A Cautionary Tale for Claims Traders and Other Contract Counterparties
by | posted in: Claims Trading | 0

By David Griffiths and Leonard Yoo (Weil, Gotshal & Manges LLP).

During a negotiation over a sale of claims, when parties agree to a price and preliminarily agree to enter into a final agreement, is there a binding agreement to negotiate in good faith towards a final agreement? 

The bankruptcy court in Westinghouse addressed this very issue.  In Westinghouse, Seaport, on behalf of its client, reached out to Landstar to purchase its claims against Westinghouse Electric Company LLC.  An employee of Landstar negotiated with Seaport to sell the claims but explained to Seaport that, while she was authorized to negotiate a price, all other terms would need to be approved by Landstar’s legal counsel.  Seaport and Landstar’s employee eventually agreed to a price for the claims that was “subject to” executed documentation.  Two days after this agreement, Landstar informed Seaport that it decided to not go through with the sale.  Seaport and its client litigated this matter arguing that there was a binding obligation to negotiate in good faith because it was customary in the claims trading industry for parties to agree on the price over email and negotiate the other terms towards a final agreement. 

The bankruptcy court disagreed and held that a preliminary agreement to negotiate in good faith was not formed because, among other reasons, (i) Landstar reserved its right to not enter into a binding agreement and (ii) Seaport did not explicitly confirm with Landstar that there was an enforceable agreement as to the obligation to negotiate in good faith nor the purchase price.

The full article is available here.

Insider Status and U.S. Bank v. Village at Lakeridge
by | posted in: Avoidance, Cramdown and Priority, fraudulent transfer, Insider Status | 0

By Ronit J. Berkovich and David Li (Weil, Gotshal & Manges LLP).

The U.S. Supreme Court, in U.S. Bank Nat’l Ass’n v. Village at Lakeridge, LLC, 583 U.S. ___ (2018), offered plenty of hints on an important topic while simultaneously ruling very little about it.  In chapter 11, whether a creditor qualifies as an “insider” can have enormous implications on a range of issues, including plan confirmation, fraudulent transfer and preference analyses, and severance payment and employee incentive/retention plan (KEIP/KERP) approvals.  Lakeridge involved a dispute as to whether the bankruptcy court properly determined in confirming a plan that the sole impaired accepting creditor (the romantic partner of one of the debtor’s officers) was not a “non-statutory” insider.  If the creditor actually were such an insider, then the chapter 11 plan should not have been confirmed.

In granting cert to hear the case, the Supreme Court expressly declined the opportunity to address whether the Ninth Circuit articulated the correct legal test to determine if a person qualifies as a non-statutory insider.  Instead, the Supreme Court granted cert only to answer the narrow question of whether the Ninth Circuit applied the correct standard of review to the lower court’s determination.  Justice Kagan, writing for the Court, kept to that script by simply affirming the Ninth Circuit’s decision to apply a clear error standard of review.  Concurrences by Justices Kennedy and Sotomayor, however, each acknowledged shortcomings in the legal test the Ninth Circuit applied and each appeared to invite lower courts to consider alternative approaches.  As a whole, Lakeridge provides little binding guidance, and practitioners can expect further development in non-statutory insider law by the Courts of Appeals.

The article is available here.