This Law.com article reports on the avoidance lawsuits that the bankruptcy trustee of the former high tech law firm Brobeck, Phleger & Harrison is filing against the firm’s former partners for bonuses and a portion of the firm’s unpaid bank debt.
The key issues in pursuing former Brobck partners is when the firm became insolvent and whether partners took money out of the firm for inadequate consideration. Under the California Corporations Code, limited liability partnerships may make distributions to partners only when the total assets of the firm exceed liabilities.
The trustee contends that Brobeck’s income began to decline in 2000, a decline that accelerated during the second half of that year and continued until the firm tanked in September, 2003. Although Brobeck’s net per-partner income dropped to $245,000 for 2002, the trustee contends that Brobeck’s partners did not correspondingly reduce the distributions they received.
According to the trustee, in 2001 and 2002 alone, Brobeck’s partners spent more than $100 million more than the firm’s net income on partner distributions and leasehold improvements. Brobeck financed these excess distributions through debt, which increased from $34 million and $173,000 per partner in 2000 to $89 million and $505,000 per partner in 2002. In particular, the trustee asserts that Brobeck borrowed an additional $39 million on its credit line in the first quarter of 2002 and distributed over $43 million to its partners during the same time period.
Noonan and Ignatius on the Inauguration
Following Paul Gigot’s thoughts in this post from yesterday, Peggy Noonan writes this Opinion Journal op-ed today regarding President Bush’s Inaugural speech, in which she observes the following:
There were moments of eloquence: “America will not pretend that jailed dissidents prefer their chains, or that women welcome humiliation and servitude, or that any human being aspires to live at the mercy of bullies.” “We do not accept the existence of permanent tyranny because we do not accept the possibility of permanent slavery.” And, to the young people of our country, “You have seen that life is fragile, and evil is real, and courage triumphs.” They have, since 9/11, seen exactly that.
And yet such promising moments were followed by this, the ending of the speech. “Renewed in our strength — tested, but not weary — we are ready for the greatest achievements in the history of freedom.”
This is — how else to put it? — over the top. It is the kind of sentence that makes you wonder if this White House did not, in the preparation period, have a case of what I have called in the past “mission inebriation.” A sense that there are few legitimate boundaries to the desires born in the goodness of their good hearts.
One wonders if they shouldn’t ease up, calm down, breathe deep, get more securely grounded. The most moving speeches summon us to the cause of what is actually possible. Perfection in the life of man on earth is not.
Along the same lines, David Ignatius of the Washington Post observes in this op-ed:
The late congressman Phil Burton of California used to say that government officials got in trouble when they began to believe that all the show and pomp of Washington was “for real.” By that, he meant that officials were led astray when they began to think it was about themselves and their party rather than the nation. That delusion is especially easy in a second term, after four years in the adulatory echo chamber of the capital. Just ask survivors of the Nixon administration.
Updating the Yukos case — Judge Clark postpones Yukos discovery
U.S. Bankruptcy Judge Leticia Clark denied OAO Yukos‘ request Thursday to commence discovery in regard to its claims for damages against several international financial institutions and Russian entities pending a February 16th hearing on OAO Gazprom‘s motion to dismiss the Yukos chapter 11 case in Houston for lack of jurisdiction. Here are the previous posts on the Yukos saga.
Although the MSM heralds the decision as a setback to Yukos, it’s really not. Judge Clark recognizes that it is inefficient to allow expensive discovery to commence before she has decided whether the Bankruptcy Court has jurisdiction over the Yukos case. There will be plenty of time for discovery if she decides that Yukos’ chapter 11 case can move forward in the American bankruptcy system.
That’s really the big issue in the case — i.e., whether the acceptance of Western investment capital by Russian business interests will bring with it the corresponding risk of having such capital protected in the American civil justice and bankruptcy systems? If Judge Clark rules in favor of Yukos on that issue, how long will it be before the Russian government is hiring lobbyists to support Republican Congressional initiatives for tort and bankruptcy reform?
Cert petition filed in Roe v. Wade case
As noted in this previous posts, Norma McCorvey of Dallas, the original plaintiff in the seminal anti-abortion case Roe v. Wade, has been attempting over the past couple of years to persuade the federal courts to allow her to challenge the original judgment in that case under Fed. R. Civ. P. 60(b). In this opinion from last year, the Fifth Circuit Court of Appeals upheld the District Court’s rejection of Ms. McCorvey’s Rule 60(b) motion on procedural grounds and dismissed the case, although Fifth Circuit Judge Edith Jones‘ concurring opinion did address some of the substantive issues pertaining to the underlying case.
Now, as noted in this AP article, Ms. McCorvey has asked the U.S. Supreme Court to reverse the lower courts and direct the District Court to grant her Rule 60(b) motion. Here is a link to the cert petition, courtesy of the excellent SCOTUSblog.
