We had a good reaction to Tuesday's entry on Judge Sotomayor's bankruptcy opinions. I was unaware of the prevailing criticisms of Judge Sotomayor at the time that I was writing the post. Because there was so much interest in the subject, I went back to see whether there might be any additional bankruptcy opinions that I might have missed. Sure enough, Judge Sotomayor authored the Second Circuit's opinion in In re Millenium Seacarriers, Inc., 419 F.3d 83 (2d Cir. 2005), which I missed in my initial search on Tuesday.
Millenium Seacarriers is an interesting case involving the intersection of bankruptcy and admiralty jurisdictions. The debtor was a holding company for "vessel-owning subsidiaries" that proposed to sell substantially all of its assets to the senior lender free and clear of liens. Certain maritime lienholders objected primarily on the ground that the bankruptcy court lacked jurisdiction to sell free and clear of maritime liens. The procedural posture of the case was relatively tricky. By the time the case arrived at the Second Circuit, the bankruptcy court had arranged for the debtor to file an adversary proceeding to determine the priority of the liens. The objecting lienors maintained that the bankruptcy court did not have jurisdiction to adjudicate the validity of the liens but did not attempt to withdraw the reference to the district court. The bankruptcy court granted summary judgment to the banks and that judgment was affirmed on appeal to the district court.
On appeal to the Second Circuit, the judgments below were affirmed. Judge Sotomayor, writing for a unanimous court, went through a very involved discussion of the factual and procedural history of the case and an even longer discussion of the legal issues involved. The opinion states that the Second Circuit was resolving "only the narrow question of whether a a bankruptcy court may adjudicate maritime liens where the lienors voluntarily submit to its jurisdiction." 419 F.3d at 95. To do so apparently required a twenty-page opinion during which Judge Sotomayor touched on such concepts as the tortured history of bankruptcy jurisdiction, the criteria for core proceedings, proceedings becoming core by the conduct of the parties, the limits on bankruuptcy courts power over Article III matters, and the exclusive powers of admiralty courts over maritime liens. Ultimately, the opinion, probably correctly, comes to the conclusion that the objecting lienors submitted to the jurisdiction of the bankruptcy court and therefore it had the power to adjudicate the priority of the liens.
In the last forty-eight hours or so, I have read Judge Sotomayor being criticized as being less than one of the brighter lights on federal bench. Not knowing many dim bulbs who graduate from Princeton and Yale Law School, I was skeptical of the charge in any event. Having now read a lengthy opinion from a generalist writing on an obscure topic in my area of expertise, I am even less convinced that the characterization is warranted. This opinion is not the work of a judge who was out of her depth and struggling to make sense of difficult and technical points of law. As an example, Judge Sotomayor makes a very clear distinction between the power to adjudicate priority of liens and the power to adjudicate validity of liens; it is a nuanced point that could have affected the outcome of the case and that not every judge will grasp. The appreciation of bankruptcy jurisprudence exhibited in Millenium Seacarriers is certainly no less sophisticated than exhibited in past Supreme Court decisions.
None of this should be taken to be an endorsement of Judge Sotomayor based upon this opinion. The Millenium Seacarriers opinion is not without flaws. It is probably more detailed than it needed to be and the depth of some discussions was well past the point necessary to explain the reasoning. If brevity is the soul of wit, one would not expect Judge Sotomayor to be the court jester come October. But merely overfunctioning does not disqualify one from appointment to the high court. Nothing that I have read of Judge Sotomayor's reported bankruptcy decisions would give me reason to oppose her appointment.
Thursday, May 28, 2009
Update: More Sotomayor on Bankruptcy
Wednesday, May 27, 2009
Phoenix Coyotes Update: Team Relocation Showdown Moved Up to June 9
According to reports coming from Judge Baum's courtroom, he has changed the schedule for the crucial hearing on the right to move the Phoenix Coyotes. That hearing now is scheduled for June 9.
Regular readers might recall that whether the NHL can dictate where a team plays has a huge effect on the value of the team. Jim Balsillie is offering over $200 million if he can relocate the team to southern Ontario. If the team must stay in Phoenix, the value is substantially less.
This issue has enormous implications for the rest of the sports world as well. If a team can effectuate a move in contravention of league rules by filing a bankruptcy and selling to a new entity, you can expect teams in other leagues to follow the Coyotes' lead. The Wall Street Journal discusses that point here.
Tuesday, May 26, 2009
Predicting the Supreme Court's Decision in the Travelers Case
Lost in the excitement over GM, Chrysler and the other high-profile bankruptcy cases, there is a decision upcoming in a bankruptcy case pending before the Supreme Court. I discussed the oral arguments here and the effect that the decision will have an a current circuit split here. Back then, I did not hazard a guess as to which way the Court would rule. But today we have a new tool.
The New York Times today reports (free registration required) on some studies that show that, in broad strokes, whichever side gets asked more questions in oral argument loses the case:
A few years ago, a second-year law student at Georgetown unlocked the secret to predicting which side would win a case in the Supreme Court based on how the argument went. Her theory has been tested and endorsed by Chief Justice John G. Roberts Jr., and has been confirmed by elaborate studies from teams of professors.Ms. Shullman's hypothesis has been tested a couple of times, most recently by a new study that reviewed 2,000 cases, and generally validated.
“The bottom line, as simple as it sounds,” said the student, Sarah Levien Shullman, who is now a litigation associate at a law firm in Florida, “is that the party that gets the most questions is likely to lose.”
So with that information I reviewed the transcript of the Travelers oral argument to see which way the Supreme Court is likely to rule. The petitioners in the Travelers case are a group of insurance companies led by Travelers. The respondents are the asbestos claimants and another insurance company. By my count, counsel for the petitioners received a total of 48 questions and counsel for the respondents received a total of 60 questions. That would indicate that the Supreme Court is likely to rule for the petitioners and uphold the ability of bankruptcy courts to enjoin suits against third parties.
A Brief Review of Judge Sotomayor's Bankruptcy Opinions
Since hearing about President Obama's selection of Judge Sotomayor to fill the vacancy on the Supreme Court, I have been reading Judge Sotomayor's reported decisions arising in bankruptcy cases. Although this review is not exhaustive, I have not found anything particularly troublesome from a bankruptcy perspective yet.
Judge Sotomayor authored the Second Circuit's opinion in In re Adelphia Comm. Corp, 544 F.3d 420 (2d Cir. 2008), in which the Second Circuit affirmed the dismissal of the equity committee's appeal of the plan confirmation order.
Judge Sotomayor authored the Second Circuit's opinion in In re Board of Directors of Telecom Argentina, S.A., 528 F.3d 162 (2d Cir. 2008) and affirmed the bankruptcy court's decision to extend comity to an Argentinian insolvency proceeding pursuant to section 304 of the Bankruptcy Code.
Judge Sotomayor authored the Second Circuit's decision in Browning v. MCI, Inc. (In re WorldCom) 546 F.3d 211 (2d Cir. 2008) affirming the barring of prosecution of a case in state court based upon a pre-petition claim.
Judge Sotomayor authored the Second Circuit's opinion in In re Bethlehem Steel Corp., 479 F.3d 168 (2d. Cir. 2007), in which the Second Circuit affirmed the decision of the district court holding that a former employee's claim for early retirement benefits was not an administrative expense.
Judge Sotomayor authored the Second Circuit's opinion in In re Detrano, 326 F.3d 319 (2d cir. 2003), in which the Second Circuit affirmed the judgment of Judge Amon remanding the case to the bankruptcy court for a determination whether the claims in an underlying settlement agreement were non-dischargeable pursuant to section 523(a)(4).
Judge Sotomayor voted with the majority in Queenie Ltd., v. Nygard Int'l, 321 F.3d 282 (2d Cir. 2003) and wrote separately to clarify a non-bankruptcy point.
Judge Sotomayor authored the Second Circuit's opinion in Falk & Siemer v. Maddigan (In re Madigan), 312 F.3d 589 (2d Cir. 2002), in which the Second Circuit affirmed the holding that attorneys fees awarded in connection with a custody proceeding were non-dischargeable pursuant to section 523(a)(5).
Judge Sotomayor authored the Second Circuit's opinion in New Haven Projects, LLC v. Coty of New Haven (In re New Haven Projects, LLC) 225 F.3d 283, (2d Cir. 1999), in which the Second Circuit affirmed the decision of the district court upholding the bankruptcy court's decision not to conduct a redetermination of tax liability pursuant to section 505 of the Bankruptcy Code.
None of these rulings seem clearly wrong or even particularly suspect. I am not sure that I found every bankruptcy opinion but if there are any others worth adding, just let me know and I will take a look.
NY Times: Bankruptcy for G.M. Would Tax the Experts
According to this article from the New York Times (free registration required), Weil Gotshall and Kirkland & Ellis are expected to represent General Motors when it files its chapter 11 case. Weil will represent the debtor in possession and Kirkland will represent the reformed GM after the 363 sale.
A reason that so many lawyers are needed is that the reorganization, as envisioned by the automaker with support from the federal government, is complex.Even if the basic model for the bankruptcy case -- a 363 sale to NewCo and using the proceeds to pay creditors -- is relatively simple, the magnitude of the case is immense. I worked on both the Federal-Mogul and Delphi bankruptcy cases and GM will dwarf both of those. GM will require many dozens of attorneys just to manage the basic aspects of the case. And the total professional fee bill will make for easy news stories at some point.
