Be sure to free some time up between 10:00 and 11:00 a.m. EDT on July 12 for this free web seminar sponsored by the Washington Legal Foundation entitled The Ongoing Saga of Marshall v. Marshall: Beyond the Anna Nicole Headlines. 

The speakers are WilmerHale’s Craig Goldblatt (a friend of this blog who has filed many cert. petitions and merits briefs before the US Supreme Court, including, most recently, in In re Marrama), and Horace Cooper, former counsel to Former House Majority Leader Dick Armey and senior fellow with the National Center for Public Policy Research and the Centre for New Black Leadership. 

The program promises to:

  • Discuss the case’s current posture before the 9th Circuit Court of Appeals
  • Review the case’s implications for federal/state parallel litigation, especially in cases involving bankruptcy and probate.
  • Analyze key issues pending before the appellate court, including claim & issue preclusion and “core proceeding” determinations.
  • Consider the ramifications of the case, and the Court’s opinion in Marshall v. Marshall, on future estate planning probating of wills & trusts.

Here’s the program invitation.  As an added bonus, you can submit questions during the program by email to interactive@wlf.org.

Finally, here’s a link to my post on the Supreme Court’s Marshall v. Marshall decision, which has at the end a link to other posts of mine pertinent to the case.

© Steve Jakubowski 2007

As noted in the section of my BAPCPA outline of one year ago entitled "The Hanging Paragraph: Section 1325(a)(*) — The "Car Loan Protection" Provision: The Law of Intended and Unintended Consequences, a pesky little decision by Judge (and former Army captain) Richard Stair, Jr. in In re Ezell, 338 B.R. 330 (Bankr. E.D. Tenn. 2006), caught the attention of auto lenders because it held, for the first time, that an auto lender in a chapter 13 case must accept a surrendered car in full satisfaction of its claim (thus denying the lender its state law right to a deficiency for any shortfall).

Somehow, between then and now, the holding in Ezell became the "majority" rule in the land, much to the sure chagrin of the auto lobby.  After all, as brilliantly documented in a paper by Univ. of Wisconsin’s William Whitford entitled A History of the Automobile Lender Provisions of BAPCPA, the auto lobby drafted the "hanging paragraph" and had Michigan Senator Spencer Abraham introduce it in a 1998 amendment to the proposed legislation.  (See Whitford, at pp. 34-36).  Remarkably, the paragraph hung there through BAPCPA’s enactment without change.  Now one may wonder why an obvious grammatical faux-pas like a "hanging paragraph" went uncorrected for seven years, but it’s hard to attribute the error to sloppy last-minute drafting.

The minority view among bankruptcy courts regarding the auto lender’s claim against a surrendering debtor in a chapter 13 case was best articulated in my view by Nevada’s Judge Bruce A. Markell (a philosophical wizard who is one of the bankruptcy bench’s most capable Code constructionists) in In re Trejos, 352 B.R. 249 (Bankr. D. Nev. 2006), a case that I’ve wanted to discuss for almost a year now.  In it, Judge Markell ultimately concluded that Ezell was wrongly decided.  Still, as he said, "the basics of how to interpret statutory text such as the hanging paragraph are not unduly complicated, but (as always) the devil is in the details."  [NB: (Judge Easterbrook, concurring.)]

In analyzing the "hanging paragraph," Judge Markell starts with "plain meaning" (as required by Ron Pair), considers the context (as the textualist approach of Justice Scalia and Harvard’s Professor John Manning mandates), seeks additional clues in bankruptcy’s slang (or "gibberish"), but above all "[will] not condone … the imputation of a congressional purpose based on materials that cannot or do not reflect a unitary congressional purpose, followed by the use of that purpose to definitively construe straightforward text."  Id. at 258.  Judge Markell concludes:

Continue Reading Judge Easterbrook Doesn’t Get Hung Up by the Hanging Paragraph of “the 2005 Act”

The Truman Show is Jim Carrey’s greatest acting moment and one of Peter Weir’s greatest directorial moments.  In this first reality TV show from which all current variants have been spawned, Jim Carrey plays Truman Burbank, an unwanted baby who’s been adopted by T.V. Corp. to play the lead role in a world that everyone in the world, but him, knows has been staged. 

