Love and Exhaustion in Argentina

posted by Anna Gelpern

Further to Mark's post on the settlement negotiations, we now have an order from Judge Griesa that brings more love from New York to Argentina than it has seen in a decade, maybe ever.

The order, granted near-instantly on the Republic's request, tells the remaining holdouts (call them hyper-holdouts for short), to show the court by February 18 why it should not lift the pari passu injunctions. It turns the question, "Why should the court help Argentina?" into "Why not?"

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Argentina's Settlement Negotiations and Lifting the Injunction

posted by Mark Weidemaier

Shutterstock_286798478Argentina faces a complicated task in settling with its remaining holdouts, but there has been recent progress. The country has agreed to settlement terms with a large group of Italian bondholders and, most recently, several US hedge funds. The remaining barrier to complete resolution is the same as the old barrier: Elliott's NML Capital and assorted other holdouts. Bloomberg has two good explanations of the remaining issues here (by Katia Porzecanski and Chiara Vasarri) and here (by Matt Levine). The short version is that NML cleverly bought a subset of Argentine bonds that accrue pre-judgment interest (on principal) at extraordinarily high rates. Because of this, the settlement terms offered by Argentina are less favorable to them than to other holdouts. Elliott et al.'s rejection of Argentina's proposed settlement has prompted some speculation that Judge Griesa might be tempted to lift the injunction (thereby pressuring the remaining holdouts to compromise). 

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Fabulous New Paper: Random Justice in Bankruptcy Trial Courts

posted by Jason Kilborn

JusticedieI just read a terrific new paper by Gary Neustadter of Santa Clara University Law School, called "Randomly Distributed Trial Court Justice: A Case Study and Siren from the Consumer Bankruptcy World." It presents a monumental empirical study of a debt buyer's litigation campaign to pursue essentially identical contract and fraud claims against hundreds of secondary mortgagors in state courts, federal District Courts, and federal Bankruptcy Courts. The paths and outcomes of these materially identical cases are so different in so many surprising (and often disturbing) ways, the paper offers a really stunning look behind the curtain of our often arbitrary trial-level justice system. And Neustadter's telling of the story is gripping--I read the paper and most of its footnotes from beginning to end in one sitting, unable to put it down. The revelations in this paper are a gold mine for civil proceduralists generally and bankruptcy practitioners in particular. It offers a cautionary tale and useful playbook for lawyers (and perhaps judges) in how to make many aspects of our system more effective. Get it while it's hot!

Justice die image courtesy of Shutterstock

Contract Law and Ukraine's $3 Billion Debt

posted by Mark Weidemaier

The Russian government has announced announced that it plans to initiate legal proceedings against Ukraine by the end of the month to recover the $3 billion in bond debt now in default. It's not yet clear whether the proceedings will be in English courts or in arbitration. Officials in Ukraine say they expect to win. At first glance, that seems like posturing; after all, Ukraine borrowed $3 billion and didn't pay it back. But as it turns out, Ukraine has some pretty decent arguments, which if successful might excuse (or allow it to defer) the obligation to pay. Some of those arguments involve international law, and I'm a bit skeptical that those will succeed. But as I explain in a short new paper, Ukraine's contract-law arguments might fare somewhat better. Here's the abstract to the paper:

Russia has announced that it will initiate proceedings by the end of January (likely in arbitration) to recover the $3 billion debt owed by Ukraine. The Russia-Ukraine dispute is unique in the annals of sovereign debt litigation. It is a politically and militarily fraught conflict wrapped in a garden-variety, English-law contract dispute. The dispute may settle, and if so its resolution will depend largely on political and economic considerations. Yet the resolution will occur in the shadow of basic contract law, which is surprisingly relevant. Indeed, there are a number of plausible arguments available to Ukraine, which, despite the unusual facts, may excuse (or allow it to defer) its obligations to Russia. It would be understandable for judges and arbitrators to hesitate before weighing in on such a politically-charged dispute, but Russia’s insistence on acting like a private creditor leaves little choice.

Initial Thoughts on Venezuela

posted by Stephen Lubben

Over at Dealb%k.

Fifth Circuit Runs Completely Off the Rails in Husky Int’l v. Ritz?

posted by Jason Kilborn

Derailed trainThe question presented to the Supreme Court in Husky Int’l v. Ritz is so bizarre, I just had to dig deeper. The question is whether the exception to discharge in section 523(a)(2)(A) for debts arising from “actual fraud” requires a showing that the debtor’s fraud involved a false representation. Note immediately that section 523(a)(2)(A) excepts from discharge debts arising from “false pretenses, a false representation, OR actual fraud” (emphasis added). This seems like such a simple statutory interpretation exercise (do you see the “OR” sitting there?!), I figured I must be missing something in thinking that the whole dispute is one step shy of contrived. After looking more closely, I still think the Fifth Circuit has run completely off the rails with this one … unless I’m totally missing something here. I’d be grateful if anyone can disabuse me of my ignorance; otherwise, it seems the Supreme Court must have granted certiorari simply to fix an obvious and egregious error that no one but the Supreme Court can fix.

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Chicago Public Schools Bankruptcy?

posted by Jason Kilborn

SchoolbankruptThe local press has been abuzz the last two days with talk of Illinois Republicans' plans to take over Chicago Public Schools (CPS) and allow/force it to file for municipal bankruptcy. I immediately wondered whether this was just political rhetoric, part of Governor Rauner's quite clear plan to undermine public union power, especially in the school system, or if bankruptcy was the right tool for what ails CPS. As my image here suggests, it seems to me ... not so much; that is, CPS isn't quite "bankrupt" in the sense that Chapter 9 might help.  Not yet, and maybe not ever.

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2016 Bankruptcy Forecast -- Let's Say 780,000

posted by Bob Lawless

Forecasting U.S. bankruptcy filings for this year was a little more complicated. In a comment to my post about the total 2015 bankruptcy filings, Erich Fabricius made the astute observation that December 2016 saw the introduction of new bankruptcy forms and that could explain my befuddlement at the abnormally large 14.8% decline for December in terms of year-over-year daily filing rates. November, in contrast, saw almost no decline in the year-over-year rate, which is also unusual. The relatively stronger numbers in November suggests that attorneys were perhaps trying to beat the deadline before the new forms went into effect. The effect would not have to be huge -- shifting 5,000 filings from December into November would have been enough to create this effect.

What that means is my preferred mathematical model to predict bankruptcy filings for the next year has to start with the immediately previous two months being untypical months. If I run the model with the actual data, I get 800,000 filings. If I "correct" the numbers for November and December to what would have been expected had recent monthly trends continued, the model predicts 782,000 filings. The model controls for the amount of outstanding consumer credit and national personal income and has proven accurate in the past

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