Random Thoughts from the National Conference of Bankruptcy Judges--Day 3

Today was the final day of the NCBJ annual meeting. Two interesting things today. Heard a good discussion of Rule 2019 and the highlight of the conference, Supreme Court Associate Justice John Paul Stevens.

Rule 2019

I had never thought too much about Rule 2019. I knew that it was out there and that it required creditors to make some kind of disclosure, but that was about it. Judge Robert Gerber had an interesting take on the Rule. Under its current version, it requires any entity or committee (other than an official committee) representing multiple parties to file a verified statement of (1) the name and address of each person represented, (2) the nature, amount and date of acquisition of the claim (if the claim was acquired within one year before the petition date), (3) the pertinent facts and circumstances of the employment of the entity, (4) with reference to the time of the employment of the entity, the organization or the formation of the committee, the amounts of claims owned by the entity, the members of the committee, the times when acquired, the amounts paid and any sales or other disposition thereof. An amendment to the rule is being considered which would require disclosure of all interests of the committee members, but would not require disclosure of the price paid unless specifically ordered by the court.

As Judge Gerber noted, this Rule is most often honored in the breach. This raises the question of why. Part of the reason, according to Judge Gerber, is that parties are unlikely to throw rocks at each other if it would mean that they would have to comply with the rule also. As the judge noted, in big cases, the major fight is between groups of creditors rather than between the debtor and creditors. He observed that he spends his time refereeing disputes between hedge funds. The other reason is unfamiliarity.

The Rule dates back to the 1930s when ad hoc committees would appear in cases claiming to represent creditors, but actually controlled by insiders. Thus, the Rule ensured that parties dealing with an ad hoc committee knew whether it was a legitimate representative of creditors or a front for the insiders.

In modern practice, and especially under the proposed amended rule, disclosure would require disclosure of the underlying interest of entities participating in an entity. "People's private agendas matter," said the judge. In the modern world of hedge funds, a creditor may claim to hold $500,000,000 of bonds but hold a put to sell back $450,000,000, thus inflating their actual claim. If a creditor is shorting the debtor's stock, it could have an incentive to sink the reorganization while claiming to act as a creditor.

Justice John Paul Stevens

The conference came to its conclusion with a conversation with John Paul Stevens. There was a certain symmetry to this. In the CLLA's opening breakfast, Paul Begala talked about how he had named his son John Paul in honor of the Pope and how President Clinton had introduced him to His Holiness. The conference ended with another John Paul, this one the senior justice on the Supreme Court, having served since 1975. Justice Stevens will turn 90 this year. However, he was the picture of vitality, which he attributed to marrying a beautiful dietician (as well as playing tennis three times a week, golfing regularly and swimming in the ocean). He appeared genial and courtly in his bowtie (which he said that he wears because he never learned how to tie a regular tie).

Two bits of baseball trivia. In 1932, he attended a world series game at Wrigley Field where he saw Babe Ruth point to the outfield and then slam out a homerun. Some years later, he threw out the first pitch at Wrigley Field, a feat that meant more to his grandchildren than his service on the Supreme Court.

He used his own experience in the navy to subtly critique Justices who take a strictly literal approach of statutes and the constitution. While he was serving in naval intelligence, a dispatch came through indicating a Japanese battleship was in an unexpected location. The previous officer of the watch sent out the alarm. Then a duplicate version of the message came through, indicating that the original message had been garbled and that it was just a routine communique from a Japanese personnel officer on a base on an island. His point was "In communications there can be garbles." He said this was useful in trying to figure out "Could (Congress) possibly mean what they appear to say." Of course, in law, you don't have the advantage of a duplicate communique appearing in non-garbled form, so that the analogy didn't completely work.

He said that oral argument is more likely to change the way that a justice analyzes a case, although sometimes it will change his position. He suggested that the purpose of petitions for rehearing was to let the defeated lawyer blow off steam, while saying that dissents let the unsuccessful lawyer know that someone listened to him.

Justice Stevens said that he didn't think there was a good chance for televising oral arguments. He stated that whenever you put television in, it changes things.
He noted that since cameras were added to confirmation hearings for Supreme Court nominees, Senators spent more time making speeches, delaying the actual questioning significantly.

When asked about rumors of his impending retirement, he said, "I don't know the answer either."

On the use of foreign law, he pointed out that state law was foreign law and that no one saw anything untoward about looking at persuasive opinions from state court judges. He added that if an English judge or a European judge wrote something persuasive, he would consider it. However, he did not consider himself bound by foreign law.

His final advice to lawyers was:

"You will be practicing for a long time. There will be temptations to take a short cut here or there. You will be appearing before the same judge over and over. The biggest asset is to earn the respect of the bar and the judiciary."

Final Thoughts

It was a good conference. As you can see from these posts, I heard a lot that I found interesting. I met some judges. I saw some shows. Not a bad way to spend three days.