21 March 2018

The Police Power vs. the Contract Clause: Insights from Oral Argument in Sveen v. Melin

This past week I noted here that SCOTUS had taken up a case dealing with the Contract Clause of the US Constitution. Oral arguments in the case took place on Monday (you can read the transcript for yourself here). Briefly, the lawyer for the kids, who wanted to get the proceeds of the life insurance policy due on the death of their father, squared off against counsel for dad's ex-wife, who had remained the beneficiary on the life insurance policy even after their divorce. The kids had lost before the Eighth Circuit Court of Appeals when that court held that a Minnesota law, enacted after dad bought the insurance but before the divorce, couldn't override the policy itself. Why? Because Article I, section 10, clause 1 of the Constitution says that  "No State shall pass any Law impairing the Obligation of Contracts." 

For what it's worth, I think the kids will prevail for two reasons. First, the Minnesota law had come into effect before the divorce (and, obviously, before dad died). The timeline struck several members of the Court as significant. The law would clearly be unconstitutional had it come into effect after dad died but before the insurance company paid out. Several justices seemed squeamish about a law that would have changed the beneficiary after the divorce but seemed more sanguine about a pre-divorce change that the attorneys for the parties should have talked about with their divorcing clients.* And, there's no reason to believe anyone on the Court would have had a problem with the constitutionality of the law had it pre-dated buying the policy. After all, it's black-letter law that contracts are always subject to existing statutes.

Second, a state's "police powers" are in principle very extensive. Historically, they included the power of a state to regulate the health, safety, and morals of its citizens. Hence, the continuation of established churches in several of the newly independent (but united) states for some decades even after ratification of the Constitution. These powers today are cabined by the constitutions of the states themselves and by the Constitution as through the 14th Amendment it has become ever-more a means of limiting state powers. Nonetheless, the Contract Clause has always been a limit on a state's police powers but, equally so, SCOTUS has recognized that family law largely remains one of the fields over which the police powers remain effective. And Minnesota's "revocation-on-divorce" statute falls squarely within the realm of the retained police powers.

Combining the timing of the change in the law--before the divorce--and the general deference to a state's control over its laws of marriage and divorce, I predict that SCOTUS will reverse the Eighth Circuit and give the kids the money.

* Counsel for the ex-wife made a big deal of the fact that no one knows if the lawyer for either divorcing party mentioned the change in the law at the time of the divorce. And the similar law of Virginia got a shout-out because it requires divorcing parties to be informed that Virginia law revokes spousal life insurance beneficiary designations at the time of divorce. Minnesota law does not. (As an aside, my favorite estate planning attorney informed me this kerfuffle could have been avoided had dad made a trust the beneficiary of his insurance policy. Minnesota law did not purport to change the beneficiaries of a trust upon divorce.)

15 March 2018

It's Back! SCOTUS to Consider the Contract Clause

Nice summary here of issues for today's oral argument.

You can find one of my favorite Constitutional provisions in Article I, section 10, clause 1: "No State shall pass any Law impairing the Obligation of Contracts." While I have posted on the Contract Clause a number of times (try here, here, and here for a sampling), it's been awhile. This gap explains why I was gratified to read this bit of news in Forbes. It turns out that SCOTUS has taken up a case on a writ of certiorari to the Eighth Circuit that presents what may be a case of a state law that runs afoul of the Contract Clause.

As explained in the article,
Mark Sveen and Kaye Melin were married in 1997 and lived in Minnesota. After their marriage, Sveen purchased a life insurance policy, naming Kaye as primary beneficiary and his children by a previous marriage as contingent beneficiaries. The couple divorced in 2007 and Sveen died in 2011. 
The trouble arose out of the fact that the state changed its probate code in 2002. The law now provided that life insurance beneficiary designations would be revoked upon divorce. After the divorce, Mark did not change the beneficiary designation, leaving Kaye listed as the primary beneficiary when he died. Naturally, both Kaye Melin and the Sveen children want the proceeds, the latter arguing that under the new Minnesota law, they are entitled to the money. Hence the suit.
That’s where the Contract Clause enters the picture. Did Minnesota violate it when it in effect rewrote existing life insurance contracts with its revocation-upon-divorce statute?
The Eighth Circuit ruled in favor of Kaye Melin, the beneficiary named in the policy, holding that the post-divorce Minnesota statute could not "impair" the obligation of the existing life insurance contract. The Sveen children have asked SCOTUS to reverse the appellate court citing a series of cases beginning in the 1930s in which the Court has permitted state law to tweak or defer collection of a variety of contracts.

