7 posts from March 2018

Stormy Daniel's Three-Way (Contract) & Donald Trump's Performance Problem

posted by Adam Levitin
I want to return to the Stormy Daniels-Donald Trump-Michael Cohen Three-Way Contract.  It's actually really interesting from a contract doctrine perspective (besides being of prurient interest). The continued media coverage and scholarly commentary seems to be missing a key point, namely that this is a contractual ménage à trois, not a typical pairing. The fact that there are three parties, not two to the contract actually matters quite a bit doctrinally.
Let’s start with a point on which I think everyone agrees.  For there to be a contract, there needs to be mutual assent. This assent may be manifested in different ways—it may be manifested expressly, say through a signature, or implicitly, say through performance or, in rare cases, through silence. 
The complication we have in this contract is that it is a 3-party contract, not the standard 2-party contract.  That’s a problem because basically everything in contract doctrine is built around 2-party contracts.  Traditional contract doctrine is monogamous and doesn't really know what to do with three-ways, especially when one party has a performance problem.  It's not, for what it's worth, that multi-party contracts are rare--they're not. In fact, they're the common arrangement in corporate finance where a contract will involve numerous affiliates. But traditional contract doctrine developed in an era in which these multi-party contracts were rarer (indeed, look at how the Bankruptcy Code is not drafted with the contemplation of multi-entity debtors!) and there's always been a wink-wink, nod-nod about the separateness of corporate affiliates. 

Continue reading "Stormy Daniel's Three-Way (Contract) & Donald Trump's Performance Problem" »

Venezuelan Debt: Further Thoughts on “Why Not Accelerate and Sue Venezuela Now?”

posted by Mark Weidemaier

Mitu Gulati and Mark Weidemaier

Earlier, we posted about whether holders of Venezuelan bonds would be better off accelerating and obtaining judgments sooner rather than later. In a nutshell, here was the point:

When a restructuring comes (and it will), the two primary weapons the restructurer is likely to use are CACs and Exit Consents. A bondholder who obtains a money judgment, as best we can tell, escapes the threat of either CACs or Exit Consents being used against her.

We heard from a number of people with questions prompted by the post. Here are some of them, and our conjectures as to answers.

Continue reading "Venezuelan Debt: Further Thoughts on “Why Not Accelerate and Sue Venezuela Now?”" »

The Economic Growth, Regulatory Relief, and Consumer Protection Act

posted by Stephen Lubben

Or EGRRCPA, for short. That is the official name of S. 2155, a bill which seems to be tearing Senate Democrats apart. Republicans are uniformly in favor of the bill, which Bloomberg describes as "another faulty bank-reform bill." Some Democrats see it as needed regulatory relief for small banks, while others, including the one who used to blog here, see S. 2155 as a rollback of keys parts of Dodd-Frank for big banks that remain too big to fail.

It is both. Indeed, if the bill were stripped of its title IV, I think most people could live with it. But title IV is a doozy.  

Most notably, it raises the threshold for additional regulation under Dodd-Frank from $50 billion in assets to $250 billion. Banks with more than $50 billion in assets are not community banks.

The banks in the zone of deregulation include State Street, SunTrust, Fifth Third, Citizens, and other banks of this ilk. In short, with the possible exception of State Street, this is not a deregulatory gift to "Wall Street," but rather to the next rung of banks, all of which experienced extreme troubles in 2008-2009, and all of which participated in TARP.

My prime concern – given my area of study – is that these banks will no longer be required to prepare "living wills." That is, they will not have to work with regulators on resolution plans.

How then do we expect to use Dodd-Frank's orderly liquidation authority if they fail? It would be impossible without advanced planning. Same for the misguided attempts at "chapter 14." I have real doubts about the wisdom of "bankruptcy for banks," but if it is ever to work, it will require lots of advanced planning (and luck).

And we can't use the normal FDIC approach of finding another, bigger bank to take them over, because that would simply create another colossus, like Wells Fargo. Certainly we don't want that.

Maybe a bailout then? Is that the "new" plan?