The plan is to split G.M.’s good assets from the bad assets, with the idea that the part owning the good assets would be a viable company because it would not be burdened with the other businesses. G.M. would sell desirable brands like Chevrolet and Cadillac to a new company, which would emerge from bankruptcy protection in a few months’ time. Less-attractive assets and liabilities would remain with the old G.M., and eventually be liquidated.
Required Reading on Supreme Court Nominee Sonia Sotomayor
With President Obama about to announce Judge Sotomayor as his nominee to the Supreme Court, SCOTUSBlog has an excellent piece this morning about the nominee. If your friends and family are like mine, you will get at least a question or two about the nominee. At a minimum, reading this will provide you some basis to respond intelligently.
Monday, May 25, 2009
Breaking: NHL and Phoenix Coyotes Agree on Operation of Team
The Globe and Mail reports this afternoon that the NHL and Jerry Moyes have agreed on operation of the team during the bankruptcy case:
The NHL and Phoenix Coyotes owner Jerry Moyes have essentially agreed on how the team will be operated on a day-to-day basis as a result of court-ordered mediation.Sounds to me that the NHL mostly caved on the issue of control. This is as expected.
Both sides will be able to tell U.S. Bankruptcy Court Judge Redfield T. Baum at a hearing on Wednesday that the once-contentious issue of who controls the team has been resolved. It is expected that the league will continue to finance the team's operation until a buyer is found.
There is one source of conflict remaining – the timeline of the bankruptcy petition, sale of the team and its possible relocation. The Moyes camp wants it done quickly so that the winning bidder, be it Jim Balsillie and his $212.5-million (all currency U.S.) offer or anyone else, can move the team by the start of the season this fall and avoid another year of $40-million-plus losses in Phoenix. The NHL remains adamant that is much too soon for a move for various reasons, including their procedures for allowing a franchise to move and logistical problems with the schedule.
Friday, May 22, 2009
President Obama to Oversee Government Takeover of Coyotes
This is brilliant. I wish I had thought of it myself:
In a surprise announcement, US President Barack Obama announced earlier today that a new government organization is being created to oversee the takeover of the fledgling Phoenix Coyote hockey franchise.Read the rest at bleacherreport.com.
“It is in our national interest to have a profitable, stable, and fan-friendly hockey industry within this nation. This isn’t something we want to outsource,” Obama said in a prepared statement. “If we let the Coyotes move to Winnipeg or Hamilton, it might not be long until my Blackhawks have moved to the Yukon.”
Obama also couldn’t resist a good-natured jab at his rival for the Oval Office. “In the spirit of bringing America together, I’m going to try to save an organization in John McCain’s backyard.”
The deal surprised many Obama critics and supporters, who always new the President as an avid basketball fan.
Although the details have yet to be announced, sources indicate the ownership would be split between the US Treasury and the National Hockey League Players’ Association (NHLPA).
It's a joke...I think.
Where The Work Was -- Regional Firms
Here is a very interesting read from The American Lawyer. Last year the smaller regional firms grew more than the larger firms in major urban areas:
Reports of their demise, it turns out, were premature. For years, the regional firms that constitute much of the Second Hundred were told that they were exactly the wrong size: too big to compete with the narrow focus of boutiques and too small to match The Am Law 100's national footprints and marque names. But last year, as the financial sector began its meltdown, the Second Hundred's slow-growth strategies were vindicated.Read the rest here
While average revenue per lawyer at The Am Law 100 decreased by 1.2 percent in 2008 (the first decline since 1991), Second Hundred firms were essentially flat. And when the Second Hundred's national firms, as well as those in the nation's biggest money centers—Boston, Chicago, Los Angeles, New York, San Francisco, and Washington, D.C.—are left out of the calculations, average RPL growth was 1 percent. In all, 49 Second Hundred firms posted increases in RPL, compared to 42 Am Law 100 firms.
What's more, the firms that outperformed were the ones that pointedly ignored The Am Law 100's usual recipe for growth—relentless focus on the most lucrative markets, practices, and clients. This time around, it was Second Hundred firms based in middle markets that showed the most growth. Milwaukee's Second Hundred firms increased their revenue per lawyer by an average of 3.2 percent. Indianapolis's and Kansas City, Missouri's showed average RPL gains of 3.1 percent and 7.9 percent, respectively. Snell & Wilmer, the only Phoenix firm with a multiyear presence in The Am Law 200 (a second firm, Lewis and Roca, was added this year), increased its RPL by 8.6 percent.
To illustrate the point here, most of our readers are not in the major cities. Even though the high-profile cases get a lot of attention here, the large legal markets represent perhaps forty percent of our readership. The rest come from smaller urban areas and towns.
Washington Post: GM Filing As Early As Next Week
In a move that should surprise no one, the Washington Post reports today that GM will file chapter 11 as early as next week:
The Obama administration is preparing to send General Motors into bankruptcy as early as the end of next week under a plan that would give the automaker tens of billions of dollars more in public financing as the company seeks to shrink and reemerge as a global competitor, sources familiar with the discussions said.Politics is not the focus of this blog but notice how the story talks about Chrysler being lifted from bankruptcy. To bankruptcy practitioners, this description seems odd. Our sense of the end of a bankruptcy case is completely different. We would look at the closing of a case after consummation of a plan, an approval of a final report, or a dismissal as the end of the case. But for most purposes, a 363 sale that removes the workings of a company effectively ends the effect of the bankruptcy. Certainly many creditors will be waiting a while to receive distribution on their claims, but firms that do business with "Chrysler" will not be dealing with a debtor in possession for very long. This is effective spin by the Obama Administration to make the bankruptcy process seem quick and less painful than if the country had to wait years for traditional "emergence" after reorganization.
The move comes as the administration prepares to lift the nation's other faltering car company, Chrysler, from bankruptcy protection as soon as next week, industry sources said.
The shifts into and out of bankruptcy are landmarks in the Obama administration's attempt to broker a historic restructuring of the American auto industry in the space of months.
The legal tactic is viewed by some as the best means of reviving the companies. But the speed of the government-led transformation has triggered complaints that the rights of investors and dealers are being trampled. Meanwhile, fears that a bankruptcy could lead to cascading business failures are spreading throughout GM's vast chain of suppliers.
Thursday, May 21, 2009
Breaking: GM and UAW Reach Deal on Contract Changes
From the New York Times:
The United Automobile Workers union said Thursday that it had reached a tentative deal with General Motors and the Treasury Department that would help G.M. cut its labor costs and reduce its obligations to a new retiree health care fund by billions of dollars.Read the rest here.
The U.A.W. did not release details of the deal, which must be ratified by G.M. workers. The agreement is expected to be similar to one reached last month with Chrysler, which allowed that automaker to substitute equity for up to half of the $10 billion owed to its retiree health care fund. G.M. owes about twice that amount to the fund for its workers.
The deal is one of the government’s requirements for G.M. to win more loans but not enough in itself to keep the carmaker from having to file for bankruptcy protection on June 1, the government’s deadline. More important, G.M. needs to persuade nearly all of the bondholders who hold more than $27 billion of its debt to swap their claims for stock in the restructured company. Most analysts expect the offer to fail.
Partial Settlement in Chrysler
It's not a global settlement but resolves a lot of issues for the PBGC, Daimler and Cerberus. It puts a small dent in a $10 billion dollar pension shortfall. Here is a summary of the terms from Randy Reese:
* Daimler will forgive all of its outstanding loan ($1.5 billion) to the Debtors under the Second Lien Credit Agreement, and Cerberus will forgive all of its outstanding loan ($500 million) to the Debtors under the Second Lien Credit AgreementRead the rest of Randy's description and get copies of the documents here.
* Daimler will forgive its outstanding $400 million loan to Chrysler Holding’s subsidiary
* Daimler will make scheduled cash contributions of $600 million over a two-year period for the benefit of the Chrysler Pension Plans to reduce shortfalls in the funding of the plans, and it will amend the PBGC Guaranty to reduce the amount to $200 million and continue the amended guaranty after the plans are assigned to New Chrysler pursuant to the Fiat Transaction. These payments and continuing guaranty will be made in lieu of any other obligation to contribute to the Chrysler Pension Plans
* Daimler, Cerberus and Chrysler "will waive all current and future claims that they may have against each other and against each other’s respective Affiliates under the Contribution Agreement, dated as of May 14, 2007" and other related Agreements, and that the Parties “will execute releases with respect to the waived claims”
* In addition to the “waived claims” in the binding term sheet, Chrysler will release all other claims against Cerberus and Daimler (other than claims relating to certain ongoing agreements).
Wednesday, May 20, 2009
How a Ruling in the Phoenix Coyotes Case Would Be Better Than a Settlement
As discussed here and extensively in the media, one of the major issues in the Phoenix Coyotes case is whether the NHL has the right to control where its franchises play. This is an issue of competing considerations in a bankruptcy case. On the one hand, sports leagues in the United States operate more like franchised restaurants than like true competitors. McDonald's wouldn't want two restaurants in close proximity unless there were a lot of people in the area. The NHL works the same way. If a team moves into the backyard of another, there is a chance that both will suffer as a result. On the other hand, ability to relocate the Coyotes would increase the team's value substantially. The NHL is not infallible and is prone to making questionable franchise-location decisions. The ability to move the team to Hamilton might double the value of the team.
Unfortunately for everyone involved, no one knows for certain whether the NHL can enforce its rules on team relocation. There are only a handful of cases involving team relocation and only one of those occurred in the context of a bankruptcy case. So no one really knows whether the interests of maximizing value for creditors trumps a league's ability to control team movement. If a team can effectuate a move just by filing a bankruptcy case and selling to new ownership, that is a powerful tool for team owners. Alternatively, if even the magical workings of a bankruptcy case cannot defeat league rules on relocation, owners and prospective purchasers will not waste their time trying to use a bankruptcy filing to move a team.
