and it becomes illiquid. They become locked in. And especially nowadays with our hedge fund clients, being illiquid is the last thing they want to do.

   
   

   JUDGE FITZGERALD: Can I interrupt at this point? Isn’t that really where maybe we have our first—I’ll call it “disagreement”—for purposes of today’s discussion? Because isn’t it up to the particular creditor, in this case a hedge fund, to segregate out its trading desk from the rest of its operations? And to the extent that it has inside information that would prohibit it from trading under SEC rules, but not necessarily under bankruptcy court rules. Isn’t it up to that individual entity to figure out how to satisfy the law?

   
   

   MR. GREENBERG: I think that’s right. That may work in a big institution like a JPM or a Citibank, where you have a trading desk and screening walls, and it’s very easy to break up the information or flow of information, so your traders have no contact with the guy that’s under the tent negotiating the deal. The institution has been doing it for twenty years; they’re comfortable. The problem is there are a lot of hedge funds where they have $10, $20 billion under management, and there are six or seven people working there.

   
   

   JUDGE FITZGERALD: If there’s more than one, can’t you set up that wall? It’s not physically impossible to do it. It’s just that they don’t want to. They don’t want to incur the cost based on the risk that they intend to take. It’s a cost of doing business, isn’t it?

   
   

   MR. GREENBERG: I don’t know that it’s that they don’t want to. I think a lot of people, quite frankly, the guys that run these hedge funds and own these hedge funds, are concerned about the 20/20 sight afterward and whether or not what they did was appropriate. And I think, again, at least from my clients,

   I’ve never heard, “I don’t want to set up a screen.” But I think they’re always worried...