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What's 300 Years Among Friends?

posted by Adam Levitin

It often doesn't end well when law professors play at being legal historians. The Purdue Pharma Supreme Court appeal is a case in point. 

A group of prominent bankruptcy law professors filed an amicus brief in support of the appellee, Purdue Pharma. Their brief takes direct aim at my amicus brief in support of the appellant, the United States Trustee. Specifically, the good professors challenge my claim that nonconsensual nondebtor releases were entirely unknown in Anglo-American law until the Johns Manville case in 1986. They write: 

One amicus has argued that releases would have been “incomprehensible to the Framers” and “were entirely unknown in American bankruptcy” prior to 1986. Adam J. Levitin Amicus Br. 4-5. This is a puzzling claim that misses the mark by at least 367 years.

Third-party releases have been known and comprehended in bankruptcy law as means to achieve global resolution since at least 1619, when the Lord Chancellor used his injunctive powers to release third-party sureties from the non-debtor claims in exchange for compelled contributions to a bankruptcy composition. See Tiffin v. Hart (1618-19), in John Ritchie, Reports of Cases Decided by Francis Bacon 161 (London 1932). Similar to the releases at issue in the present, the injunction in Tiffin was directed at dissenting creditors to facilitate a resolution that had been approved by the majority. Ibid.; see also Finch v. Hicks (1620), in Ritchie, Reports, at 166-167 (enjoining creditors from pursuing actions at common law against non-debtor sureties of an insolvent individual).

So, according to Purdue's amici, I'm wrong on the history because I failed to account for a 1619 case. But there's a HUGE problem with their argument...

The 1619 and 1620 cases they cite were never published until 1932! Absent a time machine these decisions could not have been known by the Founders. Sir Francis Bacon never wrote a decision in either of the cases that the good professors cite, Tiffin v. Hart (1618-19) and Finch v. Hicks (1620). Instead, as Chancellor, he issued orders that were not published, but remained buried in musty manuscript folio volumes organized solely by year and therefore not readily searchable. The "decisions" that are reported were written by John Ritchie based on a modern reassembly of Chancery documents (although many are missing) and published in 1932. Indeed, anyone reading the decisions should quickly note that they are not written in the language of 1620 by a man some think might have been the true author of Shakespeare's work. ("When in disgrace with fortune and men's eyes, I all alone beweep my outcast state. And trouble the Chancery Court with my bootless cries for a nondebtor release..." or "Yond creditor has a lean and hungry look..." )

But don't take my word for it. Just look at the Preface to the volume in which the decisions were published. Not only does it explain how the decisions were reconstructed, but it also explains how Bacon's jurisprudence was completely ignored for three centuries (emphasis added):

Very different has been the reception accorded to [Bacon] as a Judge. His conviction by the House of Lords on charges of corruption in office, though it related to some twenty cases only, had the effect of bringing the whole of his judicial conduct into immediate disrepute. His decisions thereupon ceased to be cited by counsel or relied upon by Judges, and the records of them, carefully preserved in the archives of the Court of Chancery, have hitherto remained almost unnoticed. Indeed, it has been his unhappy fate that from the time of his fall down to the present day the only cases decided by him to which general attention has been directed are some of those in respect of which the accusations of venality were preferred against him.

In other words, the two cases cited by Purdue's amici were wholly unknown to the Framers. That's why there's not a mention of them in Blackstone's Commentaries or in any other early bankruptcy treatise. The Framers had no access to these decisions and no knowledge of them.

So, I commend Purdue's amici for running down these obscure modern recreations of 17th century Chancery cases that have never been cited anywhere or by anyone, but because there was no reported decision of these cases until 1932, they do not undercut the fact that Anglo-American bankruptcy law had no notion of nonconsenusal nondebtor releases in until 1986. 

Not only were the reports unavailable to the Founders, but they aren't even bankruptcy decisions! Although the "first" English bankruptcy law dates from 1542, it is a criminal statute. The real start of English bankruptcy law only dates from the 1705 Statute of Anne, which is the first time that the law provided for a discharge. It seems very strange for Purdue's amici to point to a nondebtor release in 1619 at a time when a debtor himself could not get a discharge. And indeed, neither case ever tells us that anyone was adjudicated a bankrupt; there are no bankruptcy commissioners involved. Instead, the cases appear to be about voluntary compositions. Indeed, Tiffin v. Hart (1618-19) says that the Chancellor “finds good cause to single this cause from the ordinary causes of bankruptcy and to give the Tiffins and their conformable creditors relief.” (Of course, we might question how much, if any of this statement is from Bacon, however.)

And even if Tiffin v. Hart were actually a bankruptcy case with which the Founders were familiar, it doesn't help Purdue Pharma's positions. The third party liability in Tiffin was that of the sureties of the dead debtor. That's akin to insurance policies, which would probably be treated as property of the estate today. Likewise, those sureties offered to pay everything they owned “even to their very clothes.” That's not the situation with the Sacklers, who will retain billions under the Purdue Pharma plan. Instead, Tiffin presents the limited fund situation in which it is appropriate that all creditors would be bound, such as under FRCP 23(b)(1). Finally, the injunction in Tiffin only applied to a subset of contractual creditors who (1) loaned on interest and therefore assumed the risk and (2) weren't fiduciaries. It's a big leap to get from that to cutting off the rights of tort victims.

As for Finch v. Hicks (1620), it is a one paragraph decision that tells us virtually nothing about what's going on; it's not clear if it is a temporary injunction or a release, and it's not a bankruptcy case. One also has to wonder if the outcome was related to the political connections of Baron Finch, later Speaker of the House, Chief Justice, and Lord Keeper of the Great Seal.

