Bankruptcy and Education

(Excerpt) Bankruptcy law interacts with education law in a number of respects. A bankrupt educational institution loses access to student financial aid, and its accreditation status is excluded from the bankruptcy estate. Actions by accreditation agencies against bankrupt educational institutions are not subject to the automatic stay. And absent a showing of undue hardship, student loans are not dischargeable in bankruptcy. The exceptional treatment of educational institutions and their students in bankruptcy reflects a fundamental tension between the goals of bankruptcy law on the one hand and education policy on the other. While bankruptcy law generally seeks to maximize value for creditors and afford a fresh start to individual debtors, it balances these objectives with the goals of education policy, which include assuring educational quality, access, and affordability, as well as protecting the investment of public funds in the educational sector. Whether current law achieves the correct balance or ought to be rethought and reformed was the subject of a symposium that the American Bankruptcy Institute Law Review hosted at St. John\u27s School of Law on October 24, 2014. The event brought together distinguished experts in the fields of bankruptcy and education law, and their contributions are published here in this symposium issue. These papers are especially timely in light of recent news events concerning high profile insolvencies in the higher education sector and pending legislation to reauthorize the Higher Education Act. And they will be of particular interest, given how little attention the intersection between these two subject areas has received until now

Economic Analysis of Jewish Law

(Excerpt) Like any legal system, Jewish law is amenable to economic analysis, both positive and normative. Economic analysis can help to explain how and why the various rules comprising Jewish law arose and persisted over time. It also can facilitate a direct assessment of Jewish law on the merits. In practice, however, it is a mainly positive economic analysis of Jewish law that scholars have emphasized, while normative analysis has, for the most part, been underemphasized. Take, for example, the application of law and economics to biblical exegesis. The legal-economic work in this field has been largely descriptive rather than prescriptive. Scholars such as Saul Levmore and Geoffrey Miller have argued persuasively that positive legal-economic analysis can help to explain the existence, preservation, and structure of various biblical regulations. They argue that the Hebrew Bible\u27s regulations are economically predictable. But they do not try to defend them on normative grounds. As Miller has explained in a paper narrowly applying positive economic analysis to the Talmud, economic analysis of law is the use of economic principles and reasoning to understand legal materials. The narrow goal of positive economic analysis of law, applied to Jewish law as to other contexts, is thus to understand and explain rather than to justify the rules and laws under study. This paper builds on prior work applying economics to Jewish law. It argues that Jewish law lends itself not only to positive but also to normative legal-economic analysis. In contrast to prior work applying economics to biblical interpretation, this paper employs both positive and normative legal-economic analysis. Three sets of biblical regulations-those pertaining to lepers, loan agreements, and land ownership-are studied from both positive and normative perspectives. And the conclusion reached in each case is that the regulations at issue are not only predictable as a descriptive matter but also normatively defensible

Valuation Averaging: A New Procedure for Resolving Valuation Disputes

In this Article, Professor Sharfman addresses the problem of discretionary valuation : that courts resolve valuation disputes arbitrarily and unpredictably, thus harming litigants and society. As a solution, he proposes the enactment of valuation averaging, a new procedure for resolving valuation disputes modeled on the algorithmic valuation processes often agreed to by sophisticated private firms in advance of any dispute. He argues that by replacing the discretion of judges and juries with a mechanical valuation process, valuation averaging would cause litigants to introduce more plausible and conciliatory valuations into evidence and thereby reduce the cost of valuation litigation and increase the chance of settlement. He further argues that imposition of the valuation averaging procedure would not deprive litigants of their constitutional entitlements to due process and the right to trial by jury. Finally, he argues that valuation averaging would improve upon current law and is superior to other proposed alternatives

Bankruptcy Court Jurisdiction After Executive Benefits Insurance Agency v. Arkison

