Law Commons^™

The Mismatched Goals Of Bankruptcy And Mass Tort Litigation, Maureen Carroll

Reviews

By the end of this Term, SCOTUS must decide what to do about the mammoth Purdue Pharma bankruptcy settlement. If allowed to go forward, the $10 billion deal will not only resolve claims against the company, it will shield the Sackler family—the company’s former owners—from any further liability for their role in the opioid crisis. The deal has generated a great deal of discussion, much of it focused on the legality and wisdom of that third-party release. The authors of Against Bankruptcy take a broader view, asking a set of critical questions about the proper role of bankruptcy in the …

Creditors, Shareholders, And Losers In Between: A Failed Regulatory Experiment, Albert H. Choi, Jeffery Zhang

Law & Economics Working Papers

In the aftermath of the 2007-08 Global Financial Crisis, regulators encouraged many of the world’s largest banks to hold a new type of regulatory instrument with the goal of improving their safety and soundness. The regulatory instrument was known as a “CoCo,” short for contingent convertible bond. CoCos are neither debt nor equity. They are something in between, designed to give the bank a shot in the arm during times of stress. Many of the largest international banks have issued CoCos worth hundreds of billions of dollars. After more than ten years—a decade that includes the collapse of Credit Suisse …

Proposal For A New Regulation Of Speculation In Sovereign Debt, Justin Vanderschuren

Fellow, Adjunct, Lecturer, and Research Scholar Works

Over the past few years, several countries have undertaken to regulate the speculation in sovereign debt pursued by so-called “vulture funds.” The various realizations and attempts present a series of loopholes that make a new regulation of this speculation advisable. A proposal for a new regulation, legally justified and precisely framed, is all the more desirable given that some legislators, in particular from the New York State Legislature, have recently taken up the issue of speculation.

Debt sustainability is the only realistic regulation benchmark. It is inconceivable to ban debt purchases on the secondary market as this would significantly impact …

Sovereign Debt Speculation: A Necessary Restraint Justified By A Concern For Debt Sustainability, Justin Vanderschuren

Fellow, Adjunct, Lecturer, and Research Scholar Works

The actions of funds speculating in sovereign debt, frequently nicknamed “vulture funds”, are often roundly criticized. These funds purchase distressed debts on the secondary market at reduced prices and then seek payment in court at face value plus interest and fees. Although their actions are legally justified, so-called “vulture funds” are vilified due to the negative impact of their activities on sovereign debtors and their population. While there is a strong demand for regulating sovereign debt speculation, various solutions already exist but are, in many ways, insufficient. This article argues for the adoption of a tailored regulation of the speculative …

Modular Bankruptcy: Toward A Consumer Scheme Of Arrangement, John A. E. Pottow

Law & Economics Working Papers

The world of international bankruptcy has seen increasing use of the versatile scheme of arrangement, a form of corporate reorganization available under English law. A key feature of the scheme is its modularity, whereby a debtor can restructure only a single class of debt, such as bond indentures, without affecting other debt, such as trade. This is the opposite of chapter 11 of the U.S. Bankruptcy Code’s comprehensive reckoning of all financial stakeholders. This article considers a novel idea: could the scheme be transplanted into the consumer realm? It argues that it could and should. Substantial benefits of more individually …

Love Hertz: Corporate Groups And Insolvency Forum Selection, John A. E. Pottow

Law & Economics Working Papers

The Hertz bankruptcy got a lot of attention, including for its bizarre equity trading. A less heralded but more significant legal aspect of that insolvency, however, was its complex interaction of cross-border insolvency proceedings.

This article discusses the “centripetal” and “centrifugal” forces in the Hertz case that counselled a U.S.-based centralized solution for an international enterprise comprising over 10,000 branches centripetally but also accommodated centrifugal European resistance to subject directors to the consequences of filing their entities in a foreign jurisdiction. This not uncommon constellation of incentives required not a COMI shift but what this article terms a jurisdiction shift …

Texas Two-Stepping Out Of Bankruptcy, Michael A. Francus

Michigan Law Review Online

Johnson & Johnson has a problem. For decades, it sold talc baby powder, a product that made Johnson & Johnson a household name and earned the business billions. But as those babies grew up, they started getting cancer. And then they began suing. Last June, twenty-two plaintiffs cemented a $2.12 billion judgment against Johnson & Johnson for cancer caused by its baby powder. Another 38,000 cases (and counting) remain in progress, each with the potential for a similar verdict.

