Jevic CVSG Recommends Granting Cert

The brief is not up on the SG's webpage yet, but they are recommending granting the petition and reversing the Third Circuit.  Hat tip to Professor Lipson or Attorneys Goldblatt et al.?  I think this now places granting odds at "moderately decent."

(Those less in the weeds: CVSG is Calls for Views of the Solicitor General.  When the Supreme Court's thinking of granting cert, it sometimes asks the Solicitor General for its views before making the decision.  The SG's brief filed this week says, "Yes, important, grant cert."  Of course, it's not dispositive, but as my old Latin Master used to say, it's better than a slap in the face with a wet haddock.  (Shout out to TPO'DB.))

Nortel Avoids (First) Appeal -- U.S. Edition

After extensive briefing and hearings, the U.S. District Court presiding over the appeal (foreign readers: general trial judges in the U.S. federal court system sit in an appellate capacity over the specialized bankruptcy courts) from the U.S. Nortel proceedings punted this week.  More precisely, the judge, almost resignedly, acknowledged that the appellate appetite of the parties showed little sign of abatement and so has recommended that the appeal go straight to the U.S. Court of Appeals for the Third Circuit (which would hear any appeal from the District Court).  If the appellate court takes this direct appeal, which it almost certainly will, this could very well be the final stage.  Stay tuned!

Nortel Survives (First?) Appeal -- Canadian Edition

Unlike the bankruptcy judges in Nortel, who synchronized their trials in a landmark case of cross-border insolvency cooperation, the appellate judges run at their own speed, so results will trickle in here and there.

The Canadians got through their appeal first, and the 3-0 ruling from the panel of the Ontario Court of Appeal was rightly withering of the losing appellants.  In response to the argument accusing the trial judge of applying -- instead of the correct law of property entitlements -- his own "commercial judicial moralism," the panel had this to say on his analysis:

"Based on those facts, he concluded that a pro rata order constituted the answer to the allocation issue. The fact that the answer is also fair should not detract from the force of his conclusion."

Who said Canadians can't be snarky, or at the very least passive-aggressive?

The next stage in Canada would be the Supreme Court, which requires leave to appeal, although its grant rate is higher than the U.S. Supreme Court's cert rate.  Stay tuned!

Puerto Rico: Reading the SCOTUS Tea Leaves

I, too, join the cohort of surprised observers from this week's argument.  For me, the biggest takeaway is not so much that the Justices were engaging in textual sport, it's that they wanted to engage in those gymnastics.  That is, everyone seemed to get how unjustifiable the legal status quo is: it's clear the law is dumb, it's probable that Congress made a mistake, and so the Court had a very roll-up-their-sleeves attitude that struck me as, "What can we do to mitigate matters while being able to sleep at night that we are following an at-least-plausible reading of the text?"  The subtext to that is that they were not searching for the most natural reading of the text but the reading that did the least harm that could fix a problem.  (Surely a different colloquy would have ensued had the Late Justice Scalia been present!)

Note this is not "judicial activism" in my mind, because if it were true activism, they would just make up a doctrinal canon saying they can ignore the text when "manifestly unsound," or maybe open up the absurdity doctrine so wide you could drive a Jones Act tanker through it.  I see this as remarkably pragmatic.  We have to follow the text.  If you can get us a reading that we can live with, we'll do it.  That's why they kept pressing on what is the justification for this law.  Their lack of enthusiasm to any proffered makeweight (treat triple tax-exempt bonds differently from PR vs USVI?!) was telling.  If you're a judge, especially a Justice, I suspect you don't feel bad interpreting a law in a creative way if everyone but the self-serving litigants seems to suggest it's pointless.  In fact, you probably feel good.

All this said, don't get too excited for reversal yet.  The bondholders had some good textual counters in their briefs that didn't make oral argument.  But the irritation of the engaging Justices with the law, coupled with the simmering undercurrent of subjugation inherent in the territory's second-class status, suggests this really could be an interesting opinion.

And Now for Something Nutty on Puerto Rico

I know nothing about the statutes delegating "home rule" authority to the Commonwealth, but do they have any reversionary clauses?  For example, if there's crisis, war, etc., can the federal government revest in any power?  Leaving aside the political unpalatability, wouldn't that leave the executive branch with a freer hand?  Building, can the President (temporarily) draft the island's residents, then issue an order taking (for fair/discounted value) any debts related to providing services for this vital military installation?  Or how about declaring it a giant national monument?  OK, feel free to go back to common sense if you want now.  (Hey, we were supposed to think creatively...)

PR: Let's start with financing...

