Mon 10/02/2023 08:48 AM
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Reorg’s Court Opinion Review provides an update on recent noteworthy bankruptcy and creditors’ rights opinions, decisions and issues across courts. We use this space to comment on and discuss emerging trends in the bankruptcy world; our opinions are not necessarily those of Reorg as a whole. Today we consider an interesting amicus in Purdue, senators taking on bankruptcy abuse, creditor paternalism in Honx, more creditor paternalism in Tehum Care, and that the Richmond district court is still mad over national rates in mega cases.

Et Tu, Marty?

Some of us Slow Horses around Reorg House were surprised when, on Sept. 26, chapter 11 first-ballot hall-of-famer Martin Bienenstock and a fellow Proskauer partner filed an amicus brief in the Purdue case openly advocating that the Supreme Court eliminate nonconsensual nondebtor releases - on constitutional grounds, no less. Some never thought we’d see the guy who took over the original mega-case debtor-side monopoly at Weil and handled Enron and GM side with tort claimants arguing that Congress lacks authority under the Bankruptcy Clause of the Constitution to give bankruptcy judges the power to authorize “coerced releases.”

You know what comes next: not us. We’ve said it before, and we will say it again: The proliferation of “coerced releases” threatens the legitimacy and viability of bankruptcy courts as forums to reorganize debt and reallocate assets generally. Pigs get fed, hogs get knocked down a peg to hang out with the administrative law judges.

Maybe Bienenstock sees a threat to the system he helped build, and filed his brief to counter a dangerous trend that threatens that work? We don’t know - but we also don’t really care. We just like it when the $2,000-per-hour crew agrees with us for a change.

However, the most important part of the amicus brief is not the signature block, or the motives of the authors, or the fact that they recognize us as geniuses. No, what we like about the amici’s argument is that it gives the Supreme Court a way to knock out nonconsensual nondebtor releases without deciding the old Article I vs. Article III bankruptcy judges vs. real judges fight, a fight that bankruptcy judges cannot possibly win.

As we’ve said, the danger of the Supreme Court taking the Purdue case is not the loss of nonconsensual nondebtor releases - Bienenstock knows better than most that those have not always been de rigeur in big chapter 11 cases - but that the Court will analogize bankruptcy courts to other Federalist Society bureaucratic punching bags like SEC ALJs, leaving bankruptcy courts with less authority to undertake their core restructuring mission.

In other words: If the SEC ALJ lacks the authority to deal with the securities hijinks of right-wing radio hosts, then maybe bankruptcy judges lack the power to deal with the debt hijinks of right-wing radio hosts. We suggest the latter would be a serious problem. The solution, according to the amici? Obviously, you blame the president. Sounds odd, but it works.

Here’s how the amici get there. First, forget the whole Article I/Article III issue. A “coerced release” is a discharge, the amici reason, and the founders never intended to limit the power to discharge debt to courts of law (e.g., Article III courts). “In 1789 in England, the bankruptcy commissioner in the equity courts granted discharges, so Article III judges would not be required if coerced releases were otherwise constitutional,” the amici point out.

That lets us throw out Marathon, Granfinanciera, Langenkamp and Stern - a real boon for future bankruptcy law students. The focus on the Article I/Article III issues in those cases, the amici suggest, led to a myopic focus on whether an Article III court was needed to do whatever the bankruptcy judge was trying to do. Once it was determined that an Article I judge had the power to do something, that was the end of the separation-of-powers inquiry. The courts “treated the need for an Article III judge as the sole constitutional issue.”

In the context of releases, the amici suggest, bankruptcy courts have incorrectly focused on whether they have “related to” jurisdiction under the Bankruptcy Code (i.e., via Congress’ legislative power) to release claims they know very well they could not adjudicate otherwise, instead of considering whether Congress had the constitutional authority to give them such power. “Not realizing Congress cannot grant courts power not granted to it by the Constitution, leads some courts to treat bankruptcy courts as having virtually unlimited power thinking they can order anything ‘related to’ the case,” the amici assert.