So far I suspect many of many readers might be rooting for the ex-wife--next to only property, contracts are God's gifts to human society and no state should mess with 'em. But consider:

One group that will be watching this case closely is state and local government employees in California (and elsewhere) who through the 2000s convinced hapless state legislators and city governments to grant ever-greater retirement benefits. (Read some of the details in my article Municipal Bankruptcy: When Doing Less Is Doing Best (download here or here).) They are now fighting hard to keep the state from rolling back those unsustainable (here and here) benefits in the more austere decade since.

For what it's worth, I don't believe the Contract Clause prevents a state from modifying an existing contract unilaterally. Such a change may well be a breach of contract but it wouldn't impair the "Obligation" of contract as such. But I could be wrong so we'll have to wait and see.

13 March 2018

A Great Showman and the Shape of the Other

Over the past couple of weeks we saw two films, The Greatest Showman and The Shape of Water. Some have criticized The Greatest Showman for its lack of fidelity to the life of its titular character, P.T. Barnum. Others have seen in The Shape of Water an elision of the difference in kind of human and non-human creatures. Common critiques of both films have suggested obeisance to contemporary notions of political correctness or seen in them evidence of an invidious plot by the Prog-Left political-entertainment complex. Of all these criticisms, the last may have some traction in The Shape of Water but all of them miss the obvious common mark: both films valorized love for the Other, a notion that has long antecedents in Christianity.

Those who criticized The Greatest Showman for lack of historical verisimilitude must have failed to notice that it was a musical. Since when have successful Hollywood musicals been anything more than an opportunity to take a snippet of reality and mix it with large doses of singing and dancing? The score of The Greatest Showman was terrific, the dance scenes were great, and a plot centered around the dangers to character and family of hard-won success was as traditional as apple pie. Was the real Barnum as concerned with the personal well-being of his circus "freaks" as the character played by Hugh Jackman? Did he really reject the advances of the real Jenny Lind? Don't know; don't care. On the other hand, is a representation of a character advancing the interests of social misfits and outcasts always timely? Are great talents often hidden behind physical and social barriers? You bet. Following last year's success with the musical La La Land, I can heartily recommend The Greatest Showman.

Winning an Oscar for best original music score struck me as a no-brainer for The Shape of Water. Guillermo del Toro taking the Oscar for best director seems eminently reasonable. I'm a bit surprised that it didn't also win for its juxtaposition of jarring and languid cinematography. But Best Picture?

The Shape of Water is not about erasing the barrier of intimacy between humans and other creatures. As was evident from the first few minutes, it was about how outsiders relate to the larger world (and vice versa), and how most outsiders, on finding a comfortable niche, are content to let other Others struggle. Only the mute Elisa Esposito is willing to risk herself to save the humanoid creature and she eventually manages to bring along first her neighbor, a stereotypical gay--but unemployed--commercial artist who spends his days watching old Hollywood musicals on his black and white TV but blanches at watching news of violence deployed against Civil Rights workers. And next is Elisa's African-American co-worker who is satisfied with a steady job and at first wants nothing to do with saving the strange amphibian creature.

The venality of satisfaction with comfort and avoidance of risk is the fundamental source of conflict in The Shape of Water. Of course, there must be some external (and existential) source of danger against which the protagonists struggle and it is here--in the film's population of that danger--that The Shape of Water takes the easy way out.

