Supreme Court to Consider Dispute over Puerto Rico Financial Oversight Board

The U.S. Supreme Court today agreed to decide whether members of Puerto Rico’s federally created financial oversight board were unlawfully appointed in a dispute that could disrupt the panel’s restructuring of about $120 billion of the bankrupt U.S. commonwealth’s debt, Reuters reported. The justices will hear an appeal by the board after a lower court ruled in February that the 2016 appointments of its seven members violated the U.S. Constitution’s “appointments clause” because they were not confirmed by the Senate. However, the U.S. Court of Appeals for the First Circuit applied the so-called “de facto officer doctrine” to uphold all of the board’s actions. Creditors challenging the appointments filed appeals separately, asking the Supreme Court to find that the decisions made by the board are invalid because its members were unlawfully installed. The justices also agreed to hear that part of the dispute. The court scheduled oral arguments for October in a bid to resolve the issue quickly. In a statement today, the Oversight Board said it welcomed the Court’s decision to review the First Circuit’s holding. In an effort to resolve the dispute, the White House on June 18 officially sent nominations for the board’s current members to the Senate. The Trump administration filed its own appeal to the Supreme Court defending the appointments. In the meantime, the oversight board has asked an appeals court to extend a July 15 deadline it set for the board’s seven members to be reappointed or replaced.

Rescheduled House Judiciary Committee Hearing Next Tuesday to Examine SBRA, HAVEN Act, Student Debt and More

The House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law will hold a hearing next Tuesday at 10 a.m. EDT titled "Oversight of Bankruptcy Law and Legislative Proposals." Robert J. Keach of Bernstein Shur (Portland, Maine), a former ABI President and co-chair of the ABI Commission to Study the Reform of Chapter 11, will testify on ABI's behalf. The hearing will examine a number of bills and priority issues important to business and consumer bankruptcy practice. Most of the bills enjoy bipartisan and bicameral support in Congress. The following are the legislation and issues to be discussed:

- The Small Business Reorganization Act (S. 1091, H.R. 3311) takes into account recommendations from ABI's Chapter 11 Commission to remove barriers to bankruptcy for financially struggling small and medium-sized businesses.

- The Family Farmer Relief Act of 2019 (H.R. 2236; S. 897) is supported by ABI to raise the debt cap to $10 million for family farmers seeking chapter 12 protection.

- Honoring American Veterans in Extreme Need Act of 2019 (HAVEN Act) (H.R. 2938; S. 679) would exclude VA and DoD disability payments from the monthly income calculation used for bankruptcy means testing. The law currently allows Social Security benefits to be excluded from the calculation, but not veterans disability payments. ABI's Veterans’ Affairs Task Force member Holly Petraeus is scheduled to testify.

- Puerto Rico Recovery Accuracy in Disclosures Act of 2019 (PRRADA) (H.R. 683; S. 1675) would impose certain requirements on the payment of compensation to professional persons employed in voluntary cases commenced under PROMESA.

- The subcommittee will also be looking at the issue of student loan debt treatment in bankruptcy, which was the subject of the first set of reform recommendations in the Final Report of the ABI Commission on Consumer Bankruptcy. Commissioners Prof. Dalié Jiménez of the UC Irvine School of Law and Ed Boltz of the Law Offices of John T. Orcutt, P.C. (Durham, N.C.) will be testifying on the issue.

For further information on the hearing and to obtain forthcoming witness testimony, please click here.

New Podcast Features Members of ABI's Commission on Consumer Bankruptcy Discussing Student Loan Recommendations

The latest ABI Podcast features members of ABI's Commission on Consumer Bankruptcy providing insights on the Commission's recommendations on student loans and bankruptcy, the first topic addressed in its Final Report. Prof. Robert M. Lawless of the University of Illinois College of Law (Champaign, Ill.), the Commission's Reporter, hosts the discussion with Commissioners Prof. Dalié Jiménez of the University of California, Irvine School of Law, Prof. Bruce Markell of Northwestern University Pritzker School of Law (Chicago) and Edward C. Boltz, a partner at the Law Offices of John T. Orcutt, P.C. (Durham, N.C.). In addition to providing the background for how the Commission arrived at the recommendations, the Commissioners discuss how the recommendations could be considered by Congress and currently applied in the courts.



Click here to download your copy of the Final Report of the ABI Commission on Consumer Bankruptcy.

