Claims and Bad Faith Law Blog

UPDATE: "Fiduciaries Flip-Flop Federal Financing".

    This is an UPDATE to a post here on May 19, 2009.

      In addition to the implications for the exercise of Fiduciary Duties during the Current Collapse, it appears to be a fact as certain as the sun that Mr. Timothy Geithner does not have good negotiation skills.

    Separately and in addition, Mr. Geithner clearly does not have the stomach to negotiate for people making anything less than, say, $500,000 a year.

    TARP borrowers are reportedly taking note.  See Mark Pttman, "TARP Warrants Show Banks May Reap 'Ruthless Bargain' (Update 2)" (Bloomberg.com, Friday, May 22, 2009).

There is a connected post on this update at http://www.insuranceclaimsissues.typepad.com.

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UPDATE on "AIG, the Feds, the Trust and the Trustees: Who?"

This is an update of a post here on April 21, 2009:  "AIG, the Feds, the Trust and the Trustees:  Who?"

The experience base of Trustee Jill Considine has become clearer through this report by Mark Pittman, James Sterngold and Hugh Son, "AIG Trustees Should Answer to Taxpayers, Not Fed, Towns Says" (Bloomberg.com, Wed., May 12, 2009).  Ms. Considine is described in the linked report as "lead director of Ambac Financial Group, Inc., the New York-based bond insurer whose shares have dropped 98 percent from a 2007 peak."

See also www.insuranceclaimsissues.typepad.com, Categories:  "Fiduciary Duties, Market Performance".

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Fiduciaries Flip-Flop Federal Financing.

    At the same time that some Life Insurance Companies have been approved to apply for Federal TARP or Bailout funds, some original recipients of TARP funds want to pay them back early.  There are Fiduciary considerations involved.  The executives, Officers and Directors of these publicly held borrowers likely need to take the interests of the corporations' shareholders into account, and give the interests of the shareholders at least equal consideration with their own.

    To begin with, TARP funds are loaned at lower interest rates than corporations can obtain anywhere else.  "For starters, it's cheap capital."  Antony Currie and Dwight Cass, "Breakviews.com/Shareholders Hurt in Bailout Payback" p. B2, col. 1 (New York Times Nat'l ed., Wed., May 13, 2009).  It is in the best interests of the shareholders for the corporation they own to obtain capital at low interest rates.

    A second negative effect on shareholders besides returning cheap capital is that the value of their holdings is diluted when the corporations they own issue more stock as an alternative way to raise capital to pay back the low-interest Federal loans at this time.  See id.

    On the other hand, there are two rationales advanced in favor of paying TARP funds back at this time:  (1) limits on bonus payments to executives, officers and directors of the borrower and (2) the fear that other, unknown, unspecified limitations might be imposed on TARP loans in the future.  See id.

    Are these reasons enough to require Fiduciaries to pay back low-interest loans that cannot be obtained anywhere else, weighing the interests of the shareholders against the interests of the Fiduciaries, i.e., the executives, officers and directors?

A parallel post is on Insurance Claims and Issues Web Log at www.insuranceclaimsissues.typepad.com.

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Postscript to "Hedge Funds Find Fiduciary Responsibilities, Hold Up Chrysler For Nothing".

    This is a postscript to a May 4, 2009 post.

    The hedge funders in question in Chrysler's Bankruptcy proceeding are now disbanding.  See  Michael J. de la Merced, "Creditors Opposing Chrysler's Overhaul Plan End Alliance" p. B2, col. 1 (New York Times Nat'l Ed., "Business Day" Section, Saturday, May 9, 2009).

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Overwhelmed by Moral Hazard, Court Panel Chides "Bad Faith" Overuse.

        In a new case, a General Contractor-Policyholder argued for Punitive Damages under Indiana law, apparently, based on a claim that its CGL Insurance Company acted in "Bad Faith" -- even after the G.C. lost on its claim of Insurance Coverage, in Download Westfield Insurance Co. v. Sheehan Construction Co. (7th Cir. Opinion Filed April 29, 2009).  The Seventh Circuit panel in this case "cannot refrain from remarking, however, that Sheehan's insistence that it is entitled to punitive damages because Westfield's denial of coverage was 'in bad faith' is the sort of argument that calls into question the bona fides of all other contentions."  Attached slipsheet Opinion at 6.

     Not content alone with delivering that message, the panel added this concluding sentence to its Opinion in that case:

Lawyers should think carefully about the message that their contentions convey to the court, as well as the effect they may have on the other litigants.

Id. at 7.

A parallel post on this case is on Insurance Claims and Issues Web Log at www.insuranceclaimsissues.typepad.com

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Hedge Funds Find Fiduciary Responsibilities, Hold Up Chrysler For Nothing.

    A few hedge funds reportedly held out for more money from the Federal Government or Chrysler could go into Bankruptcy, they bargained.  Chrysler went into Bankruptcy.  Now the hedge funds and their investors will likely end up with less than they bargained for, perhaps with nothing at all.  "There's zero chance this group will be able to get anything more in bankruptcy court, given that 90 percent of the lenders are lined up against them."  Unknown, unidentified "hedge fund manager" who agreed with the Federal Government's proposal to save Chrysler, quoted by Zachery Kouwe, "The Lenders Obama Decided to Blame" p. B1, col. 2 (New York Times Nat'l Ed., "Business Day" Section, Friday, May 1, 2009).  See also Floyd Norris, "High & Low Finance/Why Chrysler's Bondholders Should Stop Whining" (New York Times Online, Saturday, May 2, 2009).

    Why did these hedge funders play chicken with their own investors' money, challenging the Federal Government to cause Bankruptcy proceedings to be instituted with Chrysler's help and with 90% of Chrysler's creditors in agreement with Chrysler and the Federal Government?  The hedge funders may have been afraid of being sued by the investors.  They declared that they had "a fiduciary responsibility to seek the best possible returns for their own investors".  Id.  [Emphasis added.]

    Once an admission is made, it is hard to convince anyone that it was not true.  Admitting that they had "a fiduciary responsibility to seek the best possible returns for their own investors" may have been true.  That would be a starting point.  But is it where everything ended up?

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