The United States Court of Appeals for the Fifth Circuit has recently held that the Absolute Priority Rule still applies to individual Chapter 11 bankruptcy debtors.  In re Lively, 2013 Westlaw 2347045, 2013 U.S. App. LEXIS 10839 (5th Cir. 2013); affirming In re Lively, 466 B.R. 897 (Bankr. S.D. Tex. 2011)(Isgur, J.).

What is the Absolute Priority Rule?

The Absolute Priority Rule provides that a Chapter 11 plan is “fair and equitable” regarding a dissenting class of unsecured claims if the plan provides that each holder of a claim in such class is effectively paid in full, or failing that, that no holder of any claim or interest that is junior to the dissenting class will retain any property under the plan.  This applies in the so-called “cram-down” scenarios in which a class of unsecured creditors has voted to reject a Chapter 11 plan.

Why is this case significant?

In the 2005 amendments to the Bankruptcy Code, under what is generally known as BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act), new provisions regarding individual Chapter 11 cases were added, which led some courts and commentators to believe that the Absolute Priority Rule may no longer apply to individual debtors in Chapter 11.  Many courts have struggled with this new language since 2005.

The Lively case.

In Lively, the debtor filed a plan under which he would retain all of his non-exempt property, while paying unsecured creditors a small dividend.  The dividend exceeded the liquidation value of his asset (thus, satisfying the “best interest of creditors test”).  No objections were filed by any creditor, but the unsecured creditor class voted to reject the plan.

This left the bankruptcy court in a position where it would have to determine whether to apply the Absolute Priority Rule, in which event, Lively’s plan could not be confirmed.

The court reviewed the BAPCPA amendments to Sections 1129(b)(2)(B) and 1115(a) of the Code.  Section 1129(b)(2)(B) is the cramdown provision, which now includes BAPCPA amendments providing that an individual Chapter 11 debtor may retain property included in the estate under (newly amended) Section 1115 if certain requirements are met.  The property included under Section 1115 now includes property acquired by the debtor post-petition, including earnings from services rendered post-petition.

The Fifth Circuit applied a “narrow” interpretation of the amendments, which was to the effect that the Absolute Priority Rule exception provided in BAPCPA covered only the post-petition earnings and post-petition acquired property under Section 1115.

The Fifth Circuit reasoned that any broader application would in effect result in a repeal of the Absolute Priority Rule for individual debtors.  Under its construction, repeal of a statute of this nature is “disfavored and will not be presumed unless the legislature’s intent is ‘clear and manifest.’”  The court further noted that the Absolute Priority Rule “has been a cornerstone of equitable distribution for Chapter 11 creditors for over a century.”  Thus, the Fifth Circuit was reluctant effectively to repeal such an important provision by implication.

What Do Other Courts Say?

The Fifth Circuit’s decision in Lively affirmed the holding of Judge Marvin Isgur of the Southern District.  See, In re Lively, 466, B.R., 897 (Bankr. S.D. Tex. 2011).  It is also consistent with a recent ruling out of the Court of Appeals for the Fourth Circuit in In re Maharaj, 681 F.3d 558 (4th Cir. 2012).  The Fourth Circuit also adopted a broad view of the BAPCPA amendments, also reasoning that had Congress intended to affect a repeal of the Absolute Priority Rule, it would have done so expressly.  Id.  See also, In re Stephens, 704 F.3d 1274 (10th Cir. 2013); In re Texas Star Refreshments, 2013 Bankr. LEXIS 1098 (Bankr. N.D. Tex. 2013)(Jones, J.)(“the better reasoned cases… conclude the absolute priority rule has not been abrogated.”).

To Whom Does This Apply?

This ruling is only important in the context of Chapter 11 cases filed by individual debtors.  These amendments do not affect Chapter 11s filed by corporate entities.  The vast majority of individual debtors will continue to seek relief under Chapters 7 or 13, but because Chapter 13 contains statutory limits in terms of a maximum amount of secured and unsecured debt, individuals with a higher debt load who seek of reorganization will seek relief under Chapter 11.

In theory, under BAPCPA, Chapter 11 now takes on certain characteristics of Chapter 13, but unlike Chapter 13, creditors in Chapter 11 cases have the opportunity to vote on the plan, by class, which in turn implicates the Absolute Priority Rule when a class votes to reject a plan.

For a printable version of this article, please click here.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.

