BankruptcyProf Blog

Supreme Court Super StatPack From Scotusblog.com

Here are the final statistics for this Supreme Court term.  Scotusblog.com is such a great website!  The 67 total "merits opinions" were the lowest total for a term since 1953-54. 

Some Further Thoughts on the Supreme Court and Piccadilly

Just musing about how much the Piccadilly appeal cost and what it accomplished.  I didn't spend any time wondering about the result when I saw that Justice Thomas was the author of the majority opinion.  The code says no stamp tax can be assessed on sales under a chapter 11 plan, that's what it means.  The tax was some $39,000 on a sale of some $80 million.  What do you think the cost of the appeal was?  From the Bankruptcy Court to the District Court to the Court of Appeals to the Supreme Court?  I'll bet the cost of printing the various briefs and appellate record was more than $39,000.  And the Supreme Court will publish about 70 opinions this year according to Scotusblog.  Since the annual budget of the Supreme Court is about $75 million, that opinion cost a million bucks.  And why in the world did the court choose that case?  It makes you wonder if they were looking for something for Thomas to do.  And why in the world did Breyer bother to dissent?  I like Breyer, but his dissent argued that it makes more sense to do what's practical rather than what Congress said.  He should save those arguments for cases that matter.  And why can't Congress just fix these things (showing my naivete)?  The courts all agree that its Congress's choice.  They could have whipped out a little amendment making it more clear what they meant.    

Supreme Court Rules on Stamp Tax: In re Piccadilly

Florida Dept of Revenue v. Piccadilly Cafeterias, Inc., --- U.S. ---, 2008 WL 2404077 (2008)

Issue:  Does a statutory exemption from a state stamp tax for a sale “under a plan confirmed under section 1129” apply to sales before the plan is confirmed where the sale was necessary and integral to the plan that was ultimately confirmed?

Held:  No, there is no ambiguity in the statute.      

Justice Clarence Thomas for 7-2 court, Breyer dissented with Stevens joining

The debtor filed chapter 11 in 2003 and subsequently moved the Bankruptcy Court for permission to sell substantially all of its assets.  “The Bankruptcy Court conducted an auction in which the winning bidder agreed to purchase [the debtor’s] assets for $80 million.”  Subsequently the Bankruptcy Court ruled “that the transfer of assets was exempt from stamp taxes under §1146(a).” 

Section 1146(a), entitled “Special tax provisions,” provides:
“The issuance, transfer, or exchange of a security, or the making or delivery of an instrument of transfer under a plan confirmed under section 1129 of this title, may not be taxed under any law imposing a stamp tax or similar tax.”

The debtor contended that Section 1146(a) “extends to preconfirmation transfers as long as they are made in accordance with a plan that is eventually confirmed.”  About seven months after the sale the Bankruptcy Court confirmed the debtor’s chapter 11 Plan.  The Florida Department of Revenue objected to confirmation because the plan did not propose to pay the stamp tax of $39,200.  The Bankruptcy Court “reason[ed] that the sale of substantially all Piccadilly’s assets was a transfer “‘under’ ” its confirmed plan because the sale was necessary to consummate the plan.”  The District Court and the Court of Appeals affirmed.  The Court of Appeals said that “a remedial statute such as the Bankruptcy Code should be liberally construed.”

The Supreme Court reversed. 

“The asset transfer here can hardly be said to have been consummated ‘in accordance with’ any confirmed plan because, as of the closing date, Piccadilly had not even submitted its plan to the Bankruptcy Court for confirmation.  Piccadilly’s asset sale was thus not conducted ‘in accordance with’ any plan confirmed under Chapter 11.  Rather, it was conducted ‘in accordance with’ the procedures set forth in Chapter 3—specifically, §363(b)(1).  To read the statute as Piccadilly proposes would make §1146(a)’s exemption turn on whether a debtor-in-possession’s actions are consistent with a legal instrument that does not exist—and indeed may not even be conceived of—at the time of the sale.  Reading §1146(a) in context with other relevant Code provisions, we find nothing
justifying such a curious interpretation of what is a straightforward exemption.”

