New Benefits for Those in Financial Difficulty: The Small Business Reorganization Act of 2019

If you own a small business (defined as one owing less than $2,725,625 in total debt) and are in or nearing financial difficulties, you should contact your attorney to learn more about The Small Business Reorganization Act of 2019 (the Act).

Effective in February 2020, this new addition to Chapter 11 of the U.S. Bankruptcy Code provides the benefits of a traditional Chapter 11 case, but with fewer burdens and more flexibility.

For instance:

• There will be no creditors’ committee to deal with (unless the court orders otherwise).
• A trustee will be appointed instead. This may be a mixed benefit.
  • On one hand, a good trustee might be able to help keep the case moving, negotiate a consensual plan of reorganization, object to claims, and take other burdens off the debtor.
  • On the other hand, a bad trustee might misuse his/her powers and make things worse for the debtor.
  • In either case, the debtor will pay the trustee on a percentage basis, generally under 5% of debtor’s quarterly revenues.
• A status conference must be held within 60 days after the commencement of the case to further a prompt and economical resolution of the various issues involved.
• No disclosure statement will be required, saving both time and attorney fees in the process.
• Only the debtor may file a plan; creditors may not.
• It is somewhat easier to “cram down” the terms of the plan on objecting creditors.
• The Absolute Priority Rule is essentially eliminated, making it easier for owners to retain their ownership in the debtor.
• Confirmation standards are relaxed, making it easier to get your reorganization approved.

Another beneficial feature is that proceeding under this new act is discretionary – debtors will be able to choose either to proceed under the Act or under the existing small business provisions of the code, whichever is in their own best interests.

This is a great step in the ongoing evolution of the Bankruptcy Code, making it easier and more efficient for small business debtors to reorganize their debts under the protections provided by federal law.

The new statute provides a bit of good news for creditors as well. For those of you who have been required to return a preferential transfer, you’ll be glad to know that

1. Preference claims up to $25,000 must be litigated where you are, not where the debtor is;
2. Debtors are required to use reasonable due diligence before making a preference demand, including a consideration of the party’s reasonably knowable affirmative defenses.

In other words, the practice of suing any creditor who received money from the debtor just to see what’s out there and then putting the creditor to the work of defending is at an end. The debtor is now tasked with doing its own homework – a change which the business community has long felt was overdue.

Posted by Attorney A. Thomas DeWoskin. DeWoskin practices in the areas of bankruptcy, creditor’s rights, and commercial law. He represents creditors, as well as business debtors, and individuals, with difficult or unusual financial situations. DeWoskin served as a bankruptcy trustee in the Eastern District of Missouri for more than 35 years. 

Freight Brokers Granted Some Limitations to Plaintiffs’ Vicarious Liability and Negligence Theories

Since the Sperl v. C.H. Robinson Worldwide, Inc. decision in 2011, freight brokers have been battling vicarious liability claims for the actions of motor carriers and their truck drivers.

In Sperl, truck driver DeAn Henry was involved in a multi-vehicle collision, resulting in several deaths. Henry owned the tractor she was driving and leased it to Dragonfly, a motor carrier. When the collision occurred, she was delivering a load for CHR, a freight broker. Dragonfly and CHR entered into a contract carrier agreement, which described the relationship between the parties as follows:

“The parties understand and agree that the relationship of [Dragonfly] to [CHR] hereunder is solely that of an independent contract and that [Dragonfly] shall and does, employ, retain or lease on its own behalf all persons operating motor vehicles transporting commodities under this Contract.”

Nonetheless, Dragonfly gave Henry permission to use its carrier authority to book and deliver loads on her own. If Henry booked a load, she would be permitted to keep all the profit. If Dragonfly dispatched Henry, Dragonfly would be entitled to five percent. Suit was filed against CHR, among other defendants, for wrongful deaths and personal injuries.

trucking on scenic highway, sunset and clouds

At trial, Henry testified that Dragonfly did not dispatch her for the load she was transporting for CHR when the collision occurred, but instead Henry called CHR and requested the load herself.  Evidence revealed that CHR required Henry to have a refrigerated trailer of a specified length and CHR dictated special instructions concerning the load, including requirements that she pick up the load at a specified time, make daily check calls, and stay in constant communication with the CHR dispatchers. If Henry did not comply with the special instructions, she was subject to CHR’s system of fines.

