Tuesday, December 18, 2012

I Am Not Going to Tell You Again

The New York Court of Appeals decided that Warren County, NY did enough to notify  a delinquent taxpayer before foreclosing on his property.  In MacNaughton v. Warren County, the court considered the lament of the owner of a piece of undeveloped real property in Warren County who lost the property at a tax foreclosure sale.  The MacNaughtons lived in New Jersey.  They moved in 1993, their forwarding order at the post office expired in 1994, the last year they paid any property tax.  In 1998 the county sent a notice of foreclosure to the MacNaughton's last known address by mail which was returned as "undeliverable-- forwarding order expired."  The county began foreclosure procedings and sold the property at auction in 1999 for $3,700.  The MacNaughton's learned of the sale in 2003, and two years later sued the county claiming that the sale was void as a violation of their due process and equal protection rights.  They lost at trial and on appeal and  before New York's highest court.

In Jones v. Flowers (2006), the U.S. Supreme Court considered what process is due to a delinquent taxpayer before a foreclosure sale.  It held "that when mailed notice of a tax sale is returned unclaimed, the [taxing authority] must take additional reasonable steps to attempt to provide notice to the properyt owner before selling his property, if it is practicable to do so" but that the steps required "must be such as one desireous of actually informing the absentee might reasonably adopt to accomplish it."

The New York court distinguished Jones and held that the county did enough.  It would have been futile in this case to send notice of foreclosure to "occupant" at the MacNaughton's last known address.  Moreover, MacNaughtons did not show that had the county would have discovered their current address if it had consulted the post office.  (New York law tax foreclosure law changed to become more tax payer protective since the foreclosure sale, and under the new law, the county would have been required to check with the post office for the MacNaughton's current address.) 

The MacNaughton's were peeved that Warren County personally served notice of foreclosure sale on Warren County residents whose mailed notices were returned as undeliverable but for out of county taxpayers, did nothing to locate them.  The Court of Appeal's simply noted that MacNaughton's equal protection claim was without merit.

Didn't the MacNaughton's wonder about the taxes on their property in Warren County when they received no bill, and paid no tax year after year?  It's not relevant in the cosntitutional due process analysis (what process the county owes the taxpayer), but MacNaughton's clearly could have saved themselves a heap of aggravation by making sure the county had their current address.  

Thursday, May 24, 2012

Global Growth is Good News for Lawyers

The U.S. Department of Commerce Bureau of Economic Analysis recently reported some interesting data on the operations of U.S. multinational companies at home and in foreign countries. Worldwide capital expenditures by US multinational corporations increased 3.9 % in 2012 to $621 billion. The rate of increase in capital expenditure abroad by majority-owned foreign affiliates outpaced spending by US parent companies in the US. (Capital expenditures in the US by US parent companies increased 3.3 % ($447 billion), whereas capital expenditures abroad by majority-owned foreign affiliates increased 5.5% ($173 billion)). Similarly, the rate of increase in sales by majority-owned affiliates (8.6%, $5,197 billion) outpaced the increase in sales by US parent companies in the US (6.8%, $9,843 billion).

An important motivation for capital expansion abroad used to be to access cheap labor. This new data shows that companies are investing abroad to access fast growing local markets, primarily India, China, Eastern Europe and Brazil. See generally: Kevin B. Barefoot and Raymond J. Mataloni Jr., Operations of US Multinational Companies in the United States and Abroad, Preliminary Results from the 2009 Benchmark Survey.

The big thing for business now is real global competition as multinational companies scramble to sell goods and services to customers in foreign markets. Actually doing business in foreign countries is considerably more complicated than simply manufacturing goods abroad for sale at home. Building market share in a foreign country requires understanding of all of the same factors that support profitable business at home—customers, supply chain, costs, labor, regulation, politics, and taxes, to name a few. Growth in foreign markets is low hanging fruit, but profitable growth is not any easier over there then it is over here.

And that is very good news for US lawyers who are ready for global business.

