I made it to three
panels each on Friday and Saturday. I
will combine them here for ease of posting.
If you read nothing else, read the Supreme Court discussion, including
late-breaking news on Stern v. Marshall.
The
Most Significant Business Bankruptcy Decisions and Developments of 2011-2012
This panel discussed
four recent cases. I have discussed Highland Highgate and Gateway RadLAX elsewhere, so I will just
focus on the two remaining decisions.
In Development Specialists Inc. v.
Akin Gump Strauss Hauer & Feld, 477 B.R. 318 (S.D.N.Y. 2012), the court
considered the obligations of partners of a dissolved law firm to account for
earnings from old firm business that they take to a new firm. Under the Uniform Partnership Act, partners
at the time of dissolution have a duty to each other to account for benefits
they receive from “use” of partnership property. The Court ruled that the departing partners
owed the firm an accounting for profits earned measured by receipts less
expenses. The Court declined to rule on
the following issues on summary judgment:
(1) The Partnership Law requires the departing partner to
account for profits he realizes from the use of the dissolved firm's unfinished
business. Is that measured by his share of the new firm's profit on the matter,
or by the entire profit realized on the matter?
(2) What constitutes a deductible
"expense" or "overhead" at the new firm? What portion of
the new Firm's realized fee is profit and what is expense (which will entail
dissection of billing rates to tease out the profit factor from the cost
factor)?
(3) How does one value the Former Coudert
Partner's contribution of "effort, skill and diligence" to the
matter?
477 B.R. at 350. The Court subsequently authorized an
interlocutory appeal.
The case raises serious
questions about whether partners who remain with a firm at dissolution will
constitute a burden on their new firms, since they may be forced to account for
any profits on work brought from the old firm.
Since part of the attraction of a lateral hire partner is his book of
business, this would severely diminish the attorney’s value in the
marketplace. Since the rule only
applies to persons who are partners at dissolution, it also creates an
incentive for lawyers to jump ship and thus hasten the decline of the
firm.
These are issues that
law firms should address in their partnership agreements before they go
bust. Also, the rule might apply
differently in jurisdictions which follow the Revised Uniform Partnership Act.
In In re TOUSA USA, Inc., 680 F.3d 1298 (11th Cir. 2012), the
parent company paid off existing debt by borrowing new funds secured by the
assets of its subsidiaries. The
Bankruptcy Court avoided the transfer as to both the lenders who were paid off
and the lenders who got new liens. The
District Court reversed as to the original lenders. The 11th Circuit affirmed the
original bankruptcy court ruling. Even
though the original lenders did nothing more than receive payment on their
debts, the fact that the funds came from encumbering the assets of the
subsidiaries meant that they were transferees for whom the fraudulent transfer
was made. I will be writing more about
this decision soon.
Round
Two: Scoring a Knockout on Appeal
This panel included Guy
Cole, a former bankruptcy judge who now sits on the Sixth Circuit, Jim Haines
of the First Circuit BAP, and Supreme Court advocates Eric Brunstad and Susan
Freeman.
Judge Cole offered a
bad joke based on an anecdote from Eric Brunstad at the prior day’s
luncheon. In a Supreme Court argument,
Brunstad had tried to explain the need for prompt action by bankruptcy courts,
giving the examples of rotting bananas and melting ice cream. This prompted a straight-faced question from
Chief Justice Rehnquist about “melting bananas,” demonstrating that even
Supreme Court justices can mix a metaphor.
Judge Cole asked:
Q: What happens to a melting banana?
A: It loses its appeal.
Sorry, I couldn’t
resist repeating that. (It might have
actually been Judge Haines who told the joke, but I will give the credit to
Judge Cole since he sits on a higher court).
I picked up a few
practical points from this panel.
Focus on your
audience. While a bankruptcy judge or a
BAP may be familiar with bankruptcy terms, an appellate judge will be unlikely
to. As noted by Judge Cole, about 70%
of his docket consists of criminal appeals and pro se prisoner cases. Someone pointed out that “indubitable equivalent”
is half of a haiku. I think the point
was that our jargon may be confusing to higher courts.
Put it in context. Since your case will be reviewed by judges
unfamiliar with bankruptcy law and law clerks just out of law school, be sure
to explain why it makes a difference.
If the difference between two different interest rates means that the
debtor wins reorganization or faces liquidation, this would be a good thing to
point out.
For oral argument,
practice giving sound bite answers.
Susan Freeman pointed out that doing a moot court, especially for
Supreme Court arguments, will work out weak areas in your argument. Because oral argument is short, being able to
give concise, responsive answers is a must.
Focus on the level of
the court you are arguing to. The
Supreme Court does not care what a bankruptcy court somewhere has to say about
an issue. They care about what they
have said before and what the circuits have to say.
Coming
to America Broke: Chapter 15 Plain and Fancy
In this discussion of
chapter 15, Judge Alan Gropper had the best bankruptcy pun of the conference
when he noted that, “We used to look for commies. Now we look for COMIs.” While both similarly sounding terms have
international implications, COMIs or Centers of Main Interests, actually have a
positive connotation under chapter 15.
While chapter 15 may
sound exotic, it is simply the means by which an American court can provide
assistance to a court conducting an insolvency proceeding in another
country. Chapter 15 is based on the
UNCITRAL Model law adopted in 1997. It
is based on the concept that a foreign representative appointed in a foreign
proceeding may request recognition and enforcement in the United States.
To begin with, there
must be a “foreign proceeding” including the following elements:
(i) a
proceeding; (ii) that is either judicial or administrative; (iii) that is
collective in nature; (iv) that is in a foreign country; (v) that is authorized
or conducted under a law related to insolvency or the adjustment of debts; (vi)
in which the debtor's assets and affairs are subject to the control or
supervision of a foreign court; and (vii) which proceeding is for the purpose
of reorganization or liquidation.
In re
Betcorp, 400 B.R. 266 (Bankr. D. Nev. 2009).
If there is a foreign
proceeding, a foreign representative may request recognition. In order to receive recognition, a
proceeding must be either a “foreign main proceeding” filed in the business’s
Center of Main Interest (or COMI) or a “foreign nonmain proceeding” filed in a
country in which the company has a business “establishment.” In re
Bear Stearns High-Grade Credit Strategies Master Fund, Ltd., 389 B.R. 325
(S.D. N.Y. 2008) established that a proceeding commenced in a so-called
letterbox jurisdiction might be neither a main proceeding nor a nonmain
proceeding. In that case, a fund was
established in the Cayman Islands, but all of its business activities were in
the United States. The Court refused to
recognize the Cayman Islands proceeding.
Prof. Jay Westbrook
said that international insolvency could be approached from a strictly
territorial approach or a broad universal approach. Because there is no international court
system, chapter 15 acts on the basis of a modified universalist approach. A court somewhere gets to be the lead court
and other courts may assist.
Recognition under
chapter 15 is meant to be an easy process, and according to a study by Prof.
Westbrook, is granted 95% of the time.
Once a proceeding has been “recognized,” a U.S. court may grant
“additional relief” if parties are “sufficiently protected.” The Vitro
SAB case (which I wrote about here) is a case where the Court found that a
Mexican proceeding did not sufficiently protect American creditors and denied
additional relief. The case is
currently pending before the Fifth Circuit.
According to Prof.
Westbrook, there have been 585 chapter 15 cases commenced since 2005. Initially these cases predominantly came
from tax havens. However, since the Bear Stearns case, some 65% come from
Canada and the United Kingdom.
The papers from this
presentation are available to the public here.
Bankruptcy
Bingo: The Battle for Bragging Rights
This panel discussed
ten recent bankruptcy decisions of interest in a game show format. Judge
Sheri Bluebond, the game’s hostess, deserves high praise for taking a panel of
ten judges and four contestants through ten cases in 60 minutes. The
cases discussed were:
In
re Maharaj, 681 F.3d 558 (4th Cir. 2012). The absolute priority rule applies to
property owned by the debtor pre-petition.
The exception to the absolute priority rule only applies to
post-petition property.
Ackerman
v. Eber, 687 F.3d 1123 (9th Cir. 2012). Court would not compel arbitration of
dischargeability issues over debtor’s objection.
In
re Nortel Networks, Inc., 669 F.3d 669 F.3d 128 (3rd
Cir. 2011). No police power exception
to automatic stay where foreign government was seeking to protect its own interest
in funding pensions.
Behrman
v. National Heritage Foundation, Inc., 663 F.3d 704 (4th
Cir. 2011). Court remanded case
involving third party releases where bankruptcy court findings were couched in
terms of generalities rather than specific findings.
In
re XMH Corp., 647 F.3d 690 (7th Cir.
2011). In an appeal involving
assumption and assignment of a trademark license, the fact that the license had
expired allowed the court to assign the non-executory portions of the contract.
In
re TOUSA USA, Inc., 680 F.3d 1298 (11th Cir.
2012). Old lenders were entities for
whose benefit avoidable transfers were made.
Peterson
v. McGladrey & Pullen, 676 F.3d 594 (7th Cir.
2012). Suit brought against auditors of
debtor who operated a ponzi scheme was barred by in pari delicto. Because suit was brought under state law,
state law defenses applied.
Perkins
v. Haines, 661 F.3d 623 (11th Cir. 2011). Ponzi scheme investors established defense
for return of principal. They gave
value and acted in good faith, thus entitling them to defense.
In
re Friedman, 466 B.R. 471 (9th Cir. BAP
2012). Debtor may retain both Sec. 541
property and Sec. 1115 property without violating absolute priority rule. This case conflicts with In re Maharaj above.
In
re Mirant Corporation, 675 F.3d 530 (5th Cir.
2012). Although debtor was
headquartered in Georgia, Georgia had no significant interest in enforcing
repealed Georgia law in fraudulent transfer action. Court applied New York law instead. For reasons that are unclear to me without
reading the opinion, the Fair Debt Collection Practices Act somehow affected a
fraudulent conveyance case involving commercial transactions.
The specific questions and answers can be
found on the NCBJ website here.
What
33 Years of Supreme Court Interpretations of the Bankruptcy Code CanTeach Us
Continuing the Supreme
Court theme, Professors Erwin Chemerinsky and Ken Klee and Judge Judy
Fitzgerald spoke about Supreme Court interpretations of the Bankruptcy
Code. These speakers deserve extra credit
because they put their panel together on short notice after Justice John Paul
Stevens was unable to make the conference.
They sounded several interesting themes, including the ongoing battle
between textualists and purposefulists and how the circumstances of the court
can affect major decisions.
The
Supremes on Statutory Interpretation:
According to Prof.
Klee, there are deep divides on the court as to how to interpret the
Constitution and statutes. The
textualists, led by Justice Scalia, will follow the text even when their
philosophical leanings would lead them elsewhere. The purposefulists, led by Justice Breyer,
will look more deeply into the purpose of the statue. Nevertheless, the Supreme Court does not
care deeply about bankruptcy. According
to Prof. Klee, they do the best that they can and leave it to Congress to fix
it if they get it wrong.
Prof. Klee used three
cases as illustrations.
Hall
v. United States, 132 S.Ct. 1882 (2012).
This chapter 12 case dealt with the question of what happens to taxable
gain when farmer has low basis and the farm is foreclosed upon during the
bankruptcy. The farmer can be left with
a terrible problem because the tax is not part of estate and not subject to
discharge. Sen. Grassley authored
legislation to avoid this problem. Unfortunately,
the intent not reflected in language of statute. Justice Sotomayor wrote majority opinion for
a 5-4 court. The Court applied a strict
textualist approach to find that the language should be interpreted as written,
rather than as intended. Prof. Klee
speculated that this opinion might mean that Justice Sotomayor might actually
have some textualist leanings. This
problem would not occur in an individual
chapter 11 case because there is a
separate taxable estate in a chapter 11 case.
Marrama
v. Citizens Bank, 127 S.Ct. 1105 (2006). In this 5-4 statutory interpretation case, a
debtor who filed chapter 7 and was caught in wrongdoing sought to convert to
chapter 13. Although the statute said
there was an absolute right to convert, Justice Stevens, applying a
purposefulist approach, upheld the bankruptcy court decision denying
conversion. Justice Stevens said that
it was nonsensical to allow conversion if the debtor could not stay in chapter
13 absent good faith. The textualist
minority said there because there was an absolute right to convert, the only
proper approach was to allow conversion and then re-convert the case. The majority said that bankruptcy was for
the benefit of the honest but unfortunate debtor and that scoundrels should not
have the right to convert (whether the Code says so or not).
RadLAX
Gateway Hotel, LLC v. Amalgamated Bank, 132 S.Ct. 2065
(2012). In this 8-0 decision, the court, rather than
examining the extensive history of the term “indubitable equivalent” relied on
a statutory canon to determine that the specific provision of Sec.
1129(b)(2)(A)(ii) controlled over the more general Sec.
1129(b)(2)(A)(iii).
Prof. Erwin Chemerinsky
noted that the fact that there have only been three statutory interpretation
cases relating to the Bankruptcy Code in recent years reflects the reduced
number of cases being heard by the Supreme Court. Throughout much of the 20th
Century, the Court heard over 200 cases per year. In 1978, the Court decided 162 cases. While Chief Justice Roberts lamented the
Court’s declining docket in his confirmation hearing, the court decided just 65
cases in the last term. As a result,
many important legal issues will go for longer periods of time without
decisions.
Prof. Chemerinsky said
that the court has a deeply divided bench with regard to both statutory and
constitutional interpretation. Justice Scalia’s largest impact on the court has been changing
how judges approach legislative history. He was the first justice to suggest that
legislative history is irrelevant and he often gets a majority to join him. While
Justice Breyer advocates looking at the underlying purpose of the statute and
is willing to look at legislative history, he considers history to be just an
indication of the purpose of the statute.
Prof. Chemerinsky
decried an over reliance on the plain meaning approach, noting that rarely will
cases come to the Supreme Court with texts that have plain a meaning. Where there are two plausible interpretations,
either one can be supported under the plain meaning approach. In that instance, the words of the statute
don’t answer the question.
Stern
v. Marshall Dissected and Placed in Historical Context:
Prof. Chemerinsky
argued that the two most important constitutional decisions relating to
bankruptcy were driven by very different concerns. In Northern
Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50 (1982), a
plurality led by Justice Brennan held that the jurisdictional scheme of the
Bankruptcy Reform Act of 1979 was unconstitutional because it allowed non
Article III bankruptcy courts to determine state law issues between non-debtor
parties. Prof. Chemerinsky asked, why
did the liberal wing of the court care about giving too much power to
non-Article III judges? His answer is
that they didn’t. At the time, Congress
was threatening to remove the power of
the federal courts to hear controversial issues such as abortion and
affirmative action. According to Prof.
Chemerinsky, “I think that what the Supreme Court did in Marathon was to send a
message to Congress about the ability of Congress to limit the power of the
(Article III) courts.” He noted that
the only possible constitutional fix to this problem was to make bankruptcy
judges Article III judges. However,
Chief Justice Burger and the Article III judiciary opposed this move. Congress created the core/non-core distinction
which did not really solve the problem.
Over time, the Supreme
Court changed its approach toward non-Article III Courts. In Thomas
v. Union Carbide Agricultural Products Co., 473 U.S. 568 (1985) and Commodity Futures Trading Commission v. Schor
(1986), the court adopted a
functional approach. The core/non-core
distinction made sense from a functional point of view.
All of this changed with Stern
v. Marshall, 131 S.Ct. 2594 (2011), which Chemerinsky described as the
second most important case with regard
to the Bankruptcy Reform Act of 1978. In
this case, it was the conservative wing of the court that sought to limit the
power of the bankruptcy court. Chief
Justice Roberts and the conservative wing of the court took a formalistic
approach which looked to what the term judicial power of the United States
meant when the Constitution was adopted.
The liberals, led by Justice Breyer, took a functional approach, noting
that the core/non-core distinction worked as a practical matter. Prof. Chemerinsky said that one of the
puzzles of the two cases is why the Supreme Court found it important to require
Article III courts to determine matters of state law. After all, most state law issues are decided
by state courts which do not have the protections guaranteed by Article
III. The answer, which I think was left
unstated, is that the bankruptcy courts are a football being kicked back and
forth between the liberal and conservative wings of the court to advance other
agendas.
Prof. Chemerinsky said that a big question is
whether consent will solve the problem.
He said that if consent works, there will not be much practical impact
from Stern. He then dramatically added
that “Until yesterday, consent was enough to solve the problem.” On October 26, 2012, while the NCBJ was
proceeding, the Sixth Circuit decided Stone
v. Waldman, No. 10-6497 (6th
Cir. 2012), which can be found here.
This is the first circuit court decision to
hold that the Stern problem cannot be solved through consent. He said that if this decision is followed,
the impact will be enormous. If the
Supreme Court takes up Stone v. Waldman
and rules that consent is not adequate, then bankruptcy courts will be required
to do reports and recommendations in all matters in which they cannot issue a
final order. This would lead to
ping-ponging back and forth between bankruptcy and district courts, delay,
additional expense and the elevation of form over substance as overworked
district courts rubberstamp bankruptcy court rulings. He added, “In the end, I am of the
conclusion that the only solution is to make Bankruptcy Judges Article III
judges, but question whether there is the political will to do this.”
Prof. Klee noted that
in Stern v. Marshall, the plaintiff
was found to have consented to determination of his state law defamation claims
in the dischargeability context. He
said, “If the bankruptcy courts can’t decide claims, we should close up shop and go home.”
Bankruptcy Judge Judy Fitzgerald
asked, how far can I go in determining a claim?
In Stone v. Waldman, a chapter 11 debtor-in-possession argued that he
had been defrauded by a creditor. The
bankruptcy court denied the creditor’s claim and also awarded $3 million in
damages to the DIP. On appeal, the
defendant argued that the Bankruptcy Court lacked authority to enter judgment
against him under Stern v. Marshall. The Sixth Circuit found that the federal
courts had jurisdiction over the debtor’s affirmative fraud claim but that the
bankruptcy court lacked authority to enter a final judgment.
As I read the decision,
the Sixth Circuit ruled on waiver rather than consent. The defendant did not object to the
Bankruptcy Court’s ability to enter a final judgment against him. The Sixth Circuit found that a party could
not waive the right to have a claim determined by a constitutionally valid
court. It stated:
Waldman’s
objection thus implicates not only his personal rights, but also the structural
principle advanced by Article III. And that principle is not Waldman’s to
waive.
Opinion, p.
8.
Prof.
Chemerinsky argued that this was a consent case because Waldman affirmatively pled that the claims against him were core
proceedings. I do not read the case
that expansively. While Waldman agreed
that the claim was core, that does not end the issue, since Stern v. Marshall created the new
category of core but unconstitutional.
Additionally, the Court used the term waiver in its analysis. Is there a difference between waiver and
consent? I think so. Time will tell.
Prof. Klee suggested
that perhaps the solution was to have the U.S. Trustee designated as the
representative of the estate so that all matters brought on behalf of the
estate would implicate rights of the federal government and thus be public
matters.
Prof. Chemerinsky
described that as “an incredibly clever approach” but questioned whether the
United States would be a real party in interest notwithstanding the designation. In Qui Tam cases, a private party may sue
in the name of the United States, but that is a situation where the U.S. is the
party that has suffered the loss.
Judge Fitzgerald then
asked if changing case captions from “In re” to “Ex rel” would solve the
problem.
Prof. Chemerinsky predicted that there will be
a split among the circuits. At this year’s Seventh Circuit Judicial Conference,
Judge Easterbrook was dismissive of the notion that consent would not work.
One of the professors
(sorry my notes are unclear) stated that if the court is going to take Stern seriously, what does that mean for
magistrate judges and arbitrators?
While magistrate judges function more like true adjuncts to the district
courts, they have the ability to conduct jury trials with consent. The question was asked how that could
survive if Waldman is the law.
Prof. Chemerinsky said that it was difficult
to try to predict what will happen in the future. If the court takes a functional approach, it
will “back away and take consent as solution.”
However, he said that he was skeptical that Supreme Court judges have
any concept of what bankruptcy judges do and may decide the issue without
thinking about what it means for the bankruptcy courts.
A
Little Speech:
From there, the
professors pivoted to discuss Milavetz,
Gallop & Milavetz v. United States, 130 S.Ct. 1324 (2010). Prof. Chemerinsky noted that BAPCPA
regulates speech in many ways. One area
where he believed Congress had acted unconstitutionally was the provision
prohibiting a Debt Relief Agency from advising an assisted person to incur debt
in contemplation of bankruptcy.
Nevertheless, a unanimous Court, in an opinion by Justice Sotomayor,
found the provision constitutional.
Justice Sotomayor read the provision as prohibiting an attorney from
advising a debtor to take out debt for an improper purpose. The professor opined that “just because the
Supreme Court says something doesn’t make it right” and that it was a “nice way
of writing the statute, but it’s not how Conress wrote it.” He noted that even the textualist judges
signed on the opinion, illustrating that consistency only goes so far (the last
clause was mine, not Prof. Chemerinsky’s).
Prof. Klee argued that
the court read a good faith requirement into statute. “Here
they took a statute about incurring more debt in contemplation of filing a case
and limited it to incurring debt that is not good debt.” He added that reading something into a statue
that is not there to avoid a constitutional problem is not the same as the
doctrine of constitutional avoidance. He
concurred that it was a “fascinating statutory interpretation case because the court
rewrote the statute and the textualists went along with it.”
Prof. Klee noted that
statutory interpretation had changed since the Code was drafted in 1978. At that time, the Supreme Court was clear
that legislative history matter and the Code was drafted with that in mind.
Immunity
for the Sovereign (Don't Tell the Tea Party):
Finally, the professors
turned to sovereign immunity.
Prof. Klee described 106(a)
which waives sovereign immunity as an abomination. He said that when the Court rejected a
general waiver of sovereign immunity, a deal was cut in 1994, the parties sat
in a room and went through every provision and negotiated whether immunity
would be waived or not. He said that
this micro approach increased the probability that something would be missed.
Prof. Chemerinsky
discussed the conflict in the Supreme Court’s sovereign immunity
decisions. In Pennsylvania v. Union Gas Co., 491 U.S. 1 (1989), the Court said
that states could be sued if Congress said so. In Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996), the Court
said no. As a result, the carefully drafted language of section 106(a) became
irrelevant after Seminole.
In Tennessee Student Assistance Corp. v. Hood, 124 S.Ct. 1905 (2004),
the pendulum swung back the other way.
The Supreme Court essentially ducked the constitutional issue and held
that it did not apply because the discharge operated “in rem.” Justices Scalia and Thomas dissented, arguing
that whether jurisdiction is in rem or in personam, there is still an effect on
an unwilling state. Finally, in Central Virginia Community College v. Katz,
126 S.Ct. 990 (2006), the court held in a 5-4 decision that sovereign immunity
did not apply to recovery of a preference in bankruptcy. The decision came down in Jan. 2006, just days before Sandra Day O’Connor
left the court. Prof. Chemerinsky stated
that he always believed that the result would have been different if the
opinion had come down two weeks later. He believes that there are now five justices
willing to overrule Katz who don’t accept
that sovereign immunity doesn’t apply in bankruptcy.
My heard hurt after
this panel—not because it was bad, but because I think I got an entire
Constitutional law course in one hour. For
my money, this fill-in panel was the highlight of the conference.
Consumer
Financial Protection Bureau’s Big Assignment
The final panel of the
conference examined the Consumer Financial Protection Bureau. Last year’s conference also included a CFPB
presentation, but the bureau had been functioning for less than 90 days at that
time. The panelists included Prof. Pat
McCoy, who had been with the bureau at its founding, Holly Petraus, Assistant
Director for the Office of Servicemember Affairs and Gretchen Morgenson of the
New York Times.
Prof. McCoy explained
the new for the bureau pointing out that during the home mortgage boom, federal
regulators did “precious little to deter reckless mortgage lending.” Although the Federal Reserve was the one
federal regulator that could have issued a regulation requiring that loans only
be made to borrowers who could pay, Alan Greenspan had a philosophical opposition
to banking regulation and said no. The
CFPB will be promulgating such a regulation by January 21, 2013. The fragmented set of federal regulators
prompted a “race to the bottom” to see which regulatory agency could get the
most charters by offering the least regulation. Additionally, banks faced competition from
unregulated non-bank lenders. This put
pressure on banks to compete. Finally,
consumer protection was divided among four federal regulators whose core
missions were bank safety and monetary policy rather than consumer
protection. Prof. McCoy stated that in
the mortgage area, lack of controls over “nearly brought down the financial
system.” She added that ignoring
consumer financial protection can lead to system-wide financial problems of
“catastrophic proportions.”
The Dodd-Frank
legislation created the CFPB as the one federal regulator whose sole mission
was consumer financial protection. The
Bureau opened its doors on July 31, 2011.
The Bureau reduced fragmentation by providing one agency responsible for
consumer protection. It took measures
to avoid the regulatory race to the bottom by ensuring that lenders could not
avoid regulations by switching to a new regulator. It also subjected non-bank lenders to CFPB
examination. The bureau was also
designed to avoid regulatory inaction on philosophical grounds because it was
affirmatively required to enact rules.
Ms. Petraeus said that
her goal was to “ensure that no one can build a financial model around
deceptive business practices.” She
stressed the importance of requiring disclosure so that people can see the
costs.
She said that her job
involved ensuring that servicemen received financial education, to monitor
complaints and to protect military families. She said that she has been to 40 military
bases in connection with her job and that pay day lenders and scams were a
major emphasis.
Ms. Petraeus also
pointed out the difficulties involved for service members and home
mortgages. She said that she had moved
24 times during her husband’s 37 years of military service. When a service member receives PCS orders,
they may not be able to sell their property or rent it for enough to pay the
mortgage.
However, many service
members do not qualify for mortgage modification programs because they are
either are not in default at the time they receive orders or are no longer
occupying their property. While some
lenders allowed mortgage modifications for service members transferred into a
combat zone, they did not address the much more common scenario of regular
transfers. She said that the recent
Attorney Generals’ settlement provided more options for service members and
that they were working to ensure that a home would be deemed to be owner
occupied if the service member planned to return to it.
She said that
defaulting on a mortgage in order to qualify for a modification program posed special
problems for service members. She said
that financial problems constituted the number one cause of losing a security
clearance in the military. When this
happens, the service member cannot work in his trained field and the military
must find someone else to fill the vacancy.
Ms. Petraeus spoke about
the importance of financial education for service members. She said that currently it is offered as part
of basic training. She said that when
you take a new recruit and push him to his physical limits and then place him
in a dark room where someone is giving a powerpoint talk, the natural result is
nap time. She spoke about how the
military is now sending financial education packages to recruits during the
period between enlistment and when they arrive to begin their service. This deferred entry period can sometimes be
substantial and allows an opportunity for education.
Parting
Thoughts
This makes the Fifth
NCBJ I have attended. This year’s
conference attracted about 1,900 registrants and over 150 bankruptcy
judges. I made it to twelve panels in
two and a half days, which is a lot of information to take in. In between blogging, I had the opportunity
to meet some new people, catch up with previous acquaintances, eat some
convention lunches and drink a lot of coffee.
However, the most illuminating moment came during the closing night
dinner on Friday when the dance floor was swarmed by judges, quite a few of
whom displayed silver hair, dancing to the beat of Creedence Clearwater
Revisited (composed of the band’s original rhythm section). While there may have been a few practitioners
up there, I saw a lot of blue badges (indicating judges) moving in that
direction. It was a good metaphor for
the fact that we may be getting older and we have to overcome challenges such
as the awkwardly drafted language of BAPCPA, but the bankruptcy community still
has a lot of vigor and a bit of fun left in it. However, I really wish I had taken some pictures. See you next year in Atlanta.
