A Question of Time, Specifically, Time to File Notice of an Appeal

Deadlines are critical. And when it comes to appellate-filing deadlines, the Supreme Court recently clarified they come in two flavors.

  • Rigid statutory deadlines are “jurisdictional” and cannot be forfeited or waived.
  • Their more flexible cousins, deadlines set by court rules, are mere “claim-processing rules” that can be forfeit or waived.

Hamer v. Neighborhood Housing

Specifically, Rule 4 of the Federal Rules of Appellate Procedure requires that a notice of appeal be filed within 30 days. In Hamer v. Neighborhood Housing, counsel obtained a two month extension from the district court. But when the plaintiff filed its notice of appeal, the Seventh Circuit questioned its timeliness.

The appellees seized on the opportunity, now arguing that the appeal was late. Relying on Bowles v. Russell, 551 U.S. 205 (2007), the Seventh Circuit agreed. It concluded that, although the appellant had relied on the extension order, the deadline under Rule 4 was “mandatory.” Thus, the extension impermissibly deprived the Court of Appeals of jurisdiction.

But the Supreme Court disagreed, stating that:

If a time prescription governing the transfer of adjudicatory authority from one Article III court to another appears in a statute, the limitation is jurisdictional . . . otherwise, the time specification fits within the claim-processing category [and is subject to forfeiture or waiver].

The statute corresponding to Rule 4, 28 U.S.C. § 2107, does not limit the length of an extension. The Supreme Court therefore concluded that the district court could extend the filing deadline.

What happens next is up in the air. The Supreme Court remanded the case. So it now falls to the lower court to decide whether the timeliness objections were forfeited or waived if not properly raised.


Hamer v. Neighborhood Housing Services of Chicago, Case No. 16-658.

#Winter Is Here: Driving an Electric Fiat in the Snow & Other Misadventures

As winter settles in on the east coast, everyone’s question is: “Are you ready for the snow?” We have bundled up in sweaters, gloves, hats as we continue exploring Delaware, our new home state. We thought we were prepared. But as the snow has begun falling, the adventures have started….

Snowblowers, Shovels, and Brine: Oh My!

89305599 - red gas snowblower isolated on whiteWhen we moved into our house, it was empty. Except for the snowblower the former owners left behind with a welcome note before moving to Northern California. It seemed so thoughtful. Now we know better. I have no doubt they didn’t stop laughing until they reached the Rockies, while we are still looking for the instruction manual.

Last week the roads were covered with clear ribbons of – something – glistening in the morning sun. After a little investigating, I learned that de-icing with rock salt only helps in temperatures over 15 degrees. But a salt water brine applied before it snows works immediately and is more effective. I am now practically a de-icing expert.35325164 - fresh beet juice with mint leaf in a glass Did you know, for example, that alternate sources of brine, including agricultural by-products such as beet juice, are also being used in certain states?

And when the first snow arrived, my husband purchased a snow shovel and asked our teenager to clear the driveway. The look we got was something between “Whaaat?” and “Huh?” But to be fair, it’s not just him. I have been barraged with helpful lists of things to carry in my car, and have responded with that same, glazed-over look. Snow scrapers, packable shovels, flashlights, first-aid kits, tool kits, cat litter… What? Cat litter?! Apparently this is a real thing. Traction.

And speaking of traction….

About Car Shaming, Traction, and Snow

You may recall that we brought not one, but two, all-electric Fiat 500e’s to Delaware with us. They are adorable, environmentally friendly, and fun to drive along windy, sun kissed California roads.

Fiat Transport

As we pull up in front of St. Mark’s every morning, flanked by Jeeps and Subarus in various shades of black and grey, our jellybean-colored electric vehicles are… distinctive. We have shrugged off Spencer’s tales of car shaming, however, as parents do. “Character building!” we say. But after running into another St. Mark’s parent this week and watching a light bulb go off – “Oh, you’re the parents of the California kid, the one who comes to school every morning in that weird little car all the kids tease him about!” – perhaps he has a point.