Fed chair Powell to Congress - make student loans dischargeable in bankruptcy

posted by Alan White

Screen Shot 2018-03-10 at 12.39.45 PMCoverage of Federal Reserve Chairman Jerome Powell's Congressional testimony highlighted his optimism about economic growth and its implications for future interest rate hikes. Less widely covered were his brief remarks on the student loan debt crisis. Citing the macroeconomic drag of a trillion-and-a-half dollar student loan debt, chairman Powell testified that  he "would be at a loss to explain" why student loans cannot be discharged in bankruptcy. According to Fed research, Powell noted, nondischargeable student loan debt  has long-term negative effects on the path of borrowers' economic life.

Debbie Does Damages: the Stormy Daniels Contract Clusterf*ck

posted by Adam Levitin

There's been a lot of poorly informed reporting about the Stormy Daniels contract litigation, including in some quite reputable publications, but by reporters who just aren't well versed in legal issues.  For example, I've seen repeated reference to an "arbitration judge" (no such creature exists!) or to a "restraining order" (there's no enforceable order around as far as I can tell.  So what I'm going to do in this blog post, as a public service and by virtue of some tangential connection to our blog's focus, dealing with arbitration agreement (to satisfy Sergeant-at-Blog Lawless), I want to clarify some things about the Stormy Daniels contract litigation and engage in a wee bit of informed speculation based on tantalizing clues in the contract.  As a preliminary matter, though, I apologize for the clickbait title.  

Let's start with the facts as we know them.

Continue reading "Debbie Does Damages: the Stormy Daniels Contract Clusterf*ck" »

Stormy Daniels, Donald Trump, and the Role of Arbitration in Ensuring Silence

posted by Mark Weidemaier

[Edited to correct names; too many aliases involved in this one]

For readers who haven't been following along: Stephanie Clifford, aka Stormy Daniels, is an adult film star who allegedly had a sexual relationship with Donald Trump in the mid-2000s. She recently sued Trump and other defendants, seeking to invalidate a settlement agreement in which she was paid to keep silent about the details of the alleged relationship. Here is her complaint, which includes the settlement agreement as an exhibit. And here is some coverage of background details.

The settlement agreement includes an arbitration clause, which should prompt some reflection about the use of arbitration to silence victims of sexual assault (a topic that has attracted attention in the wake of revelations about Harvey Weinstein). On the other hand, people are often too quick to blame arbitration for unrelated problems, so I hope this (long-ish) post can offer a bit of clarity. The short version: Whoever drafted the agreement between Clifford and "David Dennison" gets an A for cynicism, but would have to beg for a C in my arbitration class. (I’m guessing the draftsperson would fail professional responsibility...)

Continue reading "Stormy Daniels, Donald Trump, and the Role of Arbitration in Ensuring Silence" »

Chapter 11 Locale

posted by Stephen Lubben

For nearly two decades, the fact that many really large chapter 11 cases file in two districts has been a point of controversy.  On the one hand, the present system makes some sense from the perspective of debtor’s attorneys, and many DIP lenders, who value the experience and wisdom of the judges in these jurisdictions and the predictability that filing therein brings.  On the other hand, for those not at the core of the present system, it reeks of an inside game that is opaque to those on the outside.  And it is not clear the judges outside the two districts could not handle a big case; indeed, most could.

Where big chapter 11 cases should file is an issue again, at least among bankruptcy folks, given the possibility that the pending Cornyn-Warren venue bill might pass as part of some bigger piece of legislation, perhaps the pending S. 2155 (whose Title IV is so misguided it certainly warrants a separate post).

I have long been frustrated by the discussion of chapter 11 venue.  On the one hand, the present system has developed largely by accident, with little thought for the broader policy implications.  On the other, there is certainly some merit in concentrating economically important cases before judges who are well-versed in the issues such cases present.  The issue calls for careful study, but, as with most political issues these days, we are instead presented with a binary choice.

I have often contemplated concentrating the biggest chapter 11 cases among a group of bankruptcy judges, trained in complexities of multi-state or even global businesses.  A small panel of such judges could be formed in various regions around the country, such that the parties would never have to travel further than to a neighboring state for proceedings.  Geographically larger states – i.e., California and Texas – might comprise regions all by themselves.

Such an approach would ensure that cases would capture some of the benefits of the present system, without the drawbacks of having a Seattle-based company file its bankruptcy case on the East Coast.  Comments are open, what do readers think about developing a nationwide group of "big case" judges?


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