Special thanks to Alex and NPR for the call and their plugging the blog!

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Rick B. Antonoff, BANCREDIT AND THE APPLICATION OF BANKRUPTCY CODE SECTION 108 IN CHAPTER 15 CASES, 26-JAN Am. Bankr. Inst. J. 48

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Cory Aronovitz and Jon Topolewski, CASENOTE: THE EMERALD CASINO FIASCO, 40 J. Marshall L. Rev. 1305

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Geoffrey L. Berman and Catherine E. Vance, STATE LAW PREFERENCE ACTIONS: STILL ALIVE AFTER SHERWOOD PARTNERS V. LYCOS, 26-JAN Am. Bankr. Inst. J. 24

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Bert Black and Robert L. Whitener, DIRECTOR LIABILITY FOR BAD JUDGMENT AND BAD FAITH, 43-JUN Trial 26

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C.R. "Chip" Bowles Jr., THE FIRST SMALL STEP ON A LONG JOURNEY: THE FINAL REPORT ON THE CHAPTER 11 PROFESSIONAL FEE STUDY, 26-JAN Am. Bankr. Inst. J. 16

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Timothy T. Brock, HOW THE ASSAULT ON OFFSHORE HAVENS IN BEAR STERNS UNDERMINES THE NEW CHAPTER 15: PART 1, 26-JAN Am. Bankr. Inst. J. 34

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Karen Codry, I MAY BE PARANOID, BUT THEY'RE STILL OUT TO GET ME: NEGOTIATINGTHE INTERFACE OF E-DISCOVERY AND CONSUMER PRIVACY, 26-JAN Am. Bankr. Inst. J. 10

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Richard J. Corbi, DOES THE SEC HAVE STANDING AS A CREDITOR?, 26-JAN Am. Bankr. Inst. J. 32

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Frank B. Cross, THE SIGNIFICANCE OF STATUTORY INTERPRETIVE METHODOLOGIES, 82 Notre Dame L. Rev. 1971

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H. Slayton Dabney Jr. and Richelle Eisendrath, WHEN HEDGE FUNDS COMPETE, 26-JAN Am. Bankr. Inst. J. 22

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Ryan Preston Dahl, COLLECTIVE BARGAINING AGREEMENTS AND CHAPTER 9 BANKRUPTCY, 81 Am. Bankr. L.J. 295

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Michael D. Fielding, PRACTICAL POINTERS FOR YOUR PRACTICE: BANKRUPTCY, ESI AND THE ATTORNEY-CLIENT PRIVILEGE, 26-JAN Am. Bankr. Inst. J. 52

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Julia Patterson Forrester, STILL CRAZY AFTER ALL THESE YEARS: THE ABSOLUTE ASSIGNMENT OF RENTS IN MORTGAGE LOAN TRANSACTIONS, 59 Fla. L. Rev. 487

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Shelby D. Green, TO DISCLOSE OR NOT TO DISCLOSE? THAT IS THE QUESTION FOR THE CORPORATE FIDUCIARY WHO IS ALSO A PENSION PLAN FIDUCIARY UNDER ERISA: RESOLVING THE CONFLICT OF DUTY, 9 U. Pa. J. Lab. & Emp. L. 831

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Andrew Gold, Sidney Swinson, and Ivan Reich, IN THE ZONE: FIDUCIARY DUTIES AND THE SLIDE TOWARDS INSOLVENCY, 5 DePaul Bus. & Com. L.J. 667

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Diana L. Hayes, BANKRUPTCY LAW: AN EXERCISE IN STATUTORY INTERPRETATION--STAYING TRUE TO THE BROAD AIM OF THE CODE OR IGNORING PLAIN MEANING AND PURPOSE?, 59 Fla. L. Rev. 697

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Melissa B. Jacoby, INDIVIDUAL HEALTH INSURANCE MANDATES AND FINANCIAL DISTRESS: A F
EW NOTES FROM THE DEBTOR-CREDITOR RESEARCH AND DEBATES, 55 U. Kan. L. Rev. 1247

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Michael Korybut, TEACHING SELECTED ETHICAL ISSUES IN BANKRUPTCY,  51 St. Louis U. L.J. 1317

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Stuart Larsen, NINTH CIRCUIT BAP TEACHES CREDITORS SOMETHING NEW ABOUT SECTION 503(B)(9) PRIORITY CLAIMS, 26-JAN Am. Bankr. Inst. J. 50

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Margit Livingston, CORPORATE GOVERNANCE: THE INS AND OUTS FOR DS AND OS, 5 DePaul Bus. & Com. L.J. 639

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Hugh M. McDonald, Todd S. Fishman, and Laura Martin, LAFFERTY'S ORPHAN: THE ABANDONMENT OF DEEPENING INSOLVENCY, 26-JAN Am. Bankr. Inst. J. 1

