postings by Melissa Jacoby

Brooklyn Law School Conference on Public Debt

posted by Melissa Jacoby

AboutthesymposiumOn March 1, 2016, Credit Slips commenced a virtual symposium on Puerto Rico's financial crisis. Where do things stand today, a year later? And what governance lessons can be learned from municipal bankruptcy cases like Detroit for the public debt problems of tomorrow? Thanks to a fortuitously timed conference at Brooklyn Law School, a subset of Slipsters will be considering these very questions on Friday March 3, 2017. Check out the agenda and join us in Brooklyn - register here today.

Swindlers and Crooks Doing Backflips: New Balleisen Book on Fraud

posted by Melissa Jacoby

BalleisenBookNot a moment too soon, Princeton University Press has just released Fraud: An American History from Barnum to Madoff by historian & Duke University Vice Provost Ed Balleisen. (Some readers might be familiar with his earlier book on bankruptcy in Antibellum America).

As I learned when reviewing an earlier draft, Fraud is meticulously researched and completely fascinating, with plenty of careful attention to law and regulatory structures. The book's other virtues are well encapsulated by Kirkus:

"Balleisen casts a gimlet eye on the passing parade of hucksters and charlatans, peppering a narrative long on theory with juicy asides that build toward a comprehensive catalog of ‘Old Swindles in New Jargon’. . . . Ranging among the disciplines of history, economics, and psychology, Balleisen constructs a sturdy narrative of the many ways in which we have fallen prey to the swindler, and continue to do so, as well as of how American society and its institutions have tried to build protections against the con. But these protections eventually run up against accusations of violating ‘longstanding principles of due process,’ since the bigger the con, the more lawyers arrayed behind it."--Kirkus

Although it starts in the 19th Century, the book's breadth includes our recent "deregulatory" decades and the impact of that approach on fraud containment.  A book for our life and times for sure.

 

Chapter 9's Cabinet of Constitutional Curiosities: Ongoing Constitutional Violations

posted by Melissa Jacoby

Just a handful of modern big-city bankruptcies have revealed foundational questions about chapter 9's fit within federal courts and constitutional jurisprudence. Given that chapter 9 no longer is simply an adjustment of bond debt, bankrupt cities restructure a wide range of claims in their plans, including those arising from long-lingering disputes; to this point, a Ninth Circuit panel just heard oral argument on a dispute from Stockton's exercise of its eminent domain power twelve years before Stockton filed its chapter 9 petition, only to put the case on hold pending rehearing en banc of a chapter 11 equitable mootness dispute. But my commentary today focuses on the impact of events and decisions during a bankruptcy case. If cases no longer must be prepackaged, a city's decisionmakers have a longer period of automatic stay protection during which to act in ways that might generate controversy, causes of action, or both.

Recall, for example, Detroit's headline-making residential water shutoff policies and practices. The bankruptcy court used informal control to coax the city into increasing protections for low-income residents. In response to an adversary proceeding requesting more formal intervention, the bankruptcy court held it did not have the power to enter an order enjoining the policy or directing changes. But Judge Rhodes' analysis included a significant caveat: in a follow-up written ruling, Judge Rhodes held that section 904 of the Bankruptcy Code does not shield a municipal debtor from injunctions of ongoing constitutional violations:

The Court concludes that § 904 does not protect the City from the bankruptcy court's jurisdiction over the plaintiffs' constitutional claims because the City does not have the "governmental power" to violate the due process and equal protection mandates of the Constitution [citations omitted]. The City must comply with those constitutional mandates [citation omitted]. Accordingly, the Court concludes that those claims, unlike the plaintiffs' other claims, do survive the City's § 904 challenge.

Lyda v. City of Detroit, 2014 WL 6474081 at *5 (Bankr. E.D. Mich., Nov. 19, 2014). That holding did not get the Lyda plaintiffs far because, according to the court, the allegations failed to state a constitutional claim on which relief could be granted. The adversary proceeding was dismissed. Judge Rhodes' decision rightly signaled, though, that a municipal bankruptcy petition is not a license to engage in constitutional violations without consequence. The district court had affirmed the ruling. Lyda v. City of Detroit, 2015 WL 5461463 (E.D. Mich. Sept. 16, 2015).

Last week, the Sixth Circuit reversed the portion of the bankruptcy court's decision on the relationship between section 904 and alleged ongoing constitutional harms. The reversal did not change the outcome for the parties, but generates a troubling question: can municipal bankruptcy allow a city to continue to violate constitutional rights with no redress? Surely the answer must be "no"?

Continue reading "Chapter 9's Cabinet of Constitutional Curiosities: Ongoing Constitutional Violations" »

Civil Rights and Economic Justice in a New Era

posted by Melissa Jacoby

FlyerSharing news of this post-election civil rights conference on December 2, 2016 that, notably for Credit Slips, features pathbreaking research by Professors Mechele Dickerson and Bob Lawless (in collaboration with Dov Cohen and the late Jean Braucher) on the intersection of race with debt and bankruptcy and an exploration of how this research informs policymaking and advocacy going forward. Time permitting, I will address a different intersection between race and debt: collecting judgments arising from police misconduct when cities file for bankruptcy. Thanks to Professor Ted Shaw and the Center for Civil Rights for recognizing the role debtor-creditor research can play in the quest for equality. 

Register using this link.

 

Join us for the "The NCBJ at 90"

posted by Melissa Jacoby

ABLJInfoWill you be in San Francisco for the National Conference of Bankruptcy Judges annual meeting and related events? Please mark your calendars now for Thursday October 27, 3:oo pm Pacific Time: a special educational session honoring the 90th anniversary of the NCBJ.* We (Profs. Gebbia, Simkovic, Pottow, and me, with great guidance and input from Judge Colleen Brown and Judge Mel Hoffman) will be discussing original historical research on bankruptcy courts and bankruptcy law conducted for this occasion. Early abstracts can be found on the NCBJ blog. In the meantime, Prof. Gebbia has been posting quizzes; I suspect some Credit Slips readers would ace these tests, but you won't know until you try!

So please do join us on October 27 to be part of this commemoration and conversation.

* The mission of the NCBJ, according to its website, is:

The National Conference of Bankruptcy Judges is an association of the Bankruptcy Judges of the United States which has several purposes: to provide continuing legal education to judges, lawyers and other involved professionals, to promote cooperation among the Bankruptcy Judges, to secure a greater degree of quality and uniformity in the administration of the Bankruptcy system and to improve the practice of law in the Bankruptcy Courts of the United States.

 

Police Misconduct in Bankrupt Cities: Ninth Circuit Update

posted by Melissa Jacoby

"But Chapter 9 has awakened, and we do not presume further disputes over its interpretive and practical complexities will remain long at rest."

So says a panel of the U.S. Court of Appeals for the Ninth Circuit in Deocampo v. Potts (14-16192), filed since the last Credit Slips posting about civil rights debts in municipal bankruptcy. My working paper is newly revised to discuss the Ninth Circuit's ruling. Just a few points here.

