18 Oct First-Day Motions as Literature
In a well-known quote, Depression-era author Thurmond Arnold once described the inside of a corporate reorganization as:
a combination of a municipal election, a historical pageant, an antivice crusade, a graduate school seminar, a judicial proceeding, and a series of horse trades, all rolled into one — thoroughly buttered with learning and frosted with distinguished names. Here the union of law and economics is celebrated by one of the wildest ideological orgies in intellectual history. Men work all night preparing endless documents in answer to other endless documents . . . . At the same time practical politicians utilize every resource of patronage, demagoguery, and coercion beneath the solemn smoke screen.
Most litigators understand the compelling power of story as a means to rationalize and persuade. In bankruptcy, a debtor’s “first day motions” are the initial means by which counsel has to weave the “wild orgy” of corporate restructuring into a cohesive narrative that will serve the client’s interests.
Because business insolvency and its resolution typically follow a well-understood process with a predictable set of possible outcomes, the “first day” narratives describing a debtor’s demise – and setting forth its “exit strategy” – likewise often follow familiar patterns. These patterns have been adapted over the decades to suit the capital structure of distressed firms and the economic conditions they face. But in the end, they remain . . . familiar patterns.
Penn Law Professor David Skeel, Jr. has recently taken up an engaging, non-empirical analysis of these patterns as they have appeared in US bankruptcy law. In Competing Narratives in Corporate Bankruptcy: Debtor in Control vs. No Time To Spare (published most recently as Research Paper No. 10-20 under the auspices of Penn Law’s Institute for Law and Economics and previously in the Winter 2009 issue of Michigan State Law Review) Skeel argues that such narratives have been utilized historically to justify and obtain judicial sanction for what, at the time, may be innovative, even controversial, reorganization techniques attempted within the strictures of a fixed bankruptcy legal structure. In bankruptcy, he suggests, the power of narrative grows out of the innovation employed to restructure a firm, and is then used to strengthen and further extend the innovation.
Skeel – who earlier authored Debt’s Dominion: A History Of Bankruptcy Law In America – traces this narrative and its variations from the early “equity receiverships” utilized to reorganize railroads through the early cases filed in the wake of the 1978 Bankruptcy Code, and to the more recent 2008-09 “headline” cases of Lehman Brothers, Chrysler, and General Motors. Observing that reorganizations proposed over the last 30 years have been explained using one of two predominant narratives – “Debtor in Control” (used most commonly to justify the debtor’s further prosecution of an ongoing reorganization) or “No Time to Spare” (often used to justify the sale of the debtor’s business assets) – he then circles back to ask whether the “innovations” proposed are justifiable under either narrative.
Skeel’s treatment of narrative – particularly, in questioning whether there was truly “no time to spare” in the Lehman, Chrysler, and GM bankruptcies – is insightful. As he sees it:
Bankruptcy’s master narratives have always been closely intertwined with the underlying legal structures, which suggests that bankruptcy judges and bankruptcy law will determine the future of . . . current, competing narratives.
Though his work covers narrative in the domestic bankruptcy context, the same complexity and requests for emergency, interim relief that require narrative explanation also arise in cross-border insolvencies.
As these “master narratives” become intertwined with multiple (and potentially conflicting) “legal structures,” their continued evolution bears close watching.