*Roger Cox, a shareholder with the Underwood Law Firm, is Board Certified in Business Bankruptcy Law, Commercial Real Estate Law, and Farm & Ranch Real Estate Law by the Texas Board of Legal Specialization and a member of the American Bankruptcy Institute.  Mr. Cox is a co-author of Bankruptcy Road Map, and a former contributor to the SMU Law Review.  This article is for general information only and is not intended as legal advice or as a specific position asserted on behalf of any existing or future client of the firm.

The guidance covers topics such as: when an employer may obtain medical information from applicants and employees; what types of reasonable accommodations are necessary for such individuals; how an employer should handle safety concerns; and what an employer should do to prevent and correct disability-based harassment.

The cancer publication is available here: http://www.eeoc.gov/laws/types/cancer.cfm

The diabetes publication is available here: http://www.eeoc.gov/laws/types/diabetes.cfm

The epilepsy publication is available here: http://www.eeoc.gov/laws/types/epilepsy.cfm

The intellectual disabilities publication is available here: http://www.eeoc.gov/laws/types/intellectual_disabilities.cfm

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.

In addition to removing language that is no longer accurate or relevant, the revised notice adds language that primarily relates to health care reform and to the new coverage that will be available through the Health Insurance Marketplace beginning in 2014.  For example, the added language informs qualified beneficiaries of the following:

• Alternatives to COBRA coverage will be available through the Marketplace.
• In the Marketplace, qualified beneficiaries could be eligible for a new kind of tax credit that lowers their monthly premiums right away, and they can see what their premium, deductibles, and out-of-pocket costs will be before they make a decision to enroll.
• Being eligible for COBRA does not limit a qualified beneficiary’s eligibility for coverage for a tax credit through the Marketplace.
• Qualified beneficiaries may qualify for a special enrollment opportunity for another group health plan for which they are eligible (such as a spouse’s plan), even if the plan generally does not accept late enrollees, if they request enrollment within 30 days.
• There are limitations on plans’ ability to impose preexisting condition exclusions, and such exclusions will become prohibited beginning in 2014 under the Affordable Care Act.

The DOL explains on its website that, while use of its model election notice is not mandatory, such use, when appropriately completed, will be considered by the Department of Labor to be good faith compliance with the election notice content requirements of COBRA.  Employers, plan sponsors, program administrators, and advisors should therefore familiarize themselves with the revised model election notice and adapt their own notices accordingly.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.

The Texas UTSA prohibits the unauthorized acquisition, disclosure and use of trade secrets. The Texas UTSA provides a broad definition of a “trade secret,” including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or suppliers, that:

• Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
• Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

However, the Texas UTSA allows authorized reverse engineering.

The new law provides that there is a presumption in favor of granting protective orders, including orders to protected “threatened” misappropriation, to preserve the secrecy of trade secret information. The law also allows injunctions to survive the life of the trade secret, allowing an additional reasonable period of time to eliminate any commercial advantage that otherwise would result from the misappropriation.

In addition to injunctive relief, claimants under the new law can seek damages for the actual loss caused by the misappropriation, unjust enrichment, and an imposed royalty for unauthorized disclosure or use. Exemplary damages and attorneys’ fees are available for the willful and malicious misappropriation of trade secrets. Attorneys’ fees are also available if a claim of trade secret misappropriation is made in bad faith.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.

Dr. Scott Sticksel, Psy.D, a business succession expert and co-founder of The BridgeWorks Group, LLC, began by offering insight as to what questions business owners should be asking themselves now in order to properly prepare for the future of their business.

D. Chris Harkins, of the Underwood Law Firm, discussed the probate side of business succession planning by emphasizing the importance of planning for the unexpected through certain estate planning tools.

John Atkins, also of the Underwood Law Firm, discussed some of the different aspects of formulating a business succession plan. He described the different methods a business can utilize to protect its survival through bylaws and how shareholders can gift their ownership to the next generation. Essentially, he advises business leaders to do their due diligence to ensure they are ready for the expected and the unexpected.

Brown, Graham & Company, P.C. had several accountants and consultants providing tax and financial advice. Among them was President Ed Nichols who discussed how small family businesses should evaluate which family member(s) are best suited to run the business. Retaining a professional succession advisor is key to ensuring the path of the company will continue on to success while keeping family values intact. Create a succession team including family members along with attorneys, bankers, and accountants to achieve the optimum success!

William Ware, Vice President of Amarillo National Bank, showcased expertise five generations of bank ownership can provide in relation to succession planning.

Overall, this group provided an excellent program to motivate businesses to get on track to establish a foundation for a succession plan that can protect their businesses during transfers of ownership.