The Ninth Circuit reached the right result in holding that the Vallejo bankruptcy did not relieve the police officer defendants of their individual liability for 1983 violations (excessive force). The court also held that Vallejo's state law obligation to indemnify the police officer defendants was not discharged by the city's bankruptcy, arising as it did after the city received its discharge.

Another element of the opinion should alarm civil rights advocates, however. For example, although it does not decide the issue, the panel suggests a surprising (especially for the Ninth Circuit) level of openness to explicit non-debtor releases of police officers in municipal bankruptcy restructuring plans. Surely everyone involved with the pending San Bernardino case is paying close attention.

Police Misconduct in Bankrupt Cities

posted by Melissa Jacoby

Bankruptcy filings by major cities have reinvigorated attention to municipal bankruptcy. As chapter 9 and its application have become more like chapter 11, a wide range of creditors are being swept into the process. As written before, city cases now have classes of general unsecured creditors. Those classes also have been including plaintiffs in civil rights lawsuits alleging unconstitutional police conduct. The proposed payouts vary.  San Bernardino's bankruptcy plan, which seeks to release the liability of non-debtor officers as well as the debtor, has been proposing a 1% payout. The confirmation hearing is currently set for October 2016.  Some cities with systemic police practice problems - Ferguson, Chicago - also are known to have pervasive financial difficulties. I am not suggesting or predicting they will end up in bankruptcy, but it is another reminder that civil rights advocates need to be up to speed on the impact of chapter 9, if only to be able to bargain in its shadow as other types of creditors do.

I have just posted a paper on this topic (revised and updated from a version posted earlier this summer). It walks through the issues and gives three brief case studies. Feedback from the Credit Slips readership would be very welcome, and/but please also pass along the link to civil rights lawyers who do § 1983 litigation. Here is the brief abstract:

When a financially distressed city files for bankruptcy, recovery for civil rights violations is at risk. This article examines the impact of bankruptcy on civil rights claims, with an emphasis on allegations of police misconduct resulting in lawsuits under 42 U.S.C. § 1983. We walk through how a bankruptcy filing affects civil rights plaintiffs, starting with the immediate injunction against litigation and debt collection activity, and ending with the legal release of debt and a restructuring plan. Using primary source materials, we offer three brief case studies: Detroit, Vallejo, and San Bernardino. We conclude with suggestions on where to go from here in research and advocacy.

Essential Resources on Burdens of Proof in Bankruptcy Litigation: Property Exemptions and Beyond

posted by Melissa Jacoby

Shutterstock_380908687Deliberations of the Advisory Committee on Bankruptcy Rules have generated great materials relevant to burdens of proof in bankruptcy litigation that judges and lawyers should read and keep on their shelves, whether physical or virtual. Judge Christopher Klein's Suggestion 15-BK-E, submitted in July of 2015, posited that Rule 4003(c) (which gives the objecting party the burden of proof in property exemption disputes) exceeds the authority of the Rules Enabling Act "with respect to claims of exemption that are made under state law that does not allocate the burden of proof to the objector." The document includes a detailed court decision, In re Tallerico, setting forth the reasoning. In a memorandum starting on page 67 of the agenda book downloadable here,  Assistant Reporter/Professor/prior Credit Slips guest Michelle Harner takes a deep dive into the intersection of burdens of proof and the Rules Enabling Act. The Harner memo considers two key Supreme Court decisions that present different standards. The first is Raleigh v. Illinois Dept. of Revenue, 530 U.S. 15 (2000), which played a central role in Judge Klein's submission and court decision. The second is Hanna v. Plumer, 380 U.S. 460 (1965). Harner concludes that Hanna is more on point in the event of a conflict between a federal bankruptcy rule and state law. And, as Harner explains, the Supreme Court in Hanna "rejected the argument that a rule is either substantive or procedural for all purposes" (p78), walks through the questions to be considered, and seeks to apply them to the exemption issue at hand. It looks like the Bankruptcy Rules Committee will not be proposing changes to Rule 4003(c) at this time, but this memo should live on, alongside the case law, as an essential resource for judges and lawyers who encounter disputes over the propriety of burdens of proof in federal rules. 

Bookshelf image courtesy of Shutterstock.com

 

Puerto Rico: PROMESA and Presiding Judges

posted by Melissa Jacoby

Shutterstock_419380498H.R. 5278, containing debt restructuring authority and an oversight board for Puerto Rico, inched closer to passage after yesterday's approval by the House Natural Resources Committee. A combination of Rs and Ds rejected amendments that would have unraveled the compromise (scroll here for the amendments and their fates). They indicated an appreciation for the automatic stay, for the downsides of exempting classes of debt from impairment, and even for the assumption of risk taken by recent bond purchasers (bond disclosures quoted!). The discussion reflected the creditor-versus-creditor elements of the problem and the need for a legal mechanism to discourage holdouts and encourage compromise. Even though they have been asked not to call it "bankruptcy" (or to say "control board"), it was clear they know the restructuring provisions come from Title 11 of the U.S. Code.   

Given that derivation, many judges on the merit-selected bankruptcy bench could admirably handle the first-ever PROMESAnkruptcy, drawing on their directly-relevant experiences with large chapter 11s, if not chapter 9s.  

But section 308 of H.R. 5278 prevents that, and the Natural Resources Committee, in light of its jurisdiction, may not have been in the best position to appreciate the resulting risks. 

Continue reading "Puerto Rico: PROMESA and Presiding Judges" »

Puerto Rico: Debt Restructuring and Takings Law

posted by Melissa Jacoby

ConstitutionPer the last words of my PROMESA post, click here for an interview with Professor Charles Tabb, who discusses the (limited) impact of the Takings Clause on debt restructuring and moratorium legislation. 

Constitution image courtesy of Shutterstock.com

Puerto Rico: PROMESAnkruptcy

posted by Melissa Jacoby

301The House Natural Resources Committee has released draft legislation - with the acroynym PROMESA - in response to Puerto Rico's financial crisis and Speaker Ryan's call for action. The contents continued to shift over the past few days but a recent version is here. PROMESA spans many topics, including an oversight board, employment law, infrastructure, and beyond. Without detracting from the importance of this range of topics, this is Credit Slips, so these initial observations focus on debt restructuring provisions principally housed in Title III of the bill.

  1. PROMESAnkruptcy: The new territorial debt restructuring law would not be in title 11 (home of the Bankruptcy Code). But as shown in the visual, section 301 incorporates many key title 11/Bankruptcy Code provisions, including automatic stay, financing, majority voting rules, cramdown, discharge, and the discharge injunction. Other sections of PROMESA repurpose title 11 provisions with slight tweaks, while still others expressly depart from current bankruptcy law and make new rules. For the lawyers, also note that the Federal Rules of Bankruptcy Procedure also apply (section 308). Still, the drafters don't want to call it bankruptcy or chapter 9. Okay. I commend the drafters for recognizing the importance of a mechanism to bind holdouts and I'll call it whatever they want, within reason. PROMESAnkruptcy may sound a little funny, but let's be clear that Puerto Rico's dire situation is no joke. 