Reasonable people can disagree about the policy wisdom of nonconsenusal nondebtor releases in bankruptcy. But let's not pretend that the practice has any sort of a historical pedigree. That's just false.

Comments

I really don't understand the argument here. First, how can you say releases were "incomprehensible" to the framers given that Lord Bacon was granting them? Even if the opinion is unreported, I just can't see the leap to arguing that no one designing a judicial system could have thought of or comprehended this thing that the Lord Chancellor had done multiple times. Second, the point about these not being "bankruptcy" cases is semantic. These were part of compositions that look just like Chapter 11 cases today. Third, even if you are right about everything else, our main point was about your 1986 claim. You write this, "because there was no reported decision of these cases until 1932, they do not undercut the fact that Anglo-American bankruptcy law had no notion of nonconsenusal nondebtor releases in until 1986." How do you get from 1932 to 1986? Finally, we point out other historical pedigree including cases from the 1940s.

So let's do this again:

(1) Nondebtor releases were incomprehensible to the Framers because no such creature existed in the law as they knew it in 1789. Bills of conformity had a short lived run in late Elizabeth and early Jacobean England, but were abolished by royal proclamation in 1621, with a follow-up prohibition statute, 21 Jac. I. c. 19, a few years later. After that, the procedure was forgotten until modern times. The Framers' knowledge of English law was mainly through secondary sources, like Blackstone, which did not cover bills of conformity; the Framers had no access (as a practical matter) to (literally) rat-eaten chancery manuscripts, and even if they had, they would have found the paleography near indecipherable. (You can try to read these things yourself here: http://aalt.law.uh.edu/James1.html). Until modern historians unearthed these practices, there was no meaningful awareness of them. That means that they were not within the contemplation of the bankruptcy power in 1789.

(2) Not being "bankruptcy," isn't the key issue, but it isn't just semantic. Equity procedures might fall under Article III, but they don't fall into the scope of Article I clause 8. In any case, the process was formally scrapped 168 years before the Constitution.

(3) Regarding your references to more modern caes, you're shifting the goal posts. I've shown definitively that you do not have a case regarding 1618--that's your "at least 367 years" remark. But a retreat to the 1930s and '40s doesn't actually help your case.

(a) 1932. The fact that bills of conformity were first documented (as far as anyone can tell) in an obscure academic work in 1932 has no relevance to the constitutionality issue. That's a 1789 question. Nor does it have relevance to 20th century practice or the scope of the 1978 Code. For all of Congress's enlightenment, it cannot be held to extend to academic works on English legal history.

(b) 1940s. Contrary to what you wrote above, you do not point out "other historical pedigree including cases from the 1940s." What you actually point to is a single district court decision from 1943 (and another from 1975). What's worse, the 1943 case does not stand for the point you claim (and the 1975 case doesn't exactly either).

(i) In re Portland Electric Power Co., 97 F.Supp. 877, 880 (D. Or. 1943). First, the enjoined third-party is not a creditor. It is a regulator attempting to change the non-debtor subsidiary's rate schedule. Today that issue would be under 362(b)(4). Second, the court's analysis is based on the stock of the subsidiary being the estate's principal asset; that's a wholly different consideration than in the release of non-debtor owners like the Sacklers. And third, the decision is not a permanent injunction with a discharge-like effect. Instead, it leaves in place a TRO against a state public utility commissioner "only until the court can determine whether the utility should be restrained from consenting or acquiescing in certain orders which may be issued by the Commissioner."

(ii) In re Equity Funding Corp. of America, 396 F. Supp. 1266, 1274 (C.D. Cal. 1975). Again this is a case dealing with an injunction to protect subsidiaries, the stock of which was the primary asset of the debtors, not the owners. The injunction was narrowly limited to a set of derivative claims against the subsidiaries, not a general release of third-party claims against them. And most importantly, the court proceeded on two theories, one of which was that the subsidiary was the alter ego of the parent, so there really wasn't a nondebtor release in that case. But even if none of this were true, all it would get you is a single district court decision from 1975.

It is a HUGE stretch to go from two obscure district court decisions to your claim that "More recent cases also demonstrate that, when the current Bankruptcy Code was enacted, third-party releases and injunctions were contemplated as a means of addressing the collective action problems that arise when debtors are in financial distress and facilitating a global settlement." If you had a reference to either of these cases in the legislative history of the Code, this would be a different conversation, but you don't.

You might believe that as a policy matter nondebtor releases are a good idea. (They're not). But as a historical matter, it's indisputable they were not part of the background of the Bankruptcy Clause in 1789 or the Bankruptcy Code in 1978.

I am not moving any goal post. You are the law professor who opened by playing at being a legal historian. We just said your statement about history was incorrect. And it is still importantly incorrect even if the year is 1932. Your response now is that we are wrong about 1619 (we aren't). But even if we are, your own statement rebuts your original claim about 1986. (And 1978 is a pretty important year in all of this that comes after 1932. We never specifically emphasized a constitutional argument. The history is relevant for lots of reasons.) As for policy, you said it best in 2019: "More importantly, no one can credibly claim that the settlement was the result of an unfair process. It was the product of lengthy, mediated negotiations and was supported by 94.1% of the personal injury claimants who voted on it, and ultimately approved by the bankruptcy court and upheld by the 6th Circuit Court of Appeals.
... In this case, the parties arrived at an agreement that limited Dow Chemical’s future liability in exchange for capitalizing a multi-billion dollar trust to pay out victims well into the future. That was good enough for the overwhelming majority of the people with personal injury claims who voted on the plan."
https://www.creditslips.org/creditslips/2019/07/elizabeth-warren-the-dow-corning-bankruptcy-nothing-to-see.html

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