Reconsidering the Reliance Interest

This essay discusses the place of Fuller and Perdue\u27s The Reliance Interest in Contract Damages in the contracts classroom. After first describing my use of The Reliance Interest, I will set out what I consider to be the pedagogical benefits of beginning the course with remedies and the attractiveness of Fuller and Perdue\u27s analytical model in conveying an understanding of the remedial structure. Next, I will discuss the views of critics Craswell, Kelly and Barnes. Finally, I will revisit the place of Fuller and Perdue\u27s work in the contracts course in light of these criticisms

Bankruptcy Redistributive Policies and the Limits of the Judicial Process

Business failure negatively affects a broad range of interests, yet the bankruptcy process directly protects only a small segment of interest-holders: the creditors. Some commentators argue for expansion of that protection to encompass redistributive norms and provide for the interests of non-investors in the failed business. The Bankruptcy Reform Act of 1994’s establishment of a national commission to study the bankruptcy process and its broader policy implications brings with it the opportunity to consider that redistributive argument and perhaps change the process to include the interests of non-investors under the reorganization umbrella. This Article responds to those who would have the bankruptcy reorganization process protect the interests of non-investors in the failed enterprise. The author outlines the arguments both for and against such protection, and concludes that the bankruptcy process is institutionally incapable of achieving redistributive goals. This process-oriented view of business reorganizations holds that protection of non-investor interests should be left to those institutions and processes capable of competently providing it

Pragmatism vs. Principle: Bankruptcy Appeals and Equitable Mootness

Bankruptcy reorganizations are often thought to present unique problems requiring specialized doctrines. Equitable mootness is one such doctrine. This judge-made prudential limitation on appeal rights permits reviewing courts to dismiss otherwise justiciable appeals of bankruptcy court confirmations of reorganization plans. It applies where granting relief would disrupt the implementation of the plan or would harm reliance interests of parties affected by the plan. Chapter 11 reorganizations present complex multilateral negotiation problems. The bankruptcy represents a general default, pitting stakeholder against stakeholder in conflicts that require a global settlement. The plan of reorganization provides that global settlement through an interconnected web of compromises. Equitable mootness is justified by a need to protect those compromises against appellate challenge and, for most bankruptcy practitioners, the doctrine is viewed as necessary to protect the reorganization bargain. This Article challenges that notion. Although equitable mootness has considerable utility, it also has a dark side. Rather than simply protect reliance of innocent parties on completed transactions, equitable mootness has become a feature of the reorganization process. It is a tool that can be wielded by powerful parties to force a reorganization bargain over the dissent of weaker parties. Seen in this light, the utility of the doctrine is likely outweighed by its ill effects

Bankruptcy Redistributive Policies and the Limits of the Judicial Process

Business failure negatively affects a broad range of interests, yet the bankruptcy process directly protects only a small segment of interest-holders: the creditors. Some commentators argue for expansion of that protection to encompass redistributive norms and provide for the interests of non-investors in the failed business. The Bankruptcy Reform Act of 1994’s establishment of a national commission to study the bankruptcy process and its broader policy implications brings with it the opportunity to consider that redistributive argument and perhaps change the process to include the interests of non-investors under the reorganization umbrella. This Article responds to those who would have the bankruptcy reorganization process protect the interests of non-investors in the failed enterprise. The author outlines the arguments both for and against such protection, and concludes that the bankruptcy process is institutionally incapable of achieving redistributive goals. This process-oriented view of business reorganizations holds that protection of non-investor interests should be left to those institutions and processes capable of competently providing it

The Theory, Reality, and Pragmatism of Corporate Governance in Bankruptcy Reorganizations

