Addressing Credit Invisibility Through Federal Contracting Power

The Biden administration could substantially reduce the number of "credit invisible" and "thin file" consumers without legislation, simply through a determined use of federal contract regarding multi-family mortgages and wireless spectrum licenses. By requiring credit reporting as a condition of federal purchase of multi-family mortgages or sale of wireless spectrum, the Biden administration could ensuring credit reporting for a lot of renters and all cellphone contracts, which would help millions of Americans start to come into the credit system and escape the Catch-22 of credit invisibility. This would be a major step toward achieving economic equity in the United States. 

Consumers and Price Volatility: Texas Electricity Prices

Some Texas consumers who didn't lose power are now finding themselves socked with massive electric bills, as high as $17,000. The reason? They were paying variable kW/h pricing for their electricity at wholesale rates, without any sort of price collar. The Washington Post explains: 

The state’s unregulated market allows customers to pick their utility providers, with some offering plans that let users pay wholesale prices for power. Variable plans can be attractive to customers in better weather, when the bill may be lower than fixed-rate ones. Customers can shift their usage to the cheapest periods, such as nights. But when the wholesale price increases, the variable plan becomes the worst option.

This story jumped out at me for two reasons.

Does Delaware Get the Final Say?

I've been doing some reading on officer and director fiduciary duties to creditors, and I am surprised that how much the academic and practitioner consensus seems to have settled on the notion that, in light of the Delaware caselaw following Gheewalla, it is essentially impossible for creditors to bring a fiduciary action against a board. Namely, because Delaware caselaw has held that such claims are derivative (with all the procedural limits thereon) and have narrowed the duty to apply, if at all, to cases of actual insolvency, most claims will not be viable. Moreover, most authors implicitly assume that these claims are subject to the internal affairs doctrine (i.e., that they are subject to Delaware law no matter where the case is brought).

That analysis seems right to me only if we are sure that these sorts of claims arise out of the corporate form. But if creditor fiduciary duty claims instead arise out the debtor-creditor relationship itself, then it is not clear to me Delaware gets to decide these issues. Indeed, more often New York would seem to provide the relevant law (if the debtor-creditor relationship is subject to New York law). Of course, some might argue that the debtor-creditor relationship is purely contractual, but it strikes me that the source of these claims is a greatly under-discussed issue.

NRA Bankruptcy: Enter Kirkland?

The latest development in the NRA bankruptcy is the NRA's motion to retain Kirkland & Ellis as special counsel.  The retention seems to be for appellate issues, and the partner submitting the retention affidavit is an appellate specialist, not a bankruptcy lawyer. Yet this raises the question why Kirkland, which has long represented the NRA in various matters, is not the NRA's bankruptcy counsel. Kirkland has one of the top chapter 11 practices in the US. You'd think that they'd be the first place the NRA would turn if it was thinking about bankruptcy.🧐

Oh yeah, in the spirit of economy, Kirkland is giving the NRA a 15% discount from its normal rates. I get that it's a nonprofit, but there's something ironic about giving a solvent debtor a discount, but charging full freight to the ones that are broke. Also, does that count as a charitable contribution? 

Update:  Maybe I wrote too soon. The notice address given for Kirkland is for Ryan Bennett a restructuring lawyer out of Chicago, not part of the DC-based appellate practice. Maybe that was just for handling the retention application, however. 

Is the NRA Out of Bullets?

The NRA's Gone to Texas bankruptcy just keeps getting wilder and wilder. First an NRA board member files a motion for an examiner. Then the NRA's largest creditor files a motion for the case to be dismissed as a bad faith filing (or in the alternative seeking a trustee). Then the NYAG also  files a motion seeking the dismissal of the case as a bad faith filing or in the alternative requesting a trustee be appointed. And then to top it off, the US Trustee files an objection to the retention of the NRA's counsel as not disinterested only to have one of the NRA's largest trade creditors file a motion for the Official Creditors' Committee set up by the US Trustee to be reconstituted (and basically alleging bias by the US Trustee's office against NRA management). This is turning in the bankruptcy version of the shoot out at the OK Corral. 