As much as mediation and consensual resolution might be ideal for the parties involved, the rest of the sports world arguably would be better off with a clear decision one way or the other. If Judge Baum is inclined to foster a resolution through negotiation, the opportunity to know whether leagues can enforce their relocation rules in a bankruptcy case will be lost.
Phoenix Coyotes Sent to Mediation, No Obvious Reason Why
Judge Baum has ordered the Phoenix Coyotes and the NHL to mediation, but not on the issue that seems more suited to mediation. From Bloomberg:
The Phoenix Coyotes and the National Hockey League were ordered by a judge to try to resolve their dispute over who should control the team while it’s in bankruptcy.As readers here will recall, there are two major issues at play in the case. The first is whether Jerry Moyes or the NHL control the team. The NHL says that it obtained control of the team when it bailed out Moyes last November. Moyes says that the NHL did not take full control. The second issue is whether a buyer, such as current stalking horse Jim Balsillie, can move the Coyotes to another city, presumably to a location near Hamitlon, Ontario. The NHL opposes such a move if for no other reason than Hamilton is a potential expansion market where the NFL could charge rights fees.
U.S. Bankruptcy Judge Redfield T. Baum, at a hearing today in Phoenix, ordered the two sides into formal mediation to try to end the dispute over who is legally entitled to run the team’s day-to-day operations. He asked the Coyotes and the NHL to give him a status report on their efforts later this month.
It appears that Judge Baum has sent Moyes and the NHL to mediation only on the first issue. The reason to send this issue to mediation is not at all apparent. The issue of who controls the team is binary; either Moyes or the NHL control the Coyotes. There is no natural middle ground for compromise. Mediation works best when there is some room for both sides to move to come to an agreement. The typical example would be two sides in litigation trying to come to a financial settlement. For Moyes and the NHL to come to a settlement on who controls the team, one side has to cave in. It is not a natural recipe for mediation.
Mediation might make more sense for the second question, whether the new owner of the Coyotes may move the team. On that issue there might be room for compromise. Perhaps the new owner would agree to move the team to an area near Hamilton that would not impact the Buffalo Sabres too substantially. Or perhaps the new owner could pay the equivalent of a portion of an expansion rights fee for the right to move the team to Hamilton. There are potential compromises on that issue that could come out of a mediation.
Tuesday, May 19, 2009
Financial Crisis: Good Time for Reform
Here is a piece from an article discussing bankruptcy on a global level. It points out that reforms of insolvency laws often take place at a time of financial crisis:
Importantly, systemic crisis periods are also periods of great opportunity for meaningful reform that would otherwise be stymied by powerful political interests. Claessens et al. (2002) provide examples of such reforms from East Asian financial crisis, which include the passage of improved bankruptcy laws in South Korea, Thailand and Malaysia, and the formation of specialized bankruptcy courts in Indonesia and Thailand. Another example of a successful reform comes from Colombian bankruptcy reform introduced in the midst of a major financial crisis in late 1999. Gine and Love (2008) show that the reform significantly improved the efficiency of the bankruptcy process by streamlining reorganization proceedings.As another although less urgent example, many of the changes to bankruptcy laws in the United States came during or shortly after recessions. 1978, 1984 and 1994 all were times during or shortly after difficult economic times. 2005 of course was during a boom period. Maybe the economic times has a real impact upon the quality of the legislation as well. Most practitioners would agree that the 2005 amendments were less successful than earlier attempts at reform.
No Ruling Today in Phoenix Coyotes Bankruptcy
At least that's what I am reading on the many live updates and Twitter feeds coming from the courthouse.
Links for Following Today's Phoenix Coyotes Bankruptcy Hearing Live (Updated)
The Toronto Star is live-blogging and has Twitter feeds. Go here.
Update: The Arizona Republic has a live chat going from its Twitter feed. Go here for the live chat.
Further update: The Twitter feed from Chris Johnston is excellent.
Reuters: GM bankruptcy plan eyes quick sale to government
From Reuters:
General Motors Corp's plan for a bankruptcy filing involves a quick sale of the company's healthy assets to a new company initially owned by the U.S. government, a source familiar with the situation said on Tuesday.And we thought that the government was heavily involved in the Chrysler sale. That was nothing compared to this.
The source, who would not be named because he was not cleared to speak with the media, did not specify a purchase price. The new company is expected to honor the claims of secured lenders, possibly in full, according to the source.
The U.S. government would honor the claims of secured lenders -- possibly in full, according to the source -- and would not make any other payment to acquire the healthy GM assets.
The remaining assets of GM would stay in bankruptcy protection to satisfy other outstanding claims.
An Excellent Summary of Today's Hearing in the Phoenix Coyotes Case
From the Arizona Republic:
Although court filings already number in the hundreds of pages, the key issues in today's Phoenix Coyotes bankruptcy hearing are simple.Read the rest here.
• Who controlled the team, franchise owner Jerry Moyes or the National Hockey League?
• Regardless of who had control, can a team decide to move without approval of its league?
Where the hockey franchise plays in the fall, and who ultimately owns it, could be decided in the case now before U.S. Bankruptcy Judge Redfield Baum. A hearing begins at 1:30 p.m. in his courtroom in downtown Phoenix.
The case has drawn attention from Phoenix to New York to Hamilton, Ontario, where a new owner would like to move the team.
Monday, May 18, 2009
WSJ: CrossHarbor to Buy Yellowstone Club
The Wall Street Journal is reporting that CrossHarber Capital Partners has a deal to acquire the Yellowstone Club. Details here.
Hat tip: netDockets
MSNBC: GM bankruptcy would be complex, painful
If this were not apparent already:
If General Motors follows Chrysler into bankruptcy court, as many are now expecting, it is likely to be far more painful for both the carmaker and the U.S. economy than its smaller rival’s bankruptcy filing of a few weeks ago.Read the rest here.
GM's vast scale and complex network of partners make the ramifications of a bankruptcy highly unpredictable, especially given the uncertainty about the global economic conditions that pushed the auto industry to the breaking point in the first place.
“The biggest difference is scale: GM is a much larger company,” said Stephanie Brinley, senior manager of product analysis for the consultancy AutoPacific.
GM has more plants, nearly five times the number of employees and twice as many dealers as Chrysler, whose own bankruptcy proceeding is not guaranteed to run as smoothly as the promised lightning-fast timetable of 30 to 60 days would suggest. In addition, GM's larger footprint means that auto parts suppliers are more reliant on it.
Phoenix Coyotes Case Roundup
There are so many news stories out there now about the Phoenix Coyotes case that you would think it was one of the Big Three auto manufacturers rather than a struggling hockey franchise in the Sun Belt. That said, the Phoenix Coyotes case is fascinating at a couple of levels.
First, there is the issue of control of the case. As we discussed a couple weeks ago, Jerry Moyes filed the case with the intention of selling the team to Jim Balsillie, who wants to move the team to Hamilton Ontario. The NHL argues that Moyes did not have the right to file the bankruptcy case because the NHL is in control of the team pursuant to loans that the NHL made recently. Moyes disputes that assertion and argues, as reported here in the Globe and Mail, that he still was in control of the team:
In his filings, Moyes said the league never had control of the team and in fact did not want control.Next there is the issue of whether the bankruptcy court will permit the sale to Balsillie and whether he can move the team to Ontario. There are a lot of interesting perspectives on this issue. The New York Times explains that Balsillie might be able to locate the team on the north side of Hamilton to avoid direct conflict with the Buffalo Sabres:
He says by taking a different position now the league is trying to fraudulently take the club away from him.
Moyes argues the league officials made it clear last November, after the financing was arranged, that they did not plan to operate the club and that the arrangment "didn't change anything" in terms of how the club was run.
The league did not have day to day control, he added, but merely received weekly financial updates.
He said the league never publicly said it was in charge and in fact Deputy Commissioner Billy Daly was quoted in January as saying Moyes' group was "making day to day business decisions".
"Since November 2008 the same poeple have continued running the hockey club in the same ways. The NHL did not hire or fire employees, bring in a team of people to occupy desks" he alleged.
Here’s the rub. Under longstanding N.H.L. rules, Hamilton lies within the Buffalo Sabres’ territory. Anything having to do with N.H.L. or affiliated minor league hockey within a 50-mile radius of the Sabres’ home rink in downtown Buffalo has to be approved by the Sabres. Hamilton’s Copps Coliseum is 45 miles from downtown Buffalo — a problem the Hamilton City Council knew about before construction began in 1983 but chose to ignore by jettisoning alternative plans to build the rink farther to the north. (Nice timeline on the history of Copps Coliseum in this article from The Hamilton Spectator.)The Toronto Star reports on whether the Coyotes could reject their lease in Glendale, Arizona:
If Balsillie were to build a new rink in, say, Waterloo, or in the nearby cities of Kitchener, Guelph or Cambridge — all just north of Hamilton and therefore beyond the territorial reach of the Sabres — he would have only the Leafs to bargain with. The Leafs, the N.H.L.’s richest team, could well afford to have another team in the GTA, as long as the extremely wealthy Balsillie paid them an extremely high indemnity.
Eric Schaffer, a senior bankruptcy partner at the international law firm Reed Smith, represented Fox Sports in the Penguins bankruptcy. But he actually had drafted the lease the Penguins signed with the city in the 1990s.And recall of course that Balsillie's offer is conditional upon his ability to relocate the team to Ontario. But it is apparently the best offer on the table, as the National Post reports:
"For purposes of putting together the lease, I was asked if I could do something that was bankruptcy proof," said Schaffer. "The answer was: `I don't know, but we can try.'"
