Professor Gross\u27 proposal to take community interests into account in bankruptcy is reminiscent of the proposal to bell the cat. Both suggestions present a solution on the theoretical level, but both are certain to fail in their application because they do not consider present realities. The community interest argument fails on three fronts: definition, application, and the role of the decisionmaker. After a short illustration, each shortcoming will be addressed in turn

Schermer, Barry S.

English

Washington University St. Louis: Open Scholarship

Washington University Law Review Volume 72 Issue 3 Interdisciplinary Conference on Bankruptcy and Insolvency Theory January 1994 Response to Professor Gross: Taking the Interests of the Community into Account in Bankruptcy—A Modern-Day Tale of Belling the Cat Barry S. Schermer U.S. Bankruptcy Court, Eastern District of Missouri Follow this and additional works at: https://openscholarship.wustl.edu/law_lawreview  Part of the Bankruptcy Law Commons Recommended Citation Barry S. Schermer, Response to Professor Gross: Taking the Interests of the Community into Account in Bankruptcy—A Modern-Day Tale of Belling the Cat, 72 WASH. U. L. Q. 1049 (1994). Available at: https://openscholarship.wustl.edu/law_lawreview/vol72/iss3/21 This Conference Proceeding is brought to you for free and open access by the Law School at Washington University Open Scholarship. It has been accepted for inclusion in Washington University Law Review by an authorized administrator of Washington University Open Scholarship. For more information, please contact digital@wumail.wustl.edu. RESPONSE TO PROFESSOR GROSS: TAKINGTHE INTERESTS OF THE COMMUNITY INTOACCOUNT IN BANKRUPTCY-A MODERN-DAYTALE OF BELLING THE CATHON. BARRY S. SCHERMER*I. INTRODUCTIONWilliam Langland inspired the famous children's story involving a groupof mice who one day meet to complain about the hunting success of a localcat and to discuss some possible solutions to prevent future rodent deaths.'One mouse, feeling that he has the solution, suggests that their survivalchances would increase dramatically if they simply put a bell around theneck of the cat. The support for this idea quickly dissipates, however,when an older mouse-well-versed in the dilemma of individual sacrificeand group survival-asks a very obvious yet poignant question: "Who isto bell the cat?"Professor Gross' proposal to take community interests into account inbankruptcy is reminiscent of the proposal to bell the cat. Both suggestionspresent a solution on the theoretical level, but both are certain to fail intheir application because they do not consider present realities. Thecommunity interest argument fails on three fronts: definition, application,and the role of the decisionmaker. After a short illustration, eachshortcoming will be addressed in turn.II. IDENTIFYING, APPLYING, AND CHOOSING THE DECISIONMAKER FORCOMMUNITY INTERESTSA. Identifying the ProblemThe community interest issue often arises in the context of the § 363sale' of either substantially all of the estate's assets, or an entire business* Hon. Barry S. Schermer, Chief United States Bankruptcy Judge, Eastern District of Missouri.The author gratefully acknowledges the efforts and assistance given him by his Law Clerk, Darrell W.Clark, in preparation of this comment.1. WILLIAM LANGLAND, THE VISION OF PIERS PLOWMAN 7-8 (Henry W. Wells trans., Sheed &Ward 1935) (n.d.).2. A sale of most or all of a debtor's assets would constitute a sale out of the ordinary courseof business pursuant to I 1 U.S.C. § 363(b) (1988).1049Washington University Open Scholarship1050 WASHINGTON UNIVERSITY LAW QUARTERLYdivision. Consider the following example:The Debtor is a Hat Manufacturing Company operating in State A. TheDebtor wants to sell all of its tangible personal property, which consists ofmanufacturing and office equipment, to Other Hat Company also located inState A. At the auction, Big Hat Company, a hat manufacturer from StateB, is the high bidder. Big Hat wants to shut down the Debtor's plant andmove all of the business assets to State B.3Here the court is asked to make a choice between two competing proposals.One bidder is offering to keep the business open and operating. Individualsin the local community will keep their jobs and the local municipality willcontinue to collect tax revenue from the Debtor. The other bidder is acompetitor offering a higher price, who will shut down the business andeliminate the competition.Under our present system, there is no dilemma in resolving the precedingexample. "The fundamental purpose of a sale of debtor's assets is tobenefit creditors."4 A bankruptcy court need only look at the money thata proposed sale will generate and make its decision based upon thepotential return for the creditors. These decisions are made withoutconsideration of loss of local jobs, loss of a regional business, or loss of taxrevenue.Professor Gross argues that the bankruptcy judge should consider thecommunity interests in the above example. Although she admits thatcommunity interests could never be measured in economic terms, "that doesnot mean ... that they lack value."5 Yet, it is the very fact that communi-ty interests cannot be measured that helps to defeat any argument that theyshould be applied in a bankruptcy court. While some articulated communi-ty interests may be valuable, the bankruptcy court is not the appropriateforum for defining, applying, and considering community interests.B. Identifying the Community and the InterestHow does a federal judge determine a community interest? The firsttask, of course, would be to designate the community, but even this initialstep appears impossible. If a community were viewed in geographic terms,it would be altogether inappropriate for a court of the United States toprefer the interests of the citizens in one state over the interests of thecitizens in another state. This is inconsistent with principles of federalism,3. See generally In re Benay-Albee Novelty Co., 146 B.R. 680 (Bankr. E.D. Va. 1992).4. Id. at 680.5. Karen Gross, Taking Community Interests into Account in Bankruptcv: An Essay, 72 WASH.U. L.Q. 1031, 1046 (1994).