Add Bankruptcy Judge Sidney Brooks, Chief Judge for the Bankruptcy Court for the District of Colorado, to the growing list of prominent judges (such as those mentioned here (Judge Monroe), here (Judge Markell), here (Judge Isgur), here (Judge Mark), and here (Judge Small)), who have become so exasperated with BAPCPA’s reckless disregard of the English language that they wrote an opinion not only deciding an issue of first impression under BAPCPA, but also in the process taking the opportunity to bash Congress for having passed such poorly drafted legislation and having failed to first consult with the frontline judges and bankruptcy professionals who now have to try and make sense out of it.
In In re TCR of Denver, LLC, 2006 WL 626156 (Bankr. D. Colo., 2/17/06) (pdf), Judge Brooks had this to say about Congress’s shoddy drafting:

This is a case where the language of BAPCPA passed by Congress tends to defy logic and clash with common sense. This is an example of a specific revision to the Bankruptcy Code, if followed by the Court and applied as Congress seems to intend — i.e., by way of strict construction — would result in an absurd decision and totally unworkable legal precedent. These drafting problems have the potential of bringing the bankruptcy system to a halt while debtors, creditors, and the courts try to figure out just exactly what Congress intended. This Court would add that it appears that the largely overlooked changes to the bankruptcy provisions related to non-consumer cases, such as the case presently before the Court, may sometimes equal the poor crafting of the consumer provisions. Moreover, serious and consequential constitutional questions may be looming on the horizon because of inartful drafting.

What problem was Judge Brooks lamenting? Well, most people don’t need a course in logic from Judge Markell to know there’s a world of difference between items in a list connected by the word “or” and items in a list connected by the word “and.” Apparently, however, BAPCPA’s scriveners learned no such lesson, and so it was left to Judge Brooks to explain, in principled fashion, why it was that Congress really meant to use the word “or” when it instead wrote “and” in modifying Bankruptcy Code section 1112(b) (which determines when a Court “shall” dismiss a chapter 11 proceeding or convert it to a chapter 7 liquidation).
Before BAPCPA’s enactment, Bankruptcy Code section 1112(b) provided that the Court may dismiss or convert a case (but was not required to do so) for “cause.” The old law identified 10 possible grounds for dismissal or conversion that may constitute “cause.” Notably, these 10 possible grounds for dismissal or conversion were listed in the alternative or “disjunctive,” connected only by the word “or,” so that any one factor alone could have provided sufficient “cause” for dismissal or conversion.
With BAPCPA, however, Congress made a change to Code section 1112(b) that — if the “plain meaning” were followed — would have produced absurd results for it would have required the Bankruptcy Court to dismiss or convert the case “for cause” only upon the confluence of 16 separate factors, all connected by the word “and.” As Judge Brooks noted, however, all these factors could never simultaneously exist within a corporate debtor. Indeed, he observed, if all factors were ever applicable to a single individual debtor, criminal prosecution of the individual — rather than mere dismissal of its bankruptcy case — would be the most appropriate remedy!
To fix the problem, Judge Brooks pushed plain meaning aside and ruled that “a party in interest does not need to establish [under BAPCPA’s new Code section 1112(b)(4)] all of the items constituting ’cause’ before a case can be dismissed by the Court.” Before doing so, however, he made sure to extend a very well-deserved compliment to the attorneys for both the creditor movant and the debtor. These briefs, he wrote, “might well win prizes for their rhyme.” You’ll find these simultaneous submissions (which I highly recommend) here (creditor’s attorney, Cynthia Kennedy of Lafayette, CO) and here (debtor’s attorney, Barry Arrington of Arvada, CO). The US Trustee’s brief, which Judge Brooks described as “well-reasoned” (but not poetic), is here.
Here’s some more of what Judge Brooks had to say about BAPCPA’s butchering job:

Continue Reading Denver’s Judge Sidney Brooks Joins the BAPCPA Bashing Bandwagon as the Litigants Submit Poetic Dirges Lamenting BAPCPA’s Incomprehensibility

As every Cub fan is painfully aware, hope springs eternal around this time every year in Chicago. This year, of course, is notable because — for the first time in recent memory — hope is springing (even if not eternally) among White Sox fans (though some label it irrational exuberance).
Baseball, however, isn’t all that’s providing hope for Chicago’s bankruptcy pros this April. Check out the following upcoming three bankruptcy conferences, which offer real hope for those trying to make sense of BAPCPA’s senseless provisions. These are:

  • April 7, 2006: The University of Illinois Law School is sponsoring this one-day conference entitled “Consumer Bankruptcy and Credit in the Wake of the 2005 Act,” featuring an all-star panel of judges and professors from the US and Canada;
  • April 17, 2006: The DuPage County Bankruptcy Committee is sponsoring this meeting (the 7th in a continuing series) on some important consumer bankruptcy issues spawned by BAPCPA, including requirements imposed by the US Trustee’s office on the debtor and its attorney;

    • and

  • April 27, 2006: The Commercial Law League of America, as part of its 76th Annual Meeting, is sponsoring this symposium at DePaul University College of Law (see p.4 of brochure) entitled “BAPCPA Six Months Later,” featuring prominent judges, lawyers, professors, and consultants from around the country.

© Steve Jakubowski 2006

Congratulations are in order for fellow blogger and friend, Francis X. Pileggi of the Delaware Litigation Blog, who’s made some new law in Delaware. As he reports here, the Delaware Supreme Court issued an opinion on March 14 (which favored Francis!) that is “must reading for anyone who drafts or needs to interpret an arbitration clause in an agreement governed by Delaware law.” Francis writes that in the opinion —

Delaware’s highest court affirmed the trial court and with pithy reasoning addressed the issues of: (i) who decides arbitrability if the agreement incorporates the rules of the American Arbitration Association (AAA); and (ii) based on the terms of the specific agreement at issue, whether the claims raised were governed by the arbitration clause. The Court determined that based on the terms of the particular agreement involved, the parties intended that the trial court determine the threshold issue of arbitrability, and that likewise injunctive relief should be decided by the trial court. CAVEAT: If the parties to an agreement simply incorporate the rules of the AAA without more, one should be aware that the AAA will likely be empowered to not only decide the issue of arbitrability, but the AAA will also be the forum to dispense equitable relief.

Coincidentally, just before reading Francis’s post on the ruling, I was reading this opinion from the Third Circuit on whether an arbitration proceeding violated the automatic stay, and — if so — whether both the panel’s deliberations and the resulting award were void. Acands, Inc. v. Travelers Casualty and Surety Co., 435 F.3d 252 (3d Cir., 1/19/2006).
What most caught my eye about this case, however, was the composition of the panel, which included former Third Circuit Judge — now Supreme Court Justice — Samuel A. Alito and Judge Milton I. Shadur, district court judge for the Northern District of Illinois (and himself a Chicago institution). A bankruptcy case resolved by these two judges seemed worth reading for this reason alone.
While not a “must read,” it’s a good read to be sure, for it reaffirms Judge Cristol’s reminder (mentioned here) that “a little neglect may breed mischief.” Here, it appears the only thing Travelers needed to have done to preserve the hard-fought benefits of painstaking arbitration proceedings (initiated by the debtor!) was to have filed a lift stay motion in the bankruptcy court in advance of filing a counterclaim against the debtor in those proceedings. Given that the debtor had initiated the arbitration proceedings, it is likely the bankruptcy court would have entered an order lifting the stay. Because Travelers failed to do so, the Third Circuit ruled, the proceeding was rendered a nullity, and the debtor — having lost at arbitration — was given a second bite at the apple.
In reaching this seemingly draconian result, the Third Circuit noted that the result was compelled because “no equitable power to grant relief from the automatic stay rests with the District Court. To the extent that an equitable exception to the automatic stay exists, it rests solely in the Bankruptcy Courts.”
Judge Alito wrote this about the nature of the case, and of the results compelled by the automatic stay:

Continue Reading Arbitration Clauses in Delaware and the Third Circuit Recently Examined

The Wall Street Journal’s James Haggerty wrote thi$ 3/11/06 article entitled “Millions Are Facing Monthly Squeeze On House Payments.” In it, he provides some disturbing data regarding the subprime lending industry, including a graph showing subprime lending originations increasing from $150 billion in 2000 to $650 billion in 2005. Haggerty writes:

In the hot housing market of recent years, many households took advantage of “affordability” mortgage loans — heavily promoted by lenders — that hold down payments for an initial period. Now the initial periods are coming to an end on many of these loans, leaving borrowers to face resets of their interest rates that can cause monthly payments to shoot up between 10% and 50%.
More than $2 trillion of U.S. mortgage debt, or about a quarter of all mortgage loans outstanding, comes up for interest-rate resets in 2006 and 2007, estimates Moody’s Economy.com, a research firm in West Chester, Pa….
A recent study by First American Real Estate Solutions, a unit of title insurer First American Corp., projects that about one in eight households with adjustable-rate mortgages that originated in 2004 and 2005 will default on those loans….
For a study released in February, Dr. Cagan examined adjustable-rate first mortgage loans made in 2004 and 2005, including refinancings. He figures about 7.7 million of these loans are outstanding, representing $1.888 trillion of debt.
About 1.4 million of those households face a jump of 50% or more in their monthly payments once their initial low-payment periods run out, Dr. Cagan says, and an additional 1.6 million face smaller increases that are still likely to strain their finances.
Assuming that home prices stay around current levels and interest rates don’t rise sharply, Dr. Cagan figures about one million households eventually will default and lose their homes to foreclosure. That would cause about $110 billion of losses for lenders, he says.
Lenders and the economy as a whole could easily cope with such losses, Dr. Cagan says, though it would be devastating for some families and painful for some investors who bought securities backed by the riskiest loans. “It won’t happen all at once,” Dr. Cagan says. “It will be spread out over several years.”

History has shown that “hockey stick” growth patterns in the subprime industry are more likely caused by looser adherence to underwriting standards than by increased demand for subprime products among qualified borrowers. If, in fact, looser credit standards have driven the current exponential growth since 2000 in subprime lending, then waves of defaults will be “tsunami-like” in proportion. That’s what happened to the subprime auto lenders of the 1993 – 1997 era (e.g., Mercury Finance, First Merchants Acceptance Corp., National Auto Financial, Reliance Acceptance). Let’s hope it’s not the case here, but don’t hold your breath that its not. Either way, the squeeze continues.
3/22/2007 Update:: See my latest update on the subprime squeeze here.
© Steve Jakubowski 2006

A recent comment here asked whether one can get away with getting credit counseling just one day in advance of the bankruptcy filing. The cases answer this question with a resounding NO!
As with most statutory schemes, however, it doesn’t take long (as noted here) for a case to come along that gives a judge an opportunity to find an exception to the general rule.
Another judge finding such an exception is Judge A. Jay Cristol, Chief Judge Emeritus of the Bankruptcy Court for the Southern District of Florida (and author of this classic ode (in which he denied his own sua sponte motion) and this highly acclaimed book on the so-called “Liberty Incident”).
In In re Petit Louis, 2006 WL 538635, (Bankr. S.D. Fla. 3/1/06) (pdf), the debtor — who couldn’t understand English — requested a waiver of the credit counseling requirement on the basis that none of the approved counseling agencies could speak to him in his native Creole. In the alternative, he asked the Assistant US Trustee to provide a Creole translator, or decertify the approved counseling agencies for failure to provide Creole speaking counselors. The Assistant US Trustee, for her part, stuck close to the party line and maintained several different reasons as to why she lacked authority to waive the pre-bankruptcy counseling requirement, decertify any counseling agencies approved for the district, or provide a free translator (these rapid-fire, hard-nosed arguments alone make the case worth reading).
In meting out a small — but significant — measure of justice, Judge Cristol actually bucked the trend and waived the pre-filing credit counseling requirement for this indigent, Creole-speaking debtor. He wrote:

Now, this is a matter that probably could go either way. You could take the position that since it is the custom of the Court in proceedings not to provide interpreters, that this policy will be carried over to the issue of credit counseling.
On the other hand, since the credit counseling is a new provision and it is provided for a particular purpose, the position could be taken that it should be strictly construed and that, if the credit counseling agency cannot provide the counseling in the debtor’s language and the debtor cannot afford to hire a translator, there is no possibility the debtor can get the credit counseling.
Therefore, this Court grants the waiver of the credit counseling requirement in this case because of the inability of any of the certified credit counseling agencies to provide pre-bankruptcy counseling in Creole.

Expect to soon see a request for waiver of the credit counseling requirement that combines Judge Cristol’s reasoning with the “BAPCPA is incomprehensible” reasoning (reported here, here, and here) and argues that since BAPCPA is the legislative equivalent of Creole, the credit counseling requirement should be waived for that hapless debtor too.
For those interested, here are a few other classic quips from Judge Cristol’s bankruptcy opinions and proceedings that will surely make you laugh (and please don’t hesitate to contribute your own references or personal memories in the comments below):

Continue Reading Say What? … Florida’s Judge Jay Cristol Waives Credit Counseling Requirement for Creole-Speaking Debtor Who Couldn’t Understand English

Jonathan Alper of the Florida Bankruptcy Law Blog considers here the following situation involving an individual chapter 7 debtor client where the bankruptcy trustee sought to control the business in which the debtor was the sole shareholder:

The debtor’s assets included 100% of the stock in an operating business with assets including real property. The question arose concerning the debtor’s operation of the business after filing personal bankruptcy. Since the debtor’s stock is part of the bankruptcy estate, does the trustee by virtue of owning all the stock assume control of the business? Or, can the debtor as president of the business operate the business including disposing of business assets after filing? In this case, the trustee took the position that the debtor’s bankruptcy did not act as a stay against business operations.

