LJN Newsletters

In its recent decision in Riverwood International Corp. v. Employers Insurance of Wausau, No. 04-30608, 2005 WL 1840057 (5th Cir. Aug. 4, 2005), the Fifth Circuit affirmed an award of summary judgment in favor of an insurer, holding that asbestos-related injury is not a "bodily injury by accident."

Recently, the Third Circuit Court of Appeals, in In re Tower Air, Inc., 416 F.3d 229 (3rd Cir. 2005), queried: 'How far will the federal courthouse door swing open for a direct suit against corporate directors and officers for Breaches of Fiduciary Duties?' In firmly answering this question, the Third Circuit has widened the door for bankruptcy trustees and creditors' committees, by making it easier, at the pleading stage, to assert a claim for breach of fiduciary duty in federal court.

In an article in last month's issue, we questioned the desirability of equitably subordinating or disallowing claims transferred post-petition, and explored the implications that a decision pending in the Enron bankruptcy court might have on distressed debt markets. Now, in an expansively reasoned opinion, the Enron court partially answered those questions. The court denied a motion to dismiss certain counts seeking to equitably subordinate certain bank claims in the hands of post-petition assignees on the basis of allegedly inequitable prepetition conduct engaged in by Enron's pre-petition lenders.

Two recent bankruptcy opinions out of the Delaware Court, IT Litigation Trust v. D'Aniella, et al. (In re: IT Group, Inc., et al.), and Shandler v. DLJ Merchant Banking, Inc., et al. (In re Insilco Technologies, Inc.), each of which addresses post-confirmation bankruptcy court subject matter jurisdiction over state law causes of action, have potentially significant implications on both litigation in the Delaware Bankruptcy Court and plan structure for Chapter 11 debtors.

It looks like James Sprayregen and his team at Kirkland & Ellis have brought United Airlines to the verge of a successful exit from Chapter 11. That is all the more remarkable because a year ago, they seemed nowhere close. United was struggling with a host of problems, not the least the one that concerned me, the retention of its fleet of aircraft. The creditors who controlled those aircraft had the leverage of ' 1110 of the Bankruptcy Code that allowed them to repossess the planes as if the bankruptcy did not even exist. When some of those creditors attempted to exercise the right, however, the bankruptcy court -- notwithstanding ' 1110 -- enjoined them. And it did so on a theory that seemed to contradict the essential idea that bankruptcy is a procedure for the collective negotiation and resolution of creditors' claims: by coordinating their bargaining, United successfully argued, the aircraft creditors were guilty of an unlawful conspiracy in restraint of trade. The ensuing litigation finally established that United was wrong: There are no qualifications to ' 1110's absolute protection of aircraft creditors' rights, and coordinated bargaining by creditors of a common debtor in bankruptcy is permitted under the antitrust laws. But, it took not one, but two opinions of the Seventh Circuit Court of Appeals to establish those principles.

Financing deals have become increasingly complicated as parties attempt to raise capital and take advantage of accounting and tax incentives. These transactions often face scrutiny when one party files for bankruptcy. During a Chapter 11 reorganization, a debtor must use all tools at its disposal to best restructure its obligations. In contrast, a creditor must work to ensure it receives the best possible return. The term "lease" is not defined in the Bankruptcy Code. Due to this lack of a clear definition, creditors and debtors will often attempt to recharacterize agreements between the parties. In this context, a secured creditor or debtor may argue that a "lease" is actually a disguised secured financing. In the converse, a party could also argue a secured financing is actually a "true lease." This is due to the Bankruptcy Code's different treatment of secured debt and leases. Depending on the factual scenario, this differing treatment could significantly change the parties' obligations. This article reviews the Seventh Circuit Court of Appeals' recent decision in United Airlines, Inc. v. HSBC Bank USA, N.A., 416 F.3d 609 (7th Cir. 2005). In this decision, authored by Judge Easterbrook, the court held that it must look to the substance of a transaction and beyond the label given by the parties to determine whether it is a "true lease."

In general, the proposed rules will increase awareness of the discovery issues that are unique to electronic discovery and will require that the lawyers, the parties and the court focus early on the format in which electronic data will be produced in federal actions. Also, absent unusual circumstances, the new rules will protect parties from sanctions for failure to produce electronic data lost by routine, good faith loss of data and will protect parties from the need to produce inaccessible data under some circumstances.

Employer cannot make assumptions in "regarded as disabled" casesThe Fifth Circuit has ruled that an employer may not maintain a blanket policy to deny…