Dispossessing Resident Voice: Municipal Receiverships and the Public Trust

The residents of struggling cities suffer property dispossessions both as individual owners and as municipal residents. Their individual dispossessions are part of a cycle that often begins with industrial decline. In Detroit, for example, more than 100,000 residents have lost their homes to tax foreclosure over a four-year period that bracketed the city’s bankruptcy filing. Falling property values, job losses, and foreclosures affect municipal budgets by reducing tax revenues. As individual dispossessions exacerbate municipal financial crises, residents can also face the loss of municipal property. Struggling cities and towns often sell publicly owned property—from parks to parking systems—to balance municipal budgets. This article discusses the relationship between property dispossessions and proceedings to resolve municipal financial distress, with a focus on another important loss faced by residents of distressed municipalities—the loss of their voice in municipal government. A municipal financial crisis, by itself, has no effect on the property of any individuals who live in the city, and a city’s bankruptcy does not take a city’s assets in the same way that a corporate or personal bankruptcy can take the property of a business or individual. Yet even though creditors cannot force the sale of city-owned assets, the decision to transfer the property may be made by unelected officials appointed by the state government to replace city government in times of financial crisis. This results in another type of collective dispossession—the dispossession of resident voice in local government affairs. This article discusses how insolvency proceedings, including Chapter 9 bankruptcy, can deprive residents of their voice and, in turn, deprive them of the city’s assets that the city holds for them in public trust and proposes some suggestions for states for balancing the need for resident voice with higher-level financial oversight as they determine how to manage the financial distress of their cities

Goals and Governance in Municipal Bankruptcy

The years from 2011 to 2013 were remarkable in municipal bankruptcy terms. During those years, several cities and counties took the rare step of filing for bankruptcy under Chapter 9 of the Bankruptcy Code. When Detroit filed for bankruptcy in July 2013, it became the largest city measured by both population and outstanding debt to file for Chapter 9. The recent filings challenge the conventional wisdom that Chapter 9 is poorly tailored to the rehabilitation needs of larger cities and counties. Those who have written about Chapter 9 in the past twenty years have treated Chapter 9 and state intervention in municipal financial affairs as freestanding alternatives rather than as complementary components of a comprehensive municipal financial recovery plan. These authors compare municipal bankruptcy to corporate bankruptcy and conclude that, because Chapter 9 does not incorporate all of the Chapter 11 checks on debtor behavior, it cannot adequately promote the financial rehabilitation of a sizable general-purpose municipality. This approach ignores the original goal of Congress in enacting a municipal bankruptcy law in the aftermath of the Great Depression, which was to bring together two sovereigns, the state and the federal government, to accomplish something that neither could accomplish alone—the imposition of a plan to adjust municipal debts that would be binding on all creditors, wherever located. This Article refocuses the discussion about the limitations of the municipal bankruptcy process by examining the goals of Chapter 9 and relating its governance provisions to those goals. A refocused discussion is particularly timely because the deteriorating financial condition of many cities has led states to reexamine their programs for resolving municipal financial distress and the conditions under which they permit their municipalities to file for bankruptcy. Chapter 9 may only be as effective as the state governance that accompanies it. Therefore, policy makers on the state and federal levels need an understanding of the role of Chapter 9 in an integrated scheme for municipal financial recovery in order to decide whether and how to assist municipalities on the state level and to decide whether reforms to Chapter 9 are necessary

From Lord Coke to Internet Privacy: The Past, Present, and Future of Electronic Contracting

