Contributed by Doron P. Kenter.
Today, on Veterans’ Day, we at the Weil Bankruptcy Blog would like to take a moment to thank the veterans and current members of our armed forces for their service and their dedication to protecting and serving our country. Their commitment to our nation is most appreciated.
This blogger’s grandfather was a proud veteran of World War II. Having gone on to a successful career in real estate, he and his wife (who, as a nurse, served many veterans and active members of the country’s armed forces) taught their children and grandchildren about priorities – about doing what’s right, no matter what might pull them in other directions. On this day, we recognize that our veterans, having served our country with dedication, continue to teach us all lessons about priorities. Ignoring the obvious “absolute priority” pun, we wanted to share a gem of a bankruptcy case with you, which was obviously informed by the experience that our country shared in rallying together after the swift industrialization and rapid decline into the Great Depression after World War I. This case teaches us about the true priorities inherent in the bankruptcy regime, which we can learn from our predecessors and those who have served our country in so many ways throughout the years.
In re Plumer, 9 F. Supp. 923 (S.D. Cal. 1935)
In 1934-35, the country was in the midst of difficult times. In the wake of World War I, the country began an unprecedented era of industrialization. As is so often the case with rapid changes in the market, the bubble eventually burst. As the court so auspiciously noted:
[W]hen we thought we were turning our spears into pruning hooks and beating our swords into ploughshares, our large war material manufacturing plants changed to mass production plants. Every product from razors to radios, ploughs to threshing machines, bathtubs to automobiles, were mass produced. Billions of dollars of conditional sales contracts were negotiated by high-powered salesmen. Farms were mortgaged. We were in an age of progress and, for the moment, prosperity. Wildcat speculation was inspired in a large measure by leaders in finance. We were in an age of gas and speed, jazz and bare legs. Automobiles raced in the highway and jostled each other in the street. We found a small percentage of the people controlled a large percentage of the wealth of the country. Loans were called. Banks failed, etc. A condition was presented which the wildest dreams of the Constitution makers could not sense.
Against this backdrop, a farmer named Henry August Plumer incurred a series of losses and, through a series of now antiquated procedures, attempted to negotiate a long-term repayment plan with his creditors. Security Trust & Savings Bank, a secured creditor, sought to foreclose on Plumer’s farm. In doing so, it challenged the “Frazier-Lemke Farm Bankruptcy Act,” which restricted secured creditors’ rights to repossess farms. Though that act was ultimately ruled unconstitutional (and then successfully revised), the court in Plumer upheld Frazier-Lemke and denied the bank’s requests to set aside Plumer’s bankruptcy case to allow it to repossess the farm.
In so holding, the court propounded a vigorous theory of the bankruptcy regime of the time. Noting that the economy’s deep decline was “provided against by Divine inspiration and ‘prophetic vision’” in the form of the Constitution’s grant of authority to Congress to establish uniform bankruptcy laws, the court concluded that the emergency relief provided in the Frazier-Lemke Act was consistent with “the basic principles of the Constitution, life, liberty, and the pursuit of happiness.”
Though we take no formal position regarding the court’s holding in Plumer, this decision should be admired for its unabashed convictions. Though it may be guilty of slight hyperbole, the court’s vigorous defense of the relief provided in the bankruptcy regime of the time is too poignant to even attempt to paraphrase. In part, the court concluded as follows:
Liberty to enjoy honest labor and freedom in avenues of human endeavor in improved conditions related to other employments for separate benefits from economic gains and related enterprise for the common good, in maintenance of the economic political system, tempered by social conscience to conserve life and promote the general welfare, inspired the emergency relief. This concept moved the Congress to exercise what Chief Justice Marshall . . . denominated ‘extensive discretion.’ The Congress was presented with a ‘condition and not a theory.’ It sought to ameliorate public stress, in neutralization of threatened danger, violence, defiance of process, closing public schools at and prior to the enactment in issue. The court knows that threatened danger verging on insurrection did obtain before and at the time of this enactment throughout various farming zones in the United States.
Each [bankruptcy] act is a progressive advancement and extension of benefits to meet the need in the unfolding social economic relation between the individuals (debtors and creditors) and the public general welfare.
The act affects not an individual, but many millions. The act, while beneficial to the farmer, is equally beneficial to the security holder. Destroy the farmer, and the foundation of the government is shaken; impair the government, and value of the security is impaired. The constitutional limitations and grants of power of the Congress are read into the contract in order to fix the obligations of the parties; so, also, is the grant of power and the essential attributes of reserved sovereign power as a postulate of the legal order.
The purpose of the Congress could only be achieved through the Bankruptcy Act . . . This affords the farmer and his creditors a period of grace, that they, by functioning in harmony with the provisions of the act, and the approaching end of the depression, when the commodity dollar will more nearly equal the debt dollar, may conserve the estate, and not by immediate sacrifice wreck the whole estate.
Though the Plumer decision is decades old, its lessons are still far-reaching.
We at the Bankruptcy Blog offer our most sincere wishes for a meaningful and contemplative Veterans’ Day.
[Postscript: The Plumer court also noted, “To analyze and distinguish the numerous cases cited would unduly extend this memorandum, and would serve no useful purpose.” An early lesson in efficiency from our forebears!]