Restructuring

At the Weil Bankruptcy Blog, we thought one of the best ways we could honor the memory of Harvey R. Miller was through his own words.  The many speeches, award acceptances, lectures, and Congressional testimony Harvey gave over the years provide insight into the development of bankruptcy law and offer a personal perspective of someone who was intimately involved in many Page 1 economic stories for well over 50 years.  More than that, though, Harvey’s wit, respect and passion for his profession, fierce intelligence, sometimes brutal intellectual honesty, and even humility shine though in his own words.  
We thought we would start today with a speech Harvey gave in April, 2002 upon receiving the Distinguished Service Award from the Emory Bankruptcy Developments Journal:

***

It is a great pleasure to be here tonight and an honor to receive the Emory Bankruptcy Developments Journal Annual Distinguished Service Award.  It is also somewhat awesome.  I have always been reluctant to accept awards.  First, because I have great difficulty in talking about myself.  Second, I am always concerned that I really don’t deserve the award, and before I finish my acceptance, you all will recognize the truth.
Indeed, I am reminded that when John F. Kennedy was asked how he became a hero, he replied, “It was involuntary.  They sank my PT boat!”
I sometimes feel as if they sank my PT boat.  However, I have decided not to dispute your collective wisdom, and I graciously and humbly accept the award.  Nonetheless, it has caused me to retrospectively review my career, the impact, if any, that I have made on the development of bankruptcy reorganization law, and how it all came to be.  To be perfectly candid, I was both lucky and fortunate.  Fortunate in the sense that I was given the opportunity to get a great education in the public schools of New York City and became the first member of my family to graduate from college.  My wife, Ruth, whose support throughout our lives together has been crucial, encouraged me to apply to Columbia Law School.  I did, and I was accepted.  I was subjected to the Socratic method of great professors who imbedded in me a love of the law.
Lucky in the sense that, from the point of graduation from law school, my professional life was sort of like living out a fantasy.  As a senior in high school, I had read a book about a young lawyer who was employed by a government agency and was called upon to try a case against the legendary John W. Davis.  He tried the case, and he did such a good job that after the trial, John W. Davis offered him a position.  He later became one of the senior partners in Mr. Davis’s law firm.  In my case, I had little desire or, indeed, intention to become involved in or practice bankruptcy law.  In fact, after registering for the Creditors’ Rights course and attending two sessions of that elective, I elected to drop it as boring.  So how did I become a bankruptcy lawyer?  It was purely fortuitous, but a great stroke of good fortune.
By sheer chance, among the variety of matters that were assigned to me as a first-year associate was a bankruptcy matter.  I was walking down the hallway of the office, minding my own business, and I was grabbed by a partner and given an extremely important assignment.  I was to go to the Bankruptcy Court and get an adjournment of a first meeting of creditors.  I did not ask any questions for fear of looking stupid.  I took the file and studied it.  I had no idea what a first meeting of creditors was, and I got more confused when I learned that the first meeting of creditors already had been adjourned 35 times.  In addition, I could not find any reference in the file or in the former Bankruptcy Act to a second meeting of creditors.  In fact, in almost 40 years at the bar, I have never heard of a second meeting of creditors.
In any event, I had only been working for two months, and I had not been admitted to the federal courts.  I told that to the partner.  He told me fear not as I was only asking for an adjournment, and it would be uncontested.
I acquiesced.  The Referee in Bankruptcy (we did not have bankruptcy judges in those days) was Robert P. Stephenson.  I remember the name of the case, Lorraine Smart Shops, Inc.  The courtroom was packed.  The Referee, a curmudgeon-like man, entered with a scowl on his face, wearing space shoes and a nylon puckered shirt.  Referees did not wear robes.
