MAXIMIZING CREDITOR REMEDIES IN AN ANTITRUST WORLD

James M. Sullivan* and Gary O. Ravert**

INTRODUCTION1

Inevitably certain of a company’s customerswill become financially distressed. When thathappens, the company, as creditor, must knowhow to minimize its financial risk and know theavailable remedies in case a debtor breaches itsobligations. Although there are numerousprotective and remedial steps that creditors canundertake individually, both before and after thedebtor enters bankruptcy, creditors of thedistressed debtor may find it advantageous towork collectively to maximize their individualrecoveries. Even the debtor may benefit fromdealing with creditors collectively becausedoing so may permit the debtor to restructureall or substantially all of its debt while mini-mizing the disruption to its business.Conversely, the failure of creditors to cooperatecan lead to the destruction of the debtor’s busi-ness due to a proliferation of contentiouslitigation and a race to levy upon the debtor’sassets. Yet, despite the potential for mutuallybeneficial arrangements among the creditorsand the debtor, creditors often fail to recognizecollective action as a valuable strategy.

Notwithstanding the significant benefits, thereare limitations on the collective actions creditors

may take. This article focuses on one such limita-tion: the federal antitrust laws. Althoughcompetitors may have sound business reasonsfor collaborating in their efforts to enforce cred-itor remedies against a common debtor, theymust be mindful of federal antitrust laws. Thisarticle is intended to guide creditors with anti-trust concerns in maximizing their recoveries ascreditors while minimizing their likelihood ofviolating antitrust laws. This article sets forththe protective and remedial actions creditorsmay take both individually and collectively inlight of federal antitrust law.

This article is organized into five sections.Section I provides an executive summary high-lighting permissible and impermissible creditorremedies in light of debtor/creditor and antitrustlaws. Section II provides a very brief overview ofthe bankruptcy process and the relevant under-lying bankruptcy principals. Section III outlinessteps that creditors may take individually to (i)minimize financial risk before a bankruptcyoccurs and (ii) enforce creditor remediesagainst a debtor, both in and outside the bank-ruptcy context. Section IV provides a briefoverview of the federal antitrust laws affectingthe ability of competitors to cooperate with one

* James M. Sullivan is a partner in the law firm of based in the Firm’s New York

office. He concentrates his practice in corporate restructuring and bankruptcy. Gary O. Ravert is a partner in the

law firm of McDermott Will & Emery LLP based in the Firm’s New York office and is a member of the Firm’s

Bankruptcy and Troubled Transactions Group.

** We gratefully acknowledge the input of Lawrence I. Fox, partner in charge of McDermott Will & Emery’s

Distribution Counseling and Litigation Group and chairperson of the Antitrust and Competition Practice Group,

and Stephen B. Selbst, a partner in McDermott’s Corporate Department and head of McDermott’s New York

Restructuring and Insolvency Group.

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another. Finally, Section V outlines protectivemeasures available to creditors acting collec-tively and offers various strategies for suchcreditors to enforce remedies against a debtor,both in and outside the bankruptcy contextwithout violating federal antitrust law.

I. EXECUTIVE SUMMARY

A. Permissible Collective Actions:Pre-Bankruptcy

Outside of bankruptcy, creditors can takecollective action that may increase their recov-eries and which, at the same time, may save thedebtor’s business. In the event of a breach of thedebtor’s obligations, creditors may collaborate toexercise collection remedies. Creditors can workcollectively to salvage a debtor’s business by: (i)helping to find a buyer so that its operations willcontinue, (ii) proposing a debt for equity swap,(iii) requesting permission to speak with thedebtor’s secured lenders to reach an out-of-court workout, and (iv) discussing the formationof a distribution joint venture in order to ensurecontinued distribution of the debtor’s product inthe event that the debtor goes out of business. Inthe event of a debtor’s breach, collective actionsmay include (i) retaining common legal counsel,(ii) demanding repayment, (iii) filing legal claimswhen a demand for repayment is ignored, (iv)making reclamation demands for the return ofgoods, and (v) commencing an involuntarybankruptcy case.

B. Permissible Collective Actions:Debtor in Bankruptcy

As in the non-bankruptcy context, the cred-itors of a bankrupt debtor can also takecollective steps toward saving the debtor’s busi-ness and exercising collection remedies.Creditors may help to preserve the distributionsystem of which a bankrupt debtor is a part bynegotiating for postpetition financing of the debt-or’s business or by negotiating an acquisition of

the debtor’s business. Collective collection strate-gies available to a group of creditors include (i)retaining joint legal counsel, (ii) joining an officialor unofficial creditors’ committee, (iii) objectingto motions that impair creditor rights, (iv)seeking appointment of a trustee or examiner,(v) seeking to convert a Chapter 11 restructuringcase to a Chapter 7 liquidation case, (vi) seekingto dismiss the bankruptcy case if warranted, (vii)seeking to terminate the debtor’s exclusive rightto file a Chapter 11 restructuring plan or filing acompeting plan, (viii) pursuing reclamationremedies, (ix) seeking immediate payment ofthe twenty-day administrative claim, and (x)negotiating a Chapter 11 plan.

C. Impermissible CollectiveRemedies

There are limitations on the collective reme-dies that creditors may pursue. For example,creditors may not enter into agreements withcompetitors not to do business with the debtoror to deal with it only on specified terms. Cred-itors are also prohibited from collectivelydeciding to stop goods already in transit or torefuse to deliver future shipments. Though cred-itors may make collective decisions, they arerestricted from making collective pricing orcredit decisions. Finally, any collective action toseek relief from a court must be made in goodfaith, i.e., there must be a genuine desire to obtainthe relief sought rather than merely a desire toharm a competitor or competition.

II. BANKRUPTCY OVERVIEWBankruptcy is a common, but not the exclu-

sive, means for effectuating a restructuring orliquidation of a company’s business or assets. Adebtor’s liabilities may be restructured out ofcourt through a ‘‘workout.’’ Workouts are typi-cally faster and cheaper than a bankruptcy.However, a company and its creditors oftenfind it difficult to reach an agreement with allcreditors outside of bankruptcy. Workouts notonly require an agreement among a significant

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number of the debtor’s creditors to be effectivebut also pose ‘‘unwind risk.’’2 In such situations,a sale of the company to a ‘‘white knight’’ may bean attractive option.3 Finally, there may be statelaw alternatives to bankruptcy, such as anassignment for the benefit of creditors and statelaw receivership actions. A discussion of thesenon-bankruptcy restructuring alternatives isoutside the scope of this article.

A. Chapters 7 and 11 of theBankruptcy Code

All bankruptcy cases are commenced with thefiling of a bankruptcy ‘‘petition.’’ Most bank-ruptcy cases are filed under Chapter 7 or 11 ofthe Bankruptcy Code. Chapter 7 of the Bank-ruptcy Code provides for the orderly andequitable liquidation and distribution of non-exempt assets of the debtor. In exchange, an‘‘individual’’ debtor will receive a discharge.4

Corporations do not receive discharges underChapter 7.5 Instead, the corporate shell is leftwith debts, but no assets. A corporation seekinga discharge must file under Chapter 11 andconfirm a plan of reorganization.6

Unlike Chapter 7, Chapter 11 expresslyauthorizes a debtor, known as a debtor-in-possession, to continue to operate while it reor-ganizes its business and capital structurepursuant to a court-approved plan of reorganiza-tion.7 Chapter 11 may also be used to conduct anorderly liquidation of the debtor’s businessavoiding the need for the appointment of atrustee and a ‘‘fire sale’’ climate.

B. The Goal of Chapter 11The goal of a Chapter 11 case is the consensual

confirmation of a plan of reorganization or planof liquidation. To be approved or ‘‘confirmed,Chapter 11 plans must satisfy the requirementsof the Bankruptcy Code. After the plan isconfirmed, the debtor is required to make planpayments or distributions and is bound by theplan’s provisions. The confirmed plan createsnew contractual rights and can create, replace,

or supersede pre-bankruptcy contractual rights.Both pre-‘‘petition’’ and post-‘‘petition’’ creditorclaims are satisfied as set forth in the plan. Uponconsummation of the plan, except as provided inthe plan, the debtor receives a discharge of anydebt that arose before the date of confirmation.8

C. The Automatic StayThe filing of a bankruptcy petition automati-

cally stays a wide variety of actions against thedebtor to collect debts that arose before the bank-ruptcy filing. Section 362 of the Bankruptcy Codestays such actions and is intended to provide thedebtor with a breathing spell during its bank-ruptcy case.

If a creditor violates the automatic stay, a bank-ruptcy court may hold the creditor in contemptof court and award the debtor compensatorydamages.9 In addition, where the violation iswillful, the bankruptcy court may award puni-tive damages.10

D. Restrictions on the Sale, Use, orLease of Property of the Estate

Although a debtor is authorized to operate itsbusiness, it may not sell, use, or lease property ofthe estate outside of the ordinary course of busi-ness without court approval.11 With courtapproval, it may sell estate property free andclear of liens, claims, encumbrances, anddefenses.12 Pursuant to section 363 of the Bank-ruptcy Code, bankruptcy courts will approve asale outside of the ordinary course of businesswhen it is based on the sound business judgmentof the debtor.13

E. Creditors’ CommitteeAs soon as practicable after a Chapter 11 bank-

ruptcy case is commenced, a creditors’committee may be appointed by the U.S.Trustee.14 The creditors’ committee may consultwith the debtor, investigate the debtor and itsbusiness, and participate in the formulation of aplan of reorganization. The U.S. Trustee may alsoappoint other committees, including, but not

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limited to committees representing the interestsof equity holders, bondholders, retirees andreclamation claimants. Generally, an officialcommittee is entitled to retain separate legalcounsel and such other professionals as thecourt may approve in order to represent theinterests of its respective constituents.

III. INDIVIDUAL CREDITOR ACTIONToo often, creditors do not consider their expo-

sure as creditor until after a debtor becomesfinancially distressed, e.g., after the debtorbreaches an agreement or becomes unable torepay its debts as they become due. It is farmore challenging and risky for a creditor totake steps to improve its position when thedebtor is on the eve of bankruptcy because,during that period, the debtor is generallydistracted due to great financial pressure, manysimilarly situated creditors may be clamoring forpayment, and there is a heightened risk that apayment or security interest granted duringthis period will avoided in the subsequent bank-ruptcy filing. (See Section III.A.1 immediatelybelow.) There are a range of available protectivestrategies that a creditor may employ before theonset of the debtor’s financial distress. Oncefinancial distress sets in, creditors will be betterpositioned to maximize their recoveries, bothbefore and after the commencement of bank-ruptcy proceedings, if they understand theavailable remedial strategies.

