Friday, November 01, 2013

Blogging, Economics and Bankruptcy Reform Commission at NCBJ

This is continuing coverage of the 2013 National Conference of Bankruptcy Judges.   Today I was able to attend a program on blogging, listen to an economist prognosticating and observe a hearing of the ABI Commission to Study the Reform of Chapter 11.


Judge Robert Kessel (Bankr. D. Minn.), Judge Bruce Harwood (Bankr. D. N.H.), Bob Lawless (of Credit Slips) and Debra Dandenau (of Weil Bankruptcy Blog) presented an informative panel on blogging.   Including this panel at NCBJ (with two judges participating) is evidence that blogs have come a long way in terms of respectability.     It also underscores the point that judges read bankruptcy blogs.

Blogs are part of the larger group of content classified as “electronic social media,” which puts them in the same category as Facebook and Twitter.    The term blog is a contraction of web log and refers to the origin of blogs as personal journals published on the internet.    The blogs on the internet are distinguished from the same term used to describe a strong drink of indiscriminate content used by science fiction writers.   (I would not have known this if it wasn’t for Judge Harwood).

Debra Dandenau is an editor of the Weil Bankruptcy Blog (WBB), which can be found here.    In order to distinguish themselves from other blogs, they made the decision to publish daily.   This is possible when you have an army of minions (associates) jumping at the chance to be published.   The Weil authors publish an average of once a month which must mean that they have at least twenty authors contributing.    The firm uses the blog as a marketing tool which means that the Weil name is on every page.   

Prof. Bob Lawless is a contributor to Credit Slips, which can be found here.   Credit Slips is also a group effort.   It began as a way for a diverse group of academics working on a major research project to maintain contact with each other.  

The two blogs have contrasting approaches to their corporate identity.   At WBB, editors who are partners review the content to ensure quality and make sure that the blog represents the firm.    Associates are required to send an email around to all of the partners in the department to make sure that the blog does not take a position contrary to client interests.   In contrast, each of the Credit Slips bloggers are solely responsible for their own content and they do not attempt to do message control.   This blog, on the other hand, is purely a solo effort.   While I have been approached by strangers offering to do guest posts, I would not be comfortable accepting content from someone I did not know well.  

WBB tries to engage its readers through devices such as surveys and humor.   Their October 31 posting was on the Ghost of Anna Nicole.   

Writing a blog raises legal and practical issues.   As explained by Dandenau, authors strive to provide more insight than can be gained from simply reading the cases, but are careful not to betray client confidences or work product.   As a result, the firm rarely writes about ongoing cases in which it is involved.   (A practice that I follow as well).   Prof. Lawless noted that it was important to make disclosure when writing about a case that the author has an interest in.  

Another important decision to make is how much of an editorial voice to use.   Ms. Dandenau stated that they never criticize bankruptcy judges, although they may occasionally point out an issue that presumably was not brought up by the parties.    The blog is somewhat more willing to take a position on appellate decisions.  

There are also judicial bloggers, including Hercules and the Umpire (found here) and the Becker Posner blog (found here).   According to ABA FormalOpinion 462, judges can participate in electronic social media, but must “avoid any conduct that would undermine the judge’s independence, integrity, or impartiality, or create an appearance of impropriety.”    Thus, a judge could get in trouble for making comments on a blog or other social media that reflected favorably or poorly on an attorney appearing before her.  

According to Prof. Lawless, the benefits of writing a blog include:
  • Getting your name out
  • Showcasing your expertise
  • Networking with the media
  • Staying current on the issues
  • Engaging with the community that reads your blog
  • One way to engage with the community is through the comments section of the blog.   
WBB make a conscious decision not to allow comments, while Credit Slips allows unmoderated comments (although they have software to screen out spam).   Prof. Lawless said that one recent commenter who took him to task succeeded in changing his mind.   On the other hand, nasty comments may come back to bite the commenter.   Recently, an irate reader of Scotusblog posted a comment that read  “go f***yourself and die.”   Scotusblog tracked down the anonymous commenter though his IP address and outed him to their list of 174,000 twitter followers.    I moderate comments because I haven’t figured out a better way to block spam, but also because I get the occasional hateful comment about a judge, lawyer or party.

Judge Harwood said that he reads bankruptcy blogs because they are updated frequently, have focused content and have hyperlinks to useful material.   He compared blogs to law reviews with the analogy that blogs are business casual while law review articles are black tie.   Law reviews get dressed up but don’t go out very often.  

Judge Hannah Blumenstiel (Bankr. N.D. Cal.) stated that she uses blogs as a shortcut to do legal research.   She said that they did not violate the prohibition against a judge consulting outside sources because they were used to find the law rather than the facts.

The most popular blogs read by panelists were:
  • Credit Slips
  • Hercules and the Umpire
  • Weil Bankruptcy Blog
  • The Ponzi Blog
  • Wall Street Journal Bankruptcy Beat

Even though they did not mention this blog, I am glad to give a hat tip to these well-written selections.   (Their written materials did refer to both A Texas Bankruptcy Lawyer’s Blog and Spiritually Bankrupt by Ron Satija).