Schaffer penned legal terms calling for "injunctive relief" – meaning that if the Penguins left, there was a legal recognition that mere cash settlement wouldn't be enough to solve all the problems left behind once the lease was broken.
The judge agreed, forbidding the team to move.
In Glendale's case, the 30-year lease says the Coyotes leaving would create "adverse consequences" for the development of the suburb and acknowledges that a cash settlement would not be an "adequate remedy."
"No one other than Canadian businessman Jim Balsillie's company has offered enough to pay the creditors," he wrote, "which led to my initiating a court-supervised sale process."Finally, do not forget the cultural subtext at play between putting NHL teams in smaller markets where hockey is more popular versus larger markets where it is a fringe sport. Supporters of putting a team in Hamilton talk about nine million people within a 90-minute drive of Hamilton as a way of making the area seem more populated and less like a second-tier Canadian city. This is from the Globe and Mail:
Balsillie has offered to buy the Coyotes for US$212.5-million, conditional on relocation to Hamilton. The NHL is contesting the process, amid reports Chicago sports magnate Jerry Reinsdorf is a league-backed suitor, but only for a price of about US$130-million.
"A judge is going to have some predisposition to want to see the bigger number come in," said Eric A. Schaffer, a bankruptcy partner with the international law firm Reed Smith. "Why? Because it provides for a greater distribution for creditors, and that's one of the principal goals of the bankruptcy process here in the U.S."
"In terms of the NHL, the difference between 20 years ago and now is the catchment area for Hamilton is nine million people," Foxcroft says.When all else fails, could the Coyotes return to Winnipeg or head to Las Vegas?
"The same is true for the Hamilton airport and Hamilton Health Sciences.
"You've got nine million people within a 90-minute drive and then you add in the new electronic age, where people communicate around the world. So, basically, the Hamilton market is pent-up and enthusiastic for NHL hockey. And I mean pent-up. With nine million people."
On the Lighter Side: Bankruptcy Bill
Here is a funny site worth checking out if you have a few minutes. Bankruptcy Bill has bankruptcy-practice-based cartoon strips, haiku, and other such fun stuff. This morning was the first time I had bumped into it. I really liked this one.
Detroit Free Press: Bankruptcy boom skips Detroit
It is an ironic situation for Michigan. Even as the automotive sector has been the subject of case after case, many of the big cases are going to Delaware and New York. The Freep reports:
Detroit can't even realize the economic benefits to be had from the bankruptcies of its largest companies.The article discusses a lot of the venue considerations with which the bankruptcy bar is familiar. To its credit, the article does not make it seem as if there is any single reason why the large cases are filing in New York and Delaware. Venue decisions are complex and rarely are the result of a sole decision criterion.
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The headquarters for Chrysler and General Motors might be in Michigan, but when Chrysler filed for bankruptcy, it did so in New York.
If GM files -- as is expected -- the automaker likely will follow Chrysler's lead, despite state Attorney General Mike Cox having asked both GM and Chrysler to file here. GM's lawyers are based in New York, and the court there is moving Chrysler's case along quickly.
That means Detroit's law firms, hotels and restaurants would lose out on millions of dollars again. Large bankruptcy cases generate huge fees for legal and advisory firms; that money often finds its way to hotels, restaurants and legal support firms.
Friday, May 15, 2009
CNBC: GM Bankruptcy To Follow Chrysler Model
CNBC reports that GM indicated its bankruptcy intentions in a regulatory filing on Thursday:
General Motors said Thursday night, it would most likely pursue the same legal strategy as Chrysler if it spirals into bankruptcy...Lots of commentators might get to make the same arguments two months in a row.
The GM disclosure, in a regulatory filing, marked the first time the automaker has said it would most likely follow the same legal strategy Chrysler is using under federal oversight to slash debt and restructure dealerships.
GM faces a June 1 deadline to restructure its bond debt and reach a sweeping deal with the United Auto Workers. The company restated in its filing with the Securities and Exchange Commission that it expects to seek Chapter 11 if negotiations with bondholders fall short.
Roe: Stress-Testing Washington's Chrysler Bankruptcy Plan
Harvard's Mark Roe has a piece in Forbes.com about how the Chrysler sale has not been put to a market test. Here is a taste:
But there was a way to check the bona fides here to convince Buffett and financial players that the deal was fair: The court could have market-tested the plan. If the court and the Treasury had given Buffett and others the chance to outbid the Treasury for those assets and Buffett didn't bid more than the Treasury, grumbling would have ended. If Buffett or someone else credible came in with a better bid, the Treasury and Chrysler would then have had to top it.Hat tip: Credit Slips.
The best way to think about the bankruptcy plan is that the government is buying Chrysler from the creditors, giving it to the UAW and hiring FIAT to manage it. Financial markets players are grousing that the UAW and the retirees are doing much better than the secured creditors. The UAW is owed $10 billion, and they'll get a big fraction of that back, while the secured creditors take a big hit to their $6.9 billion in loans. But if the Chrysler winners are doing better with the government's money and not the creditors' money, that's not for the creditors to complain about in the deal itself (as opposed to complaining as citizens and taxpayers).
Bankruptcy law entitles the secured creditors to the liquidation value of the company. With that in mind, the government and the court ought to have set up a true market test: find out how much an outsider would pay for the company's facilities, shorn of its operations, employees and dealers.
GM Prediction Market Update
As of Friday morning, our chosen prediction market lists about an 85% chance for a GM filing in May or June 2009. That is up a few points from a few days ago. Inkling markets lists June 2009 at $44.71 and May 2009 at $40.46. View the full report here.
Thursday, May 14, 2009
NY Post: Bankruptcy Possible for Clear Channel
The New York Post reports this morning that Clear Channel Communications is looking at a restructuring:
Radio and billboard giant Clear Channel Communications has begun reaching out to lenders about restructuring the company's massive debt load just nine months after the company was acquired in a $27 billion leveraged buyout, sources told The Post.Read the rest here.
As part of those discussions, one topic being debated is a pre-packaged bankruptcy, one source said. A second person familiar with the matter stressed the talks are at an early stage.
Both sources said the senior lenders might be interested in trading debt for assets, though such talks have not entered a serious stage, one of the sources said.
The quiet negotiations come at a precarious time for Clear Channel: The company has been buffeted by the slowdown in advertising spending, and analysts watching the company have expressed concern the company could violate its loan terms later this year.
GM Sets Up Interesting Preference Facts
A short story from the Wall Street Journal says that GM will pay suppliers a few days early this month:
General Motors Corp. plans to make critical payments to its direct-material suppliers nearly a week before a Treasury-imposed deadline for an out-of-court restructuring.If GM ever sues its suppliers for preferences to recover payments made at the end of May, I imagine stories from the next few days will make for interesting discussion during litigation. Ordinarily the estate counsel prosecuting the preference cases will look for evidence of pressure that the creditor put on the debtor to get the creditor's receivable paid. In GM's current situation, one could almost assume such pressure given the high-profile nature of the case. So when a spokesman announces that GM is going to pay suppliers ahead of schedule, that will make for a very interesting fact when discussing an ordinary course of business defense later.
Spokesman Dan Flores said GM told suppliers it will pay them on May 28 instead of June 1. He said the decision was made due to a flood of economic uncertainty in the industry and to support struggling suppliers.
Mr. Flores said the move shouldn't be read as a definite signal that GM will file for bankruptcy late in the month.
Coy: Bankruptcy Process No Longer Works
Peter Coy writes in this week's Businessweek that the bankruptcy process has failed:
Failure can be a beautiful thing. Maybe not if you work for General Motors (GM), which seems to be stumbling toward bankruptcy. But for the U.S. economy as a whole, the swift and clean disposition of weak companies is an essential part of the formula for getting growth back on track.Read the rest here.
However, for this cleansing to occur, the U.S. needs a well-functioning Chapter 11, the part of the U.S. Bankruptcy Code that determines whether failed businesses can be revived, in full or in part, or need to be dismantled. Last year, 30,000 troubled businesses took the Chapter 11 route, and the number should soar this year as the recession grinds on.
Lately, though, this crucial tool for coping with failure has…failed. Some weak, mismanaged companies are being propped up longer than they should because they're considered too big to fail. Meanwhile, potentially viable companies are being thrown too quickly onto the refuse heap, victims of misguided changes in bankruptcy law and financing practices. Perhaps most worrisome, derivatives—those complicated securities that helped cause the financial crisis—are giving some banks and other creditors the perverse incentive to kill companies that ordinarily they would want to save. The implications: more job losses than necessary, coupled with a slower recovery and a less vibrant economy.
Wednesday, May 13, 2009
Checking a Prediction Market on a GM Bankruptcy
Take this with whatever sized grain of salt you deem appropriate, but one prediction market has about an 89% a 79% chance of a GM bankruptcy filing in May or June. As I write this, May 2009 is at $33.85 and June 2009 is at $45.69. If my math is were correct that would add up to about 89% a 79% percent chance in the next seven weeks.
Update: Fixed the math
Fee Committee Appointed in Lehman
Reuters is reporting that Judge Peck has appointed a fee committee for the Lehman case:
A judge appointed a committee on Wednesday to review fees in the bankruptcy of Lehman Brothers Holdings Inc and postponed a decision on a $55 million request from Weil Gotshal & Manges LLP, one of the largest single fee requests ever.I found this part of the story interesting:
The committee was requested by Harvey Miller of Weil Gotshal, the lead attorney representing Lehman, who said the committee would ensure transparency of professional fees and expenses.
