eNews December 5, 2013

December 5, 2013

eNews

News Briefs

  1. U.S. Supreme Court Rules to Uphold Forum-Selection Clauses
  2. Virginia Commission Makes No Recommendation on Credit Reporting Bill
  3. November Credit Managers' Index Increases to New Post-Recession High
  4. Detroit Ruled Eligible for Bankruptcy, Largest in U.S. History
  5. Regulators Set to Vote on Volcker Rule Next Week
  6. Conditions Looking up in Latest Manufacturing PMI Numbers

 

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U.S. Supreme Court Rules to Uphold Forum-Selection Clauses

A new Supreme Court ruling found that the venue of legal proceedings should be the one specified in a contract's forum-selection clause in all but "extraordinary" and the "most unusual" cases of public interest.

The Supreme Court of the United States reviewed a lower court ruling in Atlantic Marine Construction Company, Inc. v. J-Crew Management, Inc. that revolved around a lawsuit filed over a withheld final payment from a Virginia-based general contractor, Atlantic Marine, to a Texas-based subcontractor, J-Crew, and an attempt by the sub to keep the case closer to its home (and where the work was performed) despite contract terms. The ruling, written by Justice Samuel Alito, found that a district-level judge should, as an "ordinary" course of business, transfer civil actions upon request when the destination court was agreed to by contract in a forum-selection clause. Only a very rare or "extraordinary" public-interest matter should be considered to break from terms agreed to in such a clause. J-Crew, which argued on a basis of convenience and costs for its small company, lost in its bid to have the case heard in Texas despite a lower court ruling that would have allowed it because the contract specified disputes would go forth in Virginia. Alito noted that, via the forum-selection clause terms, J-Crew "knew that a distant forum might hinder its ability to call certain witnesses and might impose other burdens" well in advance.

"Motion to transfer based on a forum-selection clause should not consider arguments about the parties' private interests," Alito wrote in the unanimous decision. "When parties agree to a forum-selection clause, they waive the right to challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses, or for their pursuit of the litigation." The judge suggested that failure to honor the forum-selection clause in that way might encourage widespread venue-shopping and "gamesmanship" from either side of the general contractor-sub relationship. In essence, moving the case out of an agreed-upon court could give a local plaintiff an unfair advantage because of knowledge of state law. Alito also wrote of fairness regarding changing contract terms that may have been influenced by where disputes, should they arise, would be heard:

"When parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties' settled expectations. A forum-selection clause, after all, may have figured centrally in the parties' negotiations and may have affected how they set monetary and other contractual terms; it may, in fact, have been a critical factor in their agreement to do business in the first place. In all but the most unusual cases, therefore, the interest of justice is served by holding parties to their bargain."

The Supreme Court also remanded the case back to the Court of Appeals for the Fifth Circuit to review whether any extraordinary public-interest factors were in play. STS National Sales Representative Chris Ring noted such a case also drives home the deep importance of having credit on the same page with upper management and sales where specific details of contracts are concerned, especially when large dollar values are in play.

-Brian Shappell, CBA, CICP, NACM staff writer

Visit the NACM Blog in the days to come for the newest information and analysis on this Supreme Court case.

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Virginia Commission Makes No Recommendation on Credit Reporting Bill

After a year's worth of consideration, the Virginia Small Business Commission made no recommendation on Virginia House Bill 2198 this week, leaving the commercial credit reporting bill effectively dead for the remainder of the year.

Before issuing its decision, the Commission heard a final report from the HB 2198 Work Group, created within the Commission to investigate the divergent opinions on the bill's commercial credit reporting provisions. In its report, the Work Group noted that "we are concerned that the full implications of the legislation at this point are not fully known. Without a more firm grasp on the implications of this legislation, whether it is amended or not, we do not think it is advisable to proceed with a legislative recommendation on HB 2198, especially when no consensus has been reached and the parties remain substantially apart."

The Commission followed suit, making no recommendation as suggested by the Work Group and rebuffing a last-minute plea by the bill's original sponsor, Delegate Michael Watson (R), to endorse the bill. While this decision effectively kills HB 2198 for the time being, its defeat is expected to be short-lived, as the legislation is likely to be reintroduced in 2014 for consideration by the full Virginia House of Delegates. Nonetheless, the lack of a recommendation by the Commission weakens the bill's chances for passage.

