Reid rankles Dems with push for casino rider in funding bill

Reid rankles Dems with push for casino rider in funding bill
© Greg Nash

Senate Minority Leader Harry ReidHarry Mason ReidDemocrats say change to filibuster just a matter of time The Hill's 12:30 Report - Presented by Connected Commerce Council - Biden faces reporters as his agenda teeters Biden hits one-year mark in dire straits MORE (D-Nev.) is kicking up a storm with liberals in his caucus by pushing an amendment to the government funding bill that would help Caesars Entertainment Corporation, a Nevada-based gaming giant in danger of bankruptcy.

Reid is pushing to add a provision to the year-end omnibus that would help Caesars avoid bankruptcy by allowing it to restructure debt incurred by a subsidiary out of court, according to Senate and K Street sources.


Critics of the provision say it would narrow a Depression-era law intended to protect minority shareholders and apply retroactively to a handful of lawsuits against Caesars. One lawyer involved estimated that at least six cases would be affected.

The proposal is causing uproar because there has not been a hearing on it this Congress. Critics say it’s an example of another provision being slipped into a massive bill at the last minute to help a special interest.

But proponents of the language have defended Reid, arguing that it could save 20,000 to 30,000 union jobs in Nevada, according to one lobbyist. 

Kristen Orthman, Reid’s spokeswoman, declined to comment. A spokesman for Caesars also declined to comment.

Liberals led by Senate Democratic Whip Dick DurbinDick DurbinBipartisan Senate group discusses changes to election law Democrats ask for information on specialized Border Patrol teams Democrats face scaled-back agenda after setbacks MORE (D-Ill.) worked to pull a similar provision out of the multiyear highway bill passed by Congress last week.

Sen. Elizabeth WarrenElizabeth WarrenFiscal conservatives should support postal reform  Five Democrats the left plans to target Arizona Democratic Party executive board censures Sinema MORE (D-Mass.), who is a former Harvard Law professor specializing in bankruptcy, and Sen. Sherrod BrownSherrod Campbell BrownBiden's year two won't be about bipartisanship  These Senate seats are up for election in 2022 Biden calls Intel's B investment to build chip factories a tool for economic recovery MORE (Ohio), the senior Democrat on the Banking Committee, also opposed the rider, say lobbyists working on the issue.

Spokespeople for Warren and Brown did not respond to requests for comment.

A K Street source said the lawmakers are leery of speaking out against the rider because Reid is championing it and they don’t want to get into a public spat with their leader.

Durbin and his liberal allies were incensed because the provision would have also helped a subsidiary of Education Management Corporation, one of the largest providers of private post-secondary education in the country.

Durbin often bashes private colleges for misleading students about their chances for future employment and then leaving them deep in debt. Education Management Corporation agreed to a $95.5 million settlement with the federal government earlier this year.

“We are watching very closely for any riders dealing with for-profit colleges,” said Ben Marter, Durbin’s communications director.

One Democratic aide told The Huffington Post: “This is about screwing pension funds to help private equity firms.”

The rider had been added at the last minute to the highway funding bill at the behest of Senate Banking Committee Chairman Richard Shelby (R-Ala.), prompting an outcry from liberals, according to Senate and K Street sources.

A spokeswoman for Shelby did not respond to a request for comment. A Shelby staffer attended the highway conference committee, but a spokeswoman for Sen. Jim InhofeJames (Jim) Mountain InhofeOvernight Defense & National Security — White House raises new alarm over Russia Biden sparks confusion, cleanup on Russia-Ukraine remarks Republicans say Mayorkas failed to deliver report on evacuated Afghans MORE (R-Okla.), chairman of the Environment and Public Works Committee, declined to comment on her role.

The pushback from Durbin and other liberals was so strong that leaders quickly yanked the controversial language out of the highway bill before the floor vote.

Now it’s being discussed as a possible add-on to the omnibus, sparking a furious lobbying battle.

But Reid may win the day because the rider has been amended to carve out Education Management, the bête noire of liberals, to affect only Caesars, according to a lobbyist familiar with it. If liberals are mollified, as the lobbyist predicted they would be, the provision could find a place in the omnibus without much opposition.

But an advocate on the other side questioned whether the new language would really exempt Education Management Corp.

“It is a great concern to us that a 76-year-old law would be amended retroactively, without legislative review or public debate, by the backroom lobbying efforts of one or two special interest groups whose sole aim is to overturn several federal district court decisions that were not in their favor,” said Andrew Milgram, managing partner of Marblegate Asset Management, the plaintiff in a suit against Education Management.

“We strongly urge Congress to leave out the erroneous Trust Indenture Act provision in the omnibus bill and focus its attention on the important legislative matters at hand,” he added.

Kenneth Klee, a professor emeritus at the University of California Los Angeles — who is advising Brownstein Hyatt Farber Schreck, which is representing Caesars — argues the rider would not roll back the Trust Indenture Act.

“It’s not really a narrowing of the Trust Indenture Act. It’s clarifying its original intent,” he said.

Specially, the rider would address what Caesars and its allies contend was a skewed decision by Judge Katherine Polk Failla of the Southern District of New York in June.

She ruled Education Management could not reduce its payment to holdout bondholders as part of a debt--restructuring plan. If applied to Caesars, it could drive the casino company out of business.

Critics argue it was an “activist” decision, while lobbyists who want to kill the rider assert it was soundly based on a 1999 precedent, Federated Strategic Income Fund v. Mechala Group Jamaica Ltd.

But Klee says the 1999 decision was flawed and has since been eclipsed by two more recent rulings — YRC Worldwide Inc. v. Deutsche Bank Trust Company Americas, a 2010 case in the U.S. District Court of Kansas, and Magten Asset Management Corp v. Northwestern Corp. in the U.S. Bankruptcy Court for the District of Delaware.

“The Federated case has been discredited and rejected by two subsequent cases,” he said.