To handle these mass tort liabilities, Johnson & Johnson has followed the lead of many businesses and turned to the bankruptcy …

Bankruptcy In Black And White: The Effect Of Race And Bankruptcy Code Exemptions On Wealth, Matthew Bruckner, Raphaël Charron-Chénier, Jevay Grooms

Michigan Journal of Race and Law

Bankruptcy law in the United States is race-neutral on its face but, in practice, race matters in bankruptcy outcomes. Our original research provides an empirical look at how the facially neutral laws that allow debtors to retain assets in bankruptcy cases result in disparate outcomes for Black and white debtors. Racial differences in asset retention in bankruptcy cases play a role in perpetuating wealth inequality between Black and white debtors.

Existing bankruptcy data lacks individual-level characteristics such as race, which inhibits researchers’ ability to adequately assess biases or unintended consequences of laws and policies on subsets of the population. Thus, …

Love Hertz: Corporate Groups And Insolvency Forum Selection, John A. E. Pottow

Articles

The Hertz bankruptcy got a lot of attention, including for its bizarre equity trading. A less heralded but more significant legal aspect of that insolvency, however, was its complex interaction of cross-border insolvency proceedings.

This article discusses the “centripetal” and “centrifugal” forces in the Hertz case that counselled a U.S.-based centralized solution for an international enterprise comprising over 10,000 branches centripetally but also accommodated centrifugal European resistance to subject directors to the consequences of filing their entities in a foreign jurisdiction. This not uncommon constellation of incentives required not a COMI shift but what this article terms a jurisdiction shift …

Financial Toxicity During Breast Cancer Treatment: A Qualitative Analysis To Inform Strategies For Mitigation, Laila A. Gharzai, Kerry A. Ryan, Lauren Szczygiel, Susan Goold, Grace Li Smith, Sarah T. Hawley, John A.E. Pottow, Reshma Jagsi

Articles

Financial toxicity from cancer treatment is a growing concern. Its impact on patients requires refining our understanding of this phenomenon. We sought to characterize patients' experiences of financial toxicity in the context of an established framework to identify knowledge gaps and strategies for mitigation. Semistructured interviews with patients with breast cancer who received financial aid from a philanthropic organization during treatment were conducted from February to May 2020. Interviews were transcribed and coded until thematic saturation was reached, and findings were contextualized within an existing financial toxicity framework. Thirty-two patients were interviewed, of whom 58% were non-Hispanic White. The mean …

Bankruptcy & The Underwater Home: A Case For Real Property Redemption, David Sheinfeld

Michigan Business & Entrepreneurial Law Review

Chapter 7 of the U.S. Bankruptcy Code exists to satisfy the claims of creditors and preserve an economic “fresh start” for the debtor after bankruptcy. In exchange for surrendering her property to the trustee to have it monetized (i.e., sold), the debtor receives a discharge of her debts and an injunction against future creditor in personam actions to recover them. However, the in personam injunction is insufficient to protect consumer debtors who are in default on mortgages encumbering underwater homes because the creditor’s in rem rights remain; after the conclusion of the case, the creditor can continue foreclosure proceedings, which …

A New Approach To Executory Contracts, John A.E. Pottow

Book Chapters

Few topics have bedeviled the bankruptcy community as much as the proper treatment of executory contracts under section 365 of the Bankruptcy Code. The case law is "hopelessly convoluted" and a "bramble-filled thicket." While many have struggled in the bootless task of providing coherence to the unwieldy corpus of case law and commentary, all would agree Jay Westbrook has been at the modern vanguard of this Sisyphean task. (1 assign Westbrook to the "modern" forefront, thereby relegating Vern Countryman, whose legacy in this domain rightly persists, to the annals of history, choosing as my perhaps arbitrary dividing line the adoption …

