REPOST: Eastman Kodak wins approval of bankruptcy reorganization plan

 Judge Allan Gropper overruled objections in favor of Eastman Kodak, making the company win approval of a bankruptcy reorganization plan.  Read this Forbes Magazine article for details:

Eastman Kodak won bankruptcy-court confirmation of its reorganization plan at a hearing in Manhattan this afternoon, after Judge Allan Gropper overruled a handful of remaining objections from shareholders and the U.S. Trustee.

Image source: Forbes.com

Kodak creditors voted overwhelmingly in favor of the plan last week. The company, which filed for bankruptcy in January 2012, expects to emerge from Chapter 11 by Sept. 3.

Reorganized Kodak will be “a very different company than the one in the popular imagination, and a very different one than the one that filed for bankruptcy,” Kodak lawyer Andrew Dietderich, a partner at Sullivan & Cromwell, told Judge Gropper this morning. Since its bankruptcy filing, the iconic 121-year-old company auctioned its digital-imaging-patent portfolio for $527 million and sold its personalized-imaging and document-imaging business to the U.K. Kodak Pension Plan for $650 million. A streamlined Kodak will focus, post emergence, on its commercial-imaging business.

Kodak entered Chapter 11 last year with $6.75 billion in liabilities and assets of only $5.1 billion. The company blamed its financial woes on four main problems – the economic recession of 2008, costly retiree benefits, withering returns from its intellectual-property-licensing efforts, and strains on trade credit in the wake of negative publicity.

“Its decline and bankruptcy is a tragedy of American economic life,” Judge Gropper said today as he read aloud his opinion.

The company traced the demise of its traditional film business back at least a decade. As consumers shifted to digital photography, Kodak’s revenue declined from about $13.3 billion in 2003, to about $6 billion in 2011. During that same period, Kodak’s global workforce shrank from about 63,900 employees, to about 17,000.

Recoveries
Under Kodak’s reorganization plan, $375 million in second-lien claims will receive 85% of the reorganized company’s equity, subject to dilution under a new equity plan and certain conversion rights granted to the retiree committee in the case. In addition, second-lien holders will receive cash for any accrued and unpaid interest through the reorganization plan’s effective date.

Based on Kodak’s projected equity value of $441 million for the reorganized company, second-lien recovery is pegged at 100%, although holders are nonetheless considered “impaired” under the plan and were allowed to vote.

The remaining 15% of the equity in the reorganized company will be contributed to an “unsecured creditor pool” that would be distributed, on a pro rata basis, to holders of the company’s general unsecured claims and unsecured claims arising under a settlement with retirees that was reached in October 2012.

Kodak will set aside about $1.8 billion for allowed general unsecured claims, Dietderich said this morning, a recovery of about 4-5%. Retiree settlement unsecured claims are $635 million. The company’s current equity will be wiped out.

Kodak conducted a $406 million rights offering for unsecured creditors that will fund cash distributions to second-lien noteholders, backstopped by GSO Capital Partners, Blue Mountain Capital, George Karfunkel, United Equities Group, and Contrarian Capital.

Under the rights offering, holders of general unsecured claims and holders of retiree claims were offered the right to purchase up to 34 million shares of the reorganized company at $11.94 per share. Up to six million of those shares were offered to unsecured creditors as so-called “Section 1145 rights” under a provision of the bankruptcy code that allows new securities to be exchanged for claims. The remaining shares, including any unsubscribed Section 1145 rights shares, were offered to holders of unsecured claims and retiree claims who are “accredited investors” or “qualified institutional buyers” in order to qualify under certain securities registration exemptions.

Kodak’s ultimate value became a major point of contention during the hearing today, as a handful of shareholders made a last-ditch effort to convince Judge Gropper that the company is actually worth far more than it claims. Gropper allowed one shareholder to question Kodak’s valuation experts from Lazard, but gave him a short leash. Last week, Gropper denied a motion filed by shareholders seeking the formation of an official committee to represent their interests. It was the second time Gropper had denied an equity committee, with professionals funded by the estate.

Looking ahead, Kodak has said it anticipates “stabilization and then growth in revenue with a commercial imaging EBITDA improvement of approximately $327 million between 2013 and 2017.”