The Second Circuit’s Purdue decision illustrates this, the amici say. “Reasoning backwards from Stern (which did not involve a coerced release), the courts determined a non-Article III judge can order a coerced release.”

The separation of powers problem with nondebtor releases is more fundamental, according to the amici: that Congress cannot ​​“withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty; nor, on the other hand, can it bring under the judicial power a matter which, from its nature, is not a subject for judicial determination.”

In other words, Congress cannot, on a very basic level, tell common law courts - the Article III federal courts - that they cannot adjudicate a common law dispute, like a tort claim against the Sacklers. Assuming this is what Congress did in sections 105 and 1123(b)(6) of the Bankruptcy Code - a pretty dubious position, of course, but one relied on in the Second Circuit Purdue decision - Congress overstepped its bounds and violated the separation of powers, the amici assert.

How do they drop this at the president’s doorstep? Even though they were created by Congress under Article I, the amici say, bankruptcy courts are actually part of the executive branch under Article II, and their “coerced release” of opioid victims’ common law claims against the Sacklers “would be an act of the executive branch snatching power from the judicial branch while depriving creditors of their fundamental rights, and most certainly a separation of powers violation.”

Congress cannot give the executive branch the power to impose “judicial outcomes for preexisting common law disputes,” the amici conclude. “Authorizing coerced releases eliminates common law outcomes and leaves to the judge’s imagination the formulation of substitute outcomes.”

So, no risk of bankruptcy courts becoming a powerless backwater: The power to discharge debts is squarely and properly housed in the bankruptcy courts. But, “coerced releases” of common law claims are something not even Congress has the power to withdraw from Article III courts.

It is worth adding that this argument endangers nonconsensual asbestos releases under section 524(g) of the Bankruptcy Code, a point that the amici are upfront about in a footnote, writing, “Coerced releases in asbestos cases are unconstitutional for the same reasons provided in this brief, but their legality is not before the Court.”

The amici make some other constitutional arguments against nonconsensual nondebtor releases. “Coerced releases,” the amici say, also violate the Fifth Amendment’s just compensation requirement by taking away claims “without a valuation of the claim and without a valuation of what the entity receives for it.”

Here’s where we point out bankruptcy courts are supposed to value the released claims and the consideration given for releases as part of the “extraordinary circumstances” standard, but, as we have noted, that is a cursory examination in most cases. All that really seemed to matter to Judge Robert Drain in Purdue was the Sacklers’ patently incredible (incredible as in not credible) “parade of horribles” should the releases be denied, not whether the amount they were paying was fair compensation for the releases.

The brief adds that “coerced releases” violate due process “by allowing the released Sacklers to retain assets and to pay their personal creditors in full, while paying other creditors fractionally, thereby creating an unfair and unreasonable distribution scheme.” Just replace ”Sacklers” with “Johnson & Johnson” and “personal creditors” with “billions in dividends to shareholders,” and you’ve got a Texas two-step argument too.

Even a little bit of populism here: “No legal training is needed to discern unfairness if a billionaire runs up billions of debt and is allowed to discharge the debt without paying all of it while keeping the balance of his or her fortune and paying in full personal creditors,” the amici argue. “Our bankruptcy laws have never allowed discharges unless creditors receive the value of the debtor-estate’s non-exempt assets and they share the value on a fair basis.”

Speaking of surprising populism from unlikely sources …

Universal Kindness

What is our favorite pastime over here at the Court Opinion Review? That’s right, citing ourselves! Back in August, we warned that chamber of commerce types might regret stumping for the Sacklers in Purdue if a 5-4 Supreme Court majority composed of three liberal justices and two Federalist Society true believers ends nonconsensual nondebtor releases for good. There are two kinds of “conservative” judges, we suggested: the pro-business Old School and the original intent true believers, and the latter may end up eating the offspring of the former.