The first case was called.  It was a motion by a secured creditor to vacate a stay order.  Three young men from Sullivan & Cromwell approached the counsel table.  Each was wearing a dark, heavy three-piece suit epitomizing the then prototype Wall Street lawyer.  The temperature in the courtroom was about 96°.
The first question the Referee asked of the lead Sullivan & Cromwell attorney after he introduced himself was, “Are you admitted to the Bar?”  I cringed in my seat as the attorney responded, “Of course.”  Referee Stephenson persisted and asked, “When and where?”  The attorney quickly responded, “First Department in 1958.”  Referee Stephenson immediately knew he had the attorney.  He said, “In other words, you are not admitted to the Southern District of New York?”  There was an awkward silence punctuated by my heavy breathing.  Finally, the answer came.  “No, I am not admitted to the Southern District of New York.”  Referee Stephenson excoriated the unfortunate Wall Street lawyer to the point that the buttons on his vest began to pop off, and the motion likewise was marked off.
As all of this was happening, I began to dissolve in a pool of perspiration in the back of the courtroom, thinking of the partner’s last comment to me, “If you can’t get an uncontested adjournment, don’t bother to come back.”  I thought quickly and decided I was in trouble.
My case was called.  I decided honesty was the best policy.  I explained to Referee Stephenson that I was not admitted and that I was in court simply to inform the court of the agreement of the parties so that the court could set another date.  With my confession, this stern-looking man smiled and kindly thanked me.  He then asked me if I understood the significance of a first meeting of creditors.  He explained it to me, told me to admonish my leader about the importance of attending such meetings and set a new date.
As I walked down the steps of the courthouse empowered to admonish my boss, I said to myself, “This is my kind of a court.”
Of particular importance was my third or fourth bankruptcy assignment.  A significant chapter XI case had been filed in the Bankruptcy Court for the Southern District of New York.  The attorney of record was Charles Seligson.  The firm I was with was engaged by a hastily-formed creditors’ committee.  Under chapter XI of the former Bankruptcy Act, there was a provision that required a debtor to show cause within 10 days of the commencement of a chapter XI case why it should not be required to post indemnity against loss in operations.  The partner with whom I worked directed me to represent the creditors’ committee at the indemnity hearing and demand that the debtor be required to post an indemnity bond or deposit.  Frankly, I knew very little about indemnity.  It was less than a month since I had been admitted.
I immediately cracked the books and, in particular, Collier on Bankruptcy, but never looking at the spine of the particular volume.  I did not realize it, but apparently everybody else knew that the Bankruptcy Court never, or almost never, directed the posting of indemnity.
I was so busy preparing for the indemnity hearing that I never bothered to find out anything about Charles Seligson, who was the co-author of the particular volume of Colliers that I studied.  The hearing was to be held before Asa S. Herzog, who had obtained a reputation as an outstanding referee in bankruptcy.  I examined every document and financial record I could find concerning the debtors and prepared a financial model demonstrating future losses.  I came into the courtroom.  It was the only case on the calendar.  I spread my papers out on the counsel table as the courtroom filled up with people.  Suddenly a short, benign-looking gentleman came into the courtroom followed by a big, burly young man and sat down next to me at the counsel table.  It was Charles Seligson and Leonard Rosen.  I introduced myself and Leonard Rosen introduced me to “The Professor.”  After shaking The Professor’s limp hand, I concluded to myself, “I can handle this guy.”  I felt confident.  At that point Judge Herzog came into the court room, mounted the bench, looked down and suddenly exclaimed:

“Professor Seligson, what a great honor to have you in my courtroom.”

He then came down from the bench, walked around the counsel table, ignored me, and shook hands with The Professor.  I quickly realized I was in serious trouble!
I persisted, presented the evidence, and I lost.  In pronouncing his decision, Judge Herzog said to me, “You made a good argument and presented a good case, but I have to go with The Professor’s recommendation.”
It wasn’t a total failure.  In fact, it was a wonderful day for me because I met two individuals who became very important in my career and my life.  I must have done something right because not along thereafter, they offered me a position, and I took it.  So, I tell you, don’t give up your fantasies.  Sometimes they come true.
For 15 years Professor Seligson was my mentor, my guide, and, best of all, my friend.  We worked together on many reorganization cases, and he never failed to encourage me to be innovative and imaginative in the development of the law of bankruptcy reorganization.  In addition, I learned a great deal from wonderful teachers and friends such as Vern Countryman, Frank Kennedy, George Treister, Peter Coogan and, most importantly, Larry King.  For almost 25 years, Larry and I shared an office and teaching experiences as well as great debates as to the meaning and philosophy of the bankruptcy law and the need for balancing the interests of debtors, creditors and the community of interests that are involved in bankruptcy cases.  Of course, I had the privilege of practicing with and against the leading bankruptcy practitioners of the past 40 years.  The practice took me to all parts of the United States and, often, to international locations.
It really doesn’t seem like 40+ years have passed.  It seems much shorter.  It must be because it was an extremely enjoyable and fascinating time.  I have been told that Confucius said, “[c]hoose an occupation that you will love, and you will never work a day in your life.”
I truly can say that, despite the volumes of fee applications I have made, that I have never worked a day in my life.  It has been a great practice.  Almost nothing compares to the thrill and excitement of a successful reorganization whether on the debtor’s or creditors’ side.  The faces of people whose jobs have been saved and the looks of appreciation and gratitude of clients and others are inspiring.  Of course, there also is the pain of a failed reorganization.
As a teacher first at NYU Law School, then Yale Law School, and for the past three years, at Columbia Law School, an active participant in CLE programs and an active practitioner, I am proud to have participated over the past 40 years in the development and improvement of our bankruptcy law and, in particular, the reorganization of distressed businesses.  In a society which encourages the incurrence of debt and extension of credit and in which financial leverage is deemed beneficial for growth and investment, there will always be failure.  To deal with business failure, as well as the turbulence of personal financial distress, we need a well-balanced comprehensive bankruptcy law that has sufficient built-in flexibility to meet and deal with the challenges of too much debt, business overexpansion, illiquidity, poor judgment, fraud and other causes of financial distress while protecting the respective interests of the parties involved with fairness, candor and good judgment.
During my tenure, I have watched the bankruptcy bench grow in stature and quality to become a proud and essential segment of our federal judiciary.  Likewise, I have watched the bankruptcy bar move from being referred to as a less respectable segment of the bar practicing in an arcane, depressing area of the law to becoming an international and prestigious practice pursued by the largest and most prominent law firms in this country.
It’s amazing to consider the economic changes that have resulted in the growth in the amounts involved in restructuring and bankruptcy cases.  I remember distinctly my involvement in what was then called the great Salad Oil Scandal.  When it broke, it created enormous disruption in the financial world.  Keith Funston, then President of The New York Stock Exchange, thought the capital markets would collapse.  The Scandal broke two days after President Kennedy was assassinated.  The originator or “perp” of the Scandal, Tino DeAngelis, had set about to corner the cotton seed and soy bean markets.  He used Wall Street brokerage firms as part of his scheme as well as the warehouse subsidiary of the American Express Company.  He falsified inventories of vegetable oils, stole a pad of warehouse receipts, falsified those receipts and they were thereafter used for collateral security purposes.  Billions of pounds of vegetable oils did not exist.  It was a calamity.
To preserve the market, Mr. Funston announced that no public customer of a New York Stock Exchange firm would suffer a financial loss because of the failure of that firm.  That resulted in the creation of the Special Trust Fund of the Exchange.  As a consequence, the Exchange advanced millions of dollars to satisfy the public customers of the defunct firms.  The meeting I was called to was a meeting of the Exchange and the ten banks that were involved in the collapse of this particular brokerage firm, Ira Haupt & Co.  There were ten banks, six American money center banks and four English merchant banks.  The meeting was attended by either the CEO or the Executive Vice President of each institution.  The entire amount involved was $37 million.
Today a $37 million case would not merit much attention.  We now talk in terms of billions, and there is outstanding over $4 trillion of high yield debt.  CEOs employed by chapter 11 debtors are given signing bonuses of $2.5 million and guaranteed compensation and debt forgiveness in huge amounts.  The case of bankruptcy has certainly changed.
On a more somber note, Baron Von Bismarck once said there are two things you should not see in your life.  One is the making of sausage.  Two is the making of legislation.  I have watched the making of bankruptcy legislation.  When I first became an active practitioner in this discipline, all proposed