😎Notice of Appearance - Cullen Drescher Speckhart, Partner at Cooley LLP 😎

Source: Cooley LLP

This week we welcome Cullen Drescher Speckhart, Chair of Cooley LLP’s restructuring and reorganization practice. We’re excited to discuss what she and Cooley have been up to — ⚡️spoiler alert … A LOT ⚡️— so let’s just jump right in.

PETITION: Hi Cullen, thank you for doing this. Mass torts in bankruptcy has been a hot topic lately — especially now that the Third Circuit shot down Johnson & Johnson’s attempt to deal with certain large liabilities via “Texas Two-Step” (a case that you’re also involved in). You’ve been involved in some massive mass tort cases — particularly in the opioid realm. Notably, you represented the official committee of unsecured creditors in the Mallinckrodt matter. Tell us about that case, the end result, and any lessons learned.

Cullen: Mallinckrodt involved the appointment of two official committees: an official committee of opioid claimants (the “OCC”) and the official committee of unsecured creditors, representing non-opioid creditors (the “UCC”). Our client was the UCC, an incredibly diverse constituency that included personal injury claims, antitrust claims, trade claims, environmental claims, contract claims, financial claims, legacy claims … the list goes on. One of our most important challenges was to understand each group’s objectives and interests, and to develop a unified approach for advocating on behalf of the UCC as a whole. Our negotiations with the other case parties resulted in a mediated settlement that was challenged by certain non-consenting creditors as part of plan confirmation. Our team successfully litigated to defend the settlement over the course of a very lengthy trial and through a number of appeals.

One thing to know about the settlement we reached on behalf of the UCC is that the system of distributions we created for Class 6 did not track the debtors’ waterfall, which governed distributions to other classes under the plan. In essence, the UCC disagreed with the company’s financial model, so we created our own version to determine recoveries to unsecured creditors and arrived at a principled allocation for holders of claims in that group. One of the main differences between our model and the debtors is that while the debtors proposed pro rata distributions from a pot, our model accounted for numerous distinctions among various classes of unsecured creditors – importantly, the nature of the claim, the specific debtor entity at which those claims were asserted, and where those debtor entities existed within the corporate structure that gave rise to the waterfall.  Pursuant to the settlement, our alternative model only applied in Class 6 (where the UCC’s constituent claims are located). We used evidence to prove the reasonableness of this approach and the validity of our model at trial before Judge Dorsey. One big lesson from Mallinckrodt was that there is both an art and a science to settlements in bankruptcy, and that the Code provides considerable room to maneuver in arriving at sound conclusions for diverse creditor groups.

PETITION: Staying on the mass torts and opioid train, you also represent the Official Committee of Opioid Claimants of Endo International. That case is currently mired in a protracted mediation overseen by retired Judge Shelley Chapman. There are a lot of disparate groups fighting over value there. Understanding you may be somewhat limited in what you can say, what is your take on the progress in the case so far and how does this thing end?

Cullen: Like Mallinckrodt and LTL, ENDO also features two official committees – an official committee of unsecured creditors (“UCC”) and an opioids claimants committee (“OCC”). In ENDO, our firm represents the Opioid Claimants Committee as lead counsel alongside Akin Gump, the OCC’s special counsel.  So we come to ENDO with a different role than we had in Mallinckrodt (where we repped the UCC), and with a different approach. I’ll maintain mediation confidences, but as I noted in court last Friday, we are proud of the settlement in principle that was recently achieved among the Debtors, the 1Ls, the UCC and the OCC – Judge Chapman was instrumental in framing out a process that led to successful negotiations. I’ll also comment that learning more about the human toll of the opioid crisis through the experiences of our committee members has been eye-opening.  It’s a reminder to appreciate how meaningful our work can be, and how directly we can help provide relief to those who need it through our effort and our advocacy.

PETITION: A penny for your thoughts on the J&J decision….

