Westlaw: A Digital Deportation Machine?

posted by Alan White

Lawyers and legal academics may be surprised to learn that Thomson Reuters, owners of the Westlaw electronic law library, sells its data to the Immigration and Customs Enforcement Agency, and reserves the right in its privacy policy to share browsing history and search terms with law enforcement agencies. My colleague Sarah Lamdan explores the ethical issues for lawyers and the legal publishers in a recent paper, "When Westlaw Fuels ICE Surveillance: Ethics in the Big Data Policing Era." 

Some Thoughts on the Alter Ego Ruling in Crystallex

posted by Mark Weidemaier

I have had a bit of time to digest the district court’s ruling that PDVSA is Venezuela’s alter ego, and here are some preliminary thoughts. The opinion is 75 pages and covers a lot of ground, but I’ll focus on perhaps the most important and least technical question: Is the case a one-off or a harbinger? Put differently, assuming the ruling stands after appeal and further proceedings in the district court, does it definitively establish that PDVSA is Venezuela’s alter ego? If so, the ruling could have important consequences for a future attempt to restructure the debts of both entities.

The answer isn’t clear. Or rather, it depends whether one wants a formal or a functional answer. Formally, the decision is a one-off; it need not have implications for future alter ego determinations. Functionally, however, the decision creates real risks for PDVSA and the government.

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Court Lets Crystallex Attach Equity in CITGO Parent

posted by Mark Weidemaier

[Edit: Here is the opinion, with redactions related to the OFAC license.]

Just a quick post for now, as the court is keeping its opinion under seal for the time being. Crystallex, a creditor of Venezuela, has been trying to enforce its claims by attaching PDVSA's equity interest in PDV Holding, the ultimate U.S. parent of CITGO. For more background, there have been a number of posts already here on Credit Slips. The district judge overseeing the action in Delaware has just granted Crystallex's request.

I'll have more to say once the opinion becomes public, although portions will undoubtedly be redacted in that version. The secrecy seems to be associated with an OFAC license obtained by a third party (presumably the entity financing this litigation), which Crystallex believes authorizes attachment notwithstanding U.S. sanctions against Venezuela. Those sanctions require OFAC authorization for "attachment of an equity interest in any entity in which the Government of Venezuela has a 50 percent or greater ownership interest" (see FAQ 596) and define "Government of Venezuela" broadly to include PDVSA. I assume the redactions will mostly affect this part of the opinion.

Even more important, the opinion will have to explain why Crystallex, a creditor of Venezuela, can attach PDVSA's property. Presumably the reason is that the court has found the two entities to be alter egos. If so, that's an important ruling that may have much broader consequences in any attempted restructuring of PDVSA or Republic debt.

Edit: I should add that the fact that the court has issued the writ does not necessarily mean Crystallex will immediately be allowed to execute. Leaving aside any delay associated with appeal, the district judge has previously distinguished the decision to issue the writ from the decision to allow execution. Any attempt to execute the writ will also raise new questions. For instance, must there be an attempt to sell the shares? If not, how should the shares be valued (since Crystallex is only entitled to receive the amount of its judgment plus interest)?

Older Americans’ Rising Bankruptcy Filings

posted by Pamela Foohey

Older Americans (age 65 and over) are increasingly likely to file bankruptcy and now comprise a larger proportion of the people who file bankruptcy -- and the effects are not small. Using data from the Consumer Bankruptcy Project, in a new working paper just posted to SSRN -- Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society -- my co-authors (past Slipster Debb Thorne, Slipster Bob Lawless, and past Slipster Katie Porter) and I find a more than two-fold increase between 1991 and now in the rate at which older Americans file bankruptcy. We further find an almost five-fold increase in the percentage of older persons in the bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect.

In the paper, we link older Americans’ increased filing rates with the shrinking social safety net. A story published today in the New York Times (on actual paper and on the front page!) does an exceptional job of both describing our study and detailing the ways in which the risks of aging have been off-loaded onto older Americans: “vanishing pensions, soaring medical expenses, inadequate savings.” The story also highlights the financial and life travails of a few older Americans who filed bankruptcy. Their struggles stem from declining income, lost insurance, and unmanageable medical expenses.   

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MoviePass Bankruptcy Watch

posted by Adam Levitin

The financial travails of MoviePass and its parent company Helios & Matheson caught my eye today. I almost never go to see movies in theaters, so MoviePass was an unfamiliar business to me, but the basic idea is that the consumer pays an upfront subscription fee and then MoviePass provides an unlimited number of tickets for the consumer (although one per show, and more recently with various additional restrictions):  basically an all-you-can-eat buffet model applied to movies.  The buffet model requires the Jack Sprats of the world to subsidize their wives:  those who go to the counter once and get low-cost foods are subsidizing those who make multiple trips for the foie gras, etc.  The buffet model can work for a few reasons. First, there is a limit to how much anyone (except Joey Chestnut) can eat.  Second, people often go to restaurants in groups, which means that there will be some Jack Sprat wives in the mix.  Third, there are sales of other items (drinks, liquor) that can offset the buffet to the extent it's a loss leader.  And fourth, the buffet can be priced high enough that it won't lose too much money.

