Commentary: Meandering Argument Suggests Justices Likely to Narrow Bankrupts’ Power to Rescind Licenses in Bankruptcy*

The oral argument yesterday before the Supreme Court consideration of Mission Product Holdings Inc. v. Tempnology, LLC presented the important question of what happens when a debtor exercises its statutory right to reject a contract in bankruptcy, according to a SCOTUSBlog post by Prof. Ronald Mann. It is plain from the language of the statute that the debtor’s rejection should be treated as a “breach” of the contract, and that the counterparty can sue the bankrupt for damages. The question, though, is whether the rejection’s “breach” operates to rescind the entire contract. In this case, for example, the contract in question is a trademark license, and the debtor not only wants to terminate its own obligations under the contract; it also wants to retract the licensee’s right to use the debtor’s trademark. You might wonder, if this problem has plagued lower courts for 30 years, why Congress has not responded. In fact, it has. Specifically, shortly after the 1985 decision of the U.S. Court of Appeals for the Fourth Circuit in Lubrizol Enterprises v. Richmond Metal Fin (holding that a debtor can terminate rights under a patent license), Congress promptly amended the Bankruptcy Code to provide that the licensee of a patent can retain its rights even if the licensor rejects the license in bankruptcy. The problem is that Congress’s amendment applies to patent and copyright licenses, but not to trademark licenses. One common topic in the argument was the significance of that congressional amendment (§ 365(n) of the Bankruptcy Code). During the presentation of Danielle Spinelli on behalf of the licensee, Mission Product, Justice Sonia Sotomayor seemed to think that Congress’s decision to establish a specific regime in § 365(n) to protect patent and copyright licensees would make it odd for the Supreme Court to imply a protective regime for trademark licensees. For her, it seemed “counterintuitive … or counterlogical” for “trademark [us]ers [to] get more rights than [365(n)] provides to other licens[ee]s in the intellectual property field.”


*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Join a panel of experts on Monday afternoon for a free abiLIVE webinar to examine the points raised during the oral argument. Click here to register.

For further information on the case, please click here.

Debt Pressures Nudge Rural Phone Companies Closer to the Edge

Rural telephone companies have tried to embrace the future by offering cloud services, bulking up on fiber and pushing broadband, but their landline businesses and huge debt loads are keeping them stuck in the past, Bloomberg News reported. Windstream Holdings Inc. may wind up in bankruptcy after an effort to finesse its debt burden instead led to a stunning court defeat on Friday that could leave it unable to refinance. CenturyLink Inc. slashed its dividend last week and faces an activist’s demand that it sell assets to bolster its balance sheet. Frontier Communications Corp., which halted payouts a year ago, ranks No. 1 on the list of deeply distressed debt-issuers in North America. The developments provided investors yet another reminder of the troubles facing an industry that is anchored to an aging copper-line phone network. Windstream, CenturyLink and Frontier have taken on a cumulative $60 billion in debt as they tried to overcome waning demand through acquisitions, leaving little cash for new investments.

Commentary: Getting Puerto Rico Out of the Austerity Trap*

Last week’s decision by the U.S. Court of Appeals for the First Circuit on the appointment of the federal oversight board managing the finances of Puerto Rico — as well as the current controversy over $6 billion of the island’s debt that the same federal board had declared legally invalid — is the latest reminder that officials in Washington, D.C., cannot keep putting policy toward the island on autopilot, according to a MorningConsult.com commentary. This latest judicial decision gives 90 days for Congress and the president to appoint and confirm a new board that could ratify or modify the decisions already made or start anew. Although the authors have different perspectives on the economic and fiscal crisis in Puerto Rico, we do agree on where to start: From a bipartisan standpoint, examine the intent of the Puerto Rico Oversight, Management, and Economic Stability Act that Congress enacted nearly three years ago to address this crisis. PROMESA originated from uncertainty in Puerto Rico’s finances due to lack of fiscal information, inaccurate projections and the use of nonrecurring revenues for recurring expenses. Accordingly, PROMESA created a Financial Management and Oversight Board (FMOB) to bring transparency to Puerto Rico’s finances, restore the principle of good government planning with a multiyear fiscal plan, establish four years of balanced budgets and place the island on a path to return to the financial markets. Unfortunately, the FMOB has not adequately met these goals; indeed, its current fiscal plan suffers from some of the same problems FMOB was intended to address.