But what do The Truman Show and Enron have in common?  More than one might think.  Apparently between August 2001 and December 2001, Enron considered engaging Goldman, Sachs & Co. to explore–as Goldman described it in recent Court filings–"options for the company in response to declines in its stock price and perceived takeover vulnerability and to consider the company’s need to prepare for hostile takeovers and sale transactions that might improve its balance sheet."

Goldman’s adversaries in litigation allege in this complaint that Enron’s $1 billion prepayment of short-term commercial paper within 5 weeks of the bankruptcy filing at face value (instead of the junk market price they were really worth) was both a preferential and a fraudulent transfer (Goldman got about $300 million).  They also disputed Goldman’s innocuous description of its discussions with Enron, preferring instead to characterize them as "discussions of a potential engagement under which Goldman would serve as a consultant to advise Enron on ways to stave off the pending financial debacle." 

Curiously, the nickname Goldman pinned on the project was "Project Truman."  Deal nicknames often say a lot about the nature of the deal, and given that Enron was by any measure the greatest financial illusion in corporate history, attaching the moniker "Project Truman" on the potential engagement is a telling premonition of trouble afoot.  Still, no one yet has fessed up to who chose that nickname for the project–or why.

Notably, the only reference to "Project Truman" in any actual substantive document produced in the litigation to date is in these "Discussion Materials" that were distributed at a "Project Truman" lunch meeting that Ken Lay and Andrew Fastow had scheduled with Goldman in Woodland, Texas for September 6, 2001, just five days before the tragedy of 9/11 sent the financial markets into a tailspin and effectively dried up whatever liquidity remained at Enron.

On page 6 of the Discussion Materials, the bold-faced-boxed-word "Truman" rests atop a decision tree detailing Enron’s "next steps" after "Truman."  Based on the discussion at page 5 of the materials entitled "What Message Do You Deliver to the Street," the boxed reference to "Truman" sure looks like a convenient tag for the preceding page’s 12-point Truman-esque bubble-bursting "message to the street."  The Goldman decision tree under the bold boxed word "Truman" suggests that once "Truman" confronts reality, one should first measure the effect of that reality check on "credit stability."  If the effect is positive (or "yes"), then continue to the next level down and determine whether "establishing counterparty confidence" can be achieved.  Conversely, if the effect on credit stability is negative (or "no"), then say sayonara to Enron in a "quick sale."  For his part, Fastow had this to say about the Project Truman meeting with Goldman, which was quite a different spin on the meeting than Lay recounted at trial.

Back now to the avoidance litigation over the pre-bankruptcy payoff of the junk commercial paper.  In February of this year, a few of the defendants in this protracted litigation (docket here) requested from Goldman all documents relating to Project Truman.  Goldman respectfully declined, arguing that it was irrelevant.  The defendants moved to compel production (joined by the Enron litigation trust).  Goldman objected and the movants replied (as did Enron).

Judge Arthur Gonzalez (a former 13 year veteran schoolteacher in New York’s public schools who won the equivalent of the "Bankruptcy Judge Lottery" by having been randomly selected to be the presiding judge — at the same time — over the two largest bankruptcies of all time: Enron and Worldcom), took little time to decide this discovery dispute.  Just nine days after about 800 pages in briefs and exhibit attachments had been finally submitted, he issued this ruling granting the motion to compel production, concluding:

light of (1) the discovery posture of this case following a denial of a motion to dismiss and motion to stay discovery; (2) the broad definition of relevance articulated in Fed. R. Civ. P. 26, (3) the overall relevance of the Project Truman materials to the issues of Goldman’s agency and good faith, and (4) the acknowledged lack of burden on Goldman to produce such material, this Court finds that the motion to compel is warranted.

Judge Gonzalez also rejected Goldman’s suggestion for an in camera review of the materials, stating:

Such review is more appropriate in circumstances involving privileged or confidential information. The Court agrees with the Movants that a court’s in camera inspection “is no substitute to full disclosure to, and review of the disputed materials, by a litigant’s counsel, who is best positioned to know the party’s strategy and assess the relevance vel non of the information contained within the disputed materials.