A. Pre-Financial DistressProtective Measures Availableto Creditors

There are a number of steps that creditors maytake individually to protect themselves from adebtor’s future financial distress. Examples ofindividual actions include the following:

1. Obtain Security Interest

A creditor will be much better off if its claim issecured, rather than unsecured. A purchase

money security interest (a security interest infuture goods sold by the creditor on notice toexisting secured creditors) will protect the cred-itor with respect to sales of future goods. Acreditor may be able to obtain a security interestin the debtor’s assets with respect to prior sales.However, such a security interest may be subjectto avoidance as a preference, pursuant to Section547 of the Bankruptcy Code, if the securityinterest is obtained within ninety days prior toa debtor’s bankruptcy filing. Under Section 547of the Bankruptcy Code, a debtor may avoid andrecover any payments it made within ninetydays before the commencement of the bank-ruptcy case to a creditor on account of pre-existing debt owed by the debtor while thedebtor was insolvent if such payment resultedin the creditor receiving more than it wouldhave received if the bankruptcy case were aChapter 7 case, the payment had not beenmade, and the creditor received payment ofsuch debt as provided for under the BankruptcyCode. Such payments are often called prefer-ences because they allow a creditor to receivemore than other similarly situated creditorswho did not receive payments just prior to thebankruptcy filing.

2. Obtain Financial Statements andFinancial Assurances

A creditor who is receiving timely financialinformation about the debtor’s business may bein a better position to take protective steps tominimize risk of nonpayment. For example, ifthe financial health of a customer is deterior-ating, a creditor may be able to demand cash inadvance or cash on delivery as a precondition tofuture sales.

3. Modify Contracts to ProvideMaximum Flexibility

A creditor should try to make sure that itscontracts with debtors provide maximum flex-ibility to the creditor. For example, a creditormay want to have the right to terminate a

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contract at any time without any notice or withminimal notice to the debtor. A creditor withsuch a right will have an easier time terminatinga contract (whether before a bankruptcy or after abankruptcy) than a creditor who has no suchright. However, contract provisions providingfor the right to terminate the contract upon theinsolvency of the counterparty are generally notenforceable upon a bankruptcy filing.15 Also, acontract that builds in pricing flexibility (suchas the ability to pass along price increases) willensure that a creditor will not be required tohonor unfair prices throughout the debtor’sbankruptcy.

4. Modify Contracts to ProvideAdequate Remedies

A creditor will want to ensure that it hasadequate contract remedies in the event of adebtor’s breach. For example, contracting forequitable remedies upon a breach (such as theright to injunctive relief to prevent irreparableharm) may provide additional protections to acreditor, perhaps even after a debtor’s bank-ruptcy. It should be noted, however, that such aprovision might not be enforceable followingrejection of the contract by the debtor. In addi-tion, providing for the retention of title to goodsuntil resale may provide a creditor with greaterrights than a creditor who immediately passestitle to goods to a debtor. Some steps may needto be taken, however, to preserve such rightsafter a bankruptcy or insolvency.

5. Encourage Debtors to ProtectThemselves

A creditor should encourage its customers totake measures to protect themselves from theirown future bankruptcies. For example, a creditormay wish to encourage its customers to obtainsecurity interest in goods sold or other assets,retain title to goods until resale, prohibitreturns to other sellers of goods (which wouldincrease the debtor’s credit exposure to the cred-

itor), or require advance notice of termination ofa contract.

B. Individual Creditor Remedies:Pre-Bankruptcy

A creditor has numerous remedies available toit in the event a debtor breaches its contract or isunable to repay its debts when due. However,the available remedies may depend uponwhether the debtor is in bankruptcy or not.Generally, a creditor may take unilateral actionto enforce its individual creditor remedieswithout any fear of violating the antitrust lawsunder the Sherman Act.16 Among such remediesare the following:

1. Demand Repayment

A creditor may demand repayment of past dueamounts. If a creditor is able to obtain a judgmentlien outside of the preference period,17 it willhave the benefit of a secured claim in the eventthe debtor commences a bankruptcy case.

2. Demand Assurances

Section 2-609 of the Uniform Commercial Code(‘‘UCC’’) gives a seller of goods under a contractthe right to demand adequate assurance of dueperformance as a precondition to doing futurebusiness where the creditor has reasonablegrounds for feeling insecure. In particular,Section 2-609(1) provides, ‘‘A contract for saleimposes an obligation on each party that theother’s expectation of receiving due performancewill not be impaired.’’18 When one party hasreasonable grounds for insecurity with respectto the other party’s performance, that partymay demand assurance of due performanceand may suspend performance until it receivessuch assurance.19 In addition Section 2-609(4)allows a repudiation of the contract in the eventthat a party receives a demand of assurance anddoes not provide an adequate assurance ofperformance within thirty days of the receipt ofthe demand.20

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3. Demand Seller Remedies

Section 2-702 of the UCC provides the sellerwith three rights when the seller discovers thebuyer to be insolvent, depending upon the loca-tion of the goods at the time the seller discoversthe buyer’s financial condition. The seller may: (i)reclaim goods received by the debtor in thepreceding ten days that are still in the actual orconstructive possession of the buyer, (ii) stopdeliveries of goods already in transit (regardlessof who holds title to the goods), and (iii) refusedelivery of pending or future orders (regardlessof who holds title to the goods) unless allamounts are paid for in cash, includingamounts for goods theretofore delivered underthe contract.

4. Commence Collection Action

A creditor may commence a lawsuitdemanding repayment of past due amounts.

5. Commence Involuntary Bankruptcy

If a debtor has less than twelve qualifyingcreditors, a single creditor may commence aninvoluntary Chapter 7 or Chapter 11 casepursuant to Section 303 of the Bankruptcy Code.

C. Individual Creditor Remedies:Debtor in Bankruptcy

Creditors that are suddenly faced with acustomer in bankruptcy naturally wonder whatsteps they can take to protect and maximize theirrights and claims against the debtor. A creditorhas many options notwithstanding the automaticstay. This section provides creditors withguidance for protecting and maximizing theirrights and claims against the debtor and navi-gating the often confusing dynamic of abankruptcy proceeding.

1. Do Not Violate the Automatic Stay

As noted above in Section II.C above, underthe Bankruptcy Code, debtors are granted

certain protections from creditors upon thefiling of a bankruptcy case, the most significantbeing the ‘‘automatic stay.’’21 Creditors mustremain cautious and must make a concertedeffort to respect the automatic stay.

2. Hire an Experienced BankruptcyLawyer

A creditor should not attempt to manage thebankruptcy process on its own. It can be highlybeneficial to hire an experienced bankruptcyattorney to provide a creditor with usefuladvice that is relevant to its particular situation.Although this paper is intended to provide cred-itors with general guidance, it cannot substitutefor the valuable advice that can often beprovided by an experienced bankruptcyattorney.

3. Take Specific Steps to Protect YourRights

A creditor may have rights that need to bepreserved during the debtor’s bankruptcy case.In order to do so, that creditor may need to takespecific timely steps to preserve those rights.Among other things, a supplier creditor of thedebtor may have lien, reclamation, or claimrights that need to be protected. Included beloware a few examples of actions that can be taken bya supplier to preserve those rights.

a. Send a Written ReclamationDemand.

Do not delay. Sellers of goods may reclaim goodsreceived by the debtor within forty-five daysbefore the bankruptcy filing, but the reclamationdemand must be made within forty-five days ofthe debtor’s receipt of reclaimed goods or withintwenty days of the bankruptcy filing.

It is important to send a reclamation demandto the debtor as soon as possible. Although thereclamation provisions of the most recent versionof the Bankruptcy Code, i.e., the BankruptcyAbuse Prevention and Consumer Protection

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Act of 2005 (‘‘BAPCPA’’), do not state that asupplier’s reclamation rights are subject to statelaw defenses (such as the rights of a subsequentpurchaser of the goods in the ordinary course ofthe debtor’s business), a supplier should assumethat a bankruptcy court will continue to recog-nize such defenses.22 A supplier should not waitto send its reclamation demand until it obtains afull sales history if one is not readily available.Instead, a supplier should send out a lessdetailed reclamation demand and then followup with an amended demand along with adetailed itemization of the goods beingreclaimed as soon as possible. By sending thedemand by fax or e-mail to the debtor and itscounsel, the supplier and its counsel can ensurethat the debtor receives the demand as quickly aspossible. Although it is unnecessary to file a copyof the demand with the bankruptcy court, manysuppliers, through counsel, file a notice of thereclamation demand with the bankruptcycourt—often times through the electronic filingprocedure, which is in place in most jurisdic-tions.23 This filing ensures that the debtor andother parties in interest are notified of the recla-mation demand.24

Absent a debtor’s agreement to return goodssubject to reclamation, a supplier may berequired to commence an adversary proceedingagainst the debtor in the bankruptcy court toenforce its reclamation rights.25 Courts haveruled that it is not a violation of the automaticstay to commence an adversary proceedingagainst the debtor in the debtor’s bankruptcycase.26

b. Object to Motions That Seek toImpair Supplier’s Lien,Reclamation, or Claim Rights.

Many motions, such as postpetition financing orcash collateral motions, filed in the beginning of,or during, a bankruptcy case can have a signifi-cant impact upon the rights of a supplier.Debtors typically give both their postpetitionlenders and their prepetition lenders priming or

adequate protection liens and superpriorityadministrative claims that can affect the validityor priority of a supplier’s lien, reclamation, orclaim rights.27 Although such motions are typi-cally granted, if suppliers are vigilant, certainprotections can be incorporated into ordersapproving such motions that may reduce thenegative impact of such motions on thesuppliers’ rights.

c. File a Proof of Claim.

