Author: John Pottow

  • Cross-Border Insolvency Forum Shopping Naivete

    Posted by

    John Pottow

    by Ted Janger and John Pottow

    Recently, two U.S. law professors and a third from Singapore offered unsolicited advice to the United Nations Commission on International Trade Law (“UNCITRAL”) regarding that organization’s ongoing efforts to harmonize and modernize the law of cross-border insolvencies.  They wrote an open letter (the “Letter”) to the Secretariat—joined by a number of other academic signatories—that calls upon UNCITRAL to abandon one of the core principles of its Model Law on Cross Border Insolvency (the “MLCBI,” adopted as chapter 15 of the U.S. Bankruptcy Code): that, other things being equal, a cross-border bankruptcy case should be based where the debtor is located. 

    This principle is implemented by according special deference and comity to the insolvency case located at the debtor’s center of main interest (the “COMI”).  The debtor’s COMI is the jurisdiction where it carries out its activities and, hence, is the jurisdiction that is known and readily apparent to third parties.  It therefore is predictable.  The COMI principle thus has a lot to recommend it.  In most cases it will enhance the legitimacy of bankruptcy outcomes by simultaneously furthering administrative convenience, increasing transparency, vindicating creditor expectations, and respecting national sovereignty.  Like most rules of private international law, it is rooted in common sense.

    Notwithstanding COMI’s many virtues, the Letter’s authors recommend jettisoning COMI in favor of a regime of unfettered forum choice and jurisdictional competition; the main proceeding entitled to deference in a multinational insolvency should be freely selected by the debtor.

    (more…)

  • The Chimerical Medicare Bar on Bankruptcy Jurisdiction

    Posted by

    John Pottow

    Statutory interpretation enthusiasts: prepare to nerd out on an issue on which the Court has a cert petition pending.  The question involves the federal jurisdictional bar to Medicare challenges.  Let’s start with the text:

     “No action against the United States, the [Secretary of Health and Human Services, see 42 U.S.C. § 1395ii], or any officer or employee thereof shall be brought under section 1331 or 1346 of title 28 to recover on any claim arising under [the Medicare Act, see § 1395ii].”

    Bankruptcy types—and quite frankly, all lucid readers of English—might well think that this jurisdictional bar does not apply to bankruptcy jurisdiction under section 1334.  Not so, say a surprising number of courts.

    What could possibly justify reading what’s clearly only a bar of federal question jurisdiction (1331) and federal officer jurisdiction (1346) as a bar to bankruptcy jurisdiction (1334) as well?  In In re Bayou Shores, the subject of the pending cert petition, the Eleventh Circuit offered an argument based on congressional intent.  Until 1984, the precursor to the above-quoted statute did bar bankruptcy jurisdiction.  But it did so obliquely, by way of a statutory cross-reference to a subsequently dismantled omnibus jurisdictional grant in the Judicial Code.  So for a few decades after the dismantlement, the Medicare bar was a cross-reference to a no-longer-existing passage of the Judicial Code that formerly encompassed virtually all grants of jurisdiction to the district courts, including bankruptcy.

    When Congress finally got around to updating the bar in the 1980s, it enacted the text above.  Without more, that would just be Congress changing the law from a broad bar cross-referencing all jurisdictional grants to a specific bar covering only two grants.  But there was more: Congress did so as part of a package of self-styled “technical corrections.”  And of these corrections, Congress wrote a proviso that “none . . . shall be construed as changing or affecting any right, liability, status or interpretation which existed (under the provisions of law involved) before [their effective] date.”  To read the amended bar as written would appear to violate this admonition.  The Eleventh Circuit (and others) thus read the proviso to justify junking the statute’s text in favor of the perceived congressional intent not to change anything.

    (more…)

  • Jevic CVSG Recommends Granting Cert

    Posted by

    John Pottow

    The brief is not up on the SG's webpage yet, but they are recommending granting the petition and reversing the Third Circuit.  Hat tip to Professor Lipson or Attorneys Goldblatt et al.?  I think this now places granting odds at "moderately decent."

    (Those less in the weeds: CVSG is Calls for Views of the Solicitor General.  When the Supreme Court's thinking of granting cert, it sometimes asks the Solicitor General for its views before making the decision.  The SG's brief filed this week says, "Yes, important, grant cert."  Of course, it's not dispositive, but as my old Latin Master used to say, it's better than a slap in the face with a wet haddock.  (Shout out to TPO'DB.))

  • Nortel Avoids (First) Appeal — U.S. Edition

    Posted by

    John Pottow

    After extensive briefing and hearings, the U.S. District Court presiding over the appeal (foreign readers: general trial judges in the U.S. federal court system sit in an appellate capacity over the specialized bankruptcy courts) from the U.S. Nortel proceedings punted this week.  More precisely, the judge, almost resignedly, acknowledged that the appellate appetite of the parties showed little sign of abatement and so has recommended that the appeal go straight to the U.S. Court of Appeals for the Third Circuit (which would hear any appeal from the District Court).  If the appellate court takes this direct appeal, which it almost certainly will, this could very well be the final stage.  Stay tuned!