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Richard E. Mikels and Adrienne K. Walker, IN RE IRIDIUM OPERATING LLC AND ITS IMPACT ON SPM CARVE-OUT ARRANGEMENTS, 26-JAN Am. Bankr. Inst. J. 38

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Seymour Moskowitz, DISCOVERING DISCOVERY: NON-PARTY ACCESS TO PRETRIAL INFORMATION IN THE FEDERAL COURTS 1938-2006, 78 U. Colo. L. Rev. 817

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Hon. Geraldine Mund, APPOINTED OR ANOINTED: JUDGES, CONGRESS, AND THE PASSAGE OF THE BANKRUPTCY ACT OF 1978 PART THREE: ON THE HILL, 81 Am. Bankr. L.J. 341

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Lisa A. Napoli, REAFFIRMATION AFTER THE BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005: MANY QUESTIONS, SOME ANSWERS, 81 Am. Bankr. L.J. 259

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Dr. Thomas L. Porter and Dr. Airat Chanyshev, UNITED STATES: THE SUBPRIME MELTDOWN: UNDERSTANDING ACCOUNTING-RELATED ALLEGATIONS (PART II OF A NERA INSIGHT SERIES), Mondaq ID: 55304

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Frederick (Fritz) Reed, Lee McCorkle, William (Bill) Schorling, HERE AND NOW: TRENDS IN THE D&O WORLD, 5 DePaul Bus. & Com. L.J. 705

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Jean R. Robertson and Karen A. Visocan, CONSIDERATIONS FOR NONPROFIT HEALTH CARE FACILITY DIRECTORS AND OFFICERS BEFORE FILING, 26-JAN Am. Bankr. Inst. J. 20

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Faten Sabry and Thomas Schopflocher, UNITED STATES: THE SUBPRIME MELTDOWN: A PRIMER (PART I OF A NERA INSIGHT SERIES), Mondaq ID: 50464

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Luis Salazar, DON'T FEAR THE CONSUMER PRIVACY OMBUDSMAN, 26-JAN Am. Bankr. Inst. J. 42

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Dr. Israel Shaked, Paul D'Arezzo and David Plastino, LIQUIDITY AND CONTROL: VALUATION DISCOUNTS/PREMIUMS AND THE BANKRUPT FIRM, 26-JAN Am. Bankr. Inst. J. 54

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Sharif A. Shivji, Anton Smith, and Adrian Walters, THE CROSS-BORDER INSOLVENCY REGULATIONS 2006: AN EMERGING JURISPRUDENCE, 26-JAN Am. Bankr. Inst. J. 40

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Carmel Sileo, SECOND CIRCUIT EXPANDS AUDITORS' LIABILITY FOR SECURITIES FRAUD, 43-JUN Trial 15

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Stephen C. Stapleton, A NEW STANDARD FOR RULE 12(B)(6), 26-JAN Am. Bankr. Inst. J. 18

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David P. Stromes, THE EXTRATERRITORIAL REACH OF THE BANKRUPTCY CODE'S AUTOMATIC STAY: THEORY vs. PRACTICE, 33 Brook. J. Int'l L. 277

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Deborah L. Thorne, NO GOOD DEED GOES UNPUNISHED: PROVISIONAL LIENS ON DEPOSITS, PREFERENCE LIABILITY AND UCC SECTION 4-210, 26-JAN Am. Bankr. Inst. J. 36

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Stephen J. Ware, “MEDICAL-RELATED FINANCIAL DISTRESS” AND HEALTH CARE FINANCE: A REPLY TO PROFESSOR MELISSA JACOBY, 55 U. Kan. L. Rev. 1259

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Jay Lawrence Westbrook, AVOIDANCE OF PRE-BANKRUPTCY TRANSACTIONS IN MULTINATIONAL BANKRUPTCY CASES,  42 Tex. Int'l L.J. 899

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Bruce H. White and Bryan L. Elwood, ARE YOU SAILING IN SAFE HARBORS? AN OVERVIEW OF SAFE-HARBOR PROTECTIONS, 26-JAN Am. Bankr. Inst. J. 44 

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Clifford J. White III and Thomas C. Kearns, BAPCPA UPDATE: DEBTOR AUDIT PROCEDURES AND THE REPORTING OF MATERIAL MISSTATEMENTS, 26-JAN Am. Bankr. Inst. J. 14

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Just after midnight early today, Judge Peck entered this order approving the sale of Lehman's broker-dealer subsidiary (LBI) to Barclays and overruling all objections to the sale (identified here).  Note the reference in the order to a first amendment to the asset purchase agreement and to a subsequent letter agreement modifying the original asset purchase agreement.  Neither of these amendments have yet been posted, but the net effect of them appears to have resulted in a $400 million reduction in the purchase price, according to this news report. 

