1. Class 2 Bankruptcy, Spring, 2009 The Automatic Stay Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago 773.702.0864/r-picker@uchicago.edu Copyright © 2005-09 Randal C. Picker. All Rights Reserved.

2. October 7, 2015Copyright © 2005-09 Randal C. Picker2 The Trust Bankruptcy n Trust Position u Cash and Planes: What To Do? n Involuntary Filing u Three holders of Second and Third Series Certificates and Magten Asset Mgmt file involuntary case u Held certificates with face amount of $54.2 million

3. October 7, 2015Copyright © 2005-09 Randal C. Picker3 The Trust Bankruptcy u Joined by RTC with $35.5 million in certificates n Does this meet the standard of 303(b)?

4. October 7, 2015Copyright © 2005-09 Randal C. Picker4 Issues n Are certificates equity interests or debts (claims)? n If claims, are they unsecured?

5. October 7, 2015Copyright © 2005-09 Randal C. Picker5 Is This Entity Eligible under 109? n 109 is tied to definition of “person”

6. October 7, 2015Copyright © 2005-09 Randal C. Picker6 Definition of Person n 101(41): Person u includes individual, partnership, and corporation, but does not include governmental unit, except that a governmental unit that …

7. October 7, 2015Copyright © 2005-09 Randal C. Picker7 Definition of Corporation n 101(9): Corporation u (A) includes - w (i) association having a power or privilege that a private corporation, but not an individual or a partnership, possesses; w (ii) partnership association organized under a law that makes only the capital subscribed responsible for the debts of such association; w (iii) joint-stock company;

8. October 7, 2015Copyright © 2005-09 Randal C. Picker8 Definition of Corporation w (iv) unincorporated company or association; or w (v) business trust; but u (B) does not include limited partnership;

9. October 7, 2015Copyright © 2005-09 Randal C. Picker9 Definition of Entity n 101(15): Entity u includes person, estate, trust, governmental unit, and United States trustee

10. October 7, 2015Copyright © 2005-09 Randal C. Picker10 Eligibility of Trusts n “Person” Defines Eligibility u See 109(b), (d) n “Entity” Definition Separates “Trust” from “Person” n Meaning? u Trusts only eligible if captured through definition of person

11. October 7, 2015Copyright © 2005-09 Randal C. Picker11 Eligibility of Trusts u Person includes corporation, which includes business trust u So generic trusts out, but business trusts in

12. October 7, 2015Copyright © 2005-09 Randal C. Picker12 Is the Trust a Business Trust? n If so u Eligible for bankruptcy n How Do We Tell? n Is this a question of state law or federal law? n What considerations should influence the outcome?

13. October 7, 2015Copyright © 2005-09 Randal C. Picker13 541 n Property of the estate u (a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held: w (1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.

14. October 7, 2015Copyright © 2005-09 Randal C. Picker14 LTV Steel Sales Finance LTV Owns Abbey $ SA/FS: AR Sells/Buys AR When LTV files C11, what rights does its estate have to the accounts at SF?

15. October 7, 2015Copyright © 2005-09 Randal C. Picker15 LTV Steel Steel Products LTV Owns Chase $ SA/FS: Inventory Sells/Buys Inventory When LTV files C11, what rights does its estate have to the inventory at SP?

16. October 7, 2015Copyright © 2005-09 Randal C. Picker16 The Court’s Analysis n Says the Court: u Furthermore, there seems to be an element of sophistry to suggest that Debtor does not retain at least an equitable interest in the property that is subject to the interim order. Debtor’s business requires it to purchase, melt, mold and cast various metal products.

17. October 7, 2015Copyright © 2005-09 Randal C. Picker17 The Court’s Analysis u To suggest that Debtor lacks some ownership interest in products that it creates with its own labor, as well as the proceeds to be derived from that labor, is difficult to accept. Accordingly, the Court concludes that Debtor has at least some equitable interest in the inventory and receivables, and that this interest is property of the Debtor’s estate.

