The following bankruptcy finance-related working papers, arranged by abstract ID number, can be downloaded from the Social Science Research Network:

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Brandeis University’s Jens Hillscher and Harvard University’s Jan Szilagyi: "In Search of Distress Risk." (Abstract ID: 917567)

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FDIC’s Michael Kimminger: "The Evolution of U.S. Insolvency Law for Financial Market Contracts." (Abstract: 916345)

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Seton Hall Univ. School of Law’s Stephen Luben: "Credit Derivatives & the Future of Chapter 11." (Abstract ID: 906613)

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Stockholm School of Economics’s Stefano Rossi and Stockholm University’s Nicola Gennaoli: "Bankruptcy, Creditor Protection and Debt Contracts." (Abstract ID: 891154)

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Northwestern University’s Vadim Linetsky: "Pricing Equity Derivatives Subject to Bankruptcy." (Abstract ID: 889973)

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University of Mainz’s Gunther Friedl: "Discussion of ‘Optimal Debt Service: Straight vs. Convertible’." (Abstract ID: 899299)

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Penn. State Univ.-Berks’s Khaled Abdou and Univ. of New Orleans Oscar Varela: "The Role of Venture Capitalists in Bankruptcy." (Abstract ID: 891642)

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University of Aarhus’s Peter Tind Larsen: "Default Risk, Debt Maturity and Levered Equity’s Risk Shifting Incentives." (Abstract ID: 887441)

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University of Chicago Law School’s Kenneth W. Dam: "Credit Markets, Creditors’ Rights and Economic Development." (Abstract ID: 885198)

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Univ. of Georgia’s Mark Dawkins and Linda Smith Bamber and SMU’s Neil Battacharya: "Systematic Share Price Fluctuations after Bankruptcy Filings and the Investors who Drive Them." (Abstract ID: 881508)

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Abstracts for each of these papers follow.  More importantly, thanks to all who expressed their condolences to me during the past week regarding my mom’s recent passing.  Your support provided a source of much comfort to me.

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

Unexpectedly, and far too swiftly, my mother passed away, and today was her funeral.  My sister, Ruth Jakubowski, a Baltimore County Circuit Court Judge, asked me to deliver the eulogy on behalf of the family.  This morning, I delivered this eulogy in her honor.

While reserving my right to retract this post, I have decided — at the end of the day — to post my eulogy to her in hopes that it inspires you, the reader, to live each moment to its fullest until your very last breath, just as my mother did.

In the one-year mourning period that follows, please forgive me if I don’t blog for a while with quite the intensity I have in the past.

Thanks for reading, and for your continued support.

© Steve Jakubowski 2006

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 May It Please the Court? The US Supreme Court to Soon Decide Whether a “Bad Faith” Debtor “May” Do as the Bankruptcy Code Pleases

The following business bankruptcy-related articles, arranged by abstract ID number, are available for downloading from the Social Science Research Network:

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Chapman University School of Law’s Daniel B. Bogart: "Liability of Directors of Chapter 11 Debtors in Posession: ‘Don’t Look Back – Something May Be Gaining on You’." (Abstract ID: 918814)

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ASU’s Michael G. Hertzel and Zhi Li, USC’s Micah S. Officer, and NYU’s Kimberly J. Rodgers: "Inter-firm LInkages and the Wealth Effects of Financial Distress along the Supply Chain." (Abstract ID: 912795)

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UCLA Law School’s Lynn M. LoPucki and Joseph W. Doherty: "Rise of the Financial Advisors: An Empirical Study of the Division of Professional Fees in Large Bankruptcies." (Abstract ID: 913841)

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Mathias Hild and University of Virginia’s Matthew R. McBrady: "A Managerial Primer on the US Bankruptcy Code."  (Abstract ID 912038)

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Bennett Stewart: "The Real Reasons Enron Failed." (Abstract ID: 911690)

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3d Circuit Judicial Law Clerk Adam Levitin: "Finding Nemo: Rediscovering the Virtues of Negotiability in the Wake of Enron." (Abstract ID: 910571)