NACM has opposed HB 2198 since its introduction in January, and will continue to oppose it as the debate over the bill carries into the new year. Specifically, NACM believes that HB 2198's provisions that would force commercial credit reporting agencies to reveal the identity of their sources of so-called "negative information" on the subject of a commercial credit report would cool the free and open exchange of credit information in Virginia, create a patchwork of regulations nationwide that would negatively affect credit availability and set a dangerous precedent for the regulation of commercial credit reports in general.

For more information, contact NACM Government Affairs Liaison Jacob Barron, CICP at jakeb@nacm.org.

- Jacob Barron, CICP, NACM staff writer

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November Credit Managers' Index Increases to New Post-Recession High

The Credit Managers' Index (CMI), published by the National Association of Credit Management (NACM), increased to 57.1 in November, registering its highest reading since the beginning of the recession in 2008.

Building on the optimism from October's CMI, where respondents shook off the crisis in Washington to deliver the index's best figures in over a year and a half, November's readings signify a newfound stability in businesses' attitudes on the economy as well as a greater sense of security in their investments. "There is a real sense that credit is more available than it has been in some time, which bodes well for the coming year," said NACM Economist Chris Kuehl, PhD. "This is not to say that a shock to the economy would not force a decline, but more resilience has formed than has been the case."

Sales climbed to 63.4 in November, besting May's record high of 63.0. Other favorable factors, however, fell victim to some slight seasonal shifts as new credit applications improved to 59.1, but amount of credit extended declined slightly from 63.8 to 63.2. "Given that there was more credit requested and less granted, the sense is this may be a short-term retrenchment slated to reverse once the holiday season distortions run their course," Kuehl said. Dollar collections also slipped in November, from 61.4 to a still-strong 59.7, "reflecting some of the cash flow management tricks that emerge this time of year," he added. Nonetheless, even with the divergences between individual favorable factors, the favorable index itself suffered only a slight decline from 61.5 to 61.3, which Kuehl noted wasn't any cause for concern.

The unfavorable index, however, experienced a noteworthy bump from 53.6 to 54.3 in November, ignoring any uncertainty about the economy and signaling that most of the companies that received credit in the past are managing to keep pace. Rejections of credit applications jumped by more than a point, from 52.1 to 52.3, and accounts placed for collection leapt by nearly two points from 53.3 to 55.0, an impressive development given that this factor was in the 40s in March.

"The overall message from the unfavorable factors is that business does not seem to be in real distress at the moment," Kuehl said. "This does not necessarily mean that there is solid growth around the corner, but it does indicate that most of the companies in the survey are heading into 2014 stable, which opens up the possibility of substantial growth."

- NACM

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Detroit Ruled Eligible for Bankruptcy, Largest in U.S. History

It might be a dubious claim to fame but also a necessary step, for one of the nation's worst debt-beleaguered cities: Detroit officially became the largest Chapter 9 bankruptcy in U.S. history this week after the filing was cleared to proceed by a federal judge on December 3 .

U.S. Bankruptcy Judge Steven Rhodes ruled the city was, in fact, insolvent and that it was legally eligible for a municipal bankruptcy filing. Detroit's Chapter 9 endured months of heated courtroom drama and behind-the-scenes wrangling. Unions and other groups representing retirees and current city employees repeatedly argued, to no avail, that a Chapter 9 violated the Michigan Constitution. However, city and state officials as well as the U.S. Justice Department defended Detroit's right to file, saying the filing does not amount to any state or federal constitutional violation. Supporters also argued bankruptcy was the only way back for a city nearing $20 billion in unfunded debt, primarily caused by massive entitlements (pension, health care) of public workers and retirees as well as years of fiscal mismanagement. Such entitlement issues have been an escalating problem with scores of U.S. municipalities whose debt levels are growing significantly each year.

Rhodes indicated throughout the process that it was unlikely that the constitutionality argument would derail the proceedings. Bruce Nathan, Esq., partner at Lowenstein Sandler LLP, has followed Chapter 9 developments for more than two years, predicting in early 2012 that a successful eligibility bid out of Detroit would raise the profile of this form of bankruptcy, if not inspire a spike in filings without precedent.

- Brian Shappell, CBA, CICP, NACM staff writer

Join an NACM Industry Credit Group

Businesses risk billions of dollars each year on sales on credit. Find your way between fact and fiction, hope and charity, and faith and foolishness by joining an NACM industry credit group.