Thursday, March 15, 2012

Red Lion Returns

It's not news by any standard, but this story stirred the Red Lion from slumber. For one moment, I am in solidarity with runway models who kicked off ridiculous shoes in exasperation over the absurdity of it all.

Friday, December 10, 2010

Fear of Foreclosure

The prominence of foreclosure in economic news and the skimpy coverage of the breakdown of foreclosure process in the popular press shows the literary force of the word: "foreclosure." It has the visceral impact of a word like "rape," connoting a violent, destructive, faceless goon that comes out of the darkness to destroy the weak and helpless. People are getting "foreclosed on," foreclosure is destroying neighborhoods and cities, and the nation is in a foreclosure crisis. Foreclosure is Voldemort.

Legally, foreclosure is tame and boring. It's a mopping-up operation that has for centuries been relegated to the losers bracket among lawyers, and the museum of antiquities in law. It's no wonder that the reporters don't explain the residential real property foreclosure process, or why law professors roll their eyes when I start to say that joblessness, default, unchecked speculation, arrogance and bad judgment are far scarier than foreclosure. Who wants to think about dirty socks and dust bunnies under the bed when the alternative is to imagine a scary monster?

What do you think? What explains the fear of foreclosure?

Thursday, October 7, 2010


Last Monday, the Supreme Court heard argument in In re Ransom. A colleague on the law faculty whose forte is not bankruptcy asked me about the case in advance. He was showing an Australian law professor the sights in D.C. on the First Monday in October and Ransom was on the docket. My colleague expressed disappointment that the First Monday docket was clogged with an unexciting bankruptcy case. I told him that Ransom is exciting to me.

The case is about the meaning of a hideously drawn provision that appeared in the Bankruptcy Code as part of the 2005 Reform Act-- the so-called "means test" that governs a debtor's eligibility for discharge of debt under chapter 7 and chapter 13. In simple terms, a consumer debtor is eligible for debt forgiveness if her income is less than the Census Bureau-reported median income for her state. If her income is greater than the median income, then she is eligible for relief in a chapter 7 liquidation case, only if she doesn't have the "means" to pay down her debts over time while paying her current living expenses. If she wants to keep her property and pay down her debts over time, she is eligible for debt forgiveness in a chapter 13 case only if she pays creditors from her income each month the amount she has the "means" to pay. In both settings, "means" means the difference between the debtor's "current monthly income" and her expenses.

The Code provides a staggeringly unreadable list of the expenses that are to be considered for purposes of this comparison. Rather than relegate to the bankruptcy judge the role of determining which expenses that the debtor actually incurs are "reasonable and necessary" as was the judge's role before the 2005 Reform Act, the Code now describes the expenses that the debtor may deduct by reference to IRS published guidelines for agents (the National and Local Standards) who are trying to settle tax delinquencies with taxpayers based on the amount the taxpayer can realistically pay each month and survive.

In Ransom, the dispute was over the amount the debtor could count as an expense of car ownership. Particularly, the question was whether the debtor should be able to count the amount referenced in the Local Standards for a loan or lease payment even if he owns his car free and clear and doesn't actually make any loan or lease payments. In short, does the Code mean that the debtor should be credited with expenses he doesn't actually have for the purpose of determining his "means?" The bankruptcy court held that a debtor has to have some actual car payment expenses before he can claim the IRS plug amount as an expense. The Ninth Circuit affirmed contributing to a split in the circuits on this issue.

I felt it was important to explain to my colleague why this case is so interesting. So I cut to the chase. The "plain meaning" reading in this case is not easy to see because the statute is so badly drawn. The debtor will benefit from a reading that gives her the largest expense total and the largest deduction from income in calculating her "means." The trustee for the benefit of unsecured creditors like MBNA, the unsecured creditor who paid lawyers to take this case all the way to the Supreme Court, will benefit from a reading that limits debtors to the smallest expense total.

So, my colleague, an afficionado of legislative process and statutory interpretation, watched the argument and concluded that the Justices seemed stumped. The interpretation of the statute offered by both sides led to at least two completely absurd scenarios each. The one indisputable fact is that the statute let everyone down and the Court got the dirty job of cleaning up the mess.