Of course, my theory on why Truman was selected as the nickname for the deal is complete speculation.  But considering that the movie had been released three years earlier, and only two years earlier on video, perhaps the movie was still fresh in the mind of a Goldman deal kingpin looking for a creative–and apt–nickname for the bursting of the greatest financial illusion in corporate history.  Time will tell.

© Steve Jakubowski 2007

Time to catch up on more "Picks of the Month."  These picks are for May 2007:

Today’s feature is Delaware, one of my favorite states, with its rolling hills, surprisingly lush forests, superlative courts (notwithstanding some opinions to the contrary, critiqued here), and outstanding bloggers–both "old" (e.g., Francis Pileggi’s "must-read" Delaware Corporate and Commercial Litigation Blog) and "new" (e.g., Chuck Kunz’s and Morris James’s Delaware Business Bankruptcy Blog).

The inset chart is from the March 2005 Newsletter of the Federal Courts, entitled For Delaware Bankruptcy Court, Appeal is a Mixed Blessing, and supports the point that though "according to the [complicated federal bankruptcy] judgeship formula, Delaware should currently field a team of 13 bankruptcy judges, [t]hey have two."  Since then, as reported here, they added more (to the delight of Delaware’s district court judges who pinch-hit for years to help carry the load)! 

Finally, speaking of Delaware Bankruptcy Courts, as attested to in Francis Pileggi’s link to Kevin LaCroix’s post in the D&O Diary on Judge Kevin Gross’s recent D&O coverage ruling in the World Health Alternatives case, a once great lawyer is proving to be a great judge too!

[6/22/07 Update:  Be sure to read Bob Eisenbach’s excellent commentary on Judge Gross’s decision, entitled Who Gets the Benefit of a D&O Policy’s Proceeds: The Directors and Officers or the Bankruptcy Trustee? Thanks also to Delaware’s gentleman and scholar, Francis Pileggi, for his kind words and links to this post!]

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Continue Reading Picks of the Month: Required Bankruptcy Reading for May 2007

The following comparative bankruptcy-related scholarly papers, arranged by SSRN abstract ID number, can be downloaded from the Social Science Research Network website:

 

[The inset image was taken from Tom Kirkendall’s post on the passage last August of "long-awaited amendments to China’s bankruptcy laws."  These amendments took effect June 1, 2007.  Those clammering for more on China’s bankruptcy laws, be sure to read this interview with Cadwalader’s Deryck Palmer and John Rapisardi, as well as this post by Dan Harris on the China Law Blog.  There’s also a helpful recent summary written by DLA Piper’s China-based partners Prue Mitchell, Louis Meng, and Lampros Vassilou entitled, China’s New Bankruptcy Law: A Long-Awaited Compromise.]

[6/12/07 – Update:  Check out Bob Eisenbach’s follow up on China’s new bankruptcy law at his (In the Red) Business Bankruptcy Blog, which links to an English translation of the new law and other pertinent topics.]

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Univ. Paris IX Dauphine’s Anne Epaulard and Univ. of Lausanne’s Aude Pommeret, "Bankruptcy Law and Firms’ Behavior" (Abstract ID: 987999)

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York University Law School’s Stephanie Ben-Ishai, "Bankruptcy for the Poor?" (Abstract ID: 974779)

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London Business School’s Viral V. Acharya and Emory University’s Krishnamurthy Subramanian, "Bankruptcy Codes and Innovation" (Abstract ID: 971566)

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Cranfield University’s Vineet Agarwal and Univ. of Edinburgh’s Richard Taffler, "Comparing the Performance of Market-Based and Accounting-Based Bankruptcy Prediction Models" (Abstract ID: 968252)

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Cranfield University’s Puliyur Sudarsanam, Nottingham University’s Mike Wright, and Cranfield University’s Jian Huang, "Going Private Buyouts and Shareholder Wealth Gains: Impact of Bankruptcy Risk" (Abstract ID: 967731)