At the close of trial, CHR moved for a directed verdict as to the agency issue, which was denied. The jury concluded that CHR was vicariously liable based on agency and entered judgment in favor of the plaintiffs in the amount of $23.8 million. The trial court denied CHR’s motion for a judgment notwithstanding the verdict and motion for new trial. Continue reading »

To Discipline or Not to Discipline: What to Do With Illinois’ New Pot Law?

Authored by Ruth A. Binger with assistance from Mackenzie N. Allan

Employers in Illinois will face a conundrum come January 1, 2020. Illinois legislature recently passed some of the most expansive marijuana laws that the United States has seen to date. The Cannabis Regulation and Tax Act (the “Act”) legalizes marijuana, making it a “lawful product” under the Illinois Right to Privacy in the Workplace Act which prohibits discrimination against employees for using lawful products. It raises the question of when disciplining an employee for marijuana use is acceptable compared to when the discipline may cross the line into prohibited discrimination.

The Act explicitly grants employers the right to maintain a drug-free workplace. Section 10-50 states in part:

• Employers may adopt reasonable zero tolerance or drug free workplace policies (the Act allows employers to define the extent of the “workplace” while providing guidelines of what shall standardly be considered part of the workplace).
• Employers are not required to allow an employee to use marijuana at work or while on call (the Act defines “on call” as when an employee is scheduled with at least 24 hours’ notice to be on standby or otherwise responsible for performing work-related tasks).
• Employers may adopt employment policies concerning drug testing, smoking, consumption, storage, or use of cannabis in the workplace or while on call. These employment policies may not be applied in a way that discriminates against employees for their use of marijuana outside the workplace.
• Employers may discipline their employees for using marijuana at work, possessing marijuana at work, or being under the influence of marijuana at work.

Continue reading »

Re-evaluating Standards for Admissibility of Photographs of Vehicular Collisions

Authored by Laura Gerdes Long with assistance from Mackenzie N. Allan

In Illinois, historically, two predominating schools of thought regarding the admissibility of photographs of vehicular collisions have existed. The first school of thought, Baraniak v. Krauby, holds that when using photos to correlate vehicular damage to injuries, expert testimony is always necessary. The second school of thought, Fronabarger v. Burns, holds that vehicular collision photographs are admissible if the jury can properly relate the vehicular damage depicted in the photos to the injuries without the aid of an expert. In 2008, the Fronabarger court declined to follow the rigid rule from Baraniak.

In the 2019 case of Peach v. McGovern, the 5^th Circuit Court of Appeals in Illinois addressed this contentious issue once again. Here, the plaintiff and the defendant were involved in a car accident where the defendant rear-ended the plaintiff. The defendant claims that she was at a full stop behind the plaintiff, and she rolled into the plaintiff, “tapping” his truck, when she accidentally let her foot off the brake. The plaintiff contends that the defendant “plowed” into him at a speed of 20-30 miles per hour. After the accident, the plaintiff began experiencing severe neck issues, incurring over $23,000 in medical expenses.

At trial, plaintiff presented his pain management specialist as an expert witness, who opined that the plaintiff’s neck injuries were consistent with having been rear-ended in a motor vehicle collision, and even a very low speed collision could have caused this damage. Though the plaintiff had a degenerative disc condition, the expert testified that the plaintiff’s injuries were consistent with a sudden impact rather than the degenerative condition. The defendant did not present any expert witnesses, instead using the photographs depicting minimal damage to both vehicles in her closing arguments to argue that the plaintiff exaggerated the impact of the collision in order to relate his injuries to the collision. Continue reading »

#SocialMediaAsEvidence

Authored by Laura Gerdes Long with assistance from Jessica A. Gottsacker

Social media has officially taken over our lives. The statistics only confirm this fact. There are 2.3 billion active social media users across the world. Any given internet user has an average of five social media accounts. Facebook has over 1.71 billion users, YouTube has over 1 billion users, and WhatsApp has 900 million users. Every day, there are 60 billion messages sent through Facebook messenger and Whats-App. Three hundred hours of videos are uploaded on YouTube every minute. Snapchat users watch 6 billion videos on average a day.

It is clear that an individual’s accounts contain a plethora of intimate, personal details meant to be shared exclusively with friends or a fan base. But this begs the question, with this personal nature of social media, what can be excluded from court? The answer: potentially none of it. Continue reading »

UPDATE: Salaries Speak Louder than Words

co-authored by Katherine M. Flett and Jessica A. Gottsacker

Equal Pay Day was celebrated this month on April 2, 2019. This date symbolizes how far into the year women must work to earn what men earned in the previous year. Thankfully, this date is not stationary. In fact, the date occurs seventeen days earlier than it did in 2005. While there is a lot to celebrate with that achievement, there is still a long way to go to completely close the gender wage gap.

