Duane Loft, partner at Boies Schiller, speaks with Richard Levick, chairman of Levick in this transcribed installment of the In House Warrior Podcast series.
Speaker 1: Welcome to the Corporate Counsel Business Journal's daily podcast, In House Warrior, with host Richard Levick, chairman of LEVICK, a global crisis and litigation communications firm.
Richard Levick: Good day and welcome to In House Warrior, the daily podcast at the Corporate Counsel Business Journal. I'm Richard Levick and with me today is Duane Loft, who's a partner at Boies Schiller, and doing an immense amount of commercial litigation. Duane, welcome to the show.
Duane Loft: Richard, thank you, it's good to be here.
Richard Levick: It's good to see you during the pandemic. I know since the last time I saw you in New York, the focus of your practice has continued to change and you're doing an immense amount of bankruptcy now.
Duane Loft: That's right. Right now, as we've all been reading about in the newspapers, the U.S. Is experiencing an unprecedented wave of corporate bankruptcies. There were a number of companies that in the good market times were saddling their balance sheets with enormous amounts of debt at low interest rates, and now, especially with COVID, they just don't have the revenues to sustain those levels of debt. And it's forcing them into formal Chapter 11 process. Sometimes a pre-packaged process with the consent of lenders, sometimes not. And they're in so-called free falls into the bankruptcy process, which can lead to a number of issues, legal issues, and a number of disputes, which is typically where I get involved.
Richard Levick: And are you seeing a change for all parties in terms of the things that they have to address? Obviously it's an unusual period, but it's also this escalation of banks. Bankruptcies is dramatic, right?
Duane Loft: The escalation is dramatic. It's across a number of industries. Some have been hit harder than others. Retail, you're seeing, energy, you're seeing, which were weak in the good climate, and now have been tipped into bankruptcy by COVID.
Bankruptcies, give rise to a wide variety of issues. Fiduciary issues on the part of managers, boards. They give rise to lending issues, covenant issues under lending agreements. They give rise to a number of different issues within the bankruptcy process itself, plan confirmation, property allocation issues. Often you're going to see companies file that have very complex capital structures, often filing with multiple different corporate entities within a large group of corporate filers and the allocation of assets across those entities. Potential intercompany disputes become highly, highly complex and often litigated issues within these complex corporate bankruptcies.
Richard Levick: And I know this is challenging because you're talking about so many different industries, but what are some of the top recommendations you're providing your clients as they enter this process?
Duane Loft: Well, I often get involved on behalf of creditors and not the debtor companies themselves. And my advice to creditors is very situation focused and situation specific. And oftentimes my clients are hedge funds that specialize in investing in distressed companies. Sometimes they're investing with the opportunity to come to own the company post-bankruptcy because they will be holding the debt that's the so-called fulcrum debt. That will be the debt that comes to own the equity as part of the bankruptcy process. Sometimes they're buying debt pre-bankruptcy with a hope that it will return of more favorable recovery, as the bankruptcy process develops and creditors in their group are able to achieve value that they might not otherwise have achieved through the formal bankruptcy process.
And so the advice is very situation specific, and sector specific, and client specific. And ultimately it starts with a very designed overarching strategy before the company files for Chapter 11. That's really the key piece of strategic advice that I would give to any client, debtor, creditor, in a distressed situation, is have a plan from start to finish, that gets you all the way through the bankruptcy plan, because there are going to be a number of complex junctures along the way.
Richard Levick: Duane, another area where you're seeing tremendous growth during this period is in using U.S. Courts for discovery with foreign litigants.
Duane Loft: That's right. There has been a tried and true process in the United States that is gaining increasing recognition. And it's a process whereby litigants to a non U.S. legal proceeding, let's say in Germany, can come to the United States and obtain what in the United States is called discovery from local U.S. companies or individuals. These could be affiliates of their adversary in the foreign proceeding. These could be individuals, board members, executives who can be found in the United States in a particular state or federal district. And the opportunities are often very significant because the discovery process in the United States is usually far more expansive, far broader, allows for the production of far more evidence than would be available in the local foreign court, let's say in Germany, where discovery is very limited. And this statute, while it's been on the books for a while, is gaining increasing attention because litigation is more than ever an international exercise.
My practice is fairly international. I spent a good deal of time developing our London practice. Now I'm back in the United States and on my desk right now is at least five, maybe six, of these applications to obtain U.S. discovery from U.S. companies and individuals, to be able to use that discovery in the foreign proceeding. The courts are receptive to these applications. The use of the statute and scope of the statute continues to be read more broadly by the courts, and we've been using this to great advantage to pursue wide ranging discovery in the United States for use in foreign proceedings.
Richard Levick: So I would imagine this means that general councils of foreign companies, even though they're based in the foreign jurisdiction, have to be much more sensitive to U.S. rules, as long as they touch the United States in some way.
Duane Loft: That's right, a general counsel sitting in Korea, let's say, may preside over a corporate structure that includes a number of foreign affiliates, some of which may be located in the United States. May preside over stakeholders, board members, executives, other key consultants or affiliates who may be located in the United States. All of those are potential sources of discovery under this rule and should be considered in any litigation effort or in any litigation defense. They can also present opportunities. If your corporate adversary has affiliates or touch points in the United States, they can be pressure points for discovery. Discovery which is often much more intrusive than, let's say in Korea, and can be used to gain leverage in negotiating more favorable outcome against your adversary, who does not want to be subject to intrusive United States discovery.
Richard Levick: You mentioned Korea, and I think it's a challenge. But others are newer to it, and these are hard lessons to learn as you start to view the world through U.S. eyes.
Duane Loft: That's right. It's a rude awakening. When you find yourself subject to the U.S. discovery process, for many people. It is intrusive, it's personal, and it is incredibly burdensome and it requires oftentimes that companies or individuals essentially have to turn over their files to their foreign adversary.
Richard Levick: And I would think that, particularly in countries like Korea, Japan, China, where business privacy in terms of deference to authority, this raises not only legal questions, but cultural challenges as well, because they have to strap on that U.S. view and adjust much more quickly than say a British or, as you mentioned, a German company.
Duane Loft: Prosecuting these applications is fun. Defending them is not so much fun, because oftentimes you have to spend your time convincing foreign clients why they have to do this and engage in this process, because as you say is so different and so surprising.
Richard Levick: You know, Duane, it's good to have you on and have you discuss your definition of fun, so we'll share that with all of our audiences. In closing, I know we've covered a couple of broad subjects here, both bankruptcy during COVID, but also the increasing trend of U.S. discovery applied to foreign companies. Any other key takeaways you want to leave with our general counsel audience?
Duane Loft: No, I think that's about it for now. I mean, my practice is very broad. I have antitrust cases, which are a hot topic right now, particularly in big tech, but we can probably save that for another segment.
Richard Levick: Well, we'll have Mark Zuckerberg join us for that one. And Duane, thank you so much. Duane Loft of Boies Schiller. It's always great to see you, thanks so much for joining us. I'm Richard Levick with In House Warrior, the daily podcast of the Corporate Counsel Business Journal. Thank you for joining us and we'll see you tomorrow.
Speaker 1: You've been listening to the Corporate Counsel Business Journal's daily podcast, In House Warrior, with host Richard Levick.
Published October 19, 2020.