Those aiming to end the life of the creature whom Elisa and her friends seek to save barely qualify as cardboard cutouts. The "bad guys"--American and Soviet--are conscienceless automatons whose stated motivations hardly warrant the sorts of malicious actions they undertake. del Toro is reported to have said that he set The Shape of Water in 1962 Cold War-era America because to have set it in the present would have made viewers too uncomfortable. Perhaps del Toro had in mind the outsized fears of undocumented aliens or of refugees from the Middle East. Regardless of the contemporary Others whom the creature represents, not all those who express some concern about illegals or resettling Muslims should be counted as the epitomes of evil represented by security director Richard Strickland, US Army General Hoyt, and the Soviet handlers of scientist-spy Robert Hoffstetler. There are many prudent reasons to be concerned about unrestrained migration of peoples but del Toro was not one to paint in shades and hues when it comes to projecting his vision of oppressors of the Other.

In short, del Toro pushed all the rights buttons to get an Oscar. A suspenseful and well-told, intricately filmed, and superbly accompanied story coupled with the political proclivities of the voters of the Academy of Motion Picture Arts & Sciences was just the ticket. There is little question that a vision of the Other as unemployed, rural, and White would not have been as well-received.

Although I am glad to have seen The Shape of Water, I can't recommend it to a general audience. The film's nudity and depictions of sexual activities make it inappropriate for many. And, while it can be enjoyed on its own substantial artistic and story-telling merits, regrettably I was left with the sense that The Shape of Water was tainted by virtue-signalling to the political sensibilities of our elites.

Told You So (About Toys 'R' Us)

Update as of March 20: Bloomberg reports here that Amazon (!) is considering buying some of the soon-to-be-vacant Toys 'R' locations. Amazon is in the nearly unique position of being able to raise gobs of cash even though it has yet to turn a profit.

Update as of 5:30 PM March 14: The WaPo reports here that "The nation’s best-known toy retailer has told employees it plans to liquidate all operations as part of an orderly wind-down process, risking as many as 33,000 jobs."

A couple of months ago I posted here and then here to the effect that the days of retailer Toys 'R' Us were numbered. Sure, with the filing of its Chapter 11 bankruptcy Toys 'R' Us had a forum in which it could reorganize (chances = nil) or engineer its sale as a going concern (like Family Christian Stores had tried and failed). 

You can go here to read in Bloomberg that the die seems to be cast for a complete liquidation of all the 800 Toys 'R' Us stores. The Washington Post has a nice explanatory piece here that correctly emphasizes the large debt incurred by the corporation when it "went private" back in 2005. Bricks and mortar retailing is tough in the age of Amazon but there's still plenty of room for physical outlets. Turning a thin profit margin into a loss by incurring billions of dollars of debt, however, is most definitely not the way to go.

Which bring us back to Sears about which I speculated this past August.

06 March 2018

A Potpourri of Things Davenant

A number of my posts have included topics connected with the work of The Davenant Institute. Beginning with my first Convivium Irenicum in 2014 and extending through last year's event plus references here and there to books and videos published and posted by my Davenant friends and colleagues, you could have learned a great deal about the benefits that a return to the sources of Protestantism can supply to us today.

Well, here's a whole new slate of Davenant offerings. First, following on the much-needed theme of wisdom, Davenant is offering two intensive, residential programs, one a five-day primer focusing on Protestant Philosophy, Ethics, and Politics (more here) and the other a ten-day study program in Christian wisdom and faithful citizenship (more here). And by the way, there's a 20% discount for early registrants.

Second, if you're on Facebook, you can go here to watch a fascinating lecture on the particularly early twentieth-century American reason for the Protestant shift to ordaining women to ecclesiastical office. (Hint: it wasn't exegetical or political.)

Third, and nearest to my heart, are the first and second in a series of lectures on a Protestant retrieval of natural law.

In all events, Davenant is rapidly becoming one of the leading resources for Protestant resourcement--bringing the wisdom of the past to bear on the present.

28 February 2018

Two Personal Plugs

Thanks to the U.S. Supreme Court and the Ninth Circuit Court of Appeals I can plug two of my published articles.

