Chaffetz Lindsey Sponsors 2020 VII CAM-CCBC Arbitration Congress on October 19th and 20th

Where Advocacy Meets Business

Chaffetz Lindsey Sponsors 2020 VII CAM-CCBC Arbitration Congress on October 19th and 20th

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October 2020 – The VII CAM-CCBC Arbitration Congress is taking place (virtually) on October 19th and 20th. The event is hosted annually by The Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAM-CCBC), which is a pioneer in the administration of Adequate/Appropriate Dispute Resolutions (ADRs) in Latin America and is responsible for a significant portion of the arbitration that takes place in Brazil involving national and foreign parties. The congress annually brings over 500 delegates together to addresses the most current challenges faced by arbitration and its trends.

With a consistent agenda based on CAM-CCBC administered cases, the congress aims to encourage the exchange of experiences between professionals of different nationalities, stimulate the debate between various agents of International Arbitration, promote the city of Sao Paulo as a seat for International Arbitration and discuss the challenges faced in arbitration today and emerging in the near future.

Chaffetz Lindsey has sponsored this event for several years, and partner Yasmine Lahlou is regularly involved with the congress.

Court of Int’l Trade Issues Favorable Decision for JSW Steel in Commerce Dept’s Tariff Exemption Process

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August 2020 – Law360 reported on a recent decision from the Court of International Trade in favor of Chaffetz Lindsey’s client, JSW Steel (USA).  In the first court decision addressing exemptions from the President’s 25% tariff on steel imports, the Court found that the Commerce Department’s decisions denying JSW exemption from the tariffs violated the Administrative Procedure Act, because Commerce’s decisions “are devoid of explanation and frustrate judicial review,”  and because of “defects in the record and Commerce’s failure to engage with record evidence.”

The Court remanded the matter to the agency for reconsideration. The Court denied JSW’s request for discovery “at this juncture” concerning ex parte communications between the Commerce officials and representatives of U.S. Steel, Nucor and AK Steel, who objected to JSW’s exclusion requests.  However, the Court ordered Commerce to “certify” whether it directly or indirectly considered those ex parte communications in denying JSW’s exclusion requests.  The Court also directed that, if Commerce claims it did not consider these ex parte communications, it must explain to the Court “how it determined that the discussions at these meetings with the objectors were not directly or indirectly considered in its decisions.”  The Commerce Department must provide this certification by August 17, 2020.

The Chaffetz Lindsey team included Sandy Litvack, Drew Poplinger, R. Matthew Burke, Gerard Bifulco and Oslen Grant.  The Law360 article is available here, though a subscription might be required for access.

 

 

DISPUTES AT THE CROSSROADS: How a Bankruptcy Case or State Insolvency Proceedings Can Affect Contractual Arbitration Rights

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All complex commercial and financial disputes require handling by skilled disputes lawyers with strong business instincts and judgment. Some disputes require more—namely, specialist industry or practice area expertise on top of general disputes experience. At Chaffetz Lindsey, we handle complex general commercial and financial disputes in a wide variety of industries, and we have the specific experience and expertise necessary to handle major disputes in four areas where specialization is important: Arbitration, Bankruptcy and Restructuring, Insurance and Reinsurance, and International Disputes. In this series—“Disputes at the Crossroads”—we address some of the issues that arise at the intersections of our core specialty practice areas.

 

In this installment, we discuss what happens when a party to a dispute subject to a contractual arbitration clause is involved in a bankruptcy case or state insolvency proceedings. Are the contractual arbitration rights enforceable, or does the dispute have to be decided in the bankruptcy court or the state insolvency proceeding? Three recent decisions in the insurance area illustrate some of the applicable concepts and rules. We also are monitoring one pending decision to see if it provides further guidance.

    1. Creditor May Not Enforce Arbitration Clause To Resolve Debtor’s Counterclaim That Requires Resolution Of Allowability Of Creditor’s Bankruptcy Claim

Allied Title Lending, LLC v. Taylor, 420 F. Supp. 3d 436, 2019 U.S. Dist.
Lexis 183729 (E.D. Va. Oct. 22, 2019), appeal filed in
Case No. 19-2283 (4th Cir. filed Nov. 15, 2019)

 A lender filed a proof of claim for amounts borrowed pre-petition by a chapter 13 debtor.  The debtor then commenced an adversary proceeding: (a) objecting to the claim on the basis the high interest loan violated state usury laws, thus rendering the loan agreement null and void; and (b) seeking affirmative recoveries on behalf of the debtor and all similarly situated debtors.  In response, the lender sought to enforce an arbitration clause in the applicable loan agreement.