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Institute for Macroeconomic Analysis and Development’s Arjana Brezigar Masten and Univ. of Ljubijana’s Igor Master, "Comparison of Parametric, Semi-Parametric and Non-Parametric Methods in Bankruptcy Prediction" (Abstract ID: 967637)

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Nagoya City University’s Kotaro Inoue, Nagoya University’s Hideaki Kiyoshi Kato, and Nanzan University’s Marc Bremer, "Corporate Restructuring in Japan: Who Monitors the Monitor?" (Abstract ID: 965595)

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Domagoj Satjer, "Must Bankruptcy Administrators Be Corporate Undertakers? Creation and European Perspectives of Restructuring in Bankruptcy" (Abstract ID: 965367)

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Cambridge Associates Asia Pte Ltd’s Beng Tat Lee, "Claiming a Pound of Flesh as a Contingent or Prospectives Creditor Under the Companies Act" (Abstract ID: 965259)

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Univ. of Waterloo’s J. Efrim Boritz and Duane B. Kennedy and Univ. of Auckland’s Jerry Y. Sun, "Predicting Business Failures in Canada" (Abstract ID: 963767)

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Univ. of Amsterdam’s Joseph A. McCahery, "Creditor Protection in a Cross-Border Context" (Abstract ID: 963348)

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Univ. of Milan’s Francesco Denozza, "Different Policies for Corporate Creditor Protection" (Abstract ID: 963345)

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Univ. of Mainz’s Peter O. Mulbert, "A Synthetic View of Different Concepts of Creditor Protection, Or: A High-Level Framework for Corporate Creditor Protection" (Abstract ID: 963342)

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Univ. of Munich’s Horst Eidenmuller, "Trading in Times of Crisis: Formal Insolvency Proceedings, Workouts and the Incentives for Shareholders/Managers" (Abstract ID: 963337)

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Univ. of Freiburg’s Hanno Merkt, "Creditor Protection Through Mandatory Disclosure" (Abstract ID: 963327)

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Abstracts for each of these papers follows: 

Continue Reading Recent Comparative Bankruptcy-Related Articles of Interest Available for Downloading from SSRN

BAPCPA’s least appreciated (and understood) changes, despite their enormous impact on financial markets generally, are the changes designed to strengthen and clarify the enforceability of various types of financial derivatives contracts.  To provide enhanced protection to the financial services industry, Congress added or expanded the Code’s definitions for such industry staples as "forward contracts" (§101(25)), "repurchase agreements" (§101(47)), and "swap agreements" (§101(53B)).  Various other Code provisions were amended or added to reflect Congress’s desire to enable a nondebtor party–without hesitation–to terminate, liquidate or accelerate its securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements or master netting agreements with the debtor.  (See generally, these few pages of professor, lawyer, Code co-architect, and energy healer Ken Klee’s excellent summary of BAPCPA’s amendments to the Code’s business-related provisions).

Columbia Law professor Edward Morrison, with Columbia GSB economics legend Franklin Edwards, argue in a Winter 2005 article entitled Derivatives and the Bankruptcy Code: Why the Special Treatment? that BAPCPA’s extension of the Code’s protections for the financial services industry "to include a broader array of financial contracts, all in the name of reducing systemic risk … is a mistake."  Rather, they argue, "[a] better, efficiency-based reason for treating derivatives contracts differently arises naturally from the economic theory underlying the automatic stay [i.e., derivative contracts are rarely needed to preserve a firm’s going-concern surplus]."  Still, they warn (at p.1):

There are, however, downsides to treating derivatives contracts differently (creditors, for example, would like to disguise loans as derivatives contracts).  These downsides are probably not signficant, but they highlight the fragility of the Code’s treatment of derivatives contracts, which should worry members of Congress as they consider arguments to expand the Code’s exemptions for derivatives contracts.

