RadLAX Oral Argument - Part II: What's Indubitably Bothering the Supreme Court Justices Equivalently
[4/24 Update: Part I here]
As I noted three years ago in my "What's Bothering Ruthie?" post on Justice Ginsburg's one-liner that stopped the Chrysler sale dead in its tracks, today's Supreme Court oral argument in RadLAX Gateway Hotel, LLC v. Amalgamated Bank (transcript) left no doubt about what's bothering the Supreme Court Justices in approaching the question of whether a debtor can cram a chapter 11 plan down a secured lender by selling its collateral at auction without allowing it to credit bid in its claim. And while lenders viscerally support the Seventh Circuit's ruling below (as the protest board paraded before the Court leaves no doubt), the final result is no "roll" for them (as one seasoned advocate opined).
So what's bothering the Justices in this case? Here are questions they asked, grouped by category:
- Indubitable Equivalence: What is indubitable equivalence? (Ginsburg at 2.) Justice Roberts said that "indubitable equivalent" means "doubtless equivalent." (Roberts at 26.) But what is it measured by? Current market conditions or some premium tacked on based on an assumed increase in value over time? (Id.) Isn't allowing the lender to credit bid the "best way" to give it the indubitable equivalent? (Breyer at 11.) "[O]ne thing is to say that if you fit into (ii), that's it, you don't go to (iii). Another is to say, well you can go to (iii), but it's most unlikely that there would be the indubitable equivalent of allowing credit bidding." (Ginsburg at 41.) But if the judge finds that the purchaser must bridge the gap to provide indubitable equivalence, "that assumes that you can just pull out a wad of cash from your back pocket, but mostly the debtors are not in that position[,] [s]o it just seems like a gigantic waste of time." (Kagan at 54.)
- Fear of Judicial Undervaluation: But more fundamentally, isn't the real issue who is going to decide something is really the indubitable equivalent (the bankruptcy judge or the secured creditor via a credit bid)? (Alito at 6.) Isn't the lender's real fear that the bankruptcy judge will not "indubitably provide the indubitable equivalent." (Id.) But to avoid that risk, can't the judge just open every sale to credit bidding and to be sure that the indubitable equivalent is provided in every instance? (Scalia at 8.) Isn't "the heart of [the lender's] argument ... that the real value of this property is greater than the value that you think the Bankruptcy Court would assign to it if this were done under subsection (iii)? ... Why do you have that fear?" (Alito at 30.) "But doesn't clause (i) depend upon a judicial valuation? ... And isn't subsection (iii) "where it talks about substitute collateral ... completely a judicial valuation.?" (Kagan at 30, 32.) "[W]hat is it about the auction process that [the lender] think[s] is likely to produce ... a valuation that is too low?" (Alito at 32.) "Of course, valuing property is what bankruptcy judges do all the time, right?" (Roberts at 51.) "What you just said is so long as they come in with some appraisals that are above what the property sold at for cash, then it's not the indubitable equivalent? Because you've got to have at least one appraiser who says it's worth more. Is that all it takes?" (Scalia at 53.) "What happens if you go to the judge and the judge says: There is one higher bid, so I can't say it's indubitable? Then what happens?" (Scalia at 54.)
- Honoring the Secured Creditor's Bargain: Doesn't allowing credit bidding in all instances give the lender "what he bargained for when he insisted upon security before giving the loan" ... and avoid "depriving [it] of the opportunity to hold on to the asset because he thinks it is ... unreasonably devalued?" (Roberts at 7.) Doesn't the Code just "help the debtor a little without mucking up the secured creditor's collateral." (Breyer at 10.) People until now "didn't think they could do [avoid credit bidding] in plan sales. So why should we upset the expectation?" "What's the business value for upsetting the norm?" (Sotomayor at 56.)
- Maximizing Value: Doesn't the "maximum value" in an undersecured credit "always ha[ve] to be the value of the credit. (Sotomayor at 8.) "[I]t doesn't take a genius to figure out that if you allow people to bid for cash or for credit, you are going to get more bids and higher bids than if you allow them to bid for cash only." (Scalia at 21.) Won't the lender allow bidders who bid more than the lender thinks it's worth, but not allow them if it thinks it's worth more in its own hands? (Breyer at 21.) What's the purpose of going through the sale at all if you permit credit bidding? "Why don't you just turn over the property under (iii)? Why do you go through the sham of a sale?" (Sotomayor at 36.)
- Who Benefits from Denying Credit Bids in Cram Down Auctions?: How would junior creditors receive anything in this cram down situation, anyway? (Kagan at 12.) Is the debtor here just asking for permission to use the property to pay other debts, which is precisely what a secured interest prevented. "[W]hy isn't the secured creditor entitled to all of the proceeds from the property?" (Sotomayor at 14-15.)
- Statutory Construction Exercises: How is it a "sensible statute" to allow credit bidding in clause 1129(b)(2)(A)(ii) and then saying in clause (iii) "you can have this sale not subject to credit bidding?" (Scalia at 14.) Is Amalgamated "just kind of elid[ing] the fact that the statute says 'or'?" (Roberts at 27.) "What's wrong with the debtor's reading that clause (ii) is procedural and clause (iii) is substantive?" (Roberts at 29.) "The Petitioner suggests that the usual rule that the specific governs rather than the general provision doesn't apply in this case because the specific is not a subset of the general. What's your view about that?" (Kagan at 42.) "It seems if they are not a subset, then they are alternatives. I don't see how the whole doctrine makes any sense if the specific is not a subset of the general?" (Roberts at 43.) "So when we say our doctrine says the specific controls over the general, the specific is a subset of the general?" (Roberts at 44.)
- Protecting Governmental Interests: Doesn't the debtor "feel sorry for the United States [which] is often [a] creditor [and] cannot come up with cash? (Scalia at 18.) Isn't there a "whole cadre of U.S. trustees that presumably can look out for the interests of the poor United States." (Roberts at 46.)
- Understanding the Practicalities: If a creditor can't credit bid but thinks the property is worth more than the amount bid at the auction, "what happens" under the debtor's scenario? (Kagan at 19.) "How often does a buyer other than the stalking horse obtain the property?" (Alito at 23.)
- Insider Disincentives: Doesn't the debtor's approach encourage insiders to encourage low stalking horse bids to keep the creditor out? (Breyer at 22.)
- Significance of Bankruptcy Code Policy: Isn't a good reason to permit cram down without credit bidding, "consistent with the policy of the Bankruptcy Code, ... to look out for other creditors as well. And if the secured creditor is getting indubitably the value of this security, why don't you weigh in the balance at least the interests of the other creditors ... [especially since] we are asked to issue a ruling that is going to apply in every case?" (Roberts at 33.)
So where do all these questions leave us? With anything but a slam dunk for the lenders, to be sure. BAPCPA stripped bankruptcy judges of much discretion and the Justices here will grapple with whether Congress in 1978 also intended to likewise limit judicial discretion in cramdowns of secured creditors.
Notably, there was an empty chair in the Court, with Justice Kennedy having recused himself from the deliberations. Someone suggested that Justice Kennedy recused himself because he or a friend once stayed at the Radisson LAX and so disliked it that he could no longer be objective. As a result, however, I have some concern that we'll witness another Marathon-ish vacuum from a 4-4 split on an opinion of critical importance to the bankruptcy world. Yet I doubt Justice Roberts--who showed the most even hand at oral argument today--will let that happen. He certainly didn't appear to have made his mind up yet, but when he does, I expect a majority of the Court will follow suit.
I also expect the decision will follow through on (i) the Court's reasoning in Ransom where an 8-1 majority looked to the "text, context, and purpose of the statutory provision at issue" to interpret a Bankruptcy Code provision and (ii) the Court's reasoning in Howard Delivery which showed the "plain meaning" doctrine to have its own bankruptcy ocular.
Finally, don't forget to sign up for the first post-RadLAX argument webinar at 12:30 eastern on April 24 to discuss the RadLAX oral argument, sponsored by Wilmer Hale and LSTA, and featuring LSTA's Elliot Ganz and WilmerHale Partners Craig Goldblatt and Danielle Spinelli (all of whom were on an amicus brief filed with the Court for a number of leading financial industry trade associations). Here is the link to the webinar. Here's the SCOTUS Blog page linking to all briefs filed in the case.
Thanks for reading!| Posted By Steve Jakubowski In US Supreme Court Cases | 0 Comments | Permalink
A Chicago Bankruptcy Case Lands at the US Supreme Court: The RadLAX Oral Argument - Part I
[4/24 Update: Part II here]
Chicago bankruptcy professionals descended on the US Supreme Court to catch the final chapter in the RadLAX bankruptcy saga, one that had a remarkably swift journey to the highest court of the land. The case started as the neglected stepchild of Amalgamated Bank, the trustee of the deeply undersecured Longview Ultra I Construction Loan Investment Fund (having about $100 million of collateral to support a $300 million original investment).
Following Chief Judge Black's rejection of RadLAX's sister debtor's (River Road) attempt to jam Amalgamated with a plan that sold the hotel while denying the Bank its proclaimed right to credit bid its claim at auction, Amalgamated proposed its own plan (which was confirmed last July with the Bank effectively "buying" the Debtor's assets through credit bid, thus mooting out any appeal of Chief Judge Black's denial of River Road's original cram down plan). For whatever reason, however, the Bank in the RadLAX sister case had no interest in confirming its own credit bid plan, thereby leaving the RadLAX debtor to its own devices, which ultimately meant a trip to the Seventh Circuit. The Seventh Circuit sided with Amalgamated, and the Supreme Court agreed to hear the appeal in order to resolve a split in the federal appellate courts as to whether a debtor can ever propose a cram down plan that offers the lender's collateral for sale at auction without concurrently giving the lender the right to credit bid in its claims at the auction.
Unlike the lender, which had the support in amicus briefs of some of the most notable bankruptcy professors and scholars to grace a classroom (Lieb, Klee, Baird, Sharfman, Kuney, to name a few), the RadLAX debtor had no official support today--other than the down and out debtor hunched on the sidewalk in front of the Supreme Court succinctly imploring the Justices to "Stop Predatory Credit Bidding Now"!
The oral argument, which started at 10:02 am sharp and lasted 59 minutes, had more Chicago bankruptcy professionals in the room than were probably in Chicago bankruptcy court today (given the dearth of active commercial cases these days). These included:
- Chicago's Chief Bankruptcy Judge Bruce Black (who, as noted above, started the ball rolling);
- Perkins Coie's David Neff (argued) and Brian Audette (second chair) (pictured right), along with partners Dan Zazove and Deborah Gutfeld (representing the Debtor);
- Katten's John Sieger (representing US Bank);
- US DOJ's newly minted appellate practice lawyer (and former DOJ counsel to the US Trustee in Chicago) Cameron Gulden;
- Jones Day's Brad Erens; and
Other bankruptcy professionals in attendance included Craig Goldblatt, Prof. Eric Brunstad, fellow bloggers Peter Friedman and Doug Mintz of Cadwalader, Gary Holzer, and of course, Adam Lewis and Norm Rosenbaum for Amalgamated, and many others.
Part II of this post will focus on what's bothering the Justices (there's always something bothering them!) as gleaned from the key points around which the Justices' questions continually revolved.
Meanwhile, don't forget to sign up for tomorrow's first webinar (April 24) to discuss today's arguments at the Court, sponsored by Wilmer Hale and LSTA, and featuring LSTA's Elliot Ganz and WilmerHale Partners Craig Goldblatt and Danielle Spinelli (all of whom were on an amicus brief filed with the Court for a number of leading financial industry trade associations). Here is the link to the webinar.
Thanks for reading!
[4/24 Update: Part II here]| Posted By Steve Jakubowski In US Supreme Court Cases | 0 Comments | Permalink
US Supreme Court's Bombshell Opinion in Stern v. Marshall Draws the Line Against Incremental Erosion of Article III Judicial Power
In my last post, I wondered whether the Court's decision in Stern v. Marshall (pdf) (WL) would be a bombshell or a dud. It certainly was no dud. And after reading the 5-4 opinion, I'd say that it's a bombshell in several respects, both from a bankruptcy and constitutional perspective. Here's four reasons why:
- First, Justice Roberts' masterfully written majority opinion (joined by Justices Scalia, Kennedy, Scalia, Thomas, and Alito) declared Pierce Marshall's estate the final victor and blew poor Anna Nicole Smith's estate completely out of the water. The fact that this litigation is finally over is itself cause for celebration everywhere, except among Anna Nicole's heirs.