On appeal, the District Court noted the inherent conflict between the Federal Arbitration Act (“FAA”) and the Bankruptcy Code.  The FAA “establishes ‘a liberal federal policy favoring arbitration agreements.’”  CompuCredit Corp. v. Greenwood, 565 U.S. 95, 98 (2012).  Meanwhile, through the U.S. Bankruptcy Code, “Congress intended to grant comprehensive jurisdiction to bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estates.”  Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995).  When a conflict between those two policy goals occurs, the Supreme Court requires that “the party seeking to prevent enforcement of an arbitration agreement must show that ‘Congress has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.’”  Moses v. CashCall, Inc., 781 F.3d 63, 71 (4th Cir. 2015) (quoting Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90 (2000).

That determination of Congressional intent is to be made by the Bankruptcy Court when constitutionally core bankruptcy claims are at issue.  (Otherwise, the District Court would make the determination).  Core bankruptcy claims either stem from the bankruptcy case itself or necessarily would be resolved in the bankruptcy claims allowance process.  See Stern v. Marshall, 564 U.S. 462, 499 (2011).  Here, the lender argued the subject claims were not core because the debtor sought affirmative relief in the form of damages.  Nonetheless, in affirming the Bankruptcy Court’s decision, the District Court found the Debtor’s counterclaims to be constitutionally core because the affirmative relief sought by the debtor requires a finding the loan agreement violates Virginia law and, therefore, would be null and void.  In effect, the fact the ultimate relief sought by the Debtor is an affirmative recovery was “inconsequential to the core/non-core analysis” because the validity of the loan agreement (and, therefore the lender’s claim) must be resolved first.

The District Court also found the Bankruptcy Court did not abuse its discretion in denying enforcement of the arbitration clause because as to such constitutionally core claims against the debtor, compelling arbitration (rather than resolving the dispute in the Bankruptcy Court) would undermine the Bankruptcy Code’s purpose of centralizing disputes concerning a debtor’s obligations, thereby promoting efficient reorganization of an estate.

    1. Court Finds Arbitration Clause is Enforceable Regarding Trustee’s Non-Core Claims Against Debtor’s CEO

Sheehan v. Levine (In re Geostellar, Inc.)
Case No. 18-bk-45, 2020 WL 614636 (N.D. W. Va. Feb. 7, 2020)

A Chapter 7 trustee commenced an adversary proceeding against the debtor’s former CEO based on alleged breaches of his employment agreement and of his duties as an officer and director of the debtor.  The CEO then argued the trustee’s claims were subject to the arbitration clause in the CEO’s employment contract.

The District Court followed an analysis similar to that in Allied Title Lending, LLC v. Taylor—the first case discussed above—which also was based largely on the Fourth Circuit’s decision in Moses v. CashCall, Inc.  The District Court reasoned that under Moses, “[t]he core/non-core distinction . . . is not mechanically dispositive in deciding whether a bankruptcy judge may refuse to send a claim to arbitration.”  781 F.3d at 71 (citation omitted).  “Instead, what matters fundamentally is whether compelling arbitration for a claim would inherently undermine the Bankruptcy’s Code’s animating purpose of facilitating the efficient reorganization of an estate through the ‘centralization of disputes concerning a debtor’s legal obligations . . . ’.”  Id. at 83 (citation omitted).  In addressing that question, a “bankruptcy court’s discretion to deny arbitration of non-core matters is . . . necessarily narrow.”  Id. at 84.  In particular, a conflict with the Bankruptcy Code’s purposes “must be inherent and ‘sufficient to override by implication the presumption in favor of arbitration.’”  Id. at 88 (citation omitted).

The District Court, then applied the Fourth Circuit’s analysis to reach a different result based on facts different from those of Allied Title Lending, LLC v. Taylor.  The District Court found the trustee’s claims were not “core” claims because they were “ancillary to the Debtor’s bankruptcy and did not implicate a provision of the Bankruptcy Code, the related rules, or this court’s administration of bankruptcy.”  Based on that finding, and despite the District Court having stated the core/non-core distinction was not dispositive regarding whether to compel arbitration, the District Court then found it had “no discretion to withhold arbitration.” Nonetheless, as the CEO recently had commenced his own chapter 13 case and, therefore, the trustee’s claim might be more central (core) to that case, the District Court reserved the right to revisit enforcement of the arbitration clause.

    1. Reinsurers Able to Enforce Arbitration Clause Despite Insurer’s Liquidation Proceedings

Integrand Assurance Company v. Everest Reinsurance Company, et al.,
CIVIL NO. 19-1111 (DRD), 2020 U.S. Dist. LEXIS 77407 (D.P.R. December 4, 2019)
Rehearing Denied April 30, 2020

An insurer (Integrand) that became the subject of rehabilitation proceedings initiated by the Puerto Rico Commissioner of Insurance previously had commenced litigation to enforce reinsurance contracts executed by multiple reinsurers.  At issue were reinsurance recoveries based on payments made by the insurer to its insureds due to their hurricane related damage claims.  The defendant reinsurers removed the insurer’s suit to the Federal District Court based on diversity jurisdiction and moved to compel arbitration.  The District Court found arbitration was contractually compelled because the applicable arbitration clause satisfied the four requirements of the First Circuit: “(1) a valid arbitration agreement must exist; (2) the moving party must be entitled to invoke the arbitration clause; (3) the other party must be bound by the clause; and (4) the claim must fall within the scope of the arbitration clause.”  Integrand v. Everest, p. 12, citing Intergen N.V. v. Grina, 344 F.3d 134, 142 (1st Cir. 2003).”