My colleague offered the idea of a post legislative, pre-judicial clean up team -- a panel of "special masters" with bankruptcy expertise who would take the legislation that extrudes out of the Congressional sausage maker, consult with the ALI, lenders, borrowers, practitioners and academics, and draft a recommendation for courts who are put to the task of interpreting and applying the legislation.

My reaction to this idea was not good. I am already footing the bill for Congress and I do not want to pay for another layer of government workers who would be subject to the same political pressures that render the officials we elect to make law obviously and completely incapable of doing it. I think that the time for consultation with interest groups, academics, etc. is before the statute is enacted by Congress.

The problem I see is that legislators are hopelessly unmotivated and unable to understand the legislation they enact. The Supreme Court is now the cleanup operation of last resort for all sorts of badly drawn, ill conceived, utterly impractical and inscrutable legislation.

By way of history, as part of the 1994 amendments to the Bankruptcy Code, Congress ordered the creation of the National Bankruptcy Review Commission. This Commission undertook a complete review of the Code and held hearings at which bankruptcy scholars, practitioners and related industry experts had an opportunity to comment. It issued a comprehensive report and reform proposal with a vigorous dissent. Congress entirely ignored all of it. The bankruptcy bar picked to bits the consumer provisions in the legislation that ultimately became the 2005 Reform Act during the years it floated around Congress before it was enacted. Congress ignored it all. And it was easy, because congressmen and senators do not understand anything about the laws they enact. The voices of those who were advocating for technical amendments or otherwise pointing out absurdity in the proposed revisions to the Bankruptcy Code were no more than refrigerator hum. Bankruptcy, tax, administrative law, market regulation, environmental law, you name it -- it's all refrigerator hum.

The problem is easy to see but hard to fix. Bankruptcy policy is fundamental and richly complex. In a simple and broad sense, bankruptcy law describes whose debts may be forgiven. If you stop there, the politics are already hopeless. In debt as in life, sometimes you are the windshield and sometimes you are the bug. Nobody is always for more forgiveness or always for less. So the politics is really in the details. The problem is that as soon as you move past the core function of bankruptcy law into the practical and administrative issues,the core function becomes quickly lost and inaccessible to non-specialists. Instead of considering the basic contours of debt forgiveness directly, the Code provides for exemptions, avoidance powers, claims processes and, as in Ransom, eligibility for relief stated in nearly incomprehensible and arguably absurd terms. Legislators probably don't even think for a second about the macro implications of the law they are enacting: How does this law affect the question of who is forgiven? Rather, legislators tinker around the edges in response to special interest groups whose requests affect the measure of forgiveness in ways that would take at least a 14 week law school course to explain. In short, there are plenty of experts willing to teach members of Congress how changes in the law will or may affect the measure of forgiveness. The problem is the shortage of members of Congress who really want to make the investment necessary to acquire that information.

The second problem is related to the first. Negotiating legislation, like negotiating anything else is expensive. To reduce transaction costs, legislators translate complicated provisions into broad terms. For example, Republicans can sell to their base the idea that the cost of debt forgiveness is borne by people who find a way to live within their means, and thus, it should be harder to discharge debts in bankruptcy. Democrats can sell to their base (what Elizabeth Warren is selling) that the credit card companies are making oodles on consumer debt and they should bear a little pain to make life worth living for working people who hit hard times. The broad principles on which political bargaining occur are so broad that the actual legislation is left to non-legislator staffers and lobbyists who are primarily interested in getting the deal done rather than getting it done in a way that will not appear absurd to a court. The means test language before the Court in Ransom is a small part of a drafting exercise left to drafters who have no stake in the legislation post-enactment.

After the oral argument before the Court in Ransom, who on the Hill is red-faced about the unmissable disrespect for their work? That's right. Nobody. It's a sad indictment of democracy when citizens accept that legislators of all political persuasions are not personally or politically embarrassed by the shoddy quality legislation they impose on the citizens who elect them.

