Solyndra, Lehman, Innkeepers, Doral, Jameson: Bankruptcy

(This report contains items about companies both in bankruptcy and not in bankruptcy. Updates Lehman; adds Jameson Inns, Cagle’s and Las Vegas Mob Museum in New Filings; Harrisburg in Updates; Wastequip in Watch List; and sections on Law Firm News and Daily Podcast.)

Oct. 20 (Bloomberg) — September showed the first sign of an increase in liquidity-squeezed companies as junk debt continued to be difficult to sell in early October.

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The percentage of junk-rated companies with the lowest liquidity ratings inched up in September to 4.1 percent after being stable at 3.9 percent from June through August, Moody’s Investors Service said in an Oct. 18 report. Moody’s liquidity- stress index further increased to 4.2 percent by mid-October.

Over the first half of October, $3.3 billion in junk bonds were sold, an 82 percent decline from the same period in 2010, Moody’s said.

More companies would be facing default or liquidity hurdles absent successful refinancing over the last couple of years. Where $45 billion of junk debt outstanding in late 2009 was due to mature in 2012, refinancings reduced the maturing junk-debt total to $18 billion by August, Moody’s said.

Although increasing, the percentage of companies with the lowest liquidity is a fraction of the 20.9 percent peak reached in March 2009.

Moody’s liquidity-stress index measures the percentage of junk-rated companies with the weakest liquidity scores.

New Filings

Jameson Inns Owner in Chapter 11 to Stop Foreclosure

A mezzanine lender for the Jameson Inns Inc. hotel chain put a mezzanine borrower into Chapter 11 on Oct. 18 in Delaware to prevent foreclosure by another mezzanine lender.

Gramercy Loan Servicing LLC, as lender on a $40 million obligation, previously took over a mezzanine borrower to the hotel chain, which has 100 properties in 12 states. Gramercy was facing foreclosure on Oct. 19 of another $40 million mezzanine loan held by Colony Capital LLC from Santa Monica, California.

The hotels have a total of $335 million in financing, according to a court filing. At the top of the list is a $175 million mortgage loan with Wells Fargo Bank NA serving as special servicer. There are four tranches of mezzanine loans, each for $40 million.

All of the mezzanine loans matured in August, with Gramercy taking over its mezzanine borrower at the time. The Chapter 11 filing had the effect of preventing Colony from wiping out Gramercy’s interest.

The Jameson properties are operated under the names Jameson Inn and Signature Inn. The hotels are based in Smyrna, Georgia.

The mezzanine lender in Chapter 11 said its assets are worth more than $100 million while debt is less than $50 million.

The case is In re JER/Jameson Mezz Borrower II LLC, 11- 13338, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Poultry Producer Cagle’s Files Chapter 11 in Atlanta

Cagle’s Inc., an integrated poultry producer from Atlanta, filed for Chapter 11 protection yesterday in its hometown.

The company produces 1.7 million birds a week from two company-owned facilities. Contract growers are utilized for raising the poultry.

Losses were running as much as $3 million a month as the result of the high price of feed and the low price for poultry, a court filing said.

Liabilities include $33.5 million owing on a revolving credit with AgSouth Farm Credit ACA. The lender is providing $6.5 million in credit for the Chapter 11 case.

Metropolitan Life Insurance Co. is owed $7.7 million on mortgages on specified facilities.

The assets are worth more than $50 million while debt is less than $50 million, the petition says.

The case is In re Cagle’s Inc., 11-80202, U.S. Bankruptcy Court, Northern District of Georgia (Atlanta).

Las Vegas Mob Museum Files for Chapter 11 Protection

The Las Vegas Mobster Experience, claiming to have the “world’s largest collection of organized crime artifacts,” filed for Chapter 11 protection on Oct. 17 in its hometown.

Located in Tropicana Las Vegas Hotel & Casino on the Las Vegas Strip, the museum attracted no more than 150 customers a day, or barely enough to pay operating expenses, a court filing says. For the last two months, monthly revenue was running an average of $130,000, a filing says.