Fiat Snow 2

Anyway. After driving home in the snow last week, I have to finally admit that my cute little Fiat may not be the most weather appropriate vehicle for Delaware. To put it in perspective, the 500e weighs in at 2,900 pounds, delivers 111 horsepower, and comes with virtually traction-free tires designed to minimize friction and maximize range. The Jeep Wrangler, in contrast, weighs in at around 5,000 pounds, has 285 horsepower, and comes in all-wheel drive with optional extreme terrain tires. As I skied my way home along the snow covered Delawarean back roads, my little Fiat performed, well, precisely as you would expect. My tips for driving it in the snow? Don’t.

Arctic Blasts v. Fire Storms: Snow Is the Clear Winner

Even as the occasional arctic blast shakes our house while we research snow tires, this year’s fire storms keep things in perspective. Having experienced the increasing heat, drought, and fire threats in Southern California, I will gladly choose arctic blasts over fire storms.  To put it in perspective, picture a Category 1 hurricane barreling up the coast. Now replace rain with fire. More on that later this week.

Meanwhile, let it snow!


Mette K.

PhaseRx Files Chapter 11: Commitee Formation Meeting Scheduled for December 20 at 11:00 a.m.

Mette K.

Fed Raises Interest Rates (Again): A Christmas Gift for Bankruptcy Professionals?

The Federal Reserve voted Wednesday to raise short-term interest rates for the third time this year. That means the federal funds rate, which helps determine rates for other borrowing, will now hover in a range of 1.25% to 1.5%. Overall, still in historically low territory.

This is the fifth time the Fed has lifted rates since the 2008 financial crisis. And it has signaled it will stay on course next year, with three rate hikes planned in 2018 and two in 2019. Expect a slow climb towards more normal levels of around 3%.

Implications for the Economy… and Restructuring Professionals

Widely hailed as a show of continued optimism about the U.S. economy, interest rate hikes are uniquely celebrated among one group of people.  Bankruptcy and restructuring professionals! Why? Because, although the rate hikes have thus far not caused noticeable pain in the economy, rate hikes tend to moderate economic growth.

That leads me to wonder, how strong is our economy and what impact are the continuing rate hikes likely to have? The Fed cast its decision as a positive sign of worldwide economic momentum as employers keep hiring, consumers keep spending, and inflation remains (oddly) low.  And it noted that the imminent tax bill is a key driver of its own rosy forecast. Although the Fed stopped well short of forecasting the 4% growth Republicans have promised, it expects a more modest, albeit uncertain, 2.5% increase in growth from the tax plan.

“At the moment,” Fed Chair Janet L. Yellen said, “There’s less to lose sleep about now than has been true for quite some time.”


Coming Next: Ask an Economist!

“I think economics is a terrific field,” Yellen said.  Well, so do I!  So when Yellen stated that the Fed’s growth expectations “are in line with the general expectation among most economists that the type of tax changes that are likely to be enacted would tend to provide some modest lift to GDP growth in the coming years,” I decided to run this by the smartest economist I know. Stay tuned for an upcoming blog post on interest rates, the tax bill, and you….

Janet Yellen: Another Crack in the Glass Ceiling

57848617_SI end this post with a fond farewell to Janet Yellen, our outgoing chairperson of the Federal Reserve — the first woman to hold the top spot in the 100-year history of the U.S. central bank, or any major central bank. Asked for any thoughts for women and minorities who see her as a role model, Yellen said she would love to bring in more women and minorities at the central bank and lamented that their numbers in the field of economics is disproportionately and disturbingly low.

In response to her call to action, I volunteer to mentor any young woman (or anyone else!) interested in pursuing an economics degree.  Little known fact: I hold a B.A. in Economics from Trinity University.  A degree with many uses, at the Fed and beyond.

If there is a job that you feel passionate about, do what you can to pursue that job; if there is a purpose about which you are passionate, dedicate yourself to that purpose.

–Janet Yellen

Mette K.

2nd Circuit Reverses Course on Cramdown Interest Rates

A simple proposition—that secured lenders are entitled to receive payments with a present value at least equal to the amount of their claim—has proven surprisingly difficult to apply as courts have pondered whether to follow a “formula approach” or a “market approach” to establish an appropriate “cramdown” interest rate. (A primer is available here if you are new to the debate.)

Secured lenders have scored a significant win in the recent Second Circuit decision in the Momentive case, In re MPM Silicones. Siding with the Sixth Circuit, the Second Circuit has decided that the prevailing market rate for comparable debt should be used—if there is an efficient market for such debt—and that the formula approach should be used only if no efficient market exists.