Many creditors must file a ‘‘proof of claim’’ inorder to receive a distribution in bankruptcy.Claims in bankruptcy cases are dividedbetween prepetition claims (claims that arosebefore the bankruptcy filing) and postpetitionclaims, also known as ‘‘administrative claims’’(claims that accrued after the case is filed). Theterm ‘‘claim’’ is given very broad meaning underthe Bankruptcy Code. A ‘‘claim’’ includes theright to payment or the right to an equitableremedy for breach of performance if such abreach ‘‘gives rise to a right to payment.’’28 Thedetermination of the nature of a claim is usually amatter of state law.29

A claim or interest is deemed ‘‘allowed’’ onceproof of that claim or interest is timely filed withthe bankruptcy court, unless a party in interestobjects.30 Allowed claims are paid in accordancewith the priority scheme set forth in Section 507of the Bankruptcy Code. Section 507 providesthat secured claims are to be satisfied in fullfirst, followed by administrative claims, thenpriority claims, such as certain wage claims,then non-priority unsecured claims, and finallyequity interests.31

The court will set a deadline by which claimsmust be filed. At a minimum, a supplier shouldfile a proof of claim before the proof of claimdeadline (also known as the ‘‘bar date’’) estab-lished by the bankruptcy court. By filing such aclaim, the supplier will substantially increase thelikelihood that it will be entitled to vote on thedebtor’s Chapter 11 plan32 and receive a distribu-tion in connection with the case.

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d. File a Request for Payment ofTwenty-Day AdministrativeClaim.

A supplier that has shipped goods that thedebtor received within twenty days before thebankruptcy filing should also file a request forpayment of its administrative claim pursuant toSection 503(b)(9) of the Bankruptcy Code for thevalue of any such goods. Although Section503(b)(9) does not impose a time restriction onthe filing of such a claim, the Court may enteran order imposing such a deadline.33 In addition,the local rules of some bankruptcy courts mayimpose a deadline for filing such a claim.34

Although the bankruptcy court may not have arule imposing a deadline to file the Section503(b)(9) claim, it may nevertheless have a localrule imposing a deadline to file administrativeclaims in general.35 Accordingly, a suppliershould file its claim before any deadlineimposed by the bankruptcy court.

e. Seek to Terminate Debtor’sExclusive Right to File Planand/or File Competing Plan.

Section 1121(b) grants a debtor exclusive periodsfor the filing, and solicitation, of a reorganizationplan. These periods are subject to extension, orcontraction, for cause. Section 1121(d) provides:‘‘On request of a party in interest made withinthe respective periods specified in subsections(b) and (c) of this section and after notice and ahearing, the court may for cause reduce orincrease the 120-day period or the 180-dayperiod referred to in this section.’’ Although‘‘cause’’ is not defined by the Bankruptcy Code,the legislative history and case law make clearthat ‘‘cause’’ is a flexible standard designed tobalance the competing interests of debtors andtheir constituencies.36 Among the factors acourt will consider are (i) the size and complexityof the case; (ii) the necessity of sufficient time topermit the debtor to negotiate a plan of reorga-nization and prepare adequate information; (iii)

the existence of good faith progress toward reor-ganization (iv) the fact that the debtor is payingits bills as they become due; (v) whether thedebtor has demonstrated reasonable prospectsfor filing a viable plan; (vi) whether the debtorhas made progress in negotiations with its cred-itors; (vii) the amount of time which has elapsedin the case; (viii) whether the debtor is seeking anextension of exclusivity in order to pressure cred-itors to submit to the debtor’s reorganizationdemands; and (ix) whether an unresolved contin-gency exists.37

4. Consider Applying for Membershipon Creditors’ Committee

If a supplier is one of the largest unsecuredcreditors of a debtor, it may be invited to applyfor membership on the creditors’ committee.There are advantages and disadvantages toserving on a creditors’ committee.

a. Advantages of CommitteeMembership.

There are a few potential benefits available tocreditors serving on a creditors’ committee.Because members of a creditors’ committeehave obligations to investigate the debtor’s busi-ness and affairs, and negotiate with the debtorconcerning formulation of a plan of reorganiza-tion, members of a creditors’ committee typicallyenjoy a higher degree of access to the debtor’sexecutives than other creditors and are privy tomore detailed information about the causes ofthe debtor’s bankruptcy filing and the results ofthe debtor’s operations in Chapter 11.38 Suchincreased access may foster improved businessrelations between a committee member and thedebtor both during and after the Chapter 11case.39 However, the committee members maybe required to keep certain information learnedduring the case confidential.40 Finally, creditorswho serve on the committee may be able toforego some of the expenses related to the reten-tion of separate outside counsel or financial

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advisors because the committee will typicallyretain its own legal counsel and financial advi-sors whose fees are paid out of the debtor’sestate.41

b. Disadvantages of CommitteeMembership.

Service on a creditors’ committee may presenta few disadvantages. First, depending on the sizeand complexity of the case, committee member-ship may be quite time-intensive.42 During activeparts of a Chapter 11 case (such as in the begin-ning of the case and during negotiation of aplan), creditors’ committees will often meet atleast once a week.43 However, members areusually permitted to participate in creditor’scommittee meetings by telephone except duringdirect negotiations with the debtor or other majorcreditor constituents.44 In addition, such negotia-tions are occasionally delegated to a negotiatingsubcommittee, which reports back to the fullcommittee.45 Second, committee members arenot remunerated for their time. However, theexpenses related to service on a creditors’committee are typically reimbursable by a debt-or’s estate.46 Third, a member of a creditors’committee owes a fiduciary duty to all unsecuredcreditors and must act in the best interest of allunsecured creditors, not just itself.47 A creditors’committee member must take actions that willmaximize the return to all unsecured creditorsgenerally and must not promote their own indi-vidual interests over the interests of otherunsecured creditors when acting on behalf ofthe committee.48 A committee member canavoid conflicts in this regard by refraining fromdiscussion and/or voting on any matter thatwould be of particular benefit or detriment tothat member. Finally, while members of a cred-itors’ committee enjoy a qualified immunity fromliability for their service on a creditors’committee, that immunity is not absolute.49 Acommittee member can be held liable forbreaches of his or her fiduciary obligations.50

5. Negotiate an Agreement with theDebtor

When it comes to negotiating with a debtor,only creditors who yell loudly and often willlikely be heard because there are always manyother creditors seeking the debtor’s attention.51

This is especially true in the early stages of adebtor’s bankruptcy case when the debtor isperforming financial triage. Sometimes counselmay have greater success getting the attentionof the debtor’s representatives. Other times, theclient may have better luck speaking to thedebtor directly. Generally, it is best to communi-cate with someone who has the authority to grantthe relief the creditor is seeking. Lower levelemployees of the debtor or junior associateswith the debtor’s law firm cannot usually assista creditor in obtaining any type of meaningfulrelief. Therefore, a creditor should not bedeterred if inquiries to lower level employeesor junior lawyers are not productive.

In negotiations one should critically considerwhat a debtor says because a debtor may exag-gerate the truth to obtain bargaining leverage.For example, a debtor may suggest that acertain creditor is the only creditor requestingcertain type of relief, or that the creditors’committee or the debtor’s post-petition lenderwill not agree to such relief. Alternatively, adebtor may also suggest that a creditor doesnot qualify for such relief. A persistent and deser-ving creditor can sometimes obtain relief despitesuch alleged obstacles.

A consensual resolution between the creditorand debtor is ideal. The approach a creditorshould take will often depend upon the creditor’sbargaining leverage. For example, a creditor whois a sole-source supplier of a critical good may beable to obtain more favorable treatment than acreditor who is a supplier of non-critical goodswith many alternate suppliers. Some of the typesof relief that may be available to a creditorinclude a critical vendor payment (see SectionIII.C.5.a immediately below), assumption ofexisting contracts (see Section III.C.5.b below),

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settlement or release of claim (see SectionIII.C.5.c), or immediate payment of its twenty-day administrative expense claim (see SectionIII.C.5.d below). If negotiations break down, asupplier may be able to increase its bargainingleverage through exercise of its stoppage ofdelivery rights (see Section III.C.6.c below) orthrough litigation (see Section III.C.6 below).Generally, these latter remedies should betreated as options of last resort.

a. Seek to Obtain Critical VendorPayments (If No Contract).

Debtors sometimes agree to pay all or a portionof a critical supplier’s prepetition debt inexchange for concessions from the supplier.Such relief is generally not available if a supplierhas a contract with the debtor, which requires thesupplier to supply goods to the debtor. If asupplier has a contract with the debtor, asupplier may wish to negotiate an assumptionof the contract instead (see Section III.C.5.bbelow). Depending upon the degree of a suppli-er’s leverage, a supplier may need to provide adebtor with incentives in order to obtain criticalvendor status. Some possible incentives include:(i) an agreement to continue to supply goods tothe debtor during the course of the bankruptcycase, (ii) an agreement to maintain prices at acertain level during the course of the bankruptcycase, (iii) an agreement to provide certain creditterms during the course of the bankruptcy case,(iv) an agreement to reduce the amount of thesupplier’s claim in the case, and (v) an agreementto defer payment of the critical vendor paymentfor some specified period of time. Which, if any,of these incentives may be required will dependupon the facts of the case and the relativebargaining leverage of the parties. It is essentialthat a seller remember not to make paymentdemands or condition future business with thedebtor on payment of prepetition arrears, whichcould be a violation of the automatic stay. Theseller can stop doing business with the debtorand wait for the debtor to offer a critical vendor

payment or, if there is a motion to pay criticalvendors, it can ask if it is on the critical vendorlist without conditioning the request on paymentof the arrears.

b. Request that the Debtor AssumePrepetition Contracts.

