United's Long Journey into the Far Reaches of ' 1110
January 03, 2006
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.
When Is a Lease a 'True Lease'?
January 03, 2006
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 <i>United Airlines, Inc. v. HSBC Bank USA, N.A.</i>, 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."
Non-Compete Agreements: What Every Corporate Attorney Needs to Know
January 03, 2006
Successful businesses want to protect their proprietary information, whether it is a "secret ingredient" or a customer list. Many companies seek to achieve this goal by requiring that all employees sign a uniform "non-compete" agreement in an effort to reduce the risk of economic harm when the employment relationship ends and an employee goes to work for a competitor. Businesses often are surprised, however, to learn that the agreements that they were counting on for protection will not be enforced by a court. This unpleasant result can be avoided through careful drafting up front. The key to drafting an enforceable agreement is to remember that there is no "one-size-fits all" document. The laws governing non-compete agreements vary from state to state, and understanding the nuances among the states will help attorneys with the drafting process.
'Save As Privileged' ' The Next e-Discovery Answer?
January 03, 2006
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.
Compelling Private Company Employee Information
January 03, 2006
There has been much recent press about the USA Patriot Act, and in particular the seemingly unlimited power of the Federal Bureau of Investigation to issue National Security Letters (NSLs) as part of its efforts to combat terrorism (under 18 U.S.C. '2709). NSLs are a form of administrative subpoena issued by the FBI upon self-certification and are shrouded in a cloak of secrecy. Specifically, Section 2709 permits the FBI to demand the production of certain records where the FBI certifies that the materials are sought to "protect against international terrorism or clandestine intelligence activities." On a more controversial note, Section 2709 also contains a gag provision, which prohibits the recipient of an NSL from ever disclosing that the FBI has sought or obtained information pursuant to an NSL. To date, Section 2709 has received little judicial scrutiny, with reported controversies focusing on NSLs issued to Internet Service Providers and libraries. Now, NSLs are being issued to private corporations, with the FBI demanding the production of records regarding employees.
Hotline
January 03, 2006
Employer cannot make assumptions in "regarded as disabled" casesThe Fifth Circuit has ruled that an employer may not maintain a blanket policy to deny…
EEOC Issues Q&A on Cancer in the Workplace
January 03, 2006
Earlier this year, the Equal Employment Opportunity Commission (EEOC) issued a set of questions and answers about cancer in the workplace and the Americans with Disabilities Act (ADA).<br>The Q&A does not contain much in the way of new information, but rather gives examples that help illustrate the position the EEOC will take on issues regarding cancer as a disability. Since these are the types of issues that often puzzle human resources managers ' and land on the desk of in-house counsel ' the EEOC's Q&A serves to provide some assistance on how to handle these issues.
Nonprofit Governance Reform
January 03, 2006
Over the past 3 years, nonprofit organizations have wrestled with the degree to which they should undertake the types of governance reforms that are mandated for SEC registered companies under the terms of the Sarbanes-Oxley Act (SOX). Common reasons for proceeding slowly, or not at all, were that SOX does not apply to nonprofits, and except in a handful of states, such as California, there have been no state law mandates for change. There are also practical considerations that militate against strict application of SOX in the non-profit context, including significant differences in the development and expectations for board members, focus on mission rather that profitability and the overlay of federal exempt organization rules.
Of Mice and Men
January 03, 2006
On Aug. 9, 2005, the Delaware Court of Chancery issued its decision in In re The Walt Disney Co. Derivative Litigation, 2005 WL 2056651 (Del. Ch. Aug. 9, 2005), a case that had drawn intense media attention to a relationship that definitely had gone awry despite the best laid schemes of The Walt Disney Company and its former President, Michael Ovitz. (The case currently is on appeal to the Delaware Supreme Court.) As the court noted, the case became something of a "public spectacle ... commencing as it did with the spectacular hiring of one of the entertainment industry's best known personalities to help run one of its iconic businesses, and ending with a spectacular failure of that union, with breathtaking amounts of severance pay the consequence." The severance package amounted to approximately $140 million in cash and vested stock options, which was paid to Ovitz upon the termination of his employment under a "no-fault" termination provision in his employment agreement. (The court found that the $140 million severance payment, while "breathtaking," was not economically material to Disney.) Now that the dust has settled and that breathtaking $140,000,000 severance payment is history, the question is: what has been learned?