(Excerpt) Bankruptcy law has been struggling for several years now with the so-called Stern problem”—the jurisdictional cloud of doubt that has been cast by the Supreme Court\u27s decision in Stern v. Marshall over much of the work that bankruptcy courts have done routinely for decades. Since Stern was decided, bankruptcy courts and the litigants who appear before them cannot be confident that it is constitutional for non-Article III bankruptcy judges to adjudicate various matters over which there is clear statutory jurisdiction, such as avoidance actions against third party transferees who are not otherwise involved or participating in the bankruptcy case. It is even questionable whether consent by all parties to adjudication before a bankruptcy judge would solve potential jurisdictional defects in Stern-implicated matters. Nevertheless, despite the long shadow that Stern has cast, bankruptcy courts around the country have continued to operate as they did before, if for no other reason than simply because the show must go on. As temporary fixes (if not quite solutions) to Stern, bankruptcy courts have mainly been doing two things: (1) issuing, like magistrate judges do, proposed findings of fact and proposed conclusions of law while leaving the final decision for the district judge to make on appeal after de novo review; and (2) obtaining consent from the parties who appear in bankruptcy court to the bankruptcy court\u27s jurisdiction, particularly in cases where Stern is raised or implicated. Doing one or both of these has allowed bankruptcy courts to continue to function more or less as before—at least ab initio. But always lurking in the background is the risk that an appeal raising a Stern issue could overturn the work of the bankruptcy court below. Such was the situation, for instance, in In re Bellingham Insurance Agency, Inc., a recent decision of the Ninth Circuit reviewing and ultimately affirming an award of summary judgment in favor of a bankruptcy estate in an avoidance action against third parties who, for the first time on appeal, had raised a Stern defense. While the bankruptcy court\u27s work was affirmed by the Ninth Circuit in Bellingham, the parties there and in similar cases around the country have been forced to operate in the jurisdictional twilight zone created by Stern (even as to core claims specifically delegated to the bankruptcy courts by statute), and the approach taken by the Ninth Circuit in Bellingham has not been uniformly embraced by other courts. Thus, when the Supreme Court granted certiorari in Bellingham (recaptioning the case under the name Executive Benefits Insurance Agency v. Arkison), there was great hope in the bankruptcy bar that Stern\u27s scope would be clarified and that the Court would address in particular the jurisdictional effects of the two practices mentioned above, proposed findings/conclusions and consent. Unfortunately, these hopes were not fully realized. For the Court\u27s decision, which affirmed the Ninth Circuit on the narrow ground that the district court had reviewed the bankruptcy court\u27s summary judgment ruling de novo, addresses only the first issue and not the second

The Exit Theory of Judicial Appraisal

For many years, we and other commentators have observed the problem with allowing judges wide discretion to fashion appraisal awards to dissenting shareholders based on widely divergent, expert valuation evidence submitted by the litigating parties. The results of this discretionary approach to valuation have been to make appraisal litigation less predictable and therefore more costly and likely. While this has been beneficial to professionals who profit from corporate valuation litigation, it has been harmful to shareholders, making deals costlier and less likely to be completed. In this Article, we propose to end the problem of discretionary judicial valuation by tracing the origins of the appraisal remedy and demonstrating that its true purpose has always been to protect the exit rights of minority shareholders when a cash exit is otherwise unavailable, and not to judge the value of the deal. Judicial appraisal should not be a remedy for dissenting shareholders when a market exit or equivalent protection is otherwise available. While such reform would be costly to valuation litigation professionals, their loss would be more than offset by the benefit of such reforms to shareholders involved in future corporate transactions. Shareholders presently have adequate protections, both from private arrangements and legal doctrines involving fiduciary duties

Hedge Funds in Bankruptcy

(Excerpt) Hedge funds and other professional and institutional investors are playing an increasingly important role in bankruptcy cases. As buyers of financially distressed securities, they provide a valuable outlet for holders of such securities who wish to exit those markets. They also facilitate the consolidation of distressed securities into the hands of owners who are well-equipped to press for outcomes in Chapter 11 cases that maximize the value of those securities. At the same time, the active participation of hedge funds in the bankruptcy process at times gives them access to nonpublic information that may afford them an undue advantage in their ongoing trading activities. To balance these competing considerations, various practices have developed to regulate hedge funds in ways that attempt to preserve the value that they add to the bankruptcy process while also eliminating any improper advantage that participation in that process may confer. These measures and various proposals for their reform, which have been hotly debated within the bankruptcy and hedge fund communities, were the subject of a recent symposium at St. John\u27s School of Law whose fruits you now have before you. The eight papers that appear in this symposium issue of the American Bankruptcy Institute Law Review come from a diverse and distinguished group of scholars, practitioners, and public officials. In the grand tradition of interdisciplinarity that for nearly a century has informed academic discourse on bankruptcy law and policy, these papers are representative of the very best in bankruptcy scholarship

The Death of Appraisal Arbitrage: Ending Windfalls for Deal Dissenters

In this article, we take note of a new and positive development in Delaware\u27s law of appraisal: more robust enforcement of Section 262(h), which expressly excludes from fair value in appraisal litigation the value that is uniquely associated with the deal from which the shareholders seeking appraisal are dissenting. For public firms, this implies that deal dissenters are entitled to no more than the price that prevailed prior to the deal\u27s announcement. In a salutary development, the Delaware Chancery Court took this approach in its recent appraisal decision in Verition Master Fund Partners, Ltd. v. Aruba Networks, Inc., awarding to the deal dissenters the pre-announcement price and striking a blow against appraisal arbitrage —a trading and litigation strategy that is predicated on deal dissenters receiving appraisal remedies in excess of the deal prices from which they dissent. We explore here the historical and economic rationales for limiting the appraisal remedy in this fashion. And we conclude with some recommendations for ending or limiting appraisal windfalls in the context of private firms as well via contractual and corporate bylaw valuation mechanisms that would replace judicial with market valuation in appraisal litigation as well as select litigation fora that would be amenable to enforcement of such mechanisms