Today we wrap-up our month-long series on Georgia’s Ret. Judge W. Homer Drake, Jr. Click here if you missed the first five posts. In this post, we finally get to Judge Drake’s #1 most cited Chapter 11 confirmation opinion, Metrocraft Publishing, a 37 year old disclosure statement opinion involving Paul Bonapfel before he was Bankruptcy Judge Bonapfel. And if you stick around, we’ve got a bonus paragraph or two about EMD, LLC v. Stabilis Fund II, LLC (2014), a 35 page (!) Till opinion that, while missing inexplicably from Westlaw, might be Judge Drake’s hidden masterpiece on confirmation issues.
As mentioned, Metrocraft is a § 1125 disclosure statement opinion.
You had Richard Herzog (who retired from Nelson Mullins in 2018) for the debtor. Back then, he was with David Bisbee’s firm, which shows-up three times in our Top 10. For the creditor’s committee, you had a 33 year old Paul Bonapfel (before he was Judge Bonapfel). For our non-Georgia readers, Judge Bonapfel is most immediately known for his excellent, self-published, and free of charge Subchapter V Guide. He and Judge Bihary also interviewed Judge Drake for Penn Law’s Oral Histories.
Founded in 1964, Metrocraft was a Decatur, Georgia based “commercial web printing company”—this was 1984, so think web offset printing for newspapers, not the world wide web. It filed its Chapter 11 case in 1983 and filed its plan and accompanying disclosure statement in 1984. The Committee objected to the disclosure statement.
The decision is a straightforward, very case-specific application of § 1125’s disclosure requirements.
First, § 1125(b) prohibits plan solicitation without an approved disclosure statement (“DS”) that contains “adequate information.”
Second, § 1125(a)(1) defines “adequate information” as information that, while considering what is “reasonably practicable” in light of a debtor’s nature, history, and books and records, is sufficiently detailed so as to enable a “hypothetical reasonable investor” (typical of the debtor’s claim and interest holders) to “make an informed judgment about the plan.”
Third, Judge Drake drew from three other opinions to form a list of 19 factors for determining whether a disclosure statement contains adequate information. The list is “not exhaustive” (although it sure seems to be) and which factors a disclosure statement must address depends on the particular debtor. You can our a “Factor Cheat Sheet” here.
Fourth, he was quick to caution against giving Brandon Mill Farms (#6 on our list) “sweeping significance which was not intended by the Court.”
While Judge Drake held that a disclosure statement is “not intended to be a general disclosure in black letter law,” he clarified in Metrocraft that a “statement of ‘black letter law’ that [impacts] the creditors’ distribution or the feasibility of the plan is not immune from disclosure under Brandon Mill Farms.”
Fifth, he took up the Committee’s specific objections. Rather than covering them one-by-one, we’ll extract the important guiding principles:
- Information about asset values is important for gauging plan alternatives;
- The nature of claims and amount of claims are important, especially for pro rata distributions;
- Estimations are appropriate if they are all that is available;
- Discrepancies between the schedules and the DS should be explained;
- Projecting estimated returns in a hypothetical Chapter 7 is essential;
- The DS should attempt to project recoveries from preference/avoidance actions;
- Pending and potential litigation, if any, should be addressed;
- Known debtor tax attributes should be addressed;
- Affiliate connections and claims should be addressed.
Ultimately, Judge Drake gave the debtor 30 days to amend the disclosure statement.
As an aside, we’ve talked much about the attorneys who practiced in front of Judge Drake, but Jeneane Treace (who is now the Assistant United States Trustee in the Northern District of Georgia) was a fixture in Judge Drake’s courtroom for decades and, arguably, knew more about Judge Drake’s day-to-day on the bench than any other attorney in Georgia. I mention that because today, completely out of the blue, she got back to my October request for ideas on decisions to cover. Her feedback was fitting and dead-on: “For starters – Metrocraft.”
The EMD decision is a 35-page Till and plan feasibility opinion from a case we, along with our good friend and financial advisor Richard Gaudet, had with Judge Drake in 2014. You had Ward Stone and me for the debtor. You had race-car-enthusiast-lawyer Ted Hight as local counsel for the creditor, along with Ann Pille out of Reed Smith’s Chicago office and Andrew Manley (as a competing Till expert).
At this late juncture, you’ll run us out of town if we even attempt to summarize EMD. It’s just too much. While I’m fond of EMD because it’s yet another case where Richard made me look smarter than I really am, we’re mainly providing it because the opinion is, for reasons I don’t understand, nowhere to be found on Westlaw. That’s a shame, too.
EMD is a hands-down showcase for Judge Drake and might be his most legally, financially, and economically complex and impressive confirmation opinion. He not only comes full circle with IPC 22 years later, but he also provides a “state of the law” on Till that took him five months to write. There’s still no better place to start on Till. So, “read it if ya need it.”
That concludes our series on Judge Drake.
If six years has taught us anything, then it has taught us that our readers most enjoy reading about people, reading about non-bankruptcy topics disguised as bankruptcy, and, if they have to, a little bankruptcy. Thus, the series was decidedly heavy on biography, trivia, and attorney nostalgia—certainly for our Georgia readers.
You’ll be forgiven, then, if your attention waned a bit as we dove into the more technical confirmation stuff. We at least hope that it will be helpful down the road when a live confirmation research issue sharpens your attention (as billable work tends to do). Even we were surprised by how much of the confirmation waterfront Judge Drake covers in just the Top 10:
- Plan feasibility;
- The absolute priority rule and “new value”;
- The limits of post-confirmation jurisdiction;
- Claim classification and related issues of class gerrymandering and unfair discrimination;
- Claim estimation for confirmation purposes;
- Class impairment and § 1124-related claim treatment;
- Making, withdrawing, and complying with § 1111(b) elections;
- The intersection of “risk-shifting” with the “fair and equitable” requirement;
- Calculating Till and cramdown interest rates;
- The concept of “indubitable equivalent” plan treatment;
- Plan-related valuation issues; and
- § 1125’s disclosure statement requirements.
Finally, for one last bit of trivia, we showed you yesterday Judge Drake’s “last office” on Greenville Street in Newnan, Georgia. It’s only fitting then, for this Macon-based blog, to leave you with the backside view of Judge Drake’s second law office when he was at “Hasty & Drake” here in Macon in the 1960s, as it stands today (building-sized, Mercer-approved mural and all).
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