Business and Commercial Litigation Newsletter #17

By Paul McDonald and Daniel Murphy 

June 2012 | Issue 17

We are pleased to present the seventeenth edition of the Bernstein Shur Business and Commercial Litigation Newsletter. This month, we highlight news and links related to the rights of secured creditors in bankruptcy, the recent Facebook IPO, and other developments that will have an impact on business and commerce. We hope you enjoy the newsletter.

In the News:

The U.S. Supreme Court holds that secured creditors cannot be denied the ability to submit credit bids on assets that are to be sold under a Chapter 11 reorganization plan. In the case, RADLAX Gateway Hotel v. Amalgamated Bank, the high court upheld a ruling by the Seventh Circuit that invalidated a bankruptcy plan seeking to allow the sale of encumbered assets, free and clear of the secured creditor’s liens, while also denying the creditor the ability to credit bid for the assets. In a unanimous opinion, the Supreme Court declared that approval of a Chapter 11 reorganization plan over creditor objections required either the retention of secured creditor’s lien and repayment over time, or the opportunity to credit bid at any proposed sale of the encumbered assets. The decision comes in the wake of conflicting decisions that allowed for asset sales while denying the right of secured creditors to submit credit bids. Read more about the case and the court’s opinion here.

Massachusetts regulators issue subpoenas to Morgan Stanley regarding its lead underwriting activities for the recent Initial Public Offering for Facebook, Inc. Massachusetts Secretary of State William Galvin issued the subpoenas seeking information regarding whether the investment bank shared negative information about the IPO with a select group of institutional investors. In particular, certain investors may have received downgraded revenue projections for Facebook based on diminished prospects for advertising growth. If the allegations prove true, they could implicate legal prohibitions on selective disclosure relating to securities offerings, including rule 10b-5 of the Securities Exchange Act of 1934. Shares in the social networking company have fallen more than 20 percent since its initial offering on May 18, 2012. Read more about this development here.

Trial commences this week regarding the dispute between Anadarko, the oil production company that was involved in the BP Deep Horizon oil spill, and Nobel, the offshore oil rig leasing company. In the case, Noble seeks more than $100 million in damages based on Anadarko’s breach of a leasing contract for offshore oil rig equipment after the federal government instituted a six-month moratorium on deep-water drilling in May, 2010. At trial, Anadarko is expected to argue that force majeure, or an “Act of God” insulates the company from any lease obligations following the moratorium on deep-water drilling. Nobel will counter that the temporary drilling ban did not constitute a force majeure and that the equipment could have been redeployed elsewhere. The case provides an interesting example of a battle over the allocation of risks in a contractual setting. Read more about the case here.