- Second, bankruptcy courts will no longer be able to enter final judgments "on a common law cause of action, when the action neither derives from nor depends upon any agency regulatory regime ... [and] is not resolved in the process of ruling on a creditor's proof of claim." (Op. at 29, 38.) This holding will likely be applauded―at least in part―by Bankruptcy Court judges, who already are severely overworked by a bloated chapter 7 and 13 individual debtor docket. (One Chicago judge recently commented at the end of a day's hearing that he was retiring to his chambers to review the 546 motions in individual chapter 7 and 13 cases set for status the next day.) Being a nearly zero-sum game, however, District Court judges are equally likely to be distraught by the prospect of now having to hear innumerable counterclaims (and corresponding creditor claims that should accompany them as a matter of judicial economy) commenced by zealous debtors and trustees (who themselves can't relish the prospect of losing their perceived "home-court" advantage). Expect to see a flurry of motions filed in the coming days, weeks, months, and years attempting to establish (perhaps through a game of judicial "hot potato") the appropriate timing, protocol, and venue for these newly minted "non-core" proceedings.
- Third, as WilmerHale's Craig Goldblatt (who was on the merits brief for Pierce's estate) noted to me, the Court's opinion at pages 33-34 makes pretty clear that Section 157(b)(2)(H)―which provides that fraudulent conveyance actions are "core proceedings"―is also unconstitutional. ("We see no reason to treat Vickie's counterclaim any differently from the fraudulent conveyance action in Granfinanciera.") This will mandate a sea-change in current litigation practice along the lines discussed above, though I expect many Bankruptcy Judges will long for the "good old days" when they could enter final judgments in these more interesting proceedings.
- Fourth, Chief Justice Roberts assembled a majority that firmly rejected the creeping erosion of Article III judicial power advocated by the dissent and reflected in Thomas v. Union Carbide Agr. Prods. Co., 473 U.S. 568 (1985) and Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833 (1986). In fact, it was the Court's factor-based rulings in Thomas and Schor that led Professor Erwin Chemerinsky in 1991 to argue that if Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) had been decided 10 years later, the case would have been decided differently and the authority of Bankruptcy Court judges to enter final judgments would not have been limited to just "core" matters. Professor Chemerinsky wrote:
The test used in Schor cannot sustain the result in Northern Pipeline. In fact, the test seems identical to the approach urged by Justice White in [the Northern Pipeline] dissent. The Court in Schor said that in evaluating Article I courts it looks to fairness to the litigants and the degree of intrusion into separation of powers. However, there were no allegations before the Court in Northern Pipeline that bankruptcy courts under the 1978 amendments were unfair to litigants. Nor was there any indication that Congress used Article I bankruptcy courts to gain any institutional advantage at the expense of the judiciary. In short, in assessing the effects of Article I bankruptcy courts, “the magnitude of any intrusion on the Judicial Branch can only be termed de minimis.”
Therefore, if Northern Pipeline were decided today, there is every reason to believe that it would be resolved differently. The approach endorsed in Schor indicates a strong likelihood that Justice White's opinion might attract a majority of the Court. Additionally, it should be noted that the Court's composition has changed substantially since Northern Pipeline, and even since Schor. It is unclear how Justices Scalia, Kennedy, and Souter will vote on these questions.
Chemerinsky, Ending The Marathon: It Is Time to Overrule Northern Pipeline, 65 Am. Bankr. L. J. 311, 320 (1991).
Well, we now know that Justices Scalia and Kennedy would have supported an impassioned defense―like that delivered in Justice Roberts' majority opinion―against incremental encroachments of Article III judicial power and the view that Thomas and Schor are "controlling precedent" that require a "pragmatic ... examination of relevant factors [in determining] whether [congressional] delegation [of adjudicatory authority to a non-Article III judge] constitutes a significant encroachment by the Legislative or Executive Branches ... upon the realm of authority that Article III reserves for exercise by the Judicial Branch...." (Dissent at 9.) Expounding on this position, Justice Roberts wrote:
What is plain here is that this case involves the most prototypical exercise of judicial power: the entry of a final, binding judgment by a court with broad substantive jurisdiction, on a common law cause of action, when the action neither derives from nor depends upon any agency regulatory regime. If such an exercise of judicial power may nonetheless be taken from the Article III Judiciary simply by deeming it part of some amorphous “public right,” then Article III would be transformed from the guardian of individual liberty and separation of powers we have long recognized into mere wishful thinking....
We do not think the removal of counterclaims such as Vickie's from core bankruptcy jurisdiction meaningfully changes the division of labor in the current statute; we agree with the United States that the question presented here is a “narrow” one. Brief for the United States as Amicus Curiae 23. If our decision today does not change all that much, then why the fuss? Is there really a threat to the separation of powers where Congress has conferred the judicial power outside Article III only over certain counterclaims in bankruptcy? The short but emphatic answer is yes. A statute may no more lawfully chip away at the authority of the Judicial Branch than it may eliminate it entirely. “Slight encroachments create new boundaries from which legions of power can seek new territory to capture.” Reid v. Covert, 354 U.S. 1, 39 (1957) (plurality opinion). Although “[i]t may be that it is the obnoxious thing in its mildest and least repulsive form,” we cannot overlook the intrusion: “illegitimate and unconstitutional practices get their first footing in that way, namely, by silent approaches and slight deviations from legal modes of procedure.” Boyd v. United States, 116 U.S. 616 (1886). We cannot compromise the integrity of the system of separated powers and the role of the Judiciary in that system, even with respect to challenges that may seem innocuous at first blush.
(Op. at 29, 37-38.)
Much more will be written and discussed regarding the meaning, implications, and fallout of the Court's decision, but hopefully this provides some early grist for the mill.
Thanks for reading!
© Steve Jakubowski 2011| Posted By Steve Jakubowski In US Supreme Court Cases | 0 Comments | Permalink
US Supreme Court Bankruptcy Watch: Readying for Stern v. Marshall -- A Bombshell or a Dud?
6/24/11 Update: Here's my blog post providing an early analysis of the Court's decision, entitled US Supreme Court's Bombshell Opinion in Stern v. Marshall Draws the Line Against Incremental Erosion of Article III Judicial Power.
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6/23/11 Update: 5-4 decision delivered affirming 9th Circuit's ruling and handing Pierce Marshall's estate a complete and final victory. Justice Roberts with an extremely well written opinion; Justice Breyer dissenting. Opinion here. Nice summary here.
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Three or four more opinion days before the United States Supreme Court's term closes. Sixteen opinions have yet to be delivered. But if a lifelong, diehard, Bronx-born Yankee fan, Justice Sotomayor (who some say saved baseball), is willing to sport a CUBS jersey while throwing out the ceremonial first pitch in Saturday's Yankee-Cubs game (I can't imagine a White Sox fan ever doing that!), then I think it's fair to say the remaining cases of this term on which she's working are confusing to the core.
For bankruptcy lawyers, the Court's forthcoming opinion in Stern v. Marshall represents either the most important decision on bankruptcy court jurisdiction since 1982 (Northern Pipeline v. Marathon) or the biggest dud in bankruptcy history (with the Court avoiding tackling the tough constitutional questions in favor of a finding that Anna's counterclaim against Pierce was a tort claim covered by 28 U.S.C. § 157(b)(5) that all concede the bankruptcy court could not decide with finality).
As we await the ruling, and assuming it's not a big dud, here are key background materials you need to be armed with to better understand the opinion once it's delivered and the issues and cases it will navigate through:
- First, it's always good to understand the factual background to the case. And, as in all cases, there's the record, and the far more interesting stuff off the record (as reported early this month in the New York Magazine article, Paw Paw and Lady Love, by far the best I've read on the personal dynamics that drove the parties to act as they did).
- Second, there's the Supreme Court's decision on May 1, 2006, which I blogged about extensively both before and after (including here and here).
- Third, there's the Ninth Circuit opinion of March 19, 2010, which is the opinion being appealed to the Supreme Court. The Ninth Circuit held that Anna Nicole Smith's counterclaim against Pierce Marshall is not a "core" proceeding but, at most, "related to" her bankruptcy case. As a result, the earlier judgment entered in her favor by the bankruptcy court was not final at the time that the Texas Probate Court entered its judgment in favor of Pierce, and so the Texas Probate Court judgment was the earliest final judgment that precludes all of Anna's claims. Marshall v. Stern (In re Marshall), 600 F.3d 1037 (9th Cir. 2010) (pdf).
- Fourth, there's the briefs submitted to the Court:
The Merits Briefs
The Amicus Briefs:
Brief for Professors Richard Aaron, Laura Bartell, Jagdeep S. Bhandari, Susan Block-Lieb, Robert D’Agostino, Jackie Gardina, Ingrid Hillinger, George W. Kuney, Lois Lupica, C. Scott Pryor, Keith Sharfman, Michael D. Sousa, and Robert M. Zinman in Support of Petitioner
- Fifth, there's the oral argument. Listen to it on Oyez, and pay particular attention to the argument of Roy T. Englert, Jr., which is about as good as oral advocacy gets at this level. (Transcript PDF)
- Finally, the key precedential decisions that provide the legal backdrop to the case:
Alexander v. Hillman, 296 U.S. 222 (1935)
Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833 (1986)
Crowell v. Benson, 285 U.S. 22 (1932)
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989)
Katchen v. Landy, 382 U.S. 323 (1966)
Langenkamp v. Culp, 498 U.S. 42 (1991)
Marshall v. Marshall, 547 U.S. 293 (2006)
Murray's Lessee v. Hoboken Land & Improvement Co., 18 How. 272 (1856)
Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982)
Thomas v. Union Carbide Agr. Prods. Co., 473 U.S. 568 (1985)
One can't predict on which of the next two Mondays and Thursdays the Court will issue the opinion, but I sure hope it's not next Monday when I'll be traveling!
Thanks for reading!
© Steve Jakubowski 2011| Posted By Steve Jakubowski In US Supreme Court Cases | 1 Comments | Permalink
Justice Scalia Won't "Ransom" His Principles to Grant Justice Kagan a Unanimous First Opinion That Looks to BAPCPA's "Text, Context, and Purpose" to Support a Dubious Result
When reading recent US Supreme Court opinions interpreting BAPCPA, the statute's manifest flaws are the "elephant in the room" (origins of phrase here), and Justice Kagan's recent opinion for the Court in Ransom v. FIA Card Services , N.A, No. 09-907, 2011 WL 66438 (Jan. 11, 2011), is no exception. She professes on behalf of the 8-1 majority to employ a traditional approach that looks to the "text, context, and purpose of the statutory provision at issue." (Op. at 1.) But it's really all fiction, because the text is convoluted, the context is manufactured, and the purpose presupposed.
In his last two lone bankruptcy dissents, Justice Scalia calls out the elephant in the room, even refusing in his latest dissent to be coerced (or better, ransomed) to join the bored and uncaring majority by a Chief Justice who shrewdly assigned this first (and traditionally unanimous) opinion to Justice Kagan, presumably in hopes of compelling Justice Scalia to stop his backbiting and join the team that finds sense in nonsense.
So the Court in Ransom held, seemingly innocuously so, that when determining the "disposable income" that a chapter 13 debtor has available to pay creditors over the 5 year life of a plan, the debtor has no deductible "car ownership cost" expense that can be shielded from creditors if he owns a car but does not make loan or lease payments on it. While this decision may make eminent practical sense when considered in a vacuum by mandating that a debtor shield from creditors only actual payments and not theoretical payments drawn from an IRS manual, it is the Court's reliance on "text, context, and purpose" that disappoints here because--as shown below--none prove the point.
For what bankruptcy judge or professional really believes that BAPCPA merits application of the rule that every word in a statute "carries meaning"? (Op. at 8.) Certainly Justice Scalia doesn't. (Dissent at 2, "The canon against superfluity is not a canon against verbosity.") And I doubt most readers of this blog do either. (See, e.g., here, here, here, here, here, and here.)
And is the Court properly confident that BAPCPA's "context" mandates that a debtor "should be required to qualify for a deduction by actually incurring an expense in the relevant category"? (Op. at 8.) The "expense" that the Court mandates the debtor incur to be entitled to a "car ownership" deduction is in fact nothing more than a "debt" under a loan or lease that the statute itself unequivocally states can NEVER qualify as a deduction. (See § 707(b)(2)(A)(ii)(I), "Notwithstanding any other provision of this clause, the monthly expenses shall not include any payments for debts."). No problem, Justice Kagan writes, because "any friction between the two likely reflects only a lack of attention to how an across-the-board exclusion of debt payment would correspond to a particular IRS allowance." (Op. at 15.) And we're supposed to believe that "meaning, context, and purpose" can be found in Congressional "lack of attention"?