Thus, if you were surprised when ultra-conservative Federalist Society member and Harvard law grad Sen. Josh Hawley, R-Mo., decided to rake Johnson & Johnson’s head of litigation over the coals along with (gasp) lefties such as Sens. Richard Durbin and Peter Welch at a Sept. 19 Judiciary Committee hearing on “abuse” of chapter 11, you have not been paying attention. Challenges to the legitimacy of the bankruptcy system do not follow party lines.

Hawley started out by confronting Johnson & Johnson VP Erik Haas on the U.S. Food and Drug Administration’s discovery of traces of asbestos in the company’s talc baby powder - the crux of the talc litigation that led to two unsuccessful LTL Management Texas two-step bankruptcy cases. That’s right - to make a point about Johnson & Johnson abusing the bankruptcy process, Josh Hawley, of all people, cited scientific findings by a federal government agency.

Here’s where we note that Hawley’s wife is leading the challenge to FDA science on mifepristone. If you made a guy like Hawley mad enough to go to the FDA for evidence of your malfeasance, you have done something terribly, terribly wrong.

Hawley then mentioned the $4 billion-plus punitive damages verdict against Johnson & Johnson in the Ingham talc trial in - you guessed it - Hawley’s home state of Missouri. Hawley theorized that after the Ingham verdict, Johnson & Johnson “panicked” and devised the LTL two-step to make sure “tens of thousands” of other claimants got “scraps.”

Then Hawley went after Haas’ assertion that the vast majority of talc claimants - that would be the plaintiffs’ lawyers for the 60,000 alleged ovarian cancer victims LTL rounded up in the two hours between its bankruptcy cases - supported the $8.9 billion proposed settlement in LTL 2.0. How did LTL 2.0 get dismissed, Hawley sneered, if the claimants supported the deal? Why would these claimants want to be denied their “day in court”?

Next, Hawley walked Haas through the machinations of the LTL two-step transaction - all the name changes, re-incorporations, domicile changes, mergers and splits. “Are you here to tell us this is a great way to proceed” and “fair to consumers who had asbestos in their baby powder,” Hawley asked Haas. “You created a company with the sole purpose of sending it into bankruptcy so you could limit your liability.”

And somehow Hawley found a way to bring up Covid-19, like a midlevel associate throwing together the third draft of a first day declaration. Johnson & Johnson received “billions” in subsidies from the federal government for pandemic work, Hawley asserted. Not finished, Hawley got to the opioid epidemic, accusing Johnson & Johnson of “lying about the addictive nature” of its opioids and calling his suit against opioid manufacturers as attorney general of Missouri the “proudest thing I ever did.”

Hawley concluded by accusing Johnson & Johnson of “looking actively for ways to limit liability for further torts against the American people.” That, Hawley said, is why “Americans don’t trust huge corporations.” Hawley called the Ingham verdict a “hammer” for corporate misbehavior, accused Johnson & Johnson of “distorting” bankruptcy and pushed for new private rights of action against tech companies. That’s right - a conservative who wants to increase consumer lawsuits.

WHEW. As if that wasn’t enough, Sen. John Kennedy (the Republican from Louisiana who once suggested Mexicans would be eating cat food and living behind an Outback Steakhouse if they didn’t share a border with the U.S.) took aim at Johnson & Johnson for being too woke. Kennedy pointed out that Johnson & Johnson joined other “good companies” in pledging $50 billion to combat police brutality and asked Haas how that commitment is “consistent with what you are asking us to do today.” Haas, utterly baffled, played the Corporate Credo Card.

We have exhorted bankruptcy judges and professionals for years to take more care when doling out “extraordinary” relief such as nondebtor releases as a matter of course and sanctioning obvious bankruptcy manipulation such as the Texas two-step, warning that eventually the backlash to any overreach will threaten the entire system.

We have crossed the Rubicon. There is, apparently, now no political constituency for bankruptcy overreach.

Secret Ballots and the Litigation Funding Bogeyman

New development in bankruptcy court Star Chamber technology: sealed balloting declarations. On Sept. 20, asbestos special-purpose bankruptcy vehicle Honx Inc. (not a two-step but more of an Aearo-plan for parent Hess) filed a motion to seal its balloting report, citing the usual concerns about identity theft and an incident in which someone tracked their ex via bankruptcy schedules.