Cullen: In a bit of a wild procedural twist, the original LTL committee (TCC 0) was split into TCC 1 and TCC 2, with various members added to each, when the case was transferred from North Carolina to New Jersey. At that point in time, TCC 0’s motion to dismiss had already been filed and was on its way to contested hearings. We were hired to represent the interests of TCC 2, the Official Committee of Mesothelioma Claimants, which included prosecuting the motion to dismiss and related litigation.

Cooley helicoptered into trial prep with a massive cross-disciplinary team led by Michael Klein, Ian Shapiro and myself. We were tasked with the challenge of preparing for trial on behalf of a newly formed official committee in six weeks’ time. It was a huge undertaking, but we were very careful in creating our strategy – I am gratified that the Third Circuit adopted the arguments and reasoning we developed in discovery and at trial.

LTL enriched me as a professional. Our team worked closely with the committee members and their representatives, many of whom are accomplished trial lawyers in their own areas of practice. I came away from the LTL trial with a broadened view of the role of bankruptcy in the larger legal landscape, and a more enlightened understanding of how trials are prepared in other contexts, such as where juries are involved as triers of fact.

PETITION: Packable Holdings LLC. Enjoy Technology Inc. PhaseBio Pharmaceuticals Inc. Quanergy Systems Inc. When did Cooley become a debtor shop?! Separately, are we right to suggest that the SPAC craze of ‘21-’22 is going to provide your firm a solid pipeline of potential mandates?

Cullen: Our committee practice continues to grow, and you’re right to note that our debtor work is also rapidly expanding.

On the debtor aspect, Cooley has a solid pipeline of company-side representations, not necessarily because of SPACs (although they do carry a few specific legal considerations which are often regulatory in nature) but because our firm represents 8,000+ companies as primary outside counsel.

You’re right to note that a few of our most recent company side filings involved SPACs, but the restructuring rationale for a public company considers more than just how the company went public. It also thinks about what is the value maximizing business objective, and whether bankruptcy is the best way to go from point A to point B. For example, Enjoy Technology was filed with the objective of implementing, under section 363, a sale transaction that was negotiated pre-petition.

PETITION: But what’s different now? Your client base has always been there and yet only now are you filing debtor case after debtor case. What changed?

Cullen: Our client base is well-populated with businesses that began as startups and are now maturing through various stages of the corporate life cycle. In response to this evolution, the vision for our practice group changed. Historically, Cooley’s brand in restructuring has been known for strength in the committee space. When I joined Cooley, my partners and I re-imagined the nature of our practice recognizing the changes that were happening around the platform.

As an initial matter, we were intentional in positioning the group to provide comprehensive service to our firm’s corporate client base. That means we’re doing more company side work and filing a debtor case when it’s the best restructuring path. We also wanted to expand the scope of our committee practice to include large cases that allow us to deploy Cooley’s top of the market resources in life sciences, IP, technology, and litigation for the benefit of creditor constituencies. Along the way we’ve significantly deepened our bench in New York, DC and Chicago, and added partner Eric Walker last year.

With our new orientation and increased depth, we can successfully leverage the power of Cooley in service to our creditor committee clients and harvest the new opportunities presented by the large population of maturing companies that our firm represents.

PETITION: As a corollary to the preceding questions, Cooley has a robust startup practice. We confess that we’ve looked at Cooley’s free online resources with respect to PETITION but also re: certain angel investments/advisorships we’ve done over time. With, among other things, the free money era over, the IPO market closed, VCs becoming more discerning, and LPs agitating over GP diligence (or the lack thereof, cough cough FTX) and investing less in venture funds, do you think there may be an uptick in late stage startup bankruptcies outside the SPAC context? We reckon ABC business will be rockin’ but we also assume that some of these companies will have some IP they can sell and releases they want…thoughts?