New Research Paper Examines What’s Wrong with Chapter 11

The time has come to cast a discerning eye at chapter 11 and examine how it is currently broken and what fixes can be made to improve it, according to a new research paper by former ABI Resident Scholar Prof. Charles Tabb in the Law School Bankruptcy Roundtable blog. Prof. Tabb identifies five core normative goals that chapter 11 should promote: (1) maximize the value of the debtor firm; (2) distribute the maximized value of the firm fairly and equitably; (3) save jobs; (4) minimize the ripple effect of the firm’s failure; and (5) ensure that in pursuing those normative goals, the cure is not worse than the disease. He then examines five critical ways in which chapter 11 in practice fails to achieve these normative ideals: (1) traditional chapter 11 restructurings are largely a thing of the past and have given way to quick all-asset sales of the company; (2) secured lenders control everything and get a disproportionate share of the firm’s value; (3) a small number of other creditors are able to apply leverage to obtain unfair and inequitable payments on their claims compared to other creditors; (4) venue forum-shopping has triggered a race to the bottom; and (5) bankruptcy judges routinely ignore the statute as written and legislate judicially.

Next "Eye on Bankruptcy" Episode Airs June 27- Register for Free!

Prof. Charles Tabb hosts Bankruptcy Judge Paul Black (W.D. Va.; Roanoke) and Zachary H. Smith of Moore & Van Allen PLLC (Charlotte, N.C.) as they discuss two SCOTUS decisions and June's top cases. Click the banner below to register!

How the Opioid Crisis Is Leading to Elder Financial Abuse

Regulators are sending a message to investment professionals: The opioid epidemic could be affecting the retirement savings of your clients, so be on the lookout for financial fraud, the Washington Post reported on Monday. Two years ago, the U.S. Department of Health and Human Services declared a national opioid crisis. The Centers for Disease Control and Prevention reported that about 68 percent of the more than 70,200 overdose deaths in 2017 involved a prescription or an illicit opioid. To gauge the impact of the opioid crisis, the Federal Reserve asked families about its impact on their economic well-being. The Fed’s 2018 report found that about one-fifth of adults said they personally know someone who has been addicted to opioids. The opioid epidemic is contributing to a rise in elder financial abuse, according to the North American Securities Administrators Association (NASAA). To help combat the exploitation of seniors, the NASAA recently released resource materials for investment professionals who might be the first to spot a problem. “The cost of opioid addiction and treatment can have major financial ramifications,” said Michael S. Pieciak, NASAA president and commissioner of the Vermont Department of Financial Regulation. “Clients facing opioid addiction, either themselves or within the family, may be strapped for resources and can be vulnerable to poor financial decision-making or even fraud.”


 

Commentary: Empower Regulators to Stop Risky Financial Business

One area in which the Dodd-Frank Act fell short is on what is called systemic-risk regulation: rules designed to limit risks to the financial system as a whole, as opposed to risks to individual institutions, according to a commentary in the Wall Street Journal today. There was a vigorous debate over this while Dodd-Frank was making its way through Congress. Some lawmakers wanted to make the Fed a systemic-risk regulator, granting it new powers over the entire financial system. Others wanted a new regulatory agency. The result was a compromise: Congress created the Financial Stability Oversight Council (FSOC), a 10-member panel consisting mainly of the heads of the nation’s top financial regulatory agencies. But there were several flaws in the organization’s design, according to the commentary. The most important flaw was that the FSOC’s authority was deliberately limited to oversight (its middle name), not regulation. It can recommend actions to individual agencies that actually wield power, like the Securities and Exchange Commission, but it cannot force them to act. The FSOC has no effective tools to stave off financial instability, according to the commentary. (Subscription required.)

Davis Polk Lawyer Goes from Pit Musician to Tony Winner

It’s been years since Davis Polk & Wardwell restructuring partner and former musician Brian Resnick played in a Broadway orchestra, but he recently returned to his roots in grand fashion to pick up a Tony Award for his role as a producer of “Best Musical” winner Hadestown, Bloomberg Law reported on Tuesday. Resnick was one of several producers of the folk opera that reimagines the Greek myth of Eurydice and Orpheus during a post-apocalyptic depression. The hit show took home eight awards at the June 9 Tonys. The Davis Polk partner was a musician before he was a lawyer. He spent five years studying percussion at The Julliard School, earning his bachelor’s and master’s at the performing arts conservatory. While at Julliard, he freelanced around the New York City theater scene. He played as a drummer and percussionist in 14 Broadway shows, including “Bring in ‘Da Noise,” “Miss Saigon,” “The Full Monty” and Elton John’s “Aida.” Even when he enrolled at Columbia Law School in 2000, he still managed to play in Broadway pits and several times on NBC’s “Saturday Night Live” in the early 2000s. But when Resnick joined Davis Polk in 2003, he set aside his percussion-playing and began building his corporate restructuring and bankruptcy practice. He represented the Federal Reserve Bank of New York and Treasury Department with respect to the $182 billion in multiple financings and nearly 80 percent equity stake in AIG following the global financial crisis.

Eleventh Circuit Accepting Applications for Bankruptcy Judgeship Position in the Middle District of Florida at Orlando

The U.S. Court of Appeals for the Eleventh Circuit is seeking applications from all highly qualified candidates for a 14-year appointment as U.S. Bankruptcy Judge for the Middle District of Florida at Orlando. All applications must be received by Aug. 1. For qualifications and submission guidelines, please click here.

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