After BAPCPA became law, Professor Morrison teamed with Columbia LLM candidate (and now Davis Polk associate) Joerg Riegel to author another article entitled Financial Contracts and the New Bankruptcy Code: Insulating Markets from Bankrupt Debtors and Bankruptcy Judges.  They wrote that BAPCPA did not just "eliminate longstanding uncertainty surrounding the protections available to financial contract counterparties, especially counterparties to repurchase transactions and other derivatives contracts"  Rather, they observed, "the ambit of the reforms is much broader," especially because of the newly expanded definition of "swap agreement," which they termed "so broad that nearly every derivative contract is subject to the Code’s protection."  (p.1).  Notably, however, this conclusion was later called into question (though not expressly) by Thompson & Knight’s Rhett Campbell in a 2005 article entitled Financial Markets Contracts and BAPCPA.  He wrote that "even though the definitions themselves are often nothing more than a listing of labels with little attempt at a functional definition, the legislative history shows an intent to prevent parties from obtaining the benefits of financial contracts safe harbors merely by the judicious use of labels."  79 Am. Bankr. L. J. 697, 705 (2005).

In commenting on the impact of these reforms on the bankruptcy judiciary, Morrison and Riegel concluded (pp. 4-5):

Equally important, the amendments limit judicial discretion to assess the economic substance of financial transactions, even those that resemble ordinary loans or that retire a debtor’s outstanding debt or equity.  The reforms of 2005 direct judges to apply a formalistic inquiry based on industry custom: a financial transaction is a "swap," "repurchase transaction," or other protected transaction if it is treated as such in the relevant financial market…. 

Indeed, if anything is clear from the new Code, it is that judges are strongly discouraged from engaging in functional analysis of financial contracts.  The Code’s protections encompass contracts or combinations of contracts that differ little in substance from unprotected transactions, such as secured loans.  They are protected because they are recognized in financial markets as financial contracts.  Any judicial effort to distinguish protected and unprotected contracts based on their "substance" is doomed to failure and can only generate significant uncertainty in the very markets the Code seeks to protect.  By relying on broad market definitions, the Act gets judges out of the (largely futile) business of second-guessing financial contracts.  Absent evidence of intent to defraud a debtor’s creditors, which remains ground for denying protection to payments under a financial contract, the new role of judges is to apply industry custom to financial contracts in much the same way that they would apply custom to interpret a contract under the Uniform Commercial Code.

Maybe it’s just Professor Morrison’s year of clerking for Justice Scalia that has jaded him, but most bankruptcy judges I know don’t "apply a formalistic inquiry," especially when it comes to interpreting BAPCPA!  (See also, the opinions of Judge Bruce A. Markell (here and here) and the 60 pages of handouts on principles of statutory construction that the Southern District of Ohio’s Chief Bankruptcy Judge, Thomas F. Waldron, penned for last year’s NCBJ confab).  In this regard, it’s worth considering the words of the Eastern District of North Carolina’s Chief Bankruptcy Judge A. Thomas Small in In re Donald, 343 B.R. 524 (Bankr. E.D.N.C. 2006) (pdf), where he had this to say about interpreting BAPCPA:

Unfortunately, the BAPCPA amendments … are confusing, overlapping, and sometimes self-contradictory.  They introduce new and undefined terms that resemble, but are different from, established terms that are well understood.  Furthermore, the new provisions address some situations that are unlikely to arise.  Deciphering this puzzle is like trying to solve a Rubik’s Cube that arrived with a manufacturer’s defect.  [Ed. Note:  This one is sure to work.]  Fortunately, after many twists and turns, a few patches of solid color emerge.  Id. at 529.

Judge Small’s opinion last week in Hutson v. Smithfield Packing Co. (In re Nat’l Gas Distributors, LLC), 2007 WL 1531616 (Bankr. E.D.N.C. 5/24/07) (pdf) partially resolved BAPCPA’s puzzle regarding the scope of the "swap agreement" amendments to the Code surprisingly easily, but not because he "appl[ied] a formalistic inquiry."  Rather, in deciding whether BAPCPA’s expanded definition of "swap agreement" to include "forward agreements" would preempt an avoidance action against a nondebtor customer who received natural gas from the debtor under a below-market commodity contract, Judge Small concluded:

Continue Reading Judge Small Rules That Ordinary Commodity Supply Contracts Are Not “Swap Agreements” Under BAPCPA

Time to catch up on more "Picks of the Month."  These picks are for April 2007:

Bankruptcy veterans (and Tennesseeans) will recognize the inset photo of the Bankruptcy Court for the Middle District of Tennessee, located in the famed U.S. Customs House in Nashville, Tennessee.  President Rutherford B. Hayes laid the cornerstone to the building in 1877 on the purported first visit of a president to the South since the Civil War.  According to this story, the building represented "something of a payoff for Southern support in Hayes’ bid for the presidency [and was] evidence that he was living up to his promises, because it was the first such federal building in the former Confederate states."