Finally, Justice Kagan writes, the Court's conviction in the correctness of the result is "strengthen[ed] [by] consideration of BAPCPA's purpose ... of ensur[ing] that [debtors] repay creditors the maximum they can afford." (Op. at 9.) But I thought discretion in bankruptcy judges was precisely what BAPCPA was designed to eliminate! See In re Pak, 343 B.R. 239 (Bankr. N.D. Cal. 2006) (Tchaikovsky, J.) ("BAPCPA did severely limit judicial discretion for above-median-income debtors"). And isn't "ensuring that debtors repay creditors the maximum they can afford" through statutory gymnastics just another way of exercising judicial discretion on the grandest of all scales?
In the end, I prefer Justice Scalia's reluctant dissent and side with his conclusion that "the Court's interpretation does not, as promised, maintain 'the connection between the means test and the statutory provision it is meant to implement.'" (Dissent at 5.) "Our job," he reminds all, "is not to eliminate or reduce [BAPCPA's] oddities, but to give the formula Congress adopted its fairest meaning." (Id.) While I expect every member of the Court would agree with that statement, I also expect many more lone dissents by Justice Scalia as BAPCPA's many splits wind their way up the chain. But Justices Brennan and Marshall relentlessly dissented in every death penalty case, and Justice John Marshall Harlan was the lone dissent in Plessy v. Ferguson too. Better to "stick to your
guns principles" (dead phrase's origins here) than to compromise them for a false unity.
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Woe to Justice Kagan! Forced in her first opinion to find Congressional meaning in a hastily-designed and poorly-crafted statute as to which (at least according to the highly-regarded US Bankruptcy Judge, Frank Monroe) "those responsible for ... passing ... did all in their power to avoid the proffered input from sitting United States Bankruptcy Judges, various professors of bankruptcy law at distinguished universities, and many professional associations filled with the best of the bankruptcy lawyers in the country as to the perceived flaws in the Act." (Discussed here.) Fittingly, Justice Scalia refused to "Ransom" his principles, and so thwarted the Chief Justice's calculated designs, while most unfortunately dishonoring a Justice who deserved (albeit in another case) a unanimous first judicial opinion.
Thanks for reading!
© Steve Jakubowski 2011| Posted By Steve Jakubowski In US Supreme Court Cases | 2 Comments | Permalink
9th Circuit Declares Anna Nicole Smith's Estate the Big Loser on Preclusion Grounds in Dispute with Pierce's Estate Over Her Right to Money from J. Howard Marshall's Estate
6/24/11 Update: Here's my blog post providing an early analysis of the US Supreme Court's final 5-4 decision in favor of Pierce's estate, entitled US Supreme Court's Bombshell Opinion in Stern v. Marshall Draws the Line Against Incremental Erosion of Article III Judicial Power.
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6/23/11 Update: 5-4 decision delivered affirming 9th Circuit's ruling and handing Pierce Marshall's estate a complete and final victory. Justice Roberts with an extremely well written opinion; Justice Breyer dissenting. Opinion here. Pre-opinion writeup here.
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And so, it appears, 19 years of hell for the remaining surviving heirs of J. Howard Marshall II come near an end. Here's the chronology:
- First, in October 1991, the so-called "courtship" between J. Howard and Anna begins.
- In April 1995, Anna sues J. Howard's son and guardian, Pierce, in Texas Probate Court (amended several times after J. Howard's death) for, among other things, tortious interference with her expectation of support during the marriage and after his death and for fraud and undue influence in connection with J. Howard's estate planning.
- In August 1995, J. Howard dies, leaving her nothing.
- In January 1996, Anna files bankruptcy.
- In May 1996, Pierce brings a non-dischargeability adversary for defamation.
- In June 1996, Pierce files a corresponding proof of claim in Anna's bankruptcy case.
- In June 1996, Anna counterclaims in bankruptcy, asserting the same claims she made in probate court.
- In October 2000, the bankruptcy court rules against Pierce on the defamation claims and, in December 2000, it enters a $475 million judgment in favor of Anna on the counterclaims. Marshall v. Marshall, 253 B.R. 550 (Bankr. C.D. Cal. 2001).
- In January 2001, Pierce appeals.
- In January 2001, Anna nonsuits her claims against J. Howard's estate and Pierce individually in probate court.
- In February 2001, Pierce files an amended counterclaim against Anna in probate court for declaratory relief to determine her rights to the estate and property of J. Howard and a complaint for a declaratory judgment against Anna and J. Howard's estate that J. Howard's Living Trust reflected his intentions and were valid.
- In March 2001, after a five month jury trial in the Texas Probate Court, the jury unanimously finds that the Living Trust and will were valid and had not been forged or altered, that J. Howard wasn't the victim of fraud or undue influence, that J. Howard had the requisite mental capacity at all relevant times, and that J. Howard had no agreement with Anna to give her 1/2 of all his property.
- In December 2001, the probate court enters final judgment in favor of Pierce on all claims, holding that Pierce was entitled to his inheritance, free from all claims by Anna or Pierce's older brother.
- After the jury verdict in probate court, Pierce moved to dismiss Anna's claims against him in district court on the appeal of the bankruptcy court ruling on grounds of claim and issue preclusion, but the district court denied this motion in December 2001. Marshall v. Marshall, 271 B.R. 858 (C.D. Cal. 2001).
- In March 2002, the district court entered judgment in favor of Anna, finding that "J. Howard always intended to give [Anna] ... half of his 'new community'" (i.e., the appreciation of his estate during their marriage) and that Pierce "backdated documents, altered documents, destroyed documents, suborned falsified notary statements, presented documents to [J. Howard] under false pretenses, and committed perjury,” in order to deny any distributions to Anna from J. Howard's estate. In re Marshall, 275 B.R. 5 (C.D. Cal. 2002).
- In 2004, the 9th Circuit vacated the judgment against Pierce on the basis that the so-called probate exception to federal subject matter jurisdiction precluded consideration of the case. Marshall v. Marshall (In re Marshall), 392 F.3d 1118 (9th Cir. 2004).
- In 2005, the US Supreme Court granted Anna's petition for certiorari, as I discussed here, here, here, and here.
- On May 1, 2006, as discussed here, here, here, and here, the US Supreme Court reversed the 9th Circuit's decision, concluding that the probate exception did not apply to Anna's in personam counterclaims against Pierce. The 9th Circuit only considered the issue of federal subject-matter jurisdiction. The Supreme Court remanded for consideration of whether Anna's claims were "core" and whether Anna's claims were barred under principles of claim and issue preclusion based on the earlier judgment entered in the Texas Probate Court. Marshall v. Marshall, 547 U.S. 293 (2006).
- Finally, and that's the purpose of this post, the 9th Circuit concludes on March 19, 2010, that Anna's counterclaim is not a core proceeding but, at most, "related to" her bankruptcy case. As a result, the earlier judgment entered in her favor by the bankruptcy court was not final at the time that the Texas Probate Court entered its judgment in favor of Pierce, and so the Texas Probate Court judgment was the earliest final judgment that precludes all of Anna's claims. Marshall v. Stern (In re Marshall), No. 02-56002, 2010 WL 986781 (9th Cir. Mar 19, 2010) (NO. 02-56002) (pdf).
The 9th Circuit's opinion is certainly worth reading for many reasons. First, it provides an excellent review of "the evolution of the current bankruptcy regime in order to appreciate the important distinctions between 'arising under,' 'arising in,' and 'related to' proceedings and how the notion of 'core' proceedings came to exist." (Id. at p. 4508). The case also is interesting in its analysis of how "counterclaims by the estate against persons filing claims against the estate"―that by statute (28 U.S.C. § 157(b)(2)(C)) are defined as "core"―can still be narrowly construed as non-core "in order to avoid potential constitutional problems arising from having Article I judges issue final orders in cases requiring an Article III judge." (Id. at p. 4521). Even compulsory counterclaims may not be "core" proceedings, the Court held, writing:Continue Reading | Posted By Steve Jakubowski In US Supreme Court Cases | 1 Comments | Permalink
US Supreme Court on Justice Holmes' 169th B-day Holds in Milavetz that the Bankruptcy Code's Speech Restrictions on Attorneys Do Not Turn Them into Ruthless Drones
Back in the good old days when bashing BAPCPA was in vogue, I posited here that BAPCPA's "debt relief agency" provisions "look more like an effort to create a consumer bankruptcy lawyer clone who, much like the ever-multiplying Agent Smith from The Matrix-Reloaded, speaks and does precisely as directed with ruthless efficiency." Today's unanimous opinion from Justice Sonia Sotomayor (with concurrences from Justices Scalia and Thomas) tells us not to worry because while attorneys in fact are "debt relief agents" under the Code, §526(a)(4) "prohibits a debt relief agency only from advising a debtor to incur more debt when the impelling reason for the advice is the anticipation of bankruptcy." Milavetz, Gallop & Milavetz, P.A., v. United States, No. 08-1119 (Op. at 13).
As with most bankruptcy decisions from the Supreme Court, the path taken to the holding is more interesting than the actual holding itself. This post examines two aspects of that road:
- First, the Court's discussion of the application of the "plain meaning" rule and the relevance of legislative history; and
- Second, the Court's recognition of the ethical boundaries of the attorney-client relationship and, in particular, the line where advice crosses into conspiracy.
1. Attorneys as "Debt Relief Agents" and Footnote 3's "Bridge Too Far"
This first conclusion comes as no surprise as the attorneys' arguments "failed to persuade [the Court] to disregard the statute's plain language." (Op. at 7). But rather than stop at plain meaning, the Court dropped a footnote finding support for the plain meaning in BAPCPA's legislative history (Op. at 6, n. 3). This single footnote prompted Justice Scalia to write a separate concurring opinion just so that he could attack the premise of Footnote 3.
In Part II, Section B of my BAPCPA outline, entitled BAPCPA's "Plain Meaning" Not Followed, I reviewed five cases in the first year following BAPCPA's enactment where bankruptcy judges were so confounded by BAPCPA that they felt compelled to deviate from its "plain meaning" in order to avoid virtually nullifying certain of its key provisions. Justice Scalia's concurrence highlights the problem facing bankruptcy lawyers who attempt to rely upon the legislative history of BAPCPA for interpreting an ambiguous statutory provision. He wrote:
I join the opinion of the Court, except for footnote 3, which notes that the legislative history supports what the statute unambiguously says. The Court first notes that statements in the Report of the House Committee on the Judiciary “indicate concern with abusive practices undertaken by attorneys.” Ante, at 6, n. 3. Perhaps, but only the concern of the author of the Report. Such statements tell us nothing about what the statute means, since (1) we do not know that the members of the Committee read the Report, (2) it is almost certain that they did not vote on the Report (that is not the practice), and (3) even if they did read and vote on it, they were not, after all, those who made this law. The statute before us is a law because its text was approved by a majority vote of the House and the Senate, and was signed by the President. Even indulging the extravagant assumption that Members of the House other than members of its Committee on the Judiciary read the Report (and the further extravagant assumption that they agreed with it), the Members of the Senate could not possibly have read it, since it did not exist when the Senate passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. And the President surely had more important things to do.
The Court acknowledges that nothing can be gained by this superfluous citation (it admits the footnote is “unnecessary in light of the statute's unambiguous language,” ante, at 6, n. 3). But much can be lost. Our cases have said that legislative history is irrelevant when the statutory text is clear. See, e.g., United States v. Gonzales, 520 U.S. 1, 6 (1997); Connecticut Nat. Bank v. Germain, 503 U.S. 249, 254 (1992). The footnote advises conscientious attorneys that this is not true, and that they must spend time and their clients' treasure combing the annals of legislative history in all cases: To buttress their case where the statutory text is unambiguously in their favor; and to attack an unambiguous text that is against them. If legislative history is relevant to confirm that a clear text means what it says, it is presumably relevant to show that an apparently clear text does not mean what it seems to say. Even for those who believe in the legal fiction that committee reports reflect congressional intent, footnote 3 is a bridge too far.
2. § 526(a)(4)'s Narrow Scope Does Not Impair the Attorney-Client Relationship
US Supreme Court Drops Bombshell "Summary Disposition" Vacating 2d Circuit's Chrysler Decision
Hard to ignore today's bombshell summary disposition by the US Supreme Court today on the Indiana Pension Funds' appeal of the Second Circuit's decision in Chrysler (see earlier discussion of case here). Clearly, however, the Court's six line summary disposition tossing the 2d Circuit’s decision in Chrysler requires careful thought. First, here's what the Supreme Court held:
The petition for a writ of certiorari is granted. The judgment is vacated, and the case is remanded to the United States Court of Appeals for the Second Circuit with instructions to dismiss the appeal as moot. See United States v. Munsingwear, Inc., 340 U.S. 36 (1950).
