SCOTUScast 7-12-16 featuring David Skeel David Skeel July 12, 2016
On June 13, 2016, the Supreme Court decided Puerto Rico v. Franklin California Tax-Free Trust (consolidated with its companion case, Acosta-Febo v. Franklin California Tax-Free Trust). Concerned that its public utilities were on the verge of insolvency but could not obtain Chapter 9 bankruptcy relief under federal law, the Commonwealth of Puerto Rico attempted to circumvent this obstacle by passing its own municipal bankruptcy law. This law, the Puerto Rico Public Corporation Debt Enforcement and Recovery Act expressly provides different protections for creditors than those in federal Chapter 9.
Investors who collectively hold nearly two billion dollars in bonds issued by one of Puerto Rico’s public utilities worried that it might seek relief under the new Puerto Rico law and sued in federal court, challenging the law’s validity and seeking injunctive relief. The district court enjoined the enforcement of the new law and the U.S. Court of Appeals for the First Circuit affirmed. Puerto Rico sought certiorari.
The question before the Supreme Court was whether Chapter 9 of the federal Bankruptcy Code preempts the Puerto Rico statute creating a mechanism for the Commonwealth’s public utilities to restructure their debts.
By a vote of 5-2, the Supreme Court affirmed the judgment of the First Circuit. Justice Thomas delivered the opinion of the Court, which held that in excluding Puerto Rico from the definition of a “state” for purposes of defining who may be a Chapter 9 debtor, Congress prevented Puerto Rico from authorizing its municipalities to seek Chapter 9 relief. But because Puerto Rico remains a “state” for other purposes of Chapter 9, the Court indicated, Chapter 9’s preemption provision still bars Puerto Rico from enacting its own municipal bankruptcy scheme to restructure the debt of its insolvent public utilities companies.
Justice Thomas’s majority opinion was joined by the Chief Justice and Justices Kennedy, Breyer, and Kagan. Justice Sotomayor filed a dissenting opinion, which was joined by Justice Ginsburg. Justice Alito took no part in the consideration or decision of the cases.
To discuss the case, we have David Skeel, who is the S. Samuel Arsht Professor of Corporate Law at the University of Pennsylvania Law School, and who submitted an amicus brief in support of the Commonwealth of Puerto Rico. Corporations, Securities & Antitrust Practice Group Podcast
On June 13 the United States Supreme Court issued its opinion in Puerto Rico v. Franklin California Tax-Free Trust, finding that Chapter 9 of the federal Bankruptcy code preempts Puerto Rico’s Recovery Act. The decision prevents Puerto Rico from adopting a settlement plan for its debt through its own legislation and requires it to depend on Congress for a solution. Our experts discussed the opinion and its implications.
SCOTUScast 6-2-16 featuring Zvi Rosen
- Prof. G. Marcus Cole, William F. Baxter-Visa International Professor of Law, Stanford Law School
- Prof. David Skeel, S. Samuel Arsht Professor of Corporate Law, University of Pennsylvania Law School
On May 16, 2016, the Supreme Court decided Husky International Electronics, Inc. v. Ritz. Between 2003 and 2007 Husky International Electronics sold and delivered electronic device components worth more than $160,000 to Chrysalis Manufacturing Corp. Chrysalis, then under the financial control of Daniel Ritz, failed to pay for the goods and Ritz encouraged the transfer of funds from Chrysalis to various other companies. Ritz held substantial ownership stakes in these companies, which had not given reasonably equivalent value in exchange for the Chrysalis funds.
In May 2009, Husky sued Ritz in federal district court, seeking to hold him personally liable for Chrysalis’s debt. Ritz filed a voluntary Chapter 7 bankruptcy petition, and Husky then filed a complaint in the bankruptcy court alleging actual fraud, to preclude a discharge of Ritz’s debts. The bankruptcy court ruled that Husky had failed to prove actual fraud, however, and the district court affirmed that decision. The U.S. Court of Appeals for the Fifth Circuit likewise affirmed the lower court judgments, finding no record evidence of a false representation by the debtor, which the Fifth Circuit deemed a necessary predicate to establish actual fraud.
The question before the Supreme Court was whether the “actual fraud” bar to discharge under Section 523(a)(2)(A) of the Bankruptcy Code applies only when the debtor has made a false representation, or whether the bar also applies when the debtor has deliberately obtained money through a fraudulent-transfer scheme that was actually intended to cheat a creditor.
By a vote of 7-1, the Supreme Court reversed the judgment of the Fifth Circuit and remanded the case. Justice Sotomayor delivered the opinion of the Court, which held that the term "actual fraud" in Section 523(a)(2)(A) of the Bankruptcy Code encompasses fraudulent conveyance schemes, even when those schemes do not involve a false representation. The majority opinion was joined by the Chief Justice and Justices Kennedy, Ginsburg, Breyer, Alito, and Kagan. Justice Thomas filed a dissenting opinion.
To discuss the case, we have Zvi Rosen, who is a visiting scholar at Hofstra University Maurice A. Deane School of Law. Financial Services & E-Commerce Practice Group Podcast
On April 6, 2016, the Department of Labor released its much-anticipated “fiduciary” rulemaking, which will greatly expand the universe of entities and persons who will be deemed fiduciaries with respect to retirement plans and accounts. The rulemaking has garnered significant interest from members of Congress, federal and state regulators, FINRA, the financial services industry and investor advocates, among others. Our experts discussed the new rules, and their history and purpose. They also explored several of the key policy issues and controversies associated with the rulemaking.
Financial Services & E-Commerce Practice Group Podcast
- Jeffrey T. Dinwoodie, Associate, Davis Polk & Wardwell LLP
- Hon. Annette L. Nazareth, Partner, Davis Polk & Wardwell LLP
On March 30, Federal district court Judge Rosemary Collyer struck down the Financial Stability Oversight Council’s designation of MetLife as a systemically important financial institution. MetLife v. Financial Stability Oversight Council has readily apparent implications for financial regulation, and many commentators have suggested that it may even have far-reaching effects on the future of the larger administrative state. Our expert discussed the opinion, its outlook on appeal, and its possible impact.
- Hon. Peter J. Wallison, Arthur F. Burns Fellow in Financial Policy Studies, American Enterprise Institute