Historical scholarship today, in print and electronic: my work on Hatton Sumners

I have been working on the subject of Hatton W. Sumners, who was a Congressman from Dallas for almost four decades of the first half of the 20th century, including archival work in his papers at the Dallas Historical Society and in the National Archives, for about half a dozen years. Last year ago I published a short piece about Sumners' role in the resolution of the 1937 court-packing crisis in NOT EVEN PAST, the blog of the History Department of the University of Texas at Austin. My article is here:  https://notevenpast.org/hatton-sumners-and-the-retirement-of-supreme-court-justices/.

NOT EVEN PAST (https://notevenpast.org/) is a pioneering, award-winning blog that significantly connects UT Austin's History Department to the world. It features cutting-edge research, interviews, and thought-provoking essays and short articles (and podcasts) that demonstrate the broad ambit of historical research, writing, and teaching today.

I discovered recently that my online piece has crossed over into the print world of legal and legal-historical literature. I found that Louis Fisher, Scholar in Residence at the Constitution Project and author of at least fifteen books, cited my NOT EVEN PAST article in a footnote of his newest law-journal article:

I hope this small event illustrates the possibilities for a cross-pollination between historical work presented in print and that presented online.

Meanwhile, I am continuing my work on the Congressman, and, there being only abbreviated information about his life available in libraries and on the internet, I have begun to write a real biography of him in order to fill that gap in the historical literature.

My letter today to the commissioners of the Texas Commission on Environmental Quality

July 7, 2018

Bryan Shaw, TCEQ Chairman

Jon Niermann, TCEQ Commissioner

Toby Baker, TCEQ Commissioner

Stephanie Bergeron Perdue, Interim Executive Director

MC 100

12100 Park 35 Circle

Austin, TX 78753

Re: Pollution cleanup benchmarks

Dear TCEQ:

Since at least the time of Teddy Roosevelt, it has been an element of American conservatism for all levels of government, including the states, to conserve natural resources and protect against pollution. Today, Texas needs to do more to vindicate that legacy.

Specifically, we, as lifelong citizens and as owners of both urban and rural land of Texas, need pollution cleanup benchmarks that are  robust—at least as strong as the national standards. More granularly, we of this household want Texas’s “Protective Concentration Limits” to be no higher than the federal Superfund Chemical Data Matrix benchmarks for the same contaminants contained in the same media.

This matter is of highest importance to us, and to our two sons and two daughters in law, plus our three grandchildren—who are growing up in an increasingly dangerous environment due to the historical and current and, no doubt, future releases of toxic and unhealthy chemicals in our state.

We are personally aware of instances of birth defects and other horrifying effects on children that cancer-causing and other toxic chemicals have caused.

Compliance with environmental laws and regulations does of course cost the businessman money. If a businessman could keep these dangerous substances contained within their own places of business, we would not care. BUT they cannot—and when they take actions and engage in activities that cause or permit these substances to travel through space and time and to reach us, our Dallas house, and our other rural properties, AND to contact (by air or water) our grandchildren, then we most certainly DO CARE, and we object and we insist that such businessmen not thereby inflict these dangers outside the confines of their places of business….and to clean them up when they do release such chemicals beyond their own places.

It appears to us that the State of Texas is not acting with urgency to live up to the imperative of conservation and the protection of the citizens (and their properties) that should be done. Protecting against pollution and taking active steps to clean up pollution is not anti-business; rather it is in the American tradition of Teddy Roosevelt.

We ask for your commitment to cleanup benchmarks at least as strong as the national benchmarks. Please advise.

Many thanks,

/s/

Regarding the Nunez committee report

Some ask why isn't the report just issued by the majority (Republican) members of the House of Representatives' Intelligence Committee, chaired by Congressman Devin Nunez, definitive to demonstrate that there is "NO EVIDENCE OF COLLUSION OR COORDINATION BETWEEN THE TRUMP CAMPAIGN AND RUSSIA TO INFLUENCE THE 2016 PRESIDENTIAL ELECTION" (I am quoting from 45's tweet about it)?


The answer is that such a congressional report is not admissible as evidence in any legal case under Federal Rule of Evidence 803(8). For instance, in Anderson v. City of New York, 657 F.Supp. 1571, 1579 (S.D.N.Y. 1987) the court excluded a congressional committee report, pointing out that it was “the result of hearings which lack procedural due process protections” and stating that “while Congressional hearings are so termed, they do not fit closely the judicial meaning of hearings," and “it cannot be denied that hearings and subsequent reports are frequently marred by political expediency and grandstanding.” Another court held the same way in Pearce v. E.F. Hutton Grp., Inc., 653 F. Supp. 810, 814 (D.D.C. 1987), stating that “Given the obviously political nature of Congress, it is questionable whether any report by a committee or subcommittee of that body could be admitted under rule 803(8)(C) . . . too great a danger that political considerations might affect the findings of such a report.”

Chair Nunez ran his committee's hearing without swearing in the witnesses, limited the questioning of them, and did not permit the Democrats to follow up on key points and factual issues. No Democrats signed or supported Nunez's report. In the USA, our justice system works from facts determined by a court based upon reliable evidence. That is the fundamental point of the adversarial system (whether the matter is criminal or civil in nature), with each side presenting what its lawyers believe to be his/her/its best evidence, and an impartial "trier of fact" determining what are the real, operative facts after a full and fair judicial hearing. The Nunez report is not an adjudication. It has none of the traditional indicia of trustworthiness. A federal judge will simply disregard the Nunez report as merely a political or campaign document.


So 45 has NOT been cleared. And the investigation whether he colluded with the Russians so as to cause his election victory must proceed.

The future of Chapter 11

I'm a retired Chapter 11 bankruptcy lawyer. Seven years ago I published a short essay about the future of Chapter 11, the business reorganization chapter of the federal Bankruptcy Code. I would write the same things in 2018:

Chapter 11: Entering a New Generation
by Josiah M. Daniel, III (now Retired Partner in Residence, Vinson & Elkins LLP,  Dallas office)
published at http://texaslawbook.net/chapter-11-entering-a-new-generation
 

"Here we are in 2011, thirty-three years after the enactment of the federal Bankruptcy Code. The economy is struggling, with many Texas business enterprises experiencing reduced revenues and with unemployment at undesirable levels. But the number of Chapter 11 cases being filed this year is significantly down from the levels of the preceding several years. Why?

A generational change may be underway. It is commonly said that a generation is about 30 to 40 years; and the end of one generation and the beginning of another is regarded as a time of change or transition. The present Chapter 11 law was enacted on November 6, 1978, and over the decades, and particularly in the past ten or so years, significant changes have occurred and are continuing in that reorganization law. So at this point it may be said that we have lived through the first generation of the modern Chapter 11.

Coincidentally, I received my law license on the same day the Code was enacted. Having represented debtors and creditors under
that law for 30 years, I have some observations about what has been learned in the first generation and where reorganization of financially distressed firms is headed in the second.

Congress intended the new Chapter 11 to significantly improve the prior reorganization provisions of federal bankruptcy law that had been known as “Chapters X and XI.” The major changes facilitated the rehabilitation of troubled companies by making it easier for debtors to formulate and confirm comprehensive plans of reorganization.

The first thing to notice about the past three decades of Chapter 11 is the extent to which American firms —huge public companies and small private firms alike — have accessed the relief it offers. The Administrative Office of U.S. Courts reports that from 1980 to 2010, 1,668,008 companies (and a few individuals) filed Chapter 11 cases. To mention but a few, Texaco filed in 1987; almost all the airlines have passed through bankruptcy court; most companies that ever dealt with asbestos have had Chapter 11 cases; financially collapsed firms such as Enron and Lehman have filed; and of course General Motors and Chrysler recently reorganized through Chapter 11.

The popularity of Chapter 11 is a reflection of its utility for dealing with the problems of troubled firms. Although Congress has amended Chapter 11 significantly three times, Chapter 11 continues to furnish a number of tools that are quite useful for resolving otherwise intractable issues presented by financial distress. In short, Chapter 11 aids the preservation and enhancement of the value of a firm’s assets, the resolution of disputed claims, and the equitable allocation of that value among the enterprise’s constituencies.

Yet Chapter 11 has never been a panacea, and it has limits. It is not appropriate, for example, to use it to deal with a single difficult lawsuit. It is verboten to use Chapter 11 as a stalling tactic to postpone foreclosure of a limited partnership’s sole asset such as an apartment complex. And if the raison d’être of the business has vanished, Chapter 11 will not bring it back.

And, importantly, Chapter 11 is the last, not first, resort. Out-of-court workouts or restructurings can be cheaper and faster. Refinancings of funded debt and sales of non-core assets may be adequate to provide enough relief from financial pressure to ensure the survival of the firm and the fair treatment of creditors.

If an out-of-court restructuring effort flounders, however, Chapter 11, employed as the last resort, is not a bad option for the financially troubled company. The fundamental concepts and benefits are as good and workable today as three decades ago. For instance, the “automatic stay” provided by Bankruptcy Code section 362 stops collection activities and provides a breathing spell for the debtor’s management.

Moreover, the broad definition of “property of the estate” in Section 541 of the Code enhances the wherewithal available for the satisfaction of claims. Section 363 authorizes the sale of estate properties under the imprimatur of the federal bankruptcy court – not just particular assets but even all assets of the firm when necessity dictates – free and clear of liens and claims, thereby significantly enhancing value. Asset purchasers will bid up the price of estate assets because the title is thus cleansed of the taint of prior mortgages and most sorts of claims. Contrast the often poor alternative of piecemeal foreclosure sales.

Chapter 11 also establishes a platform for the debtor and the principal creditors to negotiate for a new “deal,” a plan of reorganization or of liquidation, that, once confirmed by the court, becomes the new contract that binds all creditors and has the force and stature of a federal court judgment. The court will take into account the votes of the creditors to accept or reject the plan; and through the mechanism of the colorfully named “cramdown,” if all the statutory criteria are met, the court will confirm the plan even over the dissent of creditors, secured or unsecured.

This is powerful law, and during the first generation, limits on Chapter 11 have evolved in three ways: by congressional amendment, by Supreme Court interpretations, and through usage of the parties.

The congressional amendments came in several waves, each at the behest of interested creditor groups. The first was in 1984, after the Supreme Court held a portion of the jurisdiction accorded to bankruptcy judges by the Bankruptcy Reform Act of 1978 to be constitutionally infirm. The 1984 legislation tried to fix the jurisdictional problem, and it also strengthened the rights of landlords and limited the options of debtor-lessees with respect to nonresidential real estate leases.

The next serious amendment of Chapter 11 came in 1994, with limits placed on single-asset real estate cases and strengthened rights accorded to vendors.Congress enacted the last and most recent legislative amendments in 2005, including maximum time limits for a debtor to file a plan and for extensions of time to assume or reject nonresidential realty leases, along with other new hurdles to operating-company reorganization.

Second, the Supreme Court has altered Chapter 11 by a series of key holdings that include augmenting secured lender protections, restricting cramdown, and, most recently, trimming the jurisdiction of bankruptcy judges.

Third, the practices and activities of non-debtor parties in restructuring situations have profoundly affected and altered the practice of Chapter 11, particularly since the early nineties. Foremost here is the development of the “Chapter 363 case,” in which the secured lenders encourage, or even force, the debtor to auction its assets very early in the Chapter 11 case, theoretically to preserve and capture going-concern values before they erode.

In such cases, a “stalking horse” or lead bidder is selected in order to set a “floor” for the auction. To “incentivize” a prospective purchaser to put a good foot forward and to commit to make the purchase as the opening price, the debtor typically offers a variety of “bid protections’ to the stalking horse, included a “break-up fee” if it loses the bidding and a set of “bid procedures” that other interested parties must observe to state competing bids. Such procedures include minimum requirements for financial ability, a standard form of asset purchase agreement or “template” for the written offers, and minimum increments for bids. Sometimes the lead bidder seeks measures that can deter or discourage others from bidding, such as the right to “match” any topping offer and break-up fees exceeding the typical 3 percent. After the sale, the case is converted to Chapter 7 liquidation or else a plan of liquidation is confirmed.

For a secured lender, a section 363 sale can be an ideal way to liquidate collateral, far superior to conducting a foreclosure sale or sales under state law. For employees, sometimes the opportunity to retain jobs is accomplished. Typically, the secured lenders are motivated to leave “a tip” on the table for unsecured creditors; most bankruptcy judges have the view that the operation of the Chapter 11 machinery ought not be solely for the benefit of secured creditors.

But a section 363 sale of substantially all assets necessarily precludes a real reorganization under which unsecured creditors could hope or expect to receive payments greater than “a tip” and equity holders might retain, if not full ownership, at least a minority stake in a revitalized firm that could succeed in the marketplace.

Another development that has changed Chapter 11 practice during its first generation is the development and growth of securitizations, in which the revenue streams of “high quality financial assets” such as home mortgages and other receivables are isolated from the assets of a sponsor in a “bankruptcy remote” structure or vehicle, typically a limited liability company. “Ring fencing” is a more extreme form of providing bankruptcy remoteness for the benefit of creditors who extend credit or buy such assets in reliance on never having to go to bankruptcy court. Such mechanisms are generally thought to prevent or avoid Chapter 11 cases.

Moreover, beginning in the 1990s and continuing with increasing force, the “loan to own” strategy has become prominent in Chapter 11 cases. As the traditional commercial banks have become loathe to hold and collect nonperforming loans, a community of ready buyers of “distressed debt” has developed. Such debt buyers often actually prefer to take ownership of the firm – through a confirmed plan of reorganization that converts their debts to full ownership of the reorganized company – rather than receiving payment, even in full, of the loan because they desire the opportunity to manage the firm and to capture the upside, if successful, for themselves.

So returning to the question of the present dearth of new Chapter 11 filings, it may be that historically low interest rates, the reluctance of commercial lenders to initiate default and foreclosure steps and their preference to renew and extend maturities, and the amount of money sloshing around the financial system may be the reasons.

But success of any business enterprise is never assured in the free market system; and at some point in this business cycle, interest rates will rise, the banks will become proactive in enforcing their rights under credit agreements, and the management of financially pressured companies will have to make tough decisions. Managers and general counsel should therefore acquaint themselves in advance with the option of last resort, Chapter 11, and learn about the relief for unpayable debt that, notwithstanding the changes of the first generation, is nowhere else available. In short, Chapter 11 is alive and entering into its second generation."

Meet a UT History Alum: Josiah M. Daniel, III

Jacqueline Jones, the Chair of the History Department of University of Texas at Austin, asked me to answer six questions......

https://madmimi.com/p/06831c?fe=1&pact=613-145019314-9753644187-0f699ac09f6a7a3f3d910ec048988d23e1c7fb26

Regarding Wilbur Ross, Secretary of Commerce

Regarding Wilbur Ross, Secretary of Commerce

Wilbur Ross, who has 45's ear, has been urging imposition of tariffs on imported Chinese goods. As I have noted, that is a very bad idea in the light of global economic history.

But it is not surprising to me that Wilbur Ross is blundering in the office of Secretary of Commerce. Here is the story of my encounter with Ross, when I was about 15 years into law practice, back in the early 1990s:

Around 1992 or 1993, I cross-examined Wilbur Ross, then a vulture investor who also hired himself out as a restructuring advisor, during a confirmation hearing held in Little Rock in a timeshare developer's Chapter 11 case.

The main debtor had a finance subsidiary that was the engine of the enterprise, and I represented the secured lenders to it. There was a thick tranche of subordinated bonds underneath our clients at the finance subsidiary level, which bonds were being wiped out under the plan; and the bondholders had listed Ross as their key witness in the hearing on confirmation.

On the second and final day of the hearing, a Friday morning, when the time came for the bondholders' lawyer to call his witness, he hemmed and hawed and finally got it out that Mr. Ross had been "unable to travel to Little Rock," due to his suffering “phlebitis,” which is a serious medical condition.

The judge, Robert Fussell, was sympathetic. The lawyer asked if the judge would please permit Mr. Ross to testify by telephone. Judge Fussell said he had never permitted such a thing in his court, but due to the seriousness of phlebitis, and since Ross was the bondholders' only witness, he would allow it. So the lawyer handed the courtroom deputy the telephone number to Ross's office in Manhattan. The deputy switched the call into the sound system so it was heard throughout the courtroom.

The receptionist advised that Ross was not in the office. The judge frowned and looked at the lawyer. So the lawyer intrepidly pulled out Ross's cell phone number for the courtroom deputy. The call was placed, and Ross answered.

Judge Fussell greeted him, “Good morning, Mr. Ross.” Ross answered but no one could make out what he said. Judge Fussell figured out that Ross was in a car, moving along some road, so he asked, “Where exactly are you Mr. Ross?” Ross replied, “We've just crossed the line into Connecticut. I'm heading to my place in the country.” Judge Fussell said, “Well, if it is okay with you, would you ask your driver to pull over so that we will have as clear a connection as possible.” After a couple of minutes, the driver accomplished that.

Judge Fussell continued, “I understand from the bondholders' counsel here in my courtroom that you have been unable to travel to Little Rock for this hearing because you suffer from phlebitis.”

Ross replied quizzically, “PHLEBITIS? No, I have NEVER had that.” He added: “But I DO HAVE some BURSITIS in my elbow.”

Judge Fussell looked directly at the bondholder’s lawyer, and stated acidly, “Counsel, you may proceed....” It went downhill rapidly for the bondholders’ lawyer. And in one of the better cross-examinations of my career, I nailed the coffin shut with questions that demonstrated that Ross didn't have a clue about that business and the capital structure of those debtors. The Plan confirmed easily.

And now Wilbur Ross is Commerce Secretary whispering into 45's ear that a trade war with China is a good thing and winnable....

-Josiah Daniel

Defining the term "lawyering"

Defining the term "lawyering"

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2296240

Josiah M. Daniel, III, A Proposed Definition of the Term "Lawyering," 101 Law Library Journal 207-218 (2009).

In this article, I traced the history of the term "lawyering," and I proposed a definition of it.