The District Court then addressed whether the pendency of Integrand’s state insurance liquidation proceeding precluded the Court from compelling arbitration under the Federal Arbitration Act (the “FAA”).  There is no statutory provision in Puerto Rico conferring exclusive jurisdiction on the state court overseeing the insurance liquidation proceedings to address all claims involving the subject insurance company.  The District Court reasoned that absent such a statutory provision, the Court could not assume the state court liquidation procedure divested the District Court of federal jurisdiction.  Id. at 25.  The District Court also reasoned that even were there a state law prohibiting arbitration when a party is the subject of an insured liquidation proceeding, “the Supreme Court has established that by virtue of the Supremacy Clause, the FAA trumps any inconsistent state statute.  AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).”  Id.  Consequently, the Court found the FAA would preempt any state law prohibiting arbitration of disputes involving an insolvent insurer and, therefore, compelled the parties to arbitrate their reinsurance disputes.

    1. Pending Dispute in Purdue Pharma Chapter 11 Cases Over Whether to Modify the Automatic Stay to Permit Arbitration of Insurance Coverage Issues

In re: Purdue Pharma L.P, et al., Case No. 7:19-bk-23649 (RDD)
(Bankr. S.D.N.Y.) Rehearing Denied April 30, 2020

Upon the commencement of a U.S. bankruptcy case, a stay automatically arises to enjoin virtually all pending or future litigation involving the debtor in order to provide the debtor with a breathing spell to seek to consensually resolve issues with creditors.  That automatic stay may be modified to permit specified litigation to proceed to a judicial or arbitrated conclusion.

Recently, in the Purdue Pharma chapter 11 cases, one of the debtors’ insurers, Ironshore Specialty Insurance Company a/k/a TIG Specialty Insurance (“TIG”), requested such stay modification to enable an arbitration to resolve a dispute regarding TIG’s excess policy coverage of certain types of claims against the debtors.  The debtors and their official creditors’ committee opposed TIG’s motion on two grounds.  First, they argued an arbitration determination would interfere with resolution of a key bankruptcy issue – how to allocate Purdue Pharma’s available value among various creditor constituencies. Second, they asserted that permitting the arbitration to proceed would interfere with the debtors’ ability to reach settlements with their other insurers.

While the legal standard applicable to a bankruptcy stay modification motion differs from the standard applicable to determining whether a dispute should be resolved by arbitration or a bankruptcy court, the central consideration remains the potential impact on the applicable bankruptcy case.  Hence, how the issue is judicially resolved in the Purdue Pharma cases (assuming there is no settlement) should be notable.  Accordingly, we will continue to follow developments there.

The Chronicle of Philanthropy Highlights Chaffetz Lindsey’s Donate Your Commute Campaign

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May 2020 — The Chronicle of Philanthropy featured Chaffetz Lindsey’s Donate Your Commute Campaign, benefiting NYLPI and City Harvest, in a May 4th article titled “Campaigns Urge Donors to Give Away the Money They’re Saving During the Pandemic,” a summary of which you can read here.

When asked about how she encouraged participation from family and friends, Chaffetz Lindsey’s own Jocelyn Williams said “I felt good being able to provide a platform,” she said. “Even if they weren’t able to donate, I was still able to offer some information [about the charities’ missions], and that just made us feel wonderful.”

The Chronicle article also noted that the Chaffetz Lindsey campaign has brought much-needed donations and new donors to NYLPI. Geneva Morris, development director at the charity “welcomed the collaboration with City Harvest at a time when those NYLPI serves with legal aid are experiencing a cascade of other urgent needs, including access to food.”

Chaffetz Lindsey has raised over $24,000 to date through our Donate Your Commute campaign.  On this Giving Tuesday Now, we encourage anyone interested in contributing to our cause donate here.  The firm is matching up to $20,000 in new donations.

In the spirit of the day, we can all show our generosity in a variety of ways–whether it’s helping a neighbor, advocating for an issue, sharing a skill, or giving to causes, every act of generosity counts. The movement is currently focused on opportunities to give back to communities and causes in safe ways that allow for social connection and kindness even while practicing physical distancing. The ultimate goal is to create a more just and generous world, one where generosity is at the heart of the society we build together, unlocking dignity, opportunity, and equity around the globe.

Wherever or however you choose to give today, our team thanks you for your kindness.  The world needs as much of it as we can give, today and every day.