Peck acknowledged the press coverage of the fees. He spoke for several minutes about the complexity of the case and pointed out that much of the work of professionals was focused on stabilizing Lehman and unwinding complex transactions, work that never appeared in the docket.This is consistent with my sense of how many judges, particularly in very large cases, feel about fees. The law mandates review of fee applications but it is not an aspect of the position that most judges enjoy or at which they feel they excel.
"I recognize that there was a fire, a raging fire, and it was put out and it's no longer a threat to the community," Peck said.
He said it is not his role to second-guess what constitutes reasonable fees.
Zywicki: Administration's Behavior Profound Challenge to Rule of Law
In a Wall Street Journal editorial today, George Mason University law professor Todd Zywicki strongly criticizes the Obama Administration's handling of the Chrysler case:
The U.S. government also wants to rush through what amounts to a sham sale of all of Chrysler's assets to Fiat. While speedy bankruptcy sales are not unheard of, they are usually reserved for situations involving a wasting or perishable asset (think of a truck of oranges) where delay might be fatal to the asset's, or in this case the company's, value. That's hardly the case with Chrysler. But in a Chapter 11 reorganization, creditors have the right to vote to approve or reject the plan. The Obama administration's asset-sale plan implements a de facto reorganization but denies to creditors the opportunity to vote on it.Read the rest here.
By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation. In other words, Mr. Obama may have helped save the jobs of thousands of union workers whose dues, in part, engineered his election. But what about the untold number of job losses in the future caused by trampling the sanctity of contracts today?
The value of the rule of law is not merely a matter of economic efficiency. It also provides a bulwark against arbitrary governmental action taken at the behest of politically influential interests at the expense of the politically unpopular. The government's threats and bare-knuckle tactics set an ominous precedent for the treatment of those considered insufficiently responsive to its desires. Certainly, holdout Chrysler creditors report that they felt little confidence that the White House would stop at informal strong-arming.
I am not convinced that the analogy between Chrysler and a truck of oranges is all that inappropriate. Like many automotive companies, Chrysler has seen its enterprise value plummet in the last couple years. The oranges have a greater certainty of decline in value, but Chrysler's shelf-life might be limited too.
CSFB's Lien Subordinated in Predatory Lending Ruling
I have not seen a copy of the interim order yet, but there is a story from the AP that Credit Suisse First Boston has had its loan to Yellowstone Club subordinated:
A federal bankruptcy judge ruled Tuesday that a $375 million loan Credit Suisse made to a Montana resort for the ultrarich was predatory and should be subordinated to other debts.Read the rest of the story here.
Judge Ralph Kirscher wrote in a partial and interim order that the Swiss bank "lined its pockets" on the backs of the Yellowstone Club's creditors, and that it devised a scheme to encourage developers of high-end residential resorts to borrow large sums without regard for their ability to repay.
Kirscher said Credit Suisse's actions "were so far overreaching and self-serving that they shocked the conscience of the Court."
Under the order, Credit Suisse's lien for $232 million in repayment on the 2005 loan will be subordinated to the claims of other creditors. Kirscher did not say when he would issue a final decision.
Tuesday, May 12, 2009
A Couple Pieces from the Ayn Rand Center on the Chrysler Bankruptcy
Although recent posts might indicate otherwise, I do not have a strong political leaning one way or the other. But in keeping with the theme, here is a pair of reads from the Ayn Rand Center for Individual Rights on the Chrysler bankruptcy.
First, a bit of a blog post by Tom Bowden entitled Chrysler's scary backseat driver:
Unfortunately, the bankruptcy filing is overshadowed by the Obama administration’s attempts to sabotage the debtholders whose contracts entitle them to first crack at Chrysler’s assets. Instead of letting bankruptcy law drive the process, Obama has become everybody’s nightmare–the backseat driver who barks orders and threats, and leans forward as if to seize the wheel.Next, here is what looks like the first part of an article by Alex Epstein entitled What the Chrysler saga should have looked like. Here is a taste:
When Chrysler was heading for bankruptcy, both late last year and late last month, if its leaders thought the company was potentially viable they should have made an attractive proposal to investors–a proposal that investors thought would make the company profitable and therefore give them a return on their investment. And if it couldn”t acquire funds on the free market, then it would declare bankruptcy once its liabilities exceeded its assets and it could no longer pay off its debt. In bankruptcy court, its various creditors would seek to make the best of a bad situation by redeploying or liquidating the company’s assets, depending on what would get them the most of their money back.
This free-market process is what we should have occurred both times Chrysler ran out of cash. Instead, we have witnessed a travesty.
More on the Phoenix Coyotes; Another NHL Bankruptcy?
Lots of BK-NHL news from the Toronto Star. First, Jerry Reinsdorf and the NHL will have to reveal the terms of his bid:
The Coyotes won a court ruling that will force the NHL to tell all it knows about White Sox owner Jerry Reinsdorf's mysterious bid to purchase the Coyotes to a Phoenix bankruptcy court judge.Second, the Dallas Stars are in financial trouble:
The NHL must produce all documents related to Reinsdorf's bid today, ruled judge Redfield Baum.
The league has said it was close to announcing Reinsdorf as a white knight who would keep the team in Glendale, Ariz., when Jerry Moyes thrust the Coyotes into bankruptcy. The Moyes camp wants to see how good the offer was.
Tom Hicks, who owns the Dallas Stars and baseball's Texas Rangers, defaulted a month ago on $525 million in loans tied to the teams, starting the clock ticking in a showdown with lenders that could see the Stars end up in bankruptcy proceedings in October.Read it all here.
Epstein: The Deadly Sins Of The Chrysler Bankruptcy
Is anyone surprised at Professor Epstein's take on the Chrysler bankruptcy? Didn't think so. From Forbes:
In a just world, [the] ignominious fate [of having the sale struck down as a taking] would await the flawed Chrysler reorganization, which violates these well-established norms, given the nonstop political interference of the Obama administration, which put its muscle behind the beleaguered United Auto Workers. Its onerous collective bargaining agreements are off-limits to the reorganization provisions, thereby preserving the current labor rigidities in a down market.Read the rest here.
Equally bad, the established priorities of creditor claims outside bankruptcy have been cast aside in this bankruptcy case as the unsecured claims of the union health pension plan have received a better deal than the secured claims of various bond holders, some of which may represent pension plans of their own.
President Obama--no bankruptcy lawyer--twisted the arms of the banks that have received TARP money to waive their priority, which is yet another reason why a government ownership position in banks is incompatible with its regulatory role. Yet the president brands the non-TARP lenders that have banded together to fight this bogus reorganization as "holdouts" and "speculators."
Financial Times: Credit Default Swaps Preventing GM Restructuring
The Financial Times reports that holders of credit default swaps have a particular incentive not to agree to GM's current restructuring proposal:
Hedge funds and other investors stand to make billions of dollars on credit insurance contracts if GM declares bankruptcy, a prospect that is complicating efforts to persuade creditors to agree to a restructuring plan for the automaker, analysts say.Read the rest here.
Holders of $27bn in GM bonds have until June 1 to decide whether to swap their debt for a 10 per cent equity stake in the company as part of an offer that would give the US government 50 per cent of the shares, a United Auto Workers union healthcare fund 39 per cent and existing shareholders 1 per cent.
However, analysts say the chances the proposal will be accepted have been diminished by the large number of credit default swap (CDS) contracts written on GM’s debt.
Holders of such swaps would be paid in the event of a default – but would lose money if they agreed to restructure GM’s debt. For investors who own bonds and CDS, this could create an incentive to favour a bankruptcy filing.
Professor LoPucki's Comment to My Post on His New Article
Hey, I got a comment! And it happens to be from the author of the article I discussed. This is very cool.
Yesterday I posted my thoughts on Professor Lynn LoPucki's new study on bankruptcy fees. You can find the post here. If you scroll to the bottom you can see Professor LoPucki's comment.
When I was a law student and writing my dissertation on a bankruptcy topic, my professor read my first draft and gave me a long but useful comment. He said something to the effect of the first rule of writing articles is to have a thesis that says that something needs to change and that things will be better if that something were to change. As an easy example, if judges were to interpret a statute a particular way, parties would get a fairer, more just result. Now had I gone to UCLA rather than USC, and had the professor been Lynn LoPucki rather than someone whose name I don't even remember, this would be a better story. But the point is still a good one. Pointing out instances in which parties are not conforming to legal expectations is valuable, but showing why they should do so makes the argument more compelling.
As a highly imperfect illustration, consider speed limits. It is commonly understood that we have speed limits because slower speeds are generally safer. If we get drivers to maintain a safe speed, we end up with fewer traffic accidents, injuries and fatalities. So whenever we see a study that says that: (a) on a certain stretch of highway, the speed limits are not being enforced properly; and (b) the accident rate rate on this stretch of road is high, our natural inclination is to believe that law enforcement should do a better job enforcing the speed limit there. After all, better police work along that stretch of road would result in fewer accidents, injuries and deaths. No one wants to argue in favor of accidents, injuries and deaths.