The debtors also point to the Celsius creditor phishing allegations, though we note the very different creditor body of a St. Croix oil refinery versus crypto-land. That is to say, there is no indication that Honx creditors are somehow more vulnerable to identity theft than creditors of any other debtor or any explanation why the debtor supposedly cares about whether the identities of its creditors are stolen.

The real reason for the request appears to be buried in a footnote, in the form of a quotation from a case management order related to the settlement in the 3M Combat Arms litigation: “settlements of this size and nature have often attracted the attention of third-party litigation funding entities intending to prey on litigants, including settlement participants seeking litigation funding pending the receipt of potential settlement funds.”

We are sure Hess executives are nightly tossing and turning in their thousand-thread-count sheets worrying about the folks it allegedly poisoned with asbestos being preyed upon by those nefarious “third-party litigation funding entities.” Just like Johnson & Johnson filed the LTL cases because it cares a lot about talc claimants being treated equitably and receiving compensation quickly. It’s a dirty job, but someone’s got to do it.

Of course, one suspects, Honx wants to keep third-party litigation funders from getting their hands on a list of potential marks because debtors, and especially mass-tort debtors, would rather deal with individual claimants and their contingency-fee lawyers than someone with resources and bankruptcy experience that might show up and upset the apple cart.

Erik Haas wasn’t the only Johnson & Johnson rep on Capitol Hill in the last couple weeks. On Sept. 12, the House Committee on Oversight and Accountability held a hearing titled “Unsuitable Litigation: Oversight of Third-Party Litigation Funding.” Aviva Wein, assistant GC at Johnson & Johnson, showed up to push the company’s other narrative from LTL: that “baseless and excessive mass tort litigations” bankrolled by third-party litigation funding “cause harm to manufacturers” and - of course - “the consumers they mislead.”

Wein pushed several solutions, including amendments to the MDL statute “dismissing at the outset claims that do not identify scientific evidence,” “vetting claims early to weed out the 20%-50% that would never survive on their own merits,” “ensuring rigorous medical science drives the outcomes of the litigation” and “not allowing settlement to result from the mere slapdash assembly of thousands of claims.”

Huh, that doesn’t really sound like regulation of litigation funding to protect consumers. Aren’t judges already supposed to be doing all of that? Sounds more like help us not have to face juries so often. Pretty rich stuff from a company accused of selling tens of billions of dollars’ worth of baby powder composed of a “slapdash assembly” of talc and asbestos.

Of course, that’s because corporate defendants do not oppose third-party litigation funding because they care about consumers. They oppose third-party litigation funding because it allows more people to sue and effectively prosecute claims against them.

And like we always say: That’s totally fine! Companies should try to limit their tort liabilities, same as plaintiffs should try and recover their losses. This is what the courts are for: to decide between those two adversarial positions. Going to Congress to starve your opponents of funding - like filing chapter 11 to take claims out of the jury system - is an attempt to game that adversarial system.

Same goes for Honx and all the other debtors routinely asking judges to seal their creditor lists despite the fact these lists should be public records under the Bankruptcy Code and, you know, our whole national policy of transparent court proceedings. Honestly, we credit Honx for being honest enough to mention litigation funding in a footnote.

Of course, this is advocacy too. Honx might assume - like us - that Judge Marvin Isgur has an aversion to litigation funding. Big-case bankruptcy judges have an odd prejudice against plaintiffs’ lawyers and their zeal for jury trials. Still, baby steps.

We Don’t Want You to Get the Wrong Idea

Speaking of secrecy, how about the weird dance between the Tehum Care Texas two-step debtors and their formerly dogged adversaries on the official committee of unsecured creditors over a double-secret settlement? On Aug. 25, debtors’ counsel told Judge Christopher Lopez that the long-delayed mediation with Houston compadre Judge David R. Jones (of course!) had borne fruit, with the debtors, their two-step successor and the UCC (composed largely of hospitals asserting contract claims, rather than inmates with tort claims against the prison healthcare company) reaching a “global settlement.”

