Bankruptcy Law

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Volume 92.3
Noisy Factors in Law
Adriana Z. Robertson
Donald N. Pritzker Professor of Business Law, The University of Chicago Law School.

We thank Lucian Bebchuk, Alon Brav, Ryan Bubb, Ed Cheng, Quinn Curtis, Elisabeth de Fontenay, Jared Ellias, Jill Fisch, Joe Grundfest, Cam Harvey, Scott Hirst, Colleen Honigsberg, Marcel Kahan, Louis Kaplow, Jonathan Klick, Brian Leiter, Saul Levmore, Dorothy Lund, John Morley, Mariana Pargendler, Elizabeth Pollman, Roberta Romano, Paolo Saguato, Holger Spamann, George Vojta, and Michael Weber for valuable suggestions and discussions. This Article has benefited from comments by workshop participants at Columbia Law School, George Mason University Antonin Scalia Law School, Georgetown University Law Center, Harvard Law School, Stanford Law School, UC Berkeley School of Law, the University of Chicago Law School, the University of Oxford Faculty of Law, the University of Pennsylvania Carey Law School, the University of Toronto Faculty of Law, the University of Virginia School of Law, and the Washington University School of Law, as well as at the American Law and Economics Association Annual Meeting, the Corporate & Securities Litigation Workshop, the Labex ReFi-NYU-SAFE/LawFin Law & Banking/Finance Conference, and the Utah Winter Deals Conference. Robertson gratefully acknowledges the support of the Douglas Clark and Ruth Ann McNeese Faculty Research Fund. Katy Beeson and Levi Haas provided exceptional research assistance. All errors are our own.

Pat Akey
Associate Professor of Finance, University of Toronto; Visiting Professor, INSEAD.

We thank Lucian Bebchuk, Alon Brav, Ryan Bubb, Ed Cheng, Quinn Curtis, Elisabeth de Fontenay, Jared Ellias, Jill Fisch, Joe Grundfest, Cam Harvey, Scott Hirst, Colleen Honigsberg, Marcel Kahan, Louis Kaplow, Jonathan Klick, Brian Leiter, Saul Levmore, Dorothy Lund, John Morley, Mariana Pargendler, Elizabeth Pollman, Roberta Romano, Paolo Saguato, Holger Spamann, George Vojta, and Michael Weber for valuable suggestions and discussions. This Article has benefited from comments by workshop participants at Columbia Law School, George Mason University Antonin Scalia Law School, Georgetown University Law Center, Harvard Law School, Stanford Law School, UC Berkeley School of Law, the University of Chicago Law School, the University of Oxford Faculty of Law, the University of Pennsylvania Carey Law School, the University of Toronto Faculty of Law, the University of Virginia School of Law, and the Washington University School of Law, as well as at the American Law and Economics Association Annual Meeting, the Corporate & Securities Litigation Workshop, the Labex ReFi-NYU-SAFE/LawFin Law & Banking/Finance Conference, and the Utah Winter Deals Conference. Robertson gratefully acknowledges the support of the Douglas Clark and Ruth Ann McNeese Faculty Research Fund. Katy Beeson and Levi Haas provided exceptional research assistance. All errors are our own.

Mikhail Simutin
Professor of Finance, University of Toronto.

We thank Lucian Bebchuk, Alon Brav, Ryan Bubb, Ed Cheng, Quinn Curtis, Elisabeth de Fontenay, Jared Ellias, Jill Fisch, Joe Grundfest, Cam Harvey, Scott Hirst, Colleen Honigsberg, Marcel Kahan, Louis Kaplow, Jonathan Klick, Brian Leiter, Saul Levmore, Dorothy Lund, John Morley, Mariana Pargendler, Elizabeth Pollman, Roberta Romano, Paolo Saguato, Holger Spamann, George Vojta, and Michael Weber for valuable suggestions and discussions. This Article has benefited from comments by workshop participants at Columbia Law School, George Mason University Antonin Scalia Law School, Georgetown University Law Center, Harvard Law School, Stanford Law School, UC Berkeley School of Law, the University of Chicago Law School, the University of Oxford Faculty of Law, the University of Pennsylvania Carey Law School, the University of Toronto Faculty of Law, the University of Virginia School of Law, and the Washington University School of Law, as well as at the American Law and Economics Association Annual Meeting, the Corporate & Securities Litigation Workshop, the Labex ReFi-NYU-SAFE/LawFin Law & Banking/Finance Conference, and the Utah Winter Deals Conference. Robertson gratefully acknowledges the support of the Douglas Clark and Ruth Ann McNeese Faculty Research Fund. Katy Beeson and Levi Haas provided exceptional research assistance. All errors are our own.

For years, academic experts have championed the widespread adoption of the “Fama-French” factors in legal settings. Factor models are commonly used to perform valuations, performance evaluation and event studies across a wide variety of contexts, many of which rely on data provided by Professor Kenneth French. Yet these data are beset by a problem that the experts themselves did not understand: In a companion article, we document widespread retroactive changes to French’s factor data. These changes are the result of discretionary changes to the construction of the factors and materially affect a broad range of estimates. In this Article, we show how these retroactive changes can have enormous impacts in precisely the settings in which experts have pressed for their use. We provide examples of valuations, performance analysis, and event studies in which the retroactive changes have a large—and even dispositive—effect on an expert’s conclusions.

Bankruptcy Corporations Law and Economics Securities Law
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Essay
Volume 92.1
Bankruptcy's Turn to Market Value
Mark J. Roe
Professor of Law, Harvard Law School.