The court is presently home to the district’s chief bankruptcy judge, the Hon. George C. Paine, II, and to Judges Keith M. Lundin (famed BAPCPA basher and author of a 2005 article entitled "Ten Principles of BAPCPA:  Not What Was Advertised") and Marian F. Harrison (who is overseeing this political hot potato involving Sen. Hillary Rodham Clinton and her brother Tony).

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Continue Reading Picks of the Month: Required Bankruptcy Reading for April 2007

The following bankruptcy business-related scholarly papers, arranged by SSRN abstract ID number, can be downloaded from the Social Science Research Network website:

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Univ. of Chicago Law School’s Douglas G. Baird, IMD International’s Arturo Bris, and Yale School of Management’s Ning Zhu, "The Dynamics of Large and Small Chapter 11 Cases: an Empirical Study" (Abstract ID:  866865)

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Vanderbilt Univ. School of Law’s Robert K. Rasmussen, "Empirically Bankrupt" (Abstract ID:  895547)

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Harvard Law School’s Elizabeth Warren and UT Austin’s Jay Alan Westbrook, "The Dialogue between Theoretical and Empirical Scholarship" (Abstract ID:  945155)

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Univ. of Rochester’s Greg McGlaun, "Lender Control in Chapter 11: Empirical Evidence" (Abstract ID:  961365)

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Dartmouth College – Tuck School of Business’ B. Espen Eckbo and Karin S. Thorburn, "Automatic Bankruptcy Auctions and Fire-Sales" (Abstract ID:  963184)

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Max Planck Institutes Wolfgang Schoen, "Balance Sheet Tests or Solvency Tests – Or Both?" (Abstract ID:  963333)

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Univ. of Chicago Law School’s Douglas G. Baird, "Legal Approaches to Restricting Distributors to Shareholders: the Role of Fraudulent Transfer Law" (Abstract ID:  963335)

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Univ. of Pennsylvania Law School’s David A. Skeel Jr. and George Krause-Vilmar, "Recharacterization and the Nonhindrance of Creditors" (Abstract ID:  963338)

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LSE’s Paul L. Davies, "Directors’ Creditor-Regarding Duties in Respect of Trading Decisions Taken in the Vicinity of Insolvency" (Abstract ID:  963340)

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Jeffrey D. Van Niel and Nancy B. Rapoport, "’Retail Choice is Coming: Have you Hugged Your Utilities Lawyer Today? (Part 1)" (Abstract ID:  963912)

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Jeffrey D. Van Niel and Nancy B. Rapoport: "’Retail Choice is Coming: Have you Hugged Your Utilities Lawyer Today? (Part 1)" (Abstract ID:  963913)

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Seton Hall University School of Law’s Stephen Lubben, "Business Liquidation" (Abstract ID:  964214)

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Georgetown University Law Center’s J. Gregory Sidak and the Kellogg School of Management’s Daniel F. Spulber, "The Tragedy of Telecoms: Government Pricing of Unbundled Network Elements Under the Telecommunications Act of 1996" (Abstract ID:  964703)

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Georgetown University Law Center’s J. Gregory Sidak, "Why Did the U.S. Telecommunications Industry Collapse?" (Abstract ID:  964776)

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Sabanci University’s Mine H. Akso, "Going Concern Value Versus Abandonment Option Value in Debt Restructuring Firms" (Abstract ID:  965226)

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Univ. of Chicago’s Thomas Chaney, INSEE’s David Sraer, and HEC’s David Thesmar, "The Corporate Wealth Effect: From Real Estate Shocks to Corporate Investment" (Abstract ID:  965762)