Similar questions were addressed this week by Judge Mary P. Gorman of the Bankruptcy Court for the Central District of Illinois in Swartz v. Billingsly (In re Billingsley), 2006 WL 538437 (Bankr. C.D. Ill., 3/6/2006) (pdf). The difference between the situation facing Judge Gorman and that posited by Jonathan is that in Judge Gorman’s case, the debtor only owned 50% of the non-debtor corporation’s stock, whereas in Jonathan’s example, the debtor owned 100% of the non-debtor’s stock.
This difference is significant because when the trustee is the sole shareholder, it should have the freedom to run the non-debtor corporation as it pleases (subject to compliance with state law corporate formalities). Conversely, when the trustee controls 50% or less of the non-debtor’s equity, significant decisions involving the non-debtor would require the consent of other equity participants, and thus the trustee could not make unilateral decisions regarding the non-debtor corporation’s affairs.
Here’s what Judge Gorman said:

Continue Reading Illinois Bankruptcy Court Denies Trustee’s Attempt to Exercise Control Over Nondebtor Corporation’s Assets

In an article entitled A Matter of Style, 19-SEP Am. Bankr. Inst. J. 32 (2000), San Antonio’s Bankruptcy Judge Leif M. Clark wrote these noteworthy remarks:

A lawyer is more than a mouthpiece, more than an agent, more than a mere compendium of legal truths. A lawyer is more than a mere translator of a client’s desires. A lawyer is representative not just of the client’s interests, but in some ways the embodiment of the client. It is for that reason that a lawyer’s style is more than just stylistic. How a lawyer comes off in court can all too often dramatically affect the perception the judge is likely to develop of both the client and the merits of the client’s position in a case. In short, style matters. Some styles work better than others, of course. Every judge has their favorite style, as well as styles that rub them the wrong way. (Emphasis added).

So what does Judge Clark do when someone’s style REALLY rubs him the wrong way? He calls him the bankruptcy equivalent of Adam Sandler in the movie Billy Madison, and writes this:

Before the court is a motion entitled “Defendant’s Motion to Discharge Response to Plaintiff’s Response to Defendant’s Response Opposing Objection to Discharge.” As background, this adversary was commenced on December 14, 2005 with the filing of the plaintiff’s complaint objecting to the debtor’s discharge. Defendant answered the complaint on January 12, 2006. Plaintiff responded to the Defendant’s answer on January 26, 2006. On February 3, 2006, Defendant filed the above entitled motion. The court.cannot determine the substance, if any, of the Defendant’s legal argument, nor can the court even ascertain the relief that the Defendant is requesting. The Defendant’s motion is accordingly denied for being incomprehensible. [FN 1]

[FN 1] Or, in the words of the competition judge to Adam Sandler’s title character in the movie, “Billy Madison“, after Billy Madison had responded to a question with an answer that sounded superficially reasonable but lacked any substance,

Mr. Madison, what you’ve just said is one of the most insanely idiotic things I’ve ever heard. At no point in your rambling, incoherent response was there anything that could even be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.

Deciphering motions like the one presented here wastes valuable chamber staff time, and invites this sort of footnote.

I’m sure many judges have often felt that litigants (pro se or not) deserve to be thrashed as Adam Sandler was in Billy Madison. I suspect, however, that judges are more often inclined to invoke that most famous of movie lines, “Frankly, my dear, I don’t give a damn.”
Special thanks to an anonymous donor for the tip to Judge Clark’s ruling.
[NB: Judge Clark was one of the first to rip BAPCPA’s anti-consumer protection provisions when he penned an article in 2003 entitled Things Change, 22-MAY Am. Bankr. Inst. J. 40 (2003). He said:

Continue Reading Judge Leif Clark Cites to Adam Sandler’s “Billy Madison” in Dismissing Pro Se Defendant’s Convoluted Motion

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]:

  • 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.

You can also find more background reading on the case at my posts here, here, here, and here.
Finally, Anna’s reply brief, filed last week, can be found here (courtesy of SCOTUSblog). It provides the following two short — but significant — retorts:

Continue Reading Anna Nicole Smith Case Roundup