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Specialization and the Permanence of Federal Bankruptcy Law
No full textTraditional historical accounts posit that federal bankruptcy specialization in the United States first developed under the system established by the Bankruptcy Act of 1898. That view assumes that the structural and temporal conditions necessary to foster specialization did not exist under the nation’s earlier federal bankruptcy systems—those created by the Bankruptcy Acts of 1800, 1841, and 1867. This Article theorizes that federal bankruptcy specialization very likely occurred under the pre-1898 systems and marshals evidence to that effect, primarily focusing on the Bankruptcy Act of 1841 (the 1841 Act). That statute marked a critical turning point in federal bankruptcy law, shifting its primary focus to debtor relief and granting federal district courts substantial policymaking authority and administrative responsibilities to effectuate the law’s reorientation. Drawing on a detailed framework for assessing specialization, this Article shows how the surge of cases under the 1841 Act reshaped the operation of federal district courts, producing a specialized judiciary that facilitated specialization among attorneys and other legal professionals through the creation of patronage networks. Recovering this history invites a broader investigation into federal bankruptcy specialization before 1898, not merely to determine whether it existed, but to reconsider the extent to which it was a causal factor in the emergence of a durable bankruptcy regime in the twentieth century
The Business Bankruptcy “Big 3” and the Unanticipated Benefits of Subchapter V
No full textThe liberal bankruptcy venue rules in the United States have their defenders and advocates. Subchapter V of the Bankruptcy Code came into effect in 2020, justified as a bipartisan solution to a longstanding problem in corporate bankruptcy where restructuring under Chapter 11 was prohibitively expensive for small-business debtors. On June 21, 2024, Subchapter V’s extended debt limit of 3,024,725. In addition to the justifications offered by organizations such as the American Bankruptcy Institute (ABI) for both Subchapter V, generally, and a permanent increase to its debt limit, I argue that Subchapter V has unexpected benefits for the corporate bankruptcy system at large. Specifically, it could lead to (i) more widely distributed predictability and judicial expertise across districts; (ii) less concentration of filings by small to medium-sized debtors in the Big 3 jurisdictions (D. Del., S.D. Tex., and S.D.N.Y.), allowing those courts to more fully specialize in the most complex cases; and (iii) less concentration of Chapter 11 cases in the Big 3 in aggregate terms, even potentially for medium-sized and some large-sized debtors. Accordingly, I propose that Congress should adopt the ABI’s recommendation to make the $7,500,000 debt limit under Subchapter V permanent
Governing Debt’s Dominion: Then and Now, Here and Abroad
No full textWidely regarded as a landmark in bankruptcy scholarship, Professor David Skeel’s Debt’s Dominion charts the evolution of American corporate bankruptcy law and the forces that have governed it.1 In this seminal work, Skeel traces federal bankruptcy laws from their roots in the U.S. Constitution through their development over the twentieth century, detailing the political dynamics that shaped their scope and administration. Among those dynamics, he identifies the emergence of a specialized bankruptcy bar as one of the most influential forces shaping the law. As he explains, “bankruptcy professionals have spearheaded a relentless expansion of both the scope of the bankruptcy laws and their own prominence.”2 Skeel’s work thus offers an account of how lawyers and judges came to govern debt’s dominion in the United States.
The BYU Law Review’s 2024 Symposium, titled “Who Governs Debt’s Dominion?” celebrated Skeel’s foundational contribution to bankruptcy scholarship. Nearly twenty-five years after his influential book was published, scholars came from across the nation to consider the role of bankruptcy professionals in shaping corporate reorganization and the extent to which Skeel’s observations remain compelling. As the articles and essays contained in this symposium issue demonstrate, bankruptcy professionals still contribute to the evolution of bankruptcy law in an outsized way. Furthermore, the significance of bankruptcy professionals—then and now, here and abroad—remains a fertile ground for new insights and scholarship
Finding Debtor’s Counsel
No full textIn this Essay, we explore the question of how to assess the independence of debtor’s counsel in Chapter 11. The question has arisen in recent high-profile bankruptcy cases, attracting renewed attention from commentators. We examine these cases and revisit the unique role that debtor’s counsel serves.
From this analysis, a few guiding principles emerge for determining independence and managing conflicts that may arise. First, consistent with the rules outside of bankruptcy, sophisticated parties are capable of waiving conflicts and should be free to do so when their interests alone are affected by the conflict. Second, the possibility of conflicts—both real and apparent—is much higher for debtor’s counsel than for attorneys in other roles. This creates a challenge for courts, which must address both the real conflicts and the weaponization of apparent conflicts to shift leverage. Conscious of this, courts should rely, whenever possible, on intermediate remedies—such as conflicts counsel and ethical firewalls—to address allegations that debtor’s counsel is not independent. Finally, one should be careful to separate the analysis of the independence of a debtor’s managers (including its directors and officers) from that of its counsel.
With this framework in mind, notwithstanding several criticisms from commentators, most of the outcomes in recent cases are easy to explain and reconcile
Disinterestedness in Bankruptcy Cases: Does It Really Matter?
No full textThe title of this Essay asks whether disinterestedness (of professionals) in bankruptcy cases really matters. Spoiler alert: Yes, it really does
Bankruptcy Judging After Williamson
No full textThis Essay asks how bankruptcy judges ought to orient their substantial, statutory discretion in business reorganization cases. The motivating observation is that bankruptcy law enacts a kind of forced integration of productive assets. To shed light on the contemporary problems that bankruptcy judges face, I thus look to two classic approaches to the economic theory of the firm—from Oliver Williamson and from Oliver Hart. I conclude that nonjudicial institutions have largely surmounted the problems to which their theories point, leaving a different, and probably narrower, set of issues to worry about. Bankruptcy judges who have a notion that their job is, in part, to push parties to a “deal” should instead focus on policing efforts by some of a debtor’s investors to capture value from a recapitalization deal to which their pre-distress bargain does not entitle them
The Bankruptcy Judge and the Generalist Tradition
No full textThe prevailing academic consensus is that bankruptcy judges are specialists presiding over specialized courts. This Article contends that this description is incomplete and, in some respects, inaccurate. Drawing on scholarly models of judicial specialization and historical surveys of the field, this Article contends that bankruptcy judges reflect a hybrid design choice: procedural specialization combined with substantive generalism. This model delivers many of the observed benefits of judicial specialization (including efficiency and technical competence) while preserving the cross-pollination of ideas and other benefits associated with the generalist tradition of American judging.
This Article also reflects on contemporary developments—most notably the rise of the “complex case panel” that attracts a disproportionate number of large public company reorganizations. This trend has resulted in a handful of bankruptcy judges serving as de facto reorganization specialists. In doing so, it has disrupted the generalist design of the bankruptcy courts by increasing case concentration and attendant risks, including tunnel vision.
By recharacterizing the bankruptcy judges as generalists as well as specialists, this Article offers a fresh lens for evaluating decision makers in the field. It also contributes to the broader literature on judicial specialization. Previous accounts have emphasized that particular institutions exist along a continuum between true generalism and focused specialization. Through a focus on the bankruptcy field, this Article suggests that procedural and substantive expertise represent separate and potentially independent dimensions of specialization
