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Wednesday, July 24, 2013

Detroit’s Bankruptcy and the Law


Detroit
 
The City of Detroit filed for bankruptcy this month, making it the largest municipal entity in the country to ever do so.  This has created a number of interesting and new legal problems for bankruptcy lawyers.  Since I’ve taught the course in Debtor-Creditor Law for 40 years, and have written a textbook (with Professor Jeffrey Morris of the University of Dayton) on the subject, I thought I’d take a stab at explaining the difficulties for those of you who are not lawyers.

Bankruptcy is a federal matter, and the United States Bankruptcy Code is divided into various “Chapters.”  Most individuals and businesses file a Chapter 7 bankruptcy, which is a liquidation proceeding in which the debtor surrenders all non-exempt assets and then is forgiven (“discharged”) from liability on most (but not all) debts.  Businesses in Chapter 7 do not get a discharge; they are liquidated and simply cease to exist.  Individuals can file a Chapter 13, which allows them to pay off many of their debts over a five year period, while holding the creditors at bay from all collection activity except that allowed by the Chapter 13 plan.  Businesses that wish to use the bankruptcy system to file a reorganization plan and restructure their debts can do so in Chapter 11.


Municipalities have their own special Chapter: Chapter 9 of the Bankruptcy Code.  Since the Great Depression, when Chapter 9 was enacted, there have been fewer than 700 filings, and the courts have had to struggle with sparse case law to guide them.  Chapter 9 has only 16 sections (as opposed Chapter 11, which has 45), and those sections lay out only the bare bones of the procedures municipalities must follow.  Under Chapter 9 the municipality files a “plan of adjustment,” and if the bankruptcy judge confirms that plan, all the creditors will have to live with its terms.  When the creditors in any kind of bankruptcy have their claims reduced, the process is called “cramdown” (as in “crammed down their throats”).  It’s rarely a tidy affair, and battles in the bankruptcy court can be fierce over the terms of the plan and its cramdown features.  Cramdown is permitted against non-consenting creditors, which in municipality bankruptcies are all too often unions protesting dismantling of pension benefits which rising property taxes can no longer support.  That is certainly one of the major issues in the Detroit filing.

The legal complexities come down to the interplay between Michigan’s state laws and the federal bankruptcy ones.  Usually in such battles federal law trumps state law to the extent they disagree, and this would be true even of state constitutional provisions.  What?  A lowly bankruptcy judge can simply ignore a provision of a state constitution if it conflicts with the bankruptcy law?  Yes.  But . . .

Governor Rick Snyder
Chapter 9 of the Bankruptcy Code has two provisions that give authority to the states to affect what goes on in the Chapter 9 reorganization.  The first is that the state itself must authorize the municipality to file a federal petition [Bankruptcy Code 11 U.S.C. §109(c)(2)].  Michigan has a statute authorizing the Governor to give such authorization, and in the Detroit bankruptcy Governor Rick Snyder so certified.  The second is that the municipality’s bankruptcy plan may only be confirmed if “the debtor is not prohibited by law from taking any action necessary to carry out the plan” [Bankruptcy Code 11 U.S.C. §943(b)(4)].  Those two bankruptcy sections create all kinds of trouble in Detroit’s filing because the Michigan Constitution has this interesting provision:

Sec. 24. The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.

Judge Steven Rhodes
As soon as Detroit filed its petition, objecting creditors ran to the state courts to get an order stopping the bankruptcy.  Their argument, accepted by the state trial judge, was that Governor Snyder exceeded his authority in authorizing the bankruptcy because the bankruptcy would likely violate this provision of the constitution.  This ruling was stayed on appeal, and now the bankruptcy judge, Judge Steven Rhodes, has issued an order requiring all of the jurisdictional issues to be heard in the bankruptcy court.  This effectively keeps the state courts out of the picture and moves the battleground to the federal forum.

 
I think Judge Rhodes will likely rule that the Governor acted appropriately.  All he did was certify that the bankruptcy was allowed, and not that the bankruptcy court could confirm a plan that conflicts with Michigan Constitution.  That will get rid of the first issue.

Ah, but the second is much trickier.  Does Bankruptcy Code 11 U.S.C. §943(b)(4), which forbids the plan to violate state law, keep Detroit from restructuring its pension plans? 

Nobody knows for certain.  There are no precedents to rely on here.  Chapter 9 has been used so rarely that this area of bankruptcy is like the Wild West: rooting, tooting, shooting, with messy results.  The Michigan Constitutional provision quoted above only forbids restructuring “accrued financial benefits.”  Hmm.  Does that mean benefits not yet “accrued” are fair game?  What does “accrued” mean in this context?  How about health care benefits?  Are they covered by that constitutional provision? 



Chapter 9 bankruptcy lawyers better strap on their chaps and practice their pistol draws.  Ride ‘em, cowboys!!!
 