The "Purchased Assets" were sold free and clear of "Interests," including "those that purport to give any party a right or option to effect any forfeiture, modification or termination of the Debtors' interests in the Purchased Assets."  Interests also presumably include the Lehman Europe Joint Administrators' demand (described here) for a return of the $8 billion in overnight funds swept by the Debtor in advance of the filing (though it's doubtful that any of those funds actually went into LBI and thus would be implicated by the sale).

The order also expressly released Barclays from any potential successor liability claims, including taxes, which means that the Debtors will be stuck paying the transfer taxes (to the glee of New York State, per this recent Supreme Court case).  Counterparties to contracts being assumed will have until 10/3/08 to file an objection to the proposed cure amount. 

The sweeping change in the economic and political landscape after the announcement of the government's bailout prompted Debtor's counsel to say in Court that "[t]his is a tragedy - maybe we missed the RTC by a week," to which Judge Peck responded, "[t]hat occurred to me, as well; Lehman Brothers became a victim, in effect the only true icon to fall in the tsunami that has befallen the credit markets."  But, as Rod Stewart sang, no one's gonna help "a victim of a shotgun wedding."

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The inset cartoon is from the Business Cartoon Collection of Shannon Burns, to whom special thanks is owed for granting me permission to post it here.

Other more interesting insights into the case are found in objections filed by parties concerned that non-debtor assets of various subsidiaries of the Debtor are included or implicated in the sale.  One significant focus (as here and here) was Section 2.1 of the Asset Purchase Agreement, which broadly defined the "Purchased Assets" to include "all of the assets of [the Debtor] and its subsidiaries used in connection with the business.  Several subsidiary creditors filed objections to the sale of assets that were in nondebtor subsidiaries and thus not "property of the debtor" that could be sold free and clear. 

Mickey Mouse's objection, filed by Marty Bienenstock, is the most elegant and comprehensive of all from a bankruptcy perspective.  It raises the same concerns about selling nondebtor assets, and adds a range of related intercompany issues, most significant of which is the concern that entry of the sale order will extinguish the rights in third parties to recover assets of nondebtor subsidiaries that shouldn't have been included in the sale.  The relief requested thus "would be an illegal, sub rosa substantive consolidation," Mickey complains.

Finally, there's this lengthy and well-documented objection from the Joint Administrators of the Lehman European Group Administration Companies, who were appointed on the day of the bankruptcy filing by the English High Court of Justice pursuant to the English Insolvency Act of 1986.  The Joint Administrators have hired a team of 200 PWC accountants and consultants, supported by a team of 100 lawyers, to manage these European related entities.  The Joint Administrators say they support the sale, but have concerns about its impact on shared IT and administrative systems, books and records, confidentiality requirements.  And then, of course, there is that matter of the Debtor's having swept $8 billion in funds last weekend from Lehman Europe and not returning the funds as the Debtor typically did every Monday morning, but couldn't this past Monday because of the intervening bankruptcy filing.  Respectfully, the Joint Administrators ask, that money (and possibly more) should be returned to its rightful owner.

Have a good weekend all, and thanks for reading!

Barclays' offer was conditioned upon the deal's closing no later than Tuesday, September 23.  If you're planning this year's National Conference of Bankruptcy Judges, Barclays drop dead date couldn't have been timed better since the conference begins the next day and, coincidentally, Judge Peck is the featured speaker on two panels: one entitled, "Exit Strategies for the Subprime Mortgage Crisis"; the other entitled, "The Impact of the Subprime Meltdown: From a Ripple to a Tsunami."  Those panels alone are worth the price of admission.

As for the sale dynamics, after an extended hearing into the evening yesterday, Judge Peck entered this order approving Lehman's motion to set bid procedures and set the hearing to approve the sale for tomorrow, September 19, at 4:00 p.m.  "Qualified bidders" will have until the hearing to submit a bid that must, at a minimum, provide for:

• a $450 million DIP facility (comparable to this one [Order / Agreement] just approved on an interim basis, subject to a final hearing on October 2); and

• the replacement by no later than the opening of business on 9/22/08 of all bridge financing advanced to Lehman by the Federal Reserve Bank of New York (and, p.s., good luck finding about $50 billion owed to the Federal Reserve on two days' notice).

The approved sale procedures attached as an Exhibit to the Order further cement the deal in that they include a highly unusual "no-shop" / "no solicitation" provision, which most practitioners and judges would agree are generally forbidden in bankruptcy.  The procedures also place Lehman in the impossible position of having to provide 48 hours notice of its intent to enter into a competing transaction, though there's less than 48 hours left until the sale hearing (not that it matters, since no one else is stepping forward).

Finally, the sale order provides that the hearing shall not be adjourned or canceled without the prior consent of the SEC, the CFTC, and the Federal Reserve Bank of NY.  If nothing else, this provision at least guarantees that senior officials from these agencies won't be working non-stop for their 5th consecutive weekend.