But suppose we found a hypothetical stretch of relatively deserted highway where the posted speed limits were not enforced strictly but the accident rate were also very low. Suppose that this hypothetical stretch of highway happened to have a very low accident rate, lower than all of the areas of the state in which the speed limits were enforced more strictly. Suppose that it turns out that there was a long study by law enforcement that showed that, at least on this stretch of highway, driving behaviors other than speed were the major factors in accident rates. So suppose that there were a big public service campaign on this stretch of highway that focused on following a safe distance, keeping alert, taking breaks, not changing lanes excessively and generally driving in a safe manor. And suppose the highway patrol on this stretch of highway enforced safe driving by looking at such factors as maintaining a safe distance and staying in a single lane but did not enforce posted speed limits strictly. So the accident rates were low but the speed limits were not enforced strictly; at least on this stretch of highway, society had found a way to making driving safe without using speed limits as the primary enforcement method.
Then a study came along that says that law enforcement is not enforcing the posted speed limits on our beloved stretch of highly safe highway. When we have a lower accident rate than if we enforced speed limits and everyone is getting to their destination a little quicker, it is tough to argue in favor of enforcing the speed limits just for the sake of enforcing the speed limits. Rather than arguing in favor of a enforcing laws that we think are not terribly effective or efficient, maybe it would be better to argue in favor of adopting laws that are effective and efficient.
Although the analogy might not be perfect, there are at least two levels of analysis that should be present whenever we discuss law enforcement. First, there is the question of whether certain laws are being enforced. Second, there is the question of whether we get a better, more efficient result if we enforced the laws. To suggest that we should look at the second level and not just the first is not to say that the first is not important. But if we do not come to the conclusion that better enforcement of existing laws will lead to a better result, we should use our intellectual capital to argue in favor of adopting laws that we believe will do so rather than arguing in favor of enforcement of less effective laws.
Monday, May 11, 2009
Cap on Hourly Rates in IndyMac
From the National Law Journal:
Lawyers representing directors and officers of IndyMac Bancorp Inc. are attempting to remove a cap on their billing rates, the latest example of how judges are scrutinizing hourly fees in large bankruptcies.Read the rest of the story here.
IndyMac, one of the nation's largest mortgage lenders, filed for Chapter 7 protection on July 31, 2008. Six law firms representing more than a dozen directors and officers recently appealed to the bankruptcy judge in the case to overturn a court-appointed monitor's decision to cap their fees at $600 per hour.
Four of the firms — Washington's Covington & Burling and Williams & Connolly; Los Angeles-based Munger, Tolles & Olson; and New York's Willkie Farr & Gallagher — charge top rates of between $750 and $995 per hour, according to court documents.
The judge has declined to intervene.
Thoughts on Professor LoPucki's New Study
I have reviewed Lynn LoPucki's new article on fees in bankruptcy cases that I mentioned a couple days ago. You can get a free copy here. He makes some good points but on balance his approach tends to conflate the formal legal issues with the policy goals behind them. Ordinarily I would consider myself pretty cynical when it comes to fees and venue decisions, but even I found myself becoming an apologist when it came to certain practices that Professor LoPucki describes.
To sum into a few sentences, Professor LoPucki argues that some standard fee practices in big cases are illegal. First, there are some professionals who are employed as "ordinary course" professionals and who do not have to submit the detailed fee statements and applications required of estate professionals. Second, there are fee applications that do not disclose the payment of prepetition retainers. Third, there are many cases in which professionals are paid before or without having their fees reviewed by the court.
My initial criticism about the article is that it struggles to make clear what exactly the nature of the harm involved is. It seems as if Professor LoPucki addresses two concerns interchangeably as if fixing one will automatically fix the other. Is Professor LoPucki concerned about professional fees in bankruptcy cases because some of the practices with regard to fees do not conform to the law? Or is Professor LoPucki concerned about professional fees in bankruptcy cases because some professionals might be getting paid more than they should. I imagine that Professor LoPucki thinks that both are unfortunate, but seems not to acnowledge that many of the practices developed with the blessing of judges and the U.S. Trustee in certain districts as a way of controlling fees that otherwise might go unchecked.
Professor LoPucki also tends to make more direct causal relationships than I have found in my experience. Just to give a very simple example to illustrate, one might infer from the article that, because the judges in Delaware want big cases filed in their district, the judges are easy on fees. Therefore, the judges do not require professionals to follow the letter of certain requirements. And of course because firms want to get their fees paid, they file the cases in Delaware. That kind of linear cause-and-effect reasoning oversimplifies all of the components involved in, for example: (a) where to file a case; (b) why certain venues become attractive for large cases; and (c) why some courts and judges adopt practices that are different from what one finds in the Bankruptcy Code and Bankruptcy Rules. The reasons for each of those are much more complex than one would glean from Professor LoPucki's article. Fee practices are probably not even the primary reason that large cases are filed in Delaware and New York rather than in, say, Chicago or Los Angeles.
Another initial reaction is that Professor LoPucki is very quick to describe something as "illegal" when it doesn't confirm to his reading of the Bankruptcy Code and Bankruptcy Rules, but not so quick to mention that the practices he describes as illegal are often done with the blessing of the bankruptcy court. We can debate the metaphysics of section 105(a) and whether the bankruptcy court has the power to waive particular requirements imposed by the Bankruptcy Rules or Bankruptcy Code. But calling practices that conform to bankruptcy court orders "illegal" makes the practice seem far more shady and underhanded than it probably is. But my count, Professor LoPucki says "illegal" or "illegally" twenty-eight times in a fifty-two-page paper. That is a lot of normative characterization for practices that seem to occur with the approval of the courts in question.
And my final initial reaction is related to the first two. Most of the practices that Professor LoPucki describes occur not because professionals are being sneaky and flouting the law as they try to get overpaid. To an outsider looking in, these processes and procedures might seem to be circumventing supervision and oversight. In fact, at least some of the practices are probably geared towards controlling the fees in a way that adhering to the Bankruptcy Code and Rules might not assist. As an example, when I was a law clerk, we had to review the fee applications of the professionals working on our cases. Fortunately, the chapter 11 cases we had at the time were relatively small and so I would have no more than a dozen or two fee applications that I had to review each month. Even as someone who had read a lot of fee applications, I was still as green an attorney as one could be and certainly not trained in fee auditing. I simply cannot imagine what it would be like as a law clerk in New York or Delaware to try to review and analyze all of the fee applications for all of the professionals in all the chapter 11 cases. That should be its own job -- and it is. Big cases routinely use fee auditors and/or fee committees to review and comment on fee applications. The fee professionals certainly aren't perfect, but they are much better equipped to review stacks of fee applications than overworked, underpaid judges and law clerks. The fee professionals in conjunction with the other parties in the case are simply vastly more efficient and effective at policing fees than judges and law clerks could ever hope to be. So ultimately, if we are not following the letter of the requirements as set down in the Bankruptcy Code and Bankruptcy Rules, but we are getting a better and more efficient result, then Professor LoPucki's article should have been about how Congress should amend certain provisions of the Code and Rules to include such phrases as "Unless the court for cause orders otherwise..."
With that exceedingly long introduction, I will discuss each of the the practices that Professor LoPucki finds objectionable.
First, Professor LoPucki addresses ordinary course professionals. Professor LoPucki doesn't really describe the ordinary course professionals so I will infer from my own experiences that these are the professionals that a chapter 11 debtor still would employ even if the debtor were not in a bankruptcy proceeding. As an example, a debtor might hire a law firm to prosecute commercial litigation cases in state court. Or the debtor needs corporate counsel to handle various non-bankruptcy aspects of asset sales or other transactions. Professor LoPucki notes that as the case goes along, generally more ordinary course professionals are added. An easy example of this phenomenon is hiring state-court counsel to handle slip-and-fall, employment matters, and other such proceedings that occur during a case. So to be clear, these ordinary course professionals are not debtor or committee counsel or anything of that sort.
Professor LoPucki's complains that ordinary course professionals do not necessarily follow the disclosure requirements that estate professionals do. For example, ordinary course professionals generally do not file fee applications and do not file their invoices with the court. Professor LoPucki notes that some of these practices occur pursuant to court order. As noted above, that these practices occur with the blessing of the court does not change Professor LoPucki's opinion that they are illegal.
I find this practice less objectionable mostly because there is almost always a check on the professional's fees. For example, the general counsel of the debtor, who often hired the outside counsel in the first place, will tend to review the bills of outside counsel. And of course the general counsel probably is in a better position to review and evaluate the appropriateness of such fees than anyone else in the case.
Second, Professor LoPucki takes aim at professionals who do not disclose in their fee applications payments received prior to the petition date. I presume that this is referring to prepetition retainers. Frankly, I did not even know that the Bankruptcy Rules required discussion of prepetition retainers in fee applications. I do not, however, see this omission as particularly material. Assuming that the professional incurred fees in excess of the retainer, whether the professional got paid prepetition or post-petition is of little concern. Undoubtedly the professional will apply the retainer to fees approved and collect the remainder from the estate. In instances in which the propriety of a prepetition retainer is an issue, it almost certainly will come to light well before final fee applications are due.
Third, Professor LoPucki objects to the fee payment practice pursuant to which professionals are paid a portion of their fees each month subject to disgorgement if they are excessive. Typically in jurisdictions were current payment is permitted, a professional may receive 80 percent of fees incurred on a monthly basis and the remainder upon fee application. The purpose of the practice is simple. Over the course of a big case, counsel can end up with a huge receivable after just a few months. Courts do not want to review fee applications on a monthly basis and law firms do not want to carry a huge receivable for months on end. So the firms are allowed to collect perhaps 80 percent of their fees on a monthly basis with the remainder to follow after a fee application process.
