Introduction

The Winter 2009 issue of the American Bankruptcy Institute Law Review is an outstanding edition featuring articles on a variety of topics. The issue includes three open-issue pieces and an LL.M. thesis examining new issues in the field of bankruptcy law. Additionally, the issue contains a symposium on Alternative Dispute Resolution in Bankruptcy, consisting of seven articles.

The issue begins with a piece by Daniel J. Bussel, Multiple Claims, Ivanhoe and Substantive Consolidation. The article examines the Supreme Court's decision in Ivanhoe Building & Loan Ass'n v. Orr. and how the decision created a multiplication of claims problem. The author posits that Ivanhoe should be overruled on its own facts, but if not, its application should be limited to its facts. The author argues that Ivanhoe's holding disproportionately overcompensates creditors with limited recourse against nondebtor collateral or nondebtor guarantors. By extending Ivanhoe to apply in cases of nondebtor co-obligors and guarantors with rights of contribution, reimbursement or subrogation the bankruptcy estate is further depleted by the multiplying of claims. Additionally, the author argues that if the holding in Ivanhoe is extended to debtor co-obligors, it creates an incentive to substantively consolidate, which has broad systemic implications. Finally, the author asserts that the failure to limit Ivanhoe leaves substantive consolidation as the only practical response, until the Supreme Court or the Congress expressly reject the decision.

David Gray Carlson provided the issue's second article, The Chapter 13 Estate and Its Discontents. The article sets forth a coherent theory of chapter 13, which the author refers to as the "Divestment Theory" ("DT"). Under the DT, the filing of the bankruptcy petition creates a chapter 13 estate. Upon plan confirmation, the estate ends, except as to funds the debtor successfully transmits to the chapter 13 trustee for the benefit of creditors. The author argues that, although DT may be not a perfect theory, it is the most appropriate in light of the language of the bankruptcy code.

The last of the open-issue pieces, Are DIP and Committee Counsel Fiduciary for Their Clients or the Bankruptcy Estate? What is a Fiduciary, Anyway?, is written by Susan M. Freeman. The author examines to whom counsel for the DIP and Committee owe a fiduciary duty. The author reports that many bankruptcy courts have found that the DIP and Committee counsel owe a fiduciary duty to more than just their client; they owe a fiduciary duty to creditors that may even supersede their duties to the client. The author also argues that when courts find that the DIP or Committee counsel owe a fiduciary duty to the estate, the labeling is broad and can have undesired and unintended ramifications. Finally, the author posits that it is not necessary to impose on DIP counsel an undefined fiduciary duty to the estate and its beneficiaries because courts could reach the same result through other means. Courts could achieve the same goals by finding breach of counsel’s fiduciary duty to the DIP or committee client, violations of Bankruptcy Rule 9011, Bankruptcy Code sections 327 or 329, failure to provide services which benefit the estate under Code section 330, or breach of professional conduct codes or rules.

On October 2, 2009 the American Bankruptcy Institute Law Review in conjunction with the Hugh L. Carey Center for Dispute Resolution, and the St. John's Institute for Bankruptcy Policy hosted a symposium entitled, "ADR Meets Bankruptcy: Cross-Purposes or Cross-Pollination." The symposium brought together prominent scholars from the fields of bankruptcy law and dispute resolution to discuss the role of arbitration and mediation in bankruptcy courts.

Leading off the symposium is Some Reflections from the Bench on Alternative Dispute Resolution in Business Bankruptcy Cases, by the Honorable Elizabeth S. Stong. In her article, Judge Stong examines the history and purpose alternative dispute resolution and then examines whether it has a place in the bankruptcy context.

The second piece, The Uses of Mediation in Chapter 11 Cases, by Ralph Peeples, explores the extent of the use of mediation in bankruptcy courts. The author reports the results of his survey that sought to determine whether bankruptcy courts have authorized the use of mediation. Through his research, the author discovered that the number of courts allowing mediation has continued to grow. Additionally, the author examined which types of cases enter mediation and found that Chapter 11 cases rarely did. The author suggests, however, that these cases are often suited to mediation, because it can allow parties to create a plan for confirmation and establish rules governing their relationship after confirmation. Finally, the author argues that although there may be many unanswered questions about the use of mediation and bankruptcy, the benefits of using mediation should not be disregarded.

You’ve Got Your Mother’s Laugh: What Bankruptcy Mediation Can Learn from the Her/History of Divorce and Child Custody Mediation by Nancy A. Welsh is the third piece from the symposium. The article examines the use of mediation in the bankruptcy courts. During this examination, the author questions whether bankruptcy courts and lawyers understand the purposes and goals of mediation, and whether the courts are using mediation appropriately. Next, the author turns to how mediation tools have developed in the area of family law. The author suggests that bankruptcy professionals could benefit by learning from the her/history of mediation in family courts, and applying those lessons to the use of mediation in a bankruptcy context. Finally, the author briefly concludes by commenting on how the bankruptcy courts could begin to employ “traditional neutrals,” such as trustees and examiners, in order to more appropriately use mediation as a tool in bankruptcy.