Debtors are given broad discretion under Section365 of the Bankruptcy Code to assume or reject‘‘executory contracts’’52 and unexpired leases.The purpose of Section 365 is to enable thedebtor in possession ‘‘to maximize the value ofthe debtor’s estate by assuming executorycontracts and unexpired leases that benefit theestate and rejecting those that do not.’’53 Section365(a) of the Bankruptcy Code provides, in rele-vant part, that the debtor, ‘‘subject to the court’sapproval, may [generally] assume or reject anyexecutory contract or unexpired lease of thedebtor’’ at any time prior to confirmation of theplan of reorganization.54

Based on sound business judgment,55 a debtormay assume or assume and assign an executorycontract or unexpired lease only if it cures anyexisting defaults, other than non-monetarydefaults, and provides adequate assurance offuture performance under such executorycontract or unexpired lease. Similarly, based onsound business judgment, a debtor may alsoreject an executory contract or unexpired lease.The rejection of such executory contract or unex-pired lease constitutes a breach of such contractor lease immediately before the filing of thebankruptcy petition.56

Suppliers often seek to convince a debtor toassume or reject their contracts at the beginningof a case. The supplier may seek a decision, evenit if it means rejection, because, for example, thesupplier is about to incur substantial costs inconnection with the contract with the debtorand it will be harmed if the debtor ultimatelyrejects it. The supplier would want to have anearly determination on rejection to avoid thosecosts. The two primary reasons why suppliersseek assumption are: (i) a precondition to

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assumption of a contract is a cure of all defaultsunder the contract, including payment of allprepetition amounts,57 and (ii) assumption elim-inates any preference liability that may beassociated with such contract.58 Chapter 11debtors are not generally required to make deci-sions on whether to assume or reject theirexecutory contracts with suppliers until confir-mation of the debtor’s Chapter 11 plan.59

A debtor may agree to assume a contractsooner than it would otherwise choose if it isgiven sufficient incentives to do so. Somepossible incentives include: (i) an agreement bythe supplier to extend the term of the contract orto continue performing under the contractduring the course of the debtor’s bankruptcycase notwithstanding the supplier’s possibleright to terminate the contract or to withholddelivery of goods, (ii) an agreement by thesupplier to reduce prices below those called forunder the contract, (iii) an agreement to morefavorable credit terms than called for under thecontract, (iv) an agreement to reduce the curepayment called for under the contract, and (v)an agreement to defer payment of the curepayment for some specified period of time.Many debtors are not likely to agree to an earlyassumption of a contract absent such incentivesbecause, besides obligating the debtor to cure allprepetition defaults and releasing the supplierfrom any preference liability relating to thecontract, assumption also may expose thedebtor to a potentially large administrativeexpense claim if the debtor were to subsequentlybreach the contract. To avoid such ramifications,some debtors have conditioned early assumptionof contracts upon certain concessions from thesuppliers. For example, in In re Delphi Corp., thedebtors established a program, which wasapproved by the bankruptcy court, that author-ized them to assume certain contracts withoutfurther approval of the creditors’ committee,the debtors’ lenders, or the bankruptcy court ifcertain concessions were agreed to by thesupplier.60 Among other things, the supplierhad to agree that Delphi could terminate the

contract at its convenience and that such termi-nation would not give rise to an administrativeexpense claim. Other conditions includedpayment of a reduced cure amount paid in quar-terly installments with the uncured balance ofthe prepetition claim to be treated as a generalunsecured claim. Suppliers who sold theircontract claims were not eligible to participatein the debtor’s program. This requirement isnot surprising because the primary purpose ofoffering early assumption of a supplier’s agree-ment is to incentivize the supplier to cooperate inthe debtor’s reorganization. A claim trader whopurchases creditors’ claims is not generally inter-ested in the debtor’s reorganization, but insteadis interested in maximizing its recovery on thepurchased claim. For this reason, it may not beadvisable for a supplier that has a contract with adebtor to sell its contract claim until it is confi-dent that it will not be able to reach an agreementwith the debtor regarding assumption of itscontract.

c. Request Settlement or Release ofPreference and Other Claims.

Although elimination of preference liability is asignificant benefit of a contract assumption, asupplier without a contract may have preferenceexposure unless it can negotiate a waiver of suchclaims. A debtor may be willing to agree to sucha condition (as well as a release of other claimsbetween the parties), subject to court approval,because such a waiver would not typicallyimpact the debtor’s short term liquidity needs.A creditors’ committee or a bankruptcy judgemay resist a waiver of such claims at the begin-ning of a bankruptcy case on the basis that such arequest is premature and that the committee hasnot had an adequate opportunity to investigatethe claims. Ultimately, whether a supplier issuccessful in obtaining such relief will dependupon the total package being offered to thedebtor and how much bargaining leverage thesupplier has with the debtor.

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d. Request Immediate Payment ofAdministrative Claim.

As set forth in Section III.C.3.d above, BAPCPAprovides suppliers of goods with an administra-tive expense claim for the value of goodsreceived by the debtor in the twenty days priorto the bankruptcy filing. BAPCPA does not state,however, when the administrative expense claimmust be paid. Therefore, debtors may agree topay suppliers in the ordinary course of businessor it may seek to avoid paying them until theeffective date of the plan, which can be yearsafter the bankruptcy filing. Suppliers shouldseek to obtain an agreement with the debtorthat the administrative claim will be paid at theearliest possible time. In In re Dana Corp., forexample, the debtors obtained court authorityto pay such administrative claims in the ordinarycourse of their business and some trade creditorshave been successful in having such claims paidearly in the case.61

6. Litigation As an Alternative toFailing Negotiations

If a supplier is unable to get the debtor’s atten-tion or negotiations with the debtor are not goingwell, a supplier may have no choice but demon-strate to the debtor that it is willing to litigate toget what it wants. Listed below are a fewcommon examples.

a. Moving For Relief From theAutomatic Stay to Terminate aContract.

Generally, provisions in a contract that permit aparty to terminate the contract upon the bank-ruptcy filing or poor financial condition of theother party are not enforceable.62 However, asupplier may have the right under its contractwith a debtor to terminate the contract for otherreasons or for no reason at all. In such a situation,a supplier can gain bargaining leverage with adebtor by threatening to terminate the agree-ment. The automatic stay imposed by Section

362 of the Bankruptcy Code, however, prohibitsa supplier from carrying out such a threat unlessit first obtains relief from such stay. By filing amotion for relief from the automatic stay toterminate the contract, a supplier can sometimesget the debtor’s attention, which can lead to anegotiated resolution. A supplier should notfile such a motion unless it is prepared to walkaway from the contract because it is possible thatthe debtor’s response will be to agree to thetermination.

b. Moving to Compel the Debtor toAssume or Reject the Contract.

In addition to, or in lieu of, moving for relief fromthe automatic stay to terminate the contract, asupplier can move to compel the debtor toassume or reject the contract. Under Section365(d)(2) of the Bankruptcy Code, a debtor mayassume or reject an executory contract at anytime before confirmation of a plan but the bank-ruptcy court, on the request of any party to suchcontract, may order the debtor to determinewithin a specified period of time whether toassume or reject the contract. Generally, bank-ruptcy judges are loathe to grant such motionsat the beginning of a case and will rarely force thedebtor to do so prior to plan confirmation.63

However, a judge may force a debtor to makesuch a decision earlier in the unusual casewhere the equities warrant it. One examplemight be where the supplier is about to incursubstantial costs that could not be recovered ifthe contract were soon rejected. Again, such amotion might serve to get the debtor’s attention,allowing the parties to reach a consensual resolu-tion.

c. Asserting Right to WithholdDelivery of Orders Under aContract.

A supplier’s assertion of the right to withholddelivery of orders under a contract may causethe debtor to file an order to show causeseeking to compel the supplier to perform

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under the contract. Debtors are likely to take theposition that a supplier is prohibited by the auto-matic stay from exercising such rights. The caselaw is sparse on this issue, but the little there isappears to support a supplier’s position that theassertion of such rights does not violate the auto-matic stay.64 In In re Dana Corp., SyprisTechnologies found itself having to defendagainst an order to show cause obtained by thedebtor. Sypris had asserted that it had the rightunder the UCC to demand payment for goods inadvance rather than on forty-five day terms ascalled for under the contract. The bankruptcyjudge issued a temporary restraining orderrequiring Sypris to honor the payment terms inthe contract pending a preliminary hearing. Theparties were eventually able to settle theirdispute on terms acceptable to both parties. Theentry of a temporary restraining order againstSypris shows that asserting a supplier’s right towithhold delivery is not without risk. The moreconservative course would be to file a motion fora determination that the supplier’s assertion ofsuch rights would not violate the automaticstay, or, alternatively, that relief from the auto-matic stay should be granted to permit thesupplier to exercise its right to withhold delivery.The one thing that is clear, however, is that asser-tion of the supplier’s rights to withhold deliveryof orders may get the debtor’s attention, allowingthe parties to reach a consensual resolution.

d. Move for Immediate Payment ofAdministrative Expense Claim.

Such motions are not likely to be granted, butsuch a motion might serve to get the debtor’sattention, allowing the parties to reach a consen-sual resolution.

e. Seek Appointment of Trustee orExaminer.

Such motions are not typically granted but mayencourage a debtor who is not acting in the bestinterest of creditors to act more appropriately.

f. Seek to Convert Chapter 11 Case toChapter 7 or to DismissBankruptcy.

Again such motions are not typically granted butmay encourage a debtor who is not acting in thebest interest of creditors to act more appropriately.

IV. ANTITRUST PRINCIPALS AND THEIR

IMPACT ON CREDITOR RIGHTSAntitrust laws limit the extent to which cred-

itors may collaborate. As discussed in greaterdetail below, antitrust law precludes creditorsfrom entering into agreements with competitorsnot to do business with a debtor or to deal with itonly on specified terms. Creditors are also prohib-ited from collectively deciding to stop goodsalready in transit or to refuse to deliver futureshipments. Although creditors may make collec-tive decisions, they are restricted from makingcollective pricing or credit decisions. Finally,any collective action to seek relief from a courtmust be made in good faith, i.e., there must be agenuine desire to obtain the relief sought ratherthan merely to harm a competitor or competitionand

A. The Sherman ActThe Sherman Act is the primary source of

authority that a creditor must consider in deter-mining if a particular creditor strategy mayviolate antitrust principals. Section 1 of theSherman Act prohibits any ‘‘contract, combina-tion . . ., or conspiracy’’ that unreasonablyrestrains trade or commerce.65 Section 1 doesnot require any formal written or unwrittenagreement. All that is required is a consciouscommitment to a common scheme.66 Accord-ingly, creditors may not enter into agreements,written or unwritten, that unreasonably restraintrade or commerce.

