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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. Video pen? Nice work, "JW"! Let this be a lesson and a caution to all disgruntled ex-spouses (or soon-to-be ex-spouses) . . . you may think that altercation is going to get you some satisfaction . . . it will not.

  2. First comment on this thread is a fitting final comment on this thread, as that the MCBA never answered Duncan's fine question, and now even Eric Holder agrees that the MCBA was in material error as to the facts: "I don't get it" from Duncan December 1, 2014 5:10 PM "The Grand Jury met for 25 days and heard 70 hours of testimony according to this article and they made a decision that no crime occurred. On what basis does the MCBA conclude that their decision was "unjust"? What special knowledge or evidence does the MCBA have that the Grand Jury hearing this matter was unaware of? The system that we as lawyers are sworn to uphold made a decision that there was insufficient proof that officer committed a crime. How can any of us say we know better what was right than the jury that actually heard all of the the evidence in this case."

  3. wow is this a bunch of bs! i know the facts!

  4. MCBA .... time for a new release about your entire membership (or is it just the alter ego) being "saddened and disappointed" in the failure to lynch a police officer protecting himself in the line of duty. But this time against Eric Holder and the Federal Bureau of Investigation: "WASHINGTON — Justice Department lawyers will recommend that no civil rights charges be brought against the police officer who fatally shot an unarmed teenager in Ferguson, Mo., after an F.B.I. investigation found no evidence to support charges, law enforcement officials said Wednesday." http://www.nytimes.com/2015/01/22/us/justice-department-ferguson-civil-rights-darren-wilson.html?ref=us&_r=0

  5. Dr wail asfour lives 3 hours from the hospital,where if he gets an emergency at least he needs three hours,while even if he is on call he should be in a location where it gives him max 10 minutes to be beside the patient,they get paid double on their on call days ,where look how they handle it,so if the death of the patient occurs on weekend and these doctors still repeat same pattern such issue should be raised,they should be closer to the patient.on other hand if all the death occured on the absence of the Dr and the nurses handle it,the nurses should get trained how to function appearntly they not that good,if the Dr lives 3 hours far from the hospital on his call days he should sleep in the hospital

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