00:00:00.119 - 00:00:18.969

Quite excited about it. This program is sponsored by the American College of Bankruptcy. For those of you not familiar with it, the college is an honorary association of bankruptcy and insolvency professionals. Nominees are extended an invitation to join based on a

00:00:18.969 - 00:00:45.220

proven record of the highest standards of professionalism and service to the profession. The college sponsors these programs in an effort to inspire and raise the public discourse about bankruptcy and the bankruptcy system. It is not much discussed, but a healthy bankruptcy system,

00:00:45.299 - 00:01:06.180

a non-judgmental bankruptcy system, is really essential to a market-driven economy, because we need people to take economic risk, and if you're going to take risk, you need to be able to fail without stigma, and that's what the bankruptcy system is all about. We

00:01:06.419 - 00:01:24.610

also need to focus on the fact that bankruptcy is a zero-sum game. If one creditor is doing better, then another creditor or group of creditors must be doing worse because by definition there is not enough to go around. Another point which is not

00:01:24.610 - 00:01:44.459

often heard in the public debate, particularly as Congress responds to entreaties to add exceptions and favorable treatment for various interest groups for example, lenders on automobiles within 910 days of the bankruptcy, you can no longer restructure their debt, well, that's coming out of

00:01:44.459 - 00:02:08.210

somebody else's pocket. Into that already complex dynamic we have the United States. The United States, of course, has for a long time played numerous roles in the bankruptcy system. The legislative branch creates the statute. The judicial branch supplies the judges,

00:02:08.339 - 00:02:30.309

both of an Article 1 and Article 3 type, and the executive branch does many things. It enforces the statute. It defends the statute when necessary. It provides us the US trustees who take certain independent advocacy roles in the bankruptcy process. And

00:02:30.309 - 00:02:50.119

of course for years the United States has been a creditor in, in bankruptcy cases as well as a regulator of debtors and creditors involved in the bankruptcy process. But the United States involvement reached another level with the advent of the financial

00:02:50.119 - 00:03:16.250

crisis of 2008. And the ensuing TARP legislation because we then had a situation where the United States was a dip lender where the United States was an equity security holder where we were dealing with entities whose reorganization or not was going to affect

00:03:16.250 - 00:03:37.509

much more than just the creditors employees and shareholders of that company but was potentially going to affect the economy and the financial system. And so it's against that backdrop that we put together today's program to kind of focus in on the many

00:03:37.509 - 00:03:55.429

varied roles and interests that the United States has in the bankruptcy process to focus on how those roles actually conflict with each other in many cases and how those conflicts get resolved. So the program today is gonna break into two sections. First we're gonna

00:03:55.429 - 00:04:14.020

get introductory remarks from Seth Waxman and from Joshua Gotbaum. After their remarks they'll be joined by Jeannette Vargas and Judge Gonzalez for a panel discussion, and that will be moderated by Craig Goldblatt. So let me tell you a little bit about

00:04:14.020 - 00:04:34.350

who you're gonna hear from, and then we can get rolling with the main show. Seth is a graduate of Harvard College and Yale Law School. He clerked for Gerhard Gazelle on the District Court for the District of Columbia. He

00:04:34.350 - 00:04:54.760

of course was the Solicitor General of the United States prior to his stint as Solicitor general, he was acting solicitor general, acting deputy attorney general, principal deputy solicitor general, and associate deputy attorney general, and most importantly, he has his picture hanging

00:04:54.760 - 00:05:16.269

on the wall just two doors down from this room. Seth is going to focus on an overview of how the United States resolves its conflicting interests on a more global basis and then we're gonna try to drill that down to the bankruptcy process

00:05:16.690 - 00:05:40.920

and after Seth speaks we will hear from Josh Gotbaum. Josh is the director of the Pension Benefit Guarantee Corporation, a position he's held since July of 2010. And I think he spent his entire life preparing for this very program, from 2003 -

00:05:40.920 - 00:06:03.859

the expectations pretty high right - from 2003 to 2005 he was the trustee for Hawaiian Airlines and it's Chapter 11 reorganization. I will note that when Hawaiian emerged from Chapter 11, it not only paid its creditors in full and gave raises

00:06:03.859 - 00:06:25.760

to most of its employees, but it's defined benefit pension plan remained intact. Josh also was an investment banker with Lazard in New York and London advising businesses, unions, governments on a diverse range of mergers, acquisitions, and restructuring issues. He has also had extensive

00:06:25.760 - 00:06:44.970

experience in the government. During the Clinton administration, he was confirmed by the Senate 3 times and served as executive associate director and controller in the Office of Management and Budget, Assistant Secretary of Treasury for Economic Policy, and Assistant Secretary of Defense. During the Carter administration

00:06:45.399 - 00:07:08.480

he was on the White House staff and in the Department of Energy. Josh is a graduate of Stanford and Harvard Law School and also the Harvard Kennedy School of Government. And Josh is going to talk about how the PBGC manages

00:07:08.480 - 00:07:30.130

its conflicting interests in the bankruptcy process and and indeed just on Tuesday, the New York Times business section on the front page has a picture of of Josh and with respect to American Airlines and their possible intent to terminate their pension plans, he

00:07:30.130 - 00:07:54.429

is quoted as saying companies in bankruptcy often try to do things that they don't need to do. So the battle lines are. After we hear the introductory remarks, the panel will assemble. Judge Gonzalez is the chief judge of the United States bankruptcy court

00:07:54.429 - 00:08:16.640

for the Southern District of New York. He's been a judge since 1995. Prior to being a judge, he was the United States trustee for the Southern District of New York. He graduated from Fordham University following which he worked in the

00:08:16.640 - 00:08:38.400

New York City public schools as a teacher, going to law school at night. During his stint on the bench Judge Gonzalez presided over perhaps three of the most significant cases in the history of Chapter 11. 1 was the Enron case. One was the

00:08:38.400 - 00:09:01.960

WorldCom case, by the way, he did those both simultaneously, which no one in the bar has yet to figure out, and he most recently did the Chrysler reorganization case so again he seems to have spent his career

00:09:01.960 - 00:09:20.000

planning to be on this panel today. And finally, but not at all least, we have Jeanette Vargas. Jeanette is an assistant United States attorney in the Southern District of New York. She is chief of the tax and bankruptcy unit and has

00:09:20.000 - 00:09:40.469

been in that unit for some time. And among other things she actively participated on behalf of the United States in the Chrysler and GM reorganization cases. She's a graduate of Harvard University and Yale Law School, and she was a law clerk to

00:09:40.549 - 00:10:05.179

Sonia Sotomayor who at that time was on the 2nd Circuit. Finally our moderator is gonna be Craig Goldblatt. Craig is a partner at Wilmer Hale. He's a graduate of Chicago Law School and Georgetown University, and he clerked for Judge Richard Cudahey

00:10:05.179 - 00:10:23.969

on the 7th Circuit Court of Appeals and for the Honorable David Souter on the United States Supreme Court. So I think we really have assembled an all-star cast today. You've heard enough from me. So how much time do we have left in the program. Thank

00:10:23.969 - 00:10:43.239

you. Well, I'm not a bankruptcy lawyer and I don't believe that I'm eligible for nomination or induction into the American college I guess I'm here as the resolute generalist you know, as Mark suggested among the things that I've done in my life I,

00:10:43.289 - 00:10:59.049

I did have a wonderful period of time when I was in private practice before going into the government when I represented Josh's agency in litigation in the Supreme Court that was really cool to be you know, a lawyer in private practice getting up and representing the

00:10:59.049 - 00:11:21.030

interests of a government agency that almost always seems to have difficulties playing nice with other government agencies to the extent that it often needs and is well served by separate counsel. And I was solicitor General of the United States which gave me an opportunity

00:11:21.030 - 00:11:41.880

to learn all kinds of things and make all kinds of decisions about all kinds of areas of law that I had never previously encountered including bankruptcy law and you know familiarizing myself with the very, very curious inscrutable question of what is the interests of the United

00:11:41.880 - 00:12:07.710

States in bankruptcy cases either generally or in particular so I'm gonna talk for a few minutes preliminarily just generally about how the government, the Justice Department, goes about ascertaining and advancing the interests of the United States in litigation. If you

00:12:07.710 - 00:12:27.960

represent a private client and the client is involved in litigation, it's usually not that difficult to ascertain what the interests of the client are. There's a particular dispute. It's in a court. The client wants to win. The client doesn't want to lose, so the interests of

00:12:27.960 - 00:12:46.739

the United States or the interests of the private client are in advancing any and all arguments and adducing any and all facts that lead to the desirable outcome, which is a win and not a loss. That is not how one ascertains the interests of the United

00:12:46.739 - 00:13:04.760

States. The interests of the United States are pretty complicated. I mean, first of all, what is the United States? I mean, the interests of who, you know, we have 300 and something million people, as you can tell by looking on the front page of any newspaper

00:13:04.760 - 00:13:22.739

any day, not everyone agrees about everything. Most people seemingly don't agree about anything and in fact you know, the executive is at odds with the Congress and the House is at odds with the Senate, and you know, none of those people really like

00:13:22.739 - 00:13:40.500

the judiciary, which is highly suspicious of both of them, so even if one is talking not only about popular opinion but talking about the interests of the United States as reflected in government, you know, it's an impossible task for the Justice Department, which

00:13:40.500 - 00:13:59.900

at any one point in time is a party, forget amicus or or an interested non-party in over 100,000 pending cases, and if you really had to sit back and say, well, now who is the United States here and what do people think about this, it

00:13:59.900 - 00:14:17.869

would be very hard to make decisions and to advocate whatever those interests are with the kind of alacrity that any meaningful system requires. So one way to think about the interests of the United States and the way that the Justice Department in general and

00:14:17.869 - 00:14:40.609

the Solicitor General in particular thinks about it is to say, OK, you know, we have a republican democracy, the sovereignty of the United States is exercised by elected representatives with the exception of the judicial branch, which is a non-democratic branch. And a way to ascertain the

00:14:40.609 - 00:15:01.559

interests of the United States is to look at what interests are reflected in the positions and agencies of the government that is those organs of government that represent the popular will. So to take an example which I think we'll probably come

00:15:01.559 - 00:15:26.409

back to later on in the program if Congress passes a statute, since all members of Congress are constitutionally obligated to interpret, defend, and advance the principles of the Constitution, Congress passes a statute that represents a policy judgment by the United States, and it is

00:15:26.409 - 00:15:49.650

presumptively constitutional and therefore it is in the interests of the United States in litigation where any reasonable argument can be made to defend the constitutionality of an act of Congress before the judicial branch which under the principle of judicial review attributed to Marbury versus Madison

00:15:50.049 - 00:16:13.719

gets the final say on these things. With respect to non-constitutional issues, it gets a lot more complicated because there are many agencies in the United States government, in the executive branch, all of each of which has its own programmatic, proprietary, and enforcement responsibilities,

00:16:14.099 - 00:16:31.460

and what you think the interests of the United States are with respect to a particular piece of litigation depends a lot on where in the United States government you're sitting, so I'll give you an example of a case that came up fairly early on in

00:16:31.460 - 00:17:00.869

my tenure as solicitor general. The United States Attorney for the District of Maryland brought a criminal environmental case against a developer who, notwithstanding various environmental laws and admonitions by enforcement agencies decided that this beautiful wetlands that he had purchased would be even more

00:17:00.869 - 00:17:23.438

beautiful if it had several real estate developments on it, and so he decided you know, exercising the kind of initiative inventiveness and entrepreneurship that that we all crave that he would simply collect as much dump and film material as possible and thereby avoid the

00:17:23.438 - 00:17:43.438

government's prescription against building in wetlands by making them dry lands, and he did that and the Maryland and federal environmental enforcement authorities were mighty unhappy about it. They got the United States attorney all riled up who went into a grand jury and got the grand jury

00:17:43.438 - 00:18:11.819

all riled up, and he was prosecuted in federal court in Baltimore on criminal violations of the federal environmental laws. Now he, along with several amicus groups, launched a ferocious private property, personal freedom, economic liberty, federalism defense which ultimately prevailed in the facts of that case

00:18:11.819 - 00:18:30.300

in the Court of Appeals of the Fourth Circuit and the US attorney was hopping mad, wanted to - I guess it was in district court - wanted to appeal to the Fourth Circuit, and I'll go through the process a little bit in a moment, but generally

00:18:30.300 - 00:18:56.130

speaking, the way that the Justice Department sort of harmonizes what positions the United States advocates in federal courts is to provide essentially bottleneck authority in the office of the Solicitor General. So no lawyer for the United States with very limited exceptions

00:18:56.130 - 00:19:17.020

for some independent agencies, one of which we'll be hearing from, no lawyer for the United States can appeal anything in any court unless the Solicitor General of the United States formally signs an approval for appeal. No lawyer with these exceptions for the United States or any

00:19:17.020 - 00:19:41.579

of its agencies can intervene in any non-governmental case to defend the constitutionality of an act of Congress unless the Solicitor general approves. And no lawyer for the United States can file an amicus brief in any non-government case advocating any position unless the Solicitor General authorizes it