Debtors’ counsel then gave the judge a brief summary of the agreed terms, including recoveries for tort claimants, and indicated that the parties would work to finalize the deal, as typically happens when debtors reach global settlements with creditors. Actually, wait, no: Counsel told Judge Lopez the parties have “some reluctance to publish the terms of the settlement until the plan is filed, only because we don’t want our process derailed by misstatements about what the terms are.”

Huh. So, the debtors and the UCC reached what they believe is a fair and equitable global settlement, but are afraid to do the usual dog-and-pony show because someone might misrepresent the terms? Ah, yes, here we go again: The debtors and the UCC care a lot about the tort claimants and want to protect them from unscrupulous … who?

Seems like malarkey to us. One might suspect that the debtors and the UCC know the incarcerated tort claimants will hate the deal, for good reasons or bad (we hear the deal is $30 million before subtracting $9 million for priority claims, including attorneys’ fees, do with that what you will). So, they will bury the terms in hundreds of pages of plan and disclosure statement documents, making it more difficult for pro se incarcerated claimants to understand (if they even receive the documents via prison mail).

The debtors and the UCC know that if a media outlet were to report the amount of the settlement after it was announced in court, it would be available, in plain English, on the internet. Of course, few inmates have Reorg subscriptions (not for lack of effort by our sales department!), but maybe they knew another, more widely available outlet was watching? Like, say, Business Insider?

But don’t take our word for it! At the Aug. 25 hearing, debtors’ counsel admitted that the mediation parties “had to contend earlier this week with a very lengthy article in the Business Insider publication in the middle of our first day of mediation.”

It was nice of counsel to imply they are scared to let creditors know the terms of the deal because they are being watched by someone other than Reorg and a Houston bankruptcy judge.

Of course, with the mysterious settlement now in the works, Judge Lopez denied creditors’ motion to appoint a chapter 11 trustee on Sept. 5. The debtors and the UCC asked for a continuance of that hearing, citing the need to finalize the secret settlement, but we figure they were not too heartbroken when Judge Lopez allowed the hearing to go forward despite the movants’ inability to say anything about the deal.

On Sept. 29, the debtors and the UCC filed a plan and disclosure statement that finally disclosed the details of the global settlement, more than a month after the settlement was announced. Under the settlement, creditors would share $37 million from the nondebtor released parties - an initial cash payment of $25 million plus future installments.

The disclosure statement hints at why the debtors and the UCC feared disclosure: The initial cash payment for the hospital contract claimants (which outnumber tort claimants 5 to 2 on the UCC) is more than three times as large as recoveries for personal injury claimants, even though personal injury claims total more than $1 billion and contract claims total just over $110 million.

Under the plan, Class 5 “Personal Injury Claims” would share a trust funded with 23% of the cash from the initial settlement payment after payment of administrative claims (read: the debtors’ and UCC’s professionals), 50% of the cash from future installment payments and insurance claims. Class 4 “Non-Personal Injury Claims” would receive interests in a trust funded with 77% of that initial payment and the other 50% of the installment payments.

So two classes of unsecured claimants get wildly different shares of the settlement funds. Hmmm.

How do the proponents expect the inmates to swallow this and not opt out? Remember, in the Fifth Circuit, debtors have to allow creditors to opt out of nondebtor plan releases, and the whole point of the settlement is to get releases for the entity that emerged from the Texas two-step. First, the proponents make a big deal out of the possible insurance recoveries (and “recoveries from non-Debtor codefendants or their insurers”), which will benefit their personal injury claims only. In fact, the DS alludes to pretty comparable recovery percentages for the two classes of claims, but with a lot of caveats.

Regardless, the plan proponents aren’t taking any chances - to try and get the inmates on board, the debtors and the UCC entice them with the ol’ Boy Scouts of America automatic payout option. Under the plan, inmates who filed timely proofs of claim for more than $5,000 can elect to get an “expedited distribution”- and receive an automatic $5,000 payout within 60 days after the effective date, no questions asked. Claimants, however, cannot take the $5,000 and opt out. The expedited distribution option is available to both classes of unsecured claims.