18. October 7, 2015Copyright © 2005-09 Randal C. Picker18 362: The Automatic Stay n (a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title … operates as a stay, applicable to all entities, of - u (1) the commencement or continuation … of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

19. October 7, 2015Copyright © 2005-09 Randal C. Picker19 362(a) (Cont.) n Automatic Stay (cont.) u (2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title; u (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;

20. October 7, 2015Copyright © 2005-09 Randal C. Picker20 362(a) (Cont.) n Automatic Stay (cont.) u (4) any act to create, perfect, or enforce any lien against property of the estate; u (5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;

21. October 7, 2015Copyright © 2005-09 Randal C. Picker21 362(a) (Cont.) n Automatic Stay (cont.) u (6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title; u (7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor;

22. October 7, 2015Copyright © 2005-09 Randal C. Picker22 362(b): Exceptions to the Automatic Stay n (b) The filing of a petition under section 301, 302, or 303 of this title … does not operate as a stay - u (1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor;

23. October 7, 2015Copyright © 2005-09 Randal C. Picker23 362(b): Police Power Exception n Automatic Stay (Cont.) u (b)(4) under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of the commencement or continuation of an action or proceeding by a governmental unit … to enforce such governmental unit’s … police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit’s or organization’s police or regulatory power;

24. October 7, 2015Copyright © 2005-09 Randal C. Picker24 362(c): Time Period of Stay n (c) Except as provided in subsections (d), (e), (f) and (h) of this section - u (1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate; and

25. October 7, 2015Copyright © 2005-09 Randal C. Picker25 362(c) (Cont.) u (2) the stay of any other act under subsection (a) of this section continues until the earliest of - w (A) the time the case is closed; w (B) the time the case is dismissed; or w (C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied.

26. 362(c) (Cont.) n New Serial Filing Stay Limits u Added in 2005 to create 362(c)(3) and 362(c)(4) October 7, 2015Copyright © 2005-09 Randal C. Picker26

27. October 7, 2015Copyright © 2005-09 Randal C. Picker27 362(d): Relief from the Automatic Stay n (d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay - u (1) for cause, including the lack of adequate protection of an interest in property of such party in interest;

28. October 7, 2015Copyright © 2005-09 Randal C. Picker28 362(d) (Cont.) u (2) with respect to a stay of an act against property under subsection (a) of this section, if - w (A) the debtor does not have an equity in such property; and w (B) such property is not necessary to an effective reorganization u [(3): Special SARE rules] u [(4): Serial filings/real property]

29. October 7, 2015Copyright © 2005-09 Randal C. Picker29 105(a) n Power of Court u The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.

30. October 7, 2015Copyright © 2005-09 Randal C. Picker30 Electronic Disabling Bank Debtor 1. Bank lends $ secured by equipment 2. Bank can disable equipment remotely via wireless signal and allowed to do so on default by Debtor 1.Debtor defaults and files under C11 2.Bank clicks remote 3. Does Bank violate the automatic stay?

31. October 7, 2015Copyright © 2005-09 Randal C. Picker31 Electronic Disabling by Govt SBA Debtor 1. SBA lends $ secured by equipment 2. SBA can disable equipment remotely via wireless signal and allowed to do so on default by Debtor 1.Debtor defaults and files under C11 2.SBA clicks remote 3. Does SBA violate the automatic stay?

32. October 7, 2015Copyright © 2005-09 Randal C. Picker32 FCC Capitalization Regs FCC Debtor 1. FCC issues regs requiring spectrum license holders to meet minimum net worth requirements 2. FCC issues license to Debtor 1.Debtor files under C11 2.FCC revokes license for failure to satisfy reg 3. Does FCC violate the automatic stay?

33. October 7, 2015Copyright © 2005-09 Randal C. Picker33 Two Principles as to Debtors and Gov’t n Debtor Must Comply with Applicable Law u Filing for bankruptcy does not exempt a debtor from laws n Gov’t as Creditor Has No Special Position

34. October 7, 2015Copyright © 2005-09 Randal C. Picker34 28 USC § 959 n Trustees and receivers suable; management; State laws u (a) Trustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property. Such actions shall be subject to the general equity power of such court so far as the same may be necessary to the ends of justice, but this shall not deprive a litigant of his right to trial by jury.

