STOCKTON, CALIF., STRIVES TO AVOID VALLEJO'S BANKRUPTCY FATE
Stockton, Calif., an agricultural center of about 292,000, is fighting to avert bankruptcy by shrinking its payroll, including a quarter of the roughly 425-member police force, Bloomberg News reported today. Twice since 2010 it has declared a state of fiscal emergency to force cuts on public employees. Stockton is trying to sidestep the fate of Vallejo, Calif., which filed for chapter 9 bankruptcy in 2008. Stockton is facing a number of challenges: it has the second-highest foreclosure rate in the U.S., behind Las Vegas, the eighth-highest unemployment rate at 15.9 percent in December and the eighth-highest violent crime rate in the country in 2010. In November, Moody's Investors Service downgraded about $137.7 million of its debt to Baa1, the third-lowest investment grade, citing Stockton's "precarious financial position." Read more.
COMMENTARY: THE DIVIDE BETWEEN BANKING AND BANKRUPTCY
The divide between banking and bankruptcy was illustrated during the financial crisis when banking officials told bankruptcy professionals to put Lehman Brothers swiftly into chapter 11 in 2008, according to a commentary by Prof. Stephen J. Lubben in yesterday's New York Times' DealBook blog. A typical company would not think of doing that now, according to Lubben, pointing to the months of preparation that went into the American Airlines chapter 11 filing last year. Lubben said that the only real hope for progress in the divide between banking and bankruptcy processes is in the long term, and that a few years down the road the rhetoric will subside and some real policy analysis can be brought to the issue. It is just as likely, Lubben says, that time will also convince the banking people that 2008 was an aberration, meaning that bankruptcy and banking law will never meet again. Read more.
FORECLOSURES INCREASE ON MILLION-DOLLAR PROPERTIES
Five years after the burst of the housing bubble, America's wealthiest families are now losing their homes to foreclosure at a faster rate than the rest of the country -- and many of them are doing so voluntarily, CNNMoney.com reported today. Over 36,000 homes valued at $1 million or more were foreclosed on -- or at least served with a notice of default -- in 2011, according to data compiled by RealtyTrac. While that's less than 2 percent of all foreclosures nationwide, it represents a much bigger share of foreclosure activity than in previous years. Out of all foreclosure activity, the share of foreclosures on properties valued at $1 million or more has risen by 115 percent since 2007 while the share of multi-million dollar foreclosures -- or homes valued at more than $2 million -- jumped by 273 percent. Meanwhile, the share of foreclosures on mid-range properties valued between $500,000 and $1 million fell by 21 percent. Read more.
FHFA RELEASES PLAN FOR FREDDIE, FANNIE EXIT
The Federal Housing Finance Agency (FHFA) on Tuesday released a plan for beginning to scale back mortgage giants Fannie Mae and Freddie Mac — just as the Obama administration is pressing the taxpayer-backed companies to do more to help homeowners, the Washington Post reported yesterday. FHFA, which oversees Fannie and Freddie, laid out steps to wind down the companies, largely by increasing fees charged to borrowers who take out mortgages. The FHFA's hope is that as the cost of receiving a taxpayer-backed mortgage goes up, more borrowers will turn to private lenders, whose loans do not carry government backing. However, the effort could conflict with measures being pursued by Fannie and Freddie — and the Obama administration — to increase the government's role in housing. Read more.
SECRECY IN ARBITRATION CASES PUTS DELAWARE CHANCERY COURT JUDGES ON THE DEFENSIVE
Since 2009, the five judges of the Delaware Court of Chancery, one of the country's most powerful business courts, have been deciding certain big business cases in private, the Wall Street Journal reported yesterday. Now they are facing a lawsuit brought by a citizens group, questioning the legality of judge-run arbitrations and accusing the court of conducting secret proceedings. The stakes are high for corporations that want to resolve disputes behind closed doors, and for the state of Delaware, which hopes arbitration will help its courts hold on to work that otherwise could be lost to private arbitration. Lawyers involved in the Delaware case say that the state is the only jurisdiction in which companies bring cases for arbitration before a sitting judge. A decision in the case isn't expected soon. Read more. (Subscription required.)
ABI IN-DEPTH
LATEST CASE SUMMARY ON VOLO: GOURLAY V. SALLIE MAE, INC. (IN RE GOURLAY; 6TH CIR.)
Summarized by Jason Forbes of Mason, Schilling & Mason Co., LPA
The Bankruptcy Appellate Panel of the Sixth Circuit ruled that it was not an abuse of discretion to deny a creditor's motion to set aside a default judgment when the creditor failed to demonstrate that it maintained minimal internal safeguards to ensure that process would reach the appropriate personnel, finding that the creditor’s conduct did not constitute excusable neglect, but rather, culpable conduct. Further, any legal error of the bankruptcy court related to the legal sufficiency of the adversary complaint could not be challenged on appeal as the time for reconsideration of a point of law under Rule 60(b)(1) is permitted only when relief from judgment is sought within the deadline for taking an appeal.
More than 400 appellate opinions are summarized on Volo. Click here regularly to view the latest case summaries on ABI’s Volo website.
NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: QUASI-JUDICIAL IMMUNITY SHIELDS TRUSTEE FROM PERSONAL LIABILITY
The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post to the Bankruptcy Case Blog examines the case of Smith v. Silverman (In re Smith), in which the Second Circuit held that a bankruptcy trustee could not be held personally liable for deciding not to pursue the estate's only potential sources of recovery. The Bankruptcy Case Blog is administered by ABI Law Review staff at St. John's University School of Law.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
ABI Quick Poll The requirement that all individual debtors receive credit counseling as a prerequisite for discharge should be repealed. Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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