High Court Wrestles With Bankruptcy Fallout for Trademark Licensees - ABI

Supreme Court justices grappled yesterday with a question at the intersection of bankruptcy and trademark law that has split the circuits and stumped Congress, the National Law Journal reported.  The question posed by Mission Product Holdings v. Tempnology is what happens when a bankrupt entity “rejects” its trademark licenses. New Hampshire-based Tempnology LLC argues that the licenses are swept into the bankruptcy estate as would any other “executory” contract, leaving the licensee with a pre-petition claim for damages that’s typically worth pennies on the dollar. New York-based Mission Products Holdings Inc. and a squadron of amici curiae are calling on the Supreme Court to adopt the Seventh Circuit’s position that licensees should be free to continue using the marks they’ve bargained for and, in many cases, invested their own money in. Assistant to the Solicitor General Zachary Tripp asked the justices to imagine a McDonald’s franchisee who spends millions developing a restaurant. Under the rule adopted by the First Circuit in this case, “they can pull the rug out from under every single one of its franchisees and basically put them to an extortionate choice between paying a higher royalty payment or shutting down their business and firing all their workers.”

Wildfire Victims May Become Low Priority in PG&E Bankruptcy Case - ABI

A group of Butte County wildfire victims have filed a class action complaint against PG&E as part of the embattled utility’s bankruptcy case, but a 50-year-old court ruling could place wildfire victims near the bottom of the stack of priorities in PG&E’s insolvency proceeding, according to a market researcher and a Bay Area bankruptcy expert, the East Bay Times reported. A 1968 U.S. Supreme Court ruling in connection with a fire that burned down an industrial building, if applied to the PG&E bankruptcy case, potentially would place the claims of the victims of the infernos of recent years at a lower priority than victims of any PG&E-caused wildfires that began after the company’s bankruptcy filing this year. “Any wildfire victims whose claims arise — meaning, their property catches on fire — from the date of PG&E’s bankruptcy onward will have first priority in the bankruptcy case,” said Jared Ellias, a bankruptcy expert and law professor with the UC Hastings College of the Law. Prof. Ellias assessed whether that 1968 Supreme Court decision could come into play in the PG&E bankruptcy case which is being supervised by U.S. Bankruptcy Court Judge Dennis Montali. That would produce an inferior status for the claims of victims of fires that occurred in 2017, such as the infernos that scorched the North Bay Wine Country and nearby regions; and the 2018 wildfire that roared through Butte County and essentially destroyed the town of Paradise, he said.

Fed to Include High Unemployment in 2019 Stress Test Scenario - ABI

The Federal Reserve said yesterday that its stress test for big banks will imagine a rapid increase in unemployment, as it announced the details of the hypothetical scenario that banks must survive to pass the latest round of the exams, the Wall Street Journal reported. The Fed’s latest “severely adverse” scenario imagines unemployment rising by six percentage points to 10 percent, along with stress in corporate lending and commercial real-estate markets. “The hypothetical scenario features the largest unemployment rate change to date,” said Randal Quarles, the Fed’s vice chairman for supervision, in a written statement. “We are confident this scenario will effectively test the resiliency of the nation’s largest banks.” Big banks must show the Fed they can survive the hypothetical scenario with enough capital to continue lending. If they fail, they face restrictions on payouts to shareholders. Test submissions are due in April and the results will be announced by the end of June, the Fed said.

Federal Reserve Survey Shows Tighter Lending Standards, Weakening Credit Demand - ABI

The Federal Reserve said yesterday that a growing number of banks reported tightening their standards for some loans in the fourth quarter and said they expected loan demand and performance to weaken, the Wall Street Journal reported. After a year in which banks continued to lend freely despite steadily rising interest rates, the Fed’s January survey of senior loan officers showed an increasing number of institutions bracing for a lending slowdown. “Banks reported expecting to tighten standards for all categories of business loans as well as credit-card loans and jumbo mortgages,” the survey said. “Meanwhile, banks anticipate that loan performance will deteriorate for all surveyed categories.”

Supreme Court Asked to Review Jefferson County Bankruptcy Ruling - ABI

The U.S. Supreme Court has been asked to review the ruling that could end Jefferson County, Alabama’s long-running bankruptcy appeal, Bond Buyer reported. Attorney Calvin Grigsby said on Tuesday that he’d filed for a writ of certiorari seeking to have the Supreme Court review the August appellate decision that ended his clients’ appeal of the county’s bankruptcy case. Grigsby, in a 59-page petition, asks the Supreme Court to consider several questions, including whether the “doctrine of equitable mootness” should bar his clients’ appeal of the county’s plan of adjustment because it alleges that the plan violates the 10th amendment, which reserves municipal utility ratemaking to the states and local governments. Grigsby, a former broker-dealer who is representing a group of ratepayers on the county’s sewer system, has said numerous times in court filings that his clients participated in the bankruptcy case but were never given an opportunity to have a hearing on the merits of their claims. Getting the justices to consider the petition might be difficult, said bankruptcy attorney John Whitlock, who is of counsel with Locke Lord LLP. The firm is not involved in the case. Jefferson County Commission President Jimmie Stephens said he expects the county to prevail if the Supreme Court agrees to review the lower court decision.