Professor LoPucki is correct that the Bankruptcy Code does not provide for payment of estate professional fees before a review of fee applications and he also overstates the scope of the danger. Permitting payment of fees on a monthly basis subject to later review is a common practice in large cases because for the most part it is a reasonable practice that parties in interest find effective. I cannot think of an instance in which the payment of 80 percent of fees on a monthly basis ended up being a material issue in a case in which I worked. I am sure that it has happened at some point but it might be so rare so as not really to be a concern. Perhaps a better study would have been to find instances in which monthly payment of fees became an issue and see what percentage of the whole that segment constituted. I expect that the problem instances would be a very small minority.
Having reviewed the article and now written about it, I return to my earlier suggestion that Congress should amend the Bankruptcy Code and Bankruptcy Rules to provide for more flexibility for bankruptcy fees and have different jurisdictions experiment with different procedures for policing fees. Some of the practices to which Professor LoPucki objects are the result of courts and practitioners working to find mechanisms that are more effective and efficient than the Bankruptcy Code and Rules provide. Rather than criticizing such practices as "illegal" it might be better to determine which practices are in fact ineffective to control fees and discourage those.
Report: GM Bankruptcy Inevitable
There is an AP report out suggesting that a GM bankruptcy is all but inevitable.
For General Motors Corp., the task at hand is so difficult that experts say a Chapter 11 bankruptcy filing is all but inevitable.Read the rest here.
To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10 percent of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business — all in three weeks.
"I just don't see how it's possible, given all of the pieces," said Stephen J. Lubben, a professor at Seton Hall University School of Law who specializes in bankruptcy.
GM, which has received $15.4 billion in federal aid, faces a June 1 government deadline to complete its restructuring plan. If it can't finish in time, the company will follow Detroit competitor Chrysler LLC into bankruptcy protection.
Saturday, May 9, 2009
Two More Reads on the Phoenix Coyotes
A couple more news articles on the Phoenix Coyotes bankruptcy and Jim Balsillie's quixotic attempt to move the NHL team to Hamilton, Ontario. The first, from the National Post, contains some words of wisdom from Canadian business and baking icon Ron Joyce about the business of hockey:
In 1990, Joyce was Jim Balsillie. He was the guy with the deep pockets trying to bring a National Hockey League team to Hamilton. Unlike the Canadian maverick now confronting Gary Bettman and the NHL in an Arizona bankruptcy court for control of the Phoenix Coyotes, Joyce's Hamilton bid played by the rules. His group was not trying to move an existing franchise, it was trying to win a bid for an expansion team. They were convinced they would be successful right up until learning they had been rejected in favour of Ottawa and Tampa Bay.The second is from NHL Fanhouse and reports that the NHL's deputy commissioner Bill Daly is talking tough about Balsillie's efforts:
Daly was emphatic that the league intends to solve the issues in Glendale, and he had some interesting thoughts that were obviously directed toward Balsillie.
"Mr. Balsillie is acting, again, in total disregard of any rules, or any structure. . . . I would be very surprised if the board would look favourably on the way that Mr. Balsillie has conducted himself in this instance.
... "He makes his own decisions and he's making a decision that this is the way he wants to get into the National Hockey League. We don't usually like to pick fights, but we end them."
This should make the league's thoughts crystal-clear. The 29 franchise owners (outside of deposed Coyote chief Jerry Moyes) will not get a chance to vote on Balsillie's bid.
Friday, May 8, 2009
Reuters: Chrysler dissident lender group disbands
Reuters reports this afternoon that the famous dissident creditor group we have been following all week has disbanded:
A group of Chrysler LLC's dissident lenders disbanded, representatives said on Friday, removing the last legal hurdle to the embattled automaker's quest to complete a merger with Italy's Fiat SpA with U.S. government backing.Read the full article here.
"After a great deal of soul-searching and quite frankly agony, Chrysler's Non-TARP lenders concluded they just don't have the critical mass to withstand the enormous pressure and machinery of the US government," said Tom Lauria, the White & Case attorney representing the group.
But Lauria said the group did not intend to agree to the proposal to exchange their debt for 29 cents on the dollar.
About 20 senior lenders, led by OppenheimerFunds and Stairway Capital, had sought to block Chrysler's plans for a sale of its best assets into a new company owned by its union, Fiat and the government.
More than half of the parties that opposed Chrysler's plan had already dropped out of the group as public and political pressure grew to restructure the automaker quickly, and after the dissidents were forced to disclose their names.
Skeel: Why the Chrysler Deal Would Horrify a New Dealer
Professor Skeel of UPenn Law School has an article up at the Journal of the American Enterprise Institute. Here is a taste:
The Obama administration blueprint for Chrysler’s bankruptcy looks startlingly like the artificial sales that the New Dealers so abhorred. Unlike a traditional reorganization, in which the parties negotiate the terms of a restructuring that is then voted on by each class of creditors and shareholders, the administration plans to quickly sell Chrysler’s most important assets to a new entity—“New Chrysler”—whose stock will be owned by Chrysler’s employees and Fiat. The senior lenders who objected to the government’s offer (which amounted to little more than 30 percent of their claims) will not have any vote on the sale. Their only option is the one they have pursued: objecting to the sale, and praying that bankruptcy judge Arthur Gonzalez takes a hard look at its terms even while the government is breathing down his neck and saying in a sense, he better approve or else.Read the rest here.
As the administration has pointed out in defense of its plan to commandeer the bankruptcy process, asset sales (known as 363 sales, based on the relevant provision) have become a common feature of Chapter 11 cases in the last 20 years. What makes the Chrysler plan unique, and makes it similar to the receiverships of the New Dealers’ era, is that it is not really a sale at all. It is a pretend sale and its main purpose is to eliminate the pesky creditors who might otherwise interfere with the government’s plans. It also seems to flout bankruptcy’s priority rules by giving Chrysler’s employees (who are general creditors) a big stake in New Chrysler while forcing senior lenders to take a major haircut. The usual rule is that senior creditors must be paid in full before lower priority creditors are entitled to anything.
WSJ: Public Hospitals Into Chapter 9?
This is a good read from the WSJ about public hospitals going into bankruptcy because of the downturn:
The economic downturn will force more municipalities to make the tough political call of shedding financially draining public hospitals, possibly through a bankruptcy filing, a health care restructuring expert predicts.I have been involved in a few hospital cases in recent years and I definitely could see the pressures on public hospitals building.
According to George Pillari, a managing director at restructuring firm Alvarez & Marsal, publicly funded hospitals (which barely turn a profit even when times are good) have been a key contributor to huge financial losses that cities and counties around the U.S. have been experiencing. He expects this to become a more pressing concern. “That’s going to get a lot more airtime over the next 12 months,” Pillari said. “There’s going to be counties that say we simply can’t do this anymore.”
He predicted that private investors or religious orders may step in to take these hospitals off financially strapped municipalities’ hands. That’s where a Chapter 9 bankruptcy filing potentially comes in, Pillari said. Not only does it provide a framework for municipalities to sell their assets and pay off their debts, but it also takes some political pressure off municipality officials.
The Economist on the Chrysler Bankruptcy
The Economist weighs in on Chrysler's bankruptcy case:
Bankruptcies involve dividing a shrunken pie. But not all claims are equal: some lenders provide cheaper funds to firms in return for a more secure claim over the assets should things go wrong. They rank above other stakeholders, including shareholders and employees. This principle is now being trashed. On April 30th, after the failure of negotiations, Chrysler entered Chapter 11. Under the proposed scheme, secured creditors owed some $7 billion will recover 28 cents per dollar. Yet an employee health-care trust, operated at arm’s length by the United Auto Workers union, which ranks lower down the capital structure, will receive 43 cents on its $11 billion-odd of claims, as well as a majority stake in the restructured firm.Read the rest of the article here.
The many creditors who have acquiesced include banks that themselves rely on the government’s purse. The objectors have been denounced as “speculators” by Barack Obama. The judge overseeing the case has consented to a quick, “prepackaged” bankruptcy, which seems to give little scope for creditors to argue their case or pursue the alternative of liquidating the company’s assets. In effect Chrysler and the government have overridden the legal pecking order to put workers’ health-care benefits above more senior creditors’ claims, and then successfully argued in court that the alternative would be so much worse for creditors that it cannot be seriously considered.
I'm not quite sure I would call this a "prepackaged" bankruptcy. It's not as if Chrysler went out and solicited votes on a plan prepetition. If anything, this case might be a pre-cram. Parties who participate in and consent to the sale might get a better deal than the holdouts. It's the ultimate offer that you can't refuse.
More on the Phoenix Coyotes Bankruptcy Case
The more that I read about the Phoenix Coyotes case the more interesting it gets.
Just to set the stage again, there are three main players. First, there is current Coyotes owner and local Phoenix businessman Jerry Moyes. Moyes isn't the first owner in a warmer, non-traditional hockey market to struggle to make hockey successful there. Moyes is represented by Squire Sanders. Second, there is Gary Bettman, the current NHL Commissioner. The ups and downs of the Bettman Regime are well beyond the scope of this blog. Suffice it to say for our purposes that Bettman and most of the NHL owners are committed to putting hockey in warmer, non-traditional hockey cities. The NHL is represented by Skadden. Third, there is Jim Balsillie, the Ontario-based tycoon behind our beloved Blackberry. Balsillie wants to buy the Coyotes and move them Ontario. Balsillie is represented by Lewis & Rocca.