Governing a corporation during a Chapter 11 reorganization presents a special case of the age-old problem of the separation of ownership and control. Critics of Chapter 11 have long pointed to the insulation provided by the automatic stay to managers of the business as one of the causes of bankruptcy inefficiency. Protected from the normal contractual and market forces that restrain the behavior of managers of healthy companies, managers of firms in bankruptcy, the harshest critics charge, use delay and other strategies to enrich themselves and the shareholders at the expense of the firm\u27s creditors. This Article addresses the financial economic theories of corporate governance and isolates some of the principles underlying the nonbankruptcy corporate governance structure that bear on the problem of corporate governance in Chapter 11. Having established those theories as a basis for discussion, the Article then examines the practical limitations on the bankruptcy process resulting from creditor indifference and a lack of consensus regarding the goals of Chapter 11. The Article next examines some of the ways courts have responded to the intractable problems of running a Chapter 11 debtor, focusing on courts\u27 use of case management techniques, examiners, and control over attorneys\u27 fees. The Article concludes with a discussion of the National Bankruptcy Review Commission\u27s Report and Recommendations, discussing both the Commission\u27s practical governance recommendations and the Report\u27s evidence of a continued tension over the appropriate goals of Chapter 11

Asset Securitization and Corporate Risk Allocation

Asset securitization is a financial innovation in which corporations sell financial assets to a specially formed entity that in turn taps financial markets for the purchase price. The device provides firms an alternative to raising capital through traditional debt and equity markets. Practitioners of the approach tout securitization as a means through which a firm can lower its overall cost of capital by limiting the risk facing investors in the securitized assets. Commentators have described asset securitization as one of the most important financing vehicles in the United States. Interest in the device is increasing dramatically as more companies see it as a way to decrease their cost of capital. This Article examines the reasons for which asset securitization has become such a popular financing device. It develops an analytical model that focuses on the market failures that explain the reasons firms use asset securitization —identifying two possible explanations of the device and examining the normative problems associated with each