Industry credit groups open communication lines for the exchange of credit information. Credit executives receive invaluable factual credit information upon which to base credit-extension decisions.

Managed and operated by NACM Affiliates nationwide, credit groups:

  • Provide unparalleled networking opportunities
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  • Provide a forum to discuss the latest developments on credit department procedures,
    equipment and other credit management functions
  • Support the discussion of account information and delinquent account reports
  • Adhere to federal antitrust guidelines

Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.

Regulators Set to Vote on Volcker Rule Next Week

Four of the five agencies charged with implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act announced on December 3 that they would meet next week to vote on the so-called Volcker rule, which would place new restrictions on how banks are allowed to use their money.

The Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Commodity Futures Trading Commission (CFTC) and the Federal Deposit Insurance Corporation (FDIC) all noted this week that they would meet on December 10 to vote on what's likely to be a more stringent version of the Volcker rule, which would place limits on proprietary trading, an industrial term for a financial activity conducted by banks using their own capital and aimed at enhancing their own profit rather than increasing value for their customers or account holders. The fifth agency wrangled in the rule's implementation, the Securities and Exchange Commission (SEC), announced that it would likely vote around the same time as its counterparts.

Named for former Fed Chairman Paul Volcker, the rule would limit the types of risks banks with federally-insured funds could take and, depending on how regulators tailor the rule, could end up preventing banks from using their own money to make speculative trades altogether. The new regulations could also affect how banks engage in market-making, wherein a bank uses its capital to buy and sell securities with its customers and profits from spreads and movements in prices, and prevent banks from designing their risk-hedging activity to turn a profit rather than, as the name of this type of activity suggests, designing them to limit a specific currency, market or foreign exchange risk.

The Obama Administration has operated on a self-imposed deadline to have the rule finished before the end of the year. Banks and financial institutions currently would have to comply with the proposal by July 21, 2014. However, the compliance date is expected to be pushed back since the rule is only emerging now, more than a year after the deadline set for regulators by Dodd-Frank.

Some of the nation's largest financial institutions, such as Goldman Sachs Group, Inc., Morgan Stanley and J.P. Morgan Chase & Co., could be negatively affected by the rule, as a great deal of these institutions' profits are derived from market-making and proprietary trading. Transactions costs for clients at these firms could also see increases due to the rule's institution.

- Jacob Barron, CICP, NACM staff writer

The Lien Waiver Process Needs to Be Managed

Finally there's a system created for suppliers and subs by the leading association for credit professionals: NACM. 

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Conditions Looking up in Latest Manufacturing PMI Numbers

November statistics unveiled this week by financial information services firm Markit, in cooperation with others like HSBC, indicated that overall global manufacturing activity shows signs of hope for a stable or, in some cases, stronger ending for this year and the beginning of next. Power economies including the United States and Germany fared particularly well with just one month left in 2013.

Country Manufacturing PMI Nov. 2013 Oct. 2013 Notes
 United States  54.7  51.8 A 10-month high on new orders, output
 Brazil  49.7  50.2 Export activity stabilizing
 China  50.8  50.9 Output, new orders best in 8 months
 France  48.4  49.1 New orders dropping quickly
Germany  52.7  51.7 Best level since mid-2011
 India  51.3  49.6 First rise in output in 7 months
 Indonesia  50.3  50.9 Orders increased, but exporting down
 Italy  51.4  50.7 Input price hikes at worst in 2013
 Mexico  51.9  50.2 Best exporting rate since March
 Netherlands  56.8  54.4 Best new order rise since April 2011
 Poland  54.4  53.4 Best new order rise since January 2011
 Russia  49.4  51.8 Conditions deteriorating under Putin
 Spain  48.6  50.0 Employment still freefalling
 South Africa  51.6  51.5 Output price rise at slowest pace ever
 South Korea  50.4  50.2 Solid exporting growth
 Taiwan  53.4  53.0 20-month high in output, orders
 Turkey  55.0  53.3 Sharp order, output increases
 Vietnam  50.3  51.5 New order drop threatens output
 United Arab Emirates (non-oil)  58.1  56.3 Record high on sharp export increase

 

- Brian Shappell, CBA, CICP, NACM staff writer

Visit the NACM blog for a roundup of Markit/HSBC statistics on service side activity.

 

 To view past eNews issues or to visit the NACM Archives, click here.

 

 

 

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