Proof of an agreement or a common schemecan be direct, as where the parties have enteredinto a formal agreement, or circumstantial,where parallel conduct by competitors is

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coupled with evidence of certain ‘‘plus factors.’’67

Such ‘‘plus factors’’ might include (i) conduct thatwould be contrary to a company’s self-interestabsent collusion and (ii) communicationsamong competitors without any legitimate busi-ness justification.68 If only circumstantialevidence of an agreement or scheme exists, theevidence must ‘‘tend[] to exclude the possibilitythat the alleged conspirators acted indepen-dently’’ rather than pursuant to an agreementor scheme.69

B. Per Se Illegal Restraints v. Ruleof Reason

As in other antitrust analyses, courts wouldusually apply a ‘‘rule of reason’’ to determinewhether an agreement or scheme among cred-itors violate Section 1 of the Sherman Act. Therule of reason is a flexible analytical approachunder which the court will examine the reason-ableness of the agreement in light of the industryinvolved, the proffered justification for the agree-ment, and the likely effect upon competition.70

Some agreements, such as agreements to fixprices,71 are deemed to be so pernicious thatthey will be found to be illegal regardless of theeffect on competition or the business excuse fortheir use.72 Such agreements are deemed illegalper se.73 Use of a per se analysis generally islimited to ‘‘conduct that is manifestly anticompe-titive’’ or conduct ‘‘that would always or almostalways tend to restrict competition and decreaseoutput.’’74 The per se rule avoids the ‘‘incrediblycomplicated and prolonged economic investiga-tion into the entire history involved’’ attendant tothe rule of reason and provides clear direction asto certain types of agreements that are clearlyproscribed by Section 1 of the Sherman Act.75

C. Group BoycottsGroup boycotts would likely be an impermis-

sible creditor strategy whether the debtor is inbankruptcy or is pre-bankruptcy. A number ofcourts have found group boycotts to be per seillegal. For example, in Klor’s, Inc. v. Broadway-

Hale Stores, the United States Supreme Courtheld that a boycott among an appliance manu-facturer and certain distributors not to sell to acertain distributor, or to sell only on unfavorableterms, should be condemned regardless of theeconomic effect:

Group boycotts, or concerted refusals bytraders to deal with other traders, havelong been held to be in the forbidden cate-gory. They have not been saved byallegations that they were reasonable inspecific circumstances, nor by a failure toshow that they ‘‘fixed or regulated prices,parceled out or limited production, orbrought about a deterioration in quality.’’Even when they operated to lower pricesor temporarily stimulate competition theywere banned.76

Similarly, in United States v. General MotorsCorp., the Supreme Court held per se illegal anagreement where various automobile dealers,through their trade association, persuadedGeneral Motors to prevent certain dealers fromselling to discount outlets.77 The Supreme Courtcalled the agreement ‘‘a classic conspiracy inrestraint of trade’’ because it involved ‘‘jointcollaborative action’’ by dealers and GeneralMotors to ‘‘eliminate a class of competitor.’’78

The Supreme Court further stated that ‘‘wherebusinessmen concert their actions in order todeprive others of access to merchandise whichthe latter wish to sell to the public, we need notinquire into the economic motivation underlyingtheir conduct.’’79

However, not all group boycotts are per seillegal.80 Agreements between competitors,commonly known as horizontal agreements,81 aremore likely to be deemed per se illegal.82 Incontrast, vertical agreements, agreementsbetween entities at different levels of distribu-tion, are less likely to be deemed per seillegal.83 In NYNEX Corp. v. Discon, Inc., theSupreme Court made clear that the per se ruleagainst group boycotts and concerted refusals todeal does not apply to vertical agreements ‘‘in the

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absence of a horizontal agreement’’ on at leastone level of the distribution chain.84

In Northwest Wholesale Stationers, Inc. v. PacificStationary & Printing Co., the Supreme Courtidentified the class of group boycotts to whichthe per se rule should be limited:

Cases to which this Court has applied the perse approach have generally involved jointefforts by a firm or firms to disadvantagecompetitors by ‘‘either directly denying orpersuading or coercing suppliers or custo-mers to deny relationships the competitorsneed in the competitive struggle.’’ In thesecases, the boycott often cut[s] off access to asupply, facility, or market necessary toenable the boycotted firms to compete, andfrequently the boycotting firms possessed adominant position in the relevant market. Inaddition, the practices were generally notjustified by plausible arguments that theywere intended to enhance overall efficiencyand make markets more competitive. Undersuch circumstances the likelihood of antic-ompetitive effects is clear and thepossibility of countervailing procompetitiveeffects is remote.

Although a concerted refusal to deal neednot necessarily possess all of these traits tomerit per se treatment, not every cooperativeactivity involving a restraint or exclusionwill share with the per se forbidden boycottsthe likelihood of predominantly anticompe-titive consequences.85

Accordingly, the per se test will generally onlyapply where (i) a group boycott involves a jointeffort by competitors to harm another compe-titor, (ii) the boycotting firms possess marketpower or exclusive access to products or servicesthat the targeted firm needs to compete, and (iii)the boycott was not justified by plausible effi-ciency arguments that it was intended toenhance overall efficiency and make marketsmore competitive.86 However, a group boycottwill be per se illegal even in the absence ofmarket power where the purpose of the boycott

is to fix prices.87 Generally speaking, even if agroup boycott is not found to be violative of anti-trust principals, it would likely be foundviolative of the automatic stay if it is intendedto pressure a debtor in bankruptcy to pay aprepetition debt or to gain control over propertyof the debtor’s estate.

D. U.S. Department of Justice andFederal Trade CommissionGuidelines

In 2000, the U.S. Department of Justice and theFederal Trade Commission (‘‘FTC’’) (collectively,the ‘‘Agencies’’) developed guidelines pertainingto competitor collaboration (the ‘‘Guidelines’’).The Guidelines state the antitrust enforcementpolicy of the Agencies with respect to competitorcollaborations.88 The Guidelines are intended toenable businesses to evaluate proposed transac-tions with greater understanding of antitrustconcerns, thus encouraging procompetitivecollaborations and deterring collaborationslikely to harm competition and consumers.89

The Guidelines are not binding on the courts.For the purposes of the Guidelines, a compe-

titor collaboration consists of a set of one or moreagreements between or among competitors toengage in certain economic activity along withthe resulting economic activity.90 ‘‘In general,the Agencies assess the competitive effects ofthe overall collaboration and any individualagreement or set of agreements within the colla-boration that may harm competition. . . . Two ormore agreements are assessed together if theirprocompetitive benefits or anticompetitiveharms are so intertwined that they cannot mean-ingfully be isolated and attributed to anyindividual agreement.’’91

1. Per Se Test

The Guidelines state that the per se test willgenerally be reserved for agreements not tocompete on price or output.92 The per se testwill not be applied where (i) the purpose of colla-boration is an efficiency-enhancing integration

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and (ii) integration is reasonably necessary to itsprocompetitive benefits.93 The per se test wouldlikely be applied to creditors’ collective pricingor credit decisions.

2. Rule of Reason

If a creditor agreement is not challenged as perse illegal, it may be analyzed under the rule ofreason to determine their overall competitiveeffect.94 The rule of reason is a flexible inquiryfocusing on whether an agreement harmscompetition.95 ‘‘The central question is whetherthe relevant agreement likely harms competitionby increasing the ability or incentive profitably toraise price above or reduce output, quality,service, or innovation below what likely wouldprevail in the absence of the relevant agree-ment.’’96

3. Examples of PotentiallyAnticompetitive Collaborations

Collaborations, including collaborationsamong creditors, regarding production,marketing, buying, or research and developmentmay potentially result in anticompetitive harms.Nevertheless, under certain circumstances, thesefour types of collaborations may be consideredprocompetitive.97

4. Safety Zones

The Guidelines established safety zones toencourage competitor collaborations.98 Thesafety zones are designed ‘‘to provide partici-pants in a competitor collaboration with adegree of certainty in those situations in whichanticompetitive effects are so unlikely that the[a]gencies presume the arrangement to belawful without inquiring into the particularcircumstances.’’99 The safety zones ‘‘are notintended to discourage collaborations that falloutside the safety zones.’’100

There are two safety zones outlined in theGuidelines. The first safety zone addressescompetitor collaborations in general.101 The

second safety zone addresses research and devel-opment collaborations whose competitive effectsare analyzed within an innovation market.102 Thesafety zones do not apply to agreements that areper se illegal.103

E. Noerr-Pennington DoctrineThe Noerr-Penington Doctrine may be a

source of protection for creditors acting collec-tively. The Noerr-Pennington Doctrine is anexception to the reach of antitrust laws thatprovides protection to entities that petition thegovernment regardless of the potential anticom-petitive effect.104 In City of Columbia v. OmniOutdoor Advertising Inc., the Supreme Courtstated,

The federal antitrust laws . . . do not regulatethe conduct of private individuals in seekinganticompetitive action from the govern-ment. This doctrine . . . rests ultimatelyupon a recognition that the antitrust laws,‘‘tailored as they are for the businessworld, are not at all appropriate for applica-tion in the political arena.’’105

The Noerr-Pennington Doctrine applies to peti-tions to each of the three branches ofgovernment, including the courts.106 Courtshave extended the Noerr-Pennington Doctrineto encompass concerted efforts incident to litiga-tion, such as prelitigation ‘‘threat letters’’ andsettlement offers.107

However, if the litigation is a ‘‘sham’’, an entitywill not be entitled to the protections of theNoerr-Pennington Doctrine. Entities will not beentitled to the benefits of the Noerr-PenningtonDoctrine where they improperly use the meansof petitioning the government to reduce compe-tition or injure a competitor.108 To establish thatadministrative or judicial proceedings are asham, a party must show that the litigation inquestion is: (i) ‘‘objectively baseless,’’ and (ii)‘‘an attempt to interfere directly with the busi-ness relationships of a competitor through useof the governmental process — as opposed tothe outcome of that process — as an anticompe-

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titive weapon.’’109 ‘‘A sham situation involves adefendant whose activities are not genuinelyaimed at procuring favorable governmentalaction at all, not one who genuinely seeks toachieve his governmental result, but does sothrough improper means.’’110 The Noerr-Pennington Doctrine may protect a creditorwho petitions a court seeking relief from adebtor, unless the litigation seeking such reliefis determined to be a sham.

V. COLLECTIVE CREDITOR ACTIONAs noted above, a creditor seeking payment on

a debt has many alternative remedies available toit. The remedies available to a creditor maydepend upon whether the debtor is in bank-ruptcy or not. The antitrust principalsdiscussion in Section IV above make clear thatsuch remedies may be limited by antitrust law.Although a creditor is generally free to takeunilateral action to enforce its individual creditorremedies without fear of violating Section 1 ofthe Sherman Act, a creditor’s ability to act collec-tively to enforce its remedies, whether in or outof bankruptcy, are more limited.

In the bankruptcy context, a creditor actingalone has numerous options to maximize itsleverage without fear of violating antitrustlaws. Creditors acting collectively, thoughrestricted by such laws, may be able to achievesignificant results in a bankruptcy case whichexceed the results that any single creditor couldachieve.

A. Protective Measures Availableto Creditors Acting Collectively

Collective actions that creditors may take toprotect themselves from a debtor’s financialdistress include: (i) changing their distributionsystem; (ii) helping to find a buyer for an under-performing business that will continue acustomer’s operations; (iii) proposing a debt forequity swap; (iv) requesting permission to speakwith customer’s lenders to reach an out of courtworkout; and (v) discussing formation of a distri-

bution joint venture, which could ensuredistribution of product in the event a customergoes out of business.