“If the statutory context suggests anything, it is that §1146(a) is inapplicable to preconfirmation transfers.  We find it informative that Congress placed §1146(a) in a subchapter entitled, ‘POSTCONFIRMATION MATTERS.’ To be sure, a subchapter heading cannot substitute for the operative text of the statute.  Nonetheless, statutory titles and section headings ‘are tools available for the resolution of a doubt about the meaning of a statute.’  The placement of §1146(a) within a subchapter expressly limited to postconfirmation matters undermines Piccadilly’s view that §1146(a) covers preconfirmation transfers.”

Even if the language were ambiguous, courts should “‘proceed carefully when asked to recognize an exemption from state taxation that Congress has not clearly expressed.’”  And Florida’s argument that if an exemption is allowed, the state would have to monitor the case to see if a plan is ever confirmed, is well taken. 

The debtor argued that it makes no sense to exclude a sale from taxation at a particular point in time while not excluding a transfer which takes place two months earlier.  “[W]e see no absurdity in reading §1146(a) as setting forth a simple, bright-line rule instead of the complex, after-the-fact inquiry Piccadilly envisions.”

In his dissent, Breyer says “Linguistically speaking, it is no more difficult to apply the words ‘plan confirmed’ to instances in which the ‘plan’ subsequently is ‘confirmed’ than to restrict their application to instances in which the ‘plan’ already has been ‘confirmed.’  “[I]f Congress thought the time of confirmation mattered, why did it not say so expressly as it has done elsewhere in the Code?”  “The statute’s purpose is apparent on its face.  It seeks to further Chapter 11’s basic objectives: (1) ‘preserving going concerns’ and (2) ‘maximizing property available to satisfy creditors.’”  “From the perspective of these purposes, it makes no difference whether a transfer takes place before or after the plan is confirmed. In both instances the exemption puts in the hands of the creditors or the estate money that would otherwise go to the State in the form of a stamp tax.”

Supreme Court Justices Disclose Finances

The New York Times article last Friday on the annual financial disclosures of the individual justices of the Supreme Court may be found here.    Ruth Bader Ginsburg and David Souter appear to be the wealthiest with Anthony Kennedy and Samuel Alito at the other end. 

Supreme Court Statistics for this Term

The Scotusblog has some facinating statistics which can be found here.  For example, Roberts and Scalia disagreed only 10% of the time this term so far.  Roberts and Kennedy disagreed only 10% of the time.  On the other end, Thomas and Ginsberg disagreed 45% of the time; Thomas and Stevens (and Thomas and Souter) disagreed 40% of the time.

The 9th Circuit had five cases reviewed by the Supreme Court and reversed all five.  The 2nd Circuit had five of the six cases affirmed.  In total, the Court affirmed the lower court 16 times and reversed 25 times. 

Only 4 of the Court's 42 decisions so far this term were decided 5-4.   14 or one-third were 9-0. 

These stats are all through roughly late-May 2008. 

Possible New Supreme Court Case

Tom Goldstein relates in his fabulous blog, scotusblog.com, that the Supreme Court might grant cert on a bankruptcy case at its conference on June 5, 2008.  The case is Board of Trustees of the Ohio Carpenters’ Pension Fund v. Bucci.  The 6th Circuit opinion and the Supreme Court briefs are posted on the blog dated May 21, 2008.  The issue deals with the discharge of debts under Section 523(a)(4) relating to defalcation by a fiduciary.  The debtor did not make payments to a pension fund and the fund argued that ERISA makes him a fiduciary and therefore there was a defalcation.  The Petition for Cert argues that the circuits are all over the place on this issue and it should be straightened out.  The brief opposing the petition has the better argument in my view - the debtor must be in possession of someone else's funds, there must be an express trust before there can be a defalcation and the circuits are not in disarray over that. 

Bankruptcy Jurisprudence from the Supreme Court - Bailey v. Glover

Bailey v. Glover, 88 U.S. 342 (1874)

Issue:  When the trustee is required to bring an action to avoid a fraudulent conveyance within two years of the bankruptcy filing, does the active concealment of the transfer by the debtor and the transferees toll the running of the two year statute of limitations to bring the action?       

Holding:  Yes, the two years runs from the time the conduct is discovered by the trustee assuming that the trustee used due diligence.      
 