A Bankruptcy Lawyer’s View Of The Current Business Environment

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April 2020 – The following are some observations by Chaffetz Lindsey partner Alan Lipkin based on his long-term experience as a bankruptcy lawyer and what he now sees and hears in the bankruptcy world:

  • Contrary to popular belief, the current economic crisis as it applies to many businesses has less to do with the COVID-19 virus than most people think. Historically, whatever the immediate precipitating event causing a financial crisis (here the pandemic), the primary cause of most business bankruptcy filings is management’s prior decisions.  Hence, while the coronavirus has created unanticipated health and financial difficulties of enormous magnitude, eventually (and probably sooner than later) the current magnitude and poor credit quality of U.S. corporate debt were leading towards a severe recession in the U.S. even without the pandemic.   In effect, it was unsustainable to have the current amount of U.S. corporate debt at $10 trillion and the current amount of high-yield debt (a/k/a junk bonds) more than 20 times greater than the amount of such debt less than thirty years ago.  Thus, while the suddenness and enormous impact of the pandemic caused economic disruption that threatens many businesses, the consequences will be far more problematic to the extent a management’s prior decisions left a business with insufficient working capital, an inadequate or no line of credit, too much debt, and no rainy day back-up plan.  Nor does the pandemic excuse a management that recently engaged in substantial stock buy-backs or unwarranted dividend distributions.
  • The current financial crisis will not impact all businesses the same. Even putting aside the influence of government interventions and subsidies, which vary by industry, in the business world there are likely to be groups of “haves” and “have nots.”  In a financial crisis, cash is king as cash is the lifeblood of any business.  Hence, industries whose cash flow has been drastically reduced or cutoff entirely by the pandemic will suffer.  Those industries include airlines, cruise lines, car rental companies, and other travel related businesses, entertainment and sports businesses, restaurants, retailers, gaming enterprises, mining companies, and oil and gas firms.  Meanwhile, businesses whose cash flow remains relatively steady notwithstanding the pandemic should be stable or even thrive.  Some examples include businesses selling groceries and staples (in the broader sense including Amazon, Walmart, etc.), streaming companies such as Netflix, pharmaceutical and healthcare companies, and most utilities.  Accordingly, those companies not lucky enough to be in industries that remain flush with cash will be severely challenged.
  • Don’t be misled by the absence to date of a wave of commercial bankruptcy filings; such a wave is coming. Some of the delay is typical for any businesses in financial difficulty.  First, there is denial of the magnitude of the problem from both the management and creditor perspective.  Second, even once a problem is acknowledged, managers (and creditors) often defer directly dealing with the problem.  Third, management is generally reluctant to talk with bankruptcy professionals due to a misplaced fear that just having such conversations creates a self-fulfilling prophesy in which a bankruptcy filing becomes inevitable.  Fourth, conflicts frequently arise, both within management and between the debtor and its creditors, when trying to reach consensus on the debtor’s financial problems’ causes, magnitude, and solutions.

The current delay in many commercial bankruptcy filings is also due to factors unique to the COVID-19 pandemic.  First, the pandemic created a sudden crisis that takes time for decision makers to absorb and process.   Second, there remains significant uncertainty regarding the length, depth, and commercial impact of the pandemic.  Such uncertainty makes generating reliable financial projections quite difficult and, therefore, interferes with a prospective chapter 11 debtor’s ability to obtain DIP financing (i.e., financing typically needed to fund a chapter 11 case) and to make progress on or even reach agreement with key creditors on a business plan and the proposed recapitalization of the debtor.  Yet, when a debtor files for chapter 11 the debtor wants to have a positive story to tell about having locked in DIP financing and having an exit strategy as to which substantial progress (or even an agreement incorporated in a prepackaged chapter 11 plan) has been achieved.  Third, progress now on many debt restructurings is being hindered because most bankruptcy professionals and many hedge funds that are key creditors are involved in multiple potential chapter 11 cases and, therefore, are stretched quite thin.  Fourth, the fact so many people are working from home and busy with multiple potential bankruptcies also signifies bankruptcy courts are often overwhelmed and only dealing with emergencies.  Thus, there is less urgency to make an immediate chapter 11 filing because it probably would not be followed by much progress in court during the near term.  Still, as the logjam starts to clear many chapter 11 filings should follow.

With all of those considerations in mind, now is the time to evaluate the economic circumstances of your business and those of key counter-parties as well as to utilize advisors to make sure you understand your legal rights and best determine how to survive and even thrive in these challenging times.

Learn more about Chaffetz Lindsey’s Bankruptcy & Business Reorganization Practice.

 

Click here to view our full list of COVID-19 Information and Resources.

What COVID-19 Means for Latin American Arbitration

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April 2020 – Latin Lawyer turned to Aníbal Sabater for insight into “What COVID-19 Means for Latin American Arbitration.” In his article, Aníbal analyzes COVID-19’s impact on the arbitration process, arbitral institutions, and users. Aníbal also examines the economic and political impact of the pandemic on Latin American countries, and the potential short and long-term effects on commercial and investment arbitration in the region.

According to Anibal, “COVID-19 is creating challenges and uncertainty for international arbitration practitioners across Latin America, but it is also generating opportunities.”  His article is an early attempt at analysis and prediction.

