NCBJ 2018 opened in the historic Lila Cockrell Theater with current NCBJ president Judge Michael Romero belting out a welcome in song adapted from Cabaret. For me, Day 1 featured an awards show with head-snapping array of bankruptcy trivia and video, a valuation mock trial and the Commercial Law League's program. Themes throughout the day included trying to find some importance in this term's three bankruptcy-related Supreme Court decisions and the Tempnology case which just received a grant of cert.
Broken Bench Awards Show
There were a number of awards, some silly and some not so silly.
Best Judicial Turn of Phrase went to Supreme Court Justice Sonia Sotomayor who made this quip in her opinion in Wellness International Network, Ltd. v. Sharif, 135 S.Ct. 1932, 1947 (2010):
"The principal dissent warns darkly of the consequences of today's decision. To hear the principal dissent tell it, the world will end not in fire, or ice, but in a bankruptcy court."
The award for the best Bench Slap went to In re Lynch, 2017 WL 416782, 63 Bankr. Ct. Dec. 176 (Bankr. N.D. Oklahoma) where Judge Cornish chastised a lawyer for hiring professionals found on Craigslist.
The Court was stunned that Hyde chose attorneys and experts to assist her by shopping for them on the website Craigslist. Traditional avenues for finding and vetting attorneys such as the Lawyer Referral Service of the Oklahoma Bar Association, County Bar Association and Martindale-Hubbell Legal Directory seem much more reliable and trustworthy sources of information rather than searching classified ads on the internet.
Best Ethics Rant went to Judge Jeffrey Norman of the Western District of Louisiana (now sitting in the Southern District of Texas. His In re Banks, 2018 WL 735351 (Bankr. W.D. La. 2018) opinion said that:
This case is an unfortunate tale of attorney delay, promises to a client made by counsel but not kept, deception, and professional negligence.
They said that the lesson is that judges have a lot on their dockets. They don't want to spend pages and pages calling someone out. Make good choices (followed by a clip from Pitch Perfect).
Retired Judge Michael Ninfo (dressed as Captain America) received a lifetime achievement award for his work founding CARE, Credit Abuse Resistance Education. The presentation made me want to volunteer for the group.
The award for Best Use of a Song Lyric in an opinion went to In re Drew Transportation Services, 2016 WL 8892459 (Bankr. E.D.N.C. 2016) for its use of the Rolling Stones' "You Can't Always Get What You Want." (However, I felt that Judge H. Christopher Mott got robbed since he used the phrase in his In re SCC Kyle Partners, Ltd., 2013 Bankr. LEXIS 2439 (Bankr. W.D. Tex. 2013) relating to cram-down interest. He led his opinion with the quote and added: "In the Court's view, neither party will get all they want, but both will get what they need."
Prior to the conference, attendees voted on the Best Bankruptcy Cinderella Story. Receiving the award was the City of Detroit case. Judge Steven Rhodes, Kevin Orr and Corinne Ball accepted the award on behalf of the case. Judge Rhodes thanked Jones Day for not filing the case in Delaware.
Valuation Mock Trial
Judge Laurie Silverstein (Bankr. D. Del.), Ian Peck of Haynes & Boone, Camisha Simmons of Simmons Legal and Bob Stearn of Richards, Layton & Finger presented a mock trial of a hearing to value a company in the context of a chapter 11 confirmation hearing.
I am not going to discuss the specific valuation issues raised since a lot of it was over my head. However, I do have a few takeaways from watching the mock advocates. There is a lot of jargon used in valuation. While some judges may understand the difference between a WAC and a Beta input, it is important for the advocates to take the time to explain these concepts and how they fit into a valuation decision. In this case, the Judge understood a lot of concepts which were never explained. However, in real life, the parties might not get so lucky.
I thought that the attempts to attack the qualifications of the experts were of limited value. If you are not going to get the expert thrown out or substantially discredit them, questioning about the number of zinc mines appraised doesn't add much.
I thought that the demonstratives that the lawyers used were helpful but would have liked to see more of them.
I liked the way that one of the attorneys used his cross-examination of the other side's expert to lay out themes that his expert would be raising in his direct.
I was also impressed by the extent that the mock advocates understood the underpinnings of their opponent's expert's opinions. In one case, an expert had relied on a proprietary report. The advocate effectively challenged the fact that the expert had no way to verify the conclusions reached by the analysts who prepared the report. He referred to it as a black box in his cross and closing, a term that was echoed by the judge in her ruling.
It is hard to do a practice skills presentation with tight deadlines. I found this one to be very realistic (because it was based on a real case) and a good teaching exercise. (NCBJ is offering videos of all of the plenary sessions for sale in case you want to watch the presentation for yourself).
Every year the Commercial Law League of America awards the Lawrence P. King Award for Excellence in Bankruptcy to a distinguished judge, academic or practitioner. This year the award went to Prof. Jay Westbrook of the University of Texas School of Law. Prof. Westbrook has been one of the leading bankruptcy academics in the country for many decades. His ground breaking empirical work (with Teresa Sullivan and Elizabeth Warren) has helped us to better understand bankruptcy and the people who file bankruptcy. He is one of the bright lights of international insolvency law. He has also worked to accomplish venue reform, helping to draft a bill that was introduced in the Senate by two unlikely co-sponsors: John Cornyn of Texas and Elizabeth Warren of Massachusetts.
He was introduced by his former research assistant Eric Van Horn and a video message from his former collaborator U.S. Sen. Elizabeth Warren. I recorded both Sen. Warren's introduction and Prof. Westbrook's acceptance on my phone. I apologize for the quality. This is the first time I have attempted to incorporate video into a blog article.