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University of Virginia’s Gerry Yeman and Marian Chapman Moore and UT-Austin’s Geraldine R. Henderson: "Snibbie®: Spit Happens(B)." (Abstract ID: 910114)

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Yair Jason Listokin: "Is Secured Debt Used to Redistribute Value from Tort Claimants in Bankruptcy? An Empirical Analysis."  (Abstract ID: 909225)

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University of Virginia’s Patricia H. Werhane and Julie Stocker: "Dow Corning Corportation(A): Breast Implant Design." (Abstract ID: 908143)

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University of Virginia’s Patricia H. Werhane:  "Dow Corning Corportation(B): Making A Decision." (Abstract ID: 908725)

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University of Virginia’s Patricia H. Werhane: "Dow Corning Corportation(C): Closure?" (Abstract ID: 908726)

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UCLA School of Law’s Lynn M. LoPucki and Joseph W. Doherty: "The Determinants of Professional Fees in Large Bankruptcy Reorganization Cases Revisted." (Abstract ID: 906184)

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Seton Hall University School of Law’s Stephen Lubben: "The Other Liquidation Decision."  (Abstract ID: 903399)

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Univ. of Kentucky College of Law’s Rutherford B. Campbell Jr. and Christopher W. Frost: "Managers’ Fiduciary Duties in Financially Distressed Corporations: Chaos in Delaware (and Elsewhere)." (Abstract ID: 900904)

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3d Circuit Judicial Law Clark Adam Levitin: "Rough Justice? The Nature and Limits of Equitable Subordination." (Abstract ID: 900444)

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Lousiana State Univ.’s Susan Kalinka: "In Re Ehmann: Bankuptcy Court Decision Portends Problems for Manager-Managed LLCs." (Abstract ID: 894571)

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Boston College’s Mauricio Soto, Alicia H. Munnel, Francesca Golub-Sass, and Francis Vitagliano: "Why are Healthy Employers Freezing Their Pensions?" (Abstract ID: 893214)

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Federal Reserve Board’s Daniel M. Covitz, Song Han, and Beth Anne Wilson: "Are Longer Bankruptcies Really More Costly?" (Abstract ID: 891486)

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NYU’s Kimberly J. Rodgers, Indiana Univ.’s Randall A. Heron, and Univ. of Iowa’s Erik Lie: "Financial Restructuring in Fresh Start Chapter 11 Reorganizations." (Abstract ID: 890693)

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Michael Nwogugu: "Structural Changes in the US Retailing Industry and Legal, Economic and Strategy Implications for the US Real Estate Industry." (Abstract ID: 883568)

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University of Virginina’s Samuel E. Bodily and Robert F. Bruner: "Enron: 1986-2001." (Abstract ID: 302155)

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Harvard Business School’s Michael Jensen: "Active Investors, LBOS, and the Privatization of Bankruptcy." (Abstract ID: 244152)

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Abstracts for each of these papers follow:

Continue Reading 22 Recent Business Bankruptcy-Related Articles of Interest Available on SSRN

Last year, in a post entitled "What Makes a CEO Perk Executory and the Circuits’ Split Over the Definition of an Executory Contract," I reported on an interesting sideshow to the Conseco bankruptcy involving the rights of Conseco’s ex–high flying ex-CEO Stephen Hilbert (and his enterprising wife, Tomisue Tomlinson) to four self-dealt "split-dollar" life insurance policies worth $87 million in the aggregate.  As noted in my prior post, Chicago’s Judge Robert W. Gettleman ruled that Chicago’s Bankruptcy Judge Carol W. Doyle was right in concluding that the policies were not "executory contracts" and were automatically terminated when Conseco filed for bankruptcy in December 2002.  He also agreed with Judge Doyle’s conclusion that "because Conseco was not attempting to enforce a contract, its material breach of the Agreements in December 2001, when it stopped making premium payments, was of no consequence."

Last Friday, the 7th Circuit affirmed Judge Gettleman’s decision, with Indiana’s own Judge Michael S. Kanne authoring the opinion on behalf of a unanimous panel.  Dick ex rel. Amended Hilbert Residence Maintenance Trust v. Conseco, Inc. (In re Conseco, Inc.), 2006 WL 2328635 (7th Cir. 8/11/06) (pdf). 