So as Barclays enters the "major leagues," accompanied by England's national anthem "blaring over the loudspeakers," let us pay tribute to the hard working--soon jobless--people who made Lehman great and to the ordinary people who plowed their hard-earned savings into Lehman securities only to be left "holding the bag."  May G-d bless them, and may G-d bless America.

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Rumor had it that former Weil Gotshal partner Marty Bienenstock (now with Dewey & LeBoeuf, NY) would be declared the winner of the Committee beauty pageant (described here), but lo and behold, as reported here, the prize went to Milbank, Tweed, Hadley & McCloy, which also represented the Creditors' Committee in Enron and Refco.  Congratulations!

According to the DIP financing motion, Barclays is offering to lend up to $450 million on a senior secured basis, collateralized by a first priority lien on Lehman's equity interests in Neuberger Berman Holdings LLC. This loan appears to be a bridge to a sale of Lehman Brothers, Inc. (LBI), Lehman's primary broker-dealer subsidiary, to Barclays for $1.7 billion cash and assumption of certain liabilities and contracts (the cure costs of which will add an additional approximately $1.5 billion to the purchase price).  The $1.7 billion cash consideration is based on a payment of $250 million cash plus the appraised values of Lehman's NY headquarters at 745 Seventh Ave. and the Cranford and Piscataway NJ Data Centers, which will presumably bear the Barclays logo after closing.

Barclays also has agreed to offer employment to about 10,000 North American-based employees of LBI (or about 70% of the North American workforce) for 90 days, to pay their Christmas annual bonus, and to provide normal severance benefits for any worker terminated based on "reductions in force" or "job eliminations" (all at a projected cost of about $2.5 billion).  Section 3.3 of the Agreement provides for a purchase price adjustment (which could favor either Lehman or Barclays depending on market results) of up to $500 million on the one-year anniversary of closing based on profits or losses realized in various assumed long or short "Positions" (the "Long Positions" alone have a book value today of about $70 billion).  Lehman Commercial Paper, Inc., a more toxic division, is excluded from the deal. 

Time is of the essence for the sale, the motion states (and so does Milbank's Luc Despins), and the proposed Purchase Agreement contemplates that prior to the sale hearing, LBI will consent to commencement of a case under the Securities Investor Protection Act of 1970 and appointment of a SIPA trustee, which itself will have to ask the consent of the SIPA Court for the sale. 

The break-up fee is $100 million plus $25 million in reimbursable expenses.  In addition, the motion proposes a "KERP" retention plan for about 208 employees, of whom 200 are designated as "key to the success of the business" and 8 as "critical to the success of the business."  Though the motion doesn't identify who these employees are, my guess is that Dick Fuld (see Congressional invitation here) is not on that list.

The closing date for the sale is September 23, which is like a nanosecond given the size of the deal, but it's probably just slightly less time than Barclays had to consider the deal.  We'll see if the Judge authorizes such a short a window, and much will depend on the marketing process that occurred in advance of the filing and the expressions of interest generated.  $5.7 billion is a big nut, and in today's environment when cash is king and flowing like molasses as the market loses about 5% in value a day, it'll be a tough number to beat.

Evidencing the furious pace of negotiations is the fact that the executed draft of the Asset Purchase Agreement attached to the sale motion is a marked-up "confidential" draft that was re-marked as the "Execution Copy."  The documents is remarkably loaded with substantive handwritten interlineations and cross-outs on virtually every page.  Rarely does one get this kind of insight into final, last-minute negotiations.  The draft line on the bottom of the page says it's "v.2," suggesting that the execution copy was the third and final run.

Those interested in seeing who's on the "A" list of people getting notice of the proceedings will find the current service list here.

My previous Lehman posts are here (Lehman's Free Fall), here (Bankruptcy Update), and here (Committee Formed).

Thanks for reading, and thanks to those who have called or written with comments, kudos, and suggestions!

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Following up from yesterday's post, many are searching for a list of the creditors appointed to the Lehman Creditors' Committee.  The US Trustee has just filed this notice identifying the following seven creditors that have been appointed to the Committee:

• Wilmington Trust, as Indenture Trustee (Not Listed in Voluntary Petition)

• The Bank of NY Mellon, as Indenture Trustee ($155 Billion in Bond Debt)

• Shinsei Bank, Ltd. ($231 Million in Bank Debt )

• Mizuho Corporate Bank, Ltd.  as Agent ($289 Million in Bank Debt)

• The Royal Bank of Scotland, PLC (Not Listed in Voluntary Petition)

• Metlife (Not Listed in Voluntary Petition)

• RR Donnelley & Sons (Not Listed in Voluntary Petition)

With all the late nights at Lehman, I'm surprised the coffee vendor isn't on the list.