I am combining one segment from Broken Bench Awards with Prof. John E. A. Pottow's address to the Commercial Law League luncheon since they both dealt with last term's Supreme Court decisions as well as one case that the Court has granted cert on for this term.
In the awards category, three presenters made pitches for why each of the Court's decisions was the best. Craig Goldblatt and (I think ) Danielle Spinelli from Wilmer Hale made pitches for Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752 (2018) and Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018) explaining why each of these decisions faithfully followed the text of the Code. Prof. Troy McKenzie of New York University School of Law argued for U.S. Bank Nat’l Ass’n v. Vill. at Lakeridge, LLC, 138 S. Ct. 960 (2018). Village at Lakeridge received the highest votes from the audience although I personally voted for Appling.
Prof. Pottow sought to provide some context to the decisions in his presentation titled Is Functionalism Back? The Professor stated that the Supreme Court has a hard time getting bankruptcy. He explained that this makes sense since they are generalists who must deal with many different areas of the law. However, it means that they often have a poor idea of what is going on in the trenches. This feeds into the formalism vs. functionalism dichotomy. Formalism looks at the words of the text while functionalism looks at how a given interpretation will work in practice. (My words, not his).
This leads to the three cases that the Court decided last term. I did not describe them above because I wanted to do so in the context of Prof. Pottow's talk.
The first case up was Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752 (2018), a case about a client who not only stiffed his lawyers, but lied to them to get them to continue representing him. Mr. Appling told his lawyers that he would be receiving a tax refund of "about" $100,000 and would use it to bring their bill current. The refund was closer to $59,000 and the debtor apparently did not intend to pay his lawyers. He filed bankruptcy after they sued him. The lawyers argued that their ex-client had induced them to keep doing work for them by lying about the tax refund. The issue before the Supreme Court was whether Appling's verbal statements about the refund were statements "respecting" the debtor's financial condition. Any claim based on a lie "respecting" the debtor's financial condition must be in writing. The lawyers said that a statement about one asset was not made "respecting" the debtor's financial condition. The Supreme Court disagreed.
In making its ruling, the Court started with a formal analysis--what does the dictionary say that "respecting" means. Then it went to an historical analysis--how were these claims treated under the Bankruptcy Act. Finally, the Court looked at the consequences of a rule requiring that a statement of financial condition must refer to more than one asset. What if the debtor makes one statement listing his assets and a separate statement concerning his liabilities? He has not made a single statement concerning his financial condition. The definition urged by the lawyers would be difficult to apply and would lead to bizarre results. Only the third rationale reflected functionalism. Prof. Pottow likened it to the dessert of the opinion, but added that at least Justice Thomas didn't dissent.
The Court also discussed legislative history, specifically a House Report. The Supreme Court had previously relied on this same report in Field v. Mans, 116 S.Ct. 437 (1995). This was one step too far for Justices Gorsuch, Thomas and Alito who did not join this portion of the opinion.
Next up was U.S. Bank Nat’l Ass’n v. Vill. at Lakeridge, LLC, 138 S. Ct. 960 (2018). According to Prof. Pottow, this was not really a bankruptcy case at all because it dealt with the standard of review on appeal rather than what rule the court should apply under bankruptcy law. The case dealt with how to determine whether a person was a non-statutory insider. According to the professor, the opinion starts out formalistically and ends on a functionalist
crescendo. The formalistic part of the opinion notes that there are three types of issues on appeal: issues of fact, issues of law and mixed questions of fact and law. Factual determinations receive deferential review while questions of law are reviewed on a clean slate. For mixed questions, it depends. The functionalist part of the opinion looked at what the Court was doing as it examined the mixed question of law and fact. If what the court was doing was closer to fact finding than applying the law, then the more deferential standard would apply. Prof. Pottow pointed out that the institutional competency of the Supreme Court was deciding difficult issues of law in a manner that would provide guidance to the lower courts. The institutional competency of the bankruptcy court was listening to evidence and making decisions about the facts.
Having established that appellate courts should defer to the fact finding of trial court's, individual justices began to weigh in on what the rest should be. This was a problem because the Supreme Court had not granted cert on this issue. Nevertheless, Justice Sotomayor said that the test used by the Ninth Circuit was dumb. Justices Alito, Thomas and Kennedy joined in the concurrence. Justice Kennedy concurred in the concurrence. This probably show buyer's remorse that the court had not granted cert on the substantive issue and was left with a narrow, insignificant opinion. (My words, not Prof. Pottow's).
Finally, there was Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018), a case about whether the safe harbor for securities clearing transactions should apply in a case where funds for a stock purchase flowed through two banks before reaching their ultimate destination. According to Prof. Pottow, this would have been a great case for the Supreme Court to dive deeply into the question of what is a transfer. In point of fact, funds travelled from the buyer (Party A) into his bank (Party B) to the Seller's Bank (Party C) to the Seller (Party D). The Supreme Court disregarded the parties in the middle, stating that while there was a transaction, there was not a transfer. Prof. Pottow claimed that the Supreme Court merely stated that the transfer was from A to D without analyzing why that was the case. I personally believe that they were looking at the economic reality of the transaction. The banks were akin to a courier rather than parties who came into ownership of the funds. Sure, a courier could make off with the funds and not delivered them, but that is not what happened here. Expressing his disappointment with this case, Prof. Pottow suggested that it might not be a good case to include in the next textbook.
Prof. Pottow pointed out that the judges who were the most functionalist went along with all three opinions. Of course, they were all 9-0 decisions, so that the judges who were most formalist went along with them as well.
There is more that I wanted to write about. However, the hour is late and tomorrow starts with a run at 6:00 a.m. I may add to this section after I return home.
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