29 January 2015

Fraud or Incompetence: Expert Opinion and Judicial Valuation

Anyone who has litigated a complex issue of the value of a going-concern might be excused for wondering whether one or both of the experts rendering significantly different opinions were fools or frauds. And anyone who has professed surprise when the judge picks a number to which neither of the experts opined but which, mirabile dictu, happens to be at the mid-point between the conflicting opinions reminds me of the words of Captain Renault in Casablanca.

Anyone  interested in a more temperate view of the problems of methodology and bias in valuation should read Michelle Harner's succinct post at the Credit Slips blog here. Anyone interested in more about methodological details should go to my post here and listen to the embedded podcast.

28 January 2015

Good News From North of the Border

I've previously posted a number of times (here and here most recently) about the travails of Trinity Western University's efforts to add law to their curriculum. Why, you might wonder, would it be difficult to add law to the academic offerings of a fine Christian university? According to the political elites and thought police of a number of Canadian provinces, it's simply because TWU takes seriously the basic tents of the Christian faith when it comes to sexual activity. In other words, because students who attend TWU must agree that sex is limited to marriage between a man and a woman.

TWU does not mandate any affirmative action or belief with respect to homosexual conduct or gay marriage. It requires only that its students not engage in the sort of conduct that gives so many American university fraternities (and football players) such a bad reputation. And, in any event, what effect would such a student code of conduct have on the ability of TWU graduates to practice law?

None, according to the Supreme Court of Nova Scotia in a 139-page opinion issued 28 January. Justice Campbell's judgment begins with the straightforward (but frequently overlooked) observation that "What one person sees as having the strength of moral convictions is just sanctimonious intolerance to another. As with a lot of things, it depends on perspective. Orthodoxies, secular or religious, can provide the comfort of certainty." In other words, the position of the opponents of TWU is equally the result of moral convictions as TWU's. The question is not one of morality but of whose morality trumps. Will TWU be free to adopt rules consistent with its moral judgment or must it be subject to the minuscule voting majority of the Nova Scotia Bar Society?

A few pages later the opinion again lays out the problem in terms of dueling moralities and the power of the members who espouse one moral judgment to impose it on a private institution in another province over 3000 miles away:
The NSBS has characterized TWU’s Community Covenant as “unlawful discrimination”. It is not unlawful. It may be offensive to many but it is not unlawful. TWU is not the government. Like churches and other private institutions it does not have to comply with the equality provisions of the Charter. It has not been found to be in breach of any human rights legislation that applies to it. Counsel for the NSBS described TWU’s proposed law school as a “rogue” law school. It would be so only in the sense that its policies are not consistent with the preferred moral values of the NSBS Council and doubtless many if not a majority of Canadians. The Charter is not a blueprint for moral conformity. Its purpose is to protect the citizen from the power of the state, not to enforce compliance by citizens or private institutions with the moral judgments of the state.
It is noteworthy that the Court concluded that the possibility that members of the LGBT community might be offended by TWU's code of conduct was immaterial: "People are not protected from being offended or suffering minority stress by the exercise of another person’s freedoms, even if that expression is objectively offensive."

Reading the full judgment would disclose a finely crafted, thoughtful, and nuanced opinion. It is exceptionally well-written and it give persuasive evidence that Justice Campbell is far better read than most judges south of the border.

I have the judgment in a .pdf file and don't know if it's yet publicly available on the internet. In any event, I would be pleased to share it with anyone who asks.

27 January 2015

An Afternoon in Richmond. Or, My Statement on Virginia HB 2015

Subsequent to my post about HB 2015 here, I was asked to testify before a subcommittee of the Courts of Justice committee of the Virginia House of Delegates. HB 2015 modifies two of Virginia's poor debtor's exemptions, creates two more, and would have permitted Virginia residents who file bankruptcy to claim either federal or state exemptions. The subcommittee forwarded the bill to the full committee after removing the option to permit either state or federal exemptions. 

