Law Commons^™

Bankruptcy Fiduciaries, Christopher D. Hampson

UF Law Faculty Publications

Does social enterprise end with insolvency? Is bankruptcy all about the bottom line? The answer to these questions begins with understanding the estate in bankruptcy and the fiduciaries that control its fate. Yet the law of fiduciary duties in bankruptcy is undertheorized, conflicted, and muddled. After almost fifty years of confusion, this Article provides the first comprehensive examination of the nature and source of fiduciary duties in bankruptcy. Although the Supreme Court has intoned “maximize the value of the estate” as a shorthand, I argue that the trustee’s duty of obedience in reorganization cases gives rise to a “duty to …

Bespoke, Tailored, And Off-The-Rack Bankruptcy: A Response To Professor Coordes's 'Bespoke Bankruptcy', Christopher D. Hampson

UF Law Faculty Publications

Toward the end of every semester that I teach bankruptcy, I let my students vote on which “non-traditional” insolvency regimes they would like to study, including municipal bankruptcy, sovereign bankruptcy, and financial institutions. What I am really trying to do is convey to the students that the default procedures and substantive rules in Chapters 7 and 11 of the U.S. Bankruptcy Code do not apply to all types of enterprises.

Bankruptcy & The Benefit Corporation, Christopher D. Hampson

UF Law Faculty Publications

As pressure grows for money-making businesses to prioritize social responsibility, the benefit corporation - a recent innovation in corporate governance - promises to require the directors of socially minded businesses to balance public benefit with shareholder interests. But will that promise survive the crucible of financial distress? While most discussions of the benefit corporation give only passing treatment to insolvency (or ignore it altogether), this Article provides the first complete analysis of how bankruptcy principles would apply to benefit corporations, informed by the practical context of out-of-court workouts and negotiations that take place in the shadow of the bankruptcy laws. …

Disciplinary Legal Empiricism, Lynn M. Lopucki

UF Law Faculty Publications

This Article reports on an empirical study of one hundred and twenty empirical legal studies published in leading, non-peer-reviewed law reviews and in the peer-reviewed Journal of Empirical Legal Studies. The study is the first to compare studies by disciplinary empiricists – defined as Ph.D. holders – with those by non-disciplinary empiricists – defined as J.D. holders who are not also Ph.D. holders. Three differences identified in the study suggest that Ph.D. hiring is on a collision course with the demands of legal educators, the organized bar, and students that the law schools better prepare students for practice. First, disciplinary …

State Bans On Debtors' Prisons And Criminal Justice Debt, Christopher D. Hampson

UF Law Faculty Publications

Since the 1990s, and increasingly in the wake of the Great Recession, many municipalities, forced to operate under tight budgetary constraints, have turned to the criminal justice system as an untapped revenue stream. Raising the specter of the "debtors' prisons" once prevalent in the United States, Imprisonment for failure to pay debts owed to the state has provoked growing concern over the year.

Changes In Chapter 11 Success Levels Since 1980, Lynn M. Lopucki

UF Law Faculty Publications

This Article revisits the nine measures of success that Bill Whitford and I reported on in Patterns in the Bankruptcy Reorganization of Large, Publicly Held Companies, with twenty-six additional years of experience and data on 964 additional cases. My principal objective has been to determine whether Chapter 11 has become more or less successful by those measures. I conclude that Chapter 11 has become less successful by three of the seven LoPucki-Whitford criteria for which data are available. The courts confirm plans in a significantly smaller proportion of cases, a significantly smaller proportion of companies survive, and a significantly smaller …

Bankruptcy Survival, Lynn M. Lopucki, Joseph W. Doherty

UF Law Faculty Publications

Of the large, public companies that seek to remain in business through bankruptcy reorganization, only 70% succeed. The assets of the other 30% are absorbed into other businesses. Success is important both because it is efficient and it preserves jobs, communities, supplier and customer relationships, and tax revenues. This Article reports the findings of the first comprehensive study of the division into successful and failed reorganizations. Eleven conditions best predict companies’ survival prospects. First, a company that even hints in the press release announcing its bankruptcy that it intends to sell its business is highly likely to fail. Second, reorganizations …

House Swaps: A Strategic Bankruptcy Solution To The Foreclosure Crisis, Lynn M. Lopucki

UF Law Faculty Publications

Since the price peak in 2006, home values have fallen more than 30%, leaving millions of Americans with negative equity in their homes. Until the Supreme Court’s 1993 decision in Nobelman v. American Savings Bank, the bankruptcy system would have provided many such homeowners with a remedy. They could have filed bankruptcy, discharged the negative equity, committed to pay the mortgage holders the full values of their homes, and retained those homes. In Nobelman, the Court misinterpreted reasonably clear statutory language and invented legislative history to resolve a 3-1 split of circuits in favor of the minority view. The Court …

Water Bankruptcy, Christine A. Klein

UF Law Faculty Publications

Many western states are on the verge of bankruptcy, with debts exceeding assets. And yet, they continue to take on additional debt through contracts and other commitments. Although this distress sounds like an outgrowth of the 2008 recession, this crisis involves water, not money. In particular, the problem concerns the western prior appropriation system of water law, which allocates the right to use water under the priority principle of “first in time, first in right.” In many states, the system is so “over-allocated” that it promises to deliver annually much more water than nature provides. The crisis will deepen as …

Algorithmic Entities, Lynn M. Lopucki

UF Law Faculty Publications

In a 2014 article, Professor Shawn Bayern demonstrated that anyone can confer legal personhood on an autonomous computer algorithm by putting it in control of a limited liability company. Bayern’s demonstration coincided with the development of “autonomous” online businesses that operate independently of their human owners—accepting payments in online currencies and contracting with human agents to perform the off-line aspects of their businesses. About the same time, leading technologists Elon Musk, Bill Gates, and Stephen Hawking said that they regard human-level artificial intelligence as an existential threat to the human race. This Article argues that algorithmic entities—legal entities that have …

Florida's Beefed-Up Assignment For The Benefit Of Creditors As An Alternative To Bankruptcy, Jeffrey Davis

UF Law Faculty Publications

Two new corporate clients have been referred to you. The owners of both corporations have consulted lawyers about their struggling businesses and now seek second opinions. The first was advised by its attorney to file a Chapter 7 bankruptcy petition, the second was advised to file a Chapter 11 petition. You think both should consider an assignment for the benefit of creditors. Why? Stated simply, an assignment for the benefit of creditors, or an ABC, is normally much simpler and almost always less expensive than a comparable bankruptcy proceeding.' The substantial savings in expense results in larger payouts to both …

Bankruptcy Vérité, Lynn M. Lopucki, Joseph W. Doherty

UF Law Faculty Publications

In Bankruptcy Fire Sales, 106 Michigan Law Review 1 (2007), we compared the recoveries from the going-concern bankruptcy sales of 25 large, public companies with the recoveries from the bankruptcy reorganizations of 30 large, public companies in the same period. We found that, controlling for the asset size of the company and its pre-sale or pre-reorganization earnings (EBITDA), reorganization recoveries were more than double sale recoveries. In Bankruptcy Noir, a reply forthcoming in the Michigan Law Review, Professor James J. White values the same set of companies differently to reach the finding that the sale recoveries are not statistically significantly …

Bankruptcy Fire Sales, Lynn M. Lopucki, Joseph W. Doherty

UF Law Faculty Publications

For more than two decades, scholars working from an economic perspective have criticized the bankruptcy reorganization process and sought to replace it with market mechanisms. In 2002, Professors Douglas G. Baird and Robert K. Rasmussen asserted in The End of Bankruptcy, an article published in the Stanford Law Review, that improvements in the market for large, public companies had rendered reorganization obsolete. Going concern value could be captured through sale. This article reports the results of an empirical study comparing the recoveries in bankruptcy sales of large public companies in the period 2000-2004 with the recoveries in bankruptcy reorganizations during …

The Spearing Tool Filing System Disaster, Lynn M. Lopucki

UF Law Faculty Publications

Debtor name errors have been a substantial and persistent problem for filers and searchers in the Uniform Commercial Code Article 9 filing system. Filers make errors in spelling, punctuation, and spacing, use trade names, and include extraneous words. The law prior to 2001 excused such errors if they were minor and not seriously misleading. That put the burden on searchers to conduct reasonable diligent searches to find erroneous filings. The effect was to render all searches problematic and costly. The drafters of revised Article 9 conceived a brilliant solution to the problem with respect to corporate debtors (registered entities). First, …

Courting Failure, Lynn M. Lopucki

UF Law Faculty Publications

Courting Failure is the story of a bad venue statute that led to rampant forum shopping by large public companies. This forum shopping induced competition among bankruptcy courts for the cases. That competition in turn caused the unnecessary failure of many of the reorganizing companies and corrupted the United States Bankruptcy Courts. Congress has not acted to fix the statute because of Delaware's parochial interest in preserving the status quo.

Where Do You Get Off? A Reply To Courting Failure'S Critics, Lynn M. Lopucki

UF Law Faculty Publications

By historical accident, the bankruptcy venue statute gives large public companies their choice of bankruptcy courts. Over three decades a competition for those cases has developed among some United States Bankruptcy Courts. The most successful courts - Delaware and New York - today attract more than two thirds of the billion-dollar-and-over cases. The courts compete principally because the cases represent a multi-billion dollar a year industry in professional fees alone, because local lawyers pressure judges to compete, and because judges who lose the competition are stigmatized and may not be reappointed. In February 2005, the University of Michigan Press published …

Delaware Bankruptcy: Failure In The Ascendancy, Lynn M. Lopucki, Joseph W. Doherty

UF Law Faculty Publications

In 1990, the United States Bankruptcy Court for the District of Delaware - then a one-judge backwater - began competing for big bankruptcy cases. In six years, that court achieved a near monopoly. In 2000, LoPucki and Kalin discovered that 42% of the companies filing in Delaware during that six year period of ascendency refiled bankruptcy within five years of their emergence, as compared with only 6% of those filing in courts other than Delaware and New York. In a later study, we found the (1) the failure of the companies reorganized in Delaware during the period of ascendency was …

Ending The Nonsense: The In Pari Delicto Doctrine Has Nothing To Do With What Is § 541 Property Of The Bankruptcy Estate, Jeffrey Davis

UF Law Faculty Publications

The recent wave of disregard for corporate fiduciary responsibilities has provided numerous opportunities for courts to consider whether the corporations bankrupted by the unlawful acts of their principals should be prohibited by the in pari delicto doctrine from pursuing liability claims against third parties who contributed to the harm. In an array of recent cases, courts have reluctantly and apologetically, yet uniformly, permitted third parties who contributed to the demise of these corporations to escape liability because they felt § 541 of the Bankruptcy Code (the "Code") left them no other choice.

Section 541 provides that the filing of a …

A Team Production Theory Of Bankruptcy Reorganization, Lynn M. Lopucki

UF Law Faculty Publications

In the year before United Airlines filed for bankruptcy reorganization, the firm lost $3.2 billion. Fierce competition in the airline industry prevents United from stemming its losses solely through increases in revenues. Costs will have to be cut. The necessary expense reductions could come from reductions in employee pay and benefits, reductions in the amounts owing to creditors (which reduce interest expense), or both. Which should it be? United's situation is complicated by the fact that its employees own 55 percent of its stock and that their wage levels are protected by a collective bargaining agreement. But if we assume …

The Myth Of The Residual Owner: An Empirical Study, Lynn M. Lopucki

UF Law Faculty Publications

Most bankruptcy scholars who have considered the residual owner approach have come away with a healthy skepticism. But despite its theoretical difficulties, the residual owner approach persists. I attribute this persistence to an empirical assumption that usually remains implicit. In spite of the theoretical difficulties in identifying the single residual owners of bankrupt firms, the scholars who employ residual owner approaches believe that in reality, residual owners exist and can be easily identified inmost cases. Parties may bluster about the uncertainty of firm value and other parties may be compelled to compromise with them in order to avoid an expensive, …

The Nature Of The Bankrupt Firm: A Response To Baird And Rasmussen's "The End Of Bankruptcy", Lynn M. Lopucki

UF Law Faculty Publications

In an article recently published in the Stanford Law Review Professors Douglas G. Baird and Robert K. Rasmussen assert that big-case bankruptcy reorganizations have "all but disappeared" and give three theoretical explanations. This reply provides empirical evidence that the assertion is wrong; reorganizations not only survive but are booming. It then explains how their theoretical explanations led Baird and Rasmussen to the wrong conclusion. In their first explanation, Baird and Rasmussen note that modern firms have few firm-specific or dedicated assets. From that observation, they argue that the firms have no going concern value. This reply argues that the going …

Why Are Delaware And New York Bankruptcy Reorganizations Failing?, Lynn M. Lopucki, Joseph W. Doherty

UF Law Faculty Publications

Why are Delaware and New York Bankruptcy Reorganizations Failing?