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Indiana University School of Law’s Kenneth Glenn Dau-Schmidt, "The Changing Face of Collective Representation: The Future of Collective Bargaining" (Abstract ID:  967454)

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Florida State University College of Law’s Kelli A. Alces, "Enforcing Corporate Fiduciary Duties in Bankruptcy" (Abstract ID:  968006)

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California State University-Northridge’s Rafael Efrat, "Minority Entrepreneurs in Bankruptcy" (Abstract ID:  972656)

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California State University-Northridge’s Rafael Efrat, "The Tax Burden and the Propensity of Small Business Entrepreneurs to File for Bankruptcy" (Abstract ID:  976954)

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Univ. of Virginia’s David Mordkoff, "From Bonehead to Chaos: The Demise of the Right to Strike in the Airline Industry" (Abstract ID:  977581)

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UT Austin School of Law’s Henry T.C. Hu and Jay Lawrence Westbrook, "Abolition of the Corporate Duty to Creditors" (Abstract ID:  977582)

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Texas Tech University’s Stuart Gilliand and Baylor University’s John D. Martin, "Corporate Governance Post-Enron: Effective Reforms, or Closing the Stable Door?" (Abstract ID:  977585)

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UCLA School of Law’s Lynn M. LoPucki and Joseph W. Doherty, "Bankruptcy Fire Sales" (Abstract ID: 980585)

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Vanderbilt University School of Law’s Robert K. Rasmussen, "The Story of Case v. Los Angeles Lumber Products: Old Equity Holders and the Reorganized Corporation" (Abstract ID:  980708)

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Abstracts for each of these papers follows:

Continue Reading Recent Posted or Updated Bankruptcy Business-Related Articles of Interest Available for Downloading from SSRN

Having finally wrapped up this mess, it’s back to blogging on a more regular basis…

Yesterday, Fed Chairman Ben Bernanke commented at length for his fellow economists at the Federal Reserve Bank on how problems in the market for subprime mortgages may affect the housing markets and the economy generally.  As one of my favorite economist bloggers summed up in this post at the Calculated Risk blog, according to Chairman Bernanke, "everything will be fine."

That may be reassuring to stock market investors, who must be feeling a bit dizzy from the recent 15% run up since the subprime collapse took its toll on the market a few months back.  For those left holding the bag, however, there’s little solace to be drawn from Chairman Bernanke’s comments.  But, based on the benefits Chairman Bernanke noted the subprime shakeout is having on helping rein in loose lending practices generally, I think it’s fair to say here that one man’s noose is another man’s whip.

For those purchasers of securitized subprime mortgage-backed securities left holding the bag, however, there is one prayer that may provide much needed relief … and that’s the "prayer for relief" that accompanies a complaint filed in the US district court.  As this 8-count complaint proves, there’s no shortage of prayers for relief available to the disgruntled investor left holding the bag.   Bankers Life Insurance Co. v. Credit Suisse First Boston Corp., et. al., No. 07-690 (M.D. Fla. 4/23/07) (hat tip: Calculated Risk). 

Through its complaint, Bankers Life seeks to recover the 95% of its $1.4 million investment that it lost when it purchased in 2004 certain securitized mortgage-backed loans that were originally issued in 2001 in an offering underwritten by Credit Suisse First Boston and DLJ Mortgage Capital.  The packaged loans were subsequently serviced by Select Portfolio Servicing (SPS) of Salt Lake City. 

Cutting to the chase, Bankers Life alleges that CFSB, DLJ, and SPS misled the agencies whose ratings determined the market price of the securitiies by misrepresenting key indicators relating to the portfolio’s performance.  As a result, the complaint alleges, Bankers Life was left holding the bag since it paid about $1.3 million more than the securities were inherently worth.

As every litigator knows, alleging something is one thing, but proving and recovering on it is a "horse of a different color," as the old saying goes.  Here are a few "off the cuff" thoughts as to why I think this complaint will have difficulty surviving a motion to dismiss….

Continue Reading The Subprime Lending Shakeout: A Litigation Perspective