Two bankruptcy cases: what SCOTUS Won't Decide

The Supreme Court of the United States yesterday announced that it will not grant cert to bankrupt flatware maker Oneida, which sought to use its chapter 11 filing in 2006 to relieve itself of the obligation to make its payments to the Pension Benefit Guaranty Corp.

The ERISA says simply: "[T]here shall be payable to the corporation [PBGC], with respect to each applicable 12-month period, a premium at a rate equal to $1,250 multiplied by the number of individuals who were participants in the plan immediately before the termination date.” But the bankruptcy court agreed with Oneida that this was a pre-petition claim under chapter 11, subject to relief. This is a matter of enormous concern to many companies who find, as the population of the US (like that of much of the rest of the industrialized world) ages, that pension obligations are a significant burden.

It is a burden they have largely brought upon themselves. I don't know anything of Oneida's specific situation, but many US companies have used the prospect of juicy pensions as a way of easing otherwise difficult labor negotiations. The unions representing their workers were also complicit in this game, because they could present higher pension promises as a negotiating victory to their rank-and-file, without worrying much about whether those promises were funded or just hot air. So the bill comes due, and the restaurant's diners keep passing it around the table.

The 2d Circuit has since overturned the bankruptcy court's discharge, though, preserving the ERISA obligation. And it was the 2d Circuit decision whence the company sought a writ of certiorari. Now SCOTUS has let that ruling stand, leaving the other circuits free to go their own ways without guidance. Of course, if those other circuits follow the 2d Circuit's precedent, there will never be a need for SCOTUS to weigh in. This is one of a class of cases in which SCOTUS prefers to wait until a split among the circuits develops.

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Another decision-not-to-decide: the Chrysler bankruptcy. Yesterday the Justices dismissed an appeal brought by Indiana pension funds who objected to the ham-handed way in which the Obama administration pushed the old Chrysler through bankruptcy at their expense. The 2d Circuit in June had approved of the shotgun sale of most of Chrysler's assets to Fiat, but Justice Ginsberg stayed the sale soon thereafter. Now the Justices have sent the case back to the 2d Circuit with an order that the circuit dismiss the challenge to that sale as moot.

The state treasurer in Indiana says that he is happy with the high court's decision not to decide on mootness grounds. The manner in which it is done effectively erases the Second Court's decision as a precedent, and this means there is no precedent upholding the kind of emergency proceeding employed here. Its critics survive to fight another day.

Three brief items

1. Tang Capital v. Penwest

Tang Capital and Perceptive Life Sciences are waging a proxy contest vis-a-vis Penwest Pharmaceuticals Co. (NASDAQ: PPCO), asking shareholders to vote for a resolution "requesting that the Board promptly take all necessary action to wind down substantially all of the Company’s operations so that the full value of
the Opana ER royalty income stream will be retained for the benefit of shareholders."

Opana ER is a pain treatment licensed in the US since June 2006 and marketed under the name Endo. The dissidents apparently think that the rest of the company is a drag upon that one valuable asset. The matter will be resolved at the annual meeting today.

As it happens, just yesterday PenWest licensed Endo to Valeant Phamaceuticals, for 10-20% of the net sales in Australia, Canada, and New Zealand.

Penwest's management is predictably resisting the call for dissolution.

2. Keweenaw Land Association Ltd.

Keweenaw is asking its shgareholders to vote for the company slate against dissident board candidates Ronald S. Gutstein and Scott Frisoli at their annual shareholder meeting, scheduled for June 23. This meeting is to take place in Ironwood, Michigan.

(I love Ironwood as a place name: a compound of two solid Anglo-Saxon nouns. But let's stay focused.)

Gutstein and Frisoli will bring little to the board, the company says, because, "Though undoubtedly possessing skills in the securities industry, they lack executive level experience in an industrial company and industry-specific experience in timberlands and minerals management, a fact acknowledged by RiskMetrics in its 2008 report.

"Neither individual has visited the Company, toured the Company's timberland holdings, or had in-depth on-site discussions with senior managers."

3. Chrysler-Fiat obstruction removed

I had hopes, briefly, that we were about to see a classic instance of judicial defiance of the executive. But it was not to be.

Ruth Bader Ginsburg had up the Chrysler-Fiat deal for about 24 hours.

Not exactly like the Steel-nationalization case from the Truman era, was it?

Dang.

Surprise from the Supreme Court

Judge Ginsburg yesterday issued a one-sentence order staying the sale of most of the assets of Chrysler to Fiat pending further order.

This surprised me. Fiat is entitled to walk away from the deal if it does not close by June 15, and I was under the impression that the federal courts in general would fade in the face of such a ticking clock, regardless of the merits of such contentions as might be brought to their attention by objecting parties.

The Obama administration wants this deal. Their solicitor general, Elena Kagan, had argued that blocking the sale would force Chrysler's liquidation. That seems to me the sort of ham-fisted our-way-or-the-highway argument that Truman's lawyers once used to try to justify the seizure of the steel mills.

At least part of my startled reaction to this decision is delight that we are seeing another such moment, of a Supreme Court willing to stand up to the Executive on a matter of principle. What is the principle?

The objecting parties are three Indiana pension funds, who object that the sales agreement everyone wants to push through rewards unsecured creditors ahead of secured creditors and that this is illegal. It also objects to the fact that the US Treasury is using bailout money for Chrysler as part of an effort to make the deal happen -- the bailout funds were authorized by Congress in order to keep the banking system going.