Despite the unorthodox moves by the Federal Reserves to open the federal lending window higher and make it available for more cash starved financial companies, not just banks, news comes today that Citicorp offered stock which raised 4.5 billion. "The sale [of stock today] represents about 3 percent of Citigroup's shares outstanding as of March 31. The world's biggest banks, grappling with more than $300 billion of losses on mortgages, bonds and loans, have sought new capital to stave off credit rating downgrades that might jeopardize client relationships and access to financing. Companies usually try to avoid forced stock sales because they dilute the earnings power of current shareholders.

"They need the additional capital," said Ben Wallace, an analyst at Grimes & Co. in Westborough, Massachusetts, which manages $800 million including Citigroup shares. "The dilution factor is a secondary concern these days." …

In total, the bank's capital raising has diluted current shareholders by about 20 percent, Wallace estimated."

Here is a link to the whole article: http://www.bloomberg.com/apps/news?pid=20601087&sid=aEdkikTTTWwA&refer=home

Michael

A discovery of Harris County district court records gives a look into the practice of law in the past. An opinion written by Chief Justice John Hemphill, the “John Marshall of Texas” was discovered and “ultimately decided the case” of Houston v. Lamar. A recent article indicates an accident “led to the 140-year delay in publication of the supreme court’s opinion .... almost vanished from historical record.”

The opinion is a result of litigation regarding “a simple case set against a complicated political backdrop”. Sam Houston sued Mirabeau B. Lamar for damaged furniture in the Presidential mansion on March 6, 1839, claiming “Lamar damaged or destroyed $2,000 worth of Houston’s furniture after promising to buy it.”

This article gives the story behind the two men and pieces together the lawsuit and “a glimpse into the routine practice of law in a very different legal world.”

Here is a link to the full article published by The Houston Lawyer magazine:
http://www.thehoustonlawyer.com/aa_jan08/page16.htm

Michelle

On February 20, the Seventh Circuit Court of Appeals issued an opinion in which it held that the issuance of a fairness opinion by Credit Suisse First Boston right before the tech bust of 2000 was not gross negligence. In this instance, a Liquidating Trust established for the benefit of unsecured creditors sued SCAB for gross negligence arguing that it should have known that the deal they were saying was fair was instead about to implode when the market turned. The Court of Appeals upheld the ruling by the US District Court that CSFB did not commit gross negligence in issuing its opinion and that they were not able to predict the tech bust any more that anyone else watching the markets at that time.

Moreover the Court held that CSFB was using financial information which was provided to it, thus alleviating its responsibility for the quality of the underlying data. "CSFB followed the norm in this business -- more to the point, it followed the rules in its contract with HA-LO -- and relied on management's numbers. It told HA-LO to hire someone to check the numbers. Separating number-creation from number-evaluation is not illegal and may make business sense....The Trust's assertion that CSFB should have foreseen the end of the dot-com era is an appeal to hindsight."

Here is a link to the Seventh Circuit Court of Appeals Opinions, Case No. 06-3842:
http://www.ca7.uscourts.gov/fdocs/docs.fwx?dname=opinion

Michael

Perhaps you read about the woman who failed to list a $600,000 plus Swiss bank account on her schedules. She is now serving her sentence of 6 months house arrest, having forfeited her money to the federal government.

Here is a link to the article:
http://www.nctimes.com/articles/2007/05/16/news/sandiego/18_15_275_15_07.txt

Mike

On January 17, 2007, we wrote about the case of Travelers Casualty and Surety Co. v. Pacific Gas and Electric Co., 549 U.S. ___ (2007), which was argued before the U.S. Supreme Court on January 16. The Supreme Court issued an opinion on the matter today and held that the Court of Appeals for the Ninth Circuit erred in disallowing claims of Travelers for attorney’s fees.

As we wrote previously, Travelers filed an unsecured claim in the PG&E bankruptcy to recover attorney fees sustained in litigation concerning agreements between Travelers and PG&E. In a pre-bankruptcy agreement between the two, Travelers had negotiated for the right to collect attorney’s fees in enforcing its rights. In order to protect its rights, Travelers had objected to PG&E’s plan of reorganization and a disclosure statement. Following this claims objection, Travelers filed a claim seeking attorney’s fees for the related litigation. The Bankruptcy Court granted the objection to the claim based on the Fobian rule which disallows attorney’s fees for issues litigated as purely federal bankruptcy issues rather than contract issues. See In re Fobian, 951 F.2d 1149 (9th Cir. 1991) which held that “where the litigated issues involve not basic contract enforcement questions, but issues peculiar to federal bankruptcy law, attorney’s fees will not be awarded absent bad faith or harassment by the losing party.”

The District Court and the Court of Appeals for the 9th Circuit affirmed the Bankruptcy Court’s decision. The Supreme Court reversed that decision and by its ruling, threw out the Fobian rule.

Justice Alito delivered the opinion of the unanimous court. The case required the Court to consider whether the Bankruptcy Code disallows contract based claims for attorney’s fees based solely on the fact that the fees were incurred litigating issues of bankruptcy law.

The Court stated that while the prevailing litigant is ordinarily not entitled to collect attorney’s fees, this can be overcome by statute or an enforceable contract which specifically allows it. The Court looked to the Bankruptcy Code definition of a claim, which is a “right to payment” against the debtor’s estate. 11 U.S.C. §105(5)(A). The Court said that once a proof of claim is filed, the court must determine whether the claim is allowed under section 502 of the Code. Under section 502, a claim is deemed allowed unless a party in interest objects.

The Court then went further and said that even if a party in interest objects, the court “shall allow” the claim except to the extent that the claim implicates any of the nine exceptions to allowable claims under section 502(b). The Court found that none of the exceptions under section 502(b)(2) - (9) applied and focused solely on section 502(b)(1) which disallows any claim that is “unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.”

The Court said that the basic federal rule in bankruptcy is that “state law governs the substance of claims” or that when the Bankruptcy Code uses the word claim, it usually refers to a right to payment recognized under state law. The Court said that the Court of Appeals did not conclude that Travelers’ claim was unenforceable under section 502(b)(1) as a matter of applicable nonbankruptcy law, nor did it conclude that the claim was rendered unenforceable by any provision of the Code. The Court said that the Ninth Circuit denied Travelers’ claim solely on the Fobian rule.

The Court said that the Court of Appeals erred in denying the claim solely on the Fobian rule, which was a rule of the 9th Circuit’s own creation. The Court further says that the Fobian rule has no support in the Bankruptcy Code and states “[t]he absence of textual support is fatal for the Fobian rule.” The Court further states that claims which are enforceable under applicable state law are presumed to be allowed in bankruptcy unless expressly disallowed. The Court struck down the Fobian rule, vacated the judgement of the Ninth Circuit Appeals Court and remanded for further proceedings consistent with its opinion.

Ray

Copyright © All Rights Reserved