Due to the procedural nature of the challenge to Roe v. Wade, my sense is that the cert petition does not have much of a chance of success at the Supreme Court. Nevertheless, stay tuned. Stranger things have happened.
The Martha Redemption?
In Frank Darabont‘s wonderful movie, The Shawshank Redemption (1994), unjustly imprisoned Andy Dufresne ends up making some pretty decent money while in prison.
In an ironic twist in regard to another unjust imprisonment, this NY Times article reports that the value of Martha Stewart‘s stake in Martha Stewart Living Omnimedia has nearly tripled — from about $320 million to around $830 million — since her conviction last year.
Markets are sweet, aren’t they?
Gadzooks is liquidating
Carrollton-based Gadzooks, the teen fashion retailer that has been wandering aimlessly in chapter 11 since February of last year, announced yesterday that it would sell its assets to the highest bidder and give up on its dream of reorganizing and emerging from chapter 11.
As in the recent case of sandwich franchisor, Schlotzky’s, Gadzooks’ liquidation will generate a pittance in comparison to the company’s debt, which means that unsecured creditors will likely receive no dividend on their claims against the company.
The business risk of highly-leveraged and specialized companies such as Gadzooks is perhaps best articulated by the reaction of one of my two teenage daughters, both of whom are both experts in the area of purchasing from teen fashion retailers. Although dismayed last year when Gadzooks went into the tank, when I mentioned the latest news about Gadzooks’ final demise, one of my girls turned to me and observed with no remorse:
“Oh, yeah. I remember that store. They were toast a long time ago.”
Except Southwest, airlines continue to reel
Several major airlines reported quarterly earnings yesterday, and the reports continue to verify what everyone already knows — the legacy airline business model is broken and in need of such serious reorganization that it is questionable whether many can or should survive.
While American Airlines parent AMR Corp. and Northwest Airlines reported another round of large fourth-quarter losses, even industry profit leader — Dallas-based Southwest Airlines — reported a 15% profit decline. That Southwest’s profits are declining underscores the grim outlook for the entire industry — of the 10 largest U.S. carriers, only Southwest is expected to report a fourth-quarter profit.
Houston-based Continental Airlines, Inc. reported a fourth quarter loss of $206 million. Continental is implementing a plan to generate $1.1 billion in savings and expand its more profitable international flights. The carrier is also negotiating $500 million in worker wage and benefit concessions that it needs to have in place prior to the end of the first quarter of 2005 to help defray further losses.
All airlines carriers are being hammered by an unusual combination of high fuel prices, fare competition and growing seat capacity in the U.S. market. Had it not been for fuel hedges that saved Southwest $174 million in the quarter, it also would have reported a quarterly loss.
Meanwhile, the other discount airlines that have generated the brutal low-fare competition are also being stung by declining fares as quarterly losses are expected from America West Holdings Corp., JetBlue Airways, AirTran Holdings Inc. and Frontier Airlines. THe primary reason that the other discounters are not profitable is that they do not have the liquidity of Southwest to hedge fuel costs.
Southwest’s quarterly profit fell to $56 million (or seven cents a share) from $66 million last year. Revenue totaled $1.66 billion, which was an increase of about 9% compared to the fourth quarter of 2003. Southwest’s unit costs in the quarter fell 1.3%, or 4.5% excluding fuel.
With several airlines wallowing in chapter 11 cases without clear reorganization plans, is 2005 the year that the needed shakeout in the airline industry will take place?
Can the Republicans lead?
In this brilliant op-ed today, Wall Street Journal ($) editorial page editor Paul Gigot throws down the gauntlet and challenges the Republican Party to elevate substance over form and show that the party can lead America. In a stinging rebuke of the party’s leadership over the past generation, Mr. Gigot lays it on the line for the Republicans:
Whatever one thinks of its policies, the Democratic Party surely made a difference during its 20th-century heyday. Set aside its last, corrupted years in power. When liberalism was ascendant, from the 1930s through the 1970s, Democrats permanently altered the face of government.
They ended poverty for the elderly with cross-generational entitlement programs, broke Jim Crow’s hold in the South with civil-rights laws, built the alphabet soup of regulatory agencies that bedevil American business every day, turned our courts into quasi-legislative bodies, and planted the seeds of government-run health care that continue to grow today. As the party of government, they built institutions and processes that have consistently expanded its scope.
What, in the decade since they’ve retaken the House, have Republicans done that is consequential in the same way? If the GOP majorities vanished tomorrow, what couldn’t Democrats easily repeal? I’ve asked the latter question of numerous Republicans in recent days, and the only confident answer I get is “welfare reform.” By requiring in 1996 that the poor enter the world of work, Republicans stopped the development of a permanent American underclass. Yet despite that historic success, it is striking that they still haven’t had the nerve or clout to pass an extension of even that reform through the Senate. . .