It doesn't appear that the Committee has selected counsel, which isn't surprising given how late the meeting went last night, according to this news report.

9/17/08 Update:  Follow up post on today's events here.

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Following up on yesterday's post...

The case has been assigned to Judge James M. Peck (author of this important decision in the long-running Iridium litigation), who in 2006 adopted a lifestyle change in ascending to the bench and walking away from Schulte Roth & Zabel's highly regarded bankruptcy group, where he was co-chair.  Here's the latest docket showing no new filings other than routine appearances by interested parties.  Here's the voluntary petition, showing the top thirty unsecured creditors at the holding company level range from an aggregate $155 billion in bond debt to about $3 billion in aggregate bank debt.

Meanwhile, according to this notice from the US Trustee's office, the organizational meeting of unsecured creditors is set for 6:00 p.m. on September 16 at the Helmsley Park Lane Hotel.  The purpose of the meeting is to form a creditors' committee, which will bestow upon one lucky firm one of bankruptcy's most coveted prizes--the role of committee counsel.  Those wanting a sense of what these events are like should read Peter Lattman's rundown of the Calpine "beauty pageant."  I suppose you could say it's a place where counsel puts lipstick on a pig (i.e., the debtor) in hopes of having committee members believe that counsel is best suited to maximize value for the benefit of creditors. 

You can bet counsel will review with Committee members the whopping $5.7 billion in Christmas bonuses that were approved by this board and paid for management's stellar performance in [not taking the writedowns that may have impaired their bonuses in] 2007.  For more insight into this issue, see Professor Adam Levitin's recent post on the Credit Slips Blog.

Finally, special thanks to Dan Slater of the WSJ Law Blog, Francis Pileggi of the Delaware Corporate and Commercial Litigation Blog, and Kevin LaCroix of The D & O Diary for their kind links that helped set this blog's record-breaking numbers for the day (3,435 page views from 1,643 unique sites).

Good luck to all!  We sure need it!

In most endeavors, it's important to start off on the right foot.  I don't think you'd call the Lehman bankruptcy filing today one such start.  A well-planned bankruptcy case is orchestrated so that the early days of the case represent a seamless flow between the pre- and post-bankruptcy world.   Calpine's "first-day pleadings" (discussed at length here) reflected the kind of significant planning that would avoid a financial meltdown of the firm.

By contrast, Lehman Brothers Holdings, Inc.'s chapter 11 filing early this morning (docket here / petition here) shows that Lehman's executives must have hired Weil Gotshal as late as possible to avoid any hint to its employees or the market that bankruptcy was possible.  It played chicken, and lost.  Lehman filed only three motions to open the case, and none are substantive: 

• this motion asks the Court to enforce the automatic stay provisions of Code Section 362 (and is in itself a curious motion since the law in the 2nd Circuit is that all actions in violation of the automatic stay are void, not voidable);

• this motion asks the Court to extend the time to file required lists and schedules; and

• this motion asks the Court to waive the requirement that a filing include a list of creditors. 

Like Drexel before it, only the holding company filed, so it will be "business as usual" for all of Lehman Holdings' subsidiaries, none of whose activities are directly subject to the protections of the automatic stay or the Bankruptcy Code and Court generally (SIPC confirmation here).

Maybe, in the end, preparation of a well-executed contingency plan wouldn't have mattered much since, in BAPCPA, Congress (as discussed at length here) amended or added various provisions to the Bankruptcy Code that enabled a nondebtor party–without limitation–to terminate, liquidate or accelerate its securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements or master netting agreements with the debtor.  As noted in my previous post on BAPCPA's effectively excluding Wall Street's financial firms from the benefits of bankruptcy, Columbia Law professor Edward Morrison, with Columbia GSB economics legend Franklin Edwards, argued 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."  They argued that "[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 pp.1, 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.

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.

Tensions in the financial markets on this morning are greater than I have ever seen in nearly 25 years of practice.  Guess we'll find out soon just how much of a mistake BAPCPA's changes were for the financial world. 

Good luck to all!

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The "free fall" image is taken from the "Free Fall" album by Lish, an Israeli band that, according to this reviewer, "has been focusing on extra polishing their unique blend of powerful, sweet and emotional progressive beats, which make wonders on the dance floor."  In other words, Disco 2.0 remains alive and well in Israel, in case you were worried.