Continue reading "Puerto Rico: PROMESAnkruptcy" »

Puerto Rico: The Recovery Act's Potential Second Wind

posted by Melissa Jacoby

 

This post continues the long-running Credit Slips discussion of Puerto Rico's Recovery Act, now the subject of U.S. Supreme Court review in Puerto Rico v. Franklin California Tax-Free Trust, 15-233, as indicated in Lubben's recent post and in last week's preview. In the video above, posted with permission of the American Bankruptcy Institute, I interview Bill Rochelle, who was at the Supreme Court for oral argument and makes some intriguing predictions on the vote, timing of issuing the opinion, judicial selection, and other matters. A few more reflections below the break.

Continue reading "Puerto Rico: The Recovery Act's Potential Second Wind " »

Puerto Rico: Help Still Wanted

posted by Melissa Jacoby

BranchFor the past two weeks, Credit Slips posts have considered the role of the Executive Branch in facilitating a Puerto Rico debt restructuring in the absence of Congressional action. That constraint is hereby relaxed, and thus future posts may well include the role of Congress and the judiciary in various combinations. For example, whatever one's view of the GM and Chrysler bankruptcies, they show that the administration can shape a restructuring by working within the framework of formal bankruptcy law. Imagine, for example, that Congress adopts the most modest of the proposals, H.R. 870, which merely fixes the unfortunate exclusion of Puerto Rico municipalities from ordinary chapter 9. The administration could put together post-filing financing packages with the stream of loan proceeds conditioned on the inclusion of various covenants, including those imposing fiscal reforms.  

Meanwhile, March 22 is drawing near. On that date, the United States Supreme Court will review a legal challenge to the Puerto Rico Public Corporation Debt Enforcement and Recovery Act. Below the jump are reminders and new points about the role of this court fight in Puerto Rico's debt crisis and why Congress and the Executive Branch are not off the hook. 

Continue reading "Puerto Rico: Help Still Wanted" »

Puerto Rico: LoPucki's Virtual Bankruptcy Proposal

posted by Melissa Jacoby

Hard to believe it has been over a year since a creditor representative opposing H.R. 870 characterized chapter 9 municipal bankruptcy as "the Wild West" in Congressional testimony. Whatever uncertainties bankruptcy law contains (and, sure, they are not trivial), our symposium reveals that the true legal wilderness in government debt restructuring lies beyond the boundaries of title 11. 

Enriching the collective brainstorm is a proposal by the always-innovative UCLA law professor Lynn M. LoPucki published in the Huffington Post. Here's the link, and here's a quote:  

LoPuckiVirtual9

 

 

 

 

 

The full story offers plenty of caveats and risks for creditors - including that this approach could be considerably less protective of creditors' interests than bankruptcy - so do read the whole thing. Although the piece does not expressly mention the Executive Branch, prior Credit Slips posts (such as here) have illustrated the potential combination of the Administration's use of soft powers to promote restructuring efforts formally initiated by Puerto Rico - again, potentially without the creditor protections normally associated with bankruptcy and without other pieces of financial reform that many have advocated. 

 

 

[UPDATED] Puerto Rico: More Views, Including on the Role of the Obama Administration

posted by Melissa Jacoby

Watch here at 1pm ET to see former Treasury official Brad Setser, now senior fellow at the Council on Foreign Relations, talk about Puerto Rico (along with Cate Long, Dick Ravitch, and Aaron Kuriloff). [March 9 UPDATE: transcript available here]

Read here for proposals of Puerto Rico governor candidate Ricardo Rosselló Nevares, including Treasury assisting with interim financing, with an analogy to GM and Chrysler during the 2008 financial crisis (see point 6 in the document).

[March 9 UPDATE: lest anyone need reminding of what can happen when a majority of creditors cannot bind holdouts, check out Anna Gelpern's recent assessment of the Argentina settlement]  

 

Puerto Rico Symposium: Of Wills and Ways

posted by Melissa Jacoby

JigsawDebt relief without Congress? No one promised it would be pretty.  

Our brainstorm (remember the ground rules) has included Levitin's MacGyver-inspired local currency, eminent domain, and liberally-interpreted exchange stabilization, Weidemaier's use of COFINA doubts to wedge open the door for a Executive Branch/Puerto Rico partnership, and, thanks to economist Arturo Estrella, a long menu of options with examples, summarized succinctly as "where there is a will, there is a way" (p. 1) (english report at bottom of this page). Could the federal government underwrite new bonds in an exchange offer, asks Pottow? Be the mediator with a big stick, asks Lubben?  Might a holdout creditor be liable to shareholders if it rebuffed a reasonable deal, asks Jiménez? (scroll to the comments). Marc Joffe notes the potential analogy of the City of Hercules tender offer (as well as the fact that Levitin's local currency suggestion has a history from the Depression). 

Lawless reminds us of the risks associated with discriminatory treatment of Puerto Rico's debt and access to legal tools. Of course, there is a long history here. Maria de los Angeles Trigo points to UT professor Bartholomew Sparrow's study of the Insular cases. And while most expect debt relief will be conditioned on some sort of fiscal oversight, it needs to be designed in a way to avoid the foibles of the past.

Returning to Lubben's mediation theme, let's push the brainstorming a step farther: could Treasury appoint a federal judge, such as Chief District Judge Gerald Rosen (E.D. Mich.), to oversee the mediation, and demand that all creditors participate in good faith until released? Even in the absence of legal authority for this move, would creditors formally object or fail to show up? 

Thanks to participants and readers for active involvement so far, and please keep your thoughts and reactions coming this way.  

Puzzle photo courtesy of Shutterstock.com

Credit Slips Presents: A Virtual Symposium on Puerto Rico

posted by Melissa Jacoby

TablePuerto Rico debt restructuring legislation is flying fast and furious around Congress. But the air contains more than a whiff of defeatism regarding the prospects of passage. Bills vary greatly in substance and scope, and yet apparently the response of powerful creditors is consistent: they want to retain the right to be holdouts and are making that position perfectly clear to our elected representatives.

Credit Slips contributors are no strangers to anti-restructuring advocacy, whether framed as moral hazard or otherwise. To that end, we embark on a virtual symposium inspired by the following question: What could the Executive Branch do to facilitate the restructuring of government debt in Puerto Rico absent Congressional action? 

On tap to brainstorm around this theme in the next two weeks are (in alphabetical order): Anna Gelpern, Melissa Jacoby, Bob Lawless, Adam Levitin, Stephen Lubben, Katherine Porter, John Pottow, Mark Weidemaier, and Jay Westbrook.