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Tuesday, July 16, 2013

Teaching Cats the Rules of the House



I ordered 20 copies of my novel “Imaginary Friend” last week because I have a number of upcoming speaking engagements at which I planned to sign and sell books.  This past Saturday I opened the new copies that arrived on the dining room table, took out the packaging that came with it (the usual brown paper wrapping, all crumbled up) and then downloaded the books into a suitcase that I trundled to the Ohio Union for my first speaking engagement of the summer.

Coming home in the late afternoon, I was working at the computer when I heard suspicious paper-rattling on the dining room table just around the corner, meaning that some cat was violating a stern rule of this establishment, rigorously enforced by “The Big Mammal”: cats are not allowed up on the dining room table. 


Barney, my cat who is small of brain but large of heart, sometimes violates this rule, but not because he’s a rule-breaker, it’s simply that he forgets.  This rarely happens, but the last time was the day after we returned from the winter visit to Florida when I walked into the dining room, and Barney was standing on the table.  He purred when he saw me, and started coming to greet me, when all of a sudden a look of horror crossed his face.  “I’M GOING TO BE PUNISHED BECAUSE I FORGOT I’M NOT ALLOWED UP HERE!!!”  Since Barney was often punished by his prior owners, who I believe beat the brains out of him, this is no small thought for him to have, and he leaped from the table to run and hide.
 
 
 

My other cat, Mama, is a different matter.  Rules?  Schmooles!—these silly rules are made to be broken, just don’t get caught—that’s her attitude.

 
Therefore when I heard the rustling of paper I knew to be on the dining room table, there was an obvious culprit.  I quietly sneaked around the corner, saw Mama engrossed with the paper, and thundered in my preternaturally loud voice “NO CATS ON THE TABLE!” 

It was very satisfying.  Mama jumped as if electrified, hovering about four feet above the table, and when gravity reasserted itself, she bolted from the room in absolute panic, heading for the basement, sure in the knowledge that I wouldn’t follow her there.  She’s figured out that with my recent knee replacement I don’t yet lightly go up and down stairs.

I didn’t.


Mama
Instead I waited for an hour or so until she came casually strolling into the living room where I was having a martini, watching the news.  She appeared certain that the statute of limitations had erased her most recent transgression, and (confident things were as usual) she strolled to the window overlooking the back yard and sat down to peruse the neighborhood.  When I, silently, rose ominously from my chair, and advanced to where she was sitting, she realized her error and fled behind the sofa.  So I quietly walked to the appropriate spot on my side of the sofa, leaned over the sofa, suddenly planted a finger pointedly on her back, and said loudly “NO CATS ON THE TABLE!” 

 

She somehow managed to make it up to the loft upstairs in one leap.



Now, if this had happened to Barney, who's easily confused and wants so very much to do right, he’d have been cowering for days.  Ah, but not our Mama.

She loved it!  Mama’s bored too much in life, and this was a big event!  Could she goad the Big Mammal into more retribution (knowing, all too well, that it’s mostly pretense on my part)? When she next came down to the living room, she strolled to the window, as before, almost yawning.  But you could tell that, although she wasn’t looking in my direction, she was braced for Round Three.

And—damn it!—she was very disappointed when it didn’t come.  The martini had mellowed me out and the game was over.  Eventually, ever the diva, Mama climbed into my lap with an attitude that clearly said, “At least pet me, you fool!”
So I did. 

And I’d also made sure that cat-tempting items were cleared from the dining room table, thus ending this particular bout.  Who knows what’s next?



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POSTSCRIPT:

On a morning two days after writing this post I was sitting in the living room when the doorbell rang.  It was a flower delivery for my next door neighbor, who was not home, and I was asked if I would take it and give it to her later in the day, to which I agreed.  I put the lovely arrangement on my dining room table, and went back to reading my newspaper in the living room.  This, of course, was a mistake.

Mama feels it’s her duty to inspect everything that comes into our home, so I should have been expecting the mysterious noise that emanated from the dining room about fifteen minutes later.  Suspicious, I rose from my chair, and heard the thump of a cat landing on the floor in the dining room.  By the time I got to there everything was just as I’d left it, no cats in sight, but I knew Mama had been up close and personal with the vase of flowers.  

On reentering the living room I gazed at Mama, who had not been there moments before, annoyed.  She was studiously hard at work, licking herself with dedication, as if this demonstrated her innocence of any house rule violation.  You were on the dining room table,” I said, using my prosecutorial voice.  She calmly continued licking, as if to say, “Prove it.”  I heard a thump.”  More licking, but her reply would have been “Might have been the other cat,” even though Barney could be heard immediately above us, asleep in the loft, snoring loudly. “I know you were on the dining room table!  But she was contemptuous of my concern, yawned, and went to look out the living room window, done with the conversation, her attitude clearly being “No Grand Jury would indict me.” 
Mama should have been a lawyer.
I moved the flowers to the top of the refrigerator, which is where I should have put them in the first place.