Liabilities include $13.6 million raised through two private placements. From the total, about $9.7 million is secured by the artifacts on display. Other liabilities include $5.8 million on mechanics’ liens.

The artifacts are allegedly owned by a separate company controlled by Jay L. Bloom, who was forced out of management, a filing says.

The case is In re Murder Inc. LLC, 11-26317, U.S. Bankruptcy Court, District of Nevada (Las Vegas).


Solyndra Auction Delayed by Three Weeks, to Nov. 18

The sale of Solyndra LLC, the bankrupt solar-panel maker, is being delayed by three weeks.

In the wake of the Sept. 6 Chapter 11 filing, the bankruptcy court in Delaware approved procedures calling for an auction on Oct. 27, with bids due Oct. 25 and a hearing to approve the sale on Nov. 2.

A revised schedule posted on the court docket now calls for bids on Nov. 16, followed by a Nov. 18 auction and a hearing on Nov. 22 for approval of the sale.

Solyndra successfully opposed a motion by the U.S. Trustee for appointment of a Chapter 11 trustee to oust incumbent management. Instead, the judge authorized hiring R. Todd Neilson to serve as chief restructuring officer.

Solyndra’s startup business was financed in part with a $535 million loan guaranteed by the U.S. government. The company halted operations in late August, filed for Chapter 11 reorganization on Sept. 6 and was raided two days later by the Federal Bureau of Investigation. Two company officers invoked their Fifth Amendment rights rather than answer questions posed by a congressional committee.

Based in Fremont, California, Solyndra said assets were $859 million while debt totaled $749 million as of Jan. 1. When the petition was filed, Solyndra said secured debt was $783.8 million. The business was financed in part with $709 million from eight issues of preferred stock, plus $179 million in convertible notes.

Construction of the plant began in September 2009. Production commenced in January 2011 and halted in August for lack of new financing. Revenue in 2010 of $142 million resulted in a net loss of $329 million.

The case is In re Solyndra LLC, 11-12799, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Lehman, Midland Take Extra 9% Haircut Under New Innkeepers Plan

Cerberus Capital Management LP and Chatham Lodging Trust agreed to buy 64 hotels from Innkeepers USA Trust for about $1.02 billion under an agreement that trims about 9 percent off the price the buyers agreed to pay when the bankruptcy court approved Innkeepers’ reorganization plan in June.

Cerberus and Chatham refused to complete the acquisition in August, touching off a lawsuit by Innkeepers. The buyers contended they were entitled to cancel given a material adverse change in the hotel business. The lawsuit originally was scheduled for trial beginning Oct. 10. The trial was put off to accommodate settlement talks.

The reduced price affects only Midland Loan Services, the servicer for $825 million of fixed-rate mortgages on 45 hotels, and Lehman Ali Inc., a non-bankrupt subsidiary of Lehman Brothers Holdings Inc. with $238 million in floating-rate mortgages on 20 of the Innkeepers properties. Unsecured creditors suffer no loss from the price reduction.

The new deal calls for Midland to take $675 million in new mortgages while Lehman receives $224 million cash. Originally, Midland was to have $725.8 million in new mortgages plus $12.8 million cash. Lehman was in line for $233 million cash.

Given that Midland and Lehman are the only creditors adversely affected and they agreed to the price reduction, Innkeepers wants the bankruptcy court to approve modifications to the confirmed plan at an Oct. 21 hearing.

For details on the original plan, click here for the June 24 Bloomberg bankruptcy report.

Apollo Investment Corp. acquired Palm Beach, Florida-based Innkeepers in July 2007 in a $1.35 billion transaction. It had 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. The Chapter 11 petition filed in July 2010 listed assets of $1.5 billion against debt totaling $1.52 billion.

