BLT: July 2020

 

Featured Articles

Business & Corporate

An M&A Guidebook for a Post-Pandemic World: Creative Ways to Bridge the Gaps between Buyers and Sellers after the COVID-19 Pandemic

The COVID-19 pandemic (COVID-19) has created unparalleled uncertainty for nearly all businesses in that companies are unable to predict when and how businesses and consumers will resume buying their goods and services. This unpredictability has made it more difficult for dealmakers to use historical earnings to predict a company’s future earnings, and accordingly their valuation, which has severely curtailed the number of M&A transactions at the present time. Somehow, however, a trickle of deals are getting done and others are being pursued, although at a much slower pace than in 2019.

Business & Corporate

Congress and the SEC Should Enhance the Regulation of Investment Advisers

The Securities and Exchange Commission (SEC or Commission) should strengthen the custody rules for investment advisers. The SEC’s current rules may not be sufficiently rigorous to prevent the “next Madoff.” Although the Commission amended its custody rule, i.e., Rule 206(4)-2[2] in 2009, these amendments would not prevent a determined fraudster from repeating Bernie Madoff’s heinous financial crimes. This article explains why the SEC should strengthen the rule to require that an investment adviser keep client assets at a custodian that is unaffiliated with that adviser.

Business & Corporate

Bankruptcy Tools to Help Businesses Manage Leases, Close Unprofitable Locations, and Pay Past-Due Rent to Survive the COVID-19 Economic Crisis

On May 4, 2020, J.Crew filed for chapter 11 bankruptcy, becoming the first major retailer to fall victim to the economic impact of COVID-19. They will use bankruptcy to break leases on their unprofitable stores. This makes good business sense. Outside bankruptcy, a business that breaks a lease is responsible for the remainder of the rent due, i.e., if there is five years left on a lease, the company owes the landlord five years’ rent. Landlords have a duty to mitigate damages by actively seeking a new tenant, but finding a tenant during the COVID-19 crisis, especially one at the same rent, has been and will continue to be difficult. If the new tenant pays a lower market rent, the defaulting business must pay the difference.

Business & Corporate

Public Policy Favors the Constitutional Right to Bankruptcy Relief

A little over two years ago, I reviewed a handful of decisions confirming the public policy against permitting limited liability companies from contracting away the right to seek bankruptcy protection in operating agreements.[1] In those cases, courts held that notwithstanding state law policy of freedom of contract in LLC agreements, so called blocking rights that give a creditor the ability to bar an entity from filing a bankruptcy petition may be void under federal law.

Business & Corporate

New Challenges for Chapter 9 Bankruptcy Committees

Official committees can play an important role in a bankruptcy case, and chapter 9 municipal bankruptcy is no exception. Committees can ensure efficient, adequate representation of large stakeholder groups, including retirees, equity owners, and of course creditors. They bring together similarly situated parties, allowing the group to develop ideas and take positions that are representative of multiple parties with important interests at stake. Committee ideas and positions can thus be more powerful and persuasive than the views of any one stakeholder in a case.

Business & Corporate

Do International Investment Agreements Provide Remedies for Foreign Investors Harmed by the Lebanese Financial Crisis?

In October 2019, mass protests erupted across Lebanon. Public outcry focused on the policies and practices of Banque du Liban (Lebanon’s Central Bank); Association of Banks in Lebanon (ABL), a membership-based consortium of Lebanese commercial banks; and local Lebanese commercial banks. For years, these entities had worked together to artificially buoy the country’s now-crumbling economy. In response, Lebanese commercial banks swiftly imposed a variety of restrictions on their customers’ ability to access funds, including restrictions on withdrawal amounts, transfer of funds, and foreign currency transactions. Seemingly implemented by necessity, the banks’ efforts to protect themselves and the national economy did very little to ameliorate banking customers’ pressing financial concerns. This led to further protests in recent months, in defiance of recent public health-driven stay-at-home orders.

Business & Corporate

Supreme Court Determines That Nonsignatories May Invoke International Arbitration in Certain Circumstances

The U.S. Supreme Court held in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, No. 18-1048, 2020 WL 2814297 (June 1, 2020), that in certain circumstances, even nonsignatories to an agreement may compel arbitration of international disputes. This ruling clarifies that the doctrine of equitable estoppel currently recognized under chapter 1 of the Federal Arbitration Act (FAA), which governs U.S. domestic arbitrations, can also be applied to international arbitration proceedings governed by chapter 2 of the FAA.

Business & Corporate

Liability Immunity Laws for Businesses May Impact Insurance Industry

Insurance litigation with respect to COVID-19 claims inevitably will be impacted by state and possible federal legislative initiatives currently being proposed. Businesses and insurers should particularly monitor legislative efforts at the state level designed to address civil liability claims derived from COVID-19 as businesses assess reopening scenarios and insurers assess the attendant potential litigation risks.

Business & Corporate

Protecting Against Unauthorized Gray-Market Goods in the Time of COVID-19

The economic shutdowns related to the COVID-19 pandemic (COVID-19) have created both shortages and surpluses in supply chains; in other words, ripe conditions for a surge in unauthorized gray-market goods (products with genuine trademarks sold outside authorized distribution channels). In the short term, for example, shortages and price gouging have inhibited healthcare systems’ and their suppliers’ access to vetted sources of genuine supplies, including for personal protective equipment (PPE) and pharmaceuticals. Although these market conditions may invite the substitution of gray-market goods for genuine ones based on availability, the inherent material differences in gray-market goods can pose serious health risks, often unbeknownst to end users. As another example, in the longer term, retailers may elect to liquidate unsold, out-of-date seasonal inventory, such as apparel, in international markets to mitigate losses, but risk unauthorized gray-market resellers later importing those goods back into the U.S. market to compete with next year’s fashions at a discount.

Business & Corporate

Interview with Marty Lipton

In September of 2019, after wrapping up meetings of the Mergers and Acquisitions (“M&A”) Committee of the Business Law Section of the American Bar Association (“ABA”), I took the train from Washington, D.C. to New York City to meet with Marty Lipton—the well-known founder of Wachtell, Lipton, Rosen & Katz—in a conference room at his firm. It was perfect timing to have this conversation with Mr. Lipton, given recent developments relating to corporate views on the constituencies corporations may take into account in their decision-making. What ensued was a ninety-minute, one-person master class in corporate governance with a touch of personal detail about Mr. Lipton’s life and experiences sprinkled in for good measure (effectively a fireside chat without the fire). How do you know you are chatting with a legal lion? For one, the sheer number of footnotes needed to adequately direct the reader to all the varied source material on corporate governance Mr. Lipton freely referenced without notes. What is presented here is in the order it was discussed, and it has been condensed and edited for clarity.

Business & Corporate

Texas M&A Case Law Update: Takeaways from Chalker Energy Partners III v. Le Norman Operating LLC

Petitioners were 18 individuals and entities who owned working interests in some 70 oil and gas leases in three Texas counties (the Assets).[1] The petitioners (Sellers) wished to sell the Assets after development was complete. The Sellers designated Chalker Energy Partners III, LLC (Chalker) as their representative for the sale process, who then hired Raymond James to conduct the sale.

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