B. Collective Creditor Remedies:Pre-Bankruptcy

As previously stated, cooperation among cred-itors in negotiating with a debtor is commonly inthe interest of all parties.111 Further, such coop-eration is not necessarily inconsistent with theantitrust laws. As the Second Circuit has stated,

If creditors were forced to act individually,each would be compelled to resort to themost extreme action available in order toprotect its individual interest. Such anaction, however, might well drive thedebtor out of business thereby eliminatingany opportunity for it to work out ofpresent difficulties and ultimately satisfythe debts. Mutual forbearance by creditors,therefore, may be in the interests of bothdebtors and creditors in that it maximizesrepayment and gives the debtor a chanceof survival. That it entails concerted activityby creditors does not mean, however, thatconsumers are injured. To the contrary, byreducing both losses to creditors and trans-action costs resulting from bankruptcy, suchactivity reduces the costs of borrowing andthe costs of doing business, all of which is tothe consumer’s advantage.112

1. Permissible Collective Actions

One of the remedies that competitors maycollectively take to enforce their creditor reme-dies is to negotiate a composition or workoutagreement, i.e., an agreement among creditorsto scale down their claims and accept a lessersum or forbear repayment for a period of time.A composition agreement, by definition, requiresparticipation of at least two creditors to be valid.Accordingly, absent unusual circumstances, it isnot likely such an agreement would violateSection 1 of the Sherman Act and would beconsistent with the Guidelines.

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The Noerr-Pennington Doctrine, as discussedabove in Section IV.E, protects creditor collabora-tion in the petition of the government regardlessof the potential anticompetitive effect. Thefollowing remedies available to competitorscollectively would likely be actions protectedunder the doctrine: (i) jointly retaining legalcounsel to represent the interests of the creditorsin their effort to seek legal redress against acommon debtor, (ii) demanding repayment ofpast due amounts, (iii) making reclamationdemand for the return of goods, (iv) commencinga collection action, (v) seeking court appointmentof a receiver, and (vi) commencing an involun-tary Chapter 7 or 11 case.113

2. Impermissible Collective Actions

Among the collection strategies that competi-tors may not collectively employ are thefollowing:

a. Collectively boycott or refuse toengage in trade with debtor.

Group boycotts may be per se illegal underSection 1 of the Sherman Act. (See Section IV.Cabove.) Even if the purpose of such a boycott orrefusal to deal were not with the intent to fixprices or to harm a competitor, there is substan-tial risk that such action would be found toviolate the Sherman Act even under a rule ofreason analysis.

b. Make collective pricing or creditdecisions.

As set forth in Section IV.D.1 above, collectivepricing or credit decisions are likely illegal perse and, therefore, violative of the Guidelines.114

c. Collectively refuse delivery offuture shipments.

Such an action would likely be a violation ofSection 1 of the Sherman Act as being a collectivecredit decision or a concerted refusal to deal.

C. Collective Creditor Remedies:Debtor in Bankruptcy

The federal antitrust laws are not preemptedby federal bankruptcy law. Generally, federallaws preempt inconsistent state laws,115 but notother federal laws.116 Accordingly, the two lawsmust be read in harmony where possible.117

Creditors or other parties-in-interest mayviolate Section 1 of the Sherman Act if theycollude in a way that harms competition orinjures a competitor. For example, the FTC hastaken action where a company used its positionon a creditors’ committee to hurt a competitorwho was in bankruptcy.118 In In re AMERCO,the FTC prosecuted U-Haul, a member of a cred-itors’ committee for Jartran, Inc. a competingcompany in bankruptcy. The grounds for prose-cution were, in part, based on U-Haul’sengagement in ‘‘acts and practices that . . . wereinconsistent with U-Haul’s legitimate interests asa creditor’’ and U-Haul’s efforts to preventJartran’s reorganization as a competitor.119 Inthe end, U-Haul agreed to a consent decree thatrestricted its ability to participate in future bank-ruptcy proceedings involving its competitors.Although the Noerr-Pennington Doctrineprovides some protection to creditors who seekfavorable action from the bankruptcy court, thesham exception will apply where the creditor’sactions are not genuinely aimed at procuringfavorable government action.120

1. Permissible Collective Actions

Among the remedies that competitors maycollectively take to enforce their creditor rightsin a bankruptcy case are (i) jointly retaininglegal counsel121 and (ii) joining the official orunofficial creditor committee.

The AMERCO case illustrates that the FTC willgo after creditors who seek to abuse the bank-ruptcy process toward an unlawful end. Absentapplication of the sham exception, there is noreasonable basis to believe that the followingcollective actions would not be protected underthe Noerr-Pennington Doctrine: (i) participating

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as a member of or seeking assistance from thecreditors committee,122 (ii) pursuing reclamationremedies,123 (iii) negotiating a Chapter 7 orChapter 11 plan,124 (iv) seeking appointment ofa trustee or examiner, (v) objecting to motionsthat impair creditor rights, (vi) seeking toconvert a Chapter 11 case to Chapter 7 or todismiss the bankruptcy case, and (vii) seekingto terminate a debtor’s exclusive right to file aplan and/or file a competing plan.

2. Impermissible Collective Actions

a. Collectively boycott or refuse toengage in trade with debtor.

As set forth in Section IV.C above, group boycottsmay be per se illegal under Section 1 of theSherman Act. Even if the purpose of such aboycott or refusal to deal were not with theintent to fix prices or to harm a competitor, therisk is substantial that such action would befound to violate the Sherman Act even under arule of reason analysis.

b. Make collective pricing or creditdecisions.

As set forth in Section IV.D.1 above, collectivepricing or credit decisions are likely illegal perse and, therefore, violative of the Guidelines.125

c. Collectively refuse delivery offuture shipments.

Such an action would likely be violative ofSection 1 of the Sherman Act as being a collectivecredit decision or a concerted refusal to deal. It isalso likely that such a refusal (at least where acontract existed) would violate the automaticstay, absent authorization of the bankruptcycourt.

VI. CONCLUSIONCreditors have a host of available strategies for

protecting themselves from risks associated witha financially distressed debtor and for remedyinga breach. In order for creditors to best protectthemselves from the future bankruptcy of adebtor, and to maximize their return upon adebtor’s breach of contract, creditors must takeadvantage of both individual and collectiveprotective and remedial actions to the fullestextent possible. While many creditors are rela-tively well-versed in individual actions,collective actions are often overlooked or misun-derstood. The individual and collective strategiesdiscussed in this article may greatly decrease acreditor’s risk exposure, but as discussed herein,actions taken collectively must always be care-fully assessed in light of federal antitrust laws.

NOTES

1 This article ocassionally draws on a priorarticle published by the authors hereof,James M. Sullivan & Gary O. Ravert, AVendor’s Guide to Bankruptcy (‘‘Vendor’sGuide’’), 1 BLOOMBERG CORP L.J. 494, 499(2006). Not all references to the Vendor’sGuide are specifically cited herein. A linkto the Vendor’s Guide can be found athttp://www.mwe.com/info/pubs/-bloomberg_sullivan_ravert.pdf.2 Generally, agreements to participate in aworkout are based on all or most creditors

sharing the burden or loss. Occasionally,some creditors will hold out for higherrecoveries on their claims. ‘‘Unwind risk’’is the risk that the debtor will be unable toget a necessary number of creditors toagree to a workout resulting in theunwinding of all the agreements it wasable to obtain or possibly that agreementsreached out of court could be avoided asfraudulent or preferential in a later bank-ruptcy filing.

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3 A ‘‘white knight’’ is one of many colorfulterms found in a bankruptcy practitioner’slexicon but not found in title 11 of theUnited States Code (the ‘‘BankruptcyCode’’). It refers to a purchaser of substan-tially all of the distressed assets at a pricefavorable to creditors.4 11 U.S.C. § 727(a).5 Id.6 11 U.S.C. § 1141.7 Pursuant to Section 1104 of the Bank-ruptcy Code, on the request of a party ininterest, the bankruptcy court is empow-ered to appoint a Chapter 11 trustee forcause, including fraud, dishonesty, incom-petence, or gross mismanagement, eitherbefore or after the bankruptcy filing orwhere appointment of a trustee is in thebest interest of the parties in interest. 11U.S.C. § 1104(a)(1)–(3). Generally, courtswill not appoint a Chapter 11 trusteeabsent a showing of fraud or grossmismanagement. 7 COLLIER ON BANKRUPTCY

§ 1104.02 (Alan N. Resnick et al. eds., 15thed. rev. 2006); see In re Microwave Prods. ofAm., Inc., 102 B.R. 666, 670 (Bankr. W.D.Tenn. 1989).8 11 U.S.C. § 1141(d)(1).9 11 U.S.C. § 362(k).10 Id.11 11 U.S.C. § 363.12 See, e.g., Folger Adam Security, Inc. v.DeMatteis/MacGregor JV, 209 F.3d 252 (3dCir. 2000).13 See In re Chateaugay Corp., 973 F.2d 141,143 (2d Cir. 1992) (noting that approval ofSection 363(b) sale is appropriate if goodbusiness reasons exist for such sale);Committee of Equity Sec. Holders v. LionelCorp. (In re Lionel Corp.), 722 F.2d 1063,1070 (2d Cir. 1983) (same); see also, Comm.of Asbestos-Related Litigants v. Johns-Manville Corp. (In re Johns-Mansville

Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y.1986).14 11 U.S.C. § 1102(a)(1). The U.S. Trusteeis a representative of the United StatesDepartment of Justice that is responsiblefor overseeing bankruptcy cases. 28U.S.C. § 586.15 11 U.S.C. § 365(e) (invalidating contractclauses, so called ‘‘ipso facto’’ clauses, thatpurport to allow termination or modifica-tion of an agreement solely based on theinsolvency of the debtor or the commence-ment of a bankruptcy case).16 15 U.S.C. § 1 et seq.17 The preference period is 90 days prior toa bankruptcy filing for non-insiders of thedebtor. 11 U.S.C. § 547.18 U.C.C. § 2-609(1).19 Id.20 Id. at § 2-609(4).21 See Section II.C supra; see also Vendor’sGuide at 496.22 In re Dana Corp., 2007 Bankr. LEXIS1466, 17–26 (Bankr. S.D.N.Y. 2007)(holding that BAPCPA § 546(c) continuesto incorporate the state law right of recla-mation and does not create a brand newfederal bankruptcy law right); see also In reIncredible Auto Sales LLC, 2007 Bankr.LEXIS 1024, 17–18 (Bankr. D. Mont. 2007)(‘‘[I]t may be a mistake to assume that theamended § 546(c) was intended toprovide an entirely new and self-contained body of reclamation law . . .because it fails to recognize the rights ofbuyers in the ordinary course, other goodfaith purchasers and lien creditors, whowere always protected under the U.C.C.Perhaps the intent was to incorporateand expand on the U.C.C. reclamationrights, rather than to supplant thementirely, in which case some U.C.C.analysis may continue to be relevant in