The lawsuit against Cerberus is Innkeepers USA Trust v. Cerberus Four Holdings LLC (In re Innkeepers USA Trust), 11- 02557, U.S. Bankruptcy Court, Southern District New York (Manhattan). The Chapter 11 case is In re Innkeepers USA Trust, 10-13800, in the same court.

Trump to Buy Doral Under Contract With Unusual Wrinkles

Donald Trump has a contract to buy the Doral Golf Resort and Spa in Miami for $170 million. The Doral is one of five resorts that Paulson & Co. and Winthrop Realty Trust took over from Morgan Stanley’s CNL Hotels & Resorts Inc. in January through foreclosure.

In a wrinkle on the usual procedure for selling properties in Chapter 11, Paulson and Winthrop won’t have the bankruptcy court in New York set up auction and sale procedures until Trump waives the right to terminate or his so-called due diligence review period ends on Nov. 28.

Paulson and Winthrop put all five resorts into Chapter 11 in February to forestall maturity of $1 billion in mortgages and $525 million in mezzanine debt. They decided to sell the Doral due to its need for capital expenditures. The property, built in 1962, has 962 rooms and five golf courses.

The owners will keep the 131-acre White Course for later commercial or residential development.

There is a second atypical provision in the Trump contract, which calls for termination of the management arrangement with an affiliate of Marriott International Inc. If it turns out that ending the Marriott arrangement results in a “material detrimental financial effect on the net proceeds of the sale,” the owner can cancel the Trump deal by paying Trump as much as $3.7 million in fees and expenses.

If Trump is outbid at auction, he would receive a $6.8 million breakup fee, assuming the bankruptcy judge approves.

Court papers say that the owners won’t schedule a hearing to approve auction and sale procedures until Trump’s time for canceling the contract ends. He has the right to back out for any reason or no reason while he conducts due diligence by examining the property and financial records.

Paulson and Winthrop previously said that the price offered by Trump implies a value for all the resorts “significantly” exceeding the $1.5 billion in debt.

After the Doral sale, the remaining resorts would be the Grand Wailea Resort Hotel and Spa in Hawaii; the La Quinta Resort and Club and the PGA West golf course in La Quinta, California; the Arizona Biltmore Resort and Spa in Phoenix; and the Claremont Resort & Spa in Berkeley, California. Including Doral, the resorts have 14 golf courses.

The properties listed assets of $2.2 billion and liabilities of $1.9 billion. New York-based Morgan Stanley purchased the five resorts in 2007 for $4 billion. Revenue in 2010 was $465 million.

The case is In re MSR Resort Golf Course LLC, 11-10372, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Fairfield Sentry Liquidators Suits Halt During Appeal

Liquidators from the British Virgin Islands for Fairfield Sentry Ltd. and affiliated funds, which had been the largest feeder funds for Bernard L. Madoff Investment Securities Inc., put lawsuits on ice in which they were attempting to sue foreign customers in U.S. Bankruptcy Court in New York. The freeze resulted from an appeal the liquidators lost last month when Chief U.S. District Judge Loretta A. Preska in New York ruled that the Chapter 15 case can’t be used to initiate lawsuits in bankruptcy court against non-U.S. customers.

Last week, Preska recognized the significance of the issues and granted the liquidators permission to seek an appeal to the U.S. Court of Appeals. Because Preska’s decision last month didn’t end the lawsuits entirely, the liquidators needed permission to appeal. The U.S. Court of Appeals still must accept the appeal.

Meanwhile, the bankruptcy court signed an order on Oct. 18 freezing the lawsuits pending the outcome of the appeal to the Court of Appeals.

For details on Preska’s September opinion, click here for the Sept. 21 Bloomberg bankruptcy report. To read Preska’s opinion, click here. For details on the suits and the bankruptcy court’s ruling in May that was overturned, click here for the May 31 Bloomberg bankruptcy report.

