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.
Blogging
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.