In affirming the lower courts’ rulings, the 7th Circuit made two important general statements regarding executory contracts in bankruptcy.  First, regarding when a contract is executory, the 7th Circuit stated:

Recognizing that the literal definition would render nearly all agreements executory, we determined that in order to effectuate Congress’s intent, § 365 should be applied only ‘to contracts where significant unperformed obligations remain on both sides.’  In other words, a contract is executory if each party is burdened with obligations which if not performed would amount to a material breach.  (Citation omitted.)

Second, as to what law applies in determining whether "the remaining obligations are significant," the 7th Circuit stated that the court should look to state law (and in this case, Indiana law) for answers.

Applying these general principles to the case, the 7th Circuit concluded on de novo review that the split-dollar policy agreements were not executory, reasoning as follows: 

Continue Reading 7th Circuit Rejects Ex-CEO Hilbert’s Claim that Certain of His Perks Were Executory When Conseco Filed Bankruptcy

Last December, I reported here on NY Bankruptcy Judge Stan Bernstein’s "must read" opinion in Chartwell Litigation Trust v. Addus Healthcare, Inc. (In re Med Diversified, Inc.), 334 B.R. 89 (Bankr. E.D.N.Y. 2005) (pdf), in which he barred the defendants’ valuation expert, Scott Peltz, from testifying in a $7.5 million fraudulent transfer case, finding both that Mr. Peltz failed to qualify as a business valuation expert and that his testimony was unreliable "because he did not employ the same level of intellectual rigor that characterizes the practice of an expert in the field of business valuation."

With no one left to rebut the plaintiff’s proposed valuation expert, one would have expected that the post-confirmation litigation trust would be laughing all the way to the bank, but last week, in this written opinion, Judge Bernstein put a pox on the plaintiff’s house by equally ripping the plaintiff’s expert, Robert Cimasi, and finding that his testimony and report also were "fundamentally unreliable."  Chartwell Litigation Trust v. Addus Healthcare, Inc. (In re Med Diversified, Inc.), 2006 WL 2242288 (Bankr. E.D.N.Y. 8/2/06).  In reaching this conclusion, Judge Bernstein pulled no punches, writing:

Continue Reading “A Pox On Both Your Houses”: NY’s Judge Stan Bernstein Next Tosses Plaintiff’s Business Valuation Expert in Another “Must Read” Decision

Time to take a break from BAPCPA case law outlines to consider some interesting BAPCPA-related scholarly articles that are available for downloading from the Social Science Research Network (sorted by SSRN ID No):

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University of Illinois College of Law’s Robert M. Lawless: "Bankruptcy Filing Rates After a Major Hurricane." (SSRN ID: 919861)

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University of Iowa College of Law’s Katherine M. Porter: "The Bright Side of BAPCPA." (SSRN ID: 919322)

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UNC-Chapel Hill School of Law’s Melissa B. Jacoby: "Bankruptcy Reform and Homeownership Risk." (SSRN ID: 918006)

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University of Wisconsin School of Law’s Bernard Trujillo: "Regulating Bankruptcy Abuse: An Empirical Study of Consumer Exemptions Cases." (SSRN ID: 914019)

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University of Arizona College of Law’s Jean Braucher: "A Fresh Start for Personal Bankruptcy Reform: The Need for Simplification and a Single Portal." (SSRN ID: 912561)

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Univ. of Missouri School of Law’s Michelle A. Cecil: "Bankruptcy Reform: What’s Tax Got to Do With It?" (SSRN ID: 912263)

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University of Wisconsin Law School’s William C. Whitford: "A History of the Automobile Lender Provision of BAPCPA." (SSRN ID: 907086)

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University of Illinois College of Law’s Robert M. Lawless: "The Paradox of Consumer Credit."
(SSRN: 906868)

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Federal Reserve Bank of Philadelphia’s Robert M. Hunt: "Whither Consumer Credit Counseling." (SSRN ID: 905263)