HB 2015 was the final bill of the day to be considered by the subcommittee. Thus, my testimony was limited to five minutes. Subcommittee chair Greg Habeeb, who struck me as an excellent example of an iron fist in a velvet glove, wanted me to speak to only one issue: the repeal of Virginia's opt-out of the federal bankruptcy exemptions. You can read about the convoluted state of affairs that Congress created when it amended the Bankruptcy Code in 2005 in my full statement below. I did my best to explain it in five minutes but the subcommittee remained unconvinced.

When all was said and done, matters ended where I had expected. The subcommittee was expressed its concern for fair treatment of poor Virginians but was unwilling to give up the discretion afforded the states by Congress. A satisfactory result in my opinion.

Following is my prepared statement.

Statement of C. Scott Pryor
Regent University School of Law
Concerning HB 2015

For the Civil Subcommittee of the Courts of Justice Committee of the House of Delegates of the Commonwealth of Virginia

26 January 2015

Dear Subcommittee Members:

I have served as a professor of law at the Regent University School of law since the fall of 1998. During my time at Regent I have taught bankruptcy law many times. During the spring of 2013 I was honored to serve as Resident Scholar at the American Bankruptcy Institute in Alexandria, Virginia. Prior to starting my academic career, I practiced law for over fifteen years primarily in the field of creditors’ rights and insolvency. My clients included lenders, business creditors, and, occasionally, debtors.

If you have ever seen a cartoon of a skinny little guy who is broke and wearing only a barrel, you may have wondered why the creditors left the barrel. In fact, the law of every state makes at least some property exempt from execution and other legal process so that no debtor can be reduced to absolute destitution.[1]

There are three sorts of reasons why a modern state wishes to avoid results that threaten the social fabric of the community: viability, utility, and dignity. The first, viability, is demonstrated by laws designed to prevent a creditor from leaving a debtor with so little property that the debtor and the debtor’s family will become a charge on the community. From maintenance of poorhouses in the eighteenth century to modern welfare programs, poverty imposes costs on the broader community. In colonial times tithes but today taxes are collected to permit the survival of the worst-off members of a political community. Even if exemption laws leave some creditors with less than their potential maximum recovery, that is a price creditors should be willing to pay for participating in a functioning political and economic system.

The second sort of reasons for exemption laws has to do with permitting a debtor to retain assets necessary for a fresh start. Clothes, farm equipment, tools of the trade, automobiles, and the like are the sorts of assets necessary for a debtor to become a productive member of the community again.[2] Not only are such assets useful in permitting a debtor to support him or herself and his or her dependents, they permit the debtor to become sufficiently successful to pay taxes, which, in turn, is of value to the entire polity including its members who are creditors.[3]

Finally, some property is so closely associated with a debtor’s person and of so little value to a creditor that the dignity of a debtor created in God’s image demands that this property be protected from creditor claims. Items such as clothes, which have little monetary value for a creditor but are crucial to a debtor or a family Bible, which is tangible evidence of the continuity of a debtor in a family, are examples of exemptions grounded in a debtor’s dignity.[4]

HB 2015 would modify two of Virginia’s current poor debtor’s exemptions and add two exemptions. It would also permit Virginia debtors in a federal bankruptcy proceeding to avail themselves of Virginia or federal exemptions.

Modifications and Additions

The two modifications to Virginia’s current poor debtor’s exemptions are relatively minor. Rather than being able to exempt a single firearm worth up to $3,000, a debtor would be able to claim as exempt any number of firearms so long as their cumulative value did not exceed $3,000. This modification would protect the typical gun owner who has a hunting rifle, another small caliber rifle used for target practice, a shotgun, and a sidearm, none of which are likely to be worth more than several hundred dollars. As the law now stands, a debtor can protect cash of $3,000 by buying an expensive firearm immediately before bankruptcy, claim it as exempt, and then sell it for $3,000 cash after the bankruptcy case is closed. Reasons of utility—including self-protection—warrant a modification to permit Virginia debtors to keep all their firearms under a reasonable dollar cap.

A similar rationale supports modifying the exemption for equity in one automobile to more than one so long as the total value of the cars (above any debt secured by a lien on them) does not exceed $6,000. In most communities today, two parents, one or both of whom work outside the home, need two cars not only to commute to and from work but also to take children to day care centers, school events, doctor’s appointments, Boy or Girl Scouts, and the like. Reasons of utility and dignity of the family unit warrant this modification.