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

States, Consumer Groups Blast CFPB’s Fintech Protections

State attorneys general, consumer advocates, community activists and banking regulators are criticizing proposed legal protections for banks and technology firms that develop “innovative” financial products, Roll Call reported. The protections would come from the Consumer Financial Protection Bureau, which in December unveiled what it calls a “regulatory sandbox” that will allow firms to develop untested fintech products and services without fear of reprisals from regulators. While the criticism rolls in, financial industry groups are rallying behind the plan, even asking the CFPB to expand the legal safe havens. The critics include 22 Democratic state attorneys general, 77 consumer and community groups, and the Conference of State Bank Supervisors. Last week, they sent disapproving comment letters to the CFPB over the bureau’s plans to expand its “no-action letter” policies. A no-action letter is essentially a promise by a federal agency not to bring an enforcement action against a bank that launches a financial product or service. It’s intended to encourage banks to develop and market innovative products that benefit consumers by easing banks’ concerns that they might run into legal woes if a government agency subsequently determines that the new product has run afoul of legal and regulatory restrictions.

Commentary: How Scary Are Subprime Auto Loans?*

The more you dig into the automotive asset-backed securities (ABS) market, the less likely it seems like a flashpoint for a financial crisis, according to a Bloomberg commentary. A report last week from the Federal Reserve Bank of New York showed that as of the end of 2018, more Americans than ever — in excess of 7 million — were at least three months behind on their car payments. On a percentage basis, the delinquency rate is the highest since 2012, even though lending has shifted toward more creditworthy borrowers. The share considered “subprime” who are behind on their payments is the highest since mid-2010. The market is booming, with issuances of U.S. auto asset-backed securities reaching a record $107.3 billion in 2018 compared with $59 billion in 2010, according to the Securities Industry and Financial Markets Association. However, it’s not as if all — or even most — subprime auto loans are packaged into securities, according to the commentary. Only about 10 percent of the $437 billion of low-rated loans have been turned into ABS, according to Wells Fargo. By contrast, at its peak in 2007, the amount of total subprime mortgage debt was about $1.3 trillion. As they are not securitized, the majority of the loans are kept on lenders’ balance sheets. But large banks, which have $389 billion of outstanding auto loans, only have a 25 percent subprime share, according to the New York Fed. And small banks (those with less than $50 billion in assets) are even more skewed toward creditworthy borrowers, with just a 14 percent subprime share. Instead, auto finance companies have a disproportionate amount of subprime loans, at 50 percent.



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

ASM Panel Spotlight: Are Hedge Funds and Private-Equity Firms Different than Other Case Parties?

This 2019 ABI Annual Spring Meeting (ASM) panel, comprised of investment bankers, lawyers and principals of hedge funds, will explore whether, when and how the goals and strategies of hedge funds and private-equity funds in chapter 11 cases differ from those of other creditors, including banks, insurance companies, trade creditors, unions and governmental agencies.



ABI's Annual Spring Meeting in April features 30 sessions with expert speakers analyzing important bankruptcy cases and issues. Legendary journalist Bob Woodward will deliver a keynote to provide the pulse of D.C. Additionally, ABI's Consumer Bankruptcy Commission will release its final report of recommendations to improve the consumer bankruptcy system. These are just some of the many reasons to join us at ASM. Register here.

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!

Tap into Rochelle’s Daily Wire via the ABI Newsroom and Twitter!