The appeal in district court is In re Fairfield Sentry Ltd., 11-mc-224, U.S. District Court, Southern District New York (Manhattan). The liquidators’ lawsuit in bankruptcy court is Fairfield Sentry Ltd. v. Theodoor GGC Amsterdam (In re Fairfield Sentry Ltd.), 10-03496, U.S. Bankruptcy Court, Southern District New York.

Lehman Files Flip Clause Suit Against BNY Mellon

Lehman Brothers Holdings Inc. filed a lawsuit this week to invalidate another so-called flip clause in a derivatives transaction.

This time, Lehman sued an affiliate of Bank of New York Mellon Corp. in its role as trustee in what was originally a 25 million euros ($34.5 million) swap transaction. The Lehman parent guaranteed the obligations of Lehman Brothers Special Financing Inc.

As was true in other cases already decided by U.S. Bankruptcy Judge James M. Peck, Lehman was first to receive proceeds in a normal termination of the transaction. The contract provided that if Lehman were bankrupt, other parties would come ahead in the payment waterfall.

Lehman’s complaint contends the flip clause violates the so-called ipso facto clause in the U.S. Bankruptcy Code which provides that companies can’t forfeit rights or property simply on account of filing bankruptcy. In another Lehman case, Peck ruled in January 2010 that flip clauses aren’t enforceable in bankruptcy.

Before an appeal could be completed, there was a settlement in the case last year, and thus there was no higher-court ruling about enforceability of a flip clause in bankruptcy. Peck since then adhered to his 2010 conclusion in an opinion in May. To read about Peck’s new swap ruling, click here for the May 13 Bloomberg bankruptcy report. To read about Peck’s original January 2010 decision regarding flip transactions, click here and see the Advance Sheets item in the Feb. 1, 2010 Bloomberg bankruptcy report.

More recently, a U.S. District Judge in New York ruled that flip clause suits belong in bankruptcy court. For details on the ruling, click here for the Sept. 21 Bloomberg bankruptcy report.

Lehman came out on top in bankruptcy court yesterday in a claim-classification dispute with Deutsche Bank AG and others who purchased about $2.4 billion in claims from Lehman affiliate Lehman Brothers Bankhaus AG. The issue could arise again in December when Lehman seeks confirmation of the Chapter 11 plan.

When the Frankfurt-based bank purchased the claim from the German liquidator of the affiliate, Lehman hadn’t yet promulgated the plan coming to court for approval at a Dec. 6 confirmation hearing. When the plan came out, it classified affiliates’ claims in classes of unsecured creditors receiving a smaller recovery than third-party holders of general unsecured claims.

Deutsche Bank argued it should be treated the same as third-party creditors. The bankruptcy judge said the issue was more properly decided as part of the confirmation hearing.

Lehman argued that Deutsche Bank took a risk in buying a claim not knowing if all unsecured creditors would be treated alike. Separate classification and different treatment of affiliates’ claims resulted from a settlement involving creditors who favored substantive consolidation and those who didn’t.

Yesterday the bankruptcy judge also approved settlement of a dispute with Bank of America NA over a $500 million setoff that Lehman said violated the automatic stay in bankruptcy. The settlement calls for Bank of America to pay Lehman 71 percent or $356 million. In addition, the bank will reduce derivatives claims against Lehman by $2.4 billion and reduce guarantee claims on derivatives by another $2.1 billion. For details, click here for the Sept. 29 Bloomberg bankruptcy report.

Lehman creditors are voting on the Chapter 11 plan in preparation for a Dec. 6 confirmation hearing. The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment-banking business to Barclays Plc one week later. The remnants of the Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court, with a trustee appointed under the Securities Investor Protection Act.

The new lawsuit is Lehman Brothers Special Financing Inc. v. BNY Mellon Corporate Trustee Services Ltd. (In re Lehman Brothers Holdings Inc.), 11-02779, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Harrisburg Moving Near State Receivership to End Bankruptcy

Harrisburg, Pennsylvania’s capital, is nearing the end of control over its destiny and facing the possibility of dismissal of its municipal bankruptcy filing. Yesterday, the state House of Representatives voted 177-18 in favor of a bill allowing the governor to put the city into receivership.