Pills And Picasso: Evaluating The Proposed Liquidation Of The Detroit Institute Of Arts During The Detroit Bankruptcy, Kevin Deutsch

Michigan Business & Entrepreneurial Law Review

Part I of this Note provides background information that is helpful for understanding the Detroit bankruptcy, the role of the DIA in the bankruptcy, and municipal bankruptcies in general. Part II evaluates equitable arguments against a sale of the DIA’s collection. Part III provides a rationale for a partial sale of the DIA’s collection.

Dispossessing Resident Voice: Municipal Receiverships And The Public Trust, Juliet M. Moringiello

University of Michigan Journal of Law Reform

The residents of struggling cities suffer property dispossessions both as individual owners and as municipal residents. Their individual dispossessions are part of a cycle that often begins with industrial decline. In Detroit, for example, more than 100,000 residents have lost their homes to tax foreclosure over a four-year period that bracketed the city’s bankruptcy filing. Falling property values, job losses, and foreclosures affect municipal budgets by reducing tax revenues. As individual dispossessions exacerbate municipal financial crises, residents can also face the loss of municipal property. Struggling cities and towns often sell publicly owned property—from parks to parking systems—to balance municipal …

Cross-Border Corporate Insolvency In The Era Of Soft(Ish) Law, John A.E. Pottow

Book Chapters

Insolvency law (bankruptcy law to some) moves so quickly in the cross-border realm that this piece's discussion, started in 2015, is probably already outdated. Nonetheless, I publish it unrepentantly because it turns overdue attention to the role of soft law in this domain. Building on earlier work in which I address the role of incrementalism, I discuss the marked success of the UNCITRAL Model Law on Cross-Border Insolvency and its cognate Insolvency Regulation in the EU (the latter now into its "Recast"). As predicted/hoped, the EU Recast, joining other contemporaneous reform projects, is building upon the scaffolding of legal doctrines …

In Whose Interests Should A Company Be Run? Fiduciary Duties Of Directors During Corporate Failure In India: Looking To The West For Answers, Gautam Sundaresh

Michigan Business & Entrepreneurial Law Review

This Comment looks at the debate as it has played out in the legal jurisprudence of the U.S. and the U.K. The analysis of each considers the three financial stages of a corporation’s existence that are specifically addressed in the debate today, i.e.: (i) solvency; (ii) insolvency; and (iii) the zone of insolvency. After setting out the current position, this Comment specifically addresses the various shortcomings and criticisms of the models adopted by each jurisdiction and offers observations on the status quo and the implementation of these models. On this basis, this Comment goes on to propose a model to …

The Dialogic Aspect Of Soft Law In International Insolvency: Discord, Digression, And Development, John A. E. Pottow

Michigan Journal of International Law

In this study, I describe three important articles in the IRJ model law and discuss their development, drawing in part upon my experience as a delegate to UNCITRAL Working Group V. In doing so, I want to situate these developments within the broader discussions of international law and international relations theory regarding soft law. Doing so will both vindicate and puzzle some of the conventional understanding of how soft law instruments tend to function, although some of the conclusions must necessarily be conjectural at this stage.

Fiduciary Principles In Bankruptcy And Insolvency, John A.E. Pottow

Book Chapters

This chapter examines fiduciary duties in bankruptcy and insolvency, focusing on the bankruptcy trustee’s duties, which are triggered by virtue of appointment in a case. It first provides a background on bankruptcy law in order to elucidate the doctrines and rules affecting fiduciary responsibilities in bankruptcy, citing a number of relevant provisions in the Bankruptcy Code. It then considers the fiduciary, non-fiduciary, and anti-fiduciary obligations of the trustee under the Bankruptcy Code before discussing the fiduciary duties of care and loyalty. In particular, it highlights bankruptcy-related issues raised by the duty of loyalty with respect to secured creditors, priority unsecured …