Justice Samuel F. Miller

The debtor transferred all of his assets to family members for little or no consideration and subsequently filed bankruptcy.  His schedules listed only one creditor.  The trustee did not discover the transfer and thus did not file the complaint until some three years after his appointment.  The code at the time required the trustee to bring such an action “within two years from the time of the cause of action accrued for or against such [trustee].”  The transferees demurred and the demurrer was sustained. 

The Supreme Court reversed.  The opinion states that statutes of limitation should be strictly construed.  “It is obviously one of the purposes of the Bankrupt law, that there should be a speedy disposition of the bankrupt's assets.  This is only second in importance to securing equality of distribution.”  But this rule should not apply when fraudulent conduct has prevented the trustee from learning about the potential action. 

“[The requirement of a speedy bankruptcy case] is a wise policy, and if those who administer the law could be induced to act upon its spirit, would do much to make the statute more acceptable than it is.  But instead of this the inferior courts are filled with suits by or against [trustees], each of whom as soon as appointed retains an attorney, if property enough comes to his hands to pay one, and then instead of speedy sales, reasonable compromises, and efforts to adjust differences, the estate is wasted in profitless litigation, and the fees of the officers who execute the law.”

“In suits in equity where relief is sought on the ground of fraud, the authorities are without conflict in support of the doctrine that where the ignorance of the fraud has been produced by affirmative acts of the guilty party in concealing the facts from the other, the statute will not bar relief provided suit is brought within proper time after the discovery of the fraud.”

“[W]e hold that when there has been no negligence or laches on the part of a plaintiff in coming to the knowledge of the fraud which is the foundation of the suit, and when the fraud has been concealed, or is of such character as to conceal itself, the statute does not begin to run until the fraud is discovered by, or becomes known to, the party suing, or those in privity with him.”

The court struggled a little with the issue of whether or not this equitable rule should apply in actions at law.  But it said “the case before us is a suit in equity.”  Furthermore, the statute said that no “action in law or in equity” may be brought after two years and therefore the “statute must be held to apply equally by its own force to courts of equity and to courts of law.”

Note:  Justice Samuel Miller, a doctor before he studied law, was appointed to the Supreme Court by Abraham Lincoln in 1862. 

Interview with Justice Scalia on his new Book

Here is the transcript of a very entertaining recent interview of Justice Scalia by Brian Lamb of C-SPAN discussing his new book, Making Your Case.   Now if I could find where to get one of those bobbleheads. 

New Study on Justice Scalia Statutory Interpretation

I found a great new article on Justice Scalia, thanks to Professor David Hricik's Statutory Construction Blog.  Written by Professor Miranda McGowen at the University of San Diego, it is entitled, "Do as I Do, not as I say: An Empirical Investigation of Justice Scalia's Ordinary Meaning Method of Statutory Interpretation."  Studying Scalia's dissents for the past twenty years she concludes,

"This study shows that Justice Scalia consults an eclectic set of extrinsic materials when he is construing statutes.  He in fact uses essentially the same broad set of materials that other justices use—except for legislative history.

"This also study found that Justice Scalia’s methodology is eclectic, too.  In a quarter of the issues in this sample, Justice Scalia abandoned textualism in favor of overtly common law methods.  When interpreting regular statutes, his presumption in favor of ordinary meaning did little work for him; in a majority of cases Justice Scalia construes words in statutes in light of their specialized, legal meanings or the meaning they have accrued in case law or in common law, not their ordinary meaning.

"Whatever Justice Scalia says about his interpretive theory, he is as purposivist of a judge as they come.  The data show that he interprets statutes in light of purpose as frequently as the rest of the Court.  Purpose rather than text sometimes drives his interpretation; if statutory purpose requires it, he will sometimes adopt second-best textual interpretations.

"The purposes he attributes to statutes do not come from his theory of interpretation, for he claims that purpose analysis is generally improper, unless the text indicates the statute’s purpose.  Nor do they come from the legislative materials, for he considers them too unreliable and too easily manipulated to provide judges with the proper amount of constraint.

"Sometimes Justice Scalia does infer statutory purpose from the text, and sometimes from agency regulations.  But frequently, his sense of a statute’s purpose comes from earlier Court decisions and lower court decisions.  Indeed, this is so often the case that his statutory interpretation practice bears an uncanny resemblance to the kind of common law interpretation of statutes he has decried in his theoretical writings."