Fixing Florida's Execution Lien Law Part Two: Florida's New Judgment Lien On Personal Property, Jeffrey Davis

UF Law Faculty Publications

Under both the prior and current laws, a creditor seeking to satisfy a judgment out of property of the judgment debtor obtains a writ of execution from the clerk of the court that issued the judgment and then delivers the writ to a sheriff in one of Florida's sixty-seven counties. The writ commands the sheriff to levy on property of the debtor until the amount stated in the writ is satisfied. Under the prior law, delivery of the writ to the sheriff not only initiated the execution process, but under the seminal case of Love v. Williams, it also …

Can The Market Evaluate Legal Regimes? A Response To Professors Rasmussen, Thomas, And Skeel, Lynn M. Lopucki

UF Law Faculty Publications

Scholarly projects benefit from thoughtful criticism-particularly by those committed to a contrary view. For that reason, I feel fortunate that the three leading proponents of the efficiency of Delaware bankruptcy reorganization have taken the time to respond to our study.' These three critics recognize that the stakes are enormous. As Professor Rasmussen and Professor Thomas put it, the bankruptcy reorganization of large, public companies was "Delawarized" during the decade of the 1990s. If it can be shown that, during the period of Delawarization, the Delaware court provided a wasteful and inefficient reorganization process, it follows that even a very sophisticated …

The Failure Of Public Company Bankruptcies In Delaware And New York: Empirical Evidence Of A "Race To The Bottom", Lynn M. Lopucki, Sara D. Kalin

UF Law Faculty Publications

In the early 1990s, Delaware replaced New York as the jurisdiction of choice for the bankruptcy reorganization of large, public companies. In an empirical study of 188 companies emerging from bankruptcy reorganization from 1983 through 1996, the authors found that the refiling rates for public companies reorganized in Delaware and New York were about five to seven times the refiling rates for companies reorganized in other courts. Nine of the thirty large, public companies emerging in Delaware from 1991 to 1996 (30%) have already refiled. New York rates were higher during the period of New York's dominance than during the …

The Case For Cooperative Territoriality In International Bankruptcy, Lynn M. Lopucki

UF Law Faculty Publications

Universalism - the idea that a multinational debtor's "home country" should have worldwide jurisdiction over its bankruptcy - has long had tremendous appeal to bankruptcy professionals. Yet, the international community repeatedly has refused to adopt conventions that would make universalism a reality. In an article published last year, I proposed an explanation. Universalism can work only in a world with essentially uniform laws governing bankruptcy and priority among creditors - a world that does not yet exist. Because it is impossible to fix the location of a multinational company in a global economy, the introduction of universalism in current world …

Hidden In Plain View: The Pension Shield Against Creditors, Patricia E. Dilley

UF Law Faculty Publications

This Article examines the virtually unquestioned protection of retirement assets from creditors, in both state and federal law, with a view to determining whether tax qualification or even retirement itself is a sufficient rationale for preserving debtor assets in the face of creditors' claims, and if so, what the limits of such protection should be. The problems of current law stem in large part from the use of tax qualified status as a convenient shortcut for determining the appropriate bankruptcy treatment of retirement accounts. The result is a wide disparity in the treatment of debtors epitomized by the cases of …

Shopping For Judges: An Empirical Analysis Of Venue Choice In Large Chapter 11 Reorganizations, Theodore Eisenberg, Lynn M. Lopucki

UF Law Faculty Publications

For almost two decades, an embarrassing pattern of forum shopping has been developing in the highly visible world of big-case bankruptcy reorganization. Forum shopping--defined here as the act of filing in a court that does not serve the geographical area of the debtor's corporate headquarters--now occurs in more than half of all big-case bankruptcies. Two jurisdictions have attracted most of the forum shoppers. During the 1980s, when a large portion of the shopping was to New York, the lawyers involved asserted that New York was a natural venue because of its role as the country's financial capital and because so …

Cooperation In International Bankruptcy: A Post-Universalist Approach, Lynn M. Lopucki

UF Law Faculty Publications

This article examines the several competing systems proposed for international cooperation in the bankruptcy cases of multinational companies and concludes that a cooperative form of territoriality would work best. Universalism, the system that currently dominates the scholarship, diplomacy, and jurisprudence of international bankruptcy, holds that the courts of the multinational company's "home country" should have worldwide jurisdiction and apply its own law to the core issues of the case. Universalism is unworkable because it would require that countries permit foreign law and courts to govern wholly domestic relationships and because the of "home countries" of multinational companies are so ephemeral …

The Irrefutable Logic Of Judgment Proofing: A Reply To Professor Schwarcz, Lynn M. Lopucki

UF Law Faculty Publications

In The Inherent Irrationality of Judgment Proofing, Professor Steven L. Schwarcz raises interesting new arguments against my death of liability thesis. The sheer number of those arguments makes it impossible for me to respond to all of them. The core of Schwarcz's insight is to divide judgment proofing structures into those negotiated at arm's length and those constructed within a single corporate group. I consider his arguments regarding the first set of structures in Part I and the second set in Part II.