OK, so I start from the premise that holdouts don't want to restructure debt but others do.  Thus, the goal should be incentivize restructuring in a way that beats up on holdouts.  Could the Feds say they'll offer financing (e.g., underwrite new bonds) for people who exchange bonds/debt?

A World Without Harvey

Here's an early obit.  It's hard for me to imagine a chapter 11 world without Harvey Miller.  Although the adjective is over-used, I think it would be difficult to argue the man was not transformative to bankruptcy law.  He was an incredible mentor, and I am honored to have considered him a friend.  I can't count  how many younger lawyers in the field he encouraged and taught, in so many ways.  It's just hard to imagine a world without his seemingly indefatigable spirit.  Harvey makes -- made, I'm still adjusting to the past tense -- you feel both energized and exhausted at the same time after an engagement.  It's a sad day, but happy too, I suppose, knowing what a great run he had.  Trite, I apologize, but he was a rare breed, indeed.

This Morning, I Woke Up With This Feeling

I feel compelled to share this sad but not unexpected filing.  I hope he will not run into any trouble under section 523(a)(9).

Warren & Westbrook: Two More Authors = Six More Pages?

A dubious ROI you might think, but the long-awaited update to the classic is now here!

Many readers may have learned from or taught from Warren & Westbrook's casebook,  The Law of Debtors and Creditors. Necessitated by one author's distracting moonlighting in Washington, it now picks up an even stronger Credit Slips connection, transforming into Warren, Westbrook, Porter & Pottow.  The Seventh Edition is now in print and ready for use: bankruptcy nerds rejoice!

Those of us who have used this gem for years have recognized it was getting a trifle long in the tooth (the last edition was around 2008 when BAPCPA was just a pup).  Over the course of two years, we did a complete soup-to-nuts revision of the book, keeping the problem set focus and empirical bent -- and of course favorite characters from the problems. We vastly updated and overhauled some content, all within the confines of keeping the book the same length (save six pages of Pottow verbosity).  To give just a flavor, the book now has multiple assignments and problems on 363 sales and a new section on "Beyond Chapter 11," covering such topics as municipal bankruptcy and "too big to fail" financial institutions.  Consumer coverage was also revamped, moving the means test after the students have learned the basics of chapter 7 and chapter 13, and adding a new section on consumer bankruptcy theory and practice.

In the Teacher's Manual, we worked for more clear organization to help those of us in a pinch to prep. And of course, just as students have always feared, some answers changed--even when the problems didn't. We look forward to your comments and feedback, and hope you have as much fun teaching it as we did writing it.

Puerto Rico To Get Chapter 9?

Long overdue, in my opinion, HR 5305 has been introduced by Resident Commissioner Pedro Pierluisi.  The one-sentence law would allow the territory of Puerto Rico to join the definition of "State" and hence provide access to chapter 9 for its municipal and other entities.  (And no, the territory itself can't file chapter 9, so don't get your hopes up for that solution to its finances.)

It seems archaic and patronizing not to let the people of Puerto Rico authorize (or forbid) their public entities from using chapter 9.  In terms of the policy decisions involved -- some states refuse their entities to access chapter 9 -- it strikes me at least as eminently more sensible to let the government of that territory make that call rather than Congress.  Here's hoping to swift passage on what should be a non-contentious error correction to the Code.

Forget Argentina: How Do You Collect from Russia?

Never let it be said that the wheels of international justice spin quickly, but, with the pace of a Siberian jail sentence, the Permanent Court of Arbitration finally handed down its merits award in the Yukos litigation.  (For those of you not in the know, Yukos was dismantled by the Russian government, nominally as seizure for back taxes -- some levied ex post -- purportedly as an attempt to stymie the political aspirations of its principal, Mikhail Khodorkovsky.)  The decision is a doozy: a unanimous and stinging denunciation of the Russian government in this series of transactions, with such zingers as "calculated expropriation" and accusations that the governmental scheme was "devious."  The award of a cool $50 billion was far less than the plaintiffs wanted but was a record-setter for the Court.

Russia, of course, is vowing "appeal" (not quite sure to where -- strongly worded letter?), but this really means the fight now enters the collection phase.  Maybe Russia has some frigates to grab?

Here's a link to the ruling.

Stern II, now time for Stern III

Thanks to Stephen for posting the Bellingham/Arkison/Executive Benefits opinion, which I will for simplicity think of as Stern II, as it's the second installment of what will necessarily be a trilogy of Supreme Court cases on the question.  True, the bankruptcy courts live to breathe another day, but the consent question remains unanswered.  (Actually, that's not really true: the consent question was answered already in the magistrate context; the question is really whether "narrow" Stern has changed the answer.)

When will that next case come?  Could be as early as Monday when the orders from this Thursday's conference are announced, inlcuding the Wellness petition pending from CA7.  It could be a GVR "in light of" Stern II, in which case the split remains, or it could be Stern III.  Watch this space!

New Law on Exemption Surcharging

Get it?

Anyway, Law v. Siegel is now out, with a 9-0 opinion that shouldn't surprise anyone.  It finally gave Justice Scalia a chance to write a strongly textualist bankruptcy opinion for the Court, getting him out of the gulag of concurrences and dissents.  It helped, of course, that he cited myriad other ways to punish debtors than surcharing exemptions.  He wouldn't want to be accused of going soft.

Detroit's Plan Submission -- Now What?

Much excitement in our nerdly circles is arising about Detroit's plan of adjustment, just filed yesterday.  This has gotten me thinking about what's next (other than the obvious ongoing cajolling/negotiations).  Three ruminations thereon:

1. The future: the media are focused on the haircuts the major creditors are being asked to take, which is fine, but what's more interesting to me is the capital expenditures the city proposes investing -- about a billion and a hallf.  This is important, because...

2. Feasibility.  Even if the parties don't raise it, Judge Rhodes has an obligation to gauge feasibility.  He is not going to want a chapter 18.  (Cf. Valejo.)  This means that there has to be an ongoing plan of investment, services, etc. that will attract/retain a vibrant base of taxpayers (plus such banal matters as financial transparency and accountability).  This is as important if not more important than the creditor haircuts.  But let's not forget...

3. Pension impairnment constitutionality appeal.  CA6 just accepted the certification (but declined expedition).  Will that reignite the pension fight and distract from signing on, or did CA6's coincidental timing of its order upon plan release mean the pension funds are on board?  This is a development I can't yet gauge well.  Given CA6 earlier stalled on issuing the order (pending a mediation update), I tentatively think the non-expedited route is a plan to slow-boat this issue in the hopes a consensual plan is done and everyone can do the equitable mootness dance. 

Debtor Audits, RIP

Hot of the presses that the EOUST has (again) suspended its "required" debtor audits due to budgetary constraints.  Initially they were supposed to do 1 in every 250, and that number fell in recent years to one in every 1,500 or so due to constraints, and sometimes they just run out of money toward the end of the fiscal year.  This is the most precocious suspension I'm aware of.  (But it sounds like such a great idea on paper...)

Who Says Earnings Management's Just for CEOs?

A story from the sports world.

Stern Warnings from the Ninth Circuit

The Ninth Circuit handed down Executive Benefits Insurance v. Arkinson today. [I want to call it "Bellingham Insurance," or "EBIA," but I leave to the Blogosphere to decide.]  It jumped in as a circuit court opining that bankruptcy judges lack the constitutional authority to enter final judgments in fraudulent conveyance actions (yes, federal ones under section 548 of the Code) -- at least as pled against "strangers" to the estate -- and at least if those strangers' claims are not "inextricably intertwined" with the claims resolution process (or whatever test was gleaned from Stern).

But before the Article I Haters Club celebrates too heartily, I should point out that the entire disquisition, illuminating as it is, is obiter dictum.  This is because the court also held the appellant waived its constitutional argument, and because a "Stern" claim is not a subject-matter jurisdiction issue, it is fully waivable (technically, "consentable" through implied consent through conduct).  Thus, the appellant waived the very objection on which the court superfluously opined.

I don't mind dictum here and there, but it's odd that the Ninth Circuit didn't acknowledge its ruminations were such, especially when in the course of the opinion it dropped a FN to the Seventh Circuit's Ortiz opinion (with which it rightly disagreed) and reminded that that court's Stern discussion was dictum.

Still, dictum from a circuit court will surely make others take notice, especially those under its -- yes -- jurisdiction.  But I do feel compelled to play the role of party-pooper and call out the court for having fun by wandering into a constitutinal quagmire and playing around as a pure academic daliance.  (Isn't that what professors are supposed to do?!)

Bankruptcy and Politics: Junior Senator from Massachusetts Edition

Politics is not my strong suit -- this, ironically, from the faculty sponsor of both the Democratic and Republican student associations at Michigan Law.  (No, I am not confused; I was asked presumably because each group wanted a political independent, and I don't like to play favorites.)  So I have what may be a naive but is nonetheless a genuine question regarding Senator-Elect Warren's upcoming trip to Washington: does this increase the likelihood of substantive amendment of the bankruptcy laws in the next few years?

I'm not talking about full-throated repeal of BAPCPA or anything like that (although maybe I should?), but does having a bankruptcy expert as one senator matter?  Is it a salience focus for committees?  E.g., is it more likley we'll see home mortgage policy addressed through amendments to Chapter 13?  Does it somehow beef up the CFPB knowing they have a "champion" in the Senate?  Does it mean the venue fights will roar back to life?

I'd be curious if those more in the know have thoughts (with apologies in advance if this is dumb/trite).

Ultimate Skin in the Game?

Much chatter has been made of Ocwen's acquisition of ResCap at the bankruptcy auction (although not as much as the acquirer of its loan portfolio), but I'm much more intrigued by its pickup of Wilbur Ross's Homeward Residential.  I get the voracious appetite for servicer expansion, but what's the deal with getting into the origination market?  Does this have something to do with Dodd Frank?  Was it just a good deal?  Or does Wilbur Ross just know when to exit (although it's a part paper transaction, which means he's not really exiting entirely, just acquiring stock).  Maybe he's just fed up.

Ad Hocracy

A storyline in the AMR bankruptcy is exposing how confusing it's becoming (at least to me) to keep track of negotiating groups in chapter 11.  (Here's a good recent story from WSJ.)  Gone are the days of the simple Creditors Committee.  Now we have Ad Hoc groups of bondholders.  While there was some initial dust-up about disclosure requirements when these sorts of groups emerged, that's settled somewhat.  What I am now baffled about is the Ad Hoc group in AMR, which does not apparently see eye-to-eye with a non-Ad Hoc ad hoc group of hedge funds.   Apparently these funds were invited to join the Ad Hoc group (but declined? why??) and now are complaining that the Ad Hoc group is getting special treatment in negotiations during the exclusivity period.  (I wonder how the Creditors Committee feels?)

The broader point that has me head-scratching is why are these groups assembled (presumably for negotiating leverage) and why do they have intra-class divergence along the lines we're seeing in AMR?  Is it cultural (don't want to work with certain funds)?  Strategic (don't want to be dragged down to USAiways merger by funds with a stake there)?  Other?

Speculations welcome, because it all just devolves for me into unhappy recollection of the cliquishness of high school.  Splitters!

Layaway Fees Waived

We've posted before about Layaway's resurgence after the Great Recession.  A new development: gearing up for the holiday season, many major retailers are waiving their layaway fees, and consumers are responding positively. Here's KMart's.  Also, embargos on various popular products are now being lifited.  This leads me to belive that Layaway's resurrection (in places where it died) may be long-lasting.  It seems that spending on layaway items has gone up in response to this campaign, which makes me wonder: is this just another way to drive foot traffic as the payments are made?  And if so, is there anything wrong with that?  Layaway, it occurs to me, has financing simplicity of the sort that should make the CFBP dance, so if customers like it, and it prevents consumer debt on excessive interest terms, isn't that a good thing?

Elizabeth Warren & LTV Steel

A bankruptcy case from the 1990s called LTV Steel has amazingly enough become an issue in the U.S. Senate race in Massachusetts.  A bankruptcy case!  Just this week, Senator Scott Brown’s campaign released a web ad insinuating that Elizabeth Warren, who worked on the case, somehow fought against LTV Steel’s employees.  The ad demanded to know, “Who is going to defend her?”  Well, given that Warren’s participation in LTV was to defend an arcane but important principle of bankruptcy law—that serves to protect workers—I guess it falls to bankruptcy academics like us to defend her.  So I accept the invitation.  And where better to post than my Blogosphere Alma Mater?

The bankruptcy law question at issue in LTV is complex, and I will discuss it in some detail below.  But in case nobody reads beyond this paragraph, I should quickly dispatch one patent falsehood that gave me a double-take when I viewed the ad.  The video suggests that Warren was somehow trying to make sure LTV’s workers did not receive retirement benefits.  That is objectively false: the workers’ benefits were covered by a trust fund that was fully solvent at the time of the case.  Nobody in good conscience could argue that Warren was somehow trying to deny workers’ benefits that would be paid from an already-funded trust.  LTV and other companies were quarreling over how much each of them needed to contribute to that fund, and Elizabeth Warren only got involved when a federal appellate court issued a decision in the middle of that fight that proposed a novel (and troubling) interpretation of the Bankruptcy Code. 

The full story should dispel the astonishing claim that Warren was somehow a hired gun who hoped to take benefits away from retirees.  Here’s what actually happened.

It's Official: Borders Long Goodbye Over

They officially announced that with no-one showing up to the auction and with their stalking horse backing out (bucking them off?), they will acquiese to the "winning" bid of the liquidators.  Surely part of this sad fall -- sadder still for this poster from Ann Arbor -- comes from missteps that we can see in hindight failed to appreciate the profound transformations in this retail sector over the past decade plus.  But part of it too is an insurmountable change in retail trends fueled by the coming of age of online shopping.  Yes, Barnes and Noble survives for now, but will they still be a major bricks and morter presence a decade from now?  I have my doubts.  Sure, there will always be niche needs -- just as some travel agents persist in serving corporate clients -- so I don't see Aunt Agatha's Mystery Booksore in Ann Arbor going anywhere soon.  But the bread-and-butter, consumer travel agency around even still in the 1990s could serve as the example of what's to become the bricks and mortar mega-book store: a close chapter in the U.S. economy.

Super-Compulsory Counterclaims! Supreme Court Edition

Greetings, Slipsters.  2011 will bring, alas, my retirement from the blog, although I may occasionally make intermittent guest posts in my emeritus capacity going forward.  So what better way to go out than commenting on the Anna Nicole Smith case up at SCOTUS (sub nom. Stern v. Marshall – or Marshall II, since this a return engagement by these parties)?  I will explain why CA9 will and should be reversed after the break, although the case is sufficiently complex it may require several postings.

Reasonably Equivalent Value for Academic Prestige?!

BearingPoint's Trustee has just brought a fraudulent transfer action to get back a donation it paid Yale of $6 million to endow a chair and earn naming rights of certain on-campus buildings at its School of Management.

(If someone can find a link, please post.)

This academic of course thinks summary dismissal is warranted for the suggestion that they might not have received REV for the honor of having their name used in connection with a prestigious professorship!

2009 Milestones?

Any nominations?  So much with high-profile items like bailout to choose from, but I like the fact that debit card usage exceeded credit card in Q4 for the first time....

Senate Hearing on Medical Bankruptcies (Oct. 20, 2009) (Pottow)

Yes, I went back to D.C. for more congressional bankruptcy brouhaha, this on the rising incidence of medical bankruptcies.  C-SPAN decided to broadcast the proceedings in all their glory.  Sen. Franken (D-MN) was armed with statistics on Swiss medical bankruptcies -- very well prepared, I must say.  Here's the video.  Hearing Ms. Burns' story about losing her son to cystic fibrosis -- and then her financial life -- was gut-wrenching.  The good news is that Sen. Whitehouse (D-RI) seems motivated to pursue his bill and is gathering increasing support.  For those wanting more in-depth analysis, here's my written testimony.

Amici Bankruptcy Professors Pottow & White "Win" on BAPCPA 11 U.S.C. 522(p)

Yes, self-serving, but What Is To Be Done?

A few years ago, my Michigan Law colleague Jim White (J.J. White to some) -- who has guest blogged for Credit Slips -- and I picked up a BAPCPA case trickling though the Ninth Circuit.  (OK, I started it and then bugged him about it.)  We got together and wrote a brief to file as amici and sent it off dutifully to CA9 back in 2007.  Then we forgot about it (even missed oral argument).  Until yesterday, that is, when we saw that the Ninth Circuit handed down the decision reversing the bankruptcy and district court judgements that had so exercised us.

Here's the link: Greene v. Savage (In re Greene) (9th Cir. Oct. 2, 2009).  Summary follows the break.

When Children and Parents Fight

Asarco's bankruptcy reorganization is moving along nicely.  (I don't have a link to the pleadings, but here's a background link on the company here -- one of our delightfully nerdy and more internet-savvy followers should feel free to post them.)

What makes this case curious?  Apart from being an asbestos one (requiring approval by the D. Ct.), it's one where two rival, but confirmable plans were submitted, requiring the B. Ct. to make a choice (I guess "recommendation" to D. Ct.).  Here's the kicker: the rival plans are from the debtor (no surprise) and the debtor's corporate parent, Grupo Mexico!  The debtor wanted to sell to a company called Vedanta Resources, but Grupo Mexico wants, basically, to buy back its own sub (there'll be a cash injection).  Apparently the debtor's stakeholders (unions, etc.) wanted the debtor's plan, but the judge said no, the cash-in-hand under the parent's plan is better for creditors and the company itself.  Great case for seeing that bankruptcy judges do get independently involved in business cases and don't just roll over to DIP.

Congressional Hearing on Medical Bankruptcies (July 28, 2009)

Last week I joined the Credit Slips custom of presenting testimony to Congress on bankruptcy matters. (My written testimony has apparently been posted here.) This outing was before the House Judiciary Committee's Subcommittee on Administrative and Commercial Law. The hearing was Tuesday, July 28, and was on the subject whether the U.S. healthcare system is bankrupting Americans. (If anyone is more computer-savvy they can post a link; I couldn't find one readily.)

The hearing centered on the CBP study on medical bankruptcies (presented by Dr. Steffie Woolhandler), and had an American Enterprise Institute critic sent to perform a targeted (and at a couple times downright snarky) methodological attack. The tireless Elizabeth Edwards was there too, making her well reasoned and impassioned arguments to the subcommittee and to the racous audience (which included, among others, Dr. Patch Adams). My own testimony reported some findings on rising elder Americans filing for medical bankruptcy but also explained how to distnguish good from bad studies trying to measure medical bankruptcies -- for example, cautioning skepticism with any study that purports to distinguish medical "vs." credit card debt(!). At one point, the hearing got really nerdy and we got into a tiff over the relevance of linear regressions as either necessary or sufficient for causal inference.  (Best line: "I teach linear regressions!") Anyway, it was the usual legislative theater, but I also think some points hit home.

In Favor of the Consumer Financial Protection Agency (CFPA)

Adam's earlier post started the ball rolling on the CFPA discussion, and I wanted to weigh in (favorably) having now waded through the 153 pages of proposed legislation.  I take the case to be made for sheer regulatory consolidation as surely correct: the crazy quilt of overlapping agencies would make even Sir Humphrey cringe.  But the case in favor rests on much more than that, and of shrewd appeal to both typical bailywicks of the left and right.

GM Appeals, Part Deux

The pending request for certification to the U.S. Court of Appeals for the Second Circuit (CA2), if granted, would bypass the first rung on the appellate ladder of the U.S. District Court for the Southern District of New York.  But even that doesn't get the appellants far.  As mentioned in the prior post, some of the biggest issues, such as the 363(f) sub rosa brouhaha (and, in my view, bugbear), have now been decided by a panel decision of CA2, meaning that there is now established (adverse) precedent.  Unless the CA2 decides to grant en banc review -- highly unlikely -- the appeal might even be disposed of by summary order (at least the parts of which that duplicate Chrysler issues).  That in turn augurs well for a quick sojourn in CA2.

Next Up, Ford

So now that Chrysler's closed and GM's speeding along, where does that leave Ford? Well, with still about $30B in debt for starters. But this raises a theme in corporate bankruptcy of dominated industries like automotive and airlines. Will Ford be "forced" to file out of an economic peer pressure?

My initial hunch -- and it's just a hunch -- is no, at least not yet. Among other reasons, I'm just recalling the airline rhetoric earlier this decade about how all the airlines would have to follow United in. But they didn't all go in, did they?  I think American stayed out -- and has its restructuring been impeded, or is it still holding its own (since it was able to use the filers' labor negotiations to its piggyback benefit presumably)? Won't this be the same with Ford? 

Prognostications on Appellate Procedure

Justice Ginsburg's stay should not be over-read.  She is exercising her single justice authority to accord more time for the full court to pass on the petition.  The Supremes have a well oiled procedural machinery to deal with quick-response stays and appeals (capital cases), so this sidebar on June 15's significance is just for them to figure out how long they have to make a decision without it being moot.  My tea-leaf read is that if they decide to hear the appeal -- which is warranted only weakly in my opinion vis. traditional grounds for cert. -- then they will enter a full stay pending appeal (and that appeal may well be accelerated).  But if they decide that there's not enough meat to warrant the granting of the cert petition, they'll just lift their stay as a "pocket affirmance."

And My Brother Lubben is surely right that the only thing legally important here is the tort claimants, and they're off on the sidelines right now.

GM & Our Socialist Angst

Much hand-wringing has occurred over the government's large equity stake in GM (or, New GM) announced as part of its mostly prepackaged plan of reorganization, with of course "Government Motors" appearing on newscast graphics.  Leaving aside the socialists in our midst who welcome such acknowledgment of who controls the means of production, I'd like to speak to the nervous capitalists -- is it the end of our market impulses as fretted by some?

Of course not.  The U.S. government has interceded as "reluctant shareholders" (their talking point) and has no intention -- nor past demonstration -- of running GM like an extension of the DMV.  Sure, they booted the CEO, but almost everything we've seen to date from Rattner's Task Force suggests the careful scrutinizing that any hard-nosed financier would inflict upon a debtor.  Do you really think if we have left this to a congressional subcommittee we'd have seen the closure of 11 plants?

Let's put aside the alarmist rhetoric of the End of Capitalism, shall we?

Unconstitutional Usury in Arkansas

Did everyone see this news story from Arkansas?  It looks like usury is alive and well and coming after payday lenders.

Super-Priority for Canadian Workers

After years of kerfuffle that at times made BAPCPA's debates seem easy, the Canadians finally passed their revisions to the Bankruptcy and Insolvency Act (and, for junkies, the CCAA) this summer.  Here's a link to the Superintendent's site for the curious to get started.

What I thought was one of the more interesting amendments was the elevation of priority for employee wages to super-priority above secured liens (up to cap of $2K per employee, and, interestingly, not on equipment liens).  There is also an unlimited super-priority for unpaid or unremitted pension obligations (but not for the traditional "underfunded" pension plan).  Finally, to add a good ol' socialist kicker, an administrative beast called the Wage Earner Protection Program will come into being to ensure, among other things, payment of workers'  claims and then enjoy subrogation to the bankruptcy claims (thus taking the risk of debtor-employer inability to pay the super-claim).

The interesting lobbying game is the lender lobby: yes, they've been rending some garments, begrudging the "unfairness" of not giving secured lenders their bargained-for rights through the danger of such an unexpected ex post lien (although, ironically, one law-firm communique I saw gave its lender-clients advice on how to prepare, including encouraging oversight of debtors to have competent payroll services that remit pension obligations -- which looks like signs of an adjusting market to me).  But they haven't wanted to make too big a stink ("No, we're against workers' priorities!").  The rearguard grumbling they've had is how it would have been better to have such employees covered by the general taxpayers.

Will secured credit dry up in Canada as we know it?  Seems to have done pretty well notwithstanding the insolvency horror of a priming lien down here.  I reckon it'll chug along just fine north of the border too.  We'll see!

Frisky Philly Sheriff

Did people see the news reports a month or so ago about John Green, the Sheriff in Philadelphia, who has been exercising "civil" ("official"?) disobedience regarding home foreclosures?  I'm torn between whether I think this guy is a shameless opportunist betraying the taxpayers who expect "The Law" to be the final line to enforce such unpopular decisions as a judgment of foreclosure or whether he's a hero who who's bringing a dose of common sense to the housing debacle.  Here's the webpage for his office.  Thoughts?

More Good News from the Big Three

More good news from the Midwest - GM has announced its plans to "reform" its retiree health benefits to help its financial crisis.  (Here's an article from today in the Detroit Free Press.)  What's the plan?  Make the workers pay higher percentage of the health insurance premium?  Well, sort of.  How high -- 20%? 50%?  Hmm, try 100%.  Yup, they're canning health insurance altogether for retirees.  (In fact, it's actually worse than 100%, because that would be 100% of a group-priced health insurance policy -- presumably now the retirees will scrounge for medigap insurance in the healthcare state of nature spot market.)  As a bone, GM's going to increase the defined-benefit pension payment by up to $300/month.  Sounds like yet another shuffle from defined-benefit to defined-contribution, writ large.

I'm not picking on GM.  Economic life sucks here (although Google opened a facility in Ann Arbor -- so let's keep those hopes for the new Michigan economy alive).  I'm just sharing the news...

New Bankruptcies from Michigan!

I forgot to alert Credit Slips readers last month about an exciting new chapter 11 here in Michigan. No, not an auto parts supplier, and no, not (not yet) one of the Big Three. It's the Greektown Casino, in good ol'  Detroit. If mayoral sex scandals aren't enough to distract you from a floundering economy, apparently neither is the escapist joy associated with emptying your wallet pursuant to a random (but certainly sloped) dissipation curve. (By the way, did "gambling" change to "gaming" the same time "debt" changed to "credit"?) And for the curious, the Greektown casino is not run by Greeks but another ethnicity with an established tradition of running casinos.

And yes, there's currently a casino expansion project underfoot (about $500 million at last count).

Quadruple Filers

I thought in light of the recent long weekend (by which I mean Canada Day), readers with an interest in international matters might enjoy this article from some friends at a respected Canadian law firm on Mr. Thomas Bouvin, who found himself recently filing for his fourth bankruptcy.   Perhaps my homeland needs BAPCPA to settle out these abusive debtors?  After all, with a colorful anecdote like this, what further data would one need to justify legislative intervention?

Debtors Anonymous?

I wanted to pass along an interesting story I saw a few weeks ago in the WSJ about support groups for debtors.  They had such names as the "Sunday Morning Club" and  "Girls Just Wanna Have Funds."  These groups, to me, serve as an indicator that debt has become a socio-cultural phenomenon akin to addiction, such that people now feel the need to have support groups to confront and combat their problems.  I also note a lot seem church-based.  I suspect these are more organic and less slick than. e.g, current commercialized debt gurus.  Here's my lingering question: what do the credit card lenders have to say about them?  I suspect they'll proffer support, the way brewers encourage "responsible drinking," but I can't help but wonder whether secretly they can't stand them...

Final Aloha, Aloha

Update on Aloha: giving up the ghost and ending passenger service after 60+ years.  May sell its cargo business, but lots of sad and confused travelers are going to find canceled flight they'll have to rebook!  Story  here.

Aloha, Aloha

Some readers might have seen that Aloha airlines went into chapter 11. Again. They earlier flew there in 2004, scrubbed their books a bit, and then emerged.

Why back in? Couple reasons, they say. First, fuel is really expensive. (Who knew?) Second, Mesa (allegedly) ripped off their business plan in violation of a confidentiality agreement signed during the 2004 proceedings when they were soliciting capital. Bankruptcy whining? Not necessarily: Mesa lost a trial against fellow plaintiff Hawaiian airlines just recently (and is appealing).

This raises a question in my mind. Is Aloha's refiling a "failure" of chapter 11? Is it a chapter 22? On the one hand, if it's just gas-is-expensive, then maybe they should have foreseen that. Or, more precisely, maybe if their viability is so marginal that even a freshly restructured Aloha can't survive with these gas prices, then they should liquidate.

On the other hand, if they got screwed unexpectedly by a commercial party, then maybe it's just bad timing. As such, is refiling "per se" proof of a chapter 11 system failure?

Home Equity Shoe Dropping

Something that I had been wondering about re: the mortgage meltdown has been home equity loans.  We've all been focusing on home mortgages (starting with sub-prime, but slipping up to Alt-A and conventionals), but what I was curious about was home equity lines: are those going into default too?  The answer, it seems, is yes.  In just today's Wall Street Journal, Robin Sidel reports that charge-offs on home equity lines are doubling.  J.P. Morgan Chase predicts first-quarter write-offs of $450 million (up from $248 million prior period) on its $95 billion portfolio.  Delinquency rates are also up too, to over 4%.

The rub with these loans will be on under-water mortgage homes.  The home equity lines, I suspect, are second liens to the PMSI mortgagee, so for the many homes where the superior-lien mortgage gobbles up most of the value of the home, will this result in foreclosures, or just losses?  Either way, more bad news I guess.

Solutia Solution

I didn't want Credit Slips readers to miss the settlement of the Solutia lawsuit that occurred at the end of February.

Solutia sued its consortium of DIP lenders for trying to back out of a $2.05 billion exit financing loan.  The justification for the weaseling, said the banks, was that the credit markets had gotten tough(!) and that it would be hard to syndicate and/or sell the DIP loan(!!), and so this was the sort of "material adverse change" that would allow rescission of the commitment under the contract(!!!).

I'd like to say this is consensual resolution of a contested matter, but I noticed that the "settlement" apparently involved the banks ponying up $50 million more in funds -- which sounds like someone got scared when Solutia said it'd be happy to have a bankruptcy judge weigh in and set a precedent.  There are some rosy press releases from Citigroup, and Solutia has happily emerged from 11, but there's more to this than meets the eye.  This would have been a watershed precedent -- either way -- in a turbulent credit market.  Smells like the banks didn't like their prospects here.  But the audacity of their (attempted) repudiation of the exit financing commitment on the "tough market" defense suggests (in addition to chutzpah) that the credit crunch really is proving tough all 'round.

Forget Credit Cards: Blame Hookers, Strippers, and Porn

The UK Insolvency Helpline recently reported that a quarter of its users admitted to having paid money for sex/porn in getting into financial distress.  Here's a British article on the report here.  I'm just going to let that sink in on its own.  It does, however, make me wonder about the applicability of the adjective "sub-prime" in this context.

Creditor Calls Debtor Excrement

Under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692d(2), creditors are prohibited from using "obscene or profane" language in collecting debts.

Would this count?

Or is truth an absolute defense?

(Thanks to students in my bankruptcy class for bringing this article to my attention.)

Thanks to Jean Braucher

Although the caption of this post is self-explanatory, we just wanted to emphasize how much we enjoyed having Jean Braucher post for us this past week and hope you did so too.  Jean's intellectual travels from Canada to Australia show she's willing to leave no stone unturned in her attempt to see how we can do things better in the American consumer bankruptcy world.

A Bankruptcy Passing

My colleague here at Michigan, Emeritus Professor Frank R. Kennedy, passed away.  My other colleauge (and recent guest blogger) James J. White had nice things to say about him back in 1982: here.  Readers old enough to remember his role in crafting the 1978 Code will likely fine his loss a sad one.