One may be tempted (as this esteemed blogger was) to claim that Chrysler remains persuasive authority, but was simply “vacated on other grounds.” I don’t think that's the case here, however. For starters, the Supreme Court couldn't have vacated Chrysler on the basis that the matter was moot at the time the case was decided. After all, the 2d Circuit's original order of 6/5/09 denying the appeal on the merits wasn’t moot at the time of entry since the effectiveness of the bankruptcy court's sale order had been stayed by the 2d Circuit itself until it had a chance to rule on the merits. Additionally, the effectiveness of the 2d Circuit's judgment itself was stayed by the Supreme Court. As such, there’s no basis for the Supreme Court now to have vacated Chrysler based on an argument that the matter was moot at the time of the original decision.
Perhaps then, a better reading of today's mysterious "summary disposition" is that the Court found merit in the petition, and hence granted it, and furthermore didn’t much care for the opinion on substantive grounds, so vacated it. Having done so, however, the Court had nothing left to decide since the matter truly was moot because the sale had closed and couldn't be unwound.
One also may be tempted to say that the Court wasn’t tipping its hand in this way, but if not, then why not simply deny the petition as moot, which it clearly is at this point? Why take the extra, unnecessary step of vacating the judgment and only then dismissing the appeal as moot? Also, why cite to Munsingwear if the Court didn't intend to erase the precedential effect of the decision, for there the Court noted:
Our supervisory power over the judgments of the lower federal courts is a broad one. As already indicated, it is commonly utilized in precisely this situation to prevent a judgment, unreviewable because of mootness, from spawning any legal consequences. (Citations omitted, emphasis added).
If nothing else, reading the Court's summary disposition today as a spaying of Chrysler to "prevent a ... spawning of any legal consequences" surely neuters any reading of the Court's 2 page per curiam opinion from last June suggesting there wasn't a "fair prospect that a majority of the Court will conclude that the decision below was erroneous."
Given all the speeches, articles, and thought advanced about the significance and game-changing nature of Chrysler, it's amazing how two simple sentences from the highest court in the land can turn the bankruptcy world on its head.
I'd say the slow boat's finally catching some wind!
[Inset is an artist's rendition of the USS Constitution (a/k/a "Old Ironside"), the oldest commissioned naval vessel still afloat today.]
[12/15/09 Update: Be sure to check out Steve Lubben's Credit Slips post linking to the Alvarez v. Smith case for further insights into the Court's practice of vacating lower court judgments that, by happenstance, are moot.]
© Steve Jakubowski 2009| Posted By Steve Jakubowski In US Supreme Court Cases | 6 Comments | Permalink
With the Second Circuit's Judge Sotomayor soon to ascend to the Supreme Court, bankruptcy lawyers must be disappointed at the complete absence of any questioning of her on bankruptcy issues. And it's not like there's nothing to talk about! Only 10 days ago, Judge Gerber felt compelled by the Second Circuit's Chrysler decision to issue this opinion and order permitting "New GM" to walk away from a few hundred million dollars of product liability claims despite the fact that We, the People (via the US Treasury) were paying $90 billion for a company that had a liquidation value of no greater than about $9 billion (on a good day). Even putting aside the equities of not assuming a de minimus amount of claims (relatively speaking) of people least able to defend themselves from loss, does she really believe--like her colleagues who decided Chrysler--that Bankruptcy Code section 363 lets a debtor sell its assets "free and clear" of in personam products liability claims that could be asserted against the purchaser under state law theories of successor liability? And if so, why? And, furthermore, exactly how was due process advanced when New Chrysler walked away from successor products liability claims of people who haven't even been injured yet in an accident? A letter sent by Senators Reid and Durbin late last month gave me hope that we'd hear these questions asked, but it looks like that's not going to happen.
As for Judge Sotomayor's bankruptcy jurisprudence, Clean Slate's Andy Winchell (here and here) and Texas Bankruptcy Lawyer Steve Sather (here and here) were the first (and last) to canvass her opinions involving bankruptcy issues. All in all, nothing to complain about, and certainly her decision in Official Comm. of Equity Sec. Holders v. Official Comm. of Unsecured Creditors (In re Adelphia Communs. Corp.), 544 F.3d 420 (2d Cir. 2008) (pdf), affirming dismissal of the equity committee's appeal was a notable one. There, Bankruptcy Judge Gerber confirmed Adelphia's chapter 11 plan, which stripped the equity committee of standing previously granted to it to prosecute derivative claims and transferred those claims to a litigation trust established under the plan (the first about $6.5 billion of which would go to unsecured creditors until they were paid in full, leaving equity "hopelessly out of the money"). In affirming Judge Gerber's confirmation order (but don't forget to look at Judge Scheindlin's first crack at the appeal), Judge Sotomayor wrote that a court "may withdraw a committee's derivative standing and transfer the management of its claims, even in the absence of that committee's consent, if the court concludes that such a transfer is in the best interests of the bankruptcy estate." In other words, she wrote, the "Equity Committee's derivative standing under STN [did not] vest it with ownership over its derivative claims." Curiously, she never addressed the obvious question of whether the appeal was moot because the plan had been substantially consummated. So maybe there is hope for those concerned that substantial consummation of a plan or sale moots all appeals (especially--as Steve Sather points out--given her having joined in last year's Manville decision that was just reversed on procedural grounds, as discussed here, by the Supreme Court in Travelers v. Bailey).
This is long-winded background to what I've been wanting to write about for a very long time. And I figured as long as people are giving Judge Sotomayor tips on how to be a better Judge or Justice, I'd offer a tip of my own:
READ THESE BOOKS!Continue Reading | Posted By Steve Jakubowski In US Supreme Court Cases | 2 Comments | Permalink
Supreme Court Holds in Travelers v. Bailey That a Bankruptcy Court's Final Order Is Enforceable Even If the Court Lacked Jurisdiction to Enter the Order in the First Place
GM objection due tomorrow, so no time to pontificate on today's "narrow" holding of the United States Supreme Court in Travelers Indem. Co. v. Bailey, No. 08-295 (pdf / WL). Suffice it to say that those who sit by idly while their rights against third parties are enjoined from further prosecution do so at their peril.
Here's the "Reader's Digest" version of the holding, written by Justice Souter for a 7-2 majority:
The Second Circuit erred in holding the 1986 Orders unenforceable according to their terms on the ground that the Bankruptcy Court had exceeded its jurisdiction in 1986. On direct appeal of the 1986 Orders, any objector was free to argue that the Bankruptcy Court had exceeded its jurisdiction, and the District Court or Court of Appeals could have raised such concerns sua sponte. But once those orders became final on direct review, they became res judicata to the parties and those in privity with them.
As I learned early on in law school from one of the smartest guys around, if you really want to find out what the case is about, read the dissent. And if you want to know "what's bothering Ruthie?", you'll find it in dissent of Justice Stevens, in which she joined. Justice Stevens dissented, he wrote, because:
In my view, the injunction bars only those claims against Manville’s insurers seeking to recover from the bankruptcy estate for Manville’s misconduct, not those claims seeking to recover against the insurers for their own misconduct. This interpretation respects the limits of the Bankruptcy Court’s power....
We should not lightly assume that the Bankruptcy Court entered an order that exceeded its authority. When a bankruptcy proceeding is commenced, the bankruptcy court acquires control of the debtor’s assets and the power to discharge its debts. A bankruptcy court has no authority, however, to adjudicate, settle, or enjoin claims against nondebtors that do not affect the debtor’s estate. Because Travelers’ insurance policies were a significant asset of the Manville bankruptcy estate, the Bankruptcy Court had the power to channel claims to the insurance proceeds to the Manville Trust. But this by no means gave it the power to enjoin claims against nondebtors like Travelers that had no impact on the bankruptcy estate. Thus, even accepting the Bankruptcy Court’s representation in 2004 that it had “meant to provide the broadest protection possible” to the settling insurers, such relief could not include protection from independent actions. (Emphasis added.)
The limits of the Bankruptcy Court's power will be on display in the GM case as Judge Gerber is asked to do what Judge Gonzalez was unwilling to do in the Chrysler case; that is, respect the jurisdictional boundaries of the Court and the statutory directives of Congress and refuse GM's request to bar present and future claims of product liability claimants from being asserted against the purchaser post-closing under applicable state law theories of successor liability.
Much more on that to follow.
© Steve Jakubowski 2009| Posted By Steve Jakubowski In US Supreme Court Cases | 2 Comments | Permalink
"Location, Location, Location": US Supreme Court Holds The Stamp Tax Exemption Only Applies To Post-Confirmation Asset Transfers
The mantra of the real estate world is that the three most important factors in determining the value of a piece of property are "location, location, location."
Justice Clarence Thomas (whose sense of humor is surely unappreciated, as my former suitemate and friend Mike Coffield proved one memorable night), writing for a 7-2 majority, today suggests that this mantra should not be forgotten in interpreting Bankruptcy Code provisions. In Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc. 2008 WL 2404077 (pdf), which not surprisingly (see prior post) restricted the stamp tax exemption only to postconfirmation transfers, the Court based its decision in large measure on the particular subchapter of the Bankruptcy Code in which §1146(a) is located (i.e., "Subchapter III - Postconfirmation Matters"). (Op. at 13.) The Court also agreed, after reviewing each side's competing grammatical and textual interpretations, that Florida's narrower reading was "clearly the more natural." (Op. at 7.)
The most interesting part of the case, however, is Justice Thomas's conclusion that the decision is further compelled by application of two "substantive canons":
US Supreme Court to Rule on Whether Code Section 1146's Transfer Tax Exemption May Ever Apply to Pre-Confirmation 363 Sales
6/16/08 Update: Here's a link to my post on the Court's decision reversing the 11th Circuit's decision.
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Bankruptcy lawyers and bloggers eyeing the Supreme Court's docket this term had to be concerned at the absence of any bankruptcy cases on the Court's docket after two straight banner years of bankruptcy decision-making. Thankfully, the Court on Friday granted the State of
The issue facing the Court is one that has split the circuits, and asks:
Does Code section 1146, which exempts sales under a confirmed plan from state and transfer taxes, apply to pre-confirmation sales of assets under Section 363?
At first blush, the answer seems obvious given that Section 1146 on its face is limited to transfers "under a plan confirmed under section 1129 of this title." But just to show you how creative bankruptcy lawyers—and judges—can get, the Eleventh Circuit agreed with the argument that the Section 1146 exemption "may apply to those pre-confirmation transfers that are necessary to the consummation of a confirmed plan of reorganization, which, at the very least, requires that there be some nexus between the pre-confirmation transfer and the confirmed plan." State of
One small problem for the respondents, and Bingham McCutcheon's Eric Brunstad, who represents the respondent-debtor; that is, Hechinger was decided by none other than then-Judge, now-Justice Alito, the author of the two latest bankruptcy opinions decided by the Supreme Court (i.e., Travelers & Marrama). I think that it's fair to say that reversal of the Eleventh Circuit's decision is about as safe a bet as you'll find.
* * *
Note: The inset picture is a famous pre-Revolutionary War political cartoon depicting "Bostonians paying the excise-man by tarring and feathering." Ahh, the good ol' days!
© Steve Jakubowski 2007
| Posted By Steve Jakubowski In US Supreme Court Cases | 0 Comments | Permalink
[6/18/09 Update: Those looking for my post on today's Travelers v. Bailey decision can find it here. This post is about the 2007 decision in Travelers v. PG&E.]
In arguing against cameras in the courtroom in recent testimony before the Senate, Supreme Court Justice Anthony Kennedy noted the special rules of etiquette that govern proceedings before the US Supreme Court. He said:
We have a language, and ethic and etiquette, a formality, a tradition that's different than the political branches; not better, not worse, but different.
One of those traditions, embodied in Supreme Court Rule 14.1(a) and many, many Supreme Court cases (e.g., Hines Yellow Pine Trustees v. Martin, 268
Instead of advising the Court in its opposition to the petition for certiorari that it agreed with the petitioner that Fobian was wrong, however, PG&E raised for the first time in its merits response brief why a fair reading of the Bankruptcy Code makes Fobian right, though not for the reason upon which certiorari was granted. Chief Justice Roberts hoisted PG&E's counsel on his own petard in calling PG&E's tactics “an ambush and … a smuggling in the sense we don’t have a Court of Appeals decision one way or the other on that question.” (Oral
Justice Stevens: Well, why then isn't the proper disposition of this case to send it back to the Ninth Circuit to consider all these other arguments?