Continue reading "Credit Slips Presents: A Virtual Symposium on Puerto Rico" »

Who "Presides" over Chapter 13 Plan Confirmation Hearings?

posted by Melissa Jacoby

Shutterstock_329900393Temple Law Review will soon publish a volume honoring Bill Whitford, based on a conference from last fall. That event was particularly special for an additional reason: it turned out to be the last opportunity, for many of us, to spend time with another inspiring leader in our field, Jean Braucher

My own short contribution, on judicial oversight in chapter 13 bankruptcies, has just been posted here. We will share the word when the entire volume is available - including, I believe, a piece from Jean.

Gavel image courtesy of Shutterstock

Municipal Bankruptcy After Detroit

posted by Melissa Jacoby

ArrowsA new commentary stemming from my draft article Federalism Form and Function in the Detroit Bankruptcy is now posted on the Columbia Law School Blue Sky Blog. The post frames the current skirmishes over other municipalities' access to chapter 9 at least in part as a referendum on the procedural tools used by the court to supervise the Detroit bankruptcy. For two prior Credit Slips posts on the article, see here and here.

Arrow image courtesy of Shutterstock.com

Puerto Rico Seeks Help From the Supreme Court

posted by Melissa Jacoby

CertPetitionPuerto Rico is asking the U.S. Supreme Court to review the First Circuit decision that Puerto Rico's Recovery Act is preempted and thus unconstitutional. Here's the petition. In addition to parsing the legal issues, the petition is framed around Puerto Rico's financial emergency, the need for the Supreme Court to step in notwithstanding the lack of circuit split (or even a dissent to the First Circuit ruling). It makes sense that Puerto Rico would challenge a ruling making it harder for the Commonwealth, in a nebulous legal zone, to write laws to solve its problems. The difficulty with the financial crisis framing is that even if (1) the Supreme Court agreed to hear the matter, (2) heard the matter quickly, (3) decided the matter quickly, and (4) actually reversed the First Circuit - a chain of tough "even ifs"  - public corporations in Puerto Rico will not be able to start using the law because another formidable constitutional challenge is still alive: whether the Recovery Act can survive scrutiny under the Contracts Clause. That hotly contested fight would be fact intensive in a way that the preemption dispute was not. A fix from the federal government must come from one of the other two branches. Speaking of which, the persuasive argument against H.R. 870/S.1774 continue to be underwhelming. For example, the fact that chapter 9 would not be a complete solution for, say, PREPA, is really beside the point.

If the Supreme Court agreed to review the First Circuit's decision, then fellow Slipster Stephen Lubben's work on Puerto Rico and the Bankruptcy Clause would become even more important than it is already. While I am not on board with Stephen's conclusions regarding preemption, his research and arguments are central to this debate. So check out his article if you haven't already.

Picking a Judge to Preside over a Municipal Bankruptcy

posted by Melissa Jacoby

GavelLast week I introduced to Credit Slips readers my draft article on federal court oversight of Detroit's bankruptcy. An easily overlooked element of what I called The Detroit Blueprint is non-random judge selection, required by Congress for municipal bankruptcy cases.

Departing from the random assignment norm in the federal judiciary, section 921(b) of the Bankruptcy Code requires the chief judge of the applicable circuit court of appeals to select the judge who will preside over a municipal bankruptcy. In 1997, the National Bankruptcy Review Commission unanimously recommended eliminating section 921(b).  That Commission's Final Report observed that the fear prompting the provision - random draw of a judge unable to handle the case - was no longer salient. Congress did not take up this recommendation. What difference did section 921(b) make in Detroit?

Continue reading "Picking a Judge to Preside over a Municipal Bankruptcy" »

Consumer Financial Protection Clinic Position

posted by Melissa Jacoby

Here's an opportunity to supervise a consumer financial protection clinic that has done some great work - information on the position and how to apply here

Chapter 9 and Federal Courts: The Detroit Blueprint

posted by Melissa Jacoby

BlueprintAmong its other effects, the Puerto Rico debt crisis has dramatically increased the number of public figures and politicians whose verbal repertoire includes the term "chapter 9." Bondholders' resistance to chapter 9 access for Puerto Rico municipalities is fueled in part by an earlier public debt crisis: Detroit. As suggested in my Credit Slips posts, Detroit made some new law but its major lasting legacy is procedural. I just posted a draft article, based on original empirical research, documenting that procedural blueprint, Federalism Form and Function in the Detroit Bankruptcy. It shows the paths by which the federal court became a major institutional actor throughout Detroit's restructuring.

After reading scholarship and case law on chapter 9, one might envision that, because of the Tenth Amendment to the U.S. Constitution and federalism principles, presiding judges are essentially locked in a closet for much of the duration, released only when the parties affirmatively seek an adjudicator. That's never entirely accurate, but to say it is inaccurate regarding Detroit is the understatement of the year.

Although The Detroit Blueprint will have broader ripple effects, I am dubious that its most significant elements could or would be implemented in, say, a PREPA bankruptcy. Detroit should not be an impediment to changing the Bankruptcy Code to cure the wrongful omission of Puerto Rico municipalities. More on that, and additional perspectives from the article, in future posts.  
 

Image courtesy of Shutterstock

Puerto Rico Preemption Redux: Back to You, Congress

posted by Melissa Jacoby

1stCircuitCoverOn February 6, 2015, a district court held Puerto Rico's Recovery Act to be expressly preempted by section 903 of the Bankruptcy Code.

On July 6, 2015, the U.S. Court of Appeals upheld the finding: The Recovery Act is preempted, on both express preemption and conflict preemption grounds. 

Judge Torruella wrote a separate concurrence starting on page 50 of the decision. One of his points bearing special mention here is that he finds unconstitutional the 1984 Bankruptcy Code amendment that stripped Puerto Rico's right to authorize chapter 9 for its municipalities, due to the lack of a rational basis. Had he secured another vote for that view...

Credit Slips contributors surely will weigh in more, in this space or elsewhere, on the decision and  next steps. For now, Congress needs to move on H.R. 870, which now has support in the Senate. H.R. 870 simply reinstates Puerto Rico's ability to authorize its municipalities to use chapter 9, akin to states. Others advocate for bankruptcy relief for the Commonwealth of Puerto Rico itself; that proposal is separate from, and considerably more controversial than, H.R. 870.

 

New Chair for Bob Lawless (And I Don't Mean a Recliner)

posted by Melissa Jacoby

LawlessPictureJust saw a terrific announcement: the University of Illinois is recognizing Credit Slips' fearless founder, Bob Lawless, with the Max L. Rowe Professorship.

Bob has done so much for our field and the legal academy that attempting a quick summary is futile. And, putting aside the recliner quip, roasting is best left to others. So I'll leave it at this for now: Bob is a role model for working harder and smarter, and with modesty. To see such contributions rewarded is satisfying indeed.