Financing Public Health Through Nonprofit Conversion Foundations

Protection and promotion of the public\u27s health are typically thought of as governmental responsibilities. Certainly, the core functions of responding to contagious diseases through quarantine, vector control, mandatory reporting, mandatory immunizations, and other coercive measures require governmental power. Historically, public health has been defined by governmental response to immediate threats to the health of the population. As our view of the public\u27s health expands to take into account broader measures, however, so too can we expand our view of the kinds of institutions that serve to promote the public\u27s health. Most commentators agree that public health is a wide ranging discipline. Professor Lawrence Gostin writes, “The mission of public health is broad, encompassing systematic efforts to promote physical and mental health and to prevent disease, injury, and disability.” While Gostin\u27s focus is on the government\u27s role in promoting public health, there is nothing about contemporary definitions of public health that exclude a role for the private, nonprofit sector. One cannot doubt the importance of nonprofit institutions in assuring the conditions necessary for the health of the population. Nonprofit organizations operate most of our hospitals, train health care professionals, assure the supply of blood, and perform a myriad of other services that provide the infrastructure necessary to the public\u27s health. In addition, the nonprofit form of organization enables health care organizations to provide public health services that profit seeking organizations are unable to maintain. Nonprofit hospitals provide education, indigent care, preventive health services, prenatal care, and mental health care services that may not be provided by for-profit organizations. Changes in health care financing and industry structure may substantially reduce the contributions to public health that have traditionally been made by nonprofit organizations. The rise of managed care and the ever increasing reliance on expensive medical technologies have increased the industry\u27s need for capital, and changes in reimbursement formulas have reduced nonprofits\u27 ability to maintain the level of uncompensated and poorly compensated services. At the same time, the changes have created the opportunity for providers to generate profits necessary to support their new capital requirements. The need for capital and the profits available to support it have led to an increase in for-profit ownership of health care facilities. For-profits have increased mainly through the acquisition of assets of nonprofit organizations. The late 1980s and 1990s have witnessed an increasing number of nonprofit organizations converting to profit seeking ventures. This wave of nonprofit conversions has sent states\u27 Attorneys General and public interest advocates scrambling to find ways to police these transactions. High profile transactions involving Blue Cross/Blue Shield conversions resulted in litigation involving billions of dollars that states claimed should be set aside in charitable foundations devoted to health care. At the same time, smaller transactions involving community hospitals, nursing homes, and ambulance services are also attracting attention. Unfortunately, many of these efforts have been hampered by inadequate conversion laws that force states to regulate conversions on a post-hoc basis with antiquated legal tools. The conversion of health care assets from nonprofit to for-profit ownership raises questions of particular concern to public health officials. This shift in the health care industry requires that we examine whether the for-profit form of organization can provide health care services in the most economically efficient and efficacious manner, a debate which continues. Perhaps of more direct concern for public health, the conversion of health care assets also raises the question of the value of the nonprofit form to the community as measured by charity care, services to Medicaid patients, cross-subsidization of unprofitable units such as emergency rooms, health education, preventive care, and other, more elusive community benefits that may be lost in a conversion. Assuming that nonprofit conversions will continue in the health care arena, the challenge to policymakers is to capture and invest the proceeds of such transactions in organizations that can replace the public health functions of the nonprofit. This Article will discuss ways in which proceeds from nonprofit conversions can be used by the nonprofit sector to continue the public health services provided by nonprofit health care organizations. An example can be found in the recent formation of The Foundation for a Healthy Kentucky. This Foundation was established from a $45 million settlement obtained through litigation by Kentucky Attorney General Albert B. Chandler, III against Anthem Insurance Company over Anthem\u27s 1993 merger with Blue Cross and Blue Shield of Kentucky. The Foundation is designed to meet the public health care needs of the Commonwealth through projects designed to influence health policy and improve access to health care generally. Part I of this Article provides an overview of the law of nonprofit conversions. The law governing nonprofit conversions is founded on common law doctrines of charitable trust. In many states, the procedures surrounding conversions are further regulated by state statutes that provide states\u27 Attorneys General the tools they need to assure that the change in ownership results in adequate proceeds that can replace the public benefits lost in a conversion. Parts II and III provide a case study based on the Kentucky Attorney General\u27s litigation with Anthem Insurance Company. Part II will focus on the difficulties in the lack of a regulatory structure created in the Anthem case. Part III will discuss the process of forming the Foundation for a Healthy Kentucky from the$45 million settlement of that case. The Foundation\u27s focus on health care policy activities aimed at improving the health of all Kentuckians provides an example of one way to capture some of the public health benefits of the nonprofit form of organization

Running the Asylum: Governance Problems in Bankruptcy Reorganizations

Like much of life, the study of bankruptcy is the study of leverage. Chapter 11 of the United States Bankruptcy Code may be appropriately described as providing a framework within which interested parties may negotiate solutions to the problems facing a troubled company. The allocation of leverage to the negotiating parties is critical to the ultimate outcome of the process. In any negotiation setting control over the bargaining process is a key item of leverage. This Article proposes a framework for analysis and suggests solutions to the problem of control over corporations during the pendency of a Chapter 11 reorganization case. This Article recommends an approach to Chapter 11 decision-making that relies heavily upon the teachings of financial economics. When presented with a particular question that cannot be addressed through the plan negotiation process, courts should look to the wishes of the residual owners of the assets and income of the corporation whenever possible. If that group cannot be found or for any reason does not participate in the decision-making process, courts should make use of an impartial third party as fact finder and focal point for significant decisions. In support of this proposition, this Article examines the Chapter 11 corporate governance structure against the general principles informing the non-bankruptcy system. Section I sets the stage with a general description of the goals of Chapter 11, the process of negotiation among the owners of the business, and several business decisions that require particular attention. Section II describes the non-bankruptcy governance structure applicable to corporations that are solvent and to corporations that are falling. Section III describes the changes in this structure necessitated by the reorganization process. Section IV critiques the bankruptcy governance structure in light of principles underlying the non-bankruptcy system and the various theories of the purpose of the reorganization process. Section V concludes with specific recommendations for improvements in the method by which the bankruptcy asylum is run