LJN Newsletters

The ability to sell assets during the course of a Chapter 11 case without incurring transfer taxes customarily levied on such transactions outside of bankruptcy often figures prominently in a potential debtor's strategic bankruptcy planning. However, the circumstances under which a sale or related transaction qualifies for the tax exemption has been a focal point of dispute for many courts, including no less than four circuit courts of appeal. A ruling recently handed down by the Court of Appeals for the Eleventh Circuit fuels this growing controversy in a way that may encourage Chapter 11 debtors to rethink the way that they structure plans of reorganization.

In the current environment of increasing scrutiny of corporate behavior after corporate scandals such as Enron and WorldCom, lawsuits brought by creditors for breach of the fiduciary duties owed to them by officers and directors have increased significantly. The suits are taking center stage on the dockets of bankruptcy courts and state courts alike, and receive much public attention across the country. Against this backdrop, the Delaware Court of Chancery's November opinion in Production Resources Group, L.L.C. v. NCT Group, Inc., __ A.2d __ (Del. Ch. 2004); C.A. No. 114-N, 2004 Del. Ch. LEXIS 174 (Del. Ch. Nov.) is likely the most important pronouncement on the nature of fiduciary duty claims brought by creditors since the Court of Chancery's 1991 opinion in Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., C.A. No. 12150, 1991 WL 277613 (Del. Ch. Dec. 30, 1991).

Important rulings for your review.

In 2001, the U.S. Attorney in Boston charged TAP Pharmaceutical Products Inc. (TAP) with conspiring to provide urologists with thousands of free samples of Lupron', for which the doctors billed Medicare and their patients. In order to survive and continue selling its blockbuster product for advanced prostate cancer, TAP made a reasoned decision to pay the government $885 million to resolve both civil and criminal charges. With this resolution, Boston's talented federal prosecutors continued their remarkable success in bringing major pharmaceuticals to their knees and reaching landmark settlements.

The Supreme Court's Jan.12 decision in U.S. v. Booker, which made the federal Sentencing Guidelines advisory rather than mandatory, is likely to: 1) prove modest in its impact on sentences in the short run; 2) alter a bit the balance of power among prosecutors, defense attorneys and judges; and 3) spur Congress to make federal sentencing even more Draconian than it was for 2 decades under the mandatory Guidelines.

Recent rulings of importance to you and your practice.

Recent criminal investigations of banks show that prosecutors are increasingly taking a hard look at financial institutions that allow themselves to be used by wrongdoers, from scam artists to terrorists. Banks, and myriad other entities deemed "financial institutions" under federal law, have an obligation to report suspicious activity to law enforcement. In what some consider a dramatic change in policy, prosecutors are increasingly willing to investigate and prosecute financial institutions for failing to meet this obligation -- even where the institution did not participate in the wrongdoing.

In our Dec. 2004 issue, in a News Brief about Santa Fe, NM's, new living wage law and its effect on franchisors, we wrote that Cold Stone Creamery was among the companies that had been identified as possibly paying sub-minimum wages. Douglas A. Ducey, chairman and CEO of Cold Stone Creamery, contacted FBLA to clarify that Cold Stone Creamery was not sued for violating the minimum wage law. Ducey added that the company's franchisee in Santa Fe raised the minimum wage to $8.50/hour "weeks" before our story was published "in spite of doubts whether the law applied." Ducey also pointed out "the potential for employees to earn even more than the minimum wage with customer tips."