00:19:41.579 - 00:20:01.209

in advance and in that way the Office of the Solicitor General performs the important function of attempting as best as possible to make sure that when any lawyer representing the United States or any of its agencies appears in any court in the country, whether it's

00:20:01.209 - 00:20:21.449

state court or federal court or a trial court or an appellate court and is asked the same question about the meaning of federal law, the same answer will be given. It may not be the answer that best advances the United States' particular interest in

00:20:21.449 - 00:20:43.579

a particular piece of litigation, but it's designed to reflect on the whole. The considered judgment of the United States and the Solicitor General in particular about how the law should be interpreted and applied. So The United States attorney in our dumping case was popping

00:20:43.579 - 00:21:07.650

mad. I mean, you know, as trial lawyers we're all essentially bred to the notion that anytime we lose anything is an apostasy and if you're representing the United States, that's equivalent to thinking that the fate of the United States and thereby Western civilization hinges

00:21:07.650 - 00:21:27.630

on remedying that problem and therefore obviously you should appeal so that this manifest error can be corrected and so you know there are assistant United States attorneys all over the country and they lose some suppression motion and you know they want to

00:21:27.630 - 00:21:43.790

appeal, but you know, as I said, the United States is a party in at least 100,000 cases at a time, and it usually wins, but it doesn't always win and it doesn't have to lose that many times before a lot of potential appeals build up. And

00:21:43.930 - 00:22:02.109

you know, the United States can't appeal every decision it loses. First of all, some of them it should lose, and second of all, if the United States appealed every adverse decision, the entire federal appellate judiciary would be brought to a point of seizure, there

00:22:02.109 - 00:22:16.520

would be so many cases in the system that it would just freeze up the way an auto engine does if it doesn't have any oil in it. So the United States attorney in this particular case writes a memo to the Solicitor General saying,

00:22:16.670 - 00:22:31.630

you know, this is ridiculous. This guy, you know, exercised self-help. He knew darn well what the environmental laws were. He was denied a permit, but he went ahead and did this anyway, and there's no federalism problem here. There's no economic liberty problem here. There's no substantive

00:22:31.630 - 00:22:48.260

due process problem here. Obviously we need to appeal and get this reversed and the way that it works in the government is when anybody wants to appeal or intervene or file an amicus brief, they do it in writing a memo to the solicitor general explaining what

00:22:48.260 - 00:23:03.880

the case is and what the legal issues are and what the what the public policy issues are and why this is one of those few cases where the Solicitor General should say OK. Now that's not the end of it. It's not like it comes

00:23:03.880 - 00:23:19.010

to the SG and the SG says, yeah, it's pretty good and the spelling is not very good, but You know whatever I don't really want to make this US attorney unhappy sure. When any of these memos come in they then get sent out to every component

00:23:19.010 - 00:23:41.219

of the government either within the Justice Department or in other agencies that has either an enforcement or policy responsibility with respect to the issue presented. So in that case the memo went to the Environment Division of the Justice Department, the Criminal Division of the Justice

00:23:41.219 - 00:24:00.300

Department, the Environmental Protection Agency, the Department of Transportation, the Department of Commerce, the Department of Defense. I don't think the PBGC got this one, but there were probably some other agencies, and they all review the written recommendation of the US attorney, and they write their own

00:24:01.229 - 00:24:23.300

recommendations expressing the interests of the United States from the perspective of where they sit, right? If you sit in the EPA and this is a case in which there is ostensibly proof beyond a reasonable doubt that somebody was deliberately violating the federal environmental laws, not

00:24:23.300 - 00:24:45.880

that hard to imagine what you think the interests of the United States are. On the other hand, if you sit in the Department of Defense, for example, which often itself is trying to build lots of buildings and roads in areas that some people might

00:24:45.880 - 00:25:06.109

consider to be protectable or wetlands or whatever, but you're defending the national security of the United States. You might have a, as they would say it, a more nuanced view of application of a uniformly applicable federal law and sure enough, all these memos came in from

00:25:06.109 - 00:25:22.930

all these agencies in this one little criminal prosecution and it's like no one could agree. So the SG staff looks at it and the assistant to the Solicitor General makes his or her own recommendation. The deputy Solicitor General makes his own, and

00:25:23.109 - 00:25:38.369

about a half a dozen of these packets appear on the Solicitor General's desk every day on average and so I call the meeting where a representative from every one of these offices could come and we could sort of hash this out

00:25:38.369 - 00:25:54.630

and arrive at some consensus position after which we would all put our arms around each other and sing We Are the World and sort of move on. Well, I got to this meeting, the US attorney makes her recommendation

00:25:54.630 - 00:26:11.030

with tremendous passion and The Environment division of the Justice Department supports it, the EPA comes in with its own analysis. We don't really know anything about the criminal laws, but here's why, you know, wetlands need to be protected, etc. etc. and the Department

00:26:11.030 - 00:26:26.459

of Transportation representatives says we just don't think this is appropriate at all, that the position the United States is taking in this case and the consequences of it are really gonna have adverse effects on our road building program and

00:26:26.459 - 00:26:42.729

development of railroad rights of way, etc. etc. and so we don't think that this is the right case to appeal. The Defense Department, as I probably suggested in my earlier comments, didn't think there should be an appeal either and various others.

00:26:42.819 - 00:26:59.319

The criminal division thought that we should appeal only counts 1, 3, and 7. The assistant to the solicitor general thought we should appeal only the prime numbered counts and not the non-prime numbered counts, it was just no consensus whatsoever and we had a long

00:26:59.900 - 00:27:16.560

meeting. Everybody aired their views, and in the end I had to decide and we did authorize the appeal and won the appeal, but that's sort of a snapshot of how complicated it can be to ascertain the interests of the United States, and this comes up

00:27:16.560 - 00:27:37.079

very, very often. I mean one case that we had while I was SG was Congress had passed a law, really an amendment to the laws that govern operation of the commodities markets that it curiously entitled the Treasury Amendment. So the question came up

00:27:37.079 - 00:27:55.300

was the Treasury amendment, did it mean this or did it mean that? And it came to the Solicitor general. There was a disagreement between the Commodities Futures Trading Commission and other government agencies that were a lot allied with it, including the SEC and the Department of

00:27:55.300 - 00:28:12.040

Treasury and other agencies that were allied with it, and there were all these memos traded back and forth and my staff had had some preliminary meetings and the Secretary of Treasury called or his chief of staff

00:28:12.040 - 00:28:28.319

called and said the secretary wants to wants to meet with you about this. So I scheduled a meeting with the chairman of the Commodities Futures Trading Commission and Bob Rubin, who was the Secretary of Treasury who prior to this time I think had never even heard

00:28:28.319 - 00:28:47.135

of the Solicitor General of the United States and was completely astonished that what position the United States would take on the meaning of something called the Treasury Amendment would actually not be a decision to be made by the Secretary of the Treasury who you know

00:28:47.135 - 00:29:11.222

has been a fixture of the US government since 1789 but instead would be made by some sub cabinet official called the solicitor general who apparently under some obscure regulations or government operating procedures got to decide this and so we had this full and

00:29:11.222 - 00:29:33.660

frank exchange in my conference room about this and in the end we decided that the CFTC's interpretation was more consistent with what Congress intended, notwithstanding the unfortunate title of the law, and we advocated that in the Supreme Court and lost 9 to 0,

00:29:34.310 - 00:29:52.569

a point that to this day Bob Rubin does not allow me to forget every time we see each other, which is not all that often, it's like remember that case involving the Treasury amendment? I'll give one other example of where

00:29:52.569 - 00:30:09.880

the interests of the United States regularly conflict and it's the in the area of intellectual property. I mean as everybody knows, just about the only thing we make in this country anymore is intellectual property. It's hugely important to

00:30:09.880 - 00:30:34.709

the economy and the proper interpretation and application and scope of the patent laws and the copyright laws and to a lesser extent the trademark laws, bear directly on sort of fundamental notions of innovation and private property and the Constitution contains the

00:30:34.709 - 00:30:56.319

patent and copyright clause that allows Congress to create laws to secure for authors and inventors for limited times the exclusive use of their inventions. So just to take the patent example, almost every time a question comes up about the scope of the patent laws,

00:30:56.400 - 00:31:19.270

whether they should, whether they should be given a robust interpretation and application to protect. The sort of exclusive limited monopoly that the patent provides in order to advance innovation as sure as the sun rises in the east, the patent and Trademark Office cheered on by the

00:31:19.270 - 00:31:40.020

Copyright Office and almost always supported by the Department of Commerce, takes the view that the Constitution says patents should be protected. We are the patent office. We issue patents. We only issue patents where they should be protected. Therefore, the interest of the United States in patent

00:31:40.020 - 00:32:06.729

litigation is defending a strong muscular application of the patent monopoly. But of course because it is a patent monopoly. Those agencies of government that were created in order to combat monopolies like the antitrust division of the Justice Department and the Federal Trade Commission

00:32:07.170 - 00:32:32.250

often take quite a different view, which is monopolies impede progress, they impede innovation, they impede competition, and therefore if we have to have any patent system it should be given the narrowest possible scope and application in order to promote a vigorous US economy and you

00:32:32.250 - 00:32:52.579

know the debates. I can tell you from when I was in the government, the debates within the administration about what position the United States should take in these cases are memorable, the sort of field of engagement between the intellectual

00:32:52.579 - 00:33:12.930

property protecting agencies and the competition protecting agencies sort of resembles Gettysburg after the immediately after the battlefield. You only have to look at a case that is very likely was decided by the Federal Circuit and is very likely to be reviewed by the Supreme

00:33:12.930 - 00:33:34.989

Court next term, brought by the American Civil Liberties Union against the Patent and Trademark Office and a company called Biotech Company called Myriad Genetics which first sequenced the BRCA1 and BRCA2 genes which are important markers for human

00:33:34.989 - 00:34:02.839

breast cancer and got a patent on isolated purified molecules that include the coding regions of that gene and its patent myriad has quite effectively enforced its patent rights. It's been challenged on the grounds that this kind of material that is genetic material is non-patentable subject

00:34:02.839 - 00:34:24.500

matter. It simply can't be patented because it's a product of nature, and these were patents that were issued by the Patent and Trademark They've issued something like 250,000 patents involving molecules that reflect genetic sequences or processes and methods that use those molecules for

00:34:24.500 - 00:34:43.250

diagnosis and treatment and obviously has published guidelines for when things are or aren't patentable and when they're not obviously thinks that it has a pretty good handle on what is and isn't patentable subject matter and therefore the interests of the United States should

00:34:43.250 - 00:35:06.659

be as they always have been to defend the the patentability of these inventions and that's the way it always was until the Myriad case. In the Myriad case, amazingly, the United States took the position in the Federal circuit that many of these patents, many

00:35:06.659 - 00:35:28.540

of these things, inventions were not patentable subject matter and the patents were invalid. One can only imagine what the debates were within the Justice Department, but suffice it to say that the National Institutes of Health, the Food and Drug Administration, HHS, the Department of

00:35:28.540 - 00:35:44.219

Commerce, any number of other agencies were fully part of the debate about the position the United States should take. And when the United States took this somewhat surprising position in the Federal Circuit, the case was argued by the Solicitor General of the United States who ordinarily

00:35:44.219 - 00:35:58.979

only appears in the Supreme Court. Now that the case may be reviewed by the United States, it will be interesting to see whether this Solicitor General of the United States wants to stick with the original position of the United States or the most recent position

00:35:58.979 - 00:36:17.189

of the United States, but you can be sure that in the process of coming to that conclusion, there will be yet another serious, civilized but vigorous dispute about what the interests of the United States are. Sometimes the interests of the United States simply

00:36:17.570 - 00:36:43.629

cannot be resolved because there are government agencies that by statute are required. To advance a particular programmatic interest notwithstanding what anybody else in the government thinks, including the Secretary of Treasury, a good example, as I mentioned, is the Pension Benefit Guarantee Corporation which

00:36:43.629 - 00:37:07.909

has an important public regulatory and trust obligation to ensure the stability and viability of pensions, and pension funds, and not often but quite regularly if a case comes up to in the appellate courts or the Supreme Court of the United States, the

00:37:07.909 - 00:37:27.479

PBGC represents itself, and in fact I think is one of the very few agencies that's allowed by statute to do it. Other with appropriate outside counsel, and I would say regularly prevails in these public spats with

00:37:27.479 - 00:37:44.899

the rest of the United States in labor cases involving federal employees again, 11 of the cases that the Supreme Court decided when I was SG was a case called NASA versus the Fair Labor

00:37:45.949 - 00:38:07.310

Regulatory Administration, it's a government agency that is essentially designed to protect the interests and prerogatives of federal workers. It's always opposed to an agency of the government and in everyone, and it doesn't have independent litigating authority. And when a dispute comes up about who's

00:38:07.310 - 00:38:28.820

right, NASA or the FLRA, the SG has to decide. And in in those cases, the SG will take one position and then formally notify the Supreme Court that the Solicitor General has authorized the other agency to represent itself in the patent antitrust context. This

00:38:28.820 - 00:38:51.800

played out quite dramatically a couple of years ago in a case involving a particular application of or misapplication of the Hatch-Waxman Act. The Federal Trade Commission took the position, this is a case where the brand, the patent holder, the

00:38:51.800 - 00:39:14.020

pharmaceutical company that had developed the product and had a patent was engaging in a process viewed with a gimlet eye by some of sort of extending its exclusivity period by making a private arrangement of sorts with one of the generic competitors so that the generic

00:39:14.020 - 00:39:35.949

competitor and the proprietary patent holder would have a somewhat extended period of exclusivity. The Federal Trade Commission just could not abide this. They just thought this was a manifest abuse of the process and an inappropriate extension of an already inappropriate patent monopoly,

00:39:36.209 - 00:39:52.870

and they really wanted to take this case to the Supreme Court. The Solicitor General disagreed. The Solicitor General would not petition in the Supreme Court, but sent the court a notice saying that the FTC was authorized to represent itself so that the FTC filed a cert

00:39:52.870 - 00:40:09.530

petition against the patent holder which I think was shearing plow. Saying you've got to take this. This is a widespread problem. It's it's totally wrong. So the Supreme Court looked at it and invited the Solicitor General to express the views of the

00:40:09.530 - 00:40:29.340

United States. Solicitor General told the Supreme Court in a case in which one of the government agencies was the petitioner that the case was not worthy of review and B if the court reviewed it, it should affirm over the opposition of the FTC so that

00:40:29.340 - 00:40:45.750

sort of puts it in a nutshell. Now we'll address this later and I'll end my remarks I guess here. There's a thumb on the scale ascertaining the interests of the United States, as I said, when the constitutionality of

00:40:45.750 - 00:41:15.250

an act of Congress is at stake, it's generally understood that the Solicitor General operating under delegated authority from the president best defends the interests of the United States and of the Constitution interprets and upholds the Constitution by defending the constitutionality of any act

00:41:15.250 - 00:41:36.510

of Congress. Provided that there is any reasonable argument that can be made in support of constitutionality, even if neither the Solicitor general nor the president nor anybody else in between thinks that that argument is one that ultimately will or should prevail. The notion is we have

00:41:36.510 - 00:41:56.659

an adversarial system of justice. We have a presumption that when members of Congress vote to enact something, they have made a Congress thinks that it's constitutional. And the way that that the issue gets resolved is to have champions on both sides of the dispute make

00:41:56.659 - 00:42:16.399

the best possible case so that the judiciary can decide, and often it's the United States is the champion and the champion of last resort of the constitutionality of its own legislation. So for example, when I was at Deputy SG, Congress

00:42:16.399 - 00:42:39.399

passed this law called the Communications Decency Act which was immediately challenged. 6 federal judges looked at it and determined that every aspect of the law, including the punctuation, was unconstitutional on its face. We decided that probably was unconstitutional, but we ought

00:42:39.399 - 00:42:54.280

to mix it up a little bit. There were reasonable arguments that could be made, maybe scary arguments, but we defended it. I argued it in the Supreme Court. It was one of the most enjoyable arguments imaginable because there wasn't anybody in the

00:42:54.280 - 00:43:09.989

United States, certainly not in Congress, this provision hadn't been in the bill passed either by the House or the Senate. It just emerged from conference in a sort of immaculate conception. So there were no hearings, there were no amicus on my side. It was

00:43:09.989 - 00:43:24.550

just like there are no expectations. Nobody expects me to get any votes for any part of this. And every organization that I've ever contributed to or heard of has filed an amicus brief on the other side of the case and I argued

00:43:24.550 - 00:43:41.060

it and got actually 2 votes for 2 out of the 3 provisions of the statute which you know in a litigator's view is a win beyond all expectations. You know when I was Solicitor general, the Supreme Court was on a federalism tear where it

00:43:41.060 - 00:44:02.280

was striking down the constitutionality under the 11th Amendment of all sorts of legislative efforts to waive the sovereign immunity of the states when they were discriminating on the basis of age or gender when a state held a patent

00:44:02.860 - 00:44:18.209

and was infringing the patent and every time I could make a reasonable defense I did and I always lost 5 to 4 every single term I thought, well, now we've got it, this is really much better. It eventually got to

00:44:18.209 - 00:44:39.000

when they struck down the Patent Act I notified Congress that we were not gonna defend the constitutionality of the Copyright Act. I did not defend the constitutionality of a provision of the 1968 Crime Control Act that sought to overrule Miranda versus Arizona.

00:44:39.379 - 00:45:00.000

More recently, the administration made a decision, question seriously questioned by many, not to defend the constitutionality of the Defense of Marriage Act which for policy reasons the administration strongly opposes but which had been upheld by other courts and many people thought there was a reasonable

00:45:00.000 - 00:45:18.659

argument to defend it, but the solicitor general and the attorney general decided no and as we'll discuss later on this issue of defending the constitutionality of acts of Congress has come up recently and probably will continue to come up in the bankruptcy context where the

00:45:18.659 - 00:45:39.689

interests of the United States are as inscrutable as any possible context you've got the United States as a regulator, the United States as a stakeholder, a creditor, the United States as a protector of the system, both the US trustee protecting the integrity of the bankruptcy system,

00:45:39.929 - 00:46:08.729

the operation of the bankruptcy system, and the solicitor general protecting the constitutionality of acts of Congress that govern bankruptcy. So Director Gotbaum, is it inscrutable? Certainly, before this August group, I'm not going to admit that having just heard from a lawyer who claims

00:46:08.729 - 00:46:19.610

he's not a bankruptcy lawyer. You're about to hear from a lawyer who claims he's not a lawyer at all, but has been spending his whole life preparing for this. Yes, I'm saying I spent my whole life preparing for this. Does that mean I was supposed

00:46:19.610 - 00:46:36.510

to apply to Georgetown Law School and I missed that part? I don't know anyway, however, I have spent a lot of time around bankruptcy lawyers. I've spent a lot of time. I've hired a few, spent a lot of time in government in

00:46:36.510 - 00:46:56.840

a bunch of different agencies, and as it happens, I have negotiated in bankruptcy because I was the bankruptcy trustee of Hawaiian Airlines across the table from the Pension Benefit Guarantee Corporation. And probably most important to this talk, since I am the chief executive of

00:46:56.840 - 00:47:12.580

the Pension Benefit Guarantee Corporation, I get to ask the quite competent bankruptcy lawyers of the PBGC, the lead one of whom Izzie Goldowitz's covering his tie and hiding there, what I should say, and then I get to still take credit for their

00:47:12.580 - 00:47:34.429

work. From those experiences I want to get back to Mark's original question, which is how the government thinks about reconciling its interests when it goes into the world of bankruptcy. I want to start with what are the non-bankruptcy lawyers' first principles about bankruptcy. OK, one

00:47:34.429 - 00:48:01.870

of the things I learned is that there is surprisingly little law in bankruptcy law and everything seems to depend on everything else. And the task that I watched folks like Judge Gonzalez and others do is a job of reconciling a diverse set of interests trying mightily

00:48:02.290 - 00:48:22.949

intelligently to group them in classes so that it can make sense and it can seem like law, but nonetheless reconciling a really diverse set of interests. And I think that is first of all, a marvel. B, it is what a few parts of government do,

00:48:23.080 - 00:48:41.600

but very few. One of them is the Congress. OK. Another one, as Seth has already pointed out, is the Justice Department when it has to decide who gets through the bottleneck. But as Seth pointed out, most parts of the government are designed not to be forced

00:48:41.600 - 00:49:05.770

to make trade-offs. They are designed, empowered, trained, set up processes and procedures so that they can fulfill their particular mission. And not have to make trade-offs with a lot of constituencies that in theory was done somehow miraculously by the Congress in its omniscience. OK, now we

00:49:05.770 - 00:49:26.629

all know that's not true, but it is a fair descriptor. So when you talk about the role of government normally when it wanders into the bankruptcy court, normally it is a unitary purpose organization. So EPA says we have claims that that need to survive because of

00:49:26.629 - 00:49:57.770

Superfund or the FCC says we have to either give regulatory approval or not for some particular disposition, etc. They are unitary interests purely by chance, and this is by chance, the PBGC isn't that case. And it is a regulator, an insurer, and a creditor, it has

00:49:57.770 - 00:50:20.659

multiple interests. Now I could design a PBGC, and it wouldn't be hard so that it would never get into the bankruptcy court. You could do what the financial markets do, which is I could sell default insurance to individual retirees. In which case my distinguished colleague Izzy

00:50:20.659 - 00:50:49.169

Goldowitz and his - how many lawyers do you have? 60 lawyers would not be working at the PBGC because we would never get to enter Judge Gonzalez's court. But because the structure of the agency was that it tries first to preserve plans. And if it takes over

00:50:49.169 - 00:51:14.030

plans, assumes the assets of a pension plan and the obligations of a pension plan, and then critical point number 3 becomes a creditor in the bankruptcy, largely an unsecured creditor, but nonetheless a creditor. OK, for that reason PBDC has been doused in the difficulty and the

00:51:14.030 - 00:51:31.270

complexity with which you are all familiar. Most government agencies, as Seth points out, just don't and aren't as a result more than most agencies, and I've worked in 5 cabinet agencies and I've done some stints in the White House. I've worked lots of places

00:51:31.270 - 00:51:55.530

in government without ever being a lawyer. And so the PBGC actually is much more than most forced to make trade-offs within the agency, and one set of those trade-offs actually comes when the agency goes into bankruptcy court. But before I get there, I think

00:51:55.530 - 00:52:15.679

it's worth talking about some of the trade-offs that the agency has beforehand. The agency statute says only 3 things. It says the agency should encourage voluntary private plans, the agency should pay benefits, and the agency should try to keep premiums low. That's what the statute says.

00:52:18.120 - 00:52:35.300

It turns out as I look at the 37 years of the agency, as I look at its actual goals. Think of this as behavior learned by generalizing. I think they're actually a hierarchy of goals, the number one of which doesn't actually appear in the statute at

00:52:35.300 - 00:52:58.239

all, which is to preserve companies and preserve jobs. And the point I will end up with, so I start it now, is that this notion of integrating multiple concerns which is fundamental to the bankruptcy process. Fundamental to what Seth did at Justice, not customarily done in

00:52:58.379 - 00:53:24.919

most other agencies. PBGC does some of, but one is Preserve companies. So one of the things that some insurance companies could do theoretically is they could say, in order to minimize my losses. I want to put the company under so as to stanch the wound. The

00:53:24.919 - 00:53:55.370

PBGC does not do that. Even though nowhere in its enabling statute does it say companies before your own balance sheet. The fact is that companies do come before our balance sheet. Second PBGC regulates plan terminations. And the second hierarchy is that we try to preserve plans.

00:53:56.320 - 00:54:21.149

Again, more than to control our own exposure. So what does that mean? That means that both when a company goes into bankruptcy, we try to see if there is any way that that company can successfully reorganize. Remember, priority one is the company needs to survive. To

00:54:21.149 - 00:54:43.840

see if there's any way that the company can successfully reorganize while keeping its pension plans intact. This is the fundamental question that led to that surprisingly decent picture of me in The New York Times, which is can American Airlines successfully reorganize, do the things it

00:54:43.840 - 00:55:03.689

needs to do to survive as a business and still keep its pension plans. So you are engaged in a process of trying to preserve plans. We have some tools for doing so outside of bankruptcy. We have some tools for doing so inside of bankruptcy. I'm

00:55:03.689 - 00:55:19.780

not gonna, since you guys are bankruptcy folks and not PBGC folks except for Seth, I won't spend a lot of time on that, but it is important. Third is, which is in the statute, is we take over plans. When we take over plans,

00:55:19.989 - 00:55:42.750

there is an entire set of activities. We acquire assets. We now have round numbers $80 billion worth of assets. And we pick up the obligations of the plan. Sort of we pick up the obligations we start with the obligations of the plan by its terms, so

00:55:42.750 - 00:56:00.750

we have to learn whatever benefit everyone is entitled to according to that plan and then thanks to the miracle of modern legislative sausage making, we have to apply a profoundly complex set of rules to the already complex set of rules, and that's how we'd

00:56:00.750 - 00:56:25.969

figure out what we pay for people. And that is the most visible activity of the Pension Benefit Guarantee Corporation. That next point appears nowhere in the statute, but it gets back to this issue of how do you do trade-offs which is unlike the FDIC in

00:56:25.969 - 00:56:53.870

which banks fail or don't fail, and the FDIC has to pay up to $250,000. PBGC has some tools to manage his exposure, for example, for a period of years. PBGC would when it saw a company getting into trouble in an industry that allowed itself to pay,

00:56:54.489 - 00:57:12.639

to accelerate pension obligations when it was laying people off. The PBGC said, oh. I want to minimize my exposure, so I'm going to take over the plan before all these people become eligible. That was a form of exposure limitation. Now you might say, wait a minute,

00:57:12.879 - 00:57:30.840

how does that fit with your obligation, to pay the benefits to which people are entitled. And if I were any other insurance company but an agency of the United States government, I would say it's pretty simple. Contractually, I'm obligated to pay whatever I'm contractually obligated to

00:57:30.979 - 00:57:51.629

to pay. And as it happens, I close the door just before you get in. I'm contractually up and not required to pay you. But because this is a US government agency and because it has other trade-offs that it has to make, we actually try

00:57:51.969 - 00:58:16.969

not to minimize our exposure entirely. And the last point, which is the one that actually got me invited here in the first place, is that we try to maximize our return as a creditor. However, and that is why, because the PBGC's obligations

00:58:16.969 - 00:58:43.020

in bankruptcy are large, Izzy Goldowitz and his colleagues have become very, very skilled at being a creditor. They only trivially secured, but they are skilled and they are large and as a result, we have come from PBGC to understand a little more about the bankruptcy process

00:58:43.020 - 00:59:05.290

than most of the other agencies. And so it is from that vantage point that I'll talk about some of the trade-offs and then try to generalize for a second to kick off Mark's discussion. We started from the point that agencies are focused in

00:59:06.189 - 00:59:27.070

doing what they are charged to do. EPA is focused on doing what it's charged to do. FTC is focused on doing what it's charged to do, etc. Well, when you are a creditor and an insurer and you're also a government agency. You actually have to make

00:59:27.070 - 00:59:43.340

choices about trade-offs. You have to make choices about how hard you fight and what kind of claims you do. Let me give you 11 for instance that has happened on my watch. There is a company, and I'm not gonna bother to name it since

00:59:43.479 - 01:00:15.879

we lost. That was in bankruptcy and they claimed that they had to terminate their pension plan, and we agreed. So we were terminating their pension plan. And then we negotiated over what our claim would be as creditors. So the company then went

01:00:15.879 - 01:00:32.489

into court and argued to the judge. We thought what the company was offering in settlement was too small. I argued to the judge that because we were being obstreperous and were charging too much to allow them to terminate the plan, we were threatening the

01:00:32.489 - 01:00:55.219

jobs of their company, when of course we were doing no such thing. The company was an independent operating entity. We were essentially arguing about what fraction of the of the residual equity we would get. However, interestingly enough, two things were true. One is. The

01:00:55.219 - 01:01:16.709

judge, knowing that the PBGC was a government agency, listened to the company's argument even while recognizing that in an economic sense it was a meaningless argument. And the decision when handed down was -. Yeah, you're probably right. This doesn't have anything to do with whether the jobs

01:01:16.709 - 01:01:39.879

are maintained or not, but just to be sure, I'm gonna give you the claim that the company says you should get. And the plan from my perspective, at least it's important was that the litigators for this Agency themselves pull back

01:01:41.030 - 01:02:02.139

because of the same concern, the same penumbra, if you will, that we might, even though economically it's extremely unlikely that our actions as a creditor would affect the ongoing economics of the company. The fact that

01:02:02.139 - 01:02:21.870

one might claim so, the fact that people in the political world who don't understand anything about bankruptcy and even less about pensions, might think so, forces the agency to pull in its horns. And at first, that bothered me because I had come from the

01:02:22.090 - 01:02:41.179

cleaner, narrower world of investment banking in which you represent a client's individual interests. You know, when you're basically a creditor, that the interest is really simple, it's maximize the return. You don't have to worry about anything else except because all you're really

01:02:41.179 - 01:03:07.979

doing is, it is as Mark said, a zero-sum. I'm only taking from other people. When you are in government, even when you are in government and in an agency that is a really skilled participant in the bankruptcy process, you nonetheless make trade-offs. They are

01:03:07.979 - 01:03:35.780

not only what I would characterize as technical or economic trade-offs, they are also perceptual trade-offs. And I think that is important to recognize when we talk about what my friends in Treasury did when they sojourned into the bankruptcy process there. I'll mention just one more

01:03:36.919 - 01:04:05.469

point and then generalize which we are never explicit about what our actual trade-offs are among these multiple objectives. In other words, there is not a policy manual within the PBGC that says when the probability that a company will go

01:04:05.469 - 01:04:32.209

under gets above 10%. Stop arguing and take the plan. So the rules by which we have to decide whether or not we agree that American Airlines can't afford its pensions are in many respects like bankruptcy guidelines. There are no bright lines in this world. This is

01:04:32.209 - 01:05:00.979

a world of equity masquerading as law. And so, sorry, Your Honor, I may fortunately I will never appear directly. Yes, I mean, what judge wouldn't prefer to be the chancellor? Well, in my experience, that is where we, who are a government agency are even

01:05:00.979 - 01:05:21.280

on these set of choices. So that when it comes, and this is for us obviously a momentous decision, it's a really important decision which is, can American Airlines reorganize and afford its pension plans? Or in order to reorganize, does it need to terminate its pension

01:05:21.280 - 01:05:46.770

plans and dramatically cut the pensions of at least 13,000 people, eliminate retiree health benefits and make other changes? So I mentioned this because I know that it is the kinds of considerations that my friends from Treasury went through and had to trade

01:05:46.770 - 01:06:11.139

off when they were nominally just following the rules. My conclusions from thinking about Mark's point is that in some respects, bankruptcy and government are a lot alike. They are both incredibly complex and they are covered by a veneer of law. But

01:06:11.600 - 01:06:38.010

the reality is an incredible diversity of interests and views. In the bankruptcy context, more than in government, there's a requirement of apparent consistency, of dedication to precedence, of adherence to the rules, etc. But unlike Government the results in a bankruptcy court don't need easily to

01:06:38.010 - 01:07:03.370

be understood. And so the good news is that the bankruptcy process that you do, Judge Gonzalez, etc. you don't have to defend it in a congressional hearing. You don't have to turn it into a soundbite, OK, and I think that is important because that

01:07:03.370 - 01:07:25.669

separate set of requirements actually changes what government does too, and that's why whether or not a particular process goes through the ordinary governmental process or goes through the bankruptcy process will change the result. And my last conclusion is that because government is actually not

01:07:25.669 - 01:07:48.620

accustomed with limited exceptions to being involved in the bankruptcy process, when it goes into the bankruptcy process, it needs a good bankruptcy lawyer. Thank you. All right, great thank you both, and let's take a 10 minute break.

01:07:48.679 - 01:08:11.510

This what was a very interesting set of opening remarks into something that I hope is interactive, lively and interesting. I thought during both Seth and Josh's remarks we heard a lot about how one could begin in

01:08:11.510 - 01:08:31.919

a circumstance in which you had a number of people who had strongly held and strongly opposed views go from a world of sometimes violent disagreement to harmony and consensus, and my hope is that over the next part of this we can play that out

01:08:31.919 - 01:08:49.890

in real time and have a lively discussion the hope is for this to be as interactive as possible so I'll I'll try to direct questions to the panelists. I do hope that to the extent folks have questions or thoughts or things

01:08:49.890 - 01:09:10.220

to add that you feel free at any point to chime in and thanks to Judge Gonzalez and to Jeanette for now joining in the conversation. I think I'll will start by talking a little bit about the set

01:09:10.220 - 01:09:32.220

of circumstances that arose in the automobile cases in which Jeanette appeared in bankruptcy court on behalf of the United States and Judge Gonzalez was the judge and so right in those cases the dynamic that both Seth and Josh were describing earlier this

01:09:32.220 - 01:09:53.100

morning played out quite vividly, the government had a whole variety of different and in those cases in particular, sometimes unaccustomed roles the government made the dip loans in the beginning of the cases. Was involved in a way that's probably too

01:09:53.100 - 01:10:09.740

complex for me to understand, let alone explain, but was involved with the buyers of the assets. There are environmental issues, there are a host of other issues, and obviously, as you know, as Josh was pointing to earlier, there are countless jobs at stake,

01:10:09.839 - 01:10:25.930

which is presumably the kind of question in which the United States can legitimately have some interest, So what can you, appreciating that you're within the confines of privilege, there's only so much you can tell us, but appreciating those limitations, what

01:10:25.930 - 01:10:45.689

can you tell us about how that process unfolded? In the auto bankruptcies specifically, I think it was interesting because as you say it was unaccustomed, unprecedented and hopefully never to be repeated, but it was I think ordinarily as Josh

01:10:45.689 - 01:11:04.169

alluded to earlier, when we represent executive agencies in bankruptcies, it's in either a creditor or regulatory capacity and sometimes a combination of both depending upon the circumstances, but I think the view of the bankruptcy bar and those who are private practitioners can

01:11:04.169 - 01:11:21.439

correct me if I'm wrong, but are the United States is normally viewed, I think, as a spoiler in Chapter 11 cases. We are the ones who come in as often a large creditor or regulator and oftentimes the dip lender, the unsecured creditors committee,

01:11:21.520 - 01:11:39.229

the debtor are often aligned against us and we stand alone That's because you have a priority, we have regulatory interests. We have other protections and we're generally disliked by many. What stands out to me in Chrysler and GM, of course,

01:11:39.270 - 01:11:50.350

is that now we stood on the other side of that fence. We were the facilitator. We were the dip lender. We were the ones who are pushing this case through. And so that was what was almost unaccustom that we were actually instead of

01:11:50.350 - 01:12:04.770

standing in what many perceived to be standing in the way, although I would disagree with that, is we were the ones pushing the case forward and so it was a very different set of perspectives and one which was educational as well. I mean,

01:12:04.970 - 01:12:20.310

in many general litigation cases, as Seth was referring to earlier, we often have conflicting interests. We take affirmative civil rights cases, we have defensive civil rights cases. So when we are looking at how the civil rights laws develop, we are looking at that with

01:12:20.609 - 01:12:35.959

both views, how do we want the law to develop? We have a duty to interpret it in accord with what Congress passed, we have a duty to our affirmative colleagues who are pushing affirmative civil rights cases, defensive side cases on the bankruptcy

01:12:35.959 - 01:12:50.180

side, ordinarily we're not sitting on both sides of the fence. We are normally sitting on the side of the fence as creditor regulator, so it was a very different perspective that we were given and as you said as it played out

01:12:50.229 - 01:13:09.319

at different stages of the case our interest changed or morphed as well. I mean, early on, of course it was all about achieving the 363 sale as expeditiously as possible in order to save the companies for the economic effects that

01:13:09.319 - 01:13:24.390

impact on jobs, impact on communities. After the 363 sale was accomplished, and I think what often gets lost in the news reporting is that there were states left behind and that we had made a commitment early on in those processes that we

01:13:24.390 - 01:13:40.330

were going to see the wind downs of both the states through, and GM in particular that was quite the challenge. It was really morphed into what we call an environmental bankruptcy. There were 89 properties left behind in the GM estate that

01:13:40.330 - 01:13:58.149

were contaminated or needed some kind of environmental remediation. And so the commitment that we had there was to see those properties through and what was the structure going to be in terms of remediating those properties and that required a coalition within the government of

01:13:58.149 - 01:14:12.339

various agencies. Treasury of course was the dip lender, so it was the one who financed the wind down of the GM estates so it had its commercial interests, but there was also EPA. There was the Department of Interior. There was the Department of Labor, there was

01:14:12.339 - 01:14:29.459

the Department of Commerce, there's the Department of Justice, and all those agencies came together to really decide together with a coalition of very involved state government partners for the state for the local communities and oftentimes city governments as well Indian tribes the

01:14:29.459 - 01:14:43.700

Mohawk tribe was very involved as well. It was a very large group that had to decide together and come together and and vigorously debate what are we going to do and ultimately it led to probably one of the greatest environmental accomplishments in a bankruptcy case

01:14:43.700 - 01:14:59.609

was $614 million was put aside in a trust for those 89 properties. It was quite the achievement, but it did require a lot of coordination between government agencies that had not diverse interests but in terms of coming together and expressing different points of view as

01:14:59.609 - 01:15:12.899

to how that should be handled, you know. You have to protect the public fisc in terms of the TARP money that was at stake, but at the same time there was a responsibility to those local communities that we had made promises to and to

01:15:12.899 - 01:15:27.689

the environmental remediation of those properties. So Jenna, can I ask a, a follow up just to tease out a point you made, right? So, as, as you described it, in most bankruptcy cases, holding aside the auto cases the dynamic of

01:15:27.689 - 01:15:38.100

the government is the debtor, the committee, the economic stakeholders come in and they say, listen, we need to get a plan approved. We need to do it quickly. Here's the deal. It needs to get done. It needs to get done fast and let's do it

01:15:38.100 - 01:15:52.930

and move on. And the United States is often coming in and saying. Well, actually there are rules, and actually there's a process, and we're gonna need to follow it and a lengthy process. We're not a fast mover and as Josh describes, you know, very

01:15:52.930 - 01:16:07.839

often the dynamic is the debtor in committee say actually no, not so much we're gonna get a deal done and in these cases, right, the government found itself on the side of the, well, not so much. To

01:16:07.839 - 01:16:22.319

what extent did you have to worry through your ability to come in the next case and say no actually there are rules of course that's always a concern and we were very conscious of the presidential nature of Chrysler and GM and I still

01:16:22.319 - 01:16:35.870

think that although people often cite it as doing something extraordinary and Judge Gonzalez can comment on this as well, I think within the structure of what we did it actually wasn't all that extraordinary. What was extraordinary about it was who the dip lender was, who the

01:16:35.870 - 01:16:51.569

purchaser was, but in terms of the legal structure of 363, in the bankruptcy code and how the deal was structured, it was very carefully crafted so that we weren't doing something that we would have to live with in the next case, and I think

01:16:51.569 - 01:17:09.140

we accomplished that well in the nature of unprecedented, being the one to be able to ask questions to Judge Gonzalez. But Judge, obviously your thoughts on all of this would be to just to take off on what Jeannette just said, I

01:17:09.140 - 01:17:23.479

agree with her in that it was not precedential setting. The issue really was who was the lender, who was the the funder that was unique, and there's no doubt about that, but I approached the case from the standpoint that was a

01:17:23.479 - 01:17:42.490

political decision and once the government came into the bankruptcy process as a funder, as a dip lender, etc. they were just governed by the same rules and that the expectations of their conduct shouldn't change just because they happen to be the government. So in that sense,

01:17:43.000 - 01:17:58.729

although there's much written critical of the decision I made in Chrysler and some of it may well be correct. I think a lot of that criticism confuses the political issue as to whether the government should have been involved at all versus the bankruptcy precedential setting

01:17:58.729 - 01:18:16.750

of the process. So how were the kinds of arguments you heard about how the government in its capacity as dip lender or participant in connection with a purchase were to be treated differently from any other commercial creditor. All right, what happened

01:18:16.750 - 01:18:35.299

on the first during the first hearing. The first objection came from the note holders about the speed of the process, about the amount at issue, and Jeanette can correct me if I'm wrong, but the argument went along the lines the government can print money. Therefore,

01:18:35.770 - 01:18:55.379

don't approve this process. The government will always be there and add more money to it. Therefore, Judge, we need you to help us in negotiating with the government. And my answer was the government is acting like any other lender, any other funder. And the fact that

01:18:55.379 - 01:19:07.169

a bank may have a lot of money doesn't mean that they have to put it up, and I did not believe and to this day I don't believe that I had the power or the authority to really look at the government and

01:19:07.169 - 01:19:22.529

say you have to put up more money. My choice would be just not to approve the process altogether, but I don't think I should be, you know, enacting or acting like the executive branch and making those kinds of decisions. The other were the dealerships. I mean,

01:19:22.569 - 01:19:36.930

the dealerships suffered a lot of hardship, but the bottom line, the dealerships often argued and said, look Judge, don't let them reject the dealerships. They'll throw more money into the pot. And it came also from the tort claimants. The tort claimants

01:19:36.930 - 01:19:51.899

said this is not fair. The government shouldn't act like this, and it may well be from a political standpoint, maybe the government should have addressed that issue, but that still to me was not a bankruptcy issue. Well, Josh, why don't want to ask

01:19:51.899 - 01:20:08.939

you this question, right. In a case like this, large manufacturer, you touched on some of these questions in your earlier remarks, but large manufacturing case, a lot of jobs on the line. Imagine you found yourself in a case like that in which

01:20:10.029 - 01:20:24.660

your view that in which the debtor sought to terminate the plans and you thought, you know what, I think they could reorganize without it, Jeanette imagined would be taking the view, look, this is necessary to get this plan done and the government after all

01:20:25.129 - 01:20:45.689

has a stake in getting this done. How does that complicate your life? You mean what would have happened if, say, the buyers of, say, General Motors, just to pick one company that's relevant, had declined to pick up the pensions. On

01:20:45.689 - 01:21:08.439

the basis of an apparent business judgment. At that point, and that's why the fact that the whole thing was structured as a 363 is so powerful. We essentially would have had to have argued that somehow the structure of the sale, not the business judgment

01:21:09.020 - 01:21:20.939

as to whether or not to take the pension, but the structure of the sale was somehow suspect and unfair, right? You might have said it was a sub rosa plan, and this, I mean put aside auto companies and things like that. One of the issues

01:21:20.939 - 01:21:40.350

is that the bar, the bankruptcy bar has figured out that 363 enables you to leave behind a lot of obligations and in general, I'm actually fine with that, but we're now getting to the point where my former colleagues from the worlds of private equity and

01:21:40.350 - 01:21:58.319

hedge funds, etc. because that is the world I came from have figured out that they can use bankruptcy to sell companies to themselves, and there I think it's actually a bit more troubling. And well, say a few more words. When you

01:21:58.319 - 01:22:16.759

look one of the things I like about bankruptcy is it recognizes that the world is complex, but it nonetheless, it still must have in order to work, there have to be enough rules so that when Jeanette with the richest client in the history of

01:22:16.759 - 01:22:33.479

the universe comes before Judge Gonzalez and says, we're a dip blender like anybody else, we're not gonna be taken. There needs to be an understanding and a set of rules that work with that. But that very same set of rules means that in the hands of

01:22:33.910 - 01:22:54.250

smart financial engineers and smart lawyers can be used. Because of the precedent to achieve more questionable goals, so I'll tick off one that I've watched a few times, fortunately before I got to the BBC those of us who used to be in the private equity world,

01:22:54.490 - 01:23:22.049

we invest $100 million in a company and we buy it. We invest a dollar of it as equity and 99 million, etc. as subordinated secured debt. Or we wait 6 months and refinance and achieve that capital structure. Then

01:23:22.049 - 01:23:51.419

the company gets in trouble. And we at that point can credit bid and squeeze out, let's say the PBGC and other unsecured creditors, all entirely lawful. And I do not have a comprehensive enough view to know whether the net effect of these kinds of designs is

01:23:51.430 - 01:24:05.049

better or worse than not having them. I won't go so far to argue that, but it is clear that the design has been perfected to the point where it is being used more often than anybody would have predicted 10 or 15 years ago.

01:24:06.220 - 01:24:23.970

And from my view, one of the reasons why it is incumbent from time to time, notwithstanding the miserable difficulties that Congress has thinking through changes in something as complex as the bankruptcy code. The reason why it needs to do so is that there are

01:24:23.970 - 01:24:39.759

guys like me and my former brethren who look at the rules, figure out the rules, and then learn to take advantage of the rules. And because at the end of the day what you are trying to do in bankruptcy is not just apply rules, but achieve

01:24:39.759 - 01:24:54.080

a better result from time to time you're gonna have to be able to modify them. Well, that is interesting because you mentioned the word goal and better result, and therein lies a great deal, I think of confusion as to what is the role of

01:24:54.080 - 01:25:11.459

the bankruptcy judge and what should the judge consider in terms of the benefit to the estate issue versus what's the greater good of the world which comes up and it has always been my view that the bankruptcy judge looks to the estate and not necessarily what

01:25:11.459 - 01:25:23.660

may would be in the best interest of the country and if you go to the Lehman case, you know, I think it's kind of interesting the arguments often were made that if the judge didn't approve the the Barclay sale in the early stages of that

01:25:23.660 - 01:25:38.009

case, the world would come to an end. But I think the real argument in order for the judge to approve that transaction was what was in the interest of Lehman and the Lehman estate. And obviously, if the world comes to an end, Lehman wasn't going to

01:25:38.009 - 01:25:53.910

do very well either. So I think, you look at it and you say, OK, well yeah, if the financial markets collapse, whatever collateral, whatever assets Lehman had would be worthless. So sure, this is in the best interest of Lehman, but what gets taken away

01:25:53.910 - 01:26:09.950

from that because there's a lot written about the interest of entities and other for policy reasons that have nothing to do with the estate per se directly, that judges are making decisions that have to do with what's in the greater

01:26:09.950 - 01:26:26.729

good. And I think it came up in Chrysler in some respects, at least theoretically, but as a practical matter, it didn't happen. I think in Chrysler, if someone had come in, some multi-billionaire had come in and said, here's $6 billion and remember there was

01:26:26.729 - 01:26:44.560

a $6.9 billion secured debt of the note holders. And here's $6 million. I want to turn all the factories of Chrysler into co-ops and condominiums. I'm going to terminate every contract and everything else. What was the bankruptcy judge supposed to do on a 363 sale, as

01:26:44.560 - 01:26:59.970

far as I was concerned, the government then in playing its role as the stalking horse bidder through the entity, whatever you want, however you want to identify that role, had to come up with $6.1 billion or they lose, and I don't think the bankruptcy judge

01:26:59.970 - 01:27:12.729

should sit there and say, wait a minute, the auto industry is going to come to an end. I don't think that's within the parameters of the interests of the estate when you're dealing with a situation like that with the secured creditors, but I think what often

01:27:12.729 - 01:27:26.339

was written about the process, what's saving the industry, saving this, saving that, but at the end of the day, I still think we're limited to looking at the interests of the estate. And I, as a bankruptcy judge, wouldn't want that

01:27:26.339 - 01:27:45.339

power to look beyond the estate. So can I ask a related question, right? So taking it outside the context of the auto industry, your ordinary business chapter 11 case in which the debtor's got a plan to reorganize and save some number of jobs and someone

01:27:45.339 - 01:28:00.589

of Josh's former colleagues comes in and says actually this company is worth more dead than alive and its liquidation value exceeds this reorganization value, in that decision, does the same analysis apply? Do you give any thought to just what maximizes value as opposed to -

01:28:00.790 - 01:28:14.959

I mean it depends on what context it comes forward. If it comes forward in a 363 sale and what is the highest and the best bid to the estate. Then I think the highest and best bid is the real cash that's put down on the

01:28:14.959 - 01:28:28.529

table. If it comes in the form of a plan, you look at the plan process and how the votes went. If it were a secured creditor in that plan process and the secured creditor was not effectively getting due process because there was more value that the

01:28:28.529 - 01:28:42.299

secure creditor should take away, then I don't see how you then confirm the plan. But I think it comes up a lot in the hospital cases. I mean, you can have, if you have a hospital in X community and another hospital wants to merge

01:28:42.299 - 01:28:57.759

with that hospital and let's say close the emergency room, is it the bankruptcy judge's role to say, wait a minute, the community needs emergency services, or is that really a political role that needs to get played out by those in charge of the community

01:28:57.959 - 01:29:16.470

depending on where the value lies, and so I do think that we really need to focus really on the interests of the estate. Turning the subject a little bit so in Chrysler Judge Gonzalez wrote a long and thoughtful opinion in

01:29:16.470 - 01:29:38.859

record time which was affirmed by the Second Circuit, and then the question was an appeal from our cert petition in that case to the Supreme Court. Seth, do you have any thoughts on the way the Chrysler appeal in the

01:29:38.859 - 01:29:54.810

Supreme Court played out and what it might tell us about anything about bankruptcy law? I don't know what it tells us about bankruptcy law, but it played out in sort of an interesting way. I mean, the disappointed parties petitioned the Supreme

01:29:54.810 - 01:30:18.839

Court and said, this is an outrageous misapplication of the law by Judge Gonzalez. His power grab in cahoots with the United States was all that. That's the way I remember it, that reading between the lines, the

01:30:18.839 - 01:30:38.959

Second Circuit applying an abuse of discretion standard not only determined that Judge Gonzalez didn't abuse his discretion, but somehow seemed to sort of get themselves worked up enough to say he was right, he's wrong. This is a humongous development in bankruptcy law,

01:30:39.080 - 01:30:55.169

bankruptcy procedure that's gonna have long standing consequences. You need to take this case and the United States' position was no, you don't need to take this case. In fact, this case isn't a case anymore. This case is moot, right? I mean this is

01:30:55.169 - 01:31:16.410

over, plan's been confirmed, there's nothing left here now. Not clear whether it was moot as a matter of law or to express the words that are so rarely expressed by courts and in particular the Supreme Court it's equitably moot. The Supreme Court,

01:31:16.529 - 01:31:31.209

they didn't take the case and hear it and decide whether the Second Circuit was right, and they didn't deny the petition. What they did was they said, OK, well, the United States got what it wanted, more or less. The United States won the 2nd Circuit. The

01:31:31.209 - 01:31:47.319

United States is now telling us that. So sorry, but there's nothing here for you to review because it's over, they tried to get a stay, they didn't get a stay, everything's done, sorry, it's equitably moot. So what the Supreme Court did was to say,

01:31:47.410 - 01:32:07.240

all right, we're gonna grant the petition. We're going to vacate the decision of the 2nd Circuit. Well, we're going to grant the petition. We're gonna remand it to the 2nd Circuit with instructions. That the 2nd Circuit vacate the product of its labors and consider judgment, and

01:32:07.240 - 01:32:27.160

we're telling them to vacate their own decision as moot. Because, and that's all the order says, but the presumption is that the court was applying a doctrine that it announced many years ago in a case called Munsingware where the Supreme Court

01:32:27.160 - 01:32:48.290

basically said, OK, well cases moot themselves out all the time, but where you have a party that has prevailed below, whatever below means, and now is trying to sort of ditch the case on the grounds that it's moot. In those

01:32:48.290 - 01:33:02.609

circumstances we're not going to let the last opinion stand, and that's what I think happened in this case. It puzzled me to a great extent because just to go through the timing of it. We had the hearing, I think it was on

01:33:02.609 - 01:33:21.390

the 26th, 7th, and 8th of May that it ended on a Friday night. The opinion was issued at 11 o'clock Sunday night. What took you so long? I'll get on the 7th day the bankruptcy court rested. It was issued from my

01:33:21.390 - 01:33:35.009

courtroom deputy from our home in Jersey. The electronic age allowed us to do that, but it gets issued Sunday night. Monday morning there's a race to the district court. Then the circuit gets contacted. We had probably the first direct appeal out of

01:33:35.009 - 01:33:53.979

the Second Circuit. And the circuit sets it up for argument on Friday, Thursday. It was Thursday appeals, right? You remember the briefs the briefs were due Wednesday. The argument goes forward with the Second Circuit. The circuit comes back out

01:33:53.979 - 01:34:08.229

on the bench after a brief recess and apparently says for the reasons set forth below, we affirm opinion to follow in due course. Fine. They run to the the stay is put in effect. They run to the Supreme Court. Supreme Court Justice Ginsburg

01:34:08.229 - 01:34:21.310

stays it so they can consider whether or not they're going to stay it further. The next day, which I think is then January June 9th, so all this is a 10 day period. June 9th, they say the sale can close. They lift the

01:34:21.310 - 01:34:38.850

stay. The circuit then comes out with a decision 60 days later. What I could never figure out is that when the order of the circuit was entered on June 5th, saying for the reasons set forth below, we affirm it

01:34:38.850 - 01:34:58.009

was not moot at that time. And that's what I couldn't figure out how the Supreme Court then turn around and direct them to vacate that order. It's a puzzlement. I think I have really have no

01:34:58.009 - 01:35:14.810

idea, but what the heck, I have a microphone in front of me, right? I think what happened was following up on one of Josh's observations that what both the PBGC as an institution and bankruptcy courts do

01:35:14.810 - 01:35:35.939

as an institution are to make decisions governed by the constraints of what law, what few rules of law exist, but in essence are doing equity. A great deal of equitable balancing with, as he put it, a thin veneer of the law, not in a derogatory

01:35:35.939 - 01:35:52.620

sense, but in a positive sense what happened was this goes to the Second Circuit. Second Circuit says abuse of discretion. Judge Gonzalez never abuses his discretion, affirmed for his reasons. We'll explain it later. They then go about the deliberate process for the Second Circuit, 60 days

01:35:52.620 - 01:36:13.470

is like light speed. We'll go through the process of writing something that smothers this equitable balancing with a thick veneer of law, and I think the Supreme Court may have been concerned with maybe this wasn't a Bush versus Gore

01:36:13.660 - 01:36:31.484

ticket good for just this ride, but maybe it was, and hopefully we'll never have to have another situation like this. And we just don't think that the Second Circuit's articulation of rules of law that ought to apply on a going forward generalized

01:36:31.484 - 01:36:51.520

basis should stand in this context. I've heard it argued that the possibility exists that the Second Circuit opinion issued 60 days later was broader than my opinion, and had they issued nothing, maybe their June 5th order would have stood. I think that's right. I

01:36:51.520 - 01:37:13.120

mean, I think the notion was that this became moot when it was certainly not moot at the time they affirmed for the reasons stated below because at that point, the game wasn't over. It certainly was not moot. I mean, if somebody

01:37:13.120 - 01:37:29.520

had gone running up to the Supreme Court and said you not only need to grant review, but you need to hear oral argument tomorrow, the case wouldn't have been moot then. If the stay had stayed in effect, the case wouldn't have been moot. But I think

01:37:29.899 - 01:37:42.979

it was as the United States said it was equitably moot once the stay dissolved and the plan was implemented. I mean, the other interesting thing about that way that unfolds is when the case is in bankruptcy court and you're there and

01:37:42.979 - 01:37:54.740

you've got these 3 days of hearings in May, all of the discussion is about is this a sub rosa plan? Can you do it this way? Do you need to have a plan process? Is this subverting the design of the code by the

01:37:54.740 - 01:38:06.979

time it gets to the Court of Appeals and the Supreme Court, I think, I mean, at least my sense was everyone's pretty much persuaded you actually had that right that this wasn't a plan, it was a sale and that they were free to come

01:38:06.979 - 01:38:23.970

up with any plan they wanted with the proceeds and that that analysis was not really questioned anymore after being the subject of much debate, in May, but the question of what you sell free and clear of, which didn't get that much attention, everyone is

01:38:23.970 - 01:38:36.450

struggling with, I don't know. I think there's a lot of truth to that in the sense that when you look at the questioning from the Second Circuit about what do you sell free and clear

01:38:36.450 - 01:38:52.310

of, there was an issue raised about my decision was too broad. And it raised real due process issues, and I remember Judge Sack reading the transcript and Judge Sacks said, look that's nearly not before us now. And then Judge Gerber issues GM.

01:38:52.799 - 01:39:07.879

Judge Gerber picks up on what was said at that oral argument, puts it in the GM opinion, and then the Second Circuit opinion 60 days later cut back and leaves that for another day. And I agree with you that those issues about free and clear were

01:39:07.879 - 01:39:28.040

really not. The focus in early June and was that what the Supreme Court was hesitant about allowing that decision to stand? It may well be, unless there are questions on this, I guess I'd maybe turn and talk a bit more broadly about

01:39:28.040 - 01:39:44.109

the financial crisis, not focused solely on the auto industry, which is obviously a piece of it but the question going back to sort of what's the government's role, how does it fit in? Obviously the whole set of events in the fall of 2008,

01:39:44.279 - 01:40:01.310

put that in stark relief as Judge Gonzalez's comments about Lehman suggest but Josh, given that you've been in a whole host of governmental roles in connection with these kinds of issues, right in the financial crisis, the government wasn't just a creditor

01:40:01.310 - 01:40:16.669

and a regulator, and in some contexts it took equity in the companies in which it had an interest. Do you have thoughts on how the government's role sort of differed across the different classes of troubled businesses with which it was concerned? Yes, and

01:40:16.669 - 01:40:44.540

I think it makes the point that institutions - take Seth's institution. It is accustomed to making trade-offs among competing interests. The challenge in some respects for the government, for the treasury in the TARP was that it was doing things it doesn't ordinarily do. And so,

01:40:45.509 - 01:41:00.600

in some cases they were fortunate in that they had an enabling statute which let them do almost anything, but that does not mean that they had the procedures, the training, the background, or anything else to fulfill the various roles that having 3 quarter of a trillion

01:41:00.600 - 01:41:27.609

dollars gives you, and you can see it in the different ways they actually implemented the TARP and the different industries on the Auto side. Money went in. It was accompanied by placement of directors on the board. In one case,

01:41:27.609 - 01:41:44.970

the management was changed at the date of sale, and in one case, the management was changed by the board after the date of sale. But in that case, you'd say, OK, on the auto side, they acted a lot like a private equity investor.

01:41:46.060 - 01:42:05.689

They put somebody on the board. Although unlike most private equity investors, they didn't put people on the board who actually worked for the investor, and I take it that you think that's because the government is queasy about that. Yes, because one of the things that

01:42:05.689 - 01:42:23.439

we all know is that there has long been a distinction that the government can regulate the economy. The government can tax the economy. The government doesn't own the economy. This is not a socialist nation in any way, shape or form. And unlike, say, in France, When

01:42:24.109 - 01:42:46.240

The financial institutions were actually socialized for a period of time and they picked both the boards and the chief executives. Here there was not that level of comfort. Interestingly, on the, let's call it the traditional financial institution side the practice also varied when you look at

01:42:48.240 - 01:43:12.259

the dollars that went into Bank of America. Citibank, JPMorgan Chase, etc. They were large dollars. They resulted, in classical terms, a substantial equity position, but in no case did the government choose to exercise the perquisites of ownership. It didn't put anyone on the board. Seth,

01:43:12.299 - 01:43:30.120

when you talk to Bob Rubin, does he have comments on that question? He may should you invite him to your program next year. But actually there were people who claimed, by the way, that the reason why The Treasury didn't was

01:43:30.120 - 01:43:50.799

because half the folks in the Treasury had once worked for Bob Rubin, and, and the reason why I consider that to be a, a misunderstanding of the circumstance is that when you look before that, Hank Paulson's Treasury Department, they were the

01:43:50.799 - 01:44:09.350

ones who made the initial equity investments in the traditional banks, and they also declined to use the powers to take the perquisites of ownership. As a matter of fact, they were quite hard to avoid it. In other words, when you think about it, you

01:44:09.350 - 01:44:26.310

look at 3/4 of a trillion dollars, which sounds like a lot of money, until you realize how much more came out of the Federal Reserve nominally as debt. And so from my perspective, part of the issue here, the difficulty is that when you ask institutions, even

01:44:26.310 - 01:44:55.419

institutions full of really smart, talented, well-meaning people, and say go do something you haven't done before in a desperate situation with everyone and their mother watching you. They will do so cautiously. And whereas Judge Gonzalez in the context of a bankruptcy applying rules with which he

01:44:55.419 - 01:45:18.009

is comfortable and that are established can make a complicated set of decisions if instead, I'm making this up. The same group of people in the treasury were not able to shape and define their role as just where lenders were writing a check. Suppose they had instead

01:45:18.470 - 01:45:31.470

themselves have to have been the private equity. I don't think it would have happened nearly as fast, nearly as well. But isn't that if you look at Fannie Mae and the government's action, you look at the auto industry and the government's action with

01:45:31.470 - 01:45:53.560

respect to management, the board, and you look at the Citibank. Aren't they all just reflective of how much the government believes the markets will tolerate the government intervention, I mean, in a sense that Fannie Mae, etc., I'll never get them

01:45:53.560 - 01:46:10.250

right, but in any event they're somewhat governmental entities, and there was an outcry for the government to take action in these entities, so it wasn't that offensive that the government was very aggressive in that. When you get involved in the auto industry putting people

01:46:10.250 - 01:46:24.850

on the board as purchasers, it was a separate industry, and I don't think there was much concern that the government could do that and it wouldn't be an upheaval. But when you get involved in Citibank and you start putting people on the

01:46:24.850 - 01:46:42.160

board, weren't they really just reacting to what the financial markets would have done if the government had gotten that far involved in the operations and management of a financial institution of that magnitude. I gotta say I think it's a very good question

01:46:42.290 - 01:47:00.529

that I personally do not know the answer for sure, but the reason why I think it's not certain that you're right is because when you look at the forms of bailouts of financial institutions outside the US where they're also dependent on on financial

01:47:00.529 - 01:47:17.259

markets, what the French government did was different. They had to follow different records and so I think you're basically right. This is a guess again. I think you're basically right that part of the issue is what do people expect the government can

01:47:17.259 - 01:47:34.169

or should do. That's the point. I think in France you may expect the government to do exactly what they did because because of the history of derision, and that may very well be my point is that if - actually, let's

01:47:34.169 - 01:48:00.120

take the case in the US. Let's take AIG for example, OK. The government funded AIG, bailed out AIG, and worked very hard not to control it and was caught in the odd situation wherein it did not exercise enough perquisites of

01:48:00.120 - 01:48:21.779

ownership to stop AIG from paying bonuses or from encouraging its executives not to pay bonuses, so it got in some respects it got dinged for not acting like an owner and chose that pain rather than the pain of acting like an owner and violating other people's

01:48:21.779 - 01:48:36.680

expectations and that's really what I'm trying to say about the conflicting roles of government in uncertain times when you're talking about doing something that you haven't done before. You don't know what people's expectations are going to be. I think there are people who expected that

01:48:36.680 - 01:48:50.160

the government should have put people on the board of Citibank or fired somebody or something like that, and I think it's with you there are plenty of people who think that the government should have done nothing more than write a check and make sure that its

01:48:50.160 - 01:49:08.470

investment was OK. My point is there's not a a consensus on that, and there's not even a consensus as to what they should be doing, much less preparation or experience in doing whatever the consensus might be, and that's why personally I think that

01:49:08.470 - 01:49:26.930

when you judge the efficacy of what the government has done in both administrations, you've got to say pretty good job given that there wasn't an institutional basis for support, there wasn't a set of history, there was no consensus, etc. Judge Gonzalez, just

01:49:26.930 - 01:49:47.390

going back to a point you made earlier about the relevance from your vantage point of arguments like the sky is falling if you don't do this, the financial markets will collapse. While it's not thought of primarily as a financial

01:49:47.390 - 01:50:01.509

institutions case, one might think that Enron was as much in the business of trading as it was in the business of energy and in the Enron case, there were arguments made, particularly on some of the safe

01:50:01.509 - 01:50:15.819

harbor questions that were before you where parties came in and said the free flow of credit in the United States financial markets depends on you saying X rather than Y, and you do what you want to do

01:50:15.899 - 01:50:31.490

but bear that in mind to what extent does that play a role as you think about the impact on the market. The financial markets in that context and Enron, I think

01:50:31.490 - 01:50:45.970

plays a role in how broadly you interpret the safe harbor and what and to the extent the safe harbor is unclear as to how far it should reach and what you should do, then the intent of Congress of preserving the marketplace and the stability of the

01:50:45.970 - 01:51:00.189

marketplace plays itself out. But beyond that, I don't think it really had a role. Did the safe harbor apply or didn't it apply? And ironically, under the circumstances of Enron, those arguments were made before me when I, in the commercial paper,

01:51:00.520 - 01:51:13.129

I denied the motion to dismiss. Their case dragged on for years. They came back in, and at one point there was some other relief being sought. It may have been a summary judgment. I'm not sure, but I denied summary

01:51:13.129 - 01:51:27.049

judgment again. And during the argument, I said, you know, what has happened in these 2 or 3 years in between? What's been the impact on the commercial paper? And no one could point to one incident of any impact on the commercial paper market. Obviously 2008 comes

01:51:27.049 - 01:51:43.770

and a commercial paper market collapses. Oh, I know whose fault that was. It was a residual effect of Enron six years earlier, but, in any event, I really think the marketplace is much more resilient than a lot of people

01:51:43.770 - 01:51:55.310

give it credit for in terms of arguments in the sense that I think for the most part the marketplace looked at Enron as a one-on situation, worked their way around it, and that was the end of it. I don't know

01:51:55.310 - 01:52:12.729

what. In a Lehman situation, it was very different, but in Enron, I really just didn't consider the impact on the marketplace outside of the context of seeing how broad the scope of the safe harbor was. I guess I'm gonna turn if we

01:52:12.729 - 01:52:31.390

can talk a little bit regulated industries because the set of questions that we've been discussing really come directly to the fore where the government has an interest in you know regulating an industry, a company, a set of businesses,

01:52:31.470 - 01:52:46.830

and in some cases also is a creditor to those same businesses where you're seeing some of this in Solyndra and the like, and it's taking actions and one has to ask the question, is it doing this because it's regulating, in which case it's viewed

01:52:46.830 - 01:53:01.720

like the government, or is it doing this because it's a creditor, in which case, as Judge Gonzalez said at the outset, treated like anybody else. And Jeannette, you were involved in next wave, right, where that set of questions essentially was asked, is

01:53:01.720 - 01:53:15.649

the government doing this because it really cares about making sure these airwaves are put to the highest and best public use, or is it doing this because it wants its money? So do you have observations on how that dynamic plays out? I think

01:53:15.649 - 01:53:29.689

my primary observation is that oftentimes, and what's often ignored is that the government is regulator and government is creditor in many of these cases is very conflated. I mean, XWave is a great example of that. It's to tease out the government as a

01:53:29.689 - 01:53:44.826

creditor because it was owed money on account of the license auction is to lose the point that the money in that case was a substitute for various regulatory and policy judgments that have been made by Congress and by

01:53:44.826 - 01:54:01.505

the FCC in that case in which the ability to pay was a de facto substitute for certain policy judgments about whether or not the airways would be put to use, whether it was in the public interest, whether you know the idea that a company could get

01:54:01.505 - 01:54:20.682

financing would be a proxy for showing that it had the plan technology to put airwaves to immediate use. The fact that it couldn't make those payments and in fact never made a payment prior to going into bankruptcy then defeated the entire regulatory program in fact

01:54:20.682 - 01:54:35.041

those airwaves of course then didn't go into use for many years as the bankruptcy played out and so defeated the entire regulatory objective. So to parse out so easily we're owed money. Therefore our creditor and here we are as a regulator is

01:54:35.041 - 01:54:50.990

not, oftentimes very easy to do that often plays out in environmental cases we're owed money on account of properties that require environmental clean up, but are we a creditor in that case? And we're the reason the money is owed is on account of remediation

01:54:50.990 - 01:55:07.479

to enforce CERCLA, RCRRA, you know, various laws. To say that we are a creditor because of past cleanup costs or as some arguments have played out in various cases because of injunctive obligations that have been imposed by the debtor

01:55:07.479 - 01:55:23.279

on the regulatory agency that they therefore have to perform clean up themselves and incur costs is that a creditor relationship? I would not characterize it as such. I would say that is the government fulfilling its regulatory objectives and oftentimes

01:55:23.279 - 01:55:39.290

the bankruptcy code does not often. It's not easy to make those distinctions within the confines of the bankruptcy code is of course next week proved right. So does, on your view, the automatic stay wouldn't apply to the government's enforcing an economic obligation where the point

01:55:39.290 - 01:55:53.439

of the money is to clean up the property. I don't think it would. That's a police and regulatory exception. And so if there's an injunctive obligation upon a debtor to clean up property, the fact that the property owner

01:55:53.439 - 01:56:10.589

has to expend funds to perform its injunctive obligations, that's a public health and safety issue. That's not us collecting because for example, there are situations where we're a pure creditor, let's say you owe the postal service money for delivering, and

01:56:10.589 - 01:56:22.609

there can be creditor relationships. I'm just saying that oftentimes the fact that we are owed money is not the end all of the question of whether we are in a creditor relationship with the regulated entity. If the debtor's got to write a check to the government

01:56:22.609 - 01:56:35.899

and the government will use that money to clean up the property, you think the government can go get a judgment and enforce it during the bankruptcy case. There's a very complicated set of questions that arise from that

01:56:35.899 - 01:56:49.819

and it turns a lot of times on whether or not you characterize as an injunctive. Are we collecting for pre-petition cleanups? I mean, courts have drawn those distinctions. If we are simply collecting the money for clean up that we

01:56:49.819 - 01:57:02.979

have done. Oftentimes we are treated by the courts as a claimant although one could possibly could make arguments on the other side of that. I might make arguments on the other side of that, but we've good luck when you're in front

01:57:02.979 - 01:57:17.100

of Judge Gonzalez on that courts have disagreed, but it certainly, I think if you're talking about injunctive obligations, we have a much stronger argument, but perhaps one can, I would argue that is there really such a

01:57:17.100 - 01:57:34.540

difference between the injunctive and the pre-petition clean up? It's in both cases we are cleaning up property for the benefit of the public, and that is what the purpose is. It's a regulatory purpose. Seth, any thoughts on how this unfolded in next wave itself? No, I

01:57:34.540 - 01:57:54.180

mean, it's sort of perplexing. The government certainly had an interest in recognizing the security and its secured interest it wanted to get paid. On the other hand, it had a another bidder out there

01:57:54.180 - 01:58:09.609

who was willing to pay some eye-popping amount of money to get that spectrum. On the other hand, the FCC wasn't created to maximize returns to the government. It was created to allocate in the public interest the the airwaves, and it had a regulatory interest

01:58:09.609 - 01:58:27.799

in seeing that be done and the Supreme Court decided that the automatic stay means the automatic stay, and it trumps the government's regulatory interests in this, as we were discussing beforehand, Justice Breyer, in a curiously

01:58:27.799 - 01:58:46.879

Breyer-like opinion, basically wrote a dissent that said that this is totally ridiculous, we have an expert government agency. It's got a very important regulatory purpose. More often than not it engages in rational decision making and takes all kinds of

01:58:46.879 - 01:59:08.009

complicated technical and policy determinations in mind. It has decided it needs to claim the spectrum and reallocate it. OK, we've got an automatic bankruptcy rule here, but we've got a government agency that looks like it's doing what government agencies do

01:59:08.009 - 01:59:27.160

and since the administrative state, when it's operating properly triumphs, obviously the government's regulatory interest ought to prevail, but he didn't prevail. And that was the procedural, the way that played out in the courts, of course, was very complicated. It went up

01:59:27.160 - 01:59:42.259

to the Second Circuit twice Circuit, went then through the APA through the challenge on the DC Circuit up to the Supreme Court and of course, the Second Circuit felt very strongly that this was a regulatory program that they upheld us on the automatic stay

01:59:42.259 - 01:59:57.229

issue, that this was on the fraudulent conveyance issue. They said you could not avoid as a fraudulent conveyance because this is a regulatory requirement, but then I went to the DC Circuit on purely the 525 issue as to

01:59:57.229 - 02:00:16.069

whether or not it violated the discrimination provisions. It was, I don't think even then in the Supreme Court, there was never a real - they never disputed that it was a regulatory requirement. I think they adopted the Second Circuit's reasoning

02:00:16.069 - 02:00:29.609

and that it was a regulatory requirement of holding the spectrum license that there be timely payments and that you actually make the payments and that there is an automatic cancellation under the regulations and that was dictated by in fact

02:00:29.609 - 02:00:48.589

the statute, but those two statutes conflict the Communications Act. It conflicted there with the plain language of 525 and which one is going to Trump and the Supreme Court's view was that it was 525. Unfortunately, I'd like to layer into this discussion of the

02:00:48.669 - 02:01:04.950

role of the government in these cases, the further complexity of the unique status of the US Trustes Office in bankruptcy cases and there Judge Gonzalez, going back to a previous life where you played that role,

02:01:05.040 - 02:01:22.129

how does the, that office and its role sort of play into the process of the government forming a position when it's coming into bankruptcy court. Well, it was always problematic, I think, with the US Trustee's Office being placed in the Department of

02:01:22.129 - 02:01:38.430

Justice. But from the outset they knew there had to be some conflict at some point. But when I was US Trustee, I think we looked at the role, as the integrity of the process role which was mentioned earlier,

02:01:38.500 - 02:01:56.790

and then the other was in cases with very little credit or participation, the US Trustee's Office would become more active in its oversight role of the debtor just raising issues to ensure that the debtor really was taking advantage. And that usually would

02:01:56.790 - 02:02:10.419

be in the small cases. In the large cases you would let the players play it out. There was adequate representation and in the early stages of a case in the first days where there may be motions and hearing, the US trustee often will come in and

02:02:10.419 - 02:02:29.720

raise issues that it anticipates historically a creditor constituency would raise and just keep those issues alive until a creditors committee is appointed. I think that's really how it plays out. The conflict is somewhat interesting, and I'd asked Jeanne this and let's assume

02:02:29.720 - 02:02:45.950

in the Department of Justice the IRS is a claimant. And the US Trustee's Office is reviewing the operating reports and sees that the debtor hasn't paid its taxes. Does the US Trustee's Office call the US Attorney's office and say, hey, wait a minute,

02:02:46.060 - 02:02:57.649

taxes aren't being paid in our district they do. And when you think about that does the US trustee call the landlord and say, by the way, you're not getting your rent? Does it call the state and say you're not getting your taxes? Does

02:02:57.649 - 02:03:16.169

it call anyone? And you wonder, should the US Truste's Office be playing out that role in the dual representation there problem or should the US trustees just say I'm gonna file a motion to convert because they're not paying their administrative expenses regardless of what they

02:03:16.169 - 02:03:30.129

are and I'm not going to necessarily pick up the phone because it happens to be in the same Department of Justice. Well, I think we're certainly separate. I mean they serve a purpose, we serve a purpose, but that's not to

02:03:30.129 - 02:03:44.859

say, and I can't speak for all districts. I can say in our district that we have a good relationship with the US trustees and we coordinate with them, but I think on a level of these are things

02:03:44.859 - 02:03:57.770

that are troublesome about the integrity of the process, and there's something that you might need to look at in terms of not paying taxes. I think that goes beyond just not paying your landlord. There's legality issues associated with failure to pay taxes in

02:03:57.770 - 02:04:11.990

many cases. And so therefore, a lot of the job of the US Trustee's Office is to monitor for those kinds of legal violations in terms of criminal violations as well that often get referred to the US attorney's Office so we do coordinate.

02:04:12.069 - 02:04:24.419

I think that's part of the role of the offices and to maintain that good healthy relationship and they serve their purpose, we serve our purpose we come in more as creditor, they're looking more at the integrity of the

02:04:24.419 - 02:04:37.979

process, so we leave each other to our respective roles, but there's a point of some overlap, and that's when I think it's appropriate for each of us to reach out and we try not to be even

02:04:37.979 - 02:04:51.930

though we're a regulator, we try not to be the police of the bankruptcy system that's the US Trustee's Office, but there are times where sometimes we do a little bit of that as well. What would have happened in Chrysler had the US Trustee's Office

02:04:51.930 - 02:05:13.839

seen a retention that would have opposed. But your office representing the lender, funder, etc. wanted that retention. I think this comes back to the internal coordination of the position of the United States and those discussions were had with the US Trustees Office as part

02:05:13.839 - 02:05:26.799

of Chrysler and GM. It was not that the US trustees was left aside. All of these agencies were consulted. We had internal conversations and we arrived together at a position of the United States on these issues. And so, as I said, the

02:05:26.799 - 02:05:39.459

process played itself out. We had those discussions and we came to a position of the United States, so we would not be in the position of having Department of Justice attorney versus a Department of Justice attorney that. Ultimately we're a unitary executive and we're

02:05:39.459 - 02:05:55.459

going to take a unified position in a dip loan. It was interesting because the dip loan was one of the kinder and gentler dip loans I've ever seen. We didn't a lot, right? And as a result of this friction that would have occurred between the

02:05:55.459 - 02:06:10.729

policy of the US Trustee's Office with respect to the reach in a dip loan versus now the government being the dip lender. And what's going to happen there and that's the situation that would have reoccurred in the case when saying how come the US trustee

02:06:10.729 - 02:06:23.890

let the government as a lender get these kinds of protections on the first day of the case but will not let me get them and that's as I said it originally when we as - and talking about the US government as

02:06:23.890 - 02:06:40.500

a whole now - when we came into this case we were very, very cognizant that this was going to set the precedent for the next case and so many areas of the government were consulted where we often have bankruptcy expertise across Department

02:06:40.500 - 02:06:55.830

of Justice and across agencies to say what would be really problematic for us in the next case. It wasn't, it's not coincidental that the dip loan was a kinder, gentler dip loan that did not have really draconian provisions, it was very consciously done by the

02:06:55.830 - 02:07:10.790

US government not to set a precedent that we would have to live with. I won't ask you to comment on this, but it's also not accidental that the government was committed to fund administrative expenses, because one of the reasons I believe that the

02:07:10.790 - 02:07:25.729

banks didn't want to take the chance and force the involuntary in Chrysler was they knew one of two things would have happened. It would have been a motion to dismiss if there was no money on the table to pay administrative expenses, and they sure as heck

02:07:25.729 - 02:07:42.100

didn't want to sign on to that obligation because it was completely unknown as to what those expenses would have been. Now when the government came in, the government, I think, to avoid that argument, committed to the administrative expenses. We committed to the wind down of both

02:07:42.100 - 02:07:58.220

the states and we saw them through to the end. So in the spirit of encouraging audience participation on the question of, which has been so successful, well, it's gonna get a bit more heavy handed, on the question of the role of

02:07:58.220 - 02:08:13.850

the US trustee, Matt from the executive office is trying to hide out in the back, but do you have other thoughts on this discussion? I mean, no, we do, we serve an independent watchdog role, and certainly I've sat in many of the meetings at

02:08:13.850 - 02:08:29.529

the SG's office that you mentioned this morning in which our views are heard and everyone else's views are heard, but there is only one solicitor general, certainly at that level, that's how things play out and the government does disagree. There was a case where

02:08:29.930 - 02:08:48.910

the department and the FDIC disagreed about the scope of the FDIC independent litigating authority and they settled it outside the Fifth Circuit courtroom on the range of argument. Very early in my tenure, we filed an appellate brief in Delaware and different governmental agency filed one,

02:08:49.279 - 02:09:07.979

and due to filing requirements, the US Attorney had a problem. So they filed those signs. A long time ago we do a much better job of coordinating than we did way back then. Yeah, I have to say the first time, by the time

02:09:07.979 - 02:09:24.479

I became solicitor General, I sort of understood how the process worked and understood that different government agencies had different perspectives and even specially different offices within the Department of Justice had different perspectives and there was some really important bankruptcy related question.

02:09:24.520 - 02:09:37.359

I can't remember who the debtor was or what the case was, and I'm sitting there looking at my inbox and reviewing all the memos back and forth, and there's this thing and this thing and this thing, and I have a memo from

02:09:37.720 - 02:09:51.990

the US Trustee Department of Justice, and I'm like, what the heck. You know, who are these people? This is early in my tenure, but I don't understand this. We have yet a third position. So I went in and talked to

02:09:52.149 - 02:10:10.029

the career deputy who handled this stuff and I said, really stupid question, but what the heck is I thought that bankruptcy trustees were like, you have a liquidation and the court apply, appoints a trustee. What's the US trustee? And

02:10:10.029 - 02:10:23.709

why is this here in this office, and I got the answer that this is an agency that's created to sort of not just protect and look out for the interests of the United States narrowly, but more broadly and to protect the integrity of the

02:10:23.709 - 02:10:37.509

process and I'm like, great, OK, so we've got the US in this case is a big creditor, it's a huge regulator and now I've got somebody else and this somebody else is actually in my department who's saying, well, we really have to look out for the

02:10:37.509 - 02:10:52.500

integrity of the system in the long term, which was curious to me but actually quite reassuring because that of course in the end is a large part of what the United States has to do and the reason why, as Jeanette said, we

02:10:52.580 - 02:11:08.020

have to take account of the important function and the interest of the trustee more generally this situation about different government agencies going into court or trying not to go into court on both sides of a case that phenomenon is very

02:11:08.020 - 02:11:26.910

disquieting to the judiciary and it should be, right? I mean, the judiciary doesn't exist to settle disputes between executive branch agencies. Every time one of these cases goes to the Supreme Court, I can see Justice Scalia looking over at me and

02:11:26.910 - 02:11:41.759

saying, why do you have to keep airing your dirty laundry in front of us? My job is not to figure out what the interests of the United States are. If I had still been a justice, none of this unseemly behavior would have happened.

02:11:42.680 - 02:12:02.589

It is a curious phenomenon. I mean, you can understand how the United States is a party or an interested amicus in various cases or controversies, but the notion of an Article 3 case or controversy between two different offices of the executive branch of the

02:12:02.589 - 02:12:24.399

United States is every bit as strange as it seems. So I'm gonna turn to one final topic which raises some of the constitutional issues to which Seth was alluding earlier coming out of Stern v. Marshall. Maybe I should begin

02:12:24.399 - 02:12:43.779

with a question to to Judge Gonzalez, right? 11 of the issues when Stern v. Marshall was being argued was what consequence would a rule that took the traditional core non-core distinction and upended it a bit, what effect would that have on

02:12:43.779 - 02:12:59.450

the daily operations of what happens every day in bankruptcy court? It was a question in the discussions it was a question in the Supreme Court itself. So Judge Gonzalez, from your viewpoint, how has it altered actual practice? Well, I

02:12:59.450 - 02:13:12.990

think when the dust settles it's probably not gonna have that much of an impact, but right now we've seen a flood of withdrawal of the reference motions. I mean, we get that. I think that the interesting issue is I think what Stern B. Marshall did.

02:13:13.740 - 02:13:29.279

It took that compulsory counterclaim and said whatever reason is basis to doing so, said although it's statutorily core, it is not within the bankruptcy court's core jurisdiction. So then the question is, well, what do you do with it, we have it. If

02:13:29.279 - 02:13:45.120

that's true, what do you do with this hybrid listed as core, not within your jurisdiction to issue a final order. What happens? And there are a number of people that filed motions to withdraw the reference on the theory we had no authority to

02:13:45.120 - 02:13:59.660

do no statutory authority to do anything with it. And then there were others that would argue and and we kind of felt this way as judges that under 157A it's we have subject matter jurisdiction over it and the district court can direct us to do findings

02:13:59.660 - 02:14:15.160

of fact and conclusions of law even though the statute and the rules only referred to that process in non-core matters. And that's pretty much played itself out. Most decisions that have come out, certainly in the Southern District of New York pretty much support that proposition,

02:14:15.549 - 02:14:34.180

and on February 1st, I think it was there was a modification, I believe it's the first one in the country, to the standing order of reference Southern District Board of Judges issued in which it basically says that in a matter that is deemed to be

02:14:34.799 - 02:14:50.810

statutorily core, the bankruptcy court is authorized to find as of fact conclusions of law and if the bankruptcy court issues a final order and the district court concludes that it really was a matter in which the bankruptcy court could not issue a final order,

02:14:50.890 - 02:15:05.140

the district court will treat it as findings of fact conclusions of law. So it bridges that gap now that came about from us as judges working with the district court and saying this is an issue. This is a way I think we can clarify what's going

02:15:05.140 - 02:15:18.740

on now. Obviously a district court judge in the Southern District could turn around and say, well, I don't think it's solved the problem, but it's not binding on them. But we do have this order now and hopefully that will maybe slow down some

02:15:18.740 - 02:15:39.319

of the withdrawal of the references. Yep, one of the hotly litigated questions that has emerged in this area is whether a fraudulent conveyance claim is in basically the same constitutional footing as the compulsory counterclaim that was at issue in Stern, is that

02:15:39.640 - 02:15:51.080

a question on which you've written or your colleagues have written? No, I think some of my colleagues have. I think Bob Drain in in White Plains has issued an opinion on that. I think it comes down to the easiest way to look at

02:15:51.080 - 02:16:04.970

it from our standpoint to keep it within our core jurisdiction is to look at it from the standpoint of 502D and say in order. Because it's an avoidance action in order to adjudicate the claim, and that presupposes there's a proof. The hard

02:16:04.970 - 02:16:17.569

question is when the creditor hasn't filed a claim, then they're wrapped together. If there's no proof of claim, I think the argument is much weaker and in all likelihood it would probably be a no, it would be a core matter that you couldn't enter a final

02:16:17.569 - 02:16:35.129

order. So Seth, just to play this out right on that question on where there isn't a proof of claim, but there's a fraudulent conveyance action, there's a division of authority among bankruptcy judges, it's a question that is about the constitutionality of an

02:16:35.129 - 02:16:54.150

act of Congress that gives the bankruptcy courts core authority to resolve them. Observations on how that question is playing out very peculiarly in the Bellingham case in the Ninth Circuit in which, in full disclosure, you and I and Danielle have filed a brief trying

02:16:54.150 - 02:17:13.639

to put the Ninth Circuit on the right path, but the 9th Circuit the Bellingham bankruptcy was pending when Stern versus Marshall was decided, and it does involve a fraudulent conveyance claim by a party that has not filed any claims

02:17:14.049 - 02:17:36.080

and the Ninth Circuit reframed the question, requested supplemental briefing and amicus briefing on whether bankruptcy courts can exercise core jurisdiction and render final judgments over these fraudulent conveyance claims and the amicus briefs that were filed reflect the

02:17:36.910 - 02:17:58.059

serious difference of learned opinion on this question about whether Stern versus Marshall should be read, how shall I put this neutrally narrowly or broadly, that is narrowly confined to the compulsory counterclaim context, there's some bankruptcy court opinions say that's actually a case

02:17:58.059 - 02:18:15.320

about Stern and Marshall and has no application to cases with different parties. That's the narrow reading. Yeah, well, that's a really narrow reading. In any event, needless to say, there have been a lot of

02:18:15.320 - 02:18:32.719

courts have said the narrow reading is the appropriate reading, and this doesn't affect our core jurisdiction and our Article 3. It doesn't create Article 3 problems, and you know there is a large body of opinion that thinks differently that says, what

02:18:32.719 - 02:18:51.240

is hard about this that. In Gran Financiera, the Supreme Court previously said that these are private disputes, these fraudulent conveyance claims are private disputes, not public disputes. In Stern versus Marshall, the same, the Supreme Court said private disputes. You can't be

02:18:51.360 - 02:19:10.990

deprived of a jury trial right in district court and in public disputes. So since these are private disputes and in private disputes you get a jury trial right, this is actually not that complicated. The United States took quite a,

02:19:11.160 - 02:19:31.230

to my mind, quite a surprising position. It filed a brief in the Supreme Court. In which after notifying the House and Senate, it declined to defend the constitutionality of the statute that provides core bankruptcy jurisdiction over these claims and said that that was unconstitutional.

02:19:31.280 - 02:19:48.758

Now in the context of that particular case, it was no harm, no foul because there had been a de novo review of the bankruptcy court's findings and conclusions, but this was an instance remember I said before the United States is generally understood, has long been understood

02:19:48.758 - 02:20:06.969

to have an obligation to defend the constitutionality of acts of Congress if any reasonable argument can be made. And here not only could reasonable arguments be made, but those reasonable arguments had won in other courts, so it was a little bit unusual to see the

02:20:06.969 - 02:20:23.730

United States come in and say there are no reasonable arguments on the other side, including those arguments made by Department of Justice lawyers who so argued and prevailed, but the United States has taken the position that there's nothing left to fight

02:20:23.730 - 02:20:44.129

about and this is unconstitutional, but as a practical matter, if there's a right to a jury trial, traditionally what happened would be our district court would leave it with us when it comes time for trial if it's not otherwise decided by some dispositive motion

02:20:44.410 - 02:20:59.730

was settled, etc. it would go to the district court for trial. I don't think any of that changes. The only difference would be is where I, for example, in Enron there was a preference action brought against Arthur Andersen. Arthur Andersen had not filed a

02:20:59.730 - 02:21:14.809

proof of claim. They moved to withdraw the reference. The district court says leave it with the bankruptcy court. If it's not disposed of, we'll deal with it. I granted summary judgment. Arthur Andersen said it wasn't established that Enron was insolvent. That was one of

02:21:14.809 - 02:21:28.719

the issues. But in any event. I grant summary judgment. It goes up on appeal, but it goes up on a straight appeal as a final order. Today, I think that would go up, possibly, arguably as a finding of fact conclusions of law. You

02:21:28.719 - 02:21:45.519

would still have the same de novo review, so you can hardly see a practical difference in how they play out. I mean, I should say that in the curious position of the United States generally in this area, I mean you can

02:21:45.519 - 02:22:07.790

argue that the United States may have played inadvertently a role in getting the decision in Stern versus Marshall, essentially withdrawing as a constitutional matter the bankruptcy court's core statutory jurisdiction on the claims at issue in that case, the

02:22:07.790 - 02:22:29.860

compulsory counterclaims because the United States, again we were involved in this case on behalf of the Marshall estate and tried very hard to convince the United States to adopt what we thought was plausible if somewhat tenuous saving construction of the statute that would have

02:22:29.860 - 02:22:45.179

avoided the constitutional question, and the United States took the position that no it wasn't gonna advocate a narrow ruling of the statute in the Supreme Court. It was gonna advocate a broad ruling of the statute and defend its constitutionality, and it did the former

02:22:45.179 - 02:23:06.799

and did the latter but lost, succeeded on the former, succeeded on the former. Well, I think unless there are audience questions or Mark, if you have other thoughts, by way of conclusion, I guess I would just thank this terrific panel for

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this very informative presentation and all of you for attending. So thanks. I said exactly what you told me. I'm better as ever. Pleasure. Likewise. It was great meeting you guys.