In fact, it is depressing to consider how much of what Republicans wanted to do under a Democratic president in the ’90s they have abandoned now that they control both sides of Pennsylvania Avenue. The regulatory reform requiring “cost-benefit” analysis that came within a vote of passing the Senate in 1995 has never returned. The excellent Medicaid reform vetoed by Bill Clinton has also gone nowhere, despite pleas from many governors to revive it. The Freedom to Farm Act was gutted.
Even the congressional budget process that Democrats designed to make spending easier remains entirely unchanged. Fourteen years ago, Congressman Chris Cox was able to win upward of 180 votes for such budget changes; last year he got 88, and he had to buck the rest of the GOP leadership to get even those.
Some of this can be blamed, first, on having a Democrat in the White House, and later having only small majorities on Capitol Hill, especially in the Senate. But not anymore. After November’s victory, Republicans don’t have any more excuses.
Read the entire piece. Mr. Gigot’s point is a variation on the theme that Milton Friedman touched on awhile back:
To summarize: After World War II, opinion was socialist while practice was free market; currently, opinion is free market while practice is heavily socialist. We have largely won the battle of ideas (though no such battle is ever won permanently); we have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course. We are still far from bringing practice into conformity with opinion.
With a Republican president and solid majorities in both houses of Congress, the Republicans no longer have any excuses for failing to address America’s pressing problems in such areas as health care finance, tax policy, and intelligence reform, to name just three.
The Republicans have exploited the Democratic Party’s obsolescence in these areas to seize the reins of leadership. Now, it is time for the Republicans to lead or risk, as Mr. Gigot puts it, becoming “as evanescent as the Whigs.”
Tim Purpura’s first big challenge
Now that the Stros’ dance with Carlos Beltran is over, new Stros General Manager Tim Purpura can finally get on with showing us what he can do in the job.
The Stros did not handle the Beltran negotiations particularly well, but my sense is that the course the Stros charted in those talks was owner Drayton McLane‘s call, not Purpura’s. At any rate, as noted in earlier posts here and here, the Stros are probably better off without Beltran at the price they would have had to pay for him, so McLane allowing Scott Boras to play him like a fiddle didn’t really hurt the Stros other than from a public relations standpoint.
But now Purpura has a chance to prove his mettle and it’s not going to be easy. Yesterday, Roger Clemens and his long-time agent, Randy Hendricks, handed Purpura a record $22 million record arbitration demand. Clemens had a magical 2004 season pitching for his hometown team and won the NL Cy Young Award to boot, so he has a reasonable case that he should be the highest-paid pitcher in baseball. Inasmuch as Randy Johnson is currently the highest paid pitcher for the 2005 season at $17 million, that’s just a bit below the midpoint between Clemens’ bid price and the Stros’ $13.5 million offer. Thus, if a settlement is to be reached, expect it to be a tad above Johnson’s salary.
However, the bigger problem for the Stros than funding Clemens’ salary is that Clemens has not decided whether he wants to play at any price. That complicates the Stros’ arbitration negotiations with Lance Berkman and Roy Oswalt, who are more important players than Clemens for the long term health of the club. Berkman’s arbitration demand was $11 million, which is only a million more than the Stros’ $10 million offer, so expect that case to be settled before the arbitration hearing. Oswalt requested $7.8 million and the Stros offered $6 million, so that split is a bit bigger, but still not large enough to risk an acrimonious hearing with the club’s best pitcher. So, expect that case to be settled, too.
Purpura’s problem is that the $8.5 million salary range in the Clemens case is about 10% of the Stros’ projected 2005 payroll. Thus, the Stros are about a month away from Spring Training and they still don’t know whether they will have three top players locked up for a bit more than $30 million or closer to $40 million. Moreover, until the Clemens salary is finalized, Purpura does not have as much flexibility in finalizing settlements with Berkman and Oswalt.
So, Purpura is facing his first big challenge as the Stros’ GM. How well he handles it will not only have an impact on whether Houston enjoys another season from one of the best pitchers in Major League Baseball history, but also whether the club’s two under-30-year-old All-Star quality players will continue to be the club’s foundation over the next 5-7 years.
Welcome to the big leagues, Mr. Purpura.
Least surprising motion of 2004 denied
U.S. District Court Sim Lake (picture here) today issued an order denying former Enron Corp. CEO and COO Jeffrey Skilling, former Enron Chairman Kenneth Lay and former Enron Chief Accounting Officer Richard Causey‘s motion to transfer venue of their upcoming criminal trial out of Houston. That motion was the subject of this earlier post. Here is Judge Lake’s opinion.