Non-Article III Adjudication: Bankruptcy and Nonbankruptcy, With and Without Litigant Consent

By Ralph Brubaker (University of Illinois College of Law)

This article explores the diverse and intriguing implications of the Supreme Court’s recent decision in Wellness International Network, Ltd. v. Sharif, both from an “internal” bankruptcy perspective and as a very important and revealing component of the Court’s still-evolving general jurisprudence of non-Article III adjudications.

In that larger jurisprudence, the contrast between Wellness and the Stern v. Marshall decision prominently highlights a seemingly schizophrenic admixture of formal (Stern) and functional (Wellness) analytical methods. This article maintains, however, that what Stern and Wellness reveal and confirm is a coherent and consistent jurisprudence of non-Article III adjudications with a bifurcated analytical methodology that is a logical corollary of (and that facilitates a complex interaction between) the dual interests protected by Article III, § 1 — both nonwaivable structural separation-of-powers values and the waivable personal right of individual litigants to an Article III adjudication.

In the bankruptcy context, Wellness provides further evidence that the Supreme Court is, over a long run of decisions, simply confirming the constitutional significance of its extensive summary-plenary jurisprudence (taken from established English bankruptcy practice prevailing at the time of the Founding) as the operative constitutional boundary for the adjudicatory powers of non-Article III bankruptcy judges. This article uses the Wellness litigation to demonstrate how that summary-plenary jurisprudence can directly inform the core-noncore distinction drawn by the current jurisdictional statute (which codifies constitutional constraints). The Court’s existing and extensive summary-plenary jurisprudence provides a highly developed analytical framework for resolving even the most nuanced and difficult core-noncore determinations.

The full article is available here.

Chapter 11 Bankruptcy and Loan Covenant Strictness

By Garence Staraci (Yale University, School of Management) and Meradj Pouraghdam (Institut d’Etudes Politiques de Paris (Sciences Po))

In syndicated loan contracts, a borrower’s failure to comply with a covenant restriction triggers a default, and as such the lender’s right to terminate the loan (or foreclose on assets which are serving as collateral). The likelihood that such a covenant violation would occur depends on the loan covenant strictness, which measures how stringent covenant restrictions are on the borrower. Rationales for creditors to demand strict covenants include the pricing of default risk and the allocation of bargaining power in more frequently triggered renegotiations.

In this paper, we propose a new determinant of covenant strictness: the degree of creditor friendliness in Chapter 11 bankruptcy practices. This new determinant dictates that the more debtor(creditor)-friendly the bankruptcy practice is, the more creditors will seek to increase(decrease) their level of loan monitoring outside of bankruptcy through an adjustment in covenant strictness. Borrowers would agree on stricter covenants in exchange for a lower loan spread, and vice-versa. We demonstrate that covenants are not only included in order to shift the governance from debtors to creditors once they are breached, but to also potentially address the concern creditors might have about how the bankruptcy law is practiced if the borrowing firm goes bankrupt.

This paper finally relates to the recent recommendations of the American Bankruptcy Institute Commission to Study the Reform of Chapter 11, which has investigated the creditor friendliness of the corporate bankruptcy practice. Our results imply that any amendment to the Code that would limit the creditors’ rights during bankruptcy would have an impact on the pricing of syndicated debt through a modification of the covenant structure of loan contracts.

The full paper is available here.

Through Jevic’s Mirror: Orders, Fees, and Settlements

posted in: Cramdown and Priority | 0

By Nicholas L. Georgakopoulos (McKinney School of Law, Indiana University)

This article takes the United States Supreme Court’s simple “no” to nonconsensual structured dismissals in Jevic as an opportunity to study its contours. The first issue is the pending clarification on whether the right to object to a structured dismissal is an individual or a class right. An individual right would leave little space for consensual structured dismissals, whereas a class right would fit with the anti-hold-out scheme of reorganization law. Second, Jevic implies increased scrutiny on first-day orders, especially in liquidating reorganizations, pushing for additional caution and negotiation before early payments. Third is the issue of fees—latent in Jevic but burning in the academy—the tension between race-to-the-bottom and race-to-the-top views of jurisdictional competition with the Court’s silence in the foreground. Fourth is the Court’s approval of settlements (via interim orders) that violate priorities provided they promote a bankruptcy goal, as Iridium’s approval did. Fifth, the juxtaposition of the settlements in Iridium and Jevic stresses the importance of the bankruptcy court’s role in approving settlements when the parties’ incentives are biased.

The full article is available here.