PG&E Counsel: Well, Your Honor, because this issue has been fully ventilated among the lower courts.
Justice Ginsburg: Yes, but we are not a court of first view and you know that very well. We are a court of review. So no matter how well it's been aired [in other circuit cases], we wait to see what the lower courts have said on a question. We don't take it in the first instance.
Still, the Justices made the best of the situation, and seemed genuinely interested in exploring the question of whether unsecured creditors have a right to attorneys’ fees expended postpetition. But, as explained here (Credit Slips blog), here (In the Red Business Bankr. Blog), here (SCOTUS blog), and here (Georgia Bankr. Blog) the case was an easy one to decide because there wasn’t a soul in the entire Supreme Court that day who believed that Fobian was correctly decided.
The task of drafting the opinion fell to Justice Alito, author of the Marrama dissent, who didn’t ask a single question at oral argument. His opinion is straightforward, but noteworthy for at least reminding us of several fundamental principles of law that remain in the forefront of the Supreme Court's bankruptcy jurisprudence. They are:
5-4 US Supreme Court Majority Extends a Bankruptcy Court's Power to Curtail a "Bad Faith" Debtor's Seemingly Absolute Rights Under the Code
As noted in my brief post of last week, the US Supreme Court held in a 5-4 decision in Marrama v. Citizens Bank of Massachusetts, No. 05-996 (2/21/07) (pdf / WL) that chapter 7 debtors do not have an absolute right to convert their cases to chapter 13. So much for the broad consensus for which Justice Roberts is striving. Not surprisingly, it was Justice Kennedy who cast the deciding swing vote.
Don't throw away the opinion as a useless bit of trivia rarely applicable in practice, though, for the opposing views of the majority and the dissent regarding the scope of the bankruptcy court’s general and equitable powers – a subject that has generated significant academic debate – provide significant food for thought.
By way of background, be sure to read the 2005 article at 79 Am. Bankr. L. J. 1 entitled, The Limited Scope of Implied Powers of a Bankruptcy Judge: A Statutory Court of Bankruptcy, Not a Court of Equity, where Judge Alan M. Ahart of the Bankruptcy Court for the Central District of California (who was the bankruptcy judge in this messy affair before Judge Real took hold of the reins) argues that the repeal in 1984 of 28 U.S.C. § 1481 stemming from the Supreme Court's Marathon decision divested the non-Article III bankruptcy courts of equitable powers not specifically granted by statute. To Judge Ahart,
[t]he only situation in which a bankruptcy judge might be compelled to rely on inherent powers is in the functioning of the court itself. She must have authority to uphold the dignity and integrity of the judicial process.
Would Judge Ahart agree with the majority's extension of the bankruptcy court's "inherent power" to sanction "abusive litigation practices" and thereby enable – in this case – "a prompt, rather than a delayed, ruling on an unmeritorious attempt to qualify as a debtor under Chapter 13"? Op. at p. 10 (citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 765, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980)). Or would Judge Ahart adopt the narrower views of the dissent, which concluded that "a bankruptcy court's inherent powers may have a role to play in a case such as this, ... [b]ut whatever steps a bankruptcy court may take pursuant to ... its general equitable powers, a bankruptcy court cannot contravene the provisions of the Code"? Dissent at pp. 7-9 (citing Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 (1988)).
Regardless, both the majority and dissent confirm Judge Ahart's view that a bankruptcy court's inherent powers remain extant at least where necessary to "uphold the dignity and integrity of the judicial process." (Ahart at p. 6.) It is the dissent's unwillingness to use a bankruptcy court's inherent equitable powers to override a debtor's apparent absolute right to convert in § 706(a) that distinguishes its view from that of the majority.
Even more significant, however, is the Court's discussion of the breadth and scope of § 105(a). In summarizing § 105(a)'s function, Justice Stevens wrote on behalf of the majority:
[T]he broad authority granted to bankruptcy judges to take any action that is necessary or appropriate “to prevent an abuse of process” described in § 105(a) of the Code is surely adequate to authorize an immediate denial of a motion to convert filed under § 706 in lieu of a conversion order that merely postpones the allowance of equivalent relief and may provide a debtor with an opportunity to take action prejudicial to creditors.
Curiously, the second sentence of § 105(a) upon which the majority relies does not on its face provide the blanket affirmative grant of authority suggested by the majority. Rather, this second sentence provides:
No provision of his title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. (Emphasis added.)
A plain reading of the second sentence of § 105(a) suggests that the bankruptcy court's power to fashion relief "necessary or appropriate ... to prevent an abuse of process" is not unbounded, as suggested by the majority, but limited to instances where the Code or rules permit a particular issue to be raised by a party in interest. In other words, to prevent an abuse of process, the court can sua sponte summarily take "necessary or appropriate" action to shut down a party in interest notwithstanding a provision in the Code that preserves within that party the right to be heard on the issue. In effect, the majority read this qualification right out of the Code when it stated:
On the contrary, the broad authority granted to bankruptcy judges to take any action that is necessary or appropriate [**note the missing qualification here**] "to prevent an abuse of process" described in § 105(a) of the Code, is surely adequate to authorize an immediate denial of a motion to convert filed under § 706 in lieu of a conversion order that merely postpones the allowance of equivalent relief and may provide a debtor with an opportunity to take action prejudicial to creditors. (Op. at pp. 9-10.)
As the following exchange indicates, Chief Justice Roberts seized upon this issue at oral argument, bringing it to a head before respondent’s counsel, Bingham McCutchen's Eric Brunstad, had even finished just the third short sentence of his opening statement to the Court:Continue Reading | Posted By Steve Jakubowski In US Supreme Court Cases | 0 Comments | Permalink
None Too Pleased With The "Bad Faith" Debtor: US Supreme Court Rules There's No Unqualified Right to Convert from Chapter 7 to Chapter 13
As discussed here, the US Supreme Court last term surprised many by deciding that the "plain meaning" of a bankruptcy statute must be filtered through a prism that, "in the main, secure[s] equal distribution among creditors [and] take[s] into account, as well, the complementary principle that preferential treatment of a class of creditors is in order only when clearly authorized by Congress."
Yesterday, as summarized in this post by Scott Riddle at the Georgia Bankruptcy Blog, the US Supreme Court ruled that provisions of the Bankruptcy Code that seemingly provide a debtor with an absolute right to do something (i.e., convert its case from chapter 7 to chapter 13) should be filtered through a lens that screens for the absence of "bad faith." Marrama v. Citizens Bank of Massachusetts, No. 05-996 (2/21/07) (pdf/WL) (previewed here).
The decision isn't surprising given bankruptcy's equitable roots and the lack of sympathy one can muster for a "bad faith" debtor like Marrama. More on the case later, as today I'm delivering the following two presentations for this scheduled event at the Licensing Executive Society Winter 2007 Meeting in San Francisco, and thus have neither the time nor the background briefs and transcripts at hand to provide much more insight into the case:
- IP Licensing & Bankruptcy: An Issue Spotting Checklist for Analyzing Questions Regarding Assumption, Rejection, and/or Assignment of IP Licenses in Bankruptcy
- and -
- From Bankruptcy to Success through Licensing: The Cytomedix Story (with CRA International's Jeff Snell)
Those wanting an insightful and controversial early look at the case, be sure to check out Professor Todd Zywicki's lengthy post at the Volokh Conspiracy.
2/27/07 Update: Here's my follow up post on the Marrama decision, entitled 5-4 US Supreme Court Majority Extends a Bankruptcy Court's Power to Curtail a "Bad Faith" Debtor's Seemingly Absolute Rights Under the Code.
© Steve Jakubowski 2007| Posted By Steve Jakubowski In US Supreme Court Cases | 2 Comments | Permalink
May It Please the Court? The US Supreme Court to Soon Decide Whether a "Bad Faith" Debtor "May" Do as the Bankruptcy Code Pleases
Elementary courtroom etiquette, and indeed an absolute tradition in Supreme Court argument, requires counsel to first address the Court with the customary respectful opening of, "May it please the Court."
The lone bankruptcy-related case before the US Supreme Court this coming term will resolve a split in the circuits (previously referenced here) regarding whether a chapter 7 debtor has an absolute right to convert under Bankruptcy Code section 706(a) from chapter 7 to chapter 13, or whether that right is subject to an exception for motions filed in "bad faith." In so doing, the Court will expound upon the precise statutory meaning of "may" in Bankruptcy Code section 706(a) (which provides that a debtor "may convert a [chapter 7] case to a case under chapter 11, 12, or 13 ... at any time"). Marrama v. Citizens Bank of Mass., No. 05-996 (Argument Date: 11/6/06).
Last week, the chapter 7 debtor-petitioner, represented by Boston's David Baker, filed its opening brief (pdf / WL), and the National Association of Consumer Bankruptcy Attorneys (NACBA), led by WilmerHale's Seth Waxman and Craig Goldblatt, chimed in with a supporting amicus brief (pdf / WL).
The case began inauspiciously, as many cases that land in the Supreme Court do, when the debtor-petitioner's flooring business hit the wall in 2003. Being unemployed, the debtor was ineligible to file for chapter 13 reorganization, and was limited to filing a chapter 7 liquidation. He subsequently landed a job, however, and then moved under Code section 706(a) to convert his case to chapter 13. The bankruptcy court refused to let him do so, finding that the motion was filed in "bad faith." The bankruptcy appellate panel (pdf/WL) and the First Circuit (pdf/WL) affirmed the bankruptcy court's decision.
As recounted in this prior post, the Supreme Court last term surprised many by deciding that the "plain meaning" of a bankruptcy statute must be filtered through a prism that, "in the main, secure[s] equal distribution among creditors [and] take[s] into account, as well, the complementary principle that preferential treatment of a class of creditors is in order only when clearly authorized by Congress."
In Marrama, the Court will consider whether provisions of the Bankruptcy Code that seemingly provide a debtor with an absolute right to do something should be filtered through yet another lens, one that screens for the absence of "bad faith." With supposed rampant debtor abuse of the Code's liberal "fresh start" provisions purportedly serving as the primordial mover behind Congressional passage of BAPCPA (though Texas's Judge Frank Monroe explains the real reason here), we'll see whether such an animus also moves the Justices to hold that a debtor must be free of "bad faith" if it is to take advantage of seemingly unrestricted permissive rights granted in the Code. Stay tuned.
For those interested in the arguments advanced in the opening briefs, you'll find below the table of contents of the briefs filed by both the debtor-petitioner and NACBA:Continue Reading | Posted By Steve Jakubowski In US Supreme Court Cases | 0 Comments | Permalink
"Plain Meaning" Through Bankruptcy Bifocals: A Surprising Coalition Joins Justice Ginsburg in Narrowing the Bankruptcy Code's "Plain Meaning" in Howard Delivery v. Zurich
Yesterday's Supreme Court head-scratcher is Howard Delivery Serv., Inc. v. Zurich American Ins. Co., 2006 WL 1639224 (pdf), a delightful opinion in which Justice Ruth Bader Ginsburg (for a majority that surprisingly included Justices Scalia and Thomas) took on every issue we hoped here the Court would tackle, and then some. In the end, we're left with another pathbreaking bankruptcy decision that will surely set the contours of the "plain meaning" doctrine in bankruptcy cases for years to come. With the bankruptcy bench and bar struggling mightily to determine when "plain meaning" should be followed under BAPCPA's ill-conceived and poorly drafted provisions, Justice Ginsburg's opinion helps show the way.
The issues presented, and the winning petitioner's arguments, are discussed at length here, and so won't be repeated. The basic question addressed by the Court was whether payments or premiums owing on account of workers' compensation "plans" are entitled to a priority in bankruptcy as "claims for contributions to an employee benefit plan arising from services rendered within 90 days before the [petition] date." Given Judge Markell's recent opinion that when it comes to interpreting BAPCPA's convoluted provisions, one should consider what a strict textualist like Justice Scalia might say, one would have expected Justice Scalia to join Justice Kennedy's dissent, for Justice Kennedy (joined by Justices Souter and Alito) wrote in no uncertain terms that the statute's "plain meaning" should govern (and hence there is no obvious reason to exclude workers' compensation "plans" from other "plans" that benefit employees). Instead, however, Justice Scalia (and, surprisingly, Justice Thomas too given his opinion in Ron Pair that "as long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute") sided with Justice Ginsburg in declaring that when it comes to bankruptcy law, "plain meaning" must be viewed through bankruptcy lenses (or bifocals, depending on your eyesight). Justice Ginsburg wrote (pp.2-3, 14, 15-16):
In holding that claims for workers' compensation insurance premiums do not qualify for § 507(a)(5) priority, we are mindful that the Bankruptcy Code aims, in the main, to secure equal distribution among creditors. We take into account, as well, the complementary principle that preferential treatment of a class of creditors is in order only when clearly authorized by Congress....