The state Senate approved the bill the day before. The legislation goes to the governor who already said he would sign it.

The receiver may seek to have the municipal Chapter 9 case dismissed at a Nov. 23 hearing in U.S. Bankruptcy Court in Harrisburg. For Bloomberg coverage, click here.

The state filed a motion to dismiss the bankruptcy two days after the Oct. 11 bankruptcy filing that was purportedly authorized by a 4-3 vote of the city council.

Court papers say the city is $65 million in default on $242 million owing on bonds sold to finance an incinerator that converts trash to energy. The bonds are insured by Assured Guaranty Municipal Corp.

The case is In re City of Harrisburg, Pennsylvania, 11- 06938, U.S. Bankruptcy Court, Middle District of Pennsylvania (Harrisburg).

Chef Solutions Auction Nov. 9, as Requested at Filing

Chef Solutions Inc., the second-largest North American producer of fresh prepared food, filed a Chapter 11 petition on Oct. 4 in Delaware and was authorized yesterday by the judge to hold an auction on Nov. 9 testing if the best bid is from a joint venture between Mistral Capital Management LLC and Reser’s Fine Foods Inc.

Competing bids are due Nov. 7. A hearing to approve the sale will take place Nov. 15. The approved auction schedule didn’t deviate from the schedule the company proposed. The newly appointed creditors’ committee sought more time to shop for a buyer.

The contract was worked out before bankruptcy. It calls for selling the business in exchange for $36.44 million cash and $25.3 million in secured debt. The buyers will also assume specified debt, including up to $7.5 million in priority claims.

Based in Birmingham, Michigan, Chef Solutions has plants in Kansas, Ohio, and California. Brands include Orval Kent. Customers include Wal-Mart Stores Inc., Safeway Inc. and Costco Wholesale Corp. Chef Solutions was a 2004 acquisition from Deutsche Lufthansa AG by Questor Management Co., which recently surrendered control to Mistral.

Liabilities include $23 million owing to Wells Fargo Capital Finance Inc. as agent for first-lien lenders. Mistral has $24.3 million in second-lien debt.

The petition says assets and debt both exceed $100 million.

The case is In re Chef Solutions Holdings LLC, 11-13139, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Nebraska Book Given Less Exclusivity Than Requested

Nebraska Book Co., a bookseller to college students, received an enlargement of the exclusive right to propose a Chapter 11 plan, although not so much as the company sought given opposition from second-lien lenders.

Unable to land $250 million in outside financing to support confirmation of the plan worked out in advance of bankruptcy, Nebraska Book asked for four more months of so-called exclusivity.

Characterizing the case as neither “unusually large” nor “complex,” the second-lien lenders objected to a four-month extension of the exclusive right to file a plan. The judge compromised, giving a three-month extension until Jan. 23.

The plan in limbo would pay off first- and second-lien debt in full, while giving most of the new equity to subordinated noteholders of the operating company and holders of notes issued by the holding company.

Currently, the confirmation hearing for approval of the plan is set for Oct. 24. The company previously said there is a “substantial possibility” of further delay. For details on the plan after a settlement with shareholders, click here for the Sept. 9 Bloomberg bankruptcy report. For details on the original plan, click here for the July 19 Bloomberg bankruptcy report.

Based in Lincoln, Nebraska, the company sells used textbooks and operates more than 290 college bookstores. The company said $598 million in sales during fiscal 2011 resulted in a net loss of $98 million, including an $89 million writedown of intangible assets.

The case is In re Nebraska Book Co. Inc., 11-12005, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Charlie Brown’s Punts on Disclosure, Has Exclusivity

The former operator of Charlie Brown’s Steakhouse restaurants said that court approval of the liquidating Chapter 11 plan should be “largely consensual.” Nonetheless, the Oct. 18 hearing for approval of the explanatory disclosure statement was pushed back to a date to be determined.