In fact, the Supreme Court recently faced the opportunity to potentially close this wage gap even further when it granted cert to Rizo v. Yovino. See Katherine Flett’s blog post titled “Salaries Speak Louder than Words” for more discussion on the case. In Rizo, the Ninth Circuit sitting en banc found that the use of salary history to establish a starting salary violated the Equal Pay Act, as it perpetuated the discriminatory nature of women historically being underpaid in almost all sectors of employment. Thus, reliance on prior pay could no longer be considered as an affirmative defense under the Act’s fourth catchall exception, “any other factor other than sex.” Continue reading »

Mandatory Arbitration in the Transportation Industry Takes a Blow from The United States Supreme Court

New Prime, Inc. v. Oliveira

On January 15, 2019, the United States Supreme Court ruled unanimously in favor of Dominic Oliveira, a purported Independent Contracted driver (“owner-operator”) for New Prime, Inc., an interstate trucking company, holding that Oliveira’s dispute need not be compelled to arbitration.

The case hinged largely on the Federal Arbitration Act (FAA), a 1926 law that requires courts to move cases involving interstate commerce disputes to arbitration.  However, the FAA includes an exception in Section 1 for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Oliveira filed a class action lawsuit, alleging that New Prime deprived its driver of legal wages.  New Prime sought to resolve the dispute via arbitration pursuant to Oliveira’s owner-operator agreement, which included a mandatory arbitration provision.

The first issue that the Court considered was whether a court or an arbitrator should decide whether the Section 1 exception applied.  In a unanimous opinion written by Justice Neil Gorsuch, the Court held that “a court should decide for itself whether Section 1’s ‘contracts of employment’ exclusion applies before ordering arbitration. After all, to invoke its statutory powers . . . to stay litigation and compel arbitration according to a contract’s terms, a court must first know whether the contract itself falls within or beyond the boundaries of §§1 and 2 [of the FAA].” Continue reading »

Favorable Changes to 065 Agreements in Missouri Apply Prospectively Only

The Court of Appeals of Missouri’s Western District has issued an opinion holding that the recent amendment to Section 537.065 RSMo. may not be applied retrospectively, under the Missouri Constitution.  The Court of Appeals held in Desai v. Seneca Specialty Ins. Co., 2018 WL 3232697 (not released for publication as subject to motion for rehearing or transfer, etc.) that the trial court’s judgment should be affirmed in which the insurance company’s motion to intervene and motion for relief from judgment were denied.  The insurance company had argued that Section 537.065, as amended effective August 28, 2017, required that it should have received notice of a “065” agreement and the opportunity to intervene as a matter of right.

Continue reading »

Troubling Practices by Hospitals for Patients’ Access to Medical Records Uncovered

A new study published in JAMA Network Open and conducted by Yale University School of Medicine found troubling practices at U.S. hospitals relating to patients’ access to and provision of patients’ own medical records.  HIPAA’s Privacy Rule absolutely requires access to a medical record when properly requested under two circumstances:  (1) to the patient; and (2) to the Secretary of the Department of Health and Human Services.  Further, the patient must be provided records in his or her preferred format and for a reasonable processing fee.  Shockingly, only 53 percent of the hospitals surveyed provide patients an option to obtain their own medical records.  (Eighty-three top-ranked U.S. hospitals in 29 states were surveyed.)

Continue reading »

#MeToo Movement Spurs a 50 Percent Increase in EEOC Sexual Harassment Lawsuits

It comes as no surprise that one year after the rise of the #MeToo movement, more women are not just speaking up about sexual harassment in the workplace, but they are taking action in the courthouse.

According to a recent Equal Employment Opportunity Commission (EEOC) press release, the EEOC has already filed 66 harassment lawsuits in 2018, including 41 specifically citing sexual harassment – a 50 percent increase over 2017.

The EEOC also reported that it recovered almost $70 million for the victims of sexual harassment through administrative enforcement and litigation in 2018, up from $47.5 million in 2017. Interestingly, the overall number of discrimination charges are down, but charges for sexual harassment are up.

Victoria Lipnic, acting chair of the agency, commented during an interview with The Washington Post that she believe the increase is a result of the #MeToo movement, saying “This stuff happens everywhere. If you don’t address it in your workplace, you could find yourself on the receiving end of a federal enforcement [action].” Continue reading »