Is the NRA Board Shooting Itself in the Foot By Doing Nothing?

In my previous blog post on the NRA bankruptcy, I was focused on the bankruptcy implications of the incredible examiner motion filed by an NRA board member against the NRA. But as I think about it more, it's also got some important corporate governance implications: did the NRA board violate its fiduciary duties?  

NRA Examiner Motion

As I predicted, things were not going to go so smoothly for the National Rifle Association in bankruptcy. Today, the Hon. Phillip Journey, a Kansas state judge who was recently elected to the NRA's board of directors, filed an examiner motion in the case. There are some bombshells in Judge Journey's motion, including that the NRA board was never informed of the bankruptcy filing or the creation of the venue-hook subsidiary! 

That cause me to go back and look at the NRA's bankruptcy petition. There's no board authorization of the filing attached! Instead, there's an authorization by the NRA's special litigation committee. The special litigation committee's purported authority to file the NRA for bankruptcy is language in its enabling resolution about undertaking actions to "reorganize or restructure the affairs of the Association". Is that a grant of authority for a chapter 11 filing? I'm skeptical. I would have expected express language about filing "for bankruptcy under title 11 of the United States Code" or the like. "Reorganize or restructure the affairs" could include a lot of things other than bankruptcy, and given the importance of bankruptcy for corporate governance, this doesn't seem like the sort of power to be given by implication. 

Fairness and Flexibility: Understanding Corporate Bankruptcy’s Arc

I don't post most of my law review articles here, but my latest might be of some interest to Slips readers generally. In Fairness and Flexibility: Understanding Corporate Bankruptcy’s Arc, out now in the University of Pennsylvania Journal of Business Law, I trace the long history of American business reorganization law, starting with antebellum mortgage foreclosures under state statute, up to the present Restructuring Support Agreements (RSAs). I ultimately urge more judicial oversight of current practices – which I argue evidence an extreme of "flexibility" – lest chapter 11 face an even more extreme reform backlash because of increasing unfairness.

Eviction Moratoria Save Lives: the Evidence

Once in a while you see an empirical paper that makes you say "wow." That's my first reaction to an NBER paper out from some economists and a sociologist at Duke and UNC. The paper, entitled "Housing Precarity & the Covid-19 Pandemic: Impacts of Utility Disconnection and Eviction Moratoria on Infections and Deaths Across US Counties" has an absolute bombshell finding:  eviction and utility disconnect moratoria save lives.  A lot of them.  

The paper suggests that had eviction and disconnect moratoria been in place since the start of the pandemic, deaths would be down by over 55!!!! That's 246,000 deaths that shouldn't have happened. From the abstract: 

We find that policies that limit evictions are found to reduce COVID-19 infections by 3.8% and reduce deaths by 11%. Moratoria on utility disconnections reduce COVID-19 infections by 4.4% and mortality rates by 7.4%. Had such policies been in place across all counties (i.e., adopted as federal policy) from early March 2020 through the end of November 2020, our estimated counterfactuals show that policies that limit evictions could have reduced COVID-19 infections by 14.2% and deaths by 40.7%. For moratoria on utility disconnections, COVID-19 infections rates could have been reduced by 8.7% and deaths by 14.8%.

Here's the key graphic: 

The methodology is a regression analysis on COVID infection/death rates and a county-level housing insecurity measure—that means that the paper is not connecting actual deaths and actual evictions. And one might question if the controls adequate capture everything. People more methodologically expert than me need to kick the tires here. But at a first glance, the directional findings here are very strong (over 99% chance of a correlation in all of the key specifications and models) and the point estimates are huge. Even if the findings are off by a factor of 100, we're talking about 2,460 unnecessary deaths, a staggering number from a pre-COVID perspective (close to the 9/11 direct death toll). If the paper is right, the CDC's eviction moratorium might have done more to save lives than any other single action taken during the pandemic. 

This paper should be a real spur for states to tighten up their renter protections and utility disconnect regulations during the pandemic. It should also be a call for the CDC to not only extend its eviction moratorium at least until the fall, but to expand it to cover utility disconnects and mobile home repossessions.