September 2022

Bankruptcy Courts Are Good At Adjudicating Tort Claims

Economists tend to view tort law differently than lawyers—or state attorney generals—and this difference explains both the advent of bankruptcy trusts in adjudicating class action liability claims and the complaints by the latter group concerning this development.

Tort law covers someone who was injured because of an action or omission that harms another. Its purpose is to change the essential cost-benefit calculus for a firm so that it does all that is feasible to prevent this from happening.

A classic example of the application of tort law is the manufacture of the Ford Pinto. Engineers placed the gas tank in the very rear of the car as a cost expedient measure even though they knew it would leave the car more vulnerable to a fire or explosion in an accident. They concluded that the liability costs would be less than re-engineering the car to place the tank elsewhere.

The courts found this calculus appalling and contrary to the public interest, and Ford’s liability ended up being many times greater than if it had addressed this vulnerability to begin with.

However, these days tort liability is invariably driven less by a desire to incentivize proper decisions and more by the

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September 8, 2022 by ATTORNEY

Alex Jones using bankruptcy to avoid payouts, Sandy Hook families allege

Sandy Hook families have asked a federal judge to remove InfoWars founder Alex Jones from control of his main company, alleging that Jones has siphoned off millions of dollars and is abusing the bankruptcy system to avoid paying court judgments for portraying the 2012 school shooting as a hoax.

Jones placed Free Speech Systems into bankruptcy in late July while he was in the middle of an Austin trial that ended with jurors awarding almost $50 million to the parents of 6-year-old Jesse Lewis, one of 20 children and six educators killed at Sandy Hook Elementary School in Newtown, Conn.

Sued by other Sandy Hook families, Jones and Free Speech Systems are facing a similar trial this month in Connecticut and another trial later this year in Austin.

With potentially large jury awards looming, bankruptcy proceedings for Free Speech Systems — which reported $9.4 million in profits on $14.3 million in income in the first five months of this year — could determine how much money the Sandy Hook families receive, as well as the continued viability of Jones’ Austin-based InfoWars media system.

Lawyers for the Sandy Hook parents recently told U.S. Bankruptcy Judge Christopher Lopez that they don’t trust

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September 6, 2022 by ATTORNEY

Limiting ‘preference’ liability exposure in bankruptcy
Foster Joe

Joe Foster

As the saying goes, what goes up, must come down. After years of robust growth, the U.S. economy appears to be hitting a rough patch. In the coming months, it is likely that some businesses will not survive the challenges that lie ahead, and will be forced to file bankruptcy.

As bankruptcy attorneys, we find that one of the most difficult issues to explain to a client is receipt of a demand letter from a bankruptcy trustee seeking return of payments from a customer received months or years before. To add insult to injury, the customer, now a debtor in bankruptcy, often still owes the client. In addition, the letter typically includes a threat that if the payment is not returned, the trustee will file a lawsuit.

This claim by the trustee is referred to as a “preference” action. The intent of the law is to prohibit insolvent companies from playing favorites or preferring a particular vendor over another. Preference claims force the so-called “preferred” vendor to return the payment so that all general creditors can enjoy equality of treatment.

A preference claim is, unfortunately, very simple to bring and very easy to prove. To successfully assert the

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September 5, 2022 by ATTORNEY

Why bankruptcy judge declined to hold Chris Pettit in contempt

Christopher “Chris” Pettit, the ex-San Antonio attorney accused of absconding with millions of dollars of clients’ money, has again avoided being held in contempt of court in his bankruptcy case — for now.

At an emergency hearing Thursday, Chief U.S. Bankruptcy Judge Craig Gargotta declined to grant the Chapter 11 trustee’s request to hold Pettit in contempt for violating a court order prohibiting him from transferring or disposing of any of his personal property.

But the judge ordered Pettit — who has been living in an $8 million mansion at Disney World while working as a $15.75-an-hour cook on the resort’s grounds — to appear in the San Antonio court next week to show why he shouldn’t be sanctioned for violating the court’s order.

“Mr. Pettit, I know you work. I know you’re in Florida. Can’t do much about that,” Gargotta told Pettit, who appeared by video. “You need to be here on Sept. 8.”

Trustee Eric Terry requested the emergency hearing after one of his lawyers, Patrick Huffstickler, got a phone call from Rob Vogt of Vogt Auction Galleries.

Vogt told him that someone had come by the business to inquire about selling personal property at a house on

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September 4, 2022 by ATTORNEY

Regal Cinemas: Cineworld says may file for Chapter 11 bankruptcy


London
CNN Business
 — 

The owner of cineworld-reopening/index.html”Regal Cinemas is having a tough time — its stock crashed as much as 80% Friday after reports that its parent company is preparing to file for bankruptcy.

British company Cineworld Group said in a statement that a “voluntary Chapter 11 filing in the United States” was one of the options it was reviewing in an attempt to reduce its debt burden.

Meanwhile, Cineworld and Regal theaters were open for “business as usual,” it added, and would remain so.

“Cineworld would expect to maintain its operations in the ordinary course until and following any filing and ultimately to continue its business over the longer term with no significant impact upon its employees,” the company said in the statement issued in response to reports last week.

Shares in Cineworld crashed as much as 80% in London on Friday after the Wall Street Journal reported that the world’s second largest movie theater chain had spoken to lawyers at Kirkland & Ellis LLP to advise on the bankruptcy process in the United States and United Kingdom.

The company’s stock fell another 20% Monday. The news also contributed to a plunge of more than 30%

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September 1, 2022 by ATTORNEY
September 2022
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