Market-Rate Schmarket-Rate… What’s the Big Deal?

Theoretically, whether you build up from a base rate and fully adjust for the characteristics of a loan or whether you consider comparable market loans to determine an appropriate interest rate, you should end up at roughly the same place. In reality, however, courts applying a formula approach have approved interests rates that are lower than a market rate approach would support… sometimes absurdly so.

By way of analogy, consider an ordinary real estate valuation. A real estate appraiser will consider different valuation methods—market comparables, replacement cost, and income capitalization.  These three approaches will often provide different values for a property, so an appraiser must reconcile the varying results.  Sometimes differences are minor. But depending on the property and the appraisal’s objective, one of the approaches may be more suitable than the others.

Similarly, in the bankruptcy context, the formula approach and market approach can support different interest rates, and one of the approaches may be more suitable in Chapter 11 than the other. And uncertainty over which approach to apply in Chapter 11, combined with courts’ self-imposed reluctance to impose a risk premium of more than 1-3% under the formula approach, has spawned significant litigation with very real consequences.

The Original Momentive Rulings: The Formula Approach

Momentive, one of the world’s largest producers of silicone products, filed a Chapter 11 bankruptcy case in 2014. At the time, it had two outstanding series of senior lien notes, one in the principal amount of $1.1 billion with an 8.875% interest rate and the other in the principal amount of $250 million with a 10% interest rate. Momentive’s plan proposed, in essence, that these claims would be satisfied with long term replacement notes with a below-market rate of interest based on the “formula” approach, e.g., 4.1% and 4.85%, respectively.  This represented a total reduction of approximately $70 million in the amount of interest payments over the life of the notes.

The lower courts approved this plan, expressing concern that a market rate of interest would “overcompensate” cramdown lenders. Why? Because market rates include transaction costs and profits indicative of new loans. By following the formula approach, the lower courts could disregard these add-ons and felt they could truly “put the creditor in the same economic position that it would have been in had it received the value of its claim immediately.” The decisions also reflected a general tendency to limit risk adjustments to a range of between 1-3%.  The result was the approval of new notes that bore interest rates far below the original issue interest rates and current market rates, and an appeal to the Second Circuit.

The 2nd Circuit Reverses Course: A Market Approach Is Preferred

The Second Circuit rejected the lower courts’ reasoning.  Disregarding available efficient market rates, it stated, would be a major departure from long-standing precedent dictating that the best way to determine value is exposure to an efficient market.

“[W]here, as here, an efficient market may exist that generates an interest rate that is apparently acceptable to sophisticated parties dealing at arms-length, we conclude, consistent with footnote 14 [of Till], that such a rate is preferable to a formula improvised by a court.”

And what is an efficient market?  In keeping with the Fifth Circuit, the Court described it as one where, for example, “they offer a loan with a term, size and collateral comparable to the forced loan contemplated under the cramdown plan.” The Second Circuit suggested that an efficient market might exist for notes similar to the replacement notes at issue in Momentive, but it remanded the question to the Bankruptcy Court to decide.

A Cliffhanger Ending…

Will Judge Drain decide that an efficient market exists on remand?

Judge Drain’s bench ruling suggests he may not, as he noted that “it is highly unlikely that there will ever be an efficient market that does not include a profit element, fees and costs, thereby violating Till’s first principles, since capturing profit, fees and costs is the marketplace lender’s reason for being.”

But the Second Circuit opinion could be read to downplay his concerns, as it approvingly cited the testimony of the first lien noteholders’ expert, who testified that when notes are priced at the market rate noteholders are “being compensated for the underlying risk that they are taking” and not for any “imbedded profit.”

Stay tuned to find out what happens in Episode 4: The Cramdown Rematch.

The Bottom Line

Meanwhile, the Second Circuit’s opinion significantly reduces uncertainty around the application of Till’s formula rate to Chapter 11 cramdown notes in the Second Circuit and appears to be good news for secured creditors, who have been facing threats of cramdown with below-market take-back debt in restructuring negotiations, and a loss for debtors and unsecured creditors who might benefit by extracting value at their expense. Although it is also possible that the two-step approach adopted here could simply shift litigation efforts to focus instead on whether there exists an efficient market in the first instance.

Mette Kurth