[W]e are guided in reaching our decision by the equal distribution objective underlying the Bankruptcy Code, and the corollary principle that provisions allowing preferences must be tightly construed.... Any doubt concerning the appropriate characterization [of a bankruptcy statutory provision] is best resolved in accord with the Bankruptcy Code's equal distribution aim. We therefore reject the expanded [i.e., "plain meaning"] interpretation Zurich invites. (Citations omitted.)
Given the 6-3 vote, the surprise joinder by Justices Scalia and Thomas in the majority opinion clearly changed the outcome in the case. Who really could have expected that Justices Scalia and Thomas would reject the stricter textualist-based reasoning offered by Justice Kennedy's dissent in favor of Justice Ginsburg's bankruptcy-based prism through which "any doubt concerning the appropriate characterization" should be filtered? Here's how Justice Kennedy framed the issue (dissent at pp. 1-2):
Before commencing a more detailed discussion of the central issue, certain preliminary matters must be addressed. To begin with, the Court states a background rule of construction that, when we interpret the Bankruptcy Code, “provisions allowing preferences must be tightly construed.” The Court links this rule with a general objective in the Code for equal distribution. That objective, it is true, is acknowledged by our precedents, and we have said that a Code provision must indicate a clear purpose to prefer one claim over another before a priority will be found. This is different, though, from establishing an interpretive principle of strict construction when the Code addresses priorities, for strict construction can be in tension with the objective of “equality of distribution for similar creditors.” The bankruptcy priorities, then, should not be read simply to give priorities to as few creditors as possible. They should be interpreted in accord with the principle of equal treatment of like claims. In any event the priority provisions should not be read so narrowly as to conflict with their plain meaning. (Citations omitted.)
I suppose, in retrospect, Justice Scalia's apparent acceptance of the principle that the "plain meaning" doctrine has its own bankruptcy ocular was apparent from the start given the following opening exchange between Zurich American's attorney and Justice Scalia at oral argument (at p.25):
Mr. Verrilli (for the respondent): Thank you, Mr. Chief Justice, and may it please the Court: I think it's important to focus on exactly what a workers' compensation plan provides. A workers' compensation plan provides health insurance that pays for the medical costs of a workplace accident, disability insurance --
Justice Scalia: You're begging the question by calling it a plan. I mean, ... that's one of the issues here. Why don't you tell us what workmen's compensation laws require?
So, in the end, here's how Justice Ginsburg and the majority addressed the five questions regarding statutory interpretation teed up for its consideration:Continue Reading | Posted By Steve Jakubowski In US Supreme Court Cases | 2 Comments | Permalink
Part II of our continuing post-mortem analysis of the US Supreme Court's anti-climactic 9-0 ruling takes a look at the other grounds for reversal argued by Pierce Marshall in his brief to the 9th Circuit. (Sorry, only We$tlaw version available at present). Given the US Supreme Court's remand of the case "for further proceedings consistent with this opinion," rest assured that Anna's and Pierce's respective legal teams are dusting off their arguments to the 9th Circuit from three years ago. There, in addition to Pierce's now discredited challenge based on the so-called "probate exception" to federal court jurisdiction, Pierce raised the following issues on appeal:
- Whether the Probate Court's prior final judgment holding, among other things, that J. Howard did not intend to give Vickie any gift, precluded the District Court's judgment on grounds of claim preclusion, issue preclusion, and the Rooker-Feldman doctrine.
- Whether Texas law recognizes Vickie's alleged cause of action of "tortious interference" with an "expectancy of an inter vivos gift" and, if so, what are the elements and parameters of her novel cause of action and has Vickie met those elements.
- Whether the District Court denied Pierce due process of law by refusing to permit him to call percipient witnesses, by substituting its judgment for that of the Texas judge and jury through collateral review of the Texas probate proceedings, by finding J. Howard's principal estate planning instrument to be invalid, in part, on the hearsay statements of witnesses who did not testify and were not subjected to cross-examination, and by improperly handing over to Vickie all of Pierce's documents, including privileged documents.
- Whether the District Court erred in basing its judgment (including compensatory and punitive damages) on speculative inferences and conjecture, nonexistent or insufficient evidence, and presumed facts.
More on Pierce's answers to these questions later. For this post, however, I want to focus on Pierce's 71 page opening statement of facts to the 9th Circuit, which refers extensively to the relationship between Anna and J. Howard Marshall. As you'll see, it's far from what one would call a true "courtship" (as Justice Ginsburg did in her opinion). Instead, I am reminded of Howard Bashman's memorable interview of Judge Easterbrook, who remarked that one reason he enjoys being a federal appeals judge is that he's often "served up [with] facts that were proposed as soap opera scripts and rejected as too implausible."
Here are direct quotes of some of Pierce's saucier allegations, which -- given the characters and stakes involved -- surely rank this case as a leader among ones with a "too implausible," but probably true, "soap opera script":
Pierce Marshall Readies for Another Assault on Anna Nicole Smith After the US Supreme Court Throws Her a Lifeline - Part I
After today's widely reported win by Anna Nicole Smith before the US Supreme Court (stories here and here), Pierce Marshall vowed that the only thing "Anna and her lawyers can take to the bank" from this win is a "continue[d] fight to clear [his] name in California federal court." His lawyer, Eric Brunstad, echoing arguments he advanced to the Supreme Court, remarked that Anna will lose Round 2 before the 9th Circuit because she "can't get a second bite at the apple" (a quote that reminded me, given the circumstances, of this great movie). Anna's lawyer, Kent Richland, retorted: "We are confident that the 9th Circuit will have no problem in ruling in our favor on the issues that remain." Round 2 of appellate review sure is shaping into another good ole'-fashioned Texas-style "hully-gully slopfest."
Now to the decision, Marshall v. Marshall, 2006 WL 1131904, where Justice Ruth Bader Ginsberg, writing for a unanimous Court, swept aside "misty understandings of English legal history" and held, in no uncertain terms, that "the Ninth Circuit had no warrant from Congress, or from decisions of this Court, for its sweeping extension of the probate exception." (p.2) Notably, Justice Ginsberg did not wipe away the "probate exception," as Anna's lawyers had urged and as Justice Stevens advocated in his concurring opinion (extolled here). Instead, she ruled narrowly, holding "that the instant case does not fall within the ambit of the narrow exception recognized by our decisions." (p.8) (However, in marked contrast to Pierce's portrayal of Anna here, the Court's framing of events leading to the marriage as a "courtship" (p.2) suggests that Anna's front-row teardrops during oral argument were not perceived by the Court as quite the crocodile tears some would have us believe.) [NB: But see here]
So what, then, is the "ambit of the narrow exception recognized by our decisions"? To Justice Ginsberg, the answer is found in the Court's decision in Markham v. Allen, 326 U.S. 490 (1946), which she described as "the Court's most recent and pathmarking pronouncement on the probate exception." (p.11) This decision stated, in a quite "misty" and "mythograph[ic]" way (pp. 1-2), that "the equity jurisdiction conferred by the Judiciary Act of 1789..., which is that of the English Court of Chancery in 1789, did not extend to probate matters." (p.11)
Justice Ginsberg noted that Markham is "enigmatic," to be sure, but it remains good law. She wrote:
[I]t has been established by a long series of decisions of this Court that federal courts of equity have jurisdiction to entertain suits 'in favor of creditors, legatees and heirs' and other claimants against a decedent's estate 'to establish their claims' so long as the federal court does not interfere with the probate proceedings or assume general jurisdiction of the probate or control of the property in the custody of the state court." 326 U.S., at 494. (Emphasis in original). (pp. 13-14)
As regards how the term "interfere" should be construed, Justice Ginsberg wrote:
[W]e comprehend the "interference" language in Markham as essentially a reiteration of the general principle that, when one court is exercising in rem jurisdiction over a res, a second court will not assume in rem jurisdiction over the same res. (Citations omitted). Thus, the probate exception reserves to state probate courts the probate or annulment of a will and the administration of a decedent's estate; it also precludes federal courts from endeavoring to dispose of property that is in the custody of a state probate court. But it does not bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction. (p.14)
In analyzing Anna's case in light of the foregoing principles, Justice Ginsberg concluded that Anna wins because her claim does not -- quoting Markham -- "involve the administration of an estate, the probate of a will, or any other purely probate matter." (p.15) Rather, Justice Ginsberg wrote:
Provoked by Pierce's claim in the bankruptcy proceedings, Vickie's claim ... alleges a widely recognized tort. Vickie seeks an in personam judgment against Pierce, not the probate or annulment of a will. Nor does she seek to reach a res in the custody of a state court. Furthermore, no "sound policy considerations" militate in favor of extending the probate exception to cover the case at hand. Trial courts, both federal and state, often address conduct of the kind Vickie alleges. State probate courts possess no "special proficiency *** in handling [such] issues." (Citations omitted). (p.15)
So Anna wins, and the judgment of the 9th Circuit is reversed, with instructions "for futher proceedings consistent with this opinion."
Part II, coming soon, will focus on the two issues that the 9th Circuit hoped to avoid having to wrestle with by dismissing the case on jurisdictional grounds, but now will have to address head on. (So don't be surprised to see this case back in Justice Ginsberg's lap a year or two from now.)
The first issue is whether Anna's counterclaim against Pierce (who clearly never should have submitted to the jurisdiction of the bankruptcy court by filing a proof of claim in Anna's bankruptcy case) was a "core" or "non-core" proceeding. Given that the bankruptcy court found Pierce liable for almost $500 million, whereas the district court tagged Pierce for just under $100 million, Pierce's fortune (or misfortune) may well hinge on the answer to this seemingly innocuous question, as the following very telling exchange at oral argument illustrates:
Anna Nicole Smith Case Roundup - Vol. 2
In the movie business, the success of a movie is often defined by how good its "legs" are. One thing you have to say about Anna Nicole Smith's case before the US Supreme Court, "It sure has great legs!"
Here's more postings that caught my eye, in addition to the ones previously reported here:
- Arianna Huffington reports on her blog here that "bombshells" beat "bombs" for airtime coverage on the CBS Evening News, with Anna's story going for 1 minute, 56 seconds, compared with the story on deadly suicide bombs in Iraq, which lasted 1 minute, 39 seconds.
- The Houston Chronicle's Nick Anderson draws this political cartoon.
- Houston's Clear Thinkers' Tom Kirkendall joins Althouse in predicting Anna wins.
- SCOTUSblog's Tom Goldstein, co-counsel to Pierce Marshall, wrote this extended analysis on the oral argument, in which he summarized the four things that struck him about the oral argument "from the inside-baseball perspective of Supreme Court advocacy." His final observation (about Judge Alito): Watch out for that new reliever in the bullpen. He may not say a lot, but he's gotta heck of a sinker!
- The WSJ Law Blog reminds us that J. Howard Marshall was a T&E professor at Yale. This, however, is challenged here at the Wills, Trusts & Estates Prof Blog. I think the WSJ Law Blog wins this dispute, since Pierce Marshall's response brief (found here) says on page 3 that J. Howard Marshall was a former T&E professor at Yale. [NB: I guess that answers the question of what do Yale T&E professors do after they retire? Become T&A professors, of course!].
Even French blogs have picked up on the craze, with one saying: "Anna fera tout pour r�cup�rer les 1,6 milliard de dollars de son ancien grabataire de mari". [NB: Even if it doesn't translate out that way, the French version sure sounds like it echos Anna's argument that "the son grabbed the old man's money."]
© Steve Jakubowski 2006
With MSM focused on Anna Nicole Smith's case before the Supreme Court, there's lots of enlightening reading to be found. Here's some that have caught my eye [NB: vol. 2 here]:
Continue Reading | Posted By Steve Jakubowski In US Supreme Court Cases | 0 Comments | Permalink
- Althouse reports on the oral argument and predicts Anna will win on the merits.
- Broadsheet quotes Univ. of Chicago Law School's Doug Baird as saying: "I'd suspect some justices haven't the slightest idea who Anna Nicole is." [NB: I suppose they'd have a far better idea if the issues had been more "prurient" in nature.]
- How Appealing! provides links to photos and to news reports from Newsweek, NPR (here and here), the AP (here and here), the Houston Chronicle, and USA Today.
- SCOTUSblog, whose founders at Goldstein & Howe represent Anna's adversary, recaps the oral argument.
- The Volokh Conspiracy links here to Dahlia Lithwick's "Supreme Court dispatches" on Slate.com (including a link to her story on NPR). Volokh's Jim Lindgren also separately provides this solid analysis of the case from a "T&E" (trusts and estates) perspective (though some may prefer the "T&A" perspective here).
- Wonkette! offers some color commentary on the oral argument and the circus atmosphere outside (with links).
- The WSJ Law Blog offers good background reading, updates, and links here, here, and here.
The Empire Strikes Back: Pierce Marshall and His Amici File Fiery Responses to Anna Nicole Smith's Claim to a Big Chunk of Her Erstwhile Hubby's Trust
With Bingham McCutcheon's Eric Brunstad and SCOTUSblog's Tom Goldstein the lead attorneys on a 50 page brief filed on behalf of E. Pierce Marshall, the son of Anna Nicole Smith's former hubby, J. Howard Marshall, you can bet that Anna Nicole's legal team will be burning the midnight oil through oral argument on February 28.
More on Pierce's arguments later, but suffice it to say for now that Anna Nicole's not exactly being portrayed as a modern-day Jane Eyre. The brief begins with the following bit of contextual background:
J. Howard met Vickie in 1991 at a club where she danced. They were married in 1994, when he was eighty-nine and she was twenty-six. The marriage lasted fourteen months, ending with J. Howard's death on August 4, 1995.
One unanticipated wrinkle here that the Respondent didn't have a chance to consider or address, but which clearly affects the dynamic of the entire case, is the Court's opinion (issued the next business day after the Respondent's brief was filed) in Central Virginia Comm. College v. Katz (discussed here). One has to wonder whether the Court will look at Anna Nicole's tortious interference claim as one being "asserted in proceedings necessary to effectuate the in rem jurisdiction of the bankruptcy court." Since a tortious interference claim probably does not fit that bill, and since (as the Respondent notes) "Congress has not seen fit to displace" (or abrogate) the long-standing judicially established "probate exception" to federal bankruptcy jurisdiction (which bars the exercise of bankruptcy jurisdiction over a decedent's property), then perhaps the Court will agree with the Respondent that "there is no basis for abandoning the probate exception that Congress has not seen fit to displace" (or abrogate).
Maybe Anna Nicole's not going to have such a good year after all!
Thanks to Tom Goldstein and his staff at SCOTUSblog for providing us with early access to the briefs filed by and in support of the petitioner and the respondent.
Pierce's lengthy "Summary of Argument" follows:
US Supreme Court Rules in Central Virginia v. Katz That States Are Not Immune from Preference Actions
As reported here (SCOTUS blog), here (PrawfsBlawg), here (Volokh), here (Crime & Federalism), and here (Althouse), the US Supreme Court today ruled, in a 5-4 decision (pdf) authored by Justice Stevens, that states are not immune from bankruptcy preference actions. Central Virginia Community College v. Katz, No. 04-885, 2006 WL 151985. Here, I'll try and expand upon, not repeat, the above posts.
I think most would agree that the result in this case is a surprising one given the ample precedent that pointed to a contrary result. As noted here, the oral argument left many believing that the Court had again "dodged a bullet" and would not tackle the question directly, but instead would decide on the "lesser ground" of waiver (as suggested at oral argument by Justice Ginsburg, who ultimately sided with the majority). Indeed, Justice Souter, who also sided with the majority, himself signaled his deep reservation with the bankruptcy trustee's entire abrogation argument when he told the trustee's counsel at oral argument:
I'm not a big fan of sovereign immunity in these circumstances, but I'm not quite sure how to get around it, based on the fact that there is no alternative remedy here.... [B]asically, you're making the argument from the uniformity phrase - uniform bankruptcy laws.... And you're saying, in this case, that that trumps the sovereign immunity, and that gets you out of Seminole Tribe.
Looking back at the oral argument, we find the kernel of today's opinion in the following seemingly innocuous penultimate question posed by Justice Stevens himself, when he asked the state's counsel about "this argument out there" that had not yet been discussed during the entire preceding 59 minutes of argument:
May I ask if you think, within the text of the question presented, we could decide whether the sovereign immunity was abrogated by the convention itself, not by Congress? There is that argument out there, you know.
In response, the petitioner's counsel perhaps sealed his client's fate by conceding that "if you decided that the convention itself had intended for the States not to have sovereign immunity in bankruptcy, then you would conclude that the Article I Bankruptcy Clause includes the abrogation power." [Practice reminder: Be careful about those last couple of seemingly innocuous questions thrown at you at the end of oral argument; they're often not as simple as they sound.]
Well, to the sure chagrin of petitioner's counsel (and many Supreme Court watchers), that's exactly what the majority decided! Indeed, virtually the entire opinion focuses on this historical argument as to whether sovereign immunity was both considered and abrogated at the Constitutional Convention. As noted here, Professor Bruce Mann believed it had been, and Justice Stevens significantly amplified upon Professor Mann's historical review with an impressive, though selective, array of supporting historical sources, all pointing to a final, "ineluctable conclusion":
[T]ext aside, the Framers, in adopting the Bankruptcy Clause, plainly intended to give Congress the power to redress the rampant injustice resulting from States' refusal to respect one another's discharge orders. As demonstrated by the First Congress' immediate consideration and the Sixth Congress' enactment of a provision granting federal courts the authority to release debtors from state prisons, the power to enact bankruptcy legislation was understood to carry with it the power to subordinate state sovereignty, albeit within a limited sphere.
The ineluctable conclusion, then, is that States agreed in the plan of the Convention not to assert any sovereign immunity defense they might have had in proceedings brought pursuant to "Laws on the subject of Bankruptcies." See Blatchford, 501 U.S. at 779 (observing that a State is not "subject to suit in federal court unless it has consented to suit, either expressly or in the 'plan of the convention' "); Alden v. Maine, 527 U.S. at 713 (same). The scope of this consent was limited; the jurisdiction exercised in bankruptcy proceedings was chiefly in rem--a narrow jurisdiction that does not implicate state sovereignty to nearly the same degree as other kinds of jurisdiction. But while the principal focus of the bankruptcy proceedings is and was always the res, some exercises of bankruptcy courts' powers--issuance of writs of habeas corpus included--unquestionably involved more than mere adjudication of rights in a res. In ratifying the Bankruptcy Clause, the States acquiesced in a subordination of whatever sovereign immunity they might otherwise have asserted in proceedings necessary to effectuate the in rem jurisdiction of the bankruptcy courts. (Emphasis added)
In the end, the legacy of this opinion for future lower court cases grappling with this momentous decision may well be found in the last bolded sentence quoted above. States defending themselves in bankruptcy litigation are sure to question whether the suit against them involves "proceedings necessary to effectuate the in rem jurisdiction of the bankruptcy courts." In applying this murky test, perhaps these lower courts will frame the question in the more traditional manner in which they're used to speaking: that is, whether -- for sovereign immunity purposes -- the proceeding is "core" or "non-core." The Supreme Court first posed this question regarding the "core" jurisdiction of federal bankruptcy courts in Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), when it turned the bankruptcy world upside-down by deciding that the broad statutory grant of jurisdiction to bankruptcy courts over "related to" (i.e., "non-core") proceedings violates Article III of the Constitution.
Adopting this approach, "proceedings necessary to effectuate the in rem jurisdiction of the bankruptcy courts" would be equated with those traditionally designated as "core" proceedings (like preference actions), whereas "proceedings [not] necessary to effectuate [such] in rem jurisdiction" would be equated with "non-core" proceedings (like breach of contract actions).
Either way, guess who benefits most from this decision?
© Steve Jakubowski 2006| Posted By Steve Jakubowski In US Supreme Court Cases | 2 Comments | Permalink
US Supreme Court Asked to Interpret Scope of 1978 Bankruptcy Code Amendment that Was Designed to Overrule Two Prior Supreme Court's Holdings on Wage Priorities in Bankruptcy
The latest revelation regarding Judge Alito's past is that he wrote a memo in 1986, while a lawyer for the Reagan administration, in which he advised the president to expressly declare the president's understanding of a bill at the time it was signed because "[t]he president's understanding of the bill should be just as important as that of Congress."
In a similar vein, Judge Alito may soon be asked as a member of the Supreme Court in Howard Delivery Service, Inc., v. Zurich Am. Ins. Co., No. 05-128, to provide his understanding of statutory provisions that themselves were designed to overrule two long-standing Supreme Court cases (here and here). Those cases, decided under the Bankruptcy Act of 1898 (as amended), held that wage priorities in bankruptcy would not be extended to cover various fringe benefits that technically were not "wages." The obvious difference between the Court's and the president's interpretive views, of course, is that (President Andrew Jackson and the Archidiocese of Portland aside) the Court's interpretation of the meaning of such legislation is dispositive, whereas the president's interpretation is not.
In Howard Delivery Service, the debtor/petitioner recently submitted its opening brief, which presents the following straight-forward question for the Court to answer:
In a bankruptcy case, is an unsecured claim for unpaid premiums owing for a debtor's statutory workers' compensation liability insurance policy entitled to priority under Section 507(a)(4) of the Bankruptcy Code as a "contribution to an employee benefit plan arising from services rendered," as held by the Fourth and Ninth Circuits, or is such a claim not entitled to Section 507(a)(4) priority, as held by the Sixth, Eighth and Tenth Circuits? [NB: BAPCPA had the effect of renumbering Section 507(a)(4) so that now it is numbered Section 507(a)(5).]
The Fourth Circuit, unable to deliver a majority or pluraity opinion, looked here more like the "gang that couldn't shoot straight" in answering this question. The petitioner summarized the Fourth Circuit's "fractured per curiam" ruling as follows:
Judge King wrote an opinion concurring in the judgment in which he found that the language of § 507(a)(4) is plain and unambiguous and that the unpaid premiums constituted "contributions to an employee benefits plan arising from services rendered." 403 F.3d at 232. By contrast, Judge Shedd, in his concurring opinion, found the language of § 507(a)(4) to be ambiguous. 403 F.3d at 239. Nevertheless, Judge Shedd ultimately agreed with Judge King that Zurich's claim was entitled to priority, but relied instead upon a provision of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C.S. § 1001-1461, that referred to the term "employee benefit plan." Id. Judge Niemeyer issued a dissenting opinion in which he found that:[t]he plain language of § 507(a)(4), which gives priority to claims for unpaid contributions to an employee benefit plan arising from services rendered, does not cover claims for unpaid insurance premiums charged to cover the statutory liability of the employer to its employees. The unpaid insurance premium is not an unpaid contribution; it is not an unpaid contribution to an employee benefit plan; and it does not arise out of an employee's services rendered in that it is not a wage surrogate.
403 F.3d at 244 (emphasis in original). Judge Niemeyer further found that the opinions of Judge King and Judge Shedd violated the underlying rule that priorities under the Bankruptcy Code are to be narrowly construed. 403 F.3d at 244 (Niemeyer, J., dissenting).
Though the Petitioner will likely win given the fractured ruling of the Fourth Circuit compared to the strong, consistent rulings of the Sixth, Eighth, and Tenth Circuits, it will be interesting to see how the Court will handle statutory interpretation questions such as:
- It is an oft-stated principle of statutory construction that a court must consider the specific language itself, the context of that language, and the broader context of the statute as a whole. To what extent will the decision be shaped by an "overriding objective of providing to creditors equal distribution of a debtor's limited resources"? (Pet. Brief at *10.)
- Will the Court agree that the plain meaning of the 1978 Bankruptcy Code amendment that extended wage priorities to "contributions to an employee benefit plan" should be limited to the situations addressed in the prior Supreme Court holdings that the legislation is said to have been designed to overturn?
- To what extent should the Court rely upon legislative history to determine whether the priorities of Section 507(a)(4) should be extended beyond fringe benefits and comparable "wage substitutes"?
- To what extent should courts look to contemporaneous editions of Merriam Webster's or Random House dictionaries in defining simple words like "contribution," "benefit," and "plan", and to what extent must there be consistency between their plain meaning and their "usage within the broader context of the Bankruptcy Code"? (Pet. Brief at *15.)
- Is it appropriate for the Court to "incorporate characterizations of a term in another statute absent some congressional indication that this was intended"? (Pet. Brief at *15-*16.)
The debtor/petitioner's "Summary of Argument" follows:
Bankruptcy Professors Hop on Anna Nicole Smith Bandwagon in Amicus Brief Filed with the US Supreme Court
Add an all-star lineup of bankruptcy gurus to the chorus of voices (including our own government) lining up in support of Anna Nicole Smith's position before the US Supreme Court in her continuing efforts to wrestle money from the flush estate of her late husband, the oil tycoon J. Howard Marshall II (at least she got half his ashes!).