Latin Lawyer is the definitive source of news and analysis for private practitioners and in-house counsel in Latin America’s business legal market.

Click here to view the entire article, or access it on Latin Lawyer’s website. This article is also available on Global Arbitration Review, Latin Lawyer‘s sister publication.

 

Click here to view our full list of COVID-19 Information and Resources.

Law360 Highlights Chaffetz Lindsey’s “Donate Your Commute” Campaign

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April 2020 – In response to the tremendous need created by the COVID-19 crisis, Chaffetz Lindsey’s team came together in support New York Lawyers for the Public Interest (NYLPI) and City Harvest, both of which are addressing the critical needs of New Yorkers hit hardest. We are honored to have our “Donate Your Commute” campaign featured in Law360’s story titled, “Counsel Who Care: How Attys Are Helping During A Crisis.”

Law360 writes, “New York-based disputes boutique Chaffetz Lindsey LLP has created an online donation form for the general public to donate money they have saved during the lockdown to organizations that help New Yorkers who have been hit hardest by the crisis. All 28 lawyers and 17 support staff members have made individual donations, the firm said, adding that it will match up to $20,000 on outside contributions. As to date, Chaffetz Lindsey has raised nearly $17,000 from the campaign. All donations will be split 50-50 between New York Lawyers for the Public Interest and City Harvest, New York City’s largest food rescue organization.”

View the entire article by Xiumei Dong on Law360’s website.

Learn more about our fundraising efforts and how to donate by clicking here.

New York Makes Significant Changes To Its Fraudulent Transfer Law

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April 2020 – A state’s fraudulent conveyance statute enables certain disadvantaged creditors to seek to recover a transfer made by an account debtor if that transfer was made either:  (a) with the debtor’s actual intent to hinder, delay, or defraud creditors (a/k/a actual fraud); or (b) without the debtor receiving reasonably equivalent value in return at a time the debtor was in financial distress (a/k/a constructive fraud).  If the debtor subsequently becomes the subject of a bankruptcy case, then the right to pursue such fraudulent transfer claims for the benefit of creditors (as well as claims to avoid certain obligations incurred by the debtor), shifts to the debtor, to its trustee (if there is one), or in rare instances, to the debtor’s official creditors’ committee or other estate representative.  Those claims may be pursued for the benefit of creditors under either section 548 of the Bankruptcy Code, which has a look-back period of two years prior to the bankruptcy petition date, or section 544 of the Bankruptcy Code, which enables a fraudulent transfer action to be pursued based on applicable state law, typically because it has a longer look-back period than the Bankruptcy Code provides.

As New York is a major commercial center, its law often governs fraudulent transfer claims.  Thus, it is notable that on December 6, 2019, New York State replaced its version of the Uniform Fraudulent Conveyance Act (“NY-UFCA”) with the substantially different Uniform Voidable Transactions Act (“NY-UVTA”), N.Y. Debtor and Creditor Law §§ 271-281.  The NY-UVTA became effective on April 4, 2020 and applies to transactions occurring on or after that date.

The NY-UVTA makes New York’s fraudulent transfer law simpler and more consistent with the federal Bankruptcy Code and the law of most other states. Also, the new statute eliminates the misleading labels of “fraudulent conveyance” and “fraudulent transfer”. The change clarifies that the focus is not on fraud, but on “voidable transactions”, which typically are those in which the debtor did not receive fair value. Significant substantive changes to New York law include the following:

  • Shorter Look-Back Periods. Perhaps the most significant change will be reducing the look-back period from six to four years after the challenged transfer occurred.  Also, actions to avoid an intentional fraudulent transfer now also may be brought within one year of when the disputed transfer or incurred obligation was or reasonably could have been discovered (if later than the expiration of the four year look-back period) rather than the two year discovery period under prior law.
  • Changes to Burden of Proof. Under the NY-UVTA, the burden of proof for all claims and defenses is a preponderance of the evidence.  Previously, clear and convincing evidence was required to establish actual fraud.  Additionally, the NY-UVTA allocates the burden of proof on each element of the affirmative claim to the plaintiff and most elements of affirmative defenses to the defendant.
  • Elimination of “Good Faith” Requirement for Constructive Fraudulent Transfers. Previously, a transfer made or obligation incurred in exchange for reasonably equivalent value could be avoided as being constructively fraudulent if it was made or incurred in bad faith.  Under the NY-UVTA, however, the standard is the more objective (and more certain) requirement of receipt of reasonably equivalent value, not “good faith.”
  • Simplification of Choice of Law Determination. Under the NY-UVTA, the governing law is the law of the place the debtor/transferor is located when the disputed transfer is made or challenged obligation is incurred.  For a business, that location is its sole place of business or, if it has multiple places of business, its chief executive office.  This new approach should produce more predictable outcomes than the prior NY-UFCA multi-factor choice of law analysis.
  • Elimination of Unique Provisions for Pending Litigation Defendants. Under the prior NY-UFCA, a solvent litigation defendant’s transfer while the litigation is pending is voidable by a successful plaintiff if the transfer was not made for fair consideration.  The NY-UVTA eliminates any such special provision for litigation defendants.  Instead, they are only subject to the general actual and constructive fraud tests.
  • Safe Harbor for Regularly Conducted Foreclosures and Remedies. Unlike current law, the NY-UVTA shields from avoidance regularly conducted real property foreclosures and the exercise of UCC Article 9 remedies against personal property.
  • Greater Availability of Attorney’s Fees Awards. The new NY-UVTA enables courts to award attorney’s fees to successful plaintiffs in both constructive and actual fraudulent transfer actions.  Prior law only permitted such awards for actual fraud.