In the following article, The Third Way: Mediation of Products Claim in the Piper Aircraft Trust by William J. Woodward Jr., the author examines the unusual success of the mediation process created by the Piper Aircraft Trust for future claims asserted against the Piper Aircraft Company. The author then discusses how this mediation process could be applied in other bankruptcy cases. Using the recent Chrysler and GM bankruptcies as examples, the author asserts that if a special trust fund had been created in these cases for present and future claimants, it could save the new companies money and to avoid the distraction of "old company" litigation. Finally, the author concludes that the use of mediation in Piper Aircraft shows a "third way" for Bankruptcy cases to handle that "old" liability, one that in some cases may turn out to be better than the alternatives for everyone involved, especially for the new companies emerging from bankruptcy and for the claimants.

In the fourth article, Bankruptcy Law’s Treatment of Creditors’ Jury-Trial and Arbitration Rights, Stephen J. Ware examines the apparent anomaly that enables bankruptcy courts to deprive a party the right to a jury trial, a constitutional right, while maintaining a party’s right to arbitration, which is merely provided by statute. The author argues that the distinction lies in how courts interpret the language of the Seventh Amendment, which grants the right to a jury trial, as compared to how courts interpret the language in the Federal Arbitration Act, which provides the ability to seek arbitration. The difference, as the author discusses, lies in the law/equity distinction and the equitable jurisdiction of the bankruptcy courts. The author concludes that, since the Seventh Amendment by its terms limits the right to a jury trial to claims at law, the disparity of the treatment of the two rights is understandable, despite the loftier origins of the right to a jury trial.

The next article is Limiting the Arbitration Opt-Out in Bankruptcy by Marianne B. Culhane. In the article, the author discusses the Bankruptcy courts’ use of the Supreme Courts decision Shearson/American Express Inc. v. McMahon focusing on the third prong of the McMahon test. In order to meet the third prong of the McMahon test, Bankruptcy courts examine the facts of each case to determine whether arbitration of a particular issue would sufficiently frustrate the purpose of some underlying Bankruptcy Code. The author argues that the bankruptcy court's initial decision on whether to compel arbitration using the McMahon test is a lengthy and burdensome process, leading to further delay and expense. Rather than use the McMahon test, the author posits that courts should apply the bright-line rule established by Professor Alan Resnick: arbitration agreements involving core proceedings in bankruptcy should generally not be arbitrated and agreements to arbitrate involving non-core matters should generally be enforced. The authors asserts that such a bright-line rule would reduce delays and enhance participation in Bankruptcy cases while furthering the protection of the rights of all parties to the bankruptcy proceedings.

The last symposium piece, Arbitration, Bankruptcy, and Public Policy: A Contractarian Analysis, is written by Paul F. Kirgis. In the article, the author addresses the issue as to whether a bankruptcy judge should enforce an otherwise valid arbitration clause or to refuse enforcement and decide the underlying dispute themselves. Presently, bankruptcy judges often decline to enforce arbitration agreements when they find that bankruptcy policy favors adjudication in the bankruptcy forum. The author argues that arbitration agreements should be upheld in bankruptcy unless doing so prevents a party from enforcing their statutory rights. In order to ensure that the decisions of the arbitrators do not contravene the policies and goals of bankruptcy law, the author proposes allowing bankruptcy court review of arbitrators decisions. In conclusion, the author argues that although bankruptcy and arbitration may clash at times, bankruptcy courts should honor contractual arbitration agreements. However, the court should refuse to enforce and arbitration agreement when it compromises an important interests at stake in the bankruptcy.

The final piece in the issue is an LL.M. thesis authored by William Hildbold, entitled Will Section 1141(d)(6) of the Bankruptcy Code Destroy Corporate Chapter 11 Reorganizations by Rendering SEC Claims Non-dischargeable?. The author discusses the SEC's use of section 1141(d)(6) in In re Bally Total Fitness of NY. In this case, the SEC used section 1141(d)(6) and section 523(a)(2) of the Bankruptcy Code to except from discharge debts owed to it based on violations of the securities laws. The article seeks to explain why the SEC's claims against the debtor should be discharged, arguing that the SEC cannot meet the standards set for non-dischargeability announced by the Supreme Court in Field v. Mans. Finally, the author argues that the SEC's use of Section 1141(d)(6) threatens to prevent many large corporate debtors from reorganizing under Chapter 11 and could force them to liquidate under Chapter 7.

The Editorial Board would like to thank all of the authors for contributing to another remarkable issue of the American Bankruptcy Institute Law Review. Further, many thanks to the editors, the staff, and particularly our faculty advisor, Professor G. Ray Warner. The ABI Law Review continues to be an especially rewarding and positive experience for the students at St. John's University School of Law.

Elizabeth L. Anderson and the Editorial Board