Book Review: A Matter of Interpretation: Federal Courts and the Law

The cover of this book ascribes the authorship to Antonin Scalia, but it actually consists of six essays, the first and last by Scalia.  The focus is the first essay by Scalia titled: Common-Law Courts in a Civil-Law System: The Role of United States Courts in Interpreting the Constitution and Laws.  The essay is a pretty fascinating discussion of statutory interpretation.  The first quarter of the short essay is an entertaining review of the development of common law and the function of common law in teaching law students.  He writes, "What intellectual fun all of this is!  It explains why first-year law school is so exhilarating: because it consists of playing common-law judge, which in turn consists of playing king - devising, out of the brilliance of one's own mind, those laws that ought to govern mankind."  But along came democracy.  Legislatures chosen by the people as a whole make the laws.  Judges interpret them.  "It is simply not compatible with democratic theory that laws mean whatever they ought to mean and that unelected judges decide what that is."    

As to statutory interpretation, he begins, "We American judges have no intelligible theory of what we do most."  He discusses the "Intent of the Legislature" analysis, concluding "it is the law that governs, not the intent of the lawgiver."  He goes on to discuss textualism, canons and presumptions, and legislative history as tools to interpret statutes pointing out the limits of each, especially the latter. 

The essay ends with a criticism, as you can imagine, of the followers of the "Living Constitution" theory.  The analysis of the constitution, he writes, tends to be an analysis not of what the constitution says but what the Supreme Court has said over the years about the particular issue at hand.  This leads to an extension or modification of previous cases "with no regard for how far that logic, thus extended, has distanced us from the original text and understanding."  Nor do the Living Constitution advocates simply follow the will of the American people.  According to Scalia, "They follow nothing so precise; indeed as a group they follow nothing at all."  He concludes that the concept of the Living Constitution has led to the phenomena of government choosing judges who will interpret the laws and the constitution the way the choosers of judges want it interpreted.  In his usual understated way, he ends with, "This, of course, is the end of the Bill of Rights, whose meaning will be committed to the very body it was meant to protect against: the majority."         

The remainder of the book is not near as compelling as the first essay.  The remainder consists of four responses to Justice Scalia and then a short response from him.  This book however should be required reading for every law student.      

Supreme Court rules that a non-disclosed asset remains in the estate - in 1905

First National Bank of Jacksboro v. Lasater,  196 U.S. 115 (1905)

Issue:  When the debtor does not disclose an asset to the chapter 7 trustee, what happens to the asset when the case is closed?   

Ruling:    It remains with the estate. 

Justice David J. Brewer:

The debtor had a claim against a bank for usury.  Federal law at the time permitted him to collect two times the usurious interest paid to the bank.  The debtor did not disclose the claim to the trustee and filed suit in federal court against the bank two months after the chapter 7 was closed.  The district court gave judgment to the debtor/plaintiff. 

The Supreme Court reversed and remanded.  “It cannot be that a bankrupt, by omitting to schedule and withholding from his trustee all knowledge of certain property, can, after his estate in bankruptcy has been finally closed up, immediately thereafter assert title to the property on the ground that the trustee had never taken any action in respect to it.  If the claim was of value (as certainly this claim was, according to the judgment below), it was something to which the creditors were entitled, and this bankrupt could not, by withholding knowledge of its existence, obtain a release from his debts, and still assert title to the property.”

A Great Quote from Chief Justice John Marshall

Chief Justice John Marshall dealt with the issue in 1819 of whether or not the states could pass insolvency laws given the language in the Constitution that Congress shall have the power to "establish uniform laws upon the subject of bankruptcies,"   

In Sturgis v. Crowninshield,  17 U.S. 122 (1819), he said the states do have that power (at least when there is no national bankruptcy law in effect at the time).

This is a great quote:

"[I]f, in any case, the plain meaning of a provision, not contradicted by any other provision in the same instrument, is to be disregarded, because we believe the framers of that instrument could not intend what they say, it must be one in which the absurdity and injustice of applying the provision to the case, would be so monstrous, that all mankind would, without hesitation, unite in rejecting the application."