Learn more about our Bankruptcy & Business Reorganization practice.

Chaffetz Lindsey Launches “Donate Your Commute” Campaign to Help COVID-19 Affected New Yorkers

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April 2020 – To help those hit hardest by COVID-19, Chaffetz Lindsey is sponsoring a fundraising drive to benefit two great organizations that regularly help New Yorkers in need, and that are now stepping up their efforts to support those hit hardest in this time of crisis. Please join us.

Each week during the shutdown, we have been holding a zoom staff meeting. On one of these sessions, we were discussing how fortunate we feel to be able to work throughout this crisis. We remain concerned about the ongoing health risks and about the crisis’s full economic impact. But so far, we’ve been spared being hit as hard as many others who have lost loved ones and/or who cannot continue their work during this shutdown. That got us thinking about how we can help. While working from home, our team is not spending money on subway or train fares, lunches, taxis or Ubers, dinners out, etc. We decided to pool some of that money and donate it through a “Donate Your Commute” campaign.

Our Administrative Assistants (aka the Chaffetz Lindsey “A-Team”) stepped up and took the lead on fundraising.  They also took it upon themselves to determine where we could direct the funds that would be most impactful in the current environment.

Our firm regularly supports New York Lawyers for the Public Interest (NYLPI), a legal services organization that helps the underserved navigate a difficult legal system. Therefore, NYLPI was an obvious choice for donating some of our commute savings. This crisis exacerbates the hardships faced by NYLPI’s clients because many of them cannot work from home, do not have access to quality healthcare, already have higher rates and risk of respiratory disease due to environmental harm, are afraid to get treated because of their immigration status, or are individuals with disabilities, or seniors. In this time of crisis, NYLPI’s advocacy for the rights and safety of front-line workers (sanitation, healthcare, education, and transit sectors) also is critical.

Our A-Team also suggested we should support another organization along with NYLPI that will provide the immediate basics that people need, like nutritious meals. They selected City Harvest, New York’s largest food rescue organization. City Harvest has mobilized to help New Yorkers in need during the COVID-19 pandemic.  They are working hard to ensure that, while schools and businesses are closed, and during the fallout from the shutdown, children and their families can put meals on their tables. Food banks are facing unprecedented strain in the face of the shutdown. In this April 19th New York Post article, Racine Lee Droz, City Harvest’s director of food sourcing, says “the group is bracing for the situation to get worse in the weeks and months to come. ‘The need will last far longer than when the government reopens the city because so many people are unemployed. We plan on operating this way until the end of September.’”

We decided to split our pooled donations 50-50 between City Harvest and NYLPI, and our A-Team set their individual bar for donations at a generous $100 each. They rallied to get 100% of our firm to give generously, too. They also are reaching outside the firm, to their own network of friends and families to raise money, and they have encouraged all of us to do the same.

Because of the enthusiasm and leadership of our A-Team, we have so far pooled individual donations of almost $15,000.  The firm has also agreed to match up to $20,000 of additional outside donations.

If you also are working from home right now and are saving money by not having a daily commute, we would love to have you join us to support NYLPI and City Harvest.  To calculate your own commute savings and to donate to these two great organizations, please click here.

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Practice Makes Perfect When It Comes To Virtual Hearings

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April 2020 – Law360 interviewed Chaffetz Lindsey partners Peter Chaffetz and Yasmine Lahlou for an article titled “Practice Makes Perfect When It Comes To Virtual Hearings,” published on April 15, 2020.  The article takes a look at how widespread shelter-in-place orders enacted to slow the spread of COVID-19 have forced many technophobic arbitration lawyers into conducting virtual hearings, but practice and assistance from institutions can help even the least tech-savvy get comfortable with this new normal.

“I think if we’d had to decide in advance whether to do a two-week hearing about a $500 million dispute by video, I’m not sure we would have decided that with a positive answer,” said Chaffetz Lindsey partner Yasmine Lahlou. “But if you’ve had a week of hearings, and you have the potential of losing the momentum … and you think you’ve done well with your witnesses, and it makes so much more sense to continue with the experts and to continue with the same dynamic, then you do it. It was a somewhat unique set of circumstances.”

