The Myth of Creditor Sabotage
Vincent S.J. Buccola - Assistant Professor, The Wharton School of the University of Pennsylvania.
Jameson K. Mah - Investment Analyst, Cyrus Capital Partners. BS (Economics), The Wharton School of the University of Pennsylvania.
Tai Zhang - Analyst. BS (Economics), The Wharton School of the University of Pennsylvania.
Since credit derivatives began to substantially influence financial markets a decade ago, rumors have circulated about so-called “net-short” creditors who seek to damage promising, albeit financially distressed, companies. A recent episode pitting the hedge fund Aurelius against broadband provider Windstream is widely supposed to be a case in point and has at once fueled calls for law reform and yielded an effigy of ostensible Wall Street predation.
This Article argues that creditor sabotage is a myth. Net-short strategies work, if at all, by in effect burning money. When an activist creditor shows its cards, as all activists must eventually do, it also reveals an opportunity for others to profit by thwarting the activist’s plans and saving threatened surplus. We discuss three sources of liquidity that targeted firms could tap to block a saboteur—“net-long” derivatives speculators, the target’s own investors, and bankruptcy. We conclude that it is exceedingly difficult for creditors to make money hobbling debtors and that there is little reason to believe anyone tries. We then examine the Windstream case and find, consistent with our theory, that the strongest reason for thinking Aurelius aimed at sabotage—namely that everyone says so—is weak indeed. Our analysis suggests that calls for law reform are addressed to a nonexistent or, at worst, self-correcting problem. Precisely for this reason, however, the persistent appeal of the sabotage myth is a lesson in political rhetoric. A story needn’t be true for some to find it useful.
Exporting American Discovery
Yanbai Andrea Wang - Assistant Professor of Law, University of Pennsylvania Carey Law School.
This Article presents the first comprehensive study of an intriguing and increasingly pervasive practice that is transforming civil litigation worldwide: US judges now routinely compel discovery in this country and make it available for disputes and parties not before US courts. In the past decade and a half, federal courts have received and granted thousands of such discovery requests for use in foreign civil proceedings governed by different procedural rules. I call this global role played by US courts the “export” of American discovery.
This Article compiles and analyzes a dataset of over three thousand foreign discovery requests filed between 2005 and 2017 under 28 USC § 1782—an expansive statute that is now the pivotal law governing the export of American discovery. I use the dataset to show that the foreign civil demand for US discovery has approximately quadrupled during the study period, that demand from foreign private actors now overshadows demand from foreign tribunals, and that the requests’ countries of origin have diversified. I then map the ways in which the machinery of domestic discovery is distorted in the context of global discovery, leading to missing foreign stakeholders and systematic bias toward compelling discovery. Reflexively exporting US discovery, in turn, undermines Supreme Court doctrine, risks imposing unintended externalities on foreign tribunals and foreign litigants, and erodes universal notions of fairness and due process.
Although foreign discovery requests account for a small fraction of federal dockets, they provide an illustrative case study of the larger phenomenon of disputes straddling multiple legal systems. Litigants and attorneys are now strategizing across borders and deploying national procedural tools to their global advantage. Yet, judges continue to operate within national silos even as they play a global role. Consequently, judges are at an informational disadvantage when they adjudicate disputes only parts of which are before them. This contemporary challenge calls for institutional solutions in the form of court-to-court information sharing and coordination across borders, as well as a reconceptualization of federal judges as global actors who share overlapping authority with foreign judges and arbitrators.
Necessary "Procedures": Making Sense of the Medicare Act's Notice-and-Comment Requirement
Josh Armstrong - BA 2017, The University of Texas at Austin; JD Candidate 2021, The University of Chicago Law School.
The Supreme Court’s recent decision in Azar v Allina Health Services, Inc opened and then declined to resolve a new question of administrative law. In that case, the Court affirmed the DC Circuit’s holding that the Medicare Act, unlike the Administrative Procedure Act (APA), did not exempt so-called “interpretive rules” from notice and comment. Crucially, however, the Supreme Court declined to give any further guidance as to what rules the Medicare Act’s notice-and-comment provision does cover. This lack of guidance added further confusion to an already-murky area of law: the DC Circuit’s current interpretation of the Medicare statute, which is the only one presently left standing, has no fixed limits and is tethered only to a dictionary definition. This Comment argues that courts should clarify the reach of the Medicare Act’s notice-and-comment provision by looking to existing case law interpreting the APA’s exemption to notice and comment for procedural rules. This reading would provide the administrators of the Medicare system with much-needed guidance as to which rules they must subject to notice and comment. With the effective administration of over sixty million Americans’ health insurance on the line, clarifying the statute’s notice-and-comment requirement is a necessary “procedure.”