MoviePass doesn't seem to have many of these factors working in its favor.  People can watch a lot more movies in a month than they can make trips to a buffet table in an evening. There's going to be an adverse selection of heavy users among subscribers, and they don't bring along Jack Sprat wives--the extra business of friends who come to the theater doesn't go to MoviePass, but to the theaters.  And MoviePass doesn't have much in the way of other sale items to offset losses on tickets.  OK, so we've got a really bad business model that will only work if lots of people sign up, but don't actually go to the movies.  This strikes me as different from other subscription models, like gyms.  People are likely to overestimate their likelihood of going to the gym. My guess is that they are much less likely to overestimate how often they'll go to the movies. 

Well, this is all very interesting, but what does it have to do with Credit Slips?  Three things, I think, one dealing with payment systems and secured lending, and the other two dealing with bankruptcy, which seems to be where this is all headed (assuming that MoviePass is not run out of a bankruptcy remote entity). 

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Jay Alix v. McKinsey Update

posted by Stephen Lubben

As my summer of poutine, donairs, and nippy waters winds down, a quick post to note that the long-expected motion to dismiss has been filed in the battle between the chapter 11 financial advisors. A McKinsey spokesperson also provided the following statement, which gives some insight into how they intend to respond to this case:

“Jay Alix has waged a years-long crusade against McKinsey & Company to stifle competition in the bankruptcy advisory market. His attempt to bootstrap a disclosure dispute into a RICO action is devoid of any legal basis and obviously intended to do nothing but inflict reputational damage. Courts have previously upheld the appropriateness of McKinsey’s disclosures. This lawsuit is just one more part of Mr. Alix’s anticompetitive campaign to push out of the market a competitor whose deep expertise and unmatched scale deliver superior bankruptcy outcomes.”

Ian Fletcher

posted by Jay Lawrence Westbrook

Ian Fletcher has passed away. He was a very important figure in insolvency law in England and elsewhere and a giant in the international side of our field. His passing is a great loss of a wonderful scholar and friend. His career is described on line at https://www.ucl.ac.uk/laws/people/prof-ian-fletcher and in a posting by the distinguished Dutch scholar Bob Wessels, http://www.bobwessels.nl/blog/2018-07-doc3-passing-away-of-prof-ian-f-fletcher/.

In the Festschrift in his honor I recounted how I met him:

I remember so well my first meeting with that great scholar and teacher Ian Fletcher. I had been astounded to come upon Cross-Border Insolvency: Comparative Dimensions (The Aberystwyth Papers). At a time when international and comparative insolvency was in its infancy, to come upon so sophisticated an editor and author was remarkable. As soon as I could, I hied myself to the very tip of Wales to meet him. I have learned from him and enjoyed his friendship ever since. One reason we fell in so quickly together was a common conviction that international juridical cooperation was a growing necessity and that insolvency presented perhaps the most pressing case for it. As he later put it in his outstanding treatise on international insolvency: “The increased awareness in recent times of the negative consequences of [the] international fragmentation of policy and approach to cross-border insolvency issues has fueled the quest for improved solutions.”

As part of the Internationalist Principle, he wisely advised that: “flexibility and pragmatism must be substituted for the dogmas so beloved of former ages.”

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Passing of Ian Fletcher

posted by Bob Lawless

It is with great sadness that the news reached my desk of the passing of Professor Ian Fletcher of University College London. Ian was a leading international insolvency expert, well known to all of us at Credit Slips, and we extend our condolences to his family and friends. Professor Bob Wessels has a tribute.

Silver Linings Playbook: The Weinstein Co. Chapter 11 Hearings #7 & #8

posted by Melissa Jacoby

Sale closedSince I last wrote on Credit Slips about The Weinstein Co. chapter 11, the sale of the company to Lantern Capital has  closed. Shortly after it closed, it was announced that Harvey Weinstein's brother Bob Weinstein was resigning from the TWC board of directors, along with several others. (If you read the investigative news reporting on TWC last fall through winter, you may be wondering why there hadn't been earlier board turnover. I have no good answer). Also of potential interest is that, after the closing of the sale, Lantern was immediately sued in California state court by another investment firm for breaching written and oral agreements connected with due diligence that allegedly gave Lantern a bidding advantage in buying TWC. 

The seventh public court hearing, on July 11, 2018, paved the way for the sale to close. It was then and there that Judge Sontchi, filling in for Judge Walrath, approved an amendment to the sale agreement reducing the sale price. The judge telegraphed early in hearing #7 that he viewed other pending objections (dealing with executory contracts and default cure amounts, which still remain pending) as collateral attacks on the prior sale order. The objection that would have prompted a bona fide evidentiary hearing, from the creditors' committee, had been settled.  Although hearing #8 on July 18 was extremely brief, it is clear there's much left to be worked out behind the scenes in this case - most notably, how to allocate the money.

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