Douglas G. Baird

Bankruptcy Step Zero

In RadLAX Gateway Hotel, LLC v Amalgamated Bank, the Supreme Court’s statutory interpretation focuses on an emerging theme of its bankruptcy jurisprudence: the proper domain of the bankruptcy judge. While one might expect the Court to approach that question of domain as it has for administrative agencies, that is not the approach taken. This article explores the Court’s approach to bankruptcy’s domain. In doing so, we connect three principal strands of the Court’s bankruptcy jurisprudence. The first strand, embodied in Butner v United States, centers on the idea that the bankruptcy forum must vindicate nonbankruptcy rights. The second, most recently addressed in Stern v Marshall, focuses on the limits of bankruptcy judges in deciding and issuing final judgment on the issues before them. Bankruptcy judges must limit themselves to deciding issues central to the administration of the bankruptcy process. RadLAX is the continuation of a third strand that makes it plain that the Court reads ambiguous provisions of the Bankruptcy Code to narrow the range of decisions over which the bankruptcy judge may exercise her discretion — at least when the exercise of that discretion might impact nonbankruptcy rights. The resulting bankruptcy jurisprudence is in stark contrast with the Court’s approach in administrative law. This paper attempts to make sense of this state of affairs and connect it with the realities of bankruptcy practice today.

The initiation problem in bankruptcy

American bankruptcy law provides creditors of a corporate debtor with an alternative way of sorting out their claims to the debtor’s assets. Bankruptcy differs from ordinary avenues of debt collection in that all claims against a common debtor are determined at one time and in one place. Creditors are forced to give up their right to seek repayment on their own. Each creditor must stay its hand while decisions are made about what to do with the firm’s assets and how to recognize the different claims against it. Some creditors who might have been paid in full if bankruptcy had not intervened are worse off. Others, who might have been unaware of the debtor’s financial straits, may be better off. The premise of American bankruptcy law is that sometimes the creditors and others who contributed capital to the firm are better off as a group than they would be if this avenue of debt collection did not exist and creditors had to depend upon their individual remedies under nonbankruptcy law.’ This premise-that the collective interests of the group can be put at risk when individual creditors exercise their rights-brings with it a problem that other legal regimes do not face. Ordinarily, one can depend upon the party that benefits from a particular legal rule to invoke it. Bankruptcy is different. The beneficiaries of bankruptcy law are the creditors as a whole, not individual creditors within the group.? One wants a bankruptcy proceeding to begin when it is in the collective interest of the group, but one must still depend upon someone to initiate it. One must somehow ensure that when a bankruptcy proceeding is in the collective interest of the creditors, it is also in someone’s individual interest as well. Existing bankruptcy law allows creditors to trigger the collective proceeding when three of them with unsecured claims totaling more than

A World Without Bankruptcy

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Loss Distribution, Forum Shopping, and Bankruptcy: A Reply to Warren

... Congresss exercise of the bankruptcy power was far from inevitable. Indeed, for much of the nineteenth century, there was no federal bankruptcy statute at all. That we might live in a world without bankruptcy law or any similar collective procedure is not as far-fetched or as ridiculous as it might seem at first glance to those of us who are immersed in its intricacies every day. This article will take problems that have been the focus of much of the recent debate in bankruptcy law and ask how these issues would be approached if no bankruptcy law existed.

The Boilerplate Puzzle

Elizabeth Warren has presented a view of bankruptcy that, while rarely as well articulated, is widely shared. The virtues of Warrens paper, like those of the rest of her work, are easy to identify. Her style is sharp and penetrating. She writes with insight and wit, and she demands that all analysis be held against the light of empirical data-the brighter the better. Warren has put forward a critique of the work I have done with Thomas Jackson that merits a response both because of its own strengths and because it captures misgivings other traditional bankruptcy scholars have shared about our work. There is much in Warrens view of bankruptcy policy that I admire and agree with. Indeed, to understand our disagreement, it is necessary first to recognize the extent of our common ground. Warren and I agree that, in the main, existing bankruptcy law is consistent with sound bankruptcy policy. The trustee should have the powers of a hypothetical lien creditor; the trustee should be able to set aside voidable preferences and reject executory contracts; creditors (including secured creditors) should be stayed from asserting their substantive claims after the filing of a bankruptcy petition. Warren and I also agree that victims of nonmanifested torts should have their rights against the firm recognized in bankruptcy. On what in my view is a different front, Warren and I also think existing laws do not adequately protect many, such as workers, who are affected when a firm fails. Warren and I both have doubts about whether secured credit brings benefits that outweigh its rather obvious costs. I am more inclined than Warren to think that the institution is one worth having, but we agree that the issue is not clear. Warrens attack on the theory of bankruptcy that I have developed with Thomas Jackson goes to methodology. Jackson and I claim that we can isolate bankruptcy issues (such as whether the

Legal Approaches to Restricting Distributions to Shareholders: The Role of Fraudulent Transfer Law

The warranty that comes with your laptop computer is one of its many product attributes. Th lap op has a screen of a particular size. Its microcessors work at a particular speed, and the battery lasts given amount of time bet een recharging. The hard drive has a certain capacity and ean time to failur . There is a instruction manual, online technical support (or lack thereof), and software. Then there are the warranties that the seller ma es (o does not make) that ar also part of bundle. Just as I know the size of the screen, but not ing about the speed of the microprocessor, I know about some of the warran y terms that come with the computer and remain wholly ignoran of others. With respect t s me product attributes, the seller will give buyers a choice of op ions. For a higher price, I can buy a computer with a bigger screen. But with respect to others, th re is o choice. A seller may offer laptop comp ers with only ne type of battery. So too with the attribut s that are legal terms. A seller may give me a choice: I can buy a service con r ct that xtends the warranty. Other ti s, there will be no choic , as whe the seller specifies that Delaware law governs any contract dispute between us. Similarly, some product attributes are readily apparent to everyone, such as the size of th screen and the availability of an expensive service contract. Other pr duct att ibutes, like the speed of the microprocessor and the fo um selection clause, are apparen only to thos who s end time and nergy looking for them. T say that a product comes with boilerplate is to say that one of its attributes, long with many others, is pa ti lly hidden and is one over which here i no choice on the part of the buyer. But why should any of this raise sp cial concern? The legisla ure can regulate micropr cessor speeds or not. So too with boilerplate. But why is boil rplate any different? Legal sch lars have long assumed hat standardized con ract terms i fine print e

Game Theory and the Law

Fraudulent transfer law in the United States provides a safety net for corporate creditors. It prohibits insolvent debtors from making transfers or incurring obligations for less than reasonably equivalent value. Moreover, it reaches any transaction that lacks economic substance and that is designed merely to make it hard for creditors to monitor the debtor. The distinctive shape of fraudulent transfer law in the United States is not replicated in the other common law or in civil law jurisdictions. Nevertheless, the functions it performs are likely to be part of any legal regime that protects the rights of creditors and other investors.