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Court upholds preliminary injunction

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Hoosier Energy Rural Electric Cooperative has until the end of the year to find a replacement holder for its credit-default swap or an insurance company will be able to collect on the security. The 7th Circuit Court of Appeals made the ruling today in the financial contract involving the co-op, insurance company, and credit-default swap holder, in addition to upholding the District Court's preliminary injunction on the payout.

In Hoosier Energy v. John Hancock Life Insurance Co., et al., and Ambac Assurance Corp., et al., No. 08-4030, John Hancock agreed to pay Hoosier Energy $300 million for a 63-year lease for part-interest in a Hoosier Energy generation plant. Hoosier Energy agreed to lease it back to John Hancock for 30 years, making payments with the present value of $279 million.

Hoosier Energy entered into the credit-default swap agreement with Ambac to provide John Hancock additional security should Hoosier Energy fall into bankruptcy. As part of the agreement, if Ambac's credit rating dipped below a certain threshold, Hoosier Energy had 60 days to find a replacement that satisfied the contractual standards.

John Hancock tried to collect on the approximately $120 million in security from Ambac because its credit rating slipped and Hoosier Energy couldn't find a replacement after 120 days. The co-op was in negotiations with another company, but John Hancock wanted Ambac to pay up; Hoosier Energy then filed this suit. The District Court eventually issued a preliminary injunction. The District Court ruled that if Ambac pays, Hoosier Energy will go bankrupt covering the outlay, which the District Court called an irreparable injury. It directed Hoosier Energy to post a bond to make sure John Hancock would be made whole should it prevail.

The Circuit Court found there is uncertainty about how this suit will come out under New York law, which the parties agreed supplies the rule of decision. It's not certain whether Hoosier Energy had a duty to replace Ambac or whether this is merely an option, wrote Chief Judge Easterbrook, and the impossibility defense is unavailable if the option characterization is correct. It's uncertain whether the extent of the 2008 credit crunch was foreseeable and whether Hoosier Energy could have replaced Ambac by offering more, or better, security to another intermediary, the chief judge continued.

"All of these uncertainties collectively support the district court's conclusion that Hoosier Energy has some prospect of prevailing on the merits. Because appellate review is deferential, the district court's understanding must prevail at the interlocutory stage," he wrote.

The chief judge noted the longer the impasse continues, the more the balance of equities tilts in favor of John Hancock.

"If, as Hoosier Energy asserts, meeting Ambac's demands under the swap contract will drive it into bankruptcy, then Hoosier Energy must be skating close to the edge, and the longer it skates there the greater the cumulative risk that it will fall over. Similarly Ambac may become less desirable as a swap partner; while this appeal has been under advisement, Ambac's credit rating has been reduced twice," he wrote.

John Hancock is entitled to the security it negotiated against these possible outcomes and the injunction bonds, at only $22 million in liquid security, don't cover the company's exposure. The change in Ambac's credit rating requires the District Court to take a new look at the adequacy of the Rule 65(c) security after receiving the Circuit Court's mandate, wrote Chief Judge Easterbrook. If Hoosier Energy hasn't produced a replacement for Ambac by the end of 2009, the District Court must let John Hancock realize its security.

"The district court itself stressed the word 'temporary' in 'temporary commercial impracticability'; we are confident that the court will not allow 'temporary' to drag out in the direction of permanence," he wrote.

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  1. A traditional parade of attorneys? Really Evansville? Y'all need to get out more. When is the traditional parade of notaries? Nurses? Sanitation workers? Pole dancers? I gotta wonder, do throngs of admiring citizens gather to laud these marching servants of the constitution? "Show us your billing records!!!" Hoping some video gets posted. Ours is not a narcissistic profession by any chance, is it? Nah .....

  2. My previous comment not an aside at court. I agree with smith. Good call. Just thought posting here a bit on the if it bleeds it leads side. Most attorneys need to think of last lines of story above.

  3. Hello everyone I'm Gina and I'm here for the exact same thing you are. I have the wonderful joy of waking up every morning to my heart being pulled out and sheer terror of what DCS is going to Throw at me and my family today.Let me start from the !bebeginning.My daughter lost all rights to her 3beautiful children due to Severe mental issues she no longer lives in our state and has cut all ties.DCS led her to belive that once she done signed over her right the babies would be with their family. We have faught screamed begged and anything else we could possibly due I hired a lawyer five grand down the drain.You know all I want is my babies home.I've done everything they have even asked me to do.Now their saying I can't see my grandchildren cause I'M on a prescription for paipain.I have a very rare blood disease it causes cellulitis a form of blood poisoning to stay dormant in my tissues and nervous system it also causes a ,blood clotting disorder.even with the two blood thinners I'm on I still Continue to develop them them also.DCS knows about my illness and still they refuse to let me see my grandchildren. I Love and miss them so much Please can anyone help Us my grandchildren and I they should be worrying about what toy there going to play with but instead there worrying about if there ever coming home again.THANK YOU DCS FOR ALL YOU'VE DONE. ( And if anyone at all has any ideals or knows who can help. Please contact (765)960~5096.only serious callers

  4. He must be a Rethuglican, for if from the other side of the aisle such acts would be merely personal and thus not something that attaches to his professional life. AND ... gotta love this ... oh, and on top of talking dirty on the phone, he also, as an aside, guess we should mention, might be important, not sure, but .... "In addition to these allegations, Keaton was accused of failing to file an appeal after he collected advance payment from a client seeking to challenge a ruling that the client repay benefits because of unreported income." rimshot

  5. I am not a fan of some of the 8.4 discipline we have seen for private conduct-- but this was so egregious and abusive and had so many points of bad conduct relates to the law and the lawyer's status as a lawyer that it is clearly a proper and just disbarment. A truly despicable account of bad acts showing unfit character to practice law. I applaud the outcome.

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