Contract law is applied countless times every day, in every manner of transaction large or small. Rarely are those transactions reflected in an agreement produced by a lawyer; quite the contrary, almost all contracts are concluded by persons with no legal training and often by persons who do not have a great deal of education. In recent years, moreover, technological advances have provided novel methods of creating contracts. Those facts present practitioners of contract law with an interesting conundrum: The law must be sensible and stable if parties are to have confidence in the security of their arrangements; but contract law also must be able to handle changing social and economic circumstances, changes that occur at an ever-increasing speed. Contract law, originally designed to handle agreements reached by persons familiar with one another, evolved over time to solve the problems posed by contract formation that was done at a distance — that is, contract law had developed to handle first paper, then telegraphic, and finally telephonic communications. It has handled those changes very well. In the 1990s, however, things began to change. The rise in computer use by individuals coupled with the advent of the World Wide Web gave rise to two parallel developments, both of which challenged the law of contract formation. Increased computer use created a demand for software programs designed for the consumer market, and those programs were commonly transferred to users by way of standard-form licenses that were packaged with the software and thus unavailable before the consumer paid for the software. Also, parties in large numbers began to use electronic means — the computer — to enter into bargained-for relationships. The turn of the millennium brought two electronic contracting statutes, the Electronic Signatures in Global and National Commerce Act (“E-Sign”) and the Uniform Electronic Transactions Act (“UETA”), which removed any doubts that contracts entered into electronically could satisfy the Statute of Frauds. Encouraged by the certainty given by those statutes, internet businesses started offering contract terms on their websites, asking customers to consent to terms by clicking an icon, or by not seeking express assent at all by presenting terms of use by hyperlink. The ease of presenting terms comprised of thousands of words by an internet hyperlink makes it easy for a vendor in its terms of use and terms of service to ask us to give up privacy rights and intellectual property rights. Modern communications technologies therefore make it easier for parties to engage in risky transactions. Nevertheless, we believe that, with few exceptions, the common law of contracts is sufficiently malleable to address the problems arising out of that behavior and where it is not, regulation of contract terms is appropriate. This Article examines those developments

DECISION-MAKING AND THE SHAKY PROPERTY FOUNDATIONS OF MUNICIPAL BANKRUPTCY LAW

Municipal bankruptcies are unpredictable. There are several reasons for this statement— municipal bankruptcies are rare, involvement of the state itself in the process varies according to the governing state law, and chapter 9, the Bankruptcy Code chapter governing the municipal bankruptcy process, has many gaps. Congress constructed the modern chapter 9 on a foundation of corporate bankruptcy law, a foundation whose roots—corporate finance—are significantly different from the rules governing municipal finance. In this Article, Professor Moringiello aims a spotlight on the property roots of private bankruptcy law and compares them to the promissory and statutory roots of municipal finance law and makes suggestions for a decision-making framework for chapter 9 cases

Automating Repossession

Imagine if you bought a refrigerator from BestBuy on credit and BestBuy reserved the right to disable that refrigerator remotely if you failed to pay. This is not a future fantasy; subprime car lenders have been doing something similar for two decades. Many goods are connected to networks that allow the seller of the goods to retain some measure of control over them. These “smart goods” pose several challenges to the law, notably to the rules that govern creditors’ remedies when the owner of smart goods collateral defaults on the loan secured by such collateral. A creditor with a security interest in smart goods has the technological capacity to disable such goods remotely upon the borrower’s default.Automating Repossession addresses a question that has no clear answer in commercial law – does a creditor have the right to remotely disable collateral upon its debtor’s default? As physical goods are increasingly connected to online networks in ways that allow their sellers to control their use, it is possible for secured lenders to deploy a remote and automated repossessor to disable tangible collateral in the event of a borrower’s default. Article 9 of the Uniform Commercial Code (UCC), which allows a secured creditor to repossess collateral upon its debtor’s default without resorting to the courts only if it can do so without a breach of the peace, does not address this practice. A handful of states have responded to the use of remote disablement by enacting amendments to their versions Article 9 of the UCC or their statutes aimed more specifically at consumer protection. In the vast majority of U.S. jurisdictions, the law is silent as to whether a remote disablement is equivalent to a self-help repossession and thus imposes no limitations on its use.This paper recognizes that remote disablement should be a permissible creditor remedy in the UCC and proposes appropriate limitations on its use. To craft appropriate limitations, the article explores the history of the breach of the peace standard in repossessions involving physical contact. Rejecting that standard for automated repossessions, the article draws from contractual, legislative, and judicial sources to suggest limitations on remote disablement that address the unique harms caused by that remedy. Those sources include contracts governing remote disablement in the subprime automobile lending industry, the handful of existing laws governing the practice, and the restrictions on self-help remedies in the laws governing physical repossessions such as evictions, digital disablement of computer software, and remedies that cross the digital-physical divide in satellite financing. The article concludes by considering the interests that might be violated when a creditor crosses the digital-physical divide to remotely disable physical collateral and makes recommendations about how the UCC should address remote disablement as a creditor remedy