A Fresh View On The Hard/Soft Law Divide: Implications For International Insolvency Of Enterprise Groups, Irit Mevorach

Michigan Journal of International Law

It is the orthodox belief that treaties and—within the EU—directly applicable regulations represent hard, binding international law, while other international instruments—including model laws—are forms of soft law. In a previous publication(The Future of Cross-Border Insolvency: Overcoming Biases and Closing Gaps), I discussed how the traditional distinction between hard and soft law is less firm, due particularly to economic and behavioural implications of instrument choice and design. Building on that analysis, this Article focuses on the new rules for the international insolvency of enterprise groups in the Recast EU Insolvency Regulation 2015 (the “EIR”) and in the forthcoming UNCITRAL model law …

Fiduciary Principles In Bankruptcy And Insolvency, John A. E. Pottow

Book Chapters

This chapter examines fiduciary duties in bankruptcy and insolvency, focusing on the bankruptcy trustee’s duties, which are triggered by virtue of appointment in a case. It first provides a background on bankruptcy law in order to elucidate the doctrines and rules affecting fiduciary responsibilities in bankruptcy, citing a number of relevant provisions in the Bankruptcy Code. It then considers the fiduciary, non-fiduciary, and anti-fiduciary obligations of the trustee under the Bankruptcy Code before discussing the fiduciary duties of care and loyalty. In particular, it highlights bankruptcy-related issues raised by the duty of loyalty with respect to secured creditors, priority unsecured …

The Suitability Of South Africa's Business Rescue Procedure In The Reorganization Of Small-To-Medium-Sized Enterprises: Lessons From Chapter 11 Of The United States Bankruptcy Code., Mikovhe Maphiri

Michigan Business & Entrepreneurial Law Review

South African small- to medium-sized enterprises (“SMEs”) are the bread and butter of our economy. Providing much-needed employment and developing the skills of historically disadvantaged persons formally and informally are some of the most significant benefits of SMEs in a developing country such as South Africa. However, despite these significant contributions to the socioeconomic development of the country, SMEs generally have the lowest survival rates in the world as compared to large enterprises globally, resulting in high rates of business failure and the loss of jobs which these entities create. The Companies Act of 2008 replaces the previous judicial management …

Bankruptcy Fiduciary Duties In The World Of Claims Trading, John A.E. Pottow

Articles

In earlier work, I explored the role of fiduciary duties in the bankruptcy trustee's administration of a debtor's estate, noting the absence of any explicit demarcation of those duties in the Bankruptcy Code. In this piece, I report the highlights of that analysis and see to what extent (if any) fiduciary duties can inform policy prescriptions for the issue of bankruptcy claims trading, colorfully referred to by some as the world of "bankruptcy M&A." My initial take is pessimistic. Fiduciary duties, at least as traditionally conceived in bankruptcy, are unlikely to provide much help. But there is still a source …

A New Approach To Executory Contracts, John A.E. Pottow

Articles

This Article will proceed as follows. First, it will offer an abbreviated explanation of the treatment of executory contracts under the Code, chronicling the development of the concept of executoriness and the subsequent challenges of its effects. Second, it will explain a new approach that embraces and makes its peace with executoriness by focusing on the proper treatment of non-executory contracts. Third, it will address some of the anticipated counterarguments to the new approach. Finally, it will offer a quick road test to demonstrate how the new approach would have more easily resolved a major litigated precedent in this field.