The viability of the family unit warrants the two additional exemptions in HB 2015. Funds remitted by the federal government for the Child Tax Credit and the Earned Income Credit are directed to parents and families who epitomize the reasons for the poor debtor’s exemptions. Private creditors should not be permitted to intercept that which is designed to assist the poorest of Virginia families. The addition of a new exemption at § 34-28.2 to shield spousal and child support also finds support in the viability of the family. Little argument should be necessary to justify permitting spouses and children—rather than creditors—to get the full support ordered by a court.

Options for Virginians in Bankruptcy

HB 2015 would also permit Virginia residents who file for relief under federal bankruptcy law to avail themselves of either Virginia or federal exemptions. Under the long-standing federal Bankruptcy Act of 1898, Congress deferred to the states on exemptions. This meant, for example, that a Texas debtor in bankruptcy could protect whatever assets a debtor outside bankruptcy could protect, while a Virginia debtor in or out of bankruptcy could protect whatever property Virginia exempted. The fact that Texas and Virginia protected very different items or values[5] was irrelevant, even though bankruptcy law was federal. When the federal bankruptcy laws were modernized in 1978, the 1978 Bankruptcy Code established uniform federal exemptions but individual states would be permitted to “opt out” of those exemptions, forbidding their own citizens the ability to claim the federal exemptions in bankruptcy.[6] Virginia is among roughly half the states that have opted out.[7]

With the 2005 amendments to the Bankruptcy Code, Congress attempted to limit what it perceived as an abuse by some debtors who on the eve of bankruptcy would move from a state with less generous exemptions to one with exemptions that were more generous. Under the current Bankruptcy Code, the applicable exemptions are those of the state where a debtor resided for 730 days before the bankruptcy filing. In other words it takes a full two years of residence to take advantage of the exemptions of a new home state.

Understandably, state exemption laws were not written with these new federal bankruptcy provisions in view. In particular, many state exemption laws protect only a homestead “in the jurisdiction.”[8] To address this problem that it had created, Congress went on to provide that if a debtor is not eligible for any state exemption, he or she can take the federal exemptions, even if their new home state has opted out.[9] These changes to the Bankruptcy Code entail the peculiar result that, by leaving Virginia, many debtors will be able use federal exemptions and that further, for two years after arriving, most people moving into Virginia will also be able to use federal exemptions (either because their previous state does not allow non-residents to use its exemptions or because it allows the election of federal bankruptcy exemptions). This convoluted situation creates unfairness for loyal Virginians who are left only with the Virginia exemptions while those who just arrived in or leave the Commonwealth (even if the motive is to get better exemptions) get better treatment.

Thus, rather than insuring fairness in treatment of Virginia residents whether they are in or outside of bankruptcy, Virginia’s opt-out has increased unfairness by treating some Virginia residents differently than other ones. Congress, not Virginia, has created this problem but at this time only Virginia can restore a level playing field.

[1] In re Latham, 182 B.R. 479 (Bankr. W.D. Va. 1995) (“The purpose of the homestead exemption is to protect the debtor from being left destitute from creditor process.”).
[2] Several of the items described in Virginia’s poor debtor exemption (Va. Code Ann. § 34-26) fall into this category. For example, household furnishings, a firearm, medically prescribed health aids, and “tools of the householder’s occupation or trade” (including automobiles) demonstrate “fresh start” exemptions.
[3] Virginia’s homestead exemption (Va. Code Ann. § 34-4), which can be applied to a wide variety of property, is designed for this purpose.
[4] Many of the items described in Virginia’s poor debtor exemption (Va. Code Ann. § 34-26) fall into this category. For example, the family Bible, wedding and engagement rings, family portraits and heirlooms, a burial plot, wearing apparel, and pets demonstrate dignitary exemptions.
[5] The extraordinary generosity of exemptions in Texas is well known.
[6] See 11 U.S.C. § 522(b)(2).
[7] Va. Code Ann. § 34-3.1.
[8] See In re Tate, 2007 WL 81835 (Bankr. Or. 2007).
[9] 11 U.S.C. § 522(b)(3).