35. October 7, 2015Copyright © 2005-09 Randal C. Picker35 28 USC § 959 (cont.) n Trustees and receivers suable; management; State laws (cont.) u (b) Except as provided in section 1166 of title 11, a trustee, receiver or manager appointed in any cause pending in any court of the United States, including a debtor in possession, shall manage and operate the property in his possession as such trustee, receiver or manager according to the requirements of the valid laws of the State in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof.

36. October 7, 2015Copyright © 2005-09 Randal C. Picker36 FCC Full Payment Regs FCC Debtor FCC issues license to Debtor subject to regulation that revokes license in absence of full payment of auction price 1.Debtor files under C11 2.FCC invokes license revocation and re-auctions 3. Does FCC violate the automatic stay?

37. October 7, 2015Copyright © 2005-09 Randal C. Picker37 Actual Case n Structure of Deal between NextWave and FCC u Nextwave paid down payment u N executed promissory notes for balance u N granted FCC security interest in license and FCC filed UCC financing statements

38. October 7, 2015Copyright © 2005-09 Randal C. Picker38 Actual Case n License Provisions u “conditional upon the full and timely payment of all monies due pursuant to … the terms of the Commission’s installment plan as set forth in the Note and Security Agreement executed by the licensee” u “[f]ailure to comply with this condition will result in the automatic cancellation of this authorization”

39. October 7, 2015Copyright © 2005 Randal C. Picker39 525 n Antidiscrimination Provision u (a) … a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated

40. October 7, 2015Copyright © 2005 Randal C. Picker40 525 (Cont.) n Antidiscrimination Provision u solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

41. October 7, 2015Copyright © 2005 Randal C. Picker41 FCC v. NextWave (US, 2003) “In these cases, we decide whether § 525 of the Bankruptcy Code, 11 U.S.C. § 525, prohibits the Federal Communications Commission (FCC or Commission) from revoking licenses held by a debtor in bankruptcy upon the debtor’s failure to make timely payments owed to the Commission for purchase of the licenses.”

42. October 7, 2015Copyright © 2005 Randal C. Picker42 FCC v. NextWave (US, 2003) “We think Congress meant what it said: The government is not to revoke a bankruptcy debtor’s license solely because of a failure to pay his debts.”

43. October 7, 2015Copyright © 2005 Randal C. Picker43 FCC v. NextWave (US, 2003) “(As we described in our statement of facts, the FCC purported to take such a security interest in the present cases. What is at issue, however, is not the enforcement of that interest in the bankruptcy process, but rather elimination of the licenses through the regulatory step of “revoking” them— action that the statute specifically forbids.)”

44. Meaning n FCC Acting in Two Different Capacities u As Regulator w Subject to 525 limits u As Creditor w Seemingly free and clear of 525 limits (but subject to automatic stay limits?) n How do we separate these two? October 7, 2015Copyright © 2001-08 Randal C. Picker44

45. October 7, 2015Copyright © 2005 Randal C. Picker45 Nicolet n Rough Facts u CERCLA (Superfund) environmental site u Statute creates broad strict liability for many potentially responsible parties (PRPs), including Nicolet u EPA hires outside contractors to clean up site, spends $1MM, expects to spend $300K more

46. October 7, 2015Copyright © 2005 Randal C. Picker46 Nicolet u EPA sues Nicolet, among others, in federal district court seeking reimbursement of past and future expenses u Nicolet files for Chapter 11 u District court in which EPA lawsuit was pending “placed this CERCLA suit in civil suspense” based on automatic stay u US objected based on 362(b)(4)

47. October 7, 2015Copyright © 2005 Randal C. Picker47 Nicolet u Gov’t wants suit to continue to fix damages but agrees that it cannot seek to collect a money judgment from Nicolet n Questions u How does 362(b)(4) apply here? u Why on earth does the gov’t care about obtaining a money judgment that it agrees it cannot enforce?