Learn more about their experience and how the arbitration institutions and lawyers are adapting to the new era of holding video hearings. View the entire article by Caroline Simson on Law360’s website. A subscription may be required.

 

Click here to view our full list of COVID-19 Information and Resources.

An Early Experience With Arbitration By Video

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Few things are more frustrating and costly than an indefinite interruption to a trial or arbitration that is in full swing and within days of completion. That is the prospect we faced when the COVID-19 shutdown forced a mid-hearing adjournment of a complex, high-stakes International Chamber of Commerce (ICC) arbitration on which we had been working for years. This article recounts how we worked with opposing counsel and the tribunal to restart and complete the hearing a week later by videoconference.

Unexpected Developments

Our hearing opened normally on March 9 , with both sides’ fact witnesses and party representatives, as well as one of the arbitrators, having traveled to New York from abroad.  Because none of the fact witnesses was a native English speaker, translators were also on hand. The plan was to complete fact witnesses in the first week and expert witnesses in the second. While COVID-19 was in the news, we did not yet foresee any difficulty in completing the hearing on schedule. Indeed, we planned to share a good New York steak dinner with our client and team after the final day, two weeks hence.

How wrong we were!

Over the course of that first week concern about COVID-19 grew daily. Nonetheless, we still didn’t imagine the scope of what was coming and remained determined through the week to forge ahead and complete the hearing as planned. However, by Friday of the first week the potential for adjournment was clearly there. By Sunday it became reality, as the parties and witnesses were called home ahead of impending travel restrictions. Everyone who had been with us in New York that week returned to two weeks of self-quarantine in their home countries.

Not very long ago, that would have thrown the case into an open-ended limbo. Leaving aside the uncertain duration of the COVID-19 crisis, it would likely have been many months before we could find a an open week for all participants. Fortunately, our tribunal was committed to avoiding that outcome. It recognized that in the circumstances, meeting by video would become the “new normal,” if the technology was ready. The tribunal directed the parties to meet and confer and, if possible, come back by Wednesday of what would have been week two of the hearing with a technical and procedural protocol for resuming by video. Counsel for both sides worked together to make this happen.

The Challenge

The requirements seemed steep. We needed a system that would allow up to 40 individuals to participate or observe. Everyone had to have a clear view of the tribunal, the witnesses and examining counsel. All participants had to be able to read the expert PowerPoint presentations and the numerous exhibits to be used in cross-examination. We also required that the tribunal and counsel continue receiving individual feeds of the LiveNote transcript.

In any event, the technical solution proved to be much simpler than anyone expected. Although we had been using Zoom and similar products for some time, we had not fully appreciated their full capabilities. We also had been used to doing video conferences with professional video equipment from our office conference rooms. With that experience, we initially contemplated that participants would use their firms’ conference facilities or go to commercial videoconference centers in each of the relevant cities. That approach proved to be both unfeasible – as offices around the world were closing – and out of date.

The Solution

Instead, like so many others during these past days, we quickly became familiar with how robust modern videoconferencing applications have become. In our case we chose to work with Zoom, which under our firm’s license can support a video conference of unlimited duration with up to 100 participants. Within a short time, all involved learned to choose between “gallery view” which displays all participants in thumbnail-sized windows, and the self-explanatory “speaker view.” By asking non-speakers to silence their microphones and stop their video feed, we could limit the video display to the person speaking or to selected participants. Once the hearing got under way, we generally had the tribunal members, the witness, and the examining attorney on the screen. The remaining participants, usually between 30 and 40, could observe quietly.

By selecting the “share screen” function, the expert witnesses were able to present their PowerPoint slides while remaining visible in a separate window to the right of the screen. As needed, the arbitrators and attorneys could also come on view alongside the shared document. During cross-examination, a trial support person took over the “share screen” function to display and highlight documents, portions of witness statements and the hearing transcript that were the subject of the questioning. That worked exactly as in an in-person hearing.

The court reporter listened in as a participant and transmitted her real-time transcript via a software application called “LiveLitigation,” which has long been in use in the United States for video depositions.

The Videoconference Meeting Rooms

Our firm set up the virtual hearing venue as a permanent Zoom meeting room for the duration of the hearing. We provided the necessary credentials to all participants, who were then free to enter or leave the room at any time over the course of the week. Just as in an in-person hearing, the tribunal and each of the parties also maintained separate “breakout rooms” where they could confer privately among themselves.

On Friday, March 20, exactly one week after we had last met in person, we reconvened with the tribunal, opposing counsel, and the court reporter on video for a “technical rehearsal,” just to make sure the system would work and to give the arbitrators and counsel a chance to become familiar with the pertinent Zoom features. For that test run, there were well over 30 participants, all joining from their own homes, in three different countries and four time zones. We found the sound and picture quality to be excellent. After a few minutes, we knew we could resume on Monday and finish our hearing.