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interpreting and applying the new§ 546(c).’’).23 Vendor’s Guide at 497.24 Id.25 See Fed. R. Bankr. P. 7001(1); In re RealtyS.W. Assocs., 140 B.R. 360 (Bankr. S.D.N.Y.1992).26 See, e.g., In re Washington Mfg. Co., 118B.R. 555, 561 (Bankr. M.D. Tenn. 1990).27 Vendor’s Guide at 498.28 11 U.S.C. § 101(5).29 Butner v. United States, 440 U.S. 48, 54–55(1979) (‘‘. . . Congress has left the determi-nation of property rights in the assets of abankrupt’s estate to state law. . . . Propertyinterests are created and defined by statelaw. Unless some federal interest requiresa different result, there is no reason whysuch interests should be analyzed differ-ently simply because an interested party isinvolved in a bankruptcy proceeding.’’);see also Raleigh v. Ill. Dep’t of Rev., 530U.S. 15, 16 (2000) (‘‘Creditors’ entitlementsin bankruptcy arise in the first instancefrom the underlying substantive lawcreating the debtor’s obligation . . . .’’).30 11 U.S.C. § 1104.31 11 U.S.C. § 507.32 Creditors and equity holders are gener-ally entitled to vote to accept or reject theplan of reorganization. Once a debtor hasobtained the necessary votes of the cred-itors and equity holders, it may attempt toconfirm the plan in the bankruptcy court.If the debtor is unable to obtain the neces-sary votes, it may seek confirmationpursuant to Section 1129(b). Section1129(b) is known as the ‘‘cramdown’’provision because the unaccepted provi-sions of the plan are crammed down onthe dissenting creditors.33 See In re Dana Corp., 2007 Bankr. LEXIS1934 (Bankr. S.D.N.Y. 2007) (denyingability of claimant to file a 503(b)(9) claimafter the court-ordered deadline).

34 See, e.g., Local Rule 3002-1 of the UnitedStates Bankruptcy Court for the District ofMassachusetts (requiring that such a claimbe filed within sixty days of the first dateset for the meeting of creditors pursuant toSection 341 of the Bankruptcy Code).35 See, e.g., Local Bankruptcy Rule 1019-1(F)(1) of the United States BankruptcyCourt for the Southern District of Florida(establishing a ninety-day deadline forfiling an administrative claim after a caseconverts to Chapter 7).36 See H.R. Rep. No. 95-595, 1978U.S.C.C.A.N. at 6191; In re Sletteland, 260B.R. 657, 670 (Bankr. S.D.N.Y. 2001); In reTexaco, Inc., 76 B.R. 322, 325 (Bankr.S.D.N.Y. 1987).37 In re Express One Int’l, Inc., 194 B.R. 98,100 (E.D. Tex. 1996).38 See Vendor’s Guide at 499.39 Id.40 Id.41 Id.42 Id.43 Id.44 Id.45 Id.46 Id.47 In re ABC Automotive Products Corp., 210B.R. 437 (Bankr. E.D. Pa. 1997); In re Caldor,Inc., 193 B.R.165 (Bankr. S.D.N.Y. 1996).48 In re Drexel Burnham Lambert Group, Inc.,138 B.R. 717 (Bankr. S.D.N.Y. 1997).49 In re Envirodyne Indus., Inc., 174 B.R. 955(Bankr. N.D. Ill. 1994).50 See Central Transp., Inc. v. Roberto (In reTucker Freight Lines, Inc.), 62 B.R. 213(Bankr. W.D. Mich. 1986).51 Vendor’s Guide at 500.52 Generally speaking, an executorycontract is any ‘‘contract under which theobligation of both the [debtor] and theother party to the contract are so far

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unperformed that the failure of either tocomplete performance would constitute amaterial breach excusing performance ofthe other party.’’ Vern Countryman, Execu-tory Contracts in Bankruptcy: Part I, 57 MINN

L. REV. 439, 460 (1973); see, e.g., Matter ofSuperior Toy & Mfg. Co., Inc., 78 F.3d 1169,1172 n. 3 (7th Cir. 1996); In re BradleesStores, Inc., 2001 WL 1112308, *6(S.D.N.Y. 2001) (collecting cases).53 In re Rickel Home Centers, Inc., 209 F.3d291, 298 (3d Cir. 2000). Recent amend-ments to the Bankruptcy Code haveplaced some time limitations on a debtor’sability to assume or reject an unexpiredlease of non-residential real property. 11U.S.C. § 365(d)(4).54 11 U.S.C. § 365(a); see In re Trans WorldAirlines, Inc., 145 F.3d 124 (3d Cir. 1998); Inre Sharon Steel Corp., 872 F.2d 36, 43 (3d Cir.1989).55 Group of Institutional Investors v. Chicago,Milwaukee, St. Paul and Pacific R.R. Co., 318U.S. 523, 549–50 (1943); In re PinnacleBrands, Inc., 259 B.R. 46, 53–54 (Bankr. D.Del. 2001); see also In re Market Square Inn,Inc., 978 F.2d 116, 121 (3d Cir. 1992) (‘‘Theresolution of the issue of assumption orrejection will be a matter of business judg-ment . . .’’); In re Trans World Airlines, Inc.,261 B.R. 103, 120–21 (Bankr. D. Del. 2001);In re Trans World Airlines, 261 B.R. 103, 121(citing In re Wheeling-Pittsburgh Steel Corp.,72 B.R. 845, 849–50 (Bankr. W.D. Pa.1987)).56 11 U.S.C. § 365(g); Some equitableremedies, however, may be preservednotwithstanding rejection because a rejec-tion does not terminate the executorycontract or unexpired lease. See In reMirant Corp., 378 F.3d 511, 519 (5th Cir.2004) (noting that rejection does not termi-nate or extinguish the obligations underthe contract.); In re The Ground Round,Inc., 335 B.R. 253, 261 (1st Cir. BAP 2005)(noting that a debtor’s rejection of execu-tory contract does not constitute atermination thereof and does not causethe contract to ‘‘magically vanish’’); Sir

Speedy, Inc. v. Morse, 256 B.R. 657, 659 (D.Mass. 2000); In re Annabel, 263 B.R. 19, 25(Bankr. N.D.N.Y. 2001). Arguably,because the contract is breached but notterminated, the debtor remains bound bythose terms of the contract that cannot beremedied by money damages. See In reBacon, 212 B.R. 66, 69 (Bankr. E.D. Pa.1997).57 11 U.S.C. § 365(b)(1).58 See, e.g., Kimmelman v. Port Authority ofNew York and New Jersey (In re Kiwi Inter-national Air Lines, Inc.), 344 F.3d 311 (3dCir. 2003).59 See, e.g., Sharon Steel Corp. v. Nat’l FuelGas Distr. Corp., 872 F.2d 36 (3d Cir. 1989).60 In re Delphi Corp., Case No. 05-44481-rdd (pending in the United States Bank-ruptcy Court for the Southern District ofNew York).61 In re Dana Corp., Case No. 06-10354-brl,(pending in the United States BankruptcyCourt for the Southern District of NewYork).62 11 U.S.C. § 365(e).63 See Nostas Assocs. v. Costich (In re KleinSleep Prods.), 78 F.3d 18, 35 (2d Cir. 1996).64 There are few bankruptcy casesdiscussing a seller’s right to refusedelivery of goods under a contractpursuant to section 2-702 of the UCCafter a bankruptcy filing. However, all ofthe reported cases that we have been ableto locate appear to uphold a seller’s rightto refuse delivery under section 2-702. SeeIn re National Sugar Refining Co., 27 B.R. 565(S.D.N.Y. 1983) (holding that the debtor’srefusal to deliver goods absent payment ofthe goods in cash did not violate the auto-matic stay imposed by section 362 of theBankruptcy Code); see also In re FabricBuys, 34 B.R. 471 (Bankr. S.D.N.Y. 1983);In re Morrison Indus., L.P., 175 B.R. 5(Bankr. S.D.N.Y. 1994).65 15 U.S.C. § 1; Standard Oil Co. v. UnitedStates, 221 U.S. 1, 58 (1911); Continental

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T.V., Inc. v GTE Sylvania Inc., 433 U.S. 36,49 (1977).66 Monsanto Co. v. Spray-Rite Serv. Corp.,465 U.S. 752, 764 (1984).67 See, e.g., Theatre Enter. v. Paramount FilmDistrib. Corp., 346 U.S. 537, 541 (1954); Am.Tobacco Co. v. United States, 328 U.S. 781,810 (1946).68 See Market Force, Inc. v. Wauwatosa RealtyCo., 906 F.2d 1167, 1172 (7th Cir. 1990);Cayman Exploration Corp. v. United GasPipe Line, Co., 873 F.2d 1357, 1361 (10thCir. 1989); Apex Oil Co. v. Di Mauro, 822F.2d 246, 254 (2d Cir. 1987).69 Matsushita Elec. Indus. v. Zenith RadioCorp., 475 U.S. 574, 588 (1986).70 See, e.g., Standard Oil v. United States, 221U.S. at 58.71 U.S. v. Socony-Vacuum Oil Co., 310 U.S.150, 212–213 (1940)72 N. Pacific Ry. v. United States, 356 U.S. 1,5 (1958).73 Id.74 Business Elecs. Corp. v. Sharp Elecs. Corp.,485 U.S. 723 (1988).75 See N. Pacific Ry. v. United States, 356U.S. at 5. The following are examples ofagreements that have been found to beper se illegal: agreements to fix prices orset maximum prices, Ariz. v. Maricopa Cty.Med. Soc’y, 457 U.S. 332 (1982); UnitedStates v. Socony-Vacuum Oil Co., 310 U.S.150 (1940); agreements to limit productionor restrict output, Hartford-Empire Co. v.United States, 323 U.S. 386 (1945); UnitedStates v. Am. Linseed Oil Co., 262 U.S. 371(1923); agreements to divide markets,Palmer v. BRG of Ga. Inc., 498 U.S. 46(1990); United States v Topco Assoc., 405U.S. 596 (1972); United States v. Sealy, Inc.,388 U.S. 350 (1967); agreements to standar-dize credit terms, Catalano, Inc. v. TargetSales, Inc., 446 U.S. 643 (1980) (holdingthat agreement among competing whole-salers to refuse to sell unless retailer makespayment in cash either in advance or on