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UNLV's Nancy B. Rapoport and Forensics Consulting Solutions' Roland J. Bernier III, "(Almost) Everything We Learned about Pleasing Bankruptcy Judges, We Learned in Kindergarten" (Abstract ID: 1157103)

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Stetson University's Michael S. Finch, "Giving Full Faith and Credit to Punitive Damage Awards: Will Florida Rule the Nation?" (Abstract ID: 1143578)

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Stetson University's Theresa J. Pulley Radwan, "Trustees in Trouble: Holding Bankruptcy Trustees Personally Liable for Professional Negligence" (Abstract ID: 1138069)

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Stetson University's Theresa J. Pulley Radwan, "Limitations on Assumption and Assignment of Executory Contracts by 'Applicable Law'" (Abstract ID: 1138056)

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Temple University's S. Todd Brown, "Non-Pecuniary Interests and the Injudicious Limits of Appellate Standing in Bankruptcy" (Abstract ID: 1114917)

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Santa Clara University's Alexander J. Field, "Bankruptcy, Debt, and the Macroeconomy, 1919-1946" (Abstract ID: 1109259)

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UNLV's Tuan Samahon, "Are Bankruptcy Judges Unconstitutional? An Appointments Clause Challenge" (Abstract ID: 1108694)

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Univ. of Chicago's Randall C. Picker, "'Twombly', 'Leegin' and the Reshaping of Antitrust", (Abstract ID: 1091498)

***

Abstract summaries for each of the foregoing articles follow below:

In this essay, we demonstrate that most ethics violations (at least the ones that irritate bankruptcy judges) are also violations of simple rules of behavior that people should have learned in kindergarten.

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Michael S. Finch: "Giving Full Faith and Credit to Punitive Damage Awards: Will Florida Rule the Nation?" (Abstract ID: 1143578)

This Article considers the constitutional status of state punitive damage judgments and the particular obligation that sister-states have to enforce them. Part I considers the legality of measures recently enacted by the tobacco companies' home states to delay enforcement of the judgment in Engle. This discussion will show that, contrary to the public protestations of many legal scholars, those states properly exercised their authority under the Full Faith and Credit Clause of the Constitution when they acted to defer enforcement of the Engle judgment while it is appealed through the Florida courts.

Part II of this Article considers whether there is any obligation under the Full Faith and Credit Clause to enforce sister-state judgments for punitive damages. According to Supreme Court precedent dating back to the nineteenth century, "penal" judgments are not entitled to full faith and credit. While the penal judgment rule has not seen great service in recent decades, its reexamination is timely. First, there is widespread agreement that modern punitive damages awards no longer serve the compensatory purposes they served at the time the Full Faith and Credit Clause was ratified: Punitive damages now serve the quasi-criminal purposes of deterrence and punishment, and are therefore penal in nature. Second, an increasing number of states have reaffirmed the penal role of punitive damages by appropriating a share of the plaintiff's punitive award. Such shared recovery laws emphasize that punitive awards now vindicate "public wrongs," and so fulfill the historical purpose of penal laws.

This Article contends, however, that the penal judgment rule should not be extended to permit the denial of full faith and credit to judgments for punitive damages. Notwithstanding the linguistic similarity in the epithets penal judgments and punitive damages, the concepts address quite different concerns. Further, application of the penal judgment rule to punitive damages awards would serve no state or litigant interest not already addressed by other constitutional provisions - particularly the Due Process Clause. For these reasons, courts should not revivify the penal judgment rule to address contemporary problems posed by punitive damages awards.

This Article concludes that the Constitution offers defendants who suffer the imposition of catastrophic verdicts like that in Engle a measure of protection. States may, and after Engle should, eliminate appellate bond requirements for punitive awards when there is no reason to suspect that the judgment debtor will intentionally dissipate its assets. This approach will leave intact appellate bond requirements for compensatory damages, and thus secure the judgment creditor's right to be made whole for his losses. At the same time, judgment debtors need not face the prospect of bankruptcy, or exorbitant settlement, simply because they cannot post security for an aberrant, punitive verdict like that in Engle. The Supreme Court has emphasized the critical role of appellate courts in policing unconstitutionally excessive punitive verdicts, and that role can only be fulfilled if the appellate process is affordable.

Realistic appellate bond requirements, however, are only part of the solution. Engle sounds a grave warning. The current system of tort law increasingly "commits the fate of an entire industry or, indeed, the fate of a class of millions, to a single jury."The constellation of interests affected by mass tort litigation--injured persons, consumers, states, national industries, and local economies - exceeds the competence of a single jury or single state court to resolve. A national solution is needed, and by default the task of devising that solution falls on Congress.

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Theresa J. Pulley Radwan: "Trustees in Trouble: Holding Bankruptcy Trustees Personally Liable for Professional Negligence" (Abstract ID: 1138069)

Professional negligence is a fact of life. Insurance companies know this. Professionals know this. The general public knows this. However, not all professionals are responsible for their own negligence. For some professionals, negligence liability may be curbed for policy reasons. However, this article argues that no such policy reasons exist for limiting the personal liability of a negligent bankruptcy trustee.