For questions or comments, please contact D. Chris Harkins, John Atkins or Tom Knapp.

• Underwood Lawyers – providing estate planning, business transaction, and corporate guidance
• Brown Graham & Co. Accountants – providing tax and financial advice
• ANB Bankers – sources of credit and the inside knowledge that 5 generations of bank ownership provides
• Scott Sticksel, Business Succession Expert – Scott will be on hand lending his immense knowledge and expertise

This group of experts will focus on the top questions business owners wish they would have asked years before they had to or wanted to transition ownership of their small or family business.

Planning for the future is key in any business operation, and as Ben Franklin put it, an ounce of prevention is worth a pound of cure.

Please join us for happy hour following the seminar, courtesy of the Amarillo National Bank. 

ANB Plaza 1, 16^th floor

Tuesday, May 7, 2013 from 1:15 pm to 5:30 pm

To register online for this complimentary Seminar, click here

Thanks to our seminar sponsors:

Are Guns Allowed on School Campuses by Law?

Any examination of this topic must begin with the question, “Are guns allowed on school campuses?”  The general answer to that question is, “No, they are not.”  Like in the case of many legal prohibitions, however, there are exceptions to this general prohibition against firearms in and around schools.  There are two primary statutes that address firearms on school grounds.  One of the statutes is a federal law, and the other one is a state law.  The federal statute, 18 U.S.C. § 921, also known as “The Gun Free Schools Act,” states the following:

“It shall be unlawful for any individual knowingly to possess a firearm that has moved in or that otherwise affects interstate or foreign commerce at a place the individual knows, or has reasonable cause to believe, is a school zone.”

The Gun Free Schools Act defines a “school zone” as an area that is in, or on the grounds of, or within 1,000 feet from the grounds of a public, parochial or private school.”[1]  The Act, of course, provides several exemptions to this general prohibition against carrying firearms in a school zone, including the following:

“if the individual possessing the firearm is licensed to do so by the State in which the school zone is located or a political subdivision of the State, and the law of the State or political subdivision requires that, before an individual obtains such a license, the law enforcement authorities of the State or political subdivision verify that the individual is qualified under law to receive the license.”[2]

Thus, if an educator is properly licensed by the state of Texas to carry a concealed firearm, it is not a violation of the federal law for that individual to carry the weapon within the “school zone,” however; there are state laws that must be navigated as well before a properly licensed concealed handgun carrier may bring a firearm into a Texas school building.

The primary state statute prohibiting concealed handgun license holders from bringing their firearms on school grounds is Texas Penal Code § 46.03.  Specifically, Texas Penal Code § 46.03(a)(1) makes it a criminal offense for  person to intentionally, knowingly, or recklessly possess or go with a firearm on the premises of a school or any school grounds or building where a school activity where a school activity is taking place, unless pursuant to written regulations or written authorization of the institution.  The statute further states that it is not a defense to prosecution under the statute that the actor was licensed to carry a concealed handgun.[3] Moreover, for purposes of the prohibition, the term “premises” in the statute means “a building or portion of a building,” but it specifically excludes any public or private driveway, street, sidewalk or walkway, parking lot, parking garage, or other parking area.[4] Therefore, a concealed handgun holder may store his or her weapon in a locked vehicle in the parking lot of the school, unless they are a school employee and the school district has specifically prohibited them from doing so, which a school district is permitted to do to its employees under Texas law.[5]

Similarly to the federal law prohibition against bringing firearms into a school zone, Texas state law also provides an exception to the prohibition against bringing firearms onto school premises.  That exception states that a person may bring a firearm onto school premises “pursuant to written regulations or written authorization of the institution.”  Thus, if a school district wanted to permit certain employees who were properly licensed by the state of Texas to carry concealed firearms in its buildings, it could do so through written regulations or through written authorization of the school district.

Having first determined that an exception to the federal Gun Free Schools Act allows properly licensed concealed handgun carriers to bring their firearms into a school zone, and, secondly, determined that an exception to the state of Texas Penal Code prohibition against bringing a firearm onto school premises allows individuals to bring firearms into school buildings if they are doing so in accordance with the written regulations or authorization of the school, the next analysis for schools wanting to allow firearms on their campuses is to examine how the written regulation or authorization allowing the practice should be accomplished.

What Written Measures Should be Taken?

