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Thursday, September 17, 2009

Ind. Courts - 7th Circuit releases Hoosier Energy decision in typescript

For background, start with this ILB entry from Jan. 6th headed "Still more on 'Judge gives reprieve to Hoosier Energy'". It includes this quote that the ILB trasncribed from the oral argument:

Early into yesterday's oral argument (at about 3:40), one of the 7th Circuit judges describes the purpose of yesterday's argument: "here is this complicated transaction that has taken place, and for reasons that probably have a lot to do with the credit markets, it is unraveling, and what the district court was asked to do was make sure that the litigation could go forward in a way that would best protect any number of possible outcomes ... , and so we are here to review whether, as we have now modified it, this preliminary injunction is an acceptable way to do that, was that an abuse of discretion, so I guess I'm a little worried about getting too far into the merits of the underlying deal."
In Hoosier Energy Rural Electric v. John Hancock Life (SD Ind., Judge Hamlton), an 11-page opinion, CJ Easterbrook concludes:
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.

But what was impossible in fall 2008 may well be possible in fall 2009. What is more, the longer this impasse continues, the more the balance of equities tilts in favor of John Hancock. Recall that the reason for the credit-default swap was concern that the Merom station would eventually become non-economic because of changes in the market for electricity, the regulation of emissions from coal-fired stations, or the advancing age of the plant. The more time passes, the more serious this risk—and the greater the risk that one or another problem may afflict Hoosier Energy as a firm. 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.

John Hancock is entitled to the security it negotiated against these possible outcomes. The injunction bonds, at only $22 million in liquid security, do not cover John Hancock’s exposure. The change in Ambac’s credit rating, in particular, requires the district court to take a new look at the adequacy of the Rule 65(c) security promptly after receiving this court’s mandate (which will be issued together with this opinion). So although we affirm the district court’s preliminary injunction, we conclude that, if Hoosier Energy has not produced a replacement for Ambac by the end of 2009, the time will have arrived when the court must let John Hancock realize on 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. AFFIRMED

Posted by Marcia Oddi on September 17, 2009 11:38 AM
Posted to Ind. (7th Cir.) Decisions