Starting with SCOTUS, the just-issued decision in Merit Management Group LP v. FTI Consulting, Inc. addressed the mysterious but powerful  "safe-harbor" provision of § 546(e) of the Bankruptcy Code. Inserted by Congress to enhance the stability of so-called financial contracts, this section permits banks and other financial intermediaries to keep all of a payment from a bankrupt company even though other creditors would have to repay it as a preferential transfer if they received it within 90 days of bankruptcy. In other words, banks, not debtors (and their general creditors), are sometimes preferred. Correctly I believe, in a 9-0 opinion SCOTUS interpreted this exception statute narrowly. Anyone interested in the esoteric world of financial contracts can read my simplified explanation in A Fable of Financial Contracts: A Guide for the Perplexed by going here.

Moving west, the Ninth Circuit reversed itsearlier decision and held in S&H Packing & Sales Co. v. Tanimura Distributing, Incthat everyone's favorite pro-farmer legislation, the Perishable Agricultural Commodities Acts (PACA), was more pro-farmer (and anti-lender) than before. The bottom line: only true purchasers of a wholesaler's accounts will take free from the statutory "trust" created by PACA. Want to know more? Read my long-ago piece, The Interaction Between the Perishable Agricultural Commodities Act and the Bankruptcy Code: Another Trap for the Unwary by going here. While I don't like PACA as policy, I think the Ninth Circuit got it right this time.

26 February 2018

The DOE, Student Loans, and the Meaning of Undue Hardship: Part 2

What's the deal with the reference in the Request for Information I discussed here to a "2015 Dear Colleague Letter"?

In my previous post I described what I anticipate will be the non-event of the Trump Administration DOE's Request for Information about the factors for determining undue hardship in bankruptcy. Undue hardship is the legislative standard which, if met, permits student-loan borrowers to discharge their student-loan debt in bankruptcy. Suffice it to say that the standard is hard to meet.

Buried at the end of the Request was a solicitation for information about a related detail: "(5) whether and how the 2015 Dear Colleague Letter should be amended." The "Dear Colleague Letter," issued by the Obama DOE, which you can read here, goes into great detail with regard to both the specific factors a holder must consider when evaluating a bankrupt borrower's claim of undue hardship and whether the inevitable cost attending a legal battle would be worth the win. Taken together, the Dear Colleague Letter is a roadmap to stating a claim of undue hardship that at least will touch all possible bases.

One might suppose that attorneys who wish litigate an undue hardship claim on behalf of a client already know about this Dear Colleague Letter but--ahem--if not, they should work it into every adversary action they file.

Of course, one might wonder about the use of "Dear Colleague" letters that in effect frame a rule when, after all, the DOE has no rulemaking power on this question. Notwithstanding the Constitutional issues raised by this practice, I'll leave that wondering to any administrative law wonks who read this post.

21 February 2018

The DOE, Student Loans, and the Meaning of Undue Hardship: Part 1

The internet has been abuzz with reports like this one in the Wall Street Journal unhelpfully headlined "Trump Administration Looking at Bankruptcy Options for Student Debt." Taking the time to go here and then read the Request for Information one finds less bite than bark. The Request is merely that, a request. In other words, it's not a proposal for a rule because, as the DOE recognizes in the Request, Congress has not delegated any rulemaking authority to the DOE with respect to defining undue hardship.

So what is the DOE requesting? 
Comment on, and offer information regarding: (1) factors to be considered in evaluating undue hardship claims; (2) weight to be given to any such factors; (3) whether the use of two tests results in inequities among borrowers; (4) circumstances under which loan holders should concede an undue hardship claim by the borrower; and (5) whether and how the 2015 Dear Colleague Letter should be amended.
Why does the DOE want our comments on the factors of undue hardship if it lacks the power to turn them into a rule?
The Department will review the data collected to determine whether there is any need to modify how undue hardship claims by student loan borrowers in bankruptcy are evaluated.
Which then invites the question, to what end does the DOE "evaluate" claims of undue hardship? Reading earlier in the Request we learn than when the DOE believes that an applicant has met the (undefined) standard of undue hardship the DOE requires "holders" of the student-loan debt "to determine whether requiring repayment would constitute an undue hardship." If the answer is yes, then "the holder must concede an undue hardship claim" in bankruptcy.

