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Jay Indyke is a partner in Cooley LLP's New York office and chairman of the firm's bankruptcy and restructuring practice group. He has been a partner since 1998 at Kronish Lieb Weiner & Hellman LLP, which merged into Cooley LLP in 2006.
Indyke's practice is concentrated in the area of creditor's rights and bankruptcy. He has represented official creditors' committees in Chapter 11 bankruptcy proceedings in over 40 states and has also represented unofficial creditors' committees in out of court workouts and composition agreements in many industries, including apparel, media, sporting goods, electronics, textiles, clean technology and footwear, among others. He has represented debtors in Chapter 11 cases in the areas of international trading, internet, cable and telecommunications and the restaurant industry. He has represented purchasers of significant assets in several different industries. Indyke has also represented clients in a variety of bankruptcy-related litigation, and has played a role in the representation of equity committees.
Q: What is the most challenging case you have worked on and what made it challenging?
A: I would have to say one of my most recent cases, representing the creditors committee in Mervyns, was the most challenging case of my career thus far. In 2004, Mervyns, a West Coast-based department store, was acquired from Target by several significant private equity firms for approximately $1.2 billion. In the blink of an eye, much of Mervyns' valuable real estate was spun off into separate vehicles, thus, separating the retailer from its real estate for no consideration. In addition, rents on properties were raised. In July 2008, Mervyns filed for Chapter 11.
When Cooley was retained to represent the committee in August of that year, we realized that we had less than a month to have litigation commenced concerning the so-called "2004 Transaction" as the applicable statute of limitations was running. Representing the committee, we took actions that essentially compelled the debtor to commence the litigation before expiration of the deadline, and we eventually took over the litigation for the benefit of the estate.
The amended complaint was over 100 pages with 27 counts focusing on actual and constructive fraud, breach of fiduciary duty, and related claims. The litigation was hotly contested for four years. The litigation was extremely complex, and, in fact, it took quite some time to develop and understand the setup of the 2004 transaction. Despite all the challenges, we survived a critical motion to dismiss at the relatively early stages of the case.
One of the key issues that we faced from an estate perspective was that the failure of Mervyns to be able to reorganize, left the company with substantial administrative claims, as well as unsecured claims. After Mervyns' key assets were sold, the estate was administratively insolvent by close to $100 million and owed approximately $400 million to its unsecured creditors, excluding the substantial claims filed by a great number of the defendant entities. We also faced challenges in managing the budget for the very expensive litigation versus very well-funded defendants.
Eventually, we received permission from the committee and the court's approval, over significant opposition primarily by the defendants, to go on a partial contingency basis in order to be able to proceed without the estate having a "gun to its head" on the cost factor. From our perspective, the move to the partial contingency fee and court approval was the impetus to push the defendants towards making a serious settlement proposal. Following a failed mediation and the commencement of depositions, the parties eventually entered into negotiations and settled the matter after more than four years of litigation. As a result, the estate received significant sums, hundreds of millions of claims were expunged, and the estate went from administrative insolvency to administrative solvency with a plan poised to be confirmed, providing a material return for unsecured creditors.
Q: What aspects of your practice area are in need of reform and why?
A: One of the biggest challenges that bankruptcy attorneys face, from my perspective — and, likely, those of the broader community — is that of secured lenders increasing control over the bankruptcy process, and the accelerated timelines that we are seeing for the major events in the case. This usually results in a quick sale or loan-to-own plan. This process does not provide the estate with the highest value, and it certainly does not allow for sufficient time to help reorganize companies in the traditional sense; it leaves lower-ranking creditors with next to no value. We see budgets that debtors are compelled to enter into, that get you through little more than a sale process with no budget available for doing more than satisfying secured debt. This is not what Chapter 11 was designed to be. We need to see pushback on accelerated sales timelines.
Q: What is an important issue or case relevant to your practice area and why?
A: Here at Cooley, we have been closely following the courts' interpretations of the application of section 546 (e) of the Bankruptcy Code, which is a safe harbor provision for so-called "settlement payments." This is very important in the context of considering potential litigation for fraudulent transfers and related litigation. Cooley was pleased to be involved in two important court decisions involving the safe harbor provision, most recently in the Orchard Brands matter. In this case, a district court in the Third Circuit held, in denying a motion to dismiss, that dividends made to investors on a dividend recap transaction were not settlement payments since there was no exchange of value, and also that each individual transfer, as part of a transaction, should be considered independently for purposes of safe harbor protection.
Q: Outside your own firm, name an attorney in your field who has impressed you and explain why.
A: There are several impressive individuals who come to mind. Actually, to name just one, I would have to say Jim Grudus, who is chief creditors rights counsel at AT&T. Jim has served on several committees that I have been involved with and is very astute — very active in his involvement. He is excellent in protecting his own business's interests but always talks about and acts on the roles of committee members to act as fiduciaries for their constituency. He's an overall excellent attorney.
Q: What is a mistake you made early in your career and what did you learn from it?
A: In my first year of practice, I was overly aggressive on a responsive pleading. My adversary was a very experienced attorney and in his motion papers, he simply didn't recognize that a key case that was on point had been overruled. So, I raked him over the coals in my papers, showing off my "brilliance." A partner in the firm who had read the pleading after I filed it, appreciated my aggressiveness, but said there was no reason to be nasty. I apologized to my adversary for the tone of my pleading, and it taught me a good lesson in the need to reign in emotions and be more respectful in my practice in general.
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