US govt fails again in attempt to pause bankruptcy proceedings with iHeartMedia case

January 9, 2019 – The United States government failed again in its attempts to stay bankruptcy proceedings, this time over a January 10 hearing for iHeartMedia’s plan of reorganization.

 

The US government has filed motions to pause proceedings in several bankruptcy cases since the beginning of the year, with lawyers at the Department of Justice, who are working without pay, arguing that their oversight power has been weakened in cases where the federal government has an interest, represents other government agencies, or involves the Trustee Program – a division that monitors cases for fraud, high attorney fees and excessive executive bonuses. Several US bankruptcy courts have issued statements saying they will remain open and continue normal operations using court fee balances and other funds not dependent on new appropriations, though some put January 11 as the date when these will run out. 

 

On January 8, the US Bankruptcy Court for the Southern District of Texas Houston Division denied the government motion for a stay of the January 10 confirmation hearing on iHeartMedia’s plan of reorganization until appropriations needed to pay lawyers are restored to the Justice Department. iHeartMedia, a media and entertainment company based in San Antonio, Texas, filed for bankruptcy on March 15, 2018 under Chapter 11 (case number 18-31274).

 

The government motion had stated that, “Although the United States believes it has resolved all confirmation issues with the Debtors by agreement, the United States wishes to attend the confirmation hearing. Counsel for the United States is unable to do so unless either (a) funding is restored to the Department of Justice, or (b) the Court denies this Motion.” It also noted that counsel for the debtors had opposed the stay.

 

On January 4, a Delaware judge denied a Justice Department motion to stay all proceedings in the bankruptcy case of hospital operator Promise Healthcare Group, arguing that the protection of the company’s 4,500 patients overcomes the prejudice to the government in the case.

 

The debtors had also objected to the government motion, arguing that it faces sale deadlines that, if missed, could cut it off from cash and threaten its ability to stay open. On January 8, the court hearing the case approved the sale of the St. Alexius Medical Center and related facilities to Americore Holdings for $10mn. “While the Debtors and the Committee are sympathetic to those employees of the USA that are affected by the limited Federal government shutdown, there is no reason to stay the entirety of the Chapter 11 Cases that need to move quickly in order to protect both the health and safety of patients and economic value, which go hand in hand,” the objection said. 

 

“The relief requested in the Stay Motion is extraordinarily broad and comes as a surprise to both the Debtors and the Committee,” the objection added.

 

The judge in that case, Christopher Sontchi, noted that appropriations have lapsed for the federal courts, and the judiciary could soon be facing some difficult choices. “But, just so everyone knows, the bankruptcy court will remain open and operating at full levels even if appropriations lapse and fees have expired and people are working for free,” Judge Sontchi said.

The US Bankruptcy Court for the District of Massachusetts said in a statement on December 26 that, “The federal courts currently have sufficient funds on hand to maintain normal operations through January 11, 2019. In the event of a prolonged shutdown, the Court will provide further guidance.”