Cullen: Further to my prior answers, there may be plenty of reasons to consider a bankruptcy for a late-stage startup (apart from releases and IP asset sales). For example, some types of contracts might be most effectively challenged using legal mechanisms only available under the Code, disputed claims and interests can be determined with finality in bankruptcy court, and even young companies with certain characteristics may be most elegantly liquidated under the provisions of a plan. Even with startups, we jump to no conclusions about the value-maximizing path, and we always consider that some combination of creative approaches might yield the best results.  

PETITION: What would you say has been the biggest development of the first quarter of ‘23 and what do you anticipate for the final three? From the calls that you and the team are fielding these days, what are some recurring themes?

Cullen: These days, much of my time is spent responding to questions and requests from our company clients, many wanting to understand how they can best protect themselves in the event of economic adversity. Quite often companies are looking out over a long-term liquidity forecast, hoping to spot issues and build plans to confront the challenges of a difficult market. Especially for our young companies, the prospect of an economic downturn is something that is completely new. Boards and management teams want to be prepared for conditions that might require actions they’ve never had to contemplate, such as raising capital in a market to which they are not accustomed.  Because of this, even healthy companies are taking a close look at their balance sheets and preparing for contingencies they might not otherwise consider.  I do expect that theme to continue over the remainder of the year.

PETITION: Delving into a bit more detail, is there one subject that not enough people are talking about?

Cullen: We could all use a reminder to be kinder. I believe that one can be an effective advocate, an incisive thinker, and a confident leader – all without being a jerk!

I feel sorry for those who tend to mistake good nature for weakness. It probably means they need more Ted Lasso in their lives.

PETITION: What is your favorite thing about the bankruptcy code? On the flip side, you must have some thoughts about inefficiencies in bankruptcy: what is f*cked and needs fixing? If you could implore Congress to take action about one thing, what would it be?

Cullen: My favorite thing about the Code is all the missing chapters – gives us plenty of room to make things up! (Just kidding – kind of).

In seriousness, it would be helpful if Congress would resolve the debate we often have about the scope and applicability of the 546(e) safe harbor provision in fraudulent transfer proceedings, as illustrated by Judge Drain’s final written opinion rejecting application of the safe harbor to dividend payments in In re Tops Holding II Corp., 646 B.R. 617, 683 (Bankr. S.D.N.Y. 2022).

PETITION: What are some of the biggest changes you’ve witnessed happen to the business of bankruptcy over the course of your career?

Cullen: When I was a young associate, I made the decision to leave Biglaw promising myself I’d never, ever go back. I essentially started over as a third-year lawyer, joining a very small firm that had no other chapter 11 practitioners to try to build a practice from scratch. During those years I learned a lot of valuable lessons, including how to find a place in this industry and how to go about navigating its various forces. My teachers at that time were not partners in my own shop, but a handful of very generous mentors from other firms who I aspired to learn from and emulate someday. They started out as acquaintances who agreed to meet with me in response to a random email from out of the blue. As they shared their wisdom over time, they became friends and confidants, and eventually referral sources. Even now, each of those professionals (even those who have since retired!) remains an important part of my support system. They’re always game to help me think things through when the going gets tough and/or when I need a pep talk.

I mention this because your question asks about changes in the business of bankruptcy over the course of my career. In the course of my career, I have seen the bottom of the business and the top. I have also seen major changes in how large law firms approach their people; staff, associates, and partners alike. I broke an important promise to myself when I returned to Biglaw four years ago, but it was for good reason. Things are different now, and better. At least that has been my experience. I hope it is also true for others.

What has not changed is the willingness of colleagues in our industry to help one another. Every day I feel a sense of unique community in this business. I’ve benefitted greatly from the assistance of accomplished professionals who barely knew me in the beginning, and who owed me nothing. Along the way, I’ve observed this kind of generosity in many shapes and sizes, creating a shared intention to keep paying it forward to others who are learning to make their way in this business. I want to help make sure this never changes. As an industry, it’s one of the very best things we have.  