Thus, even though the DOE cannot directly define undue hardship by rule, it accomplishes the same end indirectly with respect to borrows in bankruptcy. "Holders" presumably include the Federal government for direct student loans as well as private lenders. Presumably--and I don't know if this is true--the DOE has some sort of leverage over private lenders by guaranteeing or otherwise permitting such lenders to be in the student loan business although I'm not sure how this is done.

So, when all is said and done, I'm not sure how much effect this Request will have. Here's betting not too much. Sorry. Sort of.

By the way, did you notice point (5) in the Request? More about that later.

19 February 2018

Hiding in Plain Sight: Municipal Bankruptcy Will Make A Comeback

All has been quiet on the municipal (Chapter 9) bankruptcy front for some time. Some might believe my two municipal bankruptcy articles, one about Stockton (Municipal Bankruptcy: When Doing Less Is Doing Best (download here or here)) and the other about Detroit (Who Bears the Burden? The Place for Participation of Municipal Residents in Chapter 9 (download here or here)), are only of antiquarian interest.

But some would be wrong. And we should see an uptick in the number of cities seeking bankruptcy protection over the coming two years.

Three reasons why. First, the underlying social causes of municipal financial distress have not changed. Go here to read an interesting post by Peter Leithart titled "Suburban Ponzi Scheme" in which he summarizes a yet-lengthier piece describing the governmentally-created structural supports that helped cause the post-WW II explosion in America's suburbs. The exodus from America's cities was driven not only by the desire of many urbanites to get a house with a lawn (or to put more distance between themselves and POC) but was enabled by federal spending on highways and other transfer payments that amounted to middle-class welfare. In addition, financing the infrastructure of suburbia has always been something of a Ponzi scheme. For example,

A small town received support to build a sewer system from the federal government back in the 1960s as part of a community investment program. Additional support was given in the 1980s to rehabilitate the system. Today, the system needs complete replacement at a cost of $3.3 million. This is roughly $27,000 per family, which is also the city’s median household income.
In other words, only by betting on continuous growth can suburbia continue to exist. Such growth has come to an end in many suburban communities and thus it is only a matter of time before some of them join the ranks of their forsaken big-city parents and seek Chapter 9 bankruptcy protection.* (I could say more about the demographic trends that augur ill for many urban and suburban communities but I'll merely send you to an earlier post here.)

Second, the super-low interest rate environment is changing as the financial markets and the U.S. Federal Reserve begin to take seriously the return of inflation. Coupled with the promise of ever-more massive U.S. federal budget deficits thanks to Republican anti-deficit hypocrisy,** we can expect a continual upward climb in interest rates that will, in turn, unmask the low-interest-rate subsidy of municipal deficit spending.

Finally, the unsustainable costs of public employee pensions and retiree health care will force cities in some states, notably California, to join Stockton and San Bernardino (and don't forget Loyalton!) in hoping for help from a bankruptcy judge in Chapter 9. See a recent post by California public pension maven Ed Mendel here for the bad news. Or Joshua Rauh of the Hoover Institute here.

So, when all is said and done, at least the future for work in municipal financial restructuring and bankruptcy (debtor and creditor) looks bright.

* As I describe in yet another article, Nine Into Eleven: Accounting for Common Interest Communities in Bankruptcy, (download here or here), suburban cities have sought to offload the hemorrhaging costs of infrastructure by devolving them to common interest communities (homeowners associations and the like). As I explain in the article, this punt is likewise unsustainable in the long run.

** U.S. debt heading into orbit. "Goldman estimates U.S. federal debt will be over 100% of GDP and interest expenses will jump to 3.5% if tax/fiscal plans are enacted, 'putting the U.S. in a worse fiscal position than the experience of the 1940s or 1990s.'"