In PG&E Bankruptcy, Another Judge May Play Key Role - ABI

Now that PG&E Corp. has filed for protection from its creditors because of California wildfire liabilities, all eyes are on the bankruptcy court. But another federal judge may wind up playing a prominent role in the case, WSJ Pro Bankruptcy reported. Judge William Alsup of the U.S. District Court for the Northern District of California oversees a criminal case involving PG&E, which is on federal probation after being found guilty of violating the Pipeline Safety Act in connection with a natural gas pipeline explosion that killed eight people in San Bruno, Calif., in 2010. Judge Alsup is set to hear whether the utility violated its probation in that case — and whether he should impose tougher safety restrictions on the company — after the state found its electrical equipment sparked more than a dozen California wildfires in recent years. Judge Alsup has the authority to intervene in the chapter 11 bankruptcy case, which is being overseen by U.S. Bankruptcy Court Judge Dennis Montali. Some observers believe he will do just that. “They could sell tickets for that,” said one former PG&E executive, who noted that Judge Alsup has shown intense interest in protecting the public from PG&E safety lapses. While it would be unusual for a U.S. district court judge to take an active role in a bankruptcy case, it isn’t without precedent. U.S. district judges have the power to issue a “withdrawal of reference” and take back cases, in whole or in part, from bankruptcy courts at any time.

Government Shutdown Throws Rural Housing Markets into Disarray - ABI

Across rural America, the government shutdown has eliminated one of the best options for low- to middle-income homebuyers, a zero down payment mortgage from the U.S. Department of Agriculture, Bloomberg News reported. That’s leaving deals and would-be buyers’ lives in limbo. They’re begging sellers for extensions and struggling to decide when to mention their plans to landlords, said Shane Siniard, a loan officer with SWBC Mortgage Corp. in the Atlanta area, where the biggest share of the USDA loans are made, according to an analysis by Zillow. Siniard, one of the most prolific originators of the loans, has one client with a buyer who is unable to sell because he’ll need a payoff statement from the government.

White House Plans to Overhaul Housing Finance System, Top Regulator Says - ABI

The White House will announce a plan by next month to end government control of Fannie Mae and Freddie Mac in a bid to resolve a long debate over the fate of the two companies that dominate the mortgage market, a top regulator said, Politico reported. Joseph Otting, acting director of the Federal Housing Finance Agency, told employees last week that the administration would not wait on Congress, where attempts to overhaul the housing finance system have repeatedly faltered in the years since Fannie and Freddie were rescued during the financial crisis. “In the next two to four weeks you’re going to be able to see some communication that comes out of the White House and Treasury that really sets a direction for what the future of housing will be in the U.S. and what the FHFA’s part of that will be,” Otting said at a Jan. 17 staff meeting.

Two-thirds of Bankruptcy Filers Cite Illness and Medical Bills as Contributors to Financial Distress

Medical problems contributed to 66.5 percent of all bankruptcies, a figure that is virtually unchanged since before the passage of the Affordable Care Act (ACA), according to a study published yesterday as an editorial in the American Journal of Public Health. The findings indicate that 530,000 families suffer bankruptcies each year that are linked to illness or medical bills. The study, carried out by Dr. David U. Himmelstein, Profs. Robert M. Lawless, Pamela Foohey, Deborah Thorne, a sociologist from the Consumer Bankruptcy Project (CBP), and Dr. Steffie Woolhandler, surveyed a random sample of 910 Americans who filed for personal bankruptcy between 2013 and 2016, and abstracted the court records of their bankruptcy filings. These figures are similar to findings from the CBP’s medical bankruptcy surveys in 2001 and 2007, which were authored by three researchers in the current study (Himmelstein, Thorne, and Woolhandler), and then-Harvard law professor Elizabeth Warren. The current study found no evidence that the ACA reduced the proportion of bankruptcies driven by medical problems: 65.5 percent of debtors cited a medical contributor to their bankruptcy in the period prior to the ACA’s implementation as compared to 67.5 percent in the three years after the law came into effect.

January’s Stock-Market Rally Revives Appetite for Risky Margin Loans - ABI

In the fourth quarter, investors trimmed the amount of margin debt they used to buy stocks at the fastest pace since the financial crisis. But some Wall Street and brokerage executives say those loan levels stabilized or moved higher last month as the S&P 500 rebounded, posting its best January performance since 1987, the Wall Street Journal reported. Margin debt, which is generally considered a gauge of investor confidence, tumbled more than $90 billion in the fourth quarter to $554.3 billion, the lowest tally since December 2017, according to the Financial Industry Regulatory Authority. Although the pace of the decline was jarring, analysts at Bank of America Merrill Lynch and other firms say that the pullback supports the case that the stock market has bottomed and is poised for a rebound — albeit with ongoing spikes in volatility — similar to other recoveries following drawdowns in February 2016 and September 2011.