[VOL. 72:1049https://openscholarship.wustl.edu/law_lawreview/vol72/iss3/21RESPONSE TO PROFESSOR GROSSand it serves to contradict the intent behind an Article I Court.Geographical boundaries aside, a community may be as broad as theasserted community interest. However, it is also impossible to delineate thecommunity in this fashion because there are an infinite number ofcommunity interests at stake in each bankruptcy and their boundaries arelimitless. If, for example, the community interest were defined as thatportion of the citizenry that is affected by a debtor's business, the breadthof the community could reach a potentially infinite number, since almostanyone, from local employee to distant supplier, can claim some remoteloss due to the failure of a once-viable local business. The BankruptcyCode solves this problem by limiting those who can claim that they areaffected by the bankruptcy because it makes entitlement to money orcontract rights the criteria for consideration in the decisionmaking process.The broad standing provisions of 11 U.S.C. § 1109 and Federal Rule ofBankruptcy Procedure 2018 further define those involved in a bankruptcyproceeding. Under these provisions, the SEC, any creditor, and any state'sattorney general (acting for consumer creditors) can be heard in theproceeding. Professor Gross' proposal goes beyond these provisions andopens up a Pandora's box of possible "claimants" without offering anysolutions as to how this potentially vast group could be limited.6Thus, the problem is not that community interests cannot be identified,but that there are so many potential interests in every bankruptcy. Whetherthe community interest is minority employment, local jobs, tax revenue, orenvironmental concerns, a major problem with Professor Gross' theory isthe plethora of potential interests and the extent to which consideration forthese interests should extend when the decisionmaker is a federal court.C. The Obstacle of ApplicationEven if some community interest could be articulated, there is a problemwith application. When dollars and contract entitlements are not thecriteria, there is no adequate medium to consider community interests vis-a-vis monetary interests, or even among competing community interests.In the Hat Manufacturer bankruptcy example cited above, suppose thatthe bankruptcy judge were faced with a choice between two competingbids. One bid, Option 1, would pay all secured creditors in full and allunsecured creditors fifty cents on the dollar. Another bid, Option 2, wouldpromise little return for the creditors, but would boost minority employmentand would provide funding for cleaning up some environmental problems6. One could even take this a step further and question how notice of hearing could be sent toa community comprised of an infinite number of "affected" community members.1994] 1051Washington University Open Scholarship1052 WASHINGTON UNIVERSITY LAW QUARTERLYcaused by the Debtor. Here, the bankruptcy judge is forced to choosebetween these two bids without a medium of exchange that will permit thejudge to weigh adequately the relative value of each option.This obstacle to applying community interests in decisionmakingbecomes even more acute when the community interests are competingagainst each other. How does a bankruptcy court weigh a localcommunity's interest in maintaining its job base against potential long-termenvironmental damage? A bankruptcy court cannot make this determina-tion because there is no common medium for weighing these interests, andbecause a bankruptcy court should not be the decisionmaker for anycommunity interest analysis.D. Choosing the Appropriate DecisionmakerProfessor Gross emphasizes the need to view the world as interconnect-ed, with the welfare of the community being very much a part of corporatebankruptcy.7 In addition to the problems of defining the scope of both thecommunity and the community interest, and weighing those interests in thetraditional bankruptcy context, there is also considerable difficulty inplacing these responsibilities in the hands of a bankruptcy judge.When the judge is to make the decision regarding appropriate communityinterests, he is invited to make decisions based on his own view as to whatis best for the community. Rather than rely on an objective and predictablestandard, i.e., money and contract rights, one individual would be permittedto decide what should and what should not be considered a communityproblem. In making these broad policy decisions, the judiciary would riskinvolvement in intensely politicized decisions and would step on the toesof elected legislators who, under our Constitution, are charged withdeveloping public policy by identifying and responding to the interests ofthe public.A judge who decides an issue based on a perceived community interestmay also face appellate review based purely on policy, rather than legal,grounds. Furthermore, as each community is comprised of differentindividuals, each community may not place the same weight on similarcommunity interests. These differing viewpoints would result in abreakdown in our system of stare decisis-similar legal issues embodyingidentical community interests would not be decided consistently becauseone judge weighs one community interest, e.g., the spotted owl, moreheavily than another community interest, e.g., local jobs.7. Gross, supra note 5, at 1042-43.[VOL. 72:1049https://openscholarship.wustl.edu/law_lawreview/vol72/iss3/21RESPONSE TO PROFESSOR GROSSIII. CONCLUSIONRather than creating a system which is fairer to more people, ProfessorGross advocates a position that is unworkable because it fails to considerthe realities of our legal and political systems. In attacking the assumptionsunderlying our present economic organization, she proposes a sweepingnew vision without reflecting on the necessary details. Her purportedfeminist methodology-focusing on the particular, on context, and on realpeople and real situationss-may require more fine tuning before it can beapplied in bankruptcy. In short, her ideas on taking community interestsinto account in bankruptcy bear yet another similarity with Langland's storyof "belling the cat"--both are good fiction.S. Gross, supra note 5, at 1037.19941 1053Washington University Open Scholarshiphttps://openscholarship.wustl.edu/law_lawreview/vol72/iss3/21

Response to Professor Gross: Taking the Interests of the Community into Account in Bankruptcy—A Modern-Day Tale of Belling the Cat

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Response to Professor Gross: Taking the Interests of the Community into Account in Bankruptcy—A Modern-Day Tale of Belling the Cat

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