26 January 2015

"She Stoops to Conquer"

A short post to commend any reader in the Tidewater, Virginia area to get tickets to see the Regent University Theatre production of "She Stoops to Conquer." Saw it Saturday night and enjoyed it very much. I recommend previewing the story because 1773 English accents can prove challenging at times. Yet the over-the-top plot and slapstick acting are adequate to follow the silly story.

25 January 2015

"The Betrothed"

For Christmas Attilio Arcari gave me Bruce Penman's English translation of Alessandro Manzoni's sprawling historical novel, The Betrothed (Italian: I Promessi Sposi). I managed to finish its 719 pages in fewer than four weeks with the help of short days, cold evenings, and an abiding interest in seeing how Manzoni would bring the betrothed couple, Renzo and Lucia, together notwithstanding the best (or worst) efforts of a dithering parish priest, a lecherous petty (but local) tyrant, the plague, kidnapping, and whatnot various other impediments.

The plot is far too long to summarize so read it in Wikipedia here. There's a fine commentary on the importance of the book in the Wall Street Journal here. It seems all sources characterize The Betrothed as a romance. To be sure, the ultimately requited romantic love of Renzo and Lucia drives the driving narrative flow but The Betrothed is more than a mere romance or simply an historical novel.

Without an electronic version of the book, I cannot count how often the various protagonists expressed trust in Providence. Suffice it to say, quite a few. In addition, to the best of my recollection, each of Manzoni's positive figures expressed and exemplified that he or she was motivated by the Christian faith. There were even two conversion accounts, one recounted as having occurred in the past of Fra Christoforo and the one of "the Unnamed" narrated in the present. Conversion accounts are always tricky but I believe Manzoni was able to pull off both of them. Not as well done as Brideshead Revisited but still credible.

Providence incarnate, as it were, was personified in the character of Federigo Borromeo, archbishop of Milan. The real Borromeo was the cousin of the sainted Charles Borromeo, whom he succeeded as archbishop. In The Betrothed (and in history) Archbishop Borromeo is the human agent of the conversion of the Unnamed and the deliverer of multitudes of the poor and oppressed in the region of Milan during the plague.

Even though Manzoni clearly held the historical Borromeo and his fictional Fra Cristoforo in high regard, The Betrothed is able to present them as more than stock characters. One is not left with the impression of hagiography. I also found it interesting that, while the conversions of Cristoforo and the Unnamed were distinctively Catholic--nothing of the Reformed distinctives of the double imputation of sin and righteousness (or the Evangelical "personal relationship with Jesus")--they were not "sacramental." In other words, while Manzoni treats conversion in terms of internal repentance and subsequent virtuous activities, his accounts should not be off-putting to those who hold to justification by faith alone.

According to Attilio, every Italian teen spends a considerable portion of his or her sophomore year of high school studying The Betrothed. An edited version would do well for an AP class in an American high school. Treating it as only a romance would, however, do The Betrothed and Manzoni a disservice. It is a distinctively Christian novel whose themes of faith, repentance, and a life of dependent virtue (sanctification for us Protestants) are an integral part of the story.

22 January 2015

Developments in Contract Theory

Many folks might be surprised that there such a thing as contract theory. After all, aren't contracts a "natural kind" with no need for theory to explain or understand them? And even if I refine the question to observe that by "contract theory" I mean a theory of contract law and not the social practice of contracting, I might be met with similar incredulity: Why do we need a theory of law, isn't the law good enough?

Theory serves several purposes, one of which is to support or--in what follows--undercut the law. (For more about the uses of theory in contract law read my long-ago piece, Mission Possible: A Paradigm for Analysis of Contractual Impossibility (download here).) In any event, over a year ago Omri Ben-Shahar wrote a book, More Than You Wanted to Know: The Failure of Mandated Disclosure. Much has been written about Ben-Shahar's conclusions, that more and more disclosure about the terms of a contract doesn't improve decision-making. In other words, every time a federal or state regulator makes a vendor of goods or an online provider disclose more about the bad deal you're getting, precisely nothing changes.