 
 
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Friday, July 5, 2013

Speaking at Atheist Conventions, Directing a Play, and That Move to Florida



This summer is going to be far too busy for a supposedly retired man.  A quick update on the coming events, some of which my readers may want to attend (or studiously avoid, depending).

 A.  Speaking at Atheist Conventions

On Saturday, July 13, from 2:30 to 3:00 p.m. in US Bank Theater in the Ohio Union on the campus of The Ohio State University, I will be speaking at the 2013 Secular Students Alliance Annual Conference (East).  My topic will be “Coming Out as an Atheist.”  It is based on a blog post I wrote entitled “What Atheists Can Learn from the Gay Movement” (see below).  I was very pleased to be asked to speak at the convention, which will itself last all that weekend, and many of the speakers are famous names in the atheist/secular humanist movement.  For more information see http://lanyrd.com/2013/ssaeast/.  After my talk I will be signing (and selling for $8.00 each) copies of my atheist thriller, “Imaginary Friend” (which sells for $9.84 on Amazon and $2.99 for the Kindle version).
 
Hawking My Novel
 
Barbara Williams and Me

In August I will be speaking twice at the Great Lakes Atheist Convention in Toledo.  Barbara Williams, who calls herself the number one fan of my novel, is the driving force behind the convention, and she has scheduled me to be the first speaker at noon on Friday, August 16th at 7:00 p.m., and then the closing speaker on that Sunday at 11:15 a.m.  My topic for the first talk is the same as the one I’ll deliver to the Secular Students Alliance, and my closing remarks will be a summary of everything I’ve learned at the Great Lakes Atheist Convention over its three days.  I will, of course, also be selling and signing copies of “Imaginary Friend.”  The convention will be held at the Best Western Premier Grand Plaza Hotel & Convention Center August 16-18, 2013. The Hotel is located along the Maumee River in downtown Toledo.  For more information on this convention see http://glaconvention.com/. 


One of the speakers that Barbara Williams is working hard to bring to the convention is Oklahoma tornado survivor Rebecca Vitsmun who accidentally embarrassed CNN’s Wolf Blitzer when he asked her if she thanked God for saving her and her baby and she replied that she was an atheist.  For the video on that see http://www.youtube.com/watch?v=rIDrmYyfWe8.  Atheist groups have raised over $100,000 in a fund to help Rebecca Vitsmun and her family in the aftermath of the tornado.  She told Barbara Williams she doesn’t know what she would say at the convention, but I for one would be fascinated just to hear her tell her story: the tornado, the Blizter interview, and then all that followed that. 


 

B.  Directing the Play “Art”

A Scene from "Art"
I’ve done three shows as an actor at Columbus Civic Theater, but this fall for the first time I will direct a play for them.  It is Yasmina Reza’s “Art,” which won the Tony Award in 1998 for Best Play.  “Art” a comedy about a man who pays an incredible amount of money for an all white painting.  When his best friend calls it “a piece of shit,” the fireworks start, and the play (90 minutes, no intermission) explores exactly what is “art” and, more importantly, what you can say to your friends and what you’d better keep to yourself.  The cast consists of three middle-aged men, and since the staging is minimal, the trick for putting on a fine production that’ll keep the audience entertained will be in finding three talented actors who can bring out all the humor and pathos that Reza’s play contains.  We’ll hold auditions the weekend of August 24th and 25th, and the play will open on Thursday, October 25th, playing four weekends of 8 p.m. performances on Thursdays, Fridays, and Saturdays, with a 2 p.m. matinee on Sundays.  Come see the final theatrical piece I’ll be involved in before I move to Florida.  My return to theater started in 2004 when I retired from teaching law, and after 15 shows, this will be my Ohio finale.  For more information see http://www.columbuscivic.org/index.html.
 

C.  Selling My Home and Moving to Florida

Since I last wrote about the effort to sell my condo (see below for “My Cats Get Involved in My Knee Surgery and Selling My Condo”), there have been a number of showings, but no takers, and not even a nibble.  It was suggested that perhaps my condo is too crowded with “stuff” so I’ve denuded it by packing up lots of things and moving the boxes into the garage, rearranging furniture to show what a large space the place really contains, etc.  Let’s see if that works.  I would love to sell my home soon and then run down to the Fort Lauderdale area and buy a place there so that I can move shortly after “Art” opens.  If anyone reading this knows someone who needs a wonderful home where all the important things are together on one floor (a must for someone who’s aging) but with three bedrooms (two upstairs) and a full basement, send them my way.  I’ve loved living in my home in Dublin, Ohio, and if I could just pick it up and move the whole things to Florida, I’d certainly do so.  The cats would like too. 

As to all of this, stay tuned.
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