What We Used at Home

While we had done individual witness examinations by video or telephone, this was our first experience with a full-blown video hearing. It was also our first time presenting and cross-examining witnesses with limited, and in some cases, no paper documents. This also was not as difficult as expected. For us, the ideal personal set-up involved three devices with screens plus a mobile phone. We used an iPad to work with documents uploaded to PDF Pro. This allows the creation of virtual examination binders in which you can mark up and highlight documents just as you would with paper. We participated in the hearing through our main computer or laptop, and then received the transcript on a third device. A person with a large enough monitor could display the hearing and transcript in separate windows on one screen. No doubt other approaches would work equally well. While Zoom has a “chat” function, it only allows the choice of sending your message to a single participant or everyone. For that reason, and to avoid mishaps, our lawyers team used our phones to keep a private group chat open on which we could confer among ourselves as we were listening. This was a big improvement over trading post-it notes at the counsels’ table.

Examination Notebooks, Real and Unreal

The one throwback to our old ways was the parties’ agreement to provide physical cross-examination binders to the expert witnesses. One of the arbitrators also asked to receive physical binders. Fortunately, our vendor was still available to produce and deliver the binders. We agreed for these to be delivered in a sealed package to the witnesses no less than one hour before their cross-examination was scheduled to begin. We instructed the witnesses that they should only unwrap their notebook on camera at the start of their examination. We also agreed to exchange these files electronically with opposing counsel within 45 minutes of the start of cross-examination, on the understanding that there would be no discussion of their contents with the witnesses. Our protocol also specified that anyone in the room with the witness be visible at all times. That rule proved moot, however, because every participant joined individually from their home or office.

Final Impressions

The hearing wrapped up on Friday, March 27, only a week later than planned. Over the course of five days seven experts made presentations and submitted to cross examination. There were also three “hot-tubbing” sessions where experts for both sides answered questions from the tribunal. The hearing days ran on the same schedule as when we had been meeting in person and ran with equal efficiency. Weekend and evening preparation sessions with the witnesses also worked very well by video.

It was clear from the informal parting exchanges that everyone thought the video format had been a success, with little or no disadvantage compared to the in-person meeting at which we had started. The parties have also agreed to hold closing arguments by Zoom.

Nonetheless, we can’t yet conclude that video offers full equivalence.

As noted, all of our percipient witnesses testified in person in the first week. We don’t know whether the tribunal could have assessed the credibility of such evidence just as effectively by video. Also, it was probably easier to meet by video following an entire week of being together in a conventional hearing. Moreover, it was only in the first week that we required simultaneous translation. Because all of our second week testimony was in English, we did not face the additional challenge of adding separate language feeds to a video hearing. We can also foresee logistical issues where participants are based in more divergent time zones. In our case most participants were on Eastern Daylight Time. The maximum time difference from that time zone was three hours and that affected only a single participant.

It is still less than three weeks since we learned we would be completing our case by video. Given the exigent circumstances, we did not have time to canvass the literature or discuss the merits of the 2018 Seoul Protocol on Videoconferencing in International Arbitration. Our approach was ad hoc and guided by common sense.

Nonetheless, the decisions we made and the arrangement we landed proved to be largely consistent with that guidance. Overall, this was a good and memorable experience that opened our eyes to how far video meeting capabilities have evolved. We do not predict that video will replace in person hearings when normal times return, but we also think this alternative approach will see far greater use.

Peter Chaffetz is a founding partner of Chaffetz Lindsey. Yasmine Lahlou and Andrew Poplinger are partners at Chaffetz Lindsey.

View this article on the New York State Bar Association website.

 

Click here to view our full list of COVID-19 Information and Resources.

 

Navigating a Crisis: Dealing with Delegated Authority

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Insurance and reinsurance companies, banks, and other financial institutions sometimes engage third-party agents to underwrite or administer their business. Often, the agents are paid based on business volume (a share of total premiums or fees generated), not business quality (final loss ratios or loan/investment performance). When paid on volume, the agent has incentive to maximize volume, regardless of the risk of loss to the principal.  Principals generally control for this misalignment of interest by limiting the scope of agent authority through agreed underwriting guidelines.

When business that previously looked profitable starts to turn sour in a crisis, disputes over guideline compliance can arise. Principals contend the poor results are on business written outside of guidelines. Agents contend the business complied with original guidelines or with modifications or waivers made by the principal. We have seen this issue recur often throughout the years, from the Savings & Loans crisis in the 1980s to the Subprime Mortgage crisis of the late 2000s, and at many times and on many products in between (workers’ comp insurance programs, auto programs, life and health programs).

Given the current crisis, we expect defaults and claims to spike significantly in loan portfolios and financial insurance (e.g., reps and warranty coverage, trade credit insurance, political risk insurance). Now is the time to assess and review guideline compliance. If you are a principal, check in with your agent now. Audit and monitor all aspects of the business the agent is responsible for. If you are an agent, make sure your records are clear and up-to-date so you are prepared to answer questions from your principal.

 

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