In the meantime, the court approved an extension until Dec. 12 of the period within which only the company can file a plan. The disclosure hearing was originally scheduled for Sept. 9.

The company completed sales of the three branches of the business between April and July. The plan would distribute proceeds in line with priorities in bankruptcy law. For details on the plan, click here for the Aug. 3 Bloomberg bankruptcy report.

After filing for Chapter 11 protection in November, the company sold 20 Charlie Brown’s locations for $9.5 million. The 12 remaining Bugaboo Creek stores realized $10.05 million while the seven The Office Restaurants produced $4.675 million. Before the Chapter 11 filing in November, 47 stores were closed.

At the outset of the Chapter 11 case, the lenders were owed $70.2 million. In addition, debt at the beginning of the case included $14 million owing on second-lien senior subordinated notes and $30 million on a mezzanine loan. The company is controlled by Trimaran Capital Partners.

The senior secured lenders are Ableco Finance LLC, Wells Fargo Capital Finance Inc., and Ally Commercial Finance LLC.

The case is CB Holding Corp., 10-13683, U.S. Bankruptcy Court, District of Delaware (Wilmington).

One of Two Investors for BankUnited Plan Drops Out

Although the creditors’ committee for BankUnited Financial Corp. landed a partial settlement with the Federal Deposit Insurance Corp. sufficient to file a reorganization plan and disclosure statement, what they lack is equity financing to confirm and implement the plan.

The company announced yesterday that talks on an equity infusion ended with one potential investor described as a “Fortune 500 company.” Talks continue with what BankUnited described as a “multinational financial institution.”

BankUnited said that the potential investor to drop out did so for “internal reasons.”

Currently, there is a hearing on the Nov. 21 calendar for approval of the disclosure statement.

BankUnited is a holding company for a bank taken over and sold by regulators in May 2009. Confirming a plan was precluded by the FDIC’s $1.47 billion claim based on the bank’s capital deficiency. There was a separate a dispute over ownership of tax refunds. For details on the settlement and the committee’s Chapter 11 plan, click here for the June 7 Bloomberg bankruptcy report. The committee could file a plan because BankUnited has been in Chapter 11 more than 18 months.

BankUnited’s formal lists of creditors showed claims of $557 million owing to unsecured creditors. There are no secured claims. The bank’s failure cost the FDIC $4.9 billion. It had deposits of $8.6 billion and $12.8 billion in assets.

Debt of the Coral Gables, Florida-based holding company includes $120 million on convertible senior notes, $12.5 million of junior subordinated debentures, $184 million in mandatorily convertible senior notes known as HiMeds, and $237 million in trust preferred securities.

The case is In re BankUnited Financial Corp., 09-19940, U.S. Bankruptcy Court, Southern District of Florida (Miami).

Former Spiegel Catalog Owner’s Exclusivity Extended

The former owner of the Spiegel catalog sought and was granted an extension until Jan. 4 of the exclusive right to propose a liquidating Chapter 11 plan. The company filed for bankruptcy protection on June 6 and completed the sale of the business to the secured lender on Sept. 12.

The business was purchased by a fund associated with Patriarch Partners LLC, the owner and lender through affiliated funds. The contract with Patriarch was negotiated before the Chapter 11 filing. The Patriarch fund paid $2 million cash and assumed specified liabilities, including $30 million outstanding on a term loan and revolving credit.

New York-based Signature Styles LLC owned the Spiegel catalogue, which it purchased for $21.7 million at a foreclosure sale in June 2009. The company listed assets of $48.6 million and debt of $87.6 million. Listed debt included $37.2 million on a secured term loan and revolving credit. Other debt included $9.8 million owing to trade suppliers and $23.2 million in customer obligations.

The company’s other businesses included Newport News and Shape Fx. Spiegel produced 75 percent of revenue, a court filing said.