Kodak has said its commercial-imaging EBITDA improved by approximately $106 million between 2011-2012, explaining, “the significant improvement in EBITDA is a result of both Kodak’s increase in the installed base of new products introduced in the last four years and the effect of its accumulated annuities plus a strong focus on new growth markets and new product introductions that drive higher gross profit, as well as the concerted actions to reduce corporate cost structure through extensive partnerships and resource realignment.”

More specifically, the company projected operational EBITDA of $199 million for 2014, $282 million for 2015, $360 million for 2016, and $494 million for 2017, on gross profits for those years of $539 million, $628 million, $737 million, and $898 million, respectively.

The company has estimated that post-emergence, it will have a global cash balance of $815 million. Kodak CEO Antonio Perez will continue to serve as CEO for up to one year following emergence, or until the company’s new board names a successor. – John Bringardner/Alan Zimmerman

Bankruptcy litigation is one among the many areas of expertise of Atty. Evan Granowitz.  Visit this Facebook page for more information. 

REPOST: Senate hearing will examine the federal response to marijuana legalization

Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) announced that there will be a hearing on the 10th of September to investigate the discrepancies between federal and state laws on marijuana.  This Forbes Magazine article discusses the details: 

Today Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) announced that he will convene a hearing on September 10 to examine “conflicts between state and federal marijuana laws.” He has invited Attorney General Eric Holder and Deputy Attorney General James Cole to testify. Leahy, who said last December that he planned to hold a hearing on the issue this year, wants the Obama administration to let the legalization experiments in Colorado and Washington proceed:

"It is important, especially at a time of budget constraints, to determine whether it is the best use of federal resources to prosecute the personal or medicinal use of marijuana in states that have made such consumption legal. I believe that these state laws should be respected. At a minimum, there should be guidance about enforcement from the federal government."

 Image source: Forbes.com

I trust that Leahy will go beyond the question of marijuana consumption to address production and distribution, which are the real issues as far as federal meddling goes. UCLA drug policy expert Mark Kleiman, who has advised the Washington State Liquor Control Board on marijuana regulation, argues that the administration also should go beyond “guidance about enforcement” by formalizing an agreement that the feds will refrain from interfering in exchange for state help with controlling interstate smuggling of newly legal marijuana. (Stuart Taylor made a similar proposal in a Brookings Institution paper published last April.)

In a new Journal of Drug Policy Analysis article, Kleiman notes that the Controlled Substances Act says the attorney general “shall cooperate with local, State, and Federal agencies concerning traffic in controlled substances and in suppressing the abuse of controlled substances.” Toward that end, “he is authorized to…notwithstanding any other provision of law, enter into contractual agreements with State and local law enforcement agencies to provide for cooperative enforcement and regulatory activities.” Such a contract, Kleiman says, would provide more assurance of federal forbearance than simple inaction. Alternatively, he says, Congress could authorize the attorney general to issue “waivers” exempting state-legal marijuana producers and sellers from federal prosecution as long as certain conditions aimed at minimizing diversion are met.

Here is Kleiman’s response to those who argue that the Justice Department has a duty to vigorously enforce marijuana prohibition even in states that have opted out:

"To the immediate objection that the Executive Branch—charged by the Constitution with the “faithful execution” of the laws—has no authority to acquiesce in the violation of some of those laws, there is an equally immediate rejoinder; those laws are now being violated and will continue to be violated, in ways the Executive is practically powerless to prevent in any case and still more powerless without the active engagement of state and local enforcement agencies. If “the abuse of controlled substances” can be more effectively suppressed with cooperative agreements than without them, then the mandate to cooperate for the purposes of the Act might be best carried out by explicitly agreeing not to do what the federal government cannot in fact do with or without such an agreement."

Kleiman, whom I interviewed today for an upcoming Reason article about legalization in Washington, tends to see Holder’s 10-month delay in responding to the passage of I-502 in that state and Amendment 64 in Colorado as a sign that the administration may be open to such cooperation. He notes that President Obama, in a December interview with ABC News, not only said that “going after recreational users” would not be “a top priority” for the federal government (which it never was) but also called for “a conversation” addressing the question, “How do you reconcile a federal law that still says marijuana is a federal offense and state laws that say that it’s legal?” Kleiman’s paper suggests a couple of ways.