The two school board policies addressing firearms on school premises are GKA(LOCAL),  COMMUNITY RELATIONS – CONDUCT ON SCHOOL PROPERTY, and CKC(LOCAL), SAFETY PROGRAM/RISK MANAGEMENT – EMERGENCY PLANS.  A district’s GKA(LOCAL) policy typically states the following

WEAPONS PROHIBITED:   The District prohibits the use, possession, or display of any firearm, illegal knife, club, or prohibited weapon, as defined at FNCG, on all District property at all times.

EXCEPTION:   No violation of this policy occurs when the use, possession, or display of an otherwise prohibited weapon takes place as part of a District-approved activity supervised by proper authorities.

Should a school district opt to allow certain properly licensed employees to carry their concealed weapons on school premises, policy GKA(LOCAL) will need to be amended to add to the listed “exceptions” at least one, if not two, additional exceptions.  The first additional exception should be a reference to those employees who are authorized in writing to carry weapons under policy CKC(LOCAL), and a possible second exception would be to specifically allow employees who are concealed carry license holders to store their weapons in their locked vehicles in the parking lots of the schools.

The modifications to the CKC(LOCAL) policy would be far more extensive than those made to the GKA(LOCAL) policy.  In the CKC(LOCAL) policy, the school district’s overall program should be generally outlined for implementation by the administration.  Those modifications should include, at a minimum, adding language to the policy as follows:

• That the Board will, from time to time, authorize, in writing, specific employees who may carry concealed weapons on school premises, upon certification by the superintendent that they have completed district training requirements that are in addition to their basic concealed carry license training requirements;
• That participation in such a program is strictly voluntary on the part of the employee and is not a requirement for any particular position;
• That those employees who are licensed by the state to carry concealed handguns but are not authorized in writing to do      so on school premises by the school board may not possess them on school grounds, except as provided for in GKA(LOCAL); and
• That the superintendent may withdraw the board’s authorization from an employee at any time and at his or her sole      discretion.

In addition to the modifications to policies GKA(LOCAL) and CKC(LOCAL), a school district contemplating allowing certain employees to carry firearms on school premises needs to develop a written document, for board adoption, that identifies the individual employee or employees authorized to do so under the program. That written document should likely be in the form of a resolution and should be protected as confidential as much as legally possible.

School board deliberations about the identity of who should be permitted to carry firearms may be discussed in closed session under Texas Open Meetings Act section 551.076, which states, “This chapter does not require a governmental body to conduct an open meeting to deliberate the deployment, or specific occasions for implementation, of security personnel or devices.”[6]  Arguably, the “personnel exception” to the Open Meeting Act may also permit the deliberation in closed session.  That exception to the requirement that all deliberations of a quorum of a governmental body occur in open session states, “This chapter does not require a governmental body to conduct an open meeting to deliberate the appointment, employment, evaluation, reassignment, duties, discipline, or dismissal of a public officer or employee.”[7] Action by the board, however, to adopt the resolution must occur in open session.

The final two documents that should be included in a program that allows properly licensed and trained employees to carry firearms on school grounds are: (1) the regulation that set forth the additional training requirements; and (2) protocol for those employees to follow when they carry, store, and exhibit the weapon.  The regulation setting forth the training requirements should be developed in consultation with law enforcement personnel in order to incorporate their input regarding what types of trainings would best equip a non-law enforcement person to engage an armed intruder in a potentially crowded environment and to prepare that person for the physical and psychological effects of such an encounter.

Development of the written protocol will need to be tailored to the exact purposes of the district.  Some districts may be comfortable granting a great deal of discretion to the identified employees who are carrying firearms, other districts may want to limit the circumstances under which the employee may use their weapon.  The use of deadly force by a school district employee will inevitably lead to inquiries by several authorities, including law enforcement authorities, concerning exactly how and why such deadly force was used.  Legal action by persons affected by the use of deadly force will also likely be an inevitable result of its use.  Therefore, much thought and follow-through should be given to the development and maintenance of the protocol.  Matters such as what type of weapons are acceptable, how the weapons are obtained, what kind of ammunition is used, and what type of holsters, e.g., locking holsters versus non-locking holsters, are permissible while the employee is carrying on school premises, and under what sorts of circumstances may an authorized employee use deadly force are starting points for items to be described in the protocol document.

Conclusion

The development of policies and regulations permitting specific employees to carry concealed weapons on school grounds is one viable option to actively attempt to avoid the type of tragedy that occurred at Sandy Hook Elementary School.  This option, however, should be exercised very carefully and deliberately.  Districts contemplating such preventative measures are well advised to do so in close consultation with their legal counsel.  If you would like to discuss this topic further, Underwood lawyers are prepared to assist you in navigating the legal issues that must be addressed in this extremely important matter.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.