But this post isn't about Ben-Shahar's book, Instead, it's about an article by Robin Bradley Kar, The Emerging New Life of Contract Law Studies (download here). I have found Kar's work to uniformly helpful in my own understanding of the uses and limits of contract theory. (See my Principled Pluralism and Contract Remedies (download here) for an example.) I have previously blogged about Kar's work here and here.

In The Emerging New Life, Kar observes that the leading form of contemporary contract theory--law and economics (the application of neo-classical economic theory to law)--is getting very long in the tooth. Nonetheless, it's also the case that nothing has come along to supplant the dominance of law and economics as the principle tool by which to evaluate the law. Other contenders in the field of contract theory, autonomy and virtue, have their adherents but neither comes close to articulating a widely accepted approach to theorizing about the law.

Kar is not alone in his observations about the limits of law and economics. For what it's worth, I've made some of the same complaints myself. (See my Consideration in the Common Law of Contracts: A Biblical-Theological Critique (download here) for my thoughts on the topic.) What Kar does, however, is more an attack from below. In other words, rather than criticizing the law and economics paradigm from a normative perspective, he uses Ben-Shahar's book as an example of the methodological shortcomings of law and economics.

With his background in moral philosophy and psychology, Kar is well-positioned to skewer the unsubstantiated (and generally subterranean) presuppositions of law and economics legal scholars. It's sometimes the case that Ph.D.'s don't bring much of use to the table of legal theory but that's not the case with Kar. He painstakingly distills the assumptions about human nature and simple-minded beliefs about human behavior of those who reduce human intentionality to that of rats and frogs. He then rebuilds a far "thicker" notion of human nature behavior which, while not quite complete, is far richer than what passes as philosophical anthropology in legal literature.

I won't summarize the details of Kar's arguments here but will strongly encourage those interested in contract theory to read his piece.

21 January 2015

Potential Good News for Virginia

H/T to local attorney Edrie Pfeiffer who let me know of Virginia General Assembly HB 2015 (link to full text here).

Virginia's exemption laws are notoriously parsimonious. Since biblical times, all legal-political orders have provided that some of a debtor's assets are free from seizure by creditors. (For an analysis of the biblical evidence for exemption laws, read my five-part(!) series here, here, here, here, and here.) 

In America, each state sets its own exemptions. Some, likely putatively-conservative Texas, are extraordinarily generous, permitting debtors of substantial means to thumb their noses at folks they don't wish to pay. Others, like Virginia, permit the destitute to keep very little in the face of unpaid debts.

HB 2015 would expand--very slightly--what folks in Virginia may keep. Most significantly, spousal support would be free from collection by creditors. As the law now stand, creditors may in effect garnish support due a divorced spouse. Hardly a family-friendly state of affairs.

In addition, instead of one firearm worth up to $3,000, poor debtors could keep any number of firearms so long as their collective value does not exceed $3,000. This change would block efforts by an unscrupulous debtor who at the last minute decides to go out an buy a single high-end weapon simply to protect himself from a collecting creditor.

And, instead of a single car worth up to $6,000, HB 2015 would permit debtors to keep more than one vehicle so long as their collective value remains under the $6,000 cap. This certainly makes sense for a married couple who both need cars to commute to work or schlep kids around.

Virginia exemptions laws will remain at the low end of such matters even with these changes. Unlike the laws of Texas and Florida, these exemptions will not let deadbeats game the system, Instead, they will permit the poorest among us to keep a modicum of what is needed to continue to function and support themselves and their families.

For the Virginians among my readers, please contact you local Delegate and urge him or her to support HB 2015.

Great News for Virginia

Go here to read short piece in The Washington Post about the appointment of Arthur Kelsey to the Supreme Court of Virginia. Of a conservative bent, the unanimous vote of Virginia's General Assembly testifies to Judge Kelsey's judicial acumen and temperament.

Judge Kelsey has spoken on several occasions to Regent Law School students and I've always been impressed by his depth of concern about and insights into the character of what makes for a good lawyer.