Courts treat negligent trustees in one of three ways. The first, and most lenient standard for trustees, is that negligence, whether it be "mere negligence" or "gross negligence" will not subject a trustee to liability. In circuits following this standard, a trustee must take an intentional action in order to be personally liable for that action. This standard evolved from decisions in non-bankruptcy cases regarding immunity for judges and other court-appointed employees.

The second possible standard, which has gained popularity as a "middle-ground" alternative, allows trustees to be liable for gross negligence but not for mere negligence. In so doing, these courts have tried to hold a trustee liable for something less than his or her intentional actions without going so far as to hold a trustee liable for simple, garden-variety negligence.

Finally, some courts hold trustees personally liable for any type of negligence, as well as intentional actions. The rationale for this liability stems from the trustee's role as an attorney, subject to standards of reasonableness in light of the circumstances. This article argues that such a standard should be utilized by all courts in order to promote a fair distribution of bankruptcy assets among the creditors and to comply with public expectations of a trustee's performance. Although ideas of immunity evolve from legal ideas, these ideas are outdated and inapplicable in the context of modern bankruptcy cases. And, while gross negligence offers a middle ground, this article argues that defining professional negligence in terms of a similarly situated bankruptcy trustee obviates the need for such a middle ground.

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Theresa J. Pulley Radwan: "Limitations on Assumption and Assignment of Executory Contracts by 'Applicable Law'" (Abstract ID: 1138056)

11 U.S.C. section 365 considers the treatment of executory contracts in bankruptcy proceedings. Subsection 365(c)(1) prohibits the assumption or assignment of executory contracts when a contractual or legal provision would applicable law excuses a party from accepting third-party performance, while subsection 365(f) allows assignment of an executory contract under certain circumstances regardless of legal or contractual prohibitions on the assignment. This article considers the balance between these sometimes-contradictory subsections of the Bankruptcy Code, and concludes that Congress intended to allow the assumption of executory contracts even if they are not assignable in order to further the objections of reorganization bankruptcy proceedings.

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S. Todd Brown: "Non-Pecuniary Interests and the Injudicious Limits of Appellate Standing in Bankruptcy" (Abstract ID: 1114917)

Standing to appeal bankruptcy court orders today is limited to those with a pecuniary interest. This prudential limitation is based on the person aggrieved requirement of Section 39(c) of the Bankruptcy Act of 1898 - a requirement that was not included in the Bankruptcy Code. This article examines the extensive differences between the Act and the Code, the potential justifications for extending the pecuniary interest test in spite of the omission of the person aggrieved requirement, and the potential ramifications for parties and the integrity of the bankruptcy process. This analysis suggests that standing to appeal bankruptcy orders should be governed by the party in interest standard used to evaluate standing to appear in bankruptcy court.

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Alexander J. Field: "Bankruptcy, Debt, and the Macroeconomy, 1919-1946" (Abstract ID: 1109259)

Between 1919 and 1946 bankruptcy rates in the U.S. traced out an inverted U-shaped curve, rising during the 1930s as income levels fell, and then plummeting during the Second World War in the face of both rising income and falling debt levels. This paper explores these relationships econometrically, both at the aggregate level and at the level of a number of individual states. It also discusses the historical evolution, motivation, and macroeconomic consequences of bankruptcy law, concluding that the value of analyses such as those of Joseph Schumpeter and Secretary of the State Andrew Mellon have been too quickly dismissed, at least in their entirety, by scholars such as Ben Bernanke.

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Tuan Samahon: "Are Bankruptcy Judges Unconstitutional? An Appointments Clause Challenge" (Abstract ID: 1108694)

The Appointments Clause permits Congress to opt out of the Article II procedure of presidential nomination and Senate advice and consent by vesting the appointment of inferior officers in the President alone, in the Courts of Law, or in the Heads of Departments. Congress exercised this option when it vested the power to appoint bankruptcy judges in the U.S. Courts of Appeals, implicitly categorizing these judges as inferior officers and thereby exposing a potential Achilles heel. Although the Courts of Law have appointed bankruptcy adjudicators since the earliest bankruptcy laws, this Article advances the position that bankruptcy judges have gradually and over time accrued tenure, safeguards against removal, expansive jurisdiction and duties that are incompatible with inferior officer status under the balancing approach of Morrison v. Olson. Accordingly, they are not amenable to being opted out of advice and consent and they must be appointed pursuant to the Article II procedure. The appointments of present bankruptcy judges are consequently suspect and their judgments and orders are of questionable validity.

An Article II challenge has escaped the attention of academic commentators and (largely) that of the courts. Resolution of the challenge will require the Supreme Court to clarify its Appointments Clause jurisprudence. This Article argues that the Court's pronouncements on inferior officers in Morrison and Edmond v. United States are irreconcilable. Which authority controls likely would dictate the outcome of any challenge. Accordingly, the Court must either acknowledge that Justice Scalia's majority opinion in Edmond has overruled its landmark decision in Morrison or declare unconstitutional the present method of appointing bankruptcy judges. Thus, the challenge could be potentially similar in scale to the Court's 1982 Marathon decision, which struck down on separation-of-powers grounds the bankruptcy courts' key jurisdictional provision.