 

 

 

Puerto Rico Preemption

posted by Melissa Jacoby

PRholdingLast summer, PREPA bondholders filed actions challenging the constitutionality of Puerto Rico's recently enacted, but as yet unused, Public Corporation Debt Enforcement and Recovery Act. Last night, the district court filed a seventy-five page opinion. It did not dispose of the actions in full (e.g., the contract clause challenges remain alive but not decided), but did hold the Recovery Act is preempted. Given that the judge's order permanently enjoins Puerto Rico from enforcing the Recovery Act, I believe it is immediately appealable under 28 USC 1292(a)(1).

Continue reading "Puerto Rico Preemption" »

Little Big Mistakes: The Second Circuit Rules on GM/JP Morgan

posted by Melissa Jacoby

PencilCulminating a two-year appeals process, the United States Court of Appeals for the Second Circuit just ruled that the statement filed to terminate a financing statement perfecting a security interest was effective. Yes, the parties intended to terminate a different financing statement, but that doesn't change the outcome under the facts of this dispute (these facts have been the subject of several prior Credit Slips posts; see here and here and here).

Today's per curiam decision cites the Restatement (Third) of Agency for the proposition that "Actual authority . . .  is created by a principal's manifestation to an agent that the agent take action on the principal's behalf."  And, says the panel, that's what happened. Again, full (and fairly brief) opinion is here.

Pencil image courtesy of Shutterstock

Waiting for Wellness

posted by Melissa Jacoby

Shutterstock_208016377To get ready for the January 14, 2015 Supreme Court oral argument on Wellness International Ltd. v. Sharif, read this National Bankruptcy Conference report.

Detroit's Bankruptcy: The Conversation

posted by Melissa Jacoby

Readers who have not otherwise received notice in the twittersphere may be interested in this commentary at The Conversation.

Detroit's Bankruptcy: End(s) and Means

posted by Melissa Jacoby

TobecontinuedOn Friday November 7, 2014, Judge Rhodes confirmed the City of Detroit's plan of adjustment. As previously noted, this judicial act permits the release of debt and clears the way for the City to forge ahead, but the future of Detroit is in the hands of many others. Although a fuller written decision is expected, the court's oral ruling already hints strongly at new bankruptcy doctrine. Two examples: unfair discrimination and professional fees.

Continue reading "Detroit's Bankruptcy: End(s) and Means" »

Settling Detroit: Remembering General Unsecured Creditors

posted by Melissa Jacoby

ChessThe trial on the City of Detroit's restructuring takes a hiatus while insurer Syncora and others try to finalize a settlement. The deal seems to be a hybrid of enhanced treatment for Syncora's class of claims in Detroit's plan (class 9) and other value for Syncora alone, such as rights in Detroit property, and possibly a release from insurance obligations on interest rate swaps. The deal does not resolve class 9 objections as a whole. Indeed, it may give others in the class, e.g., insurer FGIC, more to grumble about. Signals are flashing that the judges (intentionally plural) overseeing Detroit's bankruptcy want a full class 9 settlement and want it now. At the end of Wednesday's bankruptcy court hearing, Judge Rhodes requested an off-the-record conference with representatives from FGIC and the City. Yesterday, the lead facilitative mediator entered a bring-your-toothbrush order; it requires mediation participation "continuing day-to-day thereafter as deemed necessary, until released by the mediators." (document 7419)

But what about plaintiffs alleging civil rights violations/constitutional torts who had section 1983 actions pending before the bankruptcy? Or plaintiffs holding state law tort claims, or rejected contract claims? In a municipal bankruptcy pitched as a battle between workers, Wall Street, and residents, it can be easy to overlook other kinds of unsecured creditors. 

Continue reading "Settling Detroit: Remembering General Unsecured Creditors" »

Detroit: "Now Is Not the Time for Defiant Swagger..."

posted by Melissa Jacoby

3dPuzzlePlan confirmation time. Doesn't everyone relish a big trial? Headlines in national newspapers breathlessly proclaim that the fate of Detroit's future is in the hands of one single judge!

Well, no.

Let's get literal about the judicial role at this juncture. There's no way over the finish line without a determination by the bankruptcy court that the City has met its burden of showing its plan satisfies all legal requirements by a preponderance of the evidence.

This standard includes the City showing that the plan is not likely to fail. Back in January 2014, as the parties negotiated the plan's initial version, Judge Rhodes called for restraint in creditor demands, modesty in City promises:

Now is not the time for defiant swagger or for dismissive pound-the-table, take-it-or-leave-it proposals that are nothing but a one-way ticket to Chapter 18 ... . If the plan ... promises  more to creditors than the city can reasonably be expected to pay, it will fail, and history will judge each and everyone of us accordingly.

    --Jan 22, 2014, afternoon session

Detroit's plan includes revitalization investments, and does so not merely to show how it will service its debt. That scope takes the court into a farther-reaching review.  And the judge appointed his own feasibility expert, and is planning to conduct the direct examination of the expert himself. Such factors further fuel the image of a judge as gatekeeper of Detroit's future.

Yet, no bankruptcy judge should be saddled with the full weight of longstanding socio-economic and geographic challenges. Historian Thomas Sugrue teaches us that the roots of Detroit's crisis run quite deep. Deeper than the recent past of corruption in the Kilpatrick administration, or dependence on casino revenues, interest rate swaps on certificates of participation, or questions about thirteenth checks. Even before the height of worries about auto industry competition abroad, or the enactment of Michigan constitution language on pensions. By Sugrue's account, Detroit's economic decline started in the 1940s and 1950s with hemorrhaging (his word) of good jobs and capital. For the spiral downward from there, the book is here, the speech, 19 minutes into the video, there.  Repair depends on collaborative work: many tools, many hands. How to engage all communities in the effort to conquer longstanding racial tensions and segregation, achieve regional cooperation, expand jobs that offer more security and opportunity than downtown coffee shops and sports stadiums? ("Downtown does not trickle down," said Sugrue at a Wayne State conference earlier this year; explanation here). Again, many tools, many hands.

Although these challenges illustrate how the judge's plan confirmation role operates within a much broader framework of actors, judges also can shape a municipality's restructuring and future throughout the bankruptcy process, in more informal ways. In Detroit's case, Judge Rhodes planted the seeds of oversight and influence in the earliest days of the bankruptcy. He drew on tools and techniques used decades earlier in other kinds of complex litigation, including prison reform and school desegregation cases. See here, here, here, and here.

Among the most consequential moves was delegating to Chief District Judge Rosen the authority to mediate nearly every substantive issue in the case. Detroit heads into the confirmation hearing with many settlements in its pocket - with financial creditors as well as workers and retirees. Most discussed is the pension/art settlement (a.k.a. Grand Bargain) that looks the least like a conventional mediated settlement. Chief Judge Rosen has suggested the deal could be a model for other distressed cities. On harnessing the power of the non-profit sector, maybe so. On a sitting life-tenured judge being the designer, broker, and closer of this type of deal, not so much. However socially desirable the content of the Grand Bargain may be (and that debate will rage on), the costs and risks of this procedural model are simply too great. 