Judge William L. Norton, Jr. Award

Judge Barry Russell (Bankr. C.D. Cal.) was honored by the American Bankruptcy Institute with the William L. Norton, Jr. Award.   Judge Russell was appointed as a Bankruptcy Referee in 1974 and became a Bankruptcy Judge in 1979.   He is currently the longest serving Bankruptcy Judge in the United States.  He is the author of West’s Bankruptcy Evidence Manual and established a mediation program in his district.   In his acceptance speech, he called his long friendship with Judge Norton and noted that Judge Norton encouraged him to write his first evidence book.

The Economist’s Viewpoint

Prof. Jeffrey Rosensweig of Emory University, who was formerly a senior economist for the Atlanta Fed, gave the luncheon address for the ABI.    His presentation was full of slides packed full of charts and economic data, some of which I could read.    Any errors are due to my poor eyesight.

Prof. Rosensweig presented a lot of data pointing to different trends.   One recurring theme was that the incoming Fed Chairman Janet Yellen will keep interest rates low for the foreseeable future but that they will go up.     He said that Yellen would continue the quantitative easing program of the Fed where it buys U.S. government debt from banks in order to put more money back into the economy.    He pointed out that treasury debt held by the Federal Reserve System had increased from $1.5 trillion to $2.0 trillion in the last three years.  

So long as the Fed keeps pumping money into the economy interest rates will remain low.   Recently the expectation that the Fed would begin tapering its purchases caused interest rates to go up by a point.   However, when the Fed did not taper, they resumed their downward path.   The 10 year U.S. Treasury interest rates upon which most mortgages are priced has declined from 7% to less than 2%, went up to 3% but is expected to drop to 2.5%.  

Beyond the interest rate news, he was fairly gloomy.   He noted that the developing countries were showing tremendous growth while Europe was stagnant or declining.   The U.S. economy will grow at a rate of 1.5% this year and is expected to grow by 2.5% next year.    This will not be sufficient to put a dent in unemployment.  

One reason for poor growth is that housing is no longer the locomotive driving growth.   During the housing bubble, home starts were up at two million, which exceeded the long term average of 1.5 million per year.   After the crash, they dropped as low as half a million before rebounding to one million.  Thus, even though housing starts are up from the bottom, they are not back to historic levels.

Among other industries, health care employment is up by 35% over ten years, while manufacturing employment is down 30%.   Construction had crashed but is coming back.   Government employment has been steadily declining for years.

He said that the unemployment rates published gave a misleading impression of the labor market.   While unemployment is down, labor force participation is at its lowest point since women entered the workforce in the 60s and 70s.   (He was quick to point out that women had always been working but were not counted as being in the workforce until they began working outside the home).    He described labor force participation and unemployment as the donut and the hole.   Participation is the donut, while unemployment is the hole in the donut.   He said that when you buy a donut, you care about how big the donut is, not the size of the hole.   The donut is shrinking.

Prof. Rosensweig noted that inflation has been running below target.   To keep the economy humming, an inflation rate of 2% is healthy.   We have been running below 2% and declining.

However, he was not overly pessimistic about the national debt and entitlement spending.   The national debt has grown from $1 trillion in 1981 to a projected $18 trillion next year   Meanwhile the ratio of debt to GDP grew from 30% of GDP in 1981 to over 100% in 2011.   Now the percentage has dropped below 100% which means that the economy will not implode (my words not his).   On an annual level, the deficit has dropped from $1.4 trillion in in 2009 to $680 billion in 2013.   As a percentage of GDP, this is a drop from 10% to 3%.    He said that as long as the economy grows faster than the new debt being accumulated, we will be able to stay ahead of the deficit.   He likened it to a family that is going deeper in debt, but whose income is rising faster than their debt payments.

Finally, he said that we will be able to maintain entitlement spending but that it will be necessary to raise the retirement age.   He said that in order to have the same number of workers paying into social security and medicare in 2030 as in 2010, it will be necessary to raise the retirement age to 70, although we may be able to get away from 68 or 69.   On the other hand, if the retirement age remains at 65, there will be a serious imbalance between working and retired people.  

ABI Commission to Reform the Bankruptcy Laws

The ABI is conducting a series of hearings on reforming chapter 11.   Today’s hearing was on corporate governance.   The six witnesses combined a chorus of pleas for the status quo with a few startling proposals for change.

Dennis Dunne of Milbank Tweed testified that the current system of official committees worked just fine and should be kept.   He argued that ad hoc committees were a poor substitute because they did not owe fiduciary duties and tended to come and go.   However, he did note a potential problem where a committee represented unsecured creditors who were out of the money.   In that situation, the committee would have an incentive to pursue chancy litigation and prolong the case in order to fulfill its fiduciary duty to get something for the unsecureds.   However, he did feel that the committee still had a role in order to investigate the secured creditor’s liens and make sure there were not any unencumbered assets.