Beyond charting a roadmap to the challenge, the Article suggests legislative remedies that could save bankruptcy judges from an Appointments Clause challenge. But, were the Court to resolve the challenge by abandoning Morrison in favor of Edmond, the Article suggests two policy implications: bankruptcy judges could be granted Article III tenure while retaining their present methods of appointment and all inferior court Article III judges could be appointed in the same manner.

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Randall C. Picker: "'Twombly', 'Leegin' and the Reshaping of Antitrust", (Abstract ID: 1091498)

This paper considers the four antitrust decisions in the Supreme Court's 2006 Term.

It offers brief discussions of Weyerhaeuser and Credit Suisse. Weyerhaeuser is a small, modest decision. The Court isn't likely to see another predatory bidding case soon and the Court chose to minimize doctrinal complexity by bringing predatory bidding analysis in sync with the Court's prior treatment of predatory pricing in Brooke Group. Credit Suisse too is minimally incremental. In concluding that federal securities law implicitly precluded claims asserting antitrust violations in the sale of new securities, the Court followed its prior decision in Gordon as well as the Court's more recent preference for regulatory schemes over antitrust as seen in Trinko. Pushing antitrust authority toward specialized regulators like the Securities and Exchange Commission broadens the trade-offs that can be made between antitrust concerns and other values and almost certainly expands the circumstances under which industry actors can act collectively. That matters, so Credit Suisse covers more of the economic landscape than Weyerhaeuser, but the decision itself is a small step from prior doctrine.

Twombly and Leegin are each, in their own ways, blockbusters. Twombly will appear in case after case, as antitrust defendants try to rely on its new tougher rules for FRCP 12(b)(6) motions. Twombly represents a preference for blunt instruments over sharp edges. The central problem confronted by Twombly is discovery run amok. The Court has the tools in its hands to control that by rewriting the discovery rules and overturning lower court decisions implementing those rules. Twombly suggests that the Court believes that refinement of those rules will fail in controlling discovery and it is willing to pay the price that private plaintiffs will have no good way to get at the best-hidden antitrust conspiracies.

Finally, Leegin brings to a close - for now or forever? - the 100-year saga of contractual minimum resale price maintenance. Since its decision in 1911 in Dr. Miles, the Court has confronted this issue again and again in the slightly-refined versions that make up the art of institutional design. Over time, the Court has chipped away at Dr. Miles, first in not finding a violation of Section 1 of the Sherman Act for the unilateral minimum RPM in Colgate in 1919 and in then broadly subjecting nonprice vertical restraints to rule-of-reason treatment in Sylvania in 1977. Given that, on what basis would Dr. Miles survive?

That is a question of stare decisis and Leegin ends up in an all-out fight over stare decisis in antitrust. That is new: the Court has been overturning old decisions in antitrust for some time and has done so with little stare decisis fanfare. That suggests that the dispute over stare decisis in Leegin is just a convenient forum for the larger dispute over stare decisis that is percolating through a divided Court. I don't have a full-blown theory of stare decisis but I do suggest why the Court has been mistaken to treat stare decisis in statutory cases differently from that in constitutional cases. The Court has made too little of one of its critical tools in shaping statutes, namely, the power to set a default point for subsequent congressional action. Once we treat the Court's decisions as inputs in subsequent lawmaking, there is greater reason to think that the Court should have a uniform approach to stare decisis across the Constitution and statutes.

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It may be true as a practical matter that SFCA is not obligated to fund the recall of 1 million bassinets (since assumption of that responsibility would surely force SFCA out of business just as it had forced its predecessor out of business).  It may even be true as a matter of law that this Minnesota district court decision is correct and that even Simplicity itself (and hence SFCA without question) is not liable to any consumer that has not been physically injured by the design defect (with the court apparently not recognizing as a "legally cognizable injury" the worthlessness of the crib itself, yet who in their right mind would continue to put a baby in a crib that's been recalled).  It is by no means clear, however, that SFCA has sidestepped liability for deaths or other injuries caused by the defectively design cribs.

The background to how SFCA came to own Simplicity is itself interesting.  Simplicity was a family-owned company that was founded in 1947 and grew into the nation's largest crib manufacturer on the backs of the post-WWII baby boom and the "echo boom" of the next generation.  Difficult business conditions, and the September 2007 product recall (prompted by a Chicago Tribune reporter's dogged pursuit of the story), forced Simplicity to "explore strategic alternatives, including a sale or restructuring."  According to this press release, the sales process played out as follows: