Required Bankruptcy Reading from Klee and Hayes for Justice-To-Be Sonia Sotomayor (and You Too!)

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!

Professor Klee's book is a remarkable resource and "hands-down" one of the best books on bankruptcy ever written.  Here's the WSJ Bankruptcy Beat's interview on how a project envisioned to last a year and result in a 190-page book morphed into a seven year labor of love that resulted in a 500 page book with 2,517 footnotes canvassing 570 Supreme Court opinions over the past 110 years.  The good news for those wanting more is that, Ken says in the Preface, "[t]his book is a beginning and not an end....  [and] only scratches the surface of the rich material contained in the Justices' private papers that were gathered as part of the research for this book."  Here's Ken's own Readers' Digest abstract.

One thing that leaves you wanting from Professor Klee's book, however, is the precise thing that Justice-to-Be Sotomayor continues to drive home in her confirmation hearings; that is, the importance of thoroughly understanding and delving into the facts of each case (see, today's questioning by (my law school classmate) Sen. Amy Klobuchar, who engages in an extended discussion with Judge Sotomayor about her being "tenacious about getting to the bottom of the facts").  Well, it's on the facts where Professor Hayes' book fills the gap.  His book is like a Casenote Legal Briefs to Supreme Court bankruptcy cases, but much better.  Like Ken's book, Jonathan's book is a labor of love that started modestly.  Jon started out planning to write an article about the "20 most important bankruptcy cases ever," and he ended up with a first edition covering 121 cases.  He's not stopping, he says, until he's briefed "every case the Supreme Court has ever published which deals with Bankruptcy."  His book starts at Sturges v. Crowninshield in 1819, concludes with Piccadilly Cafeterias in 2008, and includes about every case since 1984.  Along the way, he summarizes in each "brief" the issue before the Court, the holding of the case, and the key facts of the case.  Each "brief" also quotes extensively from the Court's opinion because, he writes, "how better to explain the court's reasoning than to use the court's words."  He ends each brief with a "tidbit" or two about the case, the Justice who authored the opinion, or the context in which the case was decided.

Knowing the "ins-and-outs" of Supreme Court precedent is essential for every bankruptcy practitioner.  While it's basically true that one can find a bankruptcy court opinion somewhere that'll stand for whatever proposition one wants to argue, there's only one Supreme Court, and for our purpose, it's the supreme law of the land.  Its holdings, reasonings, dicta, and dissents provide essential interpretive guideposts to bankruptcy practitioners, for while it may be a "constitution we are expounding," when it comes to bankruptcy, it's a "statute we are interpreting."

Best of luck, Justice-to-Be!

© Steve Jakubowski 2009

Written By:Ed Leung On July 17, 2009 9:36 AM

Hello,

FYI...I just wanted to let other readers know that a streaming/downloadable podcast interview with Prof. Klee about his book is available on the Lexis Bankruptcy Law Center: http://law.lexisnexis.com/practiceareas/Bankruptcy-Law-Podcast/BankruptcyLawCenter/

For more information, you can also access a free excerpt of Prof. Klee's book: http://law.lexisnexis.com/practiceareas/Featured-Content/BankruptcyLawCenter/Bankruptcy-and-the-Supreme-Court-Ken-Klee

Prof. Klee's book is available on the Lexis store: http://www.lexisnexis.com/store/catalog/productdetail.jsp?pageName=relatedProducts&catId=6&prodId=prod480022

Written By:Thomas Byrne On December 17, 2009 10:27 PM

I am stunned that you would recommend Hayes's book for anyone, let alone a Supreme Court justice. It is merely a compendium in chronological order of S.Ct. bankruptcy opinions that is superficial and could have been compiled by any summer associate in less than a week. It is also an incredibly sloppily copy-edited book.

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