PETITION: You’ve been outspoken in other forums about the gender gap in bankruptcy. For the benefit of our readers who don’t have time for a podcast, what more can be done to get women in positions like yours?

Cullen: I’ll continue to be outspoken on the gender gap until there’s no such gap to speak of. One of my priorities in working to address gender imbalance is to avoid creating an “us vs. them” dynamic in the conversation. I’ve found that, overwhelmingly, our male colleagues are aligned in support of women and our collective effort to move on from outdated attitudes toward gender roles in the legal profession. That allyship is so important to the overall objective, which is to promote an inclusive practice environment where professionals of all genders and backgrounds can reach their full potential.

I want to acknowledge that we have a lot of work to do in elevating women in restructuring. At the same time, we should appreciate how far we’ve already come. I would encourage female professionals have a sense of immediacy in taking advantage of that progress by asking the following question: Is my current career path the best way to achieve my professional ambitions (or is it based on old assumptions about what is possible)? If a career re-design is in order, women should ditch any false belief that the only route to success is by way of someone else’s coattails, or that their roles are somehow preordained by outmoded hierarchies. My sense is that we are way beyond that now, thanks to a lot of work by senior generations of women and men alike. And I hope that women will view the present as the time to be bold, and that in doing so we’ll continue to push the bounds of the gender gap until it finally disappears.

PETITION: A quick digression: you’re admitted to practice in Missouri. Like, what the…? Is there a robust bankruptcy practice there we’re unaware of…?😜 There has to be a story there.

Cullen: Well, you might have missed Payless ShoeSource, Patriot I, Arch Coal, Peabody Energy, and Noranda Aluminum, to name a few. I was spending so much time in the EDMO between 2015 and 2018 that becoming admitted made a lot of sense. Judge Barry Schermer was so kind to swear me in one day in open court and even gave me a little razzing because I had just taken an appeal from one of his decisions – definitely a memory that still makes me smile.

Plus, I have family ties to Missouri (where my father was raised). My first cousin Elizabeth and her husband Morry Cole are both lawyers in St. Louis, and Morry is a partner in a firm with offices near the bankruptcy court. Because of that I always had nice conference rooms for client meetings, a spare bedroom to crash in at the Cole residence, and plenty of excuses to visit with Elizabeth, Morry and their adorable little kids. I have a lot of respect for the restructuring community in St. Louis – I’ve always found it to be a lovely place to practice.

PETITION: Touché. What is the best piece of professional advice that you’ve ever gotten and why? Please lay some wisdom down on our readers who may be at the initial stage of their careers.

Cullen: I got a piece of great advice as a first-year associate – to treat all of the partners with whom I worked just the same way I would treat my own clients. It helped me develop a service-focused practice mentality, and got me in the habit of using those skills in my day to day work at a very early stage.  

PETITION: Finally, you’ve likely noticed that we like to snark “Long ABC” or “Short XYZ.” What are you “long” these days? What are you “short”? Feel free to be creative here but please list one thing that’s legal/financial and one thing that’s … well … whatever.

Cullen: I am long (life-long, in fact) on horses. I started riding in kindergarten and I’m still competitive in show jumping with big goals to keep chasing. My daughter Avery, who is 10, started competing this year, rounding out three generations of horsewomen in my family. As much as I dig the adrenaline rush of high jumps at high speed, I fundamentally just really love the animals.❤️

Taz (left) and Gerry Butler (right) jumping during competition in Ocala Florida, February 2023.

I’m short on the notion that having a fantastic career in this business means giving up on things that bring the most joy (see above 🐎). I think that life is big enough to include all the things that really matter, even if sometimes the balance gets a little out of whack. I’d be a much different person without horses in my life. They help a lot in keeping me inspired, motivated, and energetic for the next challenge in the saddle, at the podium, and everywhere in between.

PETITION: Thank you Cullen and best of luck with the practice growth and the horses.