Of course, the disclosure statement makes every effort to convince the inmates to take the deal. “If you do not opt for the $5,000 Expedited Distribution, and you have an unliquidated Personal Injury Claim, you will participate in a mandatory mediation process for your claim before trial,” the proponents say. That likely sounds vaguely scary to a pro se inmate. If the claimant fails to settle in mediation, the debtors warn, “the claims administration process will likely take 12 months or significantly longer depending on the case.”

In other words, take $5,000 now, no questions asked, or opt out, try to get what you are actually owed and collect maybe, maybe a year from now. For prison inmates, that’s a pretty enticing proposition.

As discussed in greater detail in the Disclosure Statement, if you select the opt-out option, you waive any right to receive payments from this $37 million settlement fund, which is the primary source of payment for most creditors,” the debtors and the UCC warn. “If you are considering this option, the Debtor and the Committee strongly recommend that you first consult a bankruptcy attorney to advise you on whether doing so is in your best interests.”

Well, we agree about that.

The debtors and the UCC asked Judge Lopez for an “emergency” disclosure statement approval hearing on Oct. 17. Who knows whether inmates will even receive the disclosure statement and plan via snail mail by then, let alone in time to object. And a lack of objections to the disclosure statement is key here: If the disclosure statement is approved as is, the $5,000 opt-in option will be available, and many inmates would likely take it, thanks to the warnings in the disclosure statement. By the confirmation hearing, the whole deal could be stitched up.

Not that it isn’t stitched up already. Remember, Judge Lopez’s senior colleague Judge Jones mediated the settlement. The deal thus comes to Judge Lopez with his colleague’s implied seal of approval, one of the problems with judicial mediation. We doubt Judge Lopez is eager to risk some awkward moments in the break room by sending the parties back to Judge Jones.

James River Blues, Revisited

Remember way back in January 2022 when we first discussed the Eastern District of Virginia’s Ascena decision tossing nonconsensual nondebtor releases? Not only that, but the district court testily chided the debtors for paying New York rates for New York bankruptcy counsel. “[W]hen you choose the venue, the case law says you choose the rates of the locale,” Judge David Novak said. “I want to make it clear for any of the bankruptcy folks that are here, we’re using Richmond rates going forward because I am very troubled about the fee rates here.”

As predicted, that double whammy snuffed out the Richmond bankruptcy court’s once-bright future as a retail debtor destination, forcing debtors’ counsel to resort to less genteel jurisdictions like, ugh, New Jersey. Problem is, some cases, and final fee applications, remained pending in Richmond after the Richmond rates rule came down.

In Ascena, the district court ordered a new bankruptcy judge in Norfolk (not Richmond) to issue a report and recommendation on fee applications for post-remand time in accordance with Judge Novak’s decision. Principal debtors’ counsel did not submit an application for the relevant period. Co-counsel for the debtors filed an application with a blended rate of $988.15 per hour, and counsel for the official committee of unsecured creditors asked for a blended rate of $985 per hour.

Judge Frank Santoro invited briefs and directed that “[f]or Fee Applications that request hourly rates that exceed the prevailing rate in the Richmond market, the brief[s] must analyze why a departure from the rate in the local market is reasonable.”

They must have convinced Judge Santoro, because he says in his August 2022 report and recommendation that “[c]ourts vary in how they analyze requests for out-of-market attorneys’ fees, but a consistent theme emerges: national bankruptcy cases are different.” According to the Norfolk bankruptcy judge, “limiting counsel to local-market rates in cases that are national or regional in scope would cap attorneys’ fees without consideration of whether the rate is reasonable in the particular case.”

However, Judge Santoro cautioned, “This is not to say that lawyers at national firms automatically get out-of-market fees for all work in a national bankruptcy case.” According to Judge Santoro, courts must consider whether “the work done by counsel is atypically complex, efficient, or precocious for the relevant local market,” the judge concluded.