Fiduciary Duties In Bankruptcy And Insolvency, John A. E. Pottow

Law & Economics Working Papers

Insolvency law (bankruptcy law to some) moves so quickly in the cross-border realm that this piece's discussion, started in 2015, is probably already outdated. Nonetheless, I publish it unrepentently because it turns overdue attention to the role of soft law in this domain. Building on earlier work in which I address the role of incrementalism, I discuss the marked success of the UNCITRAL Model Law on Cross-Border Insolvency and its cognate Insolvency Regulation in the EU (the latter now into its "Recast"). As predicted/hoped, the EU Recast, joining other contemporaneous reform projects, is building upon the scaffolding of legal doctrines …

Formalizing Chapter 9'S Experts, Laura N. Coordes

Michigan Law Review

Chapter 9 of the U.S. Bankruptcy Code has many shortcomings. One of the most persistent, yet understudied, problems judges face in chapter 9 is also a problem that exists in other areas of bankruptcy law: the sheer difficulty of applying generalized plan confirmation standards to wildly different, highly specialized entities. In practice, judges have turned to experts—individuals well versed in municipal finance, mediation, and the particular debtor com-munity—to help overcome this problem in chapter 9. These experts often per-form critical roles in a municipal bankruptcy case, including conducting mediations, investigating the municipality’s finances, and even helping to craft the municipality’s …

Rethinking Criminal Contempt, John A.E. Pottow, Jason S. Levin

Articles

It is of course too early to tell whether we are in a new era of bankruptcy judge (dis)respectability. Only time will tell. But this Article performs a specific case study, on one discrete area of bankruptcy court authority, based upon a particular assumption in that regard. The assumption is this: certain high-salience judicial events-here, the recent Supreme Court bankruptcy judge decisions, coupled with earlier constitutional precedents involving the limits of Article III-can trigger overreaction and hysteria. Lower courts may read these Supreme Court decisions as calling into question the permissibility of certain bankruptcy court practices under the Constitution, and …

Rethinking Criminal Contempt In The Bankruptcy Courts, John A. E. Pottow, Jason S. Levin

Law & Economics Working Papers

A surprising number of courts believe that bankruptcy judges lack authority to impose criminal contempt sanctions. We attempt to rectify this misunderstanding with a march through the historical treatment of contempt-like powers in bankruptcy, the painful statutory history of the 1978 Bankruptcy Code (including the exciting history of likely repealed 28 U.S.C. § 1481), and the various apposite rules of procedure. (Fans of the All Writs Act will delight in its inclusion.) But the principal service we offer to the bankruptcy community is dismantling the ubiquitous and persistent belief that there is some form of constitutional infirmity with "mere" bankruptcy …

What Bankruptcy Law Can And Cannot Do For Puerto Rico, John A. E. Pottow

Articles

This article is based on a February 2016 keynote address given at the University of Puerto Rico Law Review Symposium “Public Debt and the Future of Puerto Rico.” Thus, much of it remains written in the first person, and so the reader may imagine the joy of being in the audience. (Citations and footnotes have been inserted before publication ‒ sidebars that no reasonable person would ever have inflicted upon a live audience, even one interested in bankruptcy law. Rhetorical accuracy thus yields to scholarly pedantics.) The analysis explains how bankruptcy law not only can but will be required to …

Two Cheers For Universalism: Nortel's Nifty Novelty, John A. E. Pottow

Book Chapters

Individuals in the cross-border bankruptcy community hiding under rocks may not have heard about the monumental decisions in the co-trials in the Canadian-United States Nortel bankruptcy proceedings, In re Nortel Networks, Inc and Re Nortel Networks Corp. The decisions are thoughtful, innovative, practical, and important. They warrant a detailed case comment or two in their own right. This brief article, however, will not provide such worthy treatment. Those hungering for in-depth reports of the cases and their holdings may stop reading now and devote their labours elsewhere. What this article will be is an appreciation of Nortel, explaining …

Beyond Carve-Outs And Toward Reliance: A Normative Framework For Cross-Border Insolvency Choice Of Law, John A. E. Pottow

Law & Economics Working Papers

Choice of law in cross-border insolvency is gaining increased attention, not just by lowly academics but by policymakers who actually matter. I argue it is time to bring some normative guidance to the burgeoning reform efforts. At the highest level of theoretical purity, universalism seems to have (rightly) captured the biggest following. But it has been scaled back by what I call “second-order” considerations of pragmatics to its lesser, modified form. I take that retrenchment as necessary and note how it has been deployed through a carveout-based regime of subject-specific exceptions from lex fori concursus. Given that lay of the …