The list of bankruptcy luminaries signing on to the brief (thus insuring their invitation to Anna's victory celebration) are: Richard Aaron, Jagdeep S. Bhandari, Susan Block-Lieb, Ralph Brubaker, Erwin Chemerinsky, Robert D'Agostino, S. Elizabeth Gibson, Robert M. Lawless, Charles Mooney, C. Scott Pryor, Nancy Rapoport, Robert K. Rasmussen, Keith Sharfman, Ettie Ward and Robert M. Zinman.
They say they submit this amicus brief (pdf), pro bono, because of their deep concern that the Court get it right (though the real reason could be a concern that she have enough money so that she doesn't feel a need to produce shows like these). They write:
The Amici Curiae are law professors who have devoted their careers to the study and teaching of bankruptcy law and bankruptcy jurisdiction. They are deeply interested in this case because of the important effect its outcome could have on the scope of bankruptcy jurisdiction. The Amici file this pro bono brief to offer what assistance they can to the Court as it considers and decides whether the broad and unqualified jurisdiction specially conferred by Congress on the courts of bankruptcy is cut down by the judicially-created probate exception so as to exclude from their jurisdiction any matter that might affect a decedent's legatees or heirs.
In supporting Petitioner and seeking reversal of the decision of the Circuit Court, the Amici urge the Court to hold that the probate exception does not limit the bankruptcy jurisdiction broadly conferred by 28 U.S.C. § 1334, and that the bankruptcy-related abstention provisions in 28 U.S.C. § 1334(c), which include the role of state courts and state law among its relevant abstention considerations, govern the circumstances in which bankruptcy jurisdiction shall not be exercised. This brief focuses on the issue by emphasizing the special nature of the bankruptcy jurisdiction and abstention statutes, whereas the Circuit Court viewed this bankruptcy case from the vantage point of a decedent's heirs and legatees and state probate courts.
Their "Summary of Argument," in true professorial style, is long, but compelling. It states:
We finally obtained copies of a host of filings with the Supreme Court in the case of Anna Nicole Smith (besides the US Amicus brief noted here) (pdf), including the opening brief filed by Anna's lawyers (pdf).
The respondent's brief is due to be filed on January 20, 2006. Oral argument is scheduled for February 28, 2006.
Four questions are presented:
1. What is the scope of the probate exception to federal jurisdiction?
2. Did Congress intend the probate exception to apply where a federal court is not asked to probate a will, administer an estate, or otherwise assume control of property in the custody of a state probate court?
3. Did Congress intend the probate exception to apply to cases arising under the Constitution, laws, or treaties of the United States (28 U.S.C. § 1331), including the Bankruptcy Code (28 U.S.C. § 1334), or is it limited to cases in which jurisdiction is based on diversity of citizenship?
4. Did Congress intend the probate exception to apply to cases arising out of trusts, or is it limited to cases involving wills?
An amicus brief in support (further discussed here) was also submitted by an all-star lineup of bankruptcy academicians (Richard Aaron, Jagdeep S. Bhandari, Susan Block-Lieb, Ralph Brubaker, Erwin Chemerinsky, Robert D'Agostino, S. Elizabeth Gibson, Robert M. Lawless, Charles Mooney, C. Scott Pryor, Nancy Rapoport, Robert K. Rasmussen, Keith Sharfman, Ettie Ward and Robert M. Zinman) (pdf).
Additionally, counsel for both petitioner and respondent submitted an approximately 250 page joint appendix containing excerpts from various relevant judgments, answers, opinions, briefs, jury instructions, and transcripts.
Anna's lawyers summarize her position before the Court on these questions as follows:Continue Reading | Posted By Steve Jakubowski In US Supreme Court Cases | 0 Comments | Permalink
Here's a link to the amicus brief filed on 11/21/05 by the US in support of Anna Nicole Smith in her case before the US Supreme Court, Marshall v. Marshall, No. 04-1454 (referenced here) (pdf). Looks like this is the first brief filed since the Court granted Anna's petition for certiorari last September.
The "Question Presented" is:
Whether a claim that falls within the scope of the jurisdiction conferred upon the federal courts and that seeks neither to probate a will nor to administer or assume control over the property in a decedent's estate is nevertheless excepted from federal jurisdiction if it involves the adjudication of rights related to property that is the subject of an ongoing state probate proceeding.
The "Interest of the United States" is described as follows:
More Tricks Than Treats in a Light-Popping Halloween Performance at the US Supreme Court in Central Va. v. Katz
Anyone's who's experienced the spectacle of an oral argument at the US Supreme Court will surely appreciate the scare, laughter, and tricks served up at oral argument on Halloween Day in Central Va. Community College v. Katz. In the end, however, I expect that Judge Goldgar's prediction at the National Conference of Bankruptcy Judges in early November that the Supreme Court "dodged another bullet" on the sovereign immunity question will likely prove correct, and that the litigants will find at the end of the day that their bags contain few treats.
At oral argument, William E. Thro argued on behalf of the petitioner-claimants from Virginia, and Kim Martin Lewis argued for Katz, the respondent-bankruptcy trustee. All Justices, except Justice Thomas, actively engaged counsel in discussion and debate, with Justice Scalia overtly supporting Mr. Thro's arguments, and Chief Justice Roberts showing good-natured exasperation at the respondent's own bag of tricks (p.44, and see below).
Still, the argument was interrupted by no fewer than six good-hearted chuckles of record from the Justices and the gallery, including (p.37) from a loud, sudden "pop" and "flash" that clearly startled the Justices on this ghoulish day and led to the following amusing rapid-fire sequence of comments, starting with--
Justice O'Connor, who proclaimed, in Paul Revere-like fashion, "A light bulb exploded. A light bulb exploded."
Followed by Chief Justice Roberts signaling the "all clear": "I think it's safe."
Followed by the dry Justice Breyer: "A light bulb went out."
Then again by a relieved Chief Justice Roberts: "It's a trick they play on new Chief Justices all the time."
Then by Justice Scalia, who wished everyone "Happy Halloween".
Meanwhile, the unflappable Justice Ginsburg stayed on track with her line of questioning, not missing a beat: "Let me ask this--".
While Justice Kennedy tried to allay Katz's shaken counsel, who was already having difficulties of her own on the merits: "Take your time. We're interested--".
Only to be thrown off yet again by Chief Justice Roberts, who reminded counsel of the noticeably shaky ground on which she was treading: "Yeah, we're even more in the dark now than before."
Thro's arguments for the Petitioners were workmanlike, and--most importantly--he didn't stray from his two main arguments (Seminole Tribe controls; and sovereign immunity bars monetary judgment claims) despite attempts by four of the nine Justices to trip him up within the first few minutes of his argument, including:
Solve this Brainteaser: How Can the Bankruptcy Code Best Be Amended to Forever Bury the Holding of Moore v. Bay?
The strong feedback to recent posts (here and here) (including by our friends at The Volkoh Conspiracy) regarding the unjust windfall to bankruptcy estates from Moore v. Bay, 284 U.S. 1 (1931), led us internally to discuss which would more likely occur first: hell freezing over or the US Supreme Court overturning Moore v. Bay?
The answer being painfully apparent, we searched for a better mousetrap, and seized upon Congressional action as the preferred solution to the problem of Moore v. Bay. Just as Congress in 1994 enacted the much-heralded "Deprezio Amendment" to address the inequities of a much reviled (though correctly decided) Seventh Circuit decision, Congress should enact a "Moore v. Bay Amendment" to bury this widely-criticized, but universally followed, opinion.
We at The Bankruptcy Litigation Blog, therefore, posit for your consideration the following brainteaser:
HOW CAN THE BANKRUPTCY CODE BEST BE AMENDED TO FOREVER BURY THE HOLDING OF MOORE v. BAY?
The NCBJ (National Conference of Bankruptcy Judges) begins tomorrow in San Antonio, Texas, and I hope to get some good ideas down there on how to best solve this brainteaser. Meanwhile, any suggested concepts to consider, pitfalls to avoid, or language to employ would be most appreciated and duly recognized.
Stay tuned. Much more to follow (no pun intended).
Finally, thanks to all 2,100 visitors to the site in the first three weeks of the blog's existence. Knowing you're out there spurs us on (no pun intended, San Antonio)! Hopefully, this blog will continue to exceed our wildest expectations, and yours.
Thanks again for your support!
© Steve Jakubowski 2005
If the White Sox Can Win the World Series, the Supreme Court Can Overturn Moore v. Bay
Last night, the Chicago White Sox swept the World Series, bringing great joy to much of Chicago (except for Cub fans, whose Cubbie blue is turning a shade of pale-green from all the jealousy). Even the most dogged Cub fan has to admit that the White Sox played incredible baseball. Congratulations to the entire organization and to all the long-suffering White Sox fans!
© Steve Jakubowski 2005
Speaking of long-suffering... In a recent post, I noted the inequity of the "all or nothing" rule of Moore v. Bay, 284 U.S. 4 (1931), which provides that a transfer avoidable by a bankruptcy trustee as to a single creditor (even as to just a nickel), is avoidable to the entire extent of the transaction (even if the transaction is worth millions). Unlike today's weighty US Supreme Court opinions, Moore v. Bay is only one page. It's author was none other than Justice Oliver Wendell Holmes, Jr., who wrote the opinion at the end of his rich life, while in his last term on the bench. You can't say much in one page; and Justice Holmes didn't, to be sure. Still, the rule of Moore v. Bay staunchly remains the law of the land.
Having brought up the case only in passing in my previous post, I said that my discussion of Moore v. Bay will have to await another day. With the Bankruptcy Court from the Northern District of Illinois in In re Unglaub, (2005 WL 2740595) (Bankr. N.D. Ill., 10/24/05), reminding us recently that the rule of Moore v. Bay remains the law of the land, it looks like today is that day. In Unglaub, the Bankruptcy Court stated matter of factly:
In a case under § 544(b)(1), the trustee has the rights of an unsecured creditor to avoid transactions that can be avoided by such creditor under state law. In re Image Worldwide, Ltd., 139 F.3d 574, 576-77 (7th Cir. 1998). The trustee need not identify the creditor, so long as an unsecured creditor exists. Id. at 577; In re Leonard, 125 F.3d 543, 544 (7th Cir. 1997). The transaction can be avoided completely even if the trustee cannot produce creditors whose liens total more than the value of the property. Leonard, 125 F.3d at 544-45.
Though the Bankruptcy Court did not expressly cite Moore v. Bay, it effectively did so by citing to Leonard, where the Seventh Circuit said this about Moore v. Bay:
Section 544(b) of the Bankruptcy Code of 1978 gives the Trustee the power to "avoid any transfer of an interest of the debtor in property ... that is voidable under applicable law by [an unsecured creditor]". 11 U.S.C. § 544(b). In other words, if any unsecured creditor could reach an asset of the debtor outside bankruptcy, the Trustee can use § 544(b) to obtain that asset for the estate. As part of the estate, that asset is then divided among all the unsecured creditors, not just the creditor who could have reached the asset outside bankruptcy. Barker and Lieblich complain that the Trustee has not articulated the specific creditor who could set aside Zach's gift, but a trustee need not do so. Thirteen unsecured claims have been filed; the Trustee can assume the position of any one of them. Unless the claims of Barker and Lieblich are secured, any unsecured creditor may pursue a fraudulent-conveyance action under Illinois law. Even if he cannot point to creditors whose claims total more than the value of the land, the Trustee can avoid the transaction entirely. Moore v. Bay, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133 (1931). The whole value of the asset then is distributed among creditors of the estate. 11 U.S.C. § 551. The wisdom of this approach has been questioned, see Douglas G. Baird, The Elements of Bankruptcy 104 (2d ed. 1993); Thomas H. Jackson, The Logic and Limits of Bankruptcy Law 79-83 (1986), but this entrenched rule is the source of the dilution that Barker and Lieblich want to escape.
While the application of Moore v. Bay didn't appear to affect the outcome of the case before the Bankruptcy Court in Unglaub, it surely could have. Which leads to a simple question, why should a transaction that is not voidable as to certain creditors become avoidable in its entirety merely because the debtor happens to be in bankruptcy?
It's always easier to follow a rule then to work to change it, but this law needs to be changed. Perhaps someday the rule of Moore v. Bay will become a relic of the past, just as the "no-World-Series-win-in-my-lifetime" is now, happily, a thing of the past on Chicago's south side. Go Sox!| Posted By Steve Jakubowski In US Supreme Court Cases | 1 Comments | Permalink