Thanks for comments and conversations on the topic go to Barry Adler, Scott Altman, Ken Ayotte, Jordan Barry, Lucian Bebchuk, Emiliano Catan, Jared Ellias, Allan Ferrell, Jesse Fried, Stuart Gilson, Jeffrey Haas, Jonathan Hirschfeld, Edith Hotchkiss, Ted Janger, Ed Morrison, Kristin Mugford, Michael Ohlrogge, Paul Oudin, Robert Rasmussen, Roberto Tallarita, George Triantis, Sophie Vermeille, Andrew Verstein, and participants in the American Law & Economics Association 2023 and the USC–Lewis & Clark March 2023 conferences, the Boston-area bankruptcy seminar group, and a Harvard Law School workshop. Excellent extended research assistance came from Trace Dodge, Bobby Farnham, Nicholas Juan, Claudia Luyt, Nikki Ovaisi, Domenic Reyes, Priyal Thakral, Yusuke Tsuzuki, and Amanda White.

Michael Simkovic
Professor of Law, University of Southern California Law School.

Thanks for comments and conversations on the topic go to Barry Adler, Scott Altman, Ken Ayotte, Jordan Barry, Lucian Bebchuk, Emiliano Catan, Jared Ellias, Allan Ferrell, Jesse Fried, Stuart Gilson, Jeffrey Haas, Jonathan Hirschfeld, Edith Hotchkiss, Ted Janger, Ed Morrison, Kristin Mugford, Michael Ohlrogge, Paul Oudin, Robert Rasmussen, Roberto Tallarita, George Triantis, Sophie Vermeille, Andrew Verstein, and participants in the American Law & Economics Association 2023 and the USC–Lewis & Clark March 2023 conferences, the Boston-area bankruptcy seminar group, and a Harvard Law School workshop. Excellent extended research assistance came from Trace Dodge, Bobby Farnham, Nicholas Juan, Claudia Luyt, Nikki Ovaisi, Domenic Reyes, Priyal Thakral, Yusuke Tsuzuki, and Amanda White.

Chapter 11 was widely viewed as a failure in the first decade of the Bankruptcy Code’s operation, the 1980s. While basic bankruptcy still has its critics and few would say it works perfectly, the contrast with bankruptcy today is stark: bankruptcies that took years in the 1980s take months in the 2020s.

Multiple changes explain bankruptcy’s success and we do not challenge their relevance. But in our analysis, one major change is missing from the current understanding of bankruptcy’s success: bankruptcy courts and practice in the 1980s rejected market value; today bankruptcy courts and practice accept and use market value. This shift is a major explanation for bankruptcy’s success.

We argue that valuation improvements explain much of the increased speed and efficiency of Chapter 11 practice over the decades. We provide evidence that valuation conflicts narrowed and that the corporate reorganization process accelerated. The switch to market thinking across the bankruptcy spectrum—in bankruptcy transactions, in judging, and in lawyering—goes far in explaining why.

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Comment
Volume 91.8
When the Taker Goes Broke: Takings Claims in Municipal Bankruptcy
Joshua Kayne Kaufman
B.A. 2021, The University of Chicago College; J.D. Candidate 2025, The University of Chicago Law School.

I would like to thank Josh Avratin, Douglas Baird, Vincent Buccola, Andrea Kayne, Kate Gehling, Ryan Schloessmann, Jenna Liu, Jack Brake, Karan Lala, and many other members of the University of Chicago Law Review for their thoughtful advice and feedback. In addition, I would like to thank Maria Sofia Peña, Andrea Kayne, Ariel Kaufman, Jacob Kaufman, Borscht Kaufman, Babka Kaufman, Justin Peña-Behar, and my friends for their support throughout the writing process. This Comment is dedicated to Chicago—my home for the past quarter century and a testament to the importance of giving communities a second chance.

When a municipality takes property, the former owners can allege a violation of the Takings Clause and try to recover just compensation. But what should happen when the municipality goes broke and enters municipal bankruptcy? Can the municipal bankruptcy code empower judges to release municipalities from their obligation to pay just compensation through a discharge? Or does the Takings Clause provide special constitutional protection to claims for just compensation from a municipality that immunizes the claims from discharge? This issue has played out in municipal bankruptcies in Detroit, Michigan; Stockton, California; and Puerto Rico—where courts are deeply divided on the right approach, resulting in a live circuit split. This Comment provides the first comprehensive analysis that shows takings claims are constitutionally dischargeable. As a threshold matter, the Comment shows that formalist considerations do not require immunizing takings claims from discharge. The Comment then shows that making takings claims dischargeable follows best from the original design of the Takings Clause given the host of procedural and political safeguards within municipal bankruptcy that would protect takings claimants against abuse. Lastly, the Comment shows that making takings claims dischargeable is normatively good.

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Comment
87.4
The Golden Share: Attaching Fiduciary Duties to Bankruptcy Veto Rights
Yiming Sun
BA 2018, University of California, Los Angeles; JD Candidate 2021, The University of Chicago Law School.

I wish to thank Professors Douglas Baird and Anthony Casey, as well as The University of Chicago Law Review editors, for their guidance and advice throughout the writing process.

Suppose you are a large investment fund that just loaned money to a company. Like many large lenders, you secured the loan with the company’s equipment as collateral. But unfortunately, the company missed an interest payment and defaulted under the terms of its notes. What’s worse, it subsequently filed for bankruptcy.

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