Managing Claims in

Bankruptcy

Presented by Thomas J Shroyer Moss & Barnett

to Fireman’s Fund October 25, 2012

Presented by

Thomas J Shroyer

Moss & Barnett

Gateway to Claims

Bankruptcy law gives tremendous power to Trustees

Pre-suit discovery under Rule 2004

Liquidating assets provide unlimited budget to trustees, legal counsel and experts

National service of process/venue

Private Action Trusts maximize threat to policy limits

Types of Claims

CPAs: failed audits, tax advice and preparation

Lawyers: PPMs, leveraged buyouts, securities or other client fraud

Directors: fiduciary duties, securities fraud, embezzlement

No limit on any state or federal claim

Types of Proceedings

Receivership compared to Bankruptcy

• Article III v. US Bankruptcy Court

• Receiver usually files bankruptcy petition

• Tied to criminal forfeiture proceedings

Chapter 7 versus Chapter 11

• Total liquidation versus “work out” or sale

Adversary Complaint

• Option for Article III or Bankruptcy Court

Typical Pathway to Claim

Company files bankruptcy petition in creditor friendly/predictable venue (DE or SDNY)

Trustee appointed

Creditors file claims (including insured?)

Rule 2004 discovery (no real limit; A/C privilege)

Substantive Consolidation of all related parties

Liquidation Plan (not C. 11 reorganization)

Adversary Complaints

Procedural Issues

Venue transfer motion

Motion to “withdraw the reference” (i.e., move case out of US Bankruptcy Court)? • Return to Article III judge • Pros/cons • Jury v. bench trial

Consolidation of multiple cases?

Jurisdiction

Choice of law

Legal Defenses

Trustee “stands in the shoes” • In pari delicto/ Waggoner Doctrine

Mixture of federal and state law Complex and fact intensive Inconsistent application

• Comparative fault Contrast to in pari delicto

PSLRA pleading standards Iqbal-Twombley pleading standards Aiding and abetting

• Stoneridge (SCOTUS 2008) RICO

Clawback Claims

Fraudulent conveyances

Ponzi profits

Loss Causation/Damages Issues

“Deepening Insolvency”

Damages models

• Out of pocket

• Benefit of the bargain

Creditor preferences (secured v. unsecured)

Third Party Practice

Can Trustee preempt suit v. D & Os?

Injunction to bar creditors from directly suing

• Trustee power to control all claims to get most for all creditors from limited insurance coverage

Private Action Trusts

The “new kid” in town

Ultra vires?

Huge impact on case dynamics

• Too big to defend (or too small to settle)?

• Convert to class action?

Settlement

Timing issues

ADR

• Mediation

• Arbitration

Estate liquidation/recovery

Bar of third party and creditor claims

Class action

• Procedures

• Time

Q&A

Thanks for listening!