Thomas J. Shroyer presentation to Fireman's Fund Claims Professionals, Oct. 25, 2012

1. Managing Claims in
Bankruptcy
Presented by Thomas J Shroyer
Moss & Barnett
to Fireman’s Fund
October 25, 2012

2. Presented by
Thomas J Shroyer
Moss & Barnett

3. Gateway to Claims
 Bankruptcy law gives tremendous power
to Trustees
 Pre-suit discovery under Rule 2004
 Liquidating assets provide unlimited
budget to trustees, legal counsel and
experts
 National service of process/venue
 Private Action Trusts maximize threat to
policy limits

4. Types of Claims
 CPAs: failed audits, tax advice and
preparation
 Lawyers: PPMs, leveraged buyouts,
securities or other client fraud
 Directors: fiduciary duties, securities
fraud, embezzlement
 No limit on any state or federal claim

5. Types of Proceedings
 Receivership compared to Bankruptcy
• Article III v. US Bankruptcy Court
• Receiver usually files bankruptcy petition
• Tied to criminal forfeiture proceedings
 Chapter 7 versus Chapter 11
• Total liquidation versus “work out” or
sale
 Adversary Complaint
• Option for Article III or Bankruptcy Court

6. Typical Pathway to Claim
 Company files bankruptcy petition in
creditor friendly/predictable venue (DE or
SDNY)
 Trustee appointed
 Creditors file claims (including insured?)
 Rule 2004 discovery (no real limit; A/C
privilege)
 Substantive Consolidation of all related
parties
 Liquidation Plan (not C. 11 reorganization)
 Adversary Complaints

7. Procedural Issues
 Venue transfer motion
 Motion to “withdraw the reference” (i.e.,
move case out of US Bankruptcy Court)?
• Return to Article III judge
• Pros/cons
• Jury v. bench trial
 Consolidation of multiple cases?
 Jurisdiction
 Choice of law

8. Legal Defenses
 Trustee “stands in the shoes”
• In pari delicto/ Waggoner Doctrine
 Mixture of federal and state law
 Complex and fact intensive
 Inconsistent application
• Comparative fault
 Contrast to in pari delicto
 PSLRA pleading standards
 Iqbal-Twombley pleading standards
 Aiding and abetting
• Stoneridge (SCOTUS 2008)
 RICO

9. Clawback Claims
 Fraudulent conveyances
 Ponzi profits

10. Loss Causation/Damages Issues
 “Deepening Insolvency”
 Damages models
• Out of pocket
• Benefit of the bargain
 Creditor preferences (secured v.
unsecured)

11. Third Party Practice
 Can Trustee preempt suit v. D & Os?
 Injunction to bar creditors from directly
suing
• Trustee power to control all claims to
get most for all creditors from limited
insurance coverage

12. Private Action Trusts
 The “new kid” in town
 Ultra vires?
 Huge impact on case dynamics
• Too big to defend (or too small to
settle)?
• Convert to class action?

13. Settlement
 Timing issues
 ADR
• Mediation
• Arbitration
 Estate liquidation/recovery
 Bar of third party and creditor claims
 Class action
• Procedures
• Time

14. Q&A
Thanks for listening!