So, as the last phase of the historic Detroit bankruptcy commences, the question of judicial responsibility and influence must be put in context. The role of federal judges in shaping Detroit's future has been overstated in some ways, understated in others. Trials matter. But if they capture too much of our attention, we will miss other important things.

Puzzle picture courtesy of Shutterstock

 

"Don't give me so much that you've given me nothing" - Remembering M. Caldwell Butler's Contribution to Bankruptcy Law

posted by Melissa Jacoby

Former Virginia Congressman M. Caldwell Butler died last week. He is widely known for his role in the Nixon impeachment proceedings, his efforts to limit extensions of the Voting Rights Act, and his support for ensuring legal representation for low-income individuals. But Congressman Butler is also a major figure in the history of bankruptcy law. He was a principal co-sponsor of the Bankruptcy Reform Act of 1978 that serves as the foundation of the modern bankruptcy system. Professor and lawyer Kenneth N. Klee worked closely with Congressman Butler on the House Judiciary Committee in the 1970s. I asked Professor Klee to share a few words of remembrance with us, which I repeat in their entirety here:

I first met M. Caldwell Butler in 1975 when he became the Ranking Minority Member of the Subcommittee on Civil and Constitutional Rights of the House Judiciary Committee. Caldwell was most interested in the Voting Rights Act legislation and finding a way for the South to get out from under the Act. In his view, Washington was improperly interfering with the sovereignty of the southern states based on predicate acts that had long since ceased to serve as a basis for federal control. He asked me to draft a series of amendments that would permit the South to extricate itself from the Voting Rights Act. The requirements to regain sovereignty were quite demanding, to the point that the amendments became known as the "impossible bailout."  Nevertheless, the amendments did not come close to passing. It was evident that there were no circumstances under which the majority in Congress wanted to let the southern states out from the Voting Rights Act.

Caldwell assumed his responsibilities over bankruptcy legislation with diligence and good cheer. His fabulous sense of humor carried us through many long markup sessions during which the members of the Subcommittee read the bankruptcy legislation line by line. He had a sharp legal mind and deep curiosity. He also was very practical and to the point. He was fond of telling me "don't give me so much that you've given me nothing."

It was a privilege and honor to work with him. The bankruptcy community should join in paying him tribute.

                        -- Ken Klee

Congressman Butler made another round of contributions to bankruptcy reform in the 1990s. The fact that they are not all reflected in today's Bankruptcy Code makes this story more pressing, not less. Well over a decade after he had returned to the practice of law in Virginia, Congressman Butler was appointed to the National Bankruptcy Review Commission, for which I was a staff attorney. Expressing satisfaction with the 1978 Code, the House Judiciary Committee directed this Bankruptcy Commission to focus, for two years, on "reviewing, improving, and updating the Code in ways which do not disturb the fundamental tenets of current law."  Not one to leave the heavy lifting to others, even in a pro bono post, Congressman Butler stepped up to the challenge of forging a compromise, among those with diverging politics and views, to improve the consumer bankruptcy system.

Continue reading ""Don't give me so much that you've given me nothing" - Remembering M. Caldwell Butler's Contribution to Bankruptcy Law" »

Small Formalities, Big Consequences in Secured Credit Law - An Update

posted by Melissa Jacoby

FolderRowTo what extent does secured credit law protect creditors from the consequences of mistaken actions made on their behalf? I wrote about this issue in March 2013. As discussed in that post, the bankruptcy court issued both a decision on the merits and a certification for a direct appeal to the U.S. Court of Appeals for the 2nd Circuit.

The 2nd Circuit has now certified the following question to the Delaware Supreme Court: 

Under UCC Article 9, as adopted into Delaware law by Del. Code Ann. tit. 6, art. 9, for a UCC-3 termination statement to effectively extinguish the perfected nature of a UCC-1 financing statement, is it enough that the secured lender review and knowingly approve for filing a UCC-3 purporting to extinguish the perfected security interest, or must the secured lender intend to terminate the particular security interest that is listed on the UCC-3? 

The 2nd Circuit decision is here.  (The date of oral argument on the cover page should say March 2014, not March 2013). 

File folder photo courtesy of Shutterstock

Detroit: My Complication Had A Little Complication

posted by Melissa Jacoby

GazellesUntil a few days ago, it looked like Detroit's chapter 9 plan confirmation would come and go untouched by appellate process. In February 2014, the U.S. Court of Appeals for the Sixth Circuit granted seven petitions for direct appeal of the bankruptcy court's eligibility decision, which included the finding that public pension claims could be impaired in chapter 9 bankruptcy. But the Sixth Circuit did not act on the request for expedited consideration. Somewhat remarkably, it agreed to do what the bankruptcy court had requested in its certification memo: consult with the bankruptcy court's lead mediator to consider the impact of the appeal's timing on negotiations. According to the bankruptcy court, "the interests of the City, its residents and its creditors are better served by adjusting the pace of the legal process, including the appeals, to meet the needs of the mediation process." (p. 14)  Don't know for sure, but it seems plausible that the lead mediator preferred deferral of the appeal until after plan confirmation; doing otherwise might throw a wrench in implementation of plan settlements he oversaw - especially the Grand Bargain, for which he has pressed for many months. Because the eligibility decision included the finding that public pensions could be impaired in bankruptcy, the Sixth Circuit docket has swelled in the meantime to include many amici appearances and briefs, including from CalPERS, the Illinois Public Pension Fund Association, the American Federation of Teachers, and AARP.

A host of appeals from other bankruptcy court orders in Detroit's bankruptcy also are pending in the U.S. District Court for the Eastern District of Michigan. In at least several - and possibly all, as I haven't yet checked each and every one - the district judge sua sponte stayed the matter until the Sixth Circuit decided the eligibility appeal. 

This week, the Sixth Circuit shattered the blockade on appeals from Detroit's bankruptcy.  

Continue reading "Detroit: My Complication Had A Little Complication" »

The Puerto Rico Public Corporation Debt Enforcement and Recovery Act

posted by Melissa Jacoby

PRflag

6/30 UPDATE: here's the  amended complaint.

The fast-moving legislation's title does not include the word bankruptcy. Materials distributed by the Puerto Rico government explain, though, that the bill is meant to provide chapter 9-like relief to Puerto Rico public corporations through one of two paths - one more prepack-like than the other. Calling the effort "dazzling," Cate Long notes, "[s]eldom have financial markets seen such an elegantly choreographed approach to haircutting sovereign debt."

However elegant, investors say the bill violates multiple provisions of the U.S. Constitution. Quiz yourself, or directly check out the action just filed in the U.S. District Court for the District of Puerto Rico seeking a declaratory judgment.  H/T Cate Long.

Puerto Rico flag courtesy of Shutterstock

The "New" New Legislation on Student Loans and Bankruptcy

posted by Melissa Jacoby

AbstractSenator Harkin's discussion draft of the Higher Education Affordability Act (described here) is expected to include a provision restoring bankruptcy relief from private for-profit student loans. A few years ago, I offered justifications for that move here. Prof. Scott Pryor agrees.