The case is In re Signature Styles LLC, 11-11733, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Watch List

Wastequip Given ‘Selective Default’ Rating by S&P

Wastequip Inc. was given a “selective default” rating yesterday by Standard & Poor’s.

Without providing details, S&P said it received “confidential information that Wastequip has made available to us regarding its unrated mezzanine loan.”

S&P downgraded Wastequip to a CCC- rating in late September, in view of the revolving credit that matures in February and a term loan maturing in early 2013.

Again without details, S&P yesterday said, “We understand that the company has access to a cash balance of more than $50 million and that it intends to continue making timely interest payments on its senior secured debt obligations while working to address upcoming maturities in its capital structure.”

Total debt in June was about $600 million, S&P reported.

Closely held Wastequip is the U.S.’s largest manufacturer of non-mobile waste-handling equipment such as dumpsters and compactors.

Law Firm News

Former Bankruptcy Judge Garrity Moves to Morgan Lewis

James L. Garrity Jr., a U.S. Bankruptcy Judge in New York from 1991 to 1999, left Shearman & Sterling LLP where he was a partner since leaving the bench.

Garrity joined the New York office of Philadelphia-based Morgan Lewis & Bockius LLP. He was a 1986 graduate of St. John’s University School of Law.

Garrity was an assistant U.S. Attorney in New York before ascending to the bench. Recently, he was appointed as Chapter 11 trustee for GSC Group Inc.

Daily Podcast

Solyndra, Harrisburg, Lehman-Deutsche Tiff: Bankruptcy Audio

The Bloomberg bankruptcy podcast explores why the bankruptcy judge declined to appoint a trustee for solar-panel maker Solyndra LLC even though the FBI raided the office two days after bankruptcy and top company officials invoked the Fifth Amendment when refusing to answer questions from a congressional committee. Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle explain why Harrisburg, Pennsylvania, may voluntarily withdraw the municipal bankruptcy petition when a state receiver takes over. As a prelude to an item in his column about dispute over the meaning of the word “and,” Rochelle ends the podcast by laying out disagreement between Lehman Brothers Holdings Inc. and Deutsche Bank AG over the meaning of “general unsecured claim.” To listen, click here.

Advance Sheets

Parties Agree Stern No Limit on Power of Magistrates

The U.S. Court of Appeals in New Orleans is primed to rule after oral argument in early December whether the Stern v. Marshall bankruptcy opinion from the U.S. Supreme Court equally hamstrings U.S. Magistrate Judges.

In Stern, the high court concluded that bankruptcy judges don’t have power to make final judgments on state-based counterclaims beyond what’s necessary to rule on a creditor’s proof of claim. Before the decision came down in late June, the appeals court in New Orleans heard argument in a case where the parties consented to allowing a U.S. Magistrate Judge to conduct a trial and enter a final judgment.

On their own, the judges on the circuit court panel directed the parties to submit letter briefs on the question of whether the rationale of Stern applies equally to magistrate judges.

Although they disagree how the appeal should be decided on the merits, both sides agree the Stern decision didn’t limit the ability of magistrate judges to hold trials when both sides consent.

Both sides see Stern as being a narrow ruling. They also cite several courts of appeals’ rulings over the years that magistrate judges have constitutional authority to hold trials on consent.

The case will be argued once again before a panel of three judges during the week of Dec. 5. For a discussion of the Stern decision, click here for the June 24 Bloomberg bankruptcy report.

The case is Technical Automation Services Corp. v. Liberty Surplus Insurance Corp., 10-20640, 5th U.S. Circuit Court of Appeals (New Orleans).

–With assistance from Romy Varghese in Philadelphia; Linda Sandler in New York; and Dawn McCarty and Michael Bathon in Wilmington, Delaware. Editors: Glenn Holdcraft, Mary Romano.

To contact the reporter on this story: Bill Rochelle in New York at

To contact the editor responsible for this story: John Pickering at