There are a couple of bit players as well. Both of them are well known in the sports world. First is Wayne Gretzky. (I just called Wayne Gretzky a "bit player." Heh.) If you aren't a hockey fan, you still probably have some idea who Wayne Gretzky is. He used to be the face of the sport and is the reason that there is a 99 hanging in the rafters of every NHL arena. More recently, he is the latest great player to a less-than-great coach and/or front office executive. The other bit player is Jerry Reinsdorf, the quite-less-than-universally-loved real estate businessman and owner of the Chicago Bulls and White Sox. Reinsdorf is a potential purchaser of the Coyotes as well.
The NHL seems to have one objective here: Keep the Coyotes in Phoenix rather than having them move to Hamilton, Ontario or wherever else Balsillie might drop them. Without getting into the issue of under what circumstances NHL teams can be sold or moved, there is bankruptcy twist. The NHL says that it has been running the Coyotes since November as part of a liquidity deal with Moyes. And because the NHL, and not Moyes, allegedly controls the Coyotes, the NHL says that Moyes did not have the right to put the Coyotes into a bankruptcy case. The NHL wants to sell the Coyotes to a group headed by Reinsdorf and presumably keep the team in Phoenix. There is a hearing on May 19 to rule on the NHL's motion to dismiss the case. I have not been able to obtain a copy of the motion yet.
I have a few different versions of the story to date. Here is one from the AmLawDaily blog. Here is an AP story via the Buffalo News. Here is one from Fox hockey writer Al Strachan.
Thursday, May 7, 2009
Banks Need $75 Billion More by November
And this is the good news? From the NY Times (free registration required?):
Federal regulators told the country’s 19 largest banks that they must raise $75 billion in extra capital by November, a more upbeat verdict on the health of the financial system than the industry had feared just two months ago.I once explained to a co-worker that there should be a term in English for the kind of relief that you feel when you realize that something that seemed completely disastrous is merely a mess. Like when you think that you goofed something that will take days to fix and you discover that it only will take a few hours. That's what this news is.
Ten of the 19 bank holding companies deemed “too big to fail” by the Obama administration will be required to raise additional capital, according to the results of the government’s stress tests, released late Thursday afternoon. But the 10 banks will have to raise much less capital than some analysts had expected as recently as a few days ago.
CAW Head: GM Bankruptcy Likely
The Globe and Mail reports here this afternoon that the head of the Canadian Auto Workers has said that a GM bankruptcy is likely:
The leader of GM Canada's largest union says a filing by the car maker for court protection from creditors is likely.More:
The federal and Ontario governments have ordered the Canadian Auto Workers and General Motors of Canada Ltd. to slash hourly labour costs by May 15.
CAW president Ken Lewenza says the company faces liquidation if a cost-saving agreement is not reached.
The Canadian governments could be asked to take equity in General Motors, even though they did not enter into the bailout talks looking to become shareholders of an auto company, Mr. McGuinty said.
But as part of the negotiations, the governments may have to take equity in GM, as they did in Chrysler, he said.
“Obviously, we're going to take a serious look at that.”
Wednesday, May 6, 2009
Lynn LoPucki's New Study On Fees
UCLA law professor Lynn LoPucki released a new study on fees in bankruptcy cases today. Here is a snippet from Bloomberg:
Bankruptcy lawyers who stand to make as much as $372 million in the reorganization of Chrysler LLC will be doing so illegally, according to a California law professor.The actual study itself available here from the Wall Street Journal. The article is about fifty pages long so I will read it before commenting further.
Attorneys are billing bankrupt companies for about 80 percent of their fees without first submitting the charges to the court, as required under the U.S. Bankruptcy Code, according to a study on the issue by the University of California at Los Angeles, “Routine Illegality in Bankruptcy Court Fee Practices,” which was released today.
In practice, judges often review the monthly fee payments later, because it’s time-consuming to scrutinize them every month, the report said. Such a lack of oversight has permitted bankruptcy attorneys and other professionals to raise their fees by more than twice the rate of inflation from 1998 to 2007, according to Lynn LoPucki, a bankruptcy law professor who co- wrote the report.
Mickey Kaus on the Chrysler Deal
Mickey is usually an interesting read and has some expertise in the automotive industry. His take:
Well, OK. My objection isn't so much to the screwing of the secure lenders (let's agree it's a "dangerous" precedent) or to the strong-arming of the banks that received TARP funds (another dangerous precedent!). It's to the screwing of the secure lenders and the strongarming of the banks in order to produce a bailout plan that will not work, that will flop like Chooch. The rationale for the bailout was that a bankruptcy would kill car sales, so the government had to step in and negotiate all the bankruptcy-style concessions without actually having a bankruptcy. But Obama was unwilling to get the U.A.W. to make the bankruptcy-style concessions that would be necessary to have a viable Chrysler.** And Chrysler wound up in bankruptcy anyway. Prediction: It will either fail or suck up continuing annual taxpayer subsidies in the billions. In the process it will keep flooding the market with cars and make it harder to save GM and Ford. It didn't have to be that way. ...The whole thing in context here.
And if you haven't heard, yes the deal is moving ahead at the moment.
363(f) Fight Looming in Chrysler?
Bankruptcy Prof Blog has a link and a quick discussion about the Chrysler sale motion. He notes that the sale motion argues that Chrysler may sell free and clear of all liens because the lienholders are getting "full economic value" for their liens. I agree with Jonathan that this is not the best argument.
I discussed 363(f) at length in a recent article being published by Norton, Missing the Forest for the Trees in § 363: How the Ninth Circuit's Bankruptcy Appellate Panel Neglected the Big Picture in the Clear Channel Decision, 2009 No. 4 Norton Bankr. L. Adviser 2. I don't have a free link but the article is available on Westlaw (or email me for a copy). The context of the article is the Clear Channel decision, in which the Ninth Circuit BAP struggled to make any sense of 363(f) and generally added a lot of additional confusion to the interpretation of the section.
The article is too long to reproduce here but I would refer readers to a section that might be helpful to situations in which the debtor is trying to sell free and clear of undersecured liens. I suggested in the article that, if we are assuming that 363(f) was written with no surplus language and that therefore each numbered subsection must apply to a different circumstances, section 363(f)(5) probably applies to virtually all undersecured liens. If the lien were oversecured, section 363(f)(3), rather than section 363(f)(5), would apply. Then the question is whether the lien is capable of being satisfied by a money judgment. And frankly, isn't every lien capable of being satisfied by a money judgment? Isn't that more or less what a lien is?
The analysis often falls of the tracks when we assume that section 363(f)(5) requires that the hypothetical legal or equitable proceeding be able to force the lienholder to accept a money satisfaction of the interest in an amount that is less than the full amount of the claim. The BAP in Clear Channel made this assumption and got tied up in analytical knots as a result. If Congress wanted to require that the hypothetical legal or equitable proceeding be able to discharge the interest for less than its value, the subsection would have contained language to the effect of "for less than the full value of the claim." But section 363(f)(5) requires only that the interest be capable of satisfaction by a money judgment. Thus one would imagine that the debtor could sell free and clear of pretty much any lien pursuant to section 363(f)(5). Again, I would refer readers to the article itself for a more complete discussion of the point.
Given the foregoing, the better argument for Chrysler is not that the sale proceeds will provide "full economic value" to the lienholders. Chrysler instead should argue that the interests in question are liens that are capable of money satisfaction and therefore are subject to 363(f)(5).
Confirming: Chrysler Won't Pay Back $7 Billion to U.S. Government
CNN is reporting today what we discussed a couple days ago here. Chrysler does not expect to repay about $7 billion in U.S. bailout money:
Chrysler LLC will not repay U.S. taxpayers more than $7 billion in bailout money it received earlier this year and as part of its bankruptcy filing.I can't say this is surprising. Something to consider as people lament large bankruptcies is that the alternative might be vast amounts of government aid delaying the bankruptcy but making the total loss of value worse. Yet another reason, after this one, for having the large automotive bankruptcy cases occur sooner rather than later.
This revelation was buried within Chrysler's bankruptcy filings last week and confirmed by the Obama administration Tuesday. The filings included a list of business assumptions from one of the company's key financial advisors in the bankruptcy case.
On the Phoenix Coyotes Sale
This isn't so much a bankruptcy post as a sports post in a bankruptcy context. Jim Balsillie of Research in Motion is trying to buy the Phoenix Coyotes and move the team to Southern Ontario. He wisely conditioned the sale upon the ability to move the team rather than buy the team and then attempt to move it over the possible objection of the league. Reuters' story is here.
The team's proposed move illustrates one of the tension points in the NHL in the last few decades. The NHL has continued to expand even as the sport faces increasing competition from other sources of entertainment. Smaller Canadian cities where hockey is extremely popular, such as Quebec and Winnipeg, have lost franchises while cities in which hockey is a fringe sport, such as Raleigh, Miami, Tampa-St. Pete, Anaheim, Phoenix, Nashville, and Atlanta, have gained franchises. Many of both sets of venues, the smaller core cities, and the larger warmer location have struggled to support the franchises when they aren't winning consistently.
Balsillie proposes to put another team in an area that already is well-served. The Toronto Maple Leafs are arguably the most popular team in the sport. The Leafs play a couple hours drive from the Buffalo Sabres, a smaller-market team that has been quite successful as Western New York's most significant professional team. Balsillie apparently proposes to stick the Coyotes right in between Toronto and Buffalo and hope that there are enough hockey fans in that part of Ontario to pull from both the Leafs and the Sabres. It reminds me of when the Colorado franchise moved to New Jersey in 1982 and hoped that the New York Metro area had enough hockey fans to support three teams. The Devils are on decent financial footing now but it was touch and go for a while. And even after winning three Stanley Cups as the league's top team, it is still pretty easy to get Devils tickets.
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