Friday, September 17, 2010

The Appoinment that Isn't

President Obama appointed Harvard bankruptcy law professor Elizabeth Warren to serve as special assistant to the president, presumably to avoid a tough confirmation battle in the Senate if he gave her the job he really wants her to do: Director of the newly created Bureau of Consumer Financial Protection.

Professor Warren is without question a very smart, hard hitting champion for the middle class. The whole thrust of her consumer protection vision is that the working guy can’t be expected to read the small print and that it’s time government started “looking out for the folks.” On the merits of her ideas, I can see why the banks are nervous. And I can see why turf-protecting administrators in DC are nervous. But apart from partisan knee-jerkism (and maybe there is nothing happening in DC apart from that), I don’t see a valid objection to her appointment as bureau director. Although I don’t agree with the way she proposes to protect the folks, I greatly admire that she has staked her career on what I see as a noble and selfless project. If we are going to have a new $500 million federal agency to pile more regulation on the consumer credit industry that will have no effect on consumers’ appetite for crack, she’s as qualified as anyone. At least I have a pretty good feeling that her hand will not be in the till.

I also have the feeling that nobody can afford crack and the crack dealers are packing up their tents anyway.

Saturday, September 11, 2010

In Re: Eddie Richardson, Penn State Dickinson School of Law, Class of 2009.

The State College contingent of the Penn State Dickinson School of Law, Class of 2009, showed up on campus in August of 2006- a new thing under the sun. We will be forever bound together, however tenuously as the years march on, by our membership in that class. For now, though, we are tightly bound together by the sad and unexpected news that our classmate and colleague, Eddie Richardson, has died. Two days shy of his twenty seventh birthday.

A light, as they say, has gone out in the world. Yet we may expect that the sky will be a little brighter from now on. Eddie, a luminescent figure in life, has ascended. Perhaps from his new and sky-bound home he will continue to do for us now what he did for us in life: shine his light upon us, and thereby, in the words of that Spanish poem, "...hacer mas claro y luminoso el dia." But now, from up there, he will reach us all at once and always, rather than, as he did in life, shine upon us separately and episodically, through his personal interactions with us.

Many members of our class knew Eddie better than I did. They no doubt can offer meaningful testimony to his life, and they are certainly invited and encouraged to do so here. But I think it says something very positive about Eddie that someone like me, who knew him, but not especially well, remembers him so fondly. He looms large in my memories of law school, and principally for this reason: He was the first person I met at the first orientation event that was held for our class, back in August of 2006. As an older student, and having just left professional life behind, I was nervous walking into the room that day; nervous about fitting in, about being accepted by my new classmates. It was a sort of discomfort I had not felt in years, back to the day I walked, as a stranger in a strange land, into the cafeteria of my new high school. I was all grown-up in 2006 when I walked into the law school orientation event, but in my mind I was right back in my high school cafeteria, embarrassingly desperate for the consolation of a friendly face.

And then there was Eddie. He was sitting at the table I arrived to- maybe he was the reason I arrived at that particular table- already popular with the people there and smiling genuinely back at me. He put me at ease. My nervousness was gone, never to return. That is the sort of kindness a person doesn't forget in life; I haven't and won't. Even if, in Eddie's case, it wasn't so much a kindness done to me as it was an expression of who he was; which was and remains a kindness done to everyone he knew.

I sat next to Eddie in our Administrative Law class during our last semester of law school. He regularly said the best things, most of which betrayed a rare wit and a high intelligence. One of those best things, which however did not tax either his wit or intelligence to conjure, was an occasional and appropriate, "This sucks." And he pronounced the word "sucks" in such a way that anyone unfamiliar with the word or its connotations would nevertheless have known what he meant by it; had he been made to write out his pronunciation, between the 's' and the 'cks' would have been about fourteen pregnant u's.

But then he would smile and go on. Which- in law school and in life- is the thing to do. It's the thing to do not because it's a grand invention, but because it stands well among a limited troupe of truly unpalatable alternatives.

Farewell, gentle-souled Eddie. Shine on down.