But wait, there's more. S.2471, The Medical Bankruptcy Fairness Act of 2014, introduced by Senator Sheldon Whitehouse, co-sponsored by Senator Elizabeth Warren. Section 6 would offer relief from student loans for some bankruptcy filers. Take a look. 

Abstract image courtesy of Shutterstock

 

"You Can't Eat Principles" - Detroit's Grand Bargain Moves Another Step Forward

posted by Melissa Jacoby

PressConferencePinA little like the ship that Fitzcarraldo (and Werner Herzog) pushed, hoisted, and willed up up up and over a mountain, Detroit's Grand Bargain continues to defy expectations and make forward progress. A significant step today: A big press conference as Governor Snyder signed the necessary bills. Watch here.

The Detroit Retired City Employees Association produced the button in the picture (photo courtesy of Matt Helms of the Detroit Free Press). Shirley Lightsey, President of the association, produced the slogans: You Can't Eat Principles, and Uncertainty Doesn't Pay the Bills. Of the speakers at the press conference today who advocated for the Grand Bargain, Ms Lightsey was the most persuasive.

And practical too. Some retirees are skeptical, but it is hard to imagine retirees will do financially better by voting no or abstaining and hoping for an appellate court victory on the Michigan Constitution questions.

Voting is not, though, the last hurdle for the Grand Bargain - a point lost in the shuffle of the bill-signing press conference.

Continue reading ""You Can't Eat Principles" - Detroit's Grand Bargain Moves Another Step Forward" »

A Three-Hour Tour and Other Distractions

posted by Melissa Jacoby

MichiganRoadsThe City of Detroit has proposed a three-hour bus tour of the City to start its chapter 9 plan confirmation hearing. Some creditors object. The City's motion says "[i]f any case ever warranted a Site Visit, this one does." I don't agree, for reasons explored below, but in any event, the eligibility trial would have been a more logical place for it. And even Gilligan and the Skipper too couldn't cover 139 square miles in three hours. So what is going on here?

A step back. In the earliest days of my bankruptcy court clerkship, the United States Trustee sought to dismiss or convert the chapter 11 of a small nonprofit on the south side of Chicago. The debtor and the U.S. Trustee parties presented starkly contrasting depictions of this debtor - I remember the dueling photographs - with neither more obviously credible than the other. The case, like most in the bankruptcy court, had a starkly human element: the debtor was a rehabilitation center of sorts. The U.S. Trustee essentially was alleging that the residents lived in deplorable conditions, and the debtor strongly disagreed. To resolve the discrete factual dispute between two parties about the property's condition, Judge Ginsberg decided to schedule a time to leave the modernist skysraping box that was the Dirksen Federal Courthouse and visit the premises, in a van, with law clerk, court reporter, and others in tow. No easy way to verify -  the name of the case is lost to me now - but my strong recollection is that the site visit idea prompted no objections. The case cratered for an unrelated reason, mooting the trip. No other case during my clerkship prompted Judge Ginsberg to make a similar proposal.

Over the years, I have learned of other judges' experiences with site visits, revealing similar characteristics: cases with limited parties in interest, specific factual disagreement, the resolution of which could be accomplished efficiently by visiting circumscribed sites. 

Continue reading "A Three-Hour Tour and Other Distractions" »

Q & A on C of D

posted by Melissa Jacoby

Yesterday's Is. It. Legal. provoked some comments and questions. Some quick replies above the line, so to speak.

Q: Is it clear that this is going to be a cramdown plan?

    Multiple groups of creditors have not settled with the City (e.g., those with financial interests in certificates of participation, water and sewer bonds, LTGO, a few police and fire groups). Non-settling claimants are actively challenging plan confirmation from top to bottom, including whether Detroit's current plan passes muster under the standards applicable to nonconsensual plans. Those who hold or insure COPs are most relevant to yesterday's comments on unfair discrimination.  In addition to offering little payment, the City has challenged the COPs' validity altogether. Will all of that get settled?  Stranger things have happened in the history of bankruptcy and municipal finance law. But I would guess that result would necessitate some sharing in the Grand Bargain premium.

Q: If it is not a cramdown, then all of the unfair discrimination and absolute priority issues are moot.

    I disagree. The strength of the cramdown-related arguments contribute to the leverage of the parties to compromise and settle.

Continue reading "Q & A on C of D" »

Is.It.Legal.

posted by Melissa Jacoby

BomeyDetroitIn a week bustling with municipal finance activity (e.g., conclusion of the Stockton confirmation hearing), the Michigan Senate rather easily passed legislation to contribute money to Detroit's restructuring, earmarked for pension claims and permanent insulation of the City-owned art museum against the City's creditors. The bankruptcy is not fully resolved yet, of course. For one thing, creditor voting is not complete, and some pension claimants must be resolicited because of errors in ballots. Assuming that the requisite votes materialize, the City has the burden to prove that its plan of adjustment meets all requirements of the Bankruptcy Code by a preponderance of the evidence. Due to a series of document production delays on the City side, the trial will likely be postponed by at least a few weeks.

Since I last wrote about Detroit, the City filed an omnibus reply to plan objections (doc #5034). Exceeding 250 pages, brief it is not. But the City had much ground to cover, and the end pages are a very useful chart breaking down who made which objections. Several assertions I found troubling relate to whether the plan unfairly discriminates in favor of pension claimants who benefit from the Grand Bargain premium and against dissenting classes of creditors who do not.

Continue reading "Is.It.Legal." »

Working and Living in the Shadow of Economic Fragility

posted by Melissa Jacoby

OupbookCredit Slips readers, please note the publication of a new book edited by Marion Crain and Michael Sherraden. The New America Foundation is hosting an event on the book tomorrow, Wednesday, May 28, 2014 at 12:15 EST. Not in Washington, D.C.? The event will be webcast live

The book project developed out of a stimulating multi-disciplinary conference at Washington University in St. Louis. Participants had great interest in considering how bankruptcy scholarship fits within the larger universe of research on financial insecurity and inequality. My chapter with Mirya Holman synthesizes the literature on medical problems among bankruptcy filers and presents new results from the 2007 Consumer Bankruptcy Project on coping mechanisms for medical bills, looking more closely at the one in four respondents who reported accepting a payment plan from a medical provider. Not surprisingly, these filers are far more likely than most others to bring identifiable medical debt, and therefore their medical providers, into their bankruptcy cases. We examine how payment plan users employ strategies - including but not limited to fringe and informal borrowing - to manage financial distress before resorting to bankruptcy, and (quite briefly) speculate on the future of medical-related financial distress in an Affordable Care Act world.