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N. D. Fisher: "The Effect of Unemployment Benefits, Welfare Benefits, and Other Income on Personal Bankruptcy." (SSRN ID: 904759)

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Harvard Law School’s Elizabeth Warren, UT-Austin Law School’s Jay Lawrence Westbrook and Univ. of Mich. Law School’s Teresa A. Sullivan: "Less Stigma or More Financial Distress: An Empirical Analysis of the Extraordinary Increase in Bankruptcy Fillings." (SSRN ID: 903355)

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Univ. of Michigan’s Dennis R. Capozza and UT-San Antonio’s Thomas A. Thomson: "Subprime Transitions: Lingering or Malingering in Default?" (SSRN ID: 902882)

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UT-Austin School of Law’s Ronald J. Mann: "Bankruptcy Reform and the ‘Sweatbox’ of Credit Card Debt." (SSRN ID: 895408)

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Univ. of Iowa College of Law’s Katherine M. Porter and Ohio University’s Deborah Thorne: "The Failure of Bankruptcy’s Fresh Start." (SSRN ID: 894453)

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Univ. of Nevada Las Vegas School of Law’s Judge Bruce Markell: "The Sub Rosa Subchapter: Individual Debtors in Chapter 11 after BAPCPA." (SSRN ID: 893582)

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Widener University School of Law’s Juliet Moringielio: "Has Congress Slimmed Down the Hogs?: A Look at the BAPCPA Approach to Pre-Bankruptcy Planning." (SSRN ID:892034)

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National Consumer Law Center’s Deanne Loonin and Elizabeth Renuart: "Life and Debt: A Survey of Data Addressing the Debt Loads of Older Persons and Policy Recommendations." (SSRN ID: 885398)

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NYU Law School’s Karen Gross and Fordham Univ. School of Law’s Susan Block Lieb: "Empty Mandate or Opportunity for Innovation? Pre-Petition Credit Counseling and Post-Petition Financial Management Education." (SSRN ID: 884487)

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UT-Austin’s Li Gan and Washington Univ.-St. Louis’ Tarun Sabarwal: "A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy." (SSRN ID: 847035)

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Abstracts for each of these papers follow:

 

Continue Reading Nineteen Recent BAPCPA-Related Articles of Interest Available on SSRN

Univ. of Richmond Law School’s Professor A. Benjamin Spencer, founder of the Split Circuits Blog (previously noted here), has posted today on a split recently discussed by Columbus Bankruptcy Judge John E. Hoffman, Jr. regarding the level of proof (whether "preponderance" vs. "clear and convincing") necessary to establish the existence of an intentional fraudulent transfer under Bankruptcy Code section 548(a)(1)(A) (which enables a trustee to avoid a transfer or obligation incurred "with actual intent to hinder, delay, or defraud" the debtor’s creditors).  See In re Canyon Systems Corp., 343 B.R. 615 (Bankr. S.D. Ohio 2006) (pdf)

According to Chicago’s Bankruptcy Judge Eugene R. Wedoff, the reason the preponderance standard must apply is because the US Supreme Court held in Grogan v. Garner, 498 U.S. 279, 286 (1991) (WL), that the "preponderance" standard of proof applies to all causes of action arising under the Bankruptcy Code “unless particularly important individual interests or rights are at stake.”  As Judge Wedoff explained in Baldi v. Lynch (In re McCook Metals, L.L.C), 319 B.R. 570 (Bankr. N.D. Ill. 2005) (pdf): 

There is a dispute over whether the higher, clear and convincing evidence standard applies to proof of actual fraud under 548(a)(1).  See Taylor v. Rupp (In re Taylor), 133 F.3d 1336, 1338 (10th Cir. 1998) [pdf].  The same dispute exists under the UFTA [i.e., the Uniform Fraudulent Transfer Act, adopted in most states (but not NY)].  See In re Solomon, 300 B.R. 57, 62-63 (Bankr. N.D. Okla. 2003) (holding that Oklahoma would apply the preponderance standard); Word Investments, Inc. v. Bruinsma (In re TML, Inc.), 291 B.R. 400, 436 [Bankr. W.D. Mich. 2003] (collecting authorities, and holding that Michigan would apply the clear and convincing standard under its version of the UFTA’s predecessor, the Uniform Fraudulent Conveyance Act). The Illinois courts do not appear to have addressed the question.