2007 Supreme Court Annual Report

Here is the 2007 Supreme Court Annual Report from Justice Roberts.  It gives a lot of statistics at the end.  For example, "The total number of cases filed in the Supreme Court increased from 8,521 filings in the 2005 Term to 8,857 filings in the 2006 Term—an increase of 4%."  From that they handed down 67 opinions. 

Supreme Court Issues Cert in New Bankruptcy Case

I'm probably just getting old so I won't spend too much time complaining here.  The Supreme Court has accepted a bankruptcy case from Florida dealing with the momentous issue of whether or not a "stamp tax" can be assessed on a pre-confirmation sale of the chapter 11 debtor's assets.  Section 1146(c) (now subsection (a)) exempts from stamp taxes property sold via confirmation of a plan.  I guess the circuits are split on the issue.   

What is stranger about the case is that the sale was for $80 million and the proposed tax is $39,000.  How much do you think the debtor's attorneys fees are dealing with this issue? 

The case is  FLORIDA DEPARTMENT OF REVENUE v. PICCADILLY CAFETERIAS, INC. --- S.Ct. ----, 2007 WL 2605724 (U.S.).  The opinion below is at 484 F.3d 1299.

The Circuit Court opinion states, "The bankruptcy court reasoned that the sale of substantially all of Piccadilly's assets was a transfer 'under' its confirmed plan of reorganization because the sale was necessary to consummate the plan." 

and, "[T]he statute can plausibly be read . . . as describing eligible transfers to include transfers 'under a plan confirmed' regardless of when the plan is confirmed."

The Supreme Court issued two opinions on bankruptcy issues in 2007, three in 2006 and one in 2005.  With the mess we are deadling with post-BAPCPA, you would think they could do better. 

Happy holidays to everyone.  Jon Hayes

Is the Supreme Court Overworked?

In an article in the Los Angeles Daily Journal, Erwin Chemerinsky points out that last year the Supreme Court decided 68 cases.  This year it will probably not decide that many as there are only 42 cases on the docket now.  In the 1980s, the court decided about 150 cases per year.  For much of the 20th century the Supreme Court decided about 200 cases per year. 

Chemerinsky discusses several theories about why the output is decreasing surmising that it is because the clerks are reviewing the requests for Writs of Certiorari as a group except for Judge Stevens whose clerks review every writ request.  I doubt that is the reason myself as, according the Rehnquist in his landmark book, The Supreme Court, only one judge needs to request discussion of a case in conference to get it discussed.  Therefore the cases that are not discussed are the ones that not one single judge found interesting enough to even discuss the possibility of issuing a writ.

Chemerinsky also muses that the opinions are getting longer and therefore tend to be more unwieldy.  The opinion in the recent Seattle school desegregation case was 184 pages not counting appendices.  See 127 S.Ct. 2738 (2007). 

What Chemerinsky does not point out is that the Supreme Court budget this year is about $76 million, more than $1 million per case.   

Bankruptcy Jurisprudence from the Supreme Court - Hanover Nat. Bank v. Moyses

Hanover Nat. Bank v. Moyses,   186 U.S. 181  (1902)

Issue:  Is the Bankruptcy Act of 1898 constitutional? 

Held:    Yes. 

Chief Justice Melvin W. Fuller
Hanover Nat. Bank filed suit in District Court seeking to set aside the discharge of the debtor, Max Moyses, on the grounds that the bankruptcy act of 1898 was unconstitutional.  They had three arguments, 1) the Act improperly permitted individuals, i.e., “non-traders” to file bankruptcy; 2) it improperly granted legislative powers to the states in the form of the exemption laws; and 3) it violated due process because it gave insufficient notice to creditors.  The District Court dismissed the suit. 

The Supreme Court affirmed.  At the outset Fuller discussed the differences between a “bankruptcy law” and an “insolvent law.”  “Insolvent” laws were common among the states but did not grant a general discharge since that would be a “law impairing the obligation of contracts” prohibited in the Constitution.  Those laws primarily worked to free the individual from jail.  Bankruptcy laws historically were involuntary only and permitted only against businesses.  Fuller points out that the Bankruptcy Act of 1800 permitted involuntary bankruptcy only against traders, but the subsequent acts of 1843 and 1867 allowed individuals to file and seek a discharge. 