Questions directed to Mr. Dunne concerned whether there should be multiple committees for jointly administered debtors or one committee for all creditors, secured and unsecured creditors alike.   Mr. Dunne testified that too many committees could prevent reorganization while a single committee, including secured creditors, would have impossible and conflicting duties.    He was also asked about the problem of ad hoc committees holding out for substantial contribution claims.   He acknowledged that having to pay two sets of committees was a problem, but said there was not a statutory fix.            

William Snyder of Deloitte Financial Advisory Services, LLP testified about the virtues of Chief Restructuring Officers.    In his view, a Chief Restructuring Officer allows a business to address is problems while retaining the institutional knowledge of the board of directors.   He said that anyone who thinks they can step into a business and know everything within 2-4 weeks is delusional.  

He gave the analogy of a plane in trouble.   In that case, there is one pilot to fly the plane and one pilot to fix the problem.   Presumably, the CRO would be the pilot fixing the plane.  

He said that to work, a CRO must have the power to hire, fire, sign checks and refuse to sign checks.  

He recommended that section 101(14) be amended to allow a pre-petition CRO to be employed as a professional.   Currently, “officers” are defined as not disinterested.   Since the O in CRO stands for officer, this is a problem.

One of the commissioners questioned whether the CRO was a threat to the traditional DIP model.   He described the CRO as “just a trustee picked by the secured creditor before the case is filed.”   Mr. Snyder pushed back against this notion, asserting that while someone in the capital structure usually forces the issue but the debtor selects the CRO.    He said that if the creditor requesting the CRO provides a list of acceptable candidates, those parties are usually blacklisted.  

One of the commissioners suggested that the debtor’s lawyer usually has the most control over selection of the CRO.

Brady Williamson, who chaired the National Bankruptcy Review Commission, advised the Committee to forget about persuading Congress with their recommendations and instead focus on educating the courts, US Trustees and public of the need for change.   He pointed out that BAPCPA was vetoed by the President and blocked by one house of Congress or the other on at least four occasions before it eventually passed.   He said that today’s Congress is much more divided.    He said that the Commission could improve the public perception of the bankruptcy system by showing that it is fundamentally sound.

Clarkson McDow is the former U.S. Trustee for Region Four.   His message was that the U.S. Trustee system is a valuable part of the system.   In particular, he was emphatic that the U.S. Trustee continue to appoint trustees and examiners so that judges can avoid fulfilling an administrative role.    He insisted that appointing a chapter 11 trustee was not an extreme remedy and encourage more use of chapter 11 trustees in liquidating chapter 11 cases.   He said it was important to get a trustee in place before the most valuable assets were gone.    Mr. McDow encouraged the panel to resist appointing persons with trustee-like powers in favor of appointing actual trustees.

Prof. Anne Lawton of Michigan State University College of Law reported on her empirical research.   She said that the 300 day deadline for a small business debtor to file a plan and the45 day deadline to confirm a plan were solutions in search of a problem.   She said cases were being disposed of quickly prior to BAPCPA.    Of small business cases, only 47% were still pending at 345 days into the case.   However, she said that of cases still pending at the 345 day mark, 71% proposed a plan and 46% confirmed a plan.   This compares to a confirmation rate of 26% overall.   She said that it just takes longer to get to confirmation.   

She also testified that cases more likely to succeed typically had committees appointed.   However, she did not advocate for more committee appointments.   Instead, she said that appointment of a committee was a signal that the creditors believe that the case is one worth paying attention to.  

Prof. Lawton said that there were adequate means for quickly getting rid of cases with low prospects for success.    On the other hand, she said that there were too many levers to pull to dispose of a case that might succeed.   She said that we need a more efficient system for determining keepers.  
Mark Gittelman, Chief Practice Counsel-Asset Recovery for PNC Bank, had the most provocative recommendations.    Unlike the other witnesses, who proposed no changes or at most one tweak, he had a six point plan:

  • He recommended bifurcating bankruptcy courts into commercial courts and consumer courts.
  • He also recommended creating mega courts for large and complex cases.   He said that the system could start with the courts in Delaware and New York and add a few others elsewhere in the country.   In return for creating the mega court, mid-market cases would be filed in their local venues.
  • Mr. Gittelman also recommended that bankruptcy judges be rotated among different courts to encourage uniform practices between locales.
  • He recommended that the selection process for professionals be more transparent and that courts be open to billing arrangements other than on an hourly basis.
  • He favored enforcing the rules on timely filing of schedules and monthly operating reports so that creditors can receive needed information early in the process.   (Apparently he was referring to the practice of routinely granting schedule extensions in large cases).
  • Finally, he recommended uniformity in first day motion practices.   He said that many cases were needlessly delayed because lawyers failed to file all of the first day motions they should.   He recommended developing a series of uniform first day motions to be filed in every case.

1 comment:

Ron Satija said...

What??? Show me where they referred to me. How exciting! Man, I'd better post more...!