There is no apparent reason for treating the interests of a defendant in an actual fraud proceeding under § 548(a)(1) as more important than the interests at stake in Garner-the dischargeability of a debt under § 523(a)(2). 

Conversely, while there are cases holding that the "preponderance" standard applies in state law-based intentional fraudulent transfer actions, a strong majority of UFTA cases appear to favor application of the "clear and convincing" standard to such cases.  See, e.g., Grochocinski v. Zeigler  (In re Zeigler), 320 B.R. 362 (Bankr. N.D. Ill. 2005), where Chicago’s Bankruptcy Judge John Squires (author of these handy tips) wrote:

Continue Reading Proving an Intentional Fraudulent Transfer under the Bankruptcy Code and the UFTA: A Clear and Convincing Preponderance of Uncertainty

A month ago, as part of my continuing BAPCPA Consumer Outline series, I posted an outline section entitled Attorneys as ‘Debt Relief Agencies’ — Court Decisions and Constitutional Challenges, in which I reviewed various cases winding their way through the federal courts challenging the constitutionality of BAPCPA’s "debt relief agency" provisions.  Yesterday, Dallas’ District Court Judge David C. Godbey declared in Hersh v. United States, No. 05-2330-N (N.D. Tex. 7/26/05) (pdf), that BAPCPA did indeed transform consumer bankruptcy lawyers into "debt relief agents."  More significantly, however, Judge Godbey also held that BAPCPA unconstitutionally restricts an agent’s free speech rights in certain respects, but not in others.

In finding that BAPCPA does unconstitutionally restrict a debt relief agent’s free speech rights, Judge Godbey focused on Code section 526(a)(4), which prohibits a debt relief agent from "advis[ing] an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title."  In finding this provision "not sufficiently narrow," and thus an unconstitutional restriction of an agent’s free speech rights, Judge Godbey concluded:

Section 526(a)(4), therefore, is overinclusive in at least two respects:  (1) it prevents lawyers from advising clients to take lawful actions; and (2) it extends beyond abuse to prevent advice to take prudent actions.  Gentile, 501 U.S. at 1075; see a/so In re R. M. J., 455 U.S. 191, 203 (1982) (Even under intermediate scrutiny, "[s]tates may not place an absolute prohibition on certain types of potentially misleading information … if the information also may be presented in a way that is not deceptive."); Conant v. Walters, 309 F.3d 629, 638-39 (9th Cir. 2002) (pdf) (finding that government could not justify policy that threatened to punish a physician for recommending to a patient the medical use of marijuana on ground that such a recommendation might encourage illegal conduct by the patient). Thus, section 526(a)(4) of the BAPCPA imposes limitations on speech beyond what is "narrow and necessary."  Accordingly, the Court finds 11 U.S.C. § 526(a)(4) facially unconstitutional and denies the Government’s motion to dismiss Hersh’s claim.

Judge Godbey then invited the plaintiff-agent (the humble Princteon undergrad and UT JD-MBA grad, Susan B. Hersh) to "move for summary judgment on that claim once she amends her complaint to assert it explicitly."

Judge Godbey, however, refused to strike down as unconstitutional Code section 527, which requires debt relief agents to provide "assisted persons" with certain mandatory disclosures (also listed at p.9, fn.11) that were designed, on the one hand, to protect consumers from overreaching debt relief agents, while on the other hand, to scare the bejesus out of them when contemplating a bankruptcy filing.  In holding that these mandatory disclosures do not "unconstitutionally compel speech," Judge Godbey concluded:

Continue Reading Texas District Court Rules that BAPCPA’s Section 526(a)(4) Unconstitutionally Restricts a “Debt Relief Agent’s” Free Speech Rights, But Section 527 Doesn’t