Fuller cites a District Court case earlier decided: “To what limits is [the bankruptcy] jurisdiction [set forth in the constitution] restricted?  I hold, it extends to all cases where the law causes to be distributed the property of the debtor among his creditors; this is its least limit.  Its greatest is the discharge of a debtor from his contracts. . . . With the policy of a law letting in all classes,-others as well as traders,-and permitting the bankrupt to come in voluntarily, and be discharged without the consent of his creditors, the courts have no concern; it belongs to the lawmakers.”  Fuller added, “The conclusion that an act of Congress establishing a uniform system of bankruptcy throughout the United States is constitutional, although providing that others than traders may be adjudged bankrupts, and that this may be done on voluntary petitions, is really not open to discussion.”

As to the issue of permitting exemptions as set forth by the individual states, Fuller states, “. . . all contracts [are] made with reference to existing laws, and no creditor [can] recover more from his debtor than the unexempted part of his assets.”  “[A]s every debt is contracted with reference to the rights of the parties thereto under existing exemption laws, and no creditor can reasonably complain if he gets his full share of all that the law, for the time being, places at the disposal of creditors.  One of the effects of a bankrupt law is that of a general execution issued in favor of all the creditors of the bankrupt, reaching all his property subject to levy, and applying it to the payment of all his debts according to their respective priorities.”  “[T]he trustee takes in each state whatever would have been available to the creditor if the bankrupt law had not been passed.”

As to the issue of notice, Fuller wrote that, “Adjudication [of bankruptcy] follows as matter of course, and brings the bankrupt's property into the custody of the court for distribution among all his creditors.”  “Proceedings in bankruptcy are, generally speaking, in the nature of proceedings in rem.”  The Supreme Court ruled that notice to every creditor listed by the debtor, notice by publication which was required at the time, and the right to revoke the discharge for one year after it is entered is sufficient to overcome the due process attack.

Fuller ended the opinion with, “The determination of the status of the honest and unfortunate debtor by his liberation from encumbrance on future exertion is matter of public concern. . . “      

Bankruptcy Jurisprudence from the Supreme Court - Long v. Bullard

Bankruptcy history told through Supreme Court decisions is fascinating to me.  A great example, is the comment I have made a million times to students, colleagues and certainly clients - "liens don't go away in bankruptcy."  I didn't realize myself until I started reading the Supreme Court opinions that that rule was set down by the Supreme Court 120 years ago in Long v. Bullard. 

Long v. Bullard,  117 U.S. 617 (1886)

Issue:  Does the bankruptcy discharge terminate the right of a secured creditor to foreclose its lien on the debtor’s exempt homestead?   

Held:   No, The rights of the secured creditor to foreclose its lien survive the discharge.  The homestead exemption does not change that result.         

Chief Justice Morrison R. Waite   

The debtor received a loan from Bullard in 1872 giving Bullard a lien on his home.  The debtor “was adjudged a bankrupt” in 1873 and received his discharge in 1874.  Creditor Bullard thereafter filed an action to foreclose his lien on the home.  The debtor defended on the basis that the debt was discharged and that the residence was exempt under the bankruptcy code.  He argued that the action “charging the property with the debt ‘is in violation of his discharge in bankruptcy,’” “in contravention and in violation of that act of congress” and “insisted that [his] homestead rights . . . were superior to the claim of Bullard under his conveyance, and that the property could not be sold to pay him.”  The court ruled in favor of the creditor giving him a judgment ordering foreclosure notwithstanding a state law defense of usury and the Court of Appeals affirmed. 

The Supreme Court affirmed also saying,
“[T]here cannot be a doubt of the correctness of the decision.  By section 5119 of the Revised Statutes the discharge releases the bankrupt only from debts which were or might have been proved, and by section 5075 debts secured by mortgage or pledge can only be proved for the balance remaining due after deducting the value of the security, unless all claim upon the security is released.  The dispute in the court below was as to the existence of the lien at the time of the commencement of the proceedings in bankruptcy.  That depended entirely on the state laws, as to which the judgment of the state court is final and not subject to review here.  The setting apart of the homestead to the bankrupt under section 5045 of the Revised Statutes did not relieve the property from the operation of liens created by contract before the bankruptcy.  It is not the decree in this case which constitutes the lien on the property, but the conveyance of Long and wife before the bankruptcy.”