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In the Zone: The Weinstein Co. Chapter 11 Hearings #9-13

posted by Melissa Jacoby

Since my last Credit Slips post about The Weinstein Co. chapter 11, there have been five public hearings/status conferences (some of which were telephonic). Disparate observations from those hearings below.

  1. Shaping public beliefs about a criminal charge through the bankruptcy court. On August 2, 2018, multiple criminal defense lawyers for Harvey Weinstein participated in an emergency telephonic status conference relating to the use of electronic documents. HW's criminal defense team seemed to use the hearing to magnify efforts to discredit an alleged rape victim in the media and even to amplify their allegations of prosecutorial misconduct. It is unlikely that the narrow issue before the bankruptcy court required the breadth of assertions of HW's legal team. At least based on my listening, the criminal defense lawyers were insufficiently responsive to the court's repeated efforts to limit the scope of their assertions (they almost certainly would have been less able to do what they did at an in-person event). Telephonic hearings are an important convenience, and yet their challenges are heightened when they involve conventional technology coupled with lawyers who don't expect to appear in future cases in that court. Did I hear some of you thinking or saying "well of course, this is what criminal defense lawyers do"? Whether or not that's true or good, this event is further reinforcement that what happens in chapter 11 is way more than mere fiddling with an indebted firm's capital structure.
  2. A "procedural mess": contracts, contracts, and more contracts. The quoted language is from the presiding judge with respect to the pending disputes over TWC contracts that may - or may not - be part of the bundle of assets that Lantern obtains from TWC through this bankruptcy. As prior Credit Slips posts have recounted, the sale of TWC to Lantern closed without resolution of the scope of contracts to be assumed and assigned and cure amounts. At a hearing on August 23, 2018, it became clear that many hurdles have yet to be overcome on these issues. It probably is not a good sign when the parties cannot even agree on whether they have been in contact with each other to negotiate. In addition to the question of whether some contracts remained executory at the bankruptcy filing date (e.g., did Lantern buy the asset side without further obligation), some counterparties have been saying all along that their contracts were validly terminated prepetition and thus never entered into TWC's bankruptcy estate. The parties also may not be aligned over the extent to which it is imperative to resolve these disputes on a relatively short timeline. On August 23, the court agreed with contract counterparties that these matters needed to be teed up differently than Lantern had proposed. On September 7, TWC filed a three-hundred-plus-page list of contracts it is seeking to assume (dkt #1457).
  3. "A thin estate." Are any general unsecured creditors going to get paid in TWC's bankruptcy? Will the estate run out of money before the committee gets the chance to investigate other potential causes of action to bring more money into the estate? Based on the assertions of the unsecured creditors' committee lawyer at a hearing on September 5, who also used the phrase "in the zone of administrative insolvency," the answers to these questions are veering toward "no" and "yes." Will anyone else step into fund important litigation activity and recovery?
  4. Sexual misconduct lawsuits proliferate. As reported by the lawyer for the creditors' committee on September 5, sexual misconduct lawsuits, involving many women and identifying TWC and affiliates as defendants, are pending in in a variety of places (New York, California, United Kingdom, at the very least) and types of courts. Further complicating the ability to manage these actions comprehensively is the fact that federal law prohibits bankruptcy judges from hearing and deciding personal injury tort claims.* On September 5, the bankruptcy court agreed to lift the automatic stay to permit Alexandra Canosa's lawsuit pending in the Southern District of New York to continue for claim liquidation purposes, as it had with the Geiss class action

 

*September 13 update: A Credit Slips reader reminded me that some judges read 28 USC 157 a bit less broadly than stated here. So most pertinent for this discussion is that, at TWC hearings, including September 5,  the presiding judge has expressed the view that she cannot liquidate these claims - at least one of which also involves a jury demand.

 

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