delivery is illegal per se because it ismerely one form of price-fixing); groupboycotts intended to fix prices or harmcompetitors, FTC v. Superior Court TrialLawyers Ass’n, 493 U.S. 411 (1990); Silverv. N.Y. Stock Exchange, 373 U.S. 341(1963); Klor’s Inc. v. Broadway-Hale Stores,Inc., 359 U.S. 207 (1959); Fashion Origina-tors’ Guild of Am., Inc. v. FTC, 312 U.S.457 (1941).76 Klor’s Inc., 359 U.S. at 210, 212 (citationsomitted) (quoting Fashion Originators Guildv. FTC, 312 U.S. 457, 466 (1941)).77 United States v. General Motors Corp., 384U.S. 127 (1966).78 Id. at 140.79 Id. at 146.80 N.W. Wholesale Stationers, Inc. v. P.Stationary & Printing Co., 472 U.S. 284(1985).81 Business Elecs. Corp. v. Sharp Elecs. Corp.,485 U.S. 717, 730 n.4 (1988) (‘‘[A] faciallyvertical restraint imposed by a manufac-turer only because it had been coerced bya ‘horizontal cartel’ agreement among hisdistributors is in reality a horizontalrestraint. . . . [A] restraint is not horizontalbecause it has horizontal effects, butbecause it is the product of a horizontalagreement.’’).82 See, e.g., NYNEX Corp. v. Discon, Inc., 525U.S. 128 (1998).83 Id.84 NYNEX Corp. v. Discon, 525 U.S. 128,138 (1998).85 N.W. Wholesale Stationers, Inc., 472 U.S.at 293–95 (holding that expulsion ofmember of buying cooperative should bejudged under rule of reason where coop-erative was formed to increase economicefficiency and render markets more, ratherthan less, competitive and where therewas no showing that cooperativepossessed market power or exclusiveaccess to an element essential to effectivecompetition) (citations omitted).

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86 Id. at 293–95.87 FTC v. Superior Court Trial LawyersAss’n, 493 U.S. 411 (1990).88 FTC & U.S. DEPT. OF JUSTICE, ANTITRUST

GUIDELINES FOR COLLABORATIONS AMONG

COMPETITORS (Apr. 2000),http://www.ftc.gov/os/2000/04/ftcdoj-guidelines.pdf, § 1.1.89 Id. at Preamble.90 Id. at § 2.3.91 Id.92 Id. at § 3.2.93 Id. Permissible integration typicallyinvolves combinations of significantcapital, technology, or other complimen-tary assets to achieve procompetitivebenefits that could not have been achievedseparately. Guidelines at § 3.2. ‘‘The merecoordination of decisions on price, output,customers, territories, and the like is notintegration, and cost savings without inte-gration are not a basis for avoiding per secondemnation.’’ Id. The integration mustbe of a type that plausibly would generateprocompetitive benefits, which mayenhance the participants’ ability or incen-tives to compete and thus may offset anagreement’s anticompetitive tendencies.Id. Integration may be permissiblewithout being essential, but an integrationwill not be permitted when there arecomparable means of efficiency-enhan-cing integration that are significantly lessrestrictive. Id.94 Id. at § 3.3.95 Id.96 Id. Factors the Agencies will consider inthe rule of reason analysis include (i) thenature of the agreement, (ii) the businesspurpose of the agreement, (iii) whether theagreement has caused anticompetitiveharm, (iv) whether the parties to the agree-ment possess market power, (v) the extentto which the parties to the agreement havethe ability and the incentive to competeindependently, (vi) the duration of the

agreement, (vii) whether entry into themarket would be timely, likely, and suffi-cient to deter or counteract anyanticompetitive harms, and (viii) anyother market circumstances that mayfoster or impede anticompetitive harms.Guidelines at § 3.3. If the examination ofthese factors indicates no potential foranticompetitive harm, the Agencies endthe investigation without consideringprocompetitive benefits. Id. If investiga-tion indicates anticompetitive harm, theAgencies examine whether the relevantagreement is reasonably necessary toachieve procompetitive benefits thatlikely would offset anticompetitiveharms. Id.97 First, production collaborations may beprocompetitive where participants‘‘combine complementary technologies,know-how, or other assets to enable thecollaboration to produce a good more effi-ciently or to produce a good that no oneparticipant alone could produce.’’ Id. at§ 3.31(a). Second, marketing collabora-tions may be procompetitive ‘‘where acombination of complementary assetsenables products more quickly and effi-ciently to reach the marketplace.’’ Id.Third, buying collaborations may beprocompetitive where they allow ‘‘partici-pants to centralize ordering, to combinewarehousing or distribution functionsmore efficiently, or to achieve other effi-ciencies.’’ Id. Lastly, research anddevelopment collaborations are usuallyprocompetitive where the combination ofcomplementary assets, technology, orknow-how enables participants ‘‘morequickly or more efficiently to researchand develop new or improved goods,services, or production processes.’’ Id.98 Id. at § 4.1.99 Id.100 Id.101 Absent extraordinary circumstances,the Agencies will not challenge competitorcollaboration where the market shares of

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the participants account for no more thantwenty percent of the relevant markets. Id.at § 4.2.102 Id. at § 4.3. ‘‘Absent extraordinarycircumstances, the Agencies [will] notchallenge competitor collaboration on thebasis of effects on competition in an inno-vation market, id. at § 3.32(c) (‘‘Aninnovation market consists of the researchand development directed to particularnew or improved goods or processes andthe close substitutes for that research anddevelopment. The Agencies define aninnovation market only when the capabil-ities to engage in the relevant research anddevelopment can be associated withspecialized assets or characteristics ofspecific firms.’’), where three or moreindependently controlled research effortsin addition to those of the collaborationpossess the required specialized assets orcharacteristics and the incentive to engagein R&D that is a close substitute for theR&D activity of the collaboration.’’ Id.103 Id. at §§ 4.2, 4.3; see also Section IV.D.1herein.104 See generally Eastern R.R. PresidentsConference v. Noerr Motor Freight, Inc., 365U.S. 127 (1961); United Mine Workers v.Pennington, 381 U.S. 657 (1965); see City ofColumbia v. Omni Outdoor Advertising Inc.,499 U.S. 365, 380 (1991).105 City of Columbia, 499 U.S. at 380.106 See California Motor Transp. Co. v.Trucking Unlimited, 404 U.S. 508, 510–11(1972); Primetime 24 Joint Venture v.National Broadcasting Company, 219 F.3d92, 99–100 (2nd Cir. 2000).107 See, e.g., Primetime 24 Joint Venture, 219F.3d at 100 (citing cases).108 See, e.g., California Motor Transp. Co.,404 U.S. at 513; Noerr Motor Freight, 365U.S. at 144.109 Professional Real Estate Investors, Inc. v.Columbia Pictures Indus., 508 U.S. 49, 60(1993) (citations, internal quotation

marks, and alterations omitted); Primetime24 Venture, 219 F.3d at 100.110 City of Columbia, 499 U.S. at 380.111 See, e.g., Sharon Steel Corp. v. ChaseManhattan Bank, N.A., 691 F.2d 1039, 1052(2nd Cir. 1982).112 Id.113 See, e.g., Primetime 24 Joint Venture, 219F.3d at 100 (citing cases).114 Catalano, Inc. v. Target Sales, Inc., 446U.S. 643 (1980) (holding that agreementamong competing wholesalers to refuseto sell unless retailer makes payment incash either in advance or on delivery isillegal per se because it is merely oneform of price-fixing); United States v.Socony-Vacuum Oil Co., 310 U.S. 150(1940) (holding that agreements to fixprices are per se illegal).115 See Nat’l City Bank v. Turnbaugh, 463F.3d 325, 330 (4th Cir. 2006); see alsoJonathan I. Gleklen, Per Se Legality forUnilateral Refusals to License IP IsCorrect As a Matter of Law and Policy at6 (citing Hisquierdo v. Hisquierdo, 439 U.S.572, 582 (1979)).116 See State of R.I. v. Narragansett IndianTribe, 19 F.3d 685, 703 (1st Cir. 1994)(‘‘The doctrine of preemption . . . appliesonly to conflicts between federal provi-sions, on one hand, and state or localprovisions, on the other hand.’’).117 See id. at 704 (‘‘[C]ourts shouldendeavor to read antagonistic statutestogether in the manner that will minimizethe aggregate disruption of congressionalintent.’’); Anderson v. FDIC, 918 F.2d 1139,1143 (4th Cir. 1990) (‘‘We believe the moreappropriate rule of statutory constructionis the principle that a court should, ifpossible, construe statutes harmo-niously.’’).118 In re AMERCO, 109 F.T.C. 135 (1987).119 Id.; see also 23-7 American BankruptcyInstitute Journal 34, *59 (September 2004).

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120 See, e.g., City of Columbia v. OmniOutdoor Advertising Inc., 499 U.S. 365, 380(1991).121 As in the non-bankruptcy context,there is no reason why competitorsshould not be permitted to jointly retainlegal counsel to represent the interests ofthe creditors in their effort to seek legalredress against a common debtor. In fact,such an action would likely be protectedunder the Noerr-Pennington Doctrine. See,e.g., Primetime 24 Joint Venture v. NationalBroadcasting Company, 219 F.3d 92, 100(2nd Cir. 2000) (citing cases).122 As discussed in Section III.C.4.a - b, theBankruptcy Code regulates service as acommittee member. However, there is noreason to believe that the overwhelmingmajority of actions a creditor would take

on or in connection with a creditors’committee would not be protected underthe Noerr-Pennington Doctrine.123 For a detailed discussion, please seeSection III.C.3.a above..124 Please see sections III.C.3.e andIII.C.6.f.125 Catalano, Inc. v. Target Sales, Inc., 446U.S. 643 (1980) (holding that agreementamong competing wholesalers to refuseto sell unless retailer makes payment incash either in advance or on delivery isillegal per se because it is merely oneform of price-fixing); United States v.Socony-Vacuum Oil Co., 310 U.S. 150(1940) (holding that agreements to fixprices are per se illegal).

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