Rick Hills asks if we can be so sure that what the United States is doing to the debtholders of the auto companies isn’t a taking. I opined over at the Hearing that Chrysler’s debtholders did not have a great Takings Clause argument. I pointed to cases suggesting that the government can alter debt contracts to the detriment of the debtholder in bankruptcy, provided it doesn’t destroy all value; the judge dismissed the argument of the debtholders too.
But the Takings Clause has something to do with bankruptcy, see this case and this one. It goes beyond con law and even into the real world (where con law does not always tread). The government has a stake in Chrysler and GM even as it manages those companies through bankruptcy. That raises the specter of self-dealing. The distinction mattered to Joseph Sax in the 1960s, and Rick wonders if it matters today. I tread cautiously here, because I’m an expert in neither bankruptcy nor constitutional law.
I think this might be one of those cases where logic (self-dealing is a bad idea) and precedent point in different directions. The government often has interests in bankruptcy proceedings it supervises, and it has written in the ultimate self-dealing default rule into the code – it takes (bankrupts often owe taxes to the government), before even the senior debtholders. We don’t live in East Germany or the 1970’s UK, but the government often has an interest in firms over which it exercises some degree of supervision, especially through contract. And the US Trustees supervise bankruptcy trustees running estates with obligations to the US as well as other creditors.
These conflicts of interest do not occasion much
comment. What the government is doing to
GM’s stakeholders is bigger and perhaps in some ways badder, but I think the
difference is one of degree, not of kind.
You may disagree - give James Steven Rogers, The Impairment of Secured Creditors' Rights in Reorganization: A Study of the Relationship Between the Fifth Amendment and the Bankruptcy Clause, 96 Harv. L. Rev. 973, (1983), and Julia Patterson Forrester, Bankruptcy Takings, 51 Fla. L. Rev. 851 (1999), a look if you want to think about things more.
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1. Posted by fedgovernor on June 1, 2009 @ 14:15 | Permalink
Of course it's not a taking.
In a "taking," the other side has due process.
This is a theft.
It's also un-Constitutional. The Congress has not voted to appropriate funds for the purchase of GM.
The TARP is not a $700 billion slush fund that the President of the United States can use at his whim.
2. Posted by Jake on June 1, 2009 @ 19:42 | Permalink
Conceived and sponsored by the Federal government, the GM and Chrysler reorganization plans annihilate the absolute priority rule, that venerable linchpin of bankruptcy law, by flagrantly and arbitrarily favoring the UAW over bondholders. If this is not a Fifth Amendment taking, nothing is. Defenders of the government-imposed GM and Chrysler bankruptcy plans argue that the bondholders "consented" to their ill treatment, and, therefore, there is no governmental compulsion that might trigger a Takings Clause claim. That's rather like saying that the victim of armed robbery "consents" at gunpoint.
Any suggestion that the government engages in self-dealing in bankruptcy cases, because the IRS can assert tax claims against the debtor, is simply naive. Federal tax debts all too often go unpaid in bankruptcy, despite the tired canard to the contrary.
And it is no less naive to suggest that the US Trustee, a toothless and underfunded instrumentality, exerts any meaningful control over bankruptcy proceedings.
The Obama administration cleverly recognized that the current bankruptcy system is corrupt and subject to manipulation. The Congress cannot put the brakes on this unfortunate turn of events, since it is the Congress that created the bankruptcy system with its many glaring flaws that invite abuse.
I'm going to stop now, before I pop a vein or something.
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