Detroit: So Many Questions

posted by Melissa Jacoby

Arrows...but first, a new (and short!) article: Please download here a just-published piece on the first months of Detroit's bankruptcy, resulting from a fall 2013 Fordham symposium. It reflects efforts to follow public parts of Detroit's chapter 9 through recordings of court hearings and monitoring the docket. And although largely descriptive, the piece sets the stage for unpacking the institutional and functional roles played by the federal court in municipal bankruptcies and beyond. The court's early management and oversight choices (discussed on Credit Slips here & here & here & here) can be tied quite directly to this bankruptcy's development  - most notably through the appointment of Chief District Judge Rosen as lead mediator. Without Chief Judge Rosen, would the  Grand Bargain exist?

Continue reading "Detroit: So Many Questions" »

In Memory of Leonard M. Rosen

posted by Melissa Jacoby

Rosen

As family, friends, and colleagues mourn the passing of the Leonard Rosen, the fitting tribute by Wachtell, Lipton, Rosen & Katz allows a glimpse into his exceptional contributions:

But above all, Leonard was a good man. A generous man. A kind man. A man you could trust with your most difficult problems and deepest concerns, a superb partner who represented, and will always represent, all we strive to be as lawyers, citizens, and human beings. He was much sought after for his judgment, as well as for his marvelous ability to resolve disputes and reconcile disparate views. He shaped the culture of our Firm. He was the glue that cemented a group of hard-working and talented attorneys into a leading law firm that has served as a model for other firms. He was not only admired and respected by his colleagues; he was beloved.

When the American College of Bankruptcy named Leonard Rosen as its Distinguished Service Award recipient in 2003, Harvey Miller's remarks included these words: 

Throughout his professional career and his personal life, Len has exhibited enormous talent, intellectual honesty, intelligence, objectivity, personal dignity and an infectious good will – qualities that have enabled him to calm stormy waters and allow competing parties to reconcile their differences and resolve their disputes. His ability to diffuse conflict is legendary. . . .  During the 43 years that I have known Len, I have never heard anyone utter a bad word about him. . . . Len truly is a man for all seasons.   

Leonard Rosen's speech that weekend in 2003 concluded with a call to duty:

Justice Earl Warren has been quoted as saying, “Law floats in a sea of ethics.” We all have social and ethical responsibilities as professionals to help protect important economic and social interests in our society, including the public trust that is essential to the functioning of our capital markets. We need to be a part of the debate that shapes the necessary solutions — leaving our clients and our own self-interest at the door — so that we can play a most persuasive and important role in the battle to restore confidence in our economic system.

Deepest condolences to the Rosen family. And may we all strive harder to live up to Leonard Rosen's example.  

Terrific New Paper on Arkison & Authority of Bankruptcy Court

posted by Melissa Jacoby

BlankPaperThe paper was just posted here. Its authors are Elizabeth Gibson and Jonathan Landers, and it was written for the National Bankruptcy Conference. A key sentence from the abstract: "The paper contends that the Court’s analysis in [Commodity Futures Trading Commission v.] Schor supports the constitutionality of bankruptcy court adjudication of private rights with the parties’ consent, notwithstanding the decision of three federal circuits to the contrary." The paper also discusses consequences for the bankruptcy system, magistrate system, and the workload of district courts in the event that the Supreme Court rejects the consent route. All in an efficient seventeen-page package.

Paper image courtesy of Shutterstock.

New Empirical Paper on Home Mortgage Foreclosure and Bankruptcy

posted by Melissa Jacoby

RibbonHouse Cross-campus colleagues and I have posted a paper that studies intersections between mortgage foreclosure, chapters of bankruptcy, and other variables, using the Center for Community Capital's unique panel dataset of lower-income homeowners. An excerpt from the abstract:

We analyze 4,280 lower-income homeowners in the United States who were more than 90 days late paying their 30-year fixed-rate mortgages. Two dozen organizations serviced these mortgages and initiated foreclosure between 2003 and 2012. We identify wide variation between mortgage servicers in their likelihood of bringing the property to auction. We also show that when homeowners in foreclosure filed for bankruptcy, foreclosure auctions were 70% less likely. Chapters 7 and 13 both reduce the hazard of auction, but the effect is five times greater for Chapter 13, which contains enhanced tools to preserve homeownership. Bankruptcy’s effects are strongest in states that permit power-of-sale foreclosure or withdraw homeowners’ right-of-redemption at the time of auction.

Bear in mind that most homeowners in foreclosure in this sample did not file for bankruptcy. Among the 8% or so who did, the majority filed chapter 13. For even more context, please read the paper - brevity is among its virtues, and exhibits take credit for page length. A later version will ultimately appear in Housing Policy Debate.

Ribbon house image courtesy of Shutterstock.

Detroit's Managerial Milestones

posted by Melissa Jacoby

PathA city in bankruptcy operates with considerably more freedom from judicial oversight than its private chapter 11 counterparts. People often say judges have just two principal points of involvement in a chapter 9: presiding over trials on eligibility and confirmation of the plan of adjustment. My earlier posts about Detroit have told a story that puts judges in a more active ongoing role, emblematic of the evolution of the federal judiciary over the second half of the Twentieth Century. Serious managerial judging (plus a team) empowers them to shape the speed and direction of municipal restructuring notwithstanding doctrinal and constitutional limits on their formal legal authority. Yesterday's evidentiary hearing in Detroit's bankruptcy is illustrative.

Continue reading "Detroit's Managerial Milestones" »

One Hundred Forty Characters (Of Detroit)

posted by Melissa Jacoby

MessageShort bursts on Detroit's Chapter 9 bankruptcy will be offered at @bankrprof. While I'm here, though, a report that the retiree committee has filed a motion to withdraw the reference from the bankruptcy court of its objections to Detroit's chapter 9 eligibility. 

Note paper image courtesy of Shutterstock

Detroit: More People, Moving Faster (and, in an instance, Slower)

posted by Melissa Jacoby

PuzzleExclamationMy Detroit posts so far (here and here) focus on the role of the judge and court. The first considered managerial judging, and there's significant news on that front this week. Having read one hundred and nine timely objections to eligibility, Judge Rhodes interpreted many objections to raise only legal issues and expedited the hearing on those issues to September 18, from October 23 (see p.3 of order). On September 19, the court will hear from individuals who filed eligibility objections, three minutes each. October 23 remains the date for objections that require the resolution of material fact. But the court is deferring objections based on treatment of pension rights in a plan because they are not eligibility issues (see section VI of the order, p. 6). This is the technically "slower" instance, per this post's title. Parties troubled by this new order have until September 6 to file objections or comments (see section XI. p.7).

Continue reading "Detroit: More People, Moving Faster (and, in an instance, Slower) " »

Doesn't Anyone Want to Talk About Jurisdiction This Week?

posted by Melissa Jacoby

PurpleElephantWith the Second Circuit's ruling in the Argentina/NML case and the now-urgent need to get secured transactions and bankruptcy into the 1L curriculum, Credit Slips has yet to give attention to Wellness International Network, Limited,  issued on Aug 21 by the Seventh Circuit. Luckily, on this issue, I don't mind getting the ball rolling, and then stepping out of the way. 

Continue reading "Doesn't Anyone Want to Talk About Jurisdiction This Week? " »

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