Regarding UCC counsel, the judge found that “given the novelty of the issues at hand, it was imperative that attorneys handling the matter during the Compensation Period have extensive expertise in handling large Chapter 11 reorganizations.” A national firm “was necessary to achieve a favorable outcome,” and its rates “reasonably reflect the skilled application of their expertise to the exigencies and complexities of the task at hand.” Ditto for debtors’ co-counsel.

In September 2022, district Judge Novak, the judge who handed down the Richmond rates rule, adopted Judge Santoro’s opinion on the Ascena fees but cautioned “future mega case” professionals (ha!) not to rely too much on that. “[T]he ‘yardstick’ for the rate calculation must begin with the prevailing rates in this District, not a national rate as suggested by Chief Judge Santoro,” Judge Novak said.

Up next: applications for mega case compensation in the leftover Nordic Aviation case. In October 2022, Richmond bankruptcy Judge Kevin R. Huennekens, now with plenty of mega-case-free time to work on opinions, penned a lengthy ode to national rates that seemed directed at winning hearts and minds in the district court.

“This is not a case that required every dollar, pound, euro, or kroner paid to one of the Retained Professionals to be measured against every remaining dollar, pound, euro, or kroner available for distribution to creditors,” Judge Huennekens implored. “No objection was raised to the payment of any of the professional fees in these Chapter 11 Cases because it was clear to all the impacted parties that the Retained Professionals brought considerable value to the restructuring process - exponentially more than they seek in fees here.”

Well, maybe no objections were raised because everyone’s attorneys were getting paid from the estate. But whatever, case closed, everyone can pack up and start new lives in Trenton.

Except - there’s still one super-mega case left in Richmond: Intelsat. That case seemed done and dusted, until on June 22, district Judge Robert Payne reversed Judge Keith Phillips’ disallowance of SES’ claims and remanded the matter back to the Richmond bankruptcy court. Which means further professional fees for the post-remand period, which means, you guessed it, another possible fight over Richmond vs. national rates.

On Sept. 21, Judge Phillips, with the agreement of the parties, reopened two of the Intelsat bankruptcy cases to handle the remand. Pretty ministerial stuff, you would think, but clearly the district judges are still watching everything the Richmond bankruptcy judges do with a keen and jaundiced eye. On Sept. 28, Judge Payne issued a brusque order in the SES claim appeal asking the parties to explain exactly how the SES claim order was final if the cases could be reopened.

We honestly don’t care about the implications of the Fourth Circuit’s recent Kiviti decision disapproving of parties manufacturing finality to secure immediate appeal of otherwise interlocutory bankruptcy orders. Maybe next time! What we do find interesting is Judge Payne’s suggestion in his order that Judge Huennekens’ fee decision in Nordic Aviation conflicts with Judge Novak’s September 2022 final fee ruling in Ascena.

Specifically, Judge Payne says he “is aware of” the Ascena report and recommendation and Judge Novak’s less-than-enthusiastic approval as well as the Nordic Aviation fee decision from Judge Huennekens. Judge Payne says there is an “apparent conflict” between the two decisions “on a matter of importance in all bankruptcy cases (attorneys fees),” and he “is considering withdrawal of the reference on the issue of attorneys fees in this case.” Judge Payne invites the parties to brief the issue along with the finality question.

Now, we have been warning that district courts are getting weary of mega case bankruptcy judge shenanigans for some time, but we could not have anticipated the level of distrust at work here. Judge Payne is considering taking the Intelsat fee applications away from the bankruptcy court before they have even been filed, on the basis of an apparent conflict between two cases where national rates were approved (including one decision from the district judge that laid down the Richmond rates rule in the first place).

What prompted this? A simple, agreed motion to reopen a bankruptcy case to deal with a reversal on appeal. Nothing could possibly be more anodyne. Sure feels like Judge Payne, the chief judge of the Richmond district, was waiting for a new, rather flimsy excuse (the jurisdictional issue) to once again batter the mega case professionals. Hell hath no fury like a district court scorned.
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