A (Very) Unlikely Hero: How United States v Armstrong Can Save Retaliatory Arrest Claims After Nieves v Bartlett
Brenna Darling - BA 2016, New York University; JD Candidate 2021, The University of Chicago Law School.
In Nieves v Bartlett, the Supreme Court holds that plaintiffs alleging retaliatory arrests are generally required to prove a lack of probable cause to arrest; there is one small exception for plaintiffs who can demonstrate by “objective evidence” that similarly situated individuals would not have been arrested but for the protected speech at issue. Unfortunately, neither the general rule nor the exception in this recent ruling will help many victims of retaliation. The expansion of the criminal code to cover petty indiscretions means police officers will not have any difficulty identifying probable cause to arrest for something. As to the Nieves exception, obtaining records of arrests that did not occur requires proving a negative—never an easy task. Importantly, the opinion requires courts to disregard even credible evidence of retaliatory intent at the threshold level, unless the plaintiff can show lack of probable cause or provide evidence regarding similarly situated individuals.
As Justice Neil Gorsuch tentatively suggests in his Nieves opinion, the rule from United States v Armstrong, which governs the discovery bar for selective prosecution claims, is a much better fit than the Nieves majority’s rigid rule. Although the Armstrong Court crafted an analogous similarly-situated-individuals requirement, the opinion left open whether direct evidence of intent could allow litigants to sidestep that requirement. Given the centrality of intent to both selective prosecution and retaliatory arrest claims, courts should follow Armstrong in the retaliatory arrest context and consider evidence of intent at the start of litigation. While evidence of prosecutorial intent rarely comes to light, retaliatory arrest plaintiffs will have significantly more access to evidence of police intent, making the Armstrong rule more useful in this context—especially in the age of cellphone videos and civilian vigilance.
"What Shall I Give My Children?": Installment Land Contract, Homeownership, and the Unexamined Costs of the American Dream
Caelin Moriarity Miltko - BA 2017, University of Notre Dame; JD Candidate 2021, The University of Chicago Law School.
Gwendolyn Brooks’s “The Children of the Poor” is a meditation on parenthood in times of hardship, with a particular focus on the impact of poverty and social injustice. The title of this Comment comes from the second sonnet of Brooks’s tripartite poem: “What shall I give my children? who are poor, / Who are adjudged the leastwise of the land.” In the poem, Brooks asks an immediate question: How will she respond to her children’s requests right now for material goods and acceptance that she cannot give them? Unable to fulfill those needs, the mother in the poem instructs her children in their reality, providing lessons that will hopefully support them throughout their lives. This is the much larger question for parents, who worry not just for their children’s present but also for their future. Echoing Brooks’s simultaneous focus on material needs and emotional resilience, this Comment is about homeownership—the cornerstone of the American Dream and an “essential” for anyone hoping to pass on generational wealth to their children.
Historically, there can be no doubt that homeownership has allowed a great many Americans, primarily White Americans, to build wealth and provide their children with financial stability. For those Americans able to become homeowners, especially those who did so in the mid-twentieth century, the promises of homeownership have been fulfilled. But for those cut out of the primary homeownership market, especially Black Americans, those promises have largely proved empty. In fact, the financing devices available to low-income and minority communities have had significant adverse effects on those communities and their ability to pass on any kind of wealth or prosperity to their children. This Comment explores the installment land contract (ILC), one financing device that has been used in lieu of a mortgage for those who cannot qualify for traditional mortgage financing.
The ILC was especially prominent during the mid-twentieth century in Black communities shut out of the mortgage market by the Federal Housing Administration. Since 2008, the ILC has again become popular: increased regulation of the mortgage market has made it more difficult for low-income homebuyers to get mortgages, but the underlying desire to participate in the American Dream has not changed. This Comment looks at the history of the ILC and, using that as a backdrop, explores the best way to take advantage of the financing device while still protecting potential buyers from the worst of its associated risks. To that end, this Comment concludes that current regulation is inadequate to appropriately deal with the risks of the ILC. This Comment proposes the adoption of three protective measures: (1) imposing mandatory purchase counseling, (2) creating venue requirements that prohibit eviction courts from hearing ILC cases, and (3) making per se unconscionable all ILCs that include both an “as is” deed and a forfeiture clause.