  • Nortel Survives (First?) Appeal — Canadian Edition

    Posted by

    John Pottow

    Unlike the bankruptcy judges in Nortel, who synchronized their trials in a landmark case of cross-border insolvency cooperation, the appellate judges run at their own speed, so results will trickle in here and there.

    The Canadians got through their appeal first, and the 3-0 ruling from the panel of the Ontario Court of Appeal was rightly withering of the losing appellants.  In response to the argument accusing the trial judge of applying — instead of the correct law of property entitlements — his own "commercial judicial moralism," the panel had this to say on his analysis:

    "Based on those facts, he concluded that a pro rata order constituted the answer to the allocation issue. The fact that the answer is also fair should not detract from the force of his conclusion."

    Who said Canadians can't be snarky, or at the very least passive-aggressive?

    The next stage in Canada would be the Supreme Court, which requires leave to appeal, although its grant rate is higher than the U.S. Supreme Court's cert rate.  Stay tuned!

  • Puerto Rico: Reading the SCOTUS Tea Leaves

    Posted by

    John Pottow

    I, too, join the cohort of surprised observers from this week's argument.  For me, the biggest takeaway is not so much that the Justices were engaging in textual sport, it's that they wanted to engage in those gymnastics.  That is, everyone seemed to get how unjustifiable the legal status quo is: it's clear the law is dumb, it's probable that Congress made a mistake, and so the Court had a very roll-up-their-sleeves attitude that struck me as, "What can we do to mitigate matters while being able to sleep at night that we are following an at-least-plausible reading of the text?"  The subtext to that is that they were not searching for the most natural reading of the text but the reading that did the least harm that could fix a problem.  (Surely a different colloquy would have ensued had the Late Justice Scalia been present!)

    Note this is not "judicial activism" in my mind, because if it were true activism, they would just make up a doctrinal canon saying they can ignore the text when "manifestly unsound," or maybe open up the absurdity doctrine so wide you could drive a Jones Act tanker through it.  I see this as remarkably pragmatic.  We have to follow the text.  If you can get us a reading that we can live with, we'll do it.  That's why they kept pressing on what is the justification for this law.  Their lack of enthusiasm to any proffered makeweight (treat triple tax-exempt bonds differently from PR vs USVI?!) was telling.  If you're a judge, especially a Justice, I suspect you don't feel bad interpreting a law in a creative way if everyone but the self-serving litigants seems to suggest it's pointless.  In fact, you probably feel good.

    All this said, don't get too excited for reversal yet.  The bondholders had some good textual counters in their briefs that didn't make oral argument.  But the irritation of the engaging Justices with the law, coupled with the simmering undercurrent of subjugation inherent in the territory's second-class status, suggests this really could be an interesting opinion.

  • And Now for Something Nutty on Puerto Rico

    Posted by

    John Pottow

    I know nothing about the statutes delegating "home rule" authority to the Commonwealth, but do they have any reversionary clauses?  For example, if there's crisis, war, etc., can the federal government revest in any power?  Leaving aside the political unpalatability, wouldn't that leave the executive branch with a freer hand?  Building, can the President (temporarily) draft the island's residents, then issue an order taking (for fair/discounted value) any debts related to providing services for this vital military installation?  Or how about declaring it a giant national monument?  OK, feel free to go back to common sense if you want now.  (Hey, we were supposed to think creatively…)

  • PR: Let’s start with financing…

    Posted by

    John Pottow

    OK, so I start from the premise that holdouts don't want to restructure debt but others do.  Thus, the goal should be incentivize restructuring in a way that beats up on holdouts.  Could the Feds say they'll offer financing (e.g., underwrite new bonds) for people who exchange bonds/debt?

  • A World Without Harvey

    Posted by

    John Pottow

    Here's an early obit.  It's hard for me to imagine a chapter 11 world without Harvey Miller.  Although the adjective is over-used, I think it would be difficult to argue the man was not transformative to bankruptcy law.  He was an incredible mentor, and I am honored to have considered him a friend.  I can't count  how many younger lawyers in the field he encouraged and taught, in so many ways.  It's just hard to imagine a world without his seemingly indefatigable spirit.  Harvey makes — made, I'm still adjusting to the past tense — you feel both energized and exhausted at the same time after an engagement.  It's a sad day, but happy too, I suppose, knowing what a great run he had.  Trite, I apologize, but he was a rare breed, indeed.

  • This Morning, I Woke Up With This Feeling

    Posted by

    John Pottow

    I feel compelled to share this sad but not unexpected filing.  I hope he will not run into any trouble under section 523(a)(9).