The roundtable has posted previously on Jevic, including a report of the case by Melissa Jacoby & Jonathan Lipson and a roundup of law firm perspectives on the Court’s decision. For opposing views on the case leading up to oral argument, see Melissa Jacoby & Jonathan Lipson on their amicus brief and Bruce Grohsgal making the case for structured dismissals. For other Roundtable posts related to priority, see Casey & Morrison, “Beyond Options”; Baird, “Priority Matters”; and Roe & Tung, “Breaking Bankruptcy Priority,” an article that the Jevic opinion referenced.

Post-Jevic, Expansive Interpretation by Bankruptcy Courts Possible

posted in: Cramdown and Priority | 0

By Andrew C. Kassner and Joseph N. Argentina, Jr. (Drinker Biddle & Reath LLP)

In Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (2017), the Supreme Court held that structured dismissals that violate the distribution scheme set forth in the Bankruptcy Code are not permitted.  The Court distinguished such situations from other, somewhat common bankruptcy practices that also violate the Code’s distribution scheme, such as critical vendor orders, employee wage orders, and lender “roll-ups.”  Those practices, the Court noted, “enable a successful reorganization and make even the disfavored creditors better off.”  The question remained, however, how subsequent bankruptcy courts would analyze such practices in light of the Supreme Court’s decision in Jevic.

This article summarizes two early post-Jevic decisions and concludes that at least some courts will read the Jevic holding expansively into areas of chapter 11 practice other than structured dismissals.  In In re Fryar, 2017 Bankr. LEXIS 1123 (Apr. 25, 2017), the Bankruptcy Court for the Eastern District of Tennessee would not approve a settlement agreement and § 363 sale that provided payment to a lender on account of its prepetition claims.  In In re Pioneer Health Servs., 2017 Bankr. LEXIS 939 (Apr. 4, 2017), the Bankruptcy Court for the Southern District of Mississippi would not permit a hospital debtor to pay three physicians as “critical vendors.”  These courts concluded that Jevic required additional scrutiny of distribution-violating proposals other than structured dismissals.

The full article is available here.

Andrew C. Kassner is the chairman and chief executive officer of Drinker Biddle & Reath, and former chair of its corporate restructuring group. Joseph N. Argentina Jr. is an associate in the firm’s corporate restructuring practice group in the Philadelphia and Wilmington offices. The views expressed in the article are those of Mr. Kassner and Mr. Argentina, and not of Drinker Biddle & Reath.


The roundtable has posted previously on Jevic, including a report of the case by Melissa Jacoby & Jonathan Lipson and a roundup of law firm perspectives on the Court’s decision. For opposing views on the case leading up to oral argument, see Melissa Jacoby & Jonathan Lipson on their amicus brief and Bruce Grohsgal making the case for structured dismissals. For other Roundtable posts related to priority, see Casey & Morrison, “Beyond Options”; Baird, “Priority Matters”; and Roe & Tung, “Breaking Bankruptcy Priority,” an article referred to in the Jevic opinion.

Understanding the Scope of the § 546(e) Securities Safe Harbor Through the Concept of the “Transfer” Sought to Be Avoided

By Ralph Brubaker (University of Illinois College of Law)

Bankruptcy Code § 546(e) contains a safe harbor that prevents avoidance of a securities settlement payment. To date, pleas for sane limits on the scope of the § 546(e) safe harbor have focused upon what kinds of transactions should be considered a “settlement payment.” That language, however, is not the primary means by which § 546(e) both reveals its manifest object and correspondingly limits its reach thereto. Section 546(e) rationally constrains its scope via the statutory specification (the meaning of which the Supreme Court will consider in the pending case of Merit Management Group v. FTI Consulting) that the safe harbor only applies (because it need only apply) if the “transfer” sought to be avoided was allegedly “made by or to (or for the benefit of)” a protected securities market intermediary, such as a stockbroker or a financial institution.

Ascertaining the meaning and function of that determinative scope language requires an understanding of (1) the concept of a “transfer” as the fundamental analytical transaction unit throughout the Code’s avoidance provisions, and (2) the relationship between that avoidable “transfer” concept and the inextricably interrelated concepts of who that “transfer” is “made by or to (or for the benefit of).” By its express terms, § 546(e) only shields a challenged “transfer” from avoidance if (1) that transfer was “made by” a debtor-transferor who was a qualifying intermediary, “or” (2) a party with potential liability—because the challenged transfer allegedly was made “to or for the benefit of” that party—was a protected intermediary.

The full article is available for download here.


The roundtable previously posted a roundup of law perspectives on the Seventh Circuit’s decision in FTI Consulting, Inc. v. Merit Management Group, LP, 830 F.3d 690 (7th Cir. 2016). The Supreme Court granted certiorari to review that decision on May 1, 2017. Petitioner Merit Management Group, LP has filed its opening brief, and amicus curiae briefs have been filed by Opportunity Partners, L.P. and Various Former Tribune and Lyondell Shareholders. Argument has been scheduled for November 6, 2017.