16 February 2018

More About the "E" Word (Evangelical)

I've posted here and here most recently on the relative (lack of) usefulness of the catch-all term "evangelical", at least in the American context. The debate continues and you can go here to read a robust defense in the Wall Street Journal by friend David Skeel of continuing to identify oneself as an Evangelical and here to read a tepid attaboy by Baylor prof Thomas Kidd.

My position remains unchanged from the posts linked above: in most contexts I would identify myself as a confessional Protestant or simply Christian, and this conclusion has less to do with the recent politicization of "evangelical" than "Evangelicalism's" long history of amorphous and contradictory positions on important matters of Christian doctrine. (Infant baptism, anyone?) Moreover, I'm as troubled by aspects of Evangelicalism's long history of social and political activism as its recent identification with Republican populism.

In any event, I commend Skeel's's and Kidd's defenses; they're as good as it gets.

08 February 2018

Which "W"?

Worldview or Wisdom? Hint: we're not brains on sticks.

I've posted here and here about my concerns about so-called "worldview thinking." What I didn't do at any length was to describe an alternative. In other words, if pre-categorizing what we might learn about God and the world into neat binary alternatives isn't a good idea (and it's not), then what should we do?

For an excellent answer in terms of the biblical category of wisdom go here to read a piece by Brad Littlejohn titled "What's So Bad About 'Worldview'?" After listing worldview's weaknesses (a-priorism, intellectualism, resistant to learning, self-contained, and sloppy thinking ), Littlejohn goes on to describe why wisdom is the better category to guide the Christian:
Although wisdom does consist of principles, they are principles gleaned from experience and reflection, not prefabricated. Wisdom involves intellectual knowledge and an understanding of how things relate, but it is just as often hands-on and tacit, consisting of and nourished by virtuous habits. Wisdom is not something that you just have or don’t have, like the right worldview; it is always incomplete, and those that have the most of it know best how much more they need to gain. The fear of the Lord is indeed central to wisdom, but wisdom is not a self-contained system unique to Christians, but an attunement to a shared reality, a reality that unbelievers are sometimes considerably more attentive to than we are.
I cannot recommend highly enough LIttlejohn's piece so please do me (and yourself) the favor of reading it.

Addendum: Go here to read a longer piece by Littlejohn in which he clarifies some ambiguities in and misunderstandings of his initial piece.

05 February 2018

A Few More Thoughts on Student Loans

(For a sampling of my earlier posts on this topic go here, here, and here.)

H/T to Dordt College prexy Eric Hoekstra for tweeting links to two recent articles about the student loan crisis in America. This time, however, the relevant crisis is not that of borrowers but of the primary lender to students, the Federal government.

First is the report from Inside Higher Education titled "Costs Mount for Federal Loan Programs." Why would such cost mount? In other words, why should a program of lending lose money when, after all, loans are to be repaid with interest? Especially when such loans for practical purposes cannot be discharged in bankruptcy?

In an acronym, IDR ("income-driven repayment"). IDR permits qualified student borrowers to repay their loans for less than their full amount by gearing monthly payments to a percentage of annual income even if those payments are not adequate to amortize the loan. And, after 25 years, the unpaid balance is wiped away. (There is a tax consequence to the discharge of the unpaid loan but it is far less than the discharged debt.) Per the article,
Between the 2011 and 2015 fiscal years the balance of this form of loan increased from $7.1 billion to $51.5 billion ... an increase of 625%. ... As a result, the government subsidy for income-driven repayment plans increased to $11.5 billion in 2015 from $1.4 billion in 2011 ... And at this pace, the feds may soon lend more money overall than is being repaid by borrowers.
The Wall Street Journal picks up this story here and raises the question of what can be done:
The prospect of taxpayer losses on student loans increases the chances that Congress will make major changes to the program, such as eliminating debt-forgiveness options or placing new dollar limits on how much individuals can borrow. Congressional Republicans have proposed such changes.
I'm not holding my breath that any legislation this Congress and the President enact will be adequate to solve the problem. While undoubtedly something will be done, it will, like the recent Republican tax reform legislation, involve its own fiscal sleight-of-hand. In addition, IDR benefits many in the middle class and middle-class welfare is nearly sacrosanct.