For a more detailed report, read this piece in the Suffolk News-Herald, Judge Kelsey's home-town newspaper.

16 January 2015

Bankruptcy Jurisdiction Follow-Up

A few days ago I posted here about the latest case before the Supreme Court (Wellness International Network v. Sharif) addressing the jurisdiction of bankruptcy courts.A non-lawyer reader responded with essentially, "huh?" 

A little more explanation seems in order.

Article III of the United States Constitution provides that all "judicial power" of the United States shall be vested in courts whose judges have lifetime tenure, among other things. The drafters remembered their English history in which the Stuart kings fired judges whose decision they didn't like. (For some discussion of this period of English legal history see my article The Puritan Revolution and the Law of Contracts download here.)

Bankruptcy judges, however, have only 14-years renewable terms. Thus, they may not exercise the "judicial power" of the United States. But what can they do? In short, they may exercise whatever power is appropriate to the "public right" of bankruptcy. Just as military tribunals may try courts martial, so bankruptcy judges may try bankruptcy cases.

Clear? I didn't think so. (For more detail on the scope of bankruptcy as a "public right" see my article whose publication by the Campbell Law Review I expect at any day, Who Bears the Burden? The Place for Participation of Municipal Residents in Chapter 9. You can download a working draft here.) 

In any event, the Supreme Court doesn't want to eviscerate the powers of bankruptcy judges. After all, who would handle the 1+ million bankruptcy cases every year? Not the nine folks on the Court, I'm sure.

Yet the Court wants to pay attention to the Constitution. (It really does.) So what's to be done?

The idea of getting Congress to fix the problem is laughable so, as I predicted a few days ago, the Court will find the narrowest "fix" to keep the system going until the next problem comes down the pike.

15 January 2015

Props for "Birdman"

Like those who bestow the Golden Globes, the nominators for Academy Awards like Boyhood (on which I most recently commented here) and Birdman (an earlier post here). Also in the running for best picture is The Grand Budapest Hotel, which I also liked (see here). I haven't seen any of the other multiple nominees although several children have reported positively on The Imitation Game.

Film, although a legitimate form of artistic expression, still pales in comparison with literature when it comes to plumbing depths of the implications of what it means to be human. Go here to read a short post on the unique virtues of literature. Far more than writing, movie making has become a means of "creative entrepreneurship" instead of art. Nothing wrong with marrying art and money, it's been done for thousands of years, yet something of the artistic side of the marriage is lost. Punches must be pulled when the production of a form of art runs into the tens of millions of dollars.

None of which is to say that I'll be giving up on movies. They have a place, and a fine one at that, in contemporary society. It's only that we should balance even our leisure with something that has the prospect of effecting us to the core of our being.

Strange Bedfellows

It's a cold day in you-know-where when we find professional curmudgeon D.G. Hart citing the enfant terrible of the most orthodox of Presbyterians, Peter Leithart, with approval but today's the day. Go here to read Hart's observations titled "The Problem and the Solution." The problem: the demands of radical Islam. The solution: liberalism (classically understood).

I'll let you read Hart's brief piece on your own; it's sufficiently succinct it needs no summary from me.

And, in case anyone wonders what I think, read Looking for Bedrock: Accounting for Human Rights in Classical Liberalism, Modern Secularism, and the Christian Tradition (download by going here). (Hint: political liberalism--distinguished from current progressivism--is pretty good as forms of political life go. Whether it can continue in light of the unnatural anthropological demands of contemporary secularism remains an open question.)

14 January 2015

Latest on Bankruptcy Court Jurisdiction

As usual, the Wall Street Journal has a nice, very brief summary of the issues and argument in a case heard today by the Supreme Court, Wellness International Network v. Sharif. You can read it here.

I suspect the Court will again dodge the fundamental issue of the reach of bankruptcy court jurisdiction. The Court will be hard-pressed to create more uncertainty because, in addition to bankruptcy judges, that would undermine the powers of United States Magistrates. Thus, I'm betting the Court will find that the litigants now before the court voluntarily submitted their case to the bankruptcy court for resolution and can't complain it didn't have the power to enter a decision after the fact.