Evan Granowitz is an attorney at the Wolf Group LA.  He has been admitted to practice at all California State courts, Ninth Circuit Court of Appeals, US district courts, and Central and Eastern districts.  This Facebook page provides more details about his practice.

REPOST: Raise the cap on malpractice awards

According to law makers, relaxing the $250,000 cap on malpractice award is a wise move. Find out more in this Los Angeles Times article.

Image Source: latimes.com

For decades, advocates of tort reform have pushed to limit the amount that courts can award for noneconomic damages such as pain and suffering. The California Legislature first capped this type of damages in medical malpractice lawsuits in 1975, and roughly half the states have followed California's lead.

This summer, however, nearly 40 years after California's Medical Injury Compensation Reform Act first limited noneconomic damages in malpractice cases to $250,000, trial lawyers and consumer groups have unveiled a ballot initiative that would relax the cap considerably. If the measure qualifies for the ballot and is approved by voters next year, the allowable amount for noneconomic damage payouts for victims of medical malpractice would be quadrupled.

Relaxing the $250,000 cap, which has never been adjusted for inflation, is a wise move. As a reform idea, noneconomic damage caps have never made much sense.

One problem is that the effects of caps are not felt evenly. California's cap, for example, limits damages awarded to victims of medical malpractice, while people who sue for other reasons have no such strictures. Caps also have a much greater impact on those who are the most grievously hurt. Someone who is, say, severely brain damaged or paralyzed can collect no more for loss of enjoyment of life than someone who will eventually recover fully.

Caps also tend to disproportionately punish women, children and the elderly. A 2004 study of California medical malpractice jury verdicts compared awards before and after the law took effect, and found that caps significantly exacerbated gender disparities in damage awards. Women's pre-cap median jury awards were 94% of the median for men. After caps were imposed, however, the women's median dropped to 59% of the men's median. Both men and women were affected, but women were harder hit.

Why? Largely because of the kind of awards the cap limits and those it does not. The law does not limit damages that reimburse a person for actual monetary losses caused by an injury, such as lost wages and medical bills. But because women tend to earn less than men (and the elderly and children generally earn nothing at all), they often have less in lost wages for which they can be reimbursed. Women are further affected because some injuries they sustain overwhelmingly result in noneconomic, rather than economic, damages. A miscarriage or loss of fertility brought on by medical malpractice, for example, might cause severe emotional injury but little economic damage.

Award caps can also reduce an injured person's ability to sue, by limiting access to counsel. Attorneys handling tort litigation in the United States usually work on contingency: Clients pay nothing upfront, and lawyers are paid a portion of what is ultimately recovered. That means they're reluctant to take on cases with little chance of significant payouts. When damage awards are limited, cases may no longer be profitable for plaintiffs' lawyers. Because claimants without counsel rarely succeed in court, losing access to counsel means losing access to justice. Caps don't just cut compensation; they also, in many cases, close courthouse doors entirely.

Moreover, caps aren't good at doing what they purport to do. Damage caps were sold to the public, in part, as a way to inject predictability into the system. They were to be an antidote to "jackpot justice" — the notion that lawsuits are like a lottery, with unpredictable losers and winners. But as instruments go, caps are too blunt. While limiting some awards at the top, they do nothing to counteract the problem of big damage awards that fall beneath the cap level but that might nonetheless be regarded as excessive if the plaintiff's injury is slight.

If what we want, as some cap supporters claim, is more rationality and equity in the awarding of damages, it would be far better to have neutral fact-finders review damage awards and alter them when necessary, taking a plaintiff's particularized injury into account. Fortunately, our civil justice system already provides for just that: Judges have the power to reduce excessive awards, and studies suggest it's a power they frequently exercise.

Malpractice caps have also been marketed as part of the solution to soaring healthcare costs. Certainly, reducing healthcare costs is a worthy goal. But a number of studies have considered whether caps actually cut costs, and results have been mixed. Furthermore, even when an effect is found, it tends to be trivial, with caps cutting total healthcare costs on the order of 0.5%.

What's clear is that caps are weak medicine for most of their stated aims. Meanwhile, their side effects for those suffering the most grievous harm are serious. We in California have now had nearly four decades of experience with damage caps. It's high time for the $250,000 cap to be repealed or relaxed.

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REPOST: Obama administration seeks oversight of Texas voting laws

Obama administration will reassert federal power and block state laws that violate the rights of minority voters.This Los Angeles Times article has the complete report. 

Image Source: latimes.com

WASHINGTON — The Obama administration moved aggressively Thursday to reassert federal power and block state laws that allegedly violate the civil rights of minority voters, an authority that the Supreme Court had substantially weakened last month by striking down a portion of the Voting Rights Act.

The announcement by Atty. Gen. Eric H. Holder Jr. made Texas the administration's test case and first target, all but guaranteeing a full-scale political and legal battle with that state's conservative Republican leadership.

The battle comes with big stakes. Immediately in the aftermath of the Supreme Court's decision, several states, particularly in the South, announced plans to reinstate stringent voter ID laws and other practices that administration officials and civil rights groups see as aimed at reducing minority voting.

The consequences in Texas are characteristically large. It is by a wide margin the biggest reliable Republican stronghold left among the states, but it has a rapidly growing number of minority voters who lean toward the Democrats.

Holder said the Justice Department would go to court to seek an order that would once again require Texas to submit all proposed voting-law changes to Washington for advance approval. That practice, known as pre-clearance, had been the law from 1965 until the Supreme Court's ruling for nine Southern states, as well as parts of others, including California and New York.

Texas' plan for redrawing political boundaries after the 2010 census intentionally discriminated against minorities, administration lawyers argue, citing judicial rulings on that point as evidence that the state needs continued federal supervision.

The Texas filing is the department's first legal action in response to the Supreme Court ruling that altered the Voting Rights Act, "but it won't be our last," Holder said in a speech before a meeting of the National Urban League in Philadelphia, hinting at similar actions in other states.

"We plan … to fully utilize the law's remaining sections to ensure that voting rights of all American citizens are protected," he said.

In Texas, Gov. Rick Perry reacted heatedly.

"Once again, the Obama administration is demonstrating utter contempt for our country's system of checks and balances, not to mention the U.S. Constitution," said Perry, a Republican. "This end run around the Supreme Court undermines the will of the people of Texas, and casts unfair aspersions on our state's common-sense efforts to preserve the integrity of our elections process."

Texas Atty. Gen. Greg Abbott, considered the front-runner to succeed Perry as governor, accused the Obama administration of colluding with the state's Democratic Party. "This is an abuse of the Voting Rights Act for partisan, political purposes," he said, "to put Texas elections under their thumb."

Until last month's 5-4 Supreme Court decision, pre-clearance applied automatically to the nine Southern states. The goal was to end the widespread practice of crafting voting laws to prevent blacks — and later Latinos — from registering and casting ballots.

The court ruled that Congress had erred when it last renewed the law because it continued to use outdated voting information from the 1970s to decide which states would be covered by the pre-clearance rules. Although the decision gave Congress the ability to come up with a new coverage formula, there seems little chance of congressional action.

Indeed, the administration's announcement, which immediately triggered a strong rebuke among Republicans in Congress, seemed based in part on the belief that the chance of congressional action was so small that there was little to lose by moving unilaterally.

The new effort will employ a little-used part of the Voting Rights Act that was not affected by the recent high court ruling. Under this provision of the law, the federal government can gain authority over election laws in a state if a court has found practices there to be intentionally discriminatory.

"There is a reason they started with Texas," said Spencer Overton, a professor of law at George Washington University. "It is pretty clear it has been one of the most flagrant violators of the Voting Rights Act."

A panel of federal judges in 2012 found that the state's congressional redistricting map "was enacted with a discriminatory purpose" — undercutting the power of black Democrats and diluting the voting power of a surging Latino population.

"The only explanation Texas offers for this pattern is 'coincidence,'" the court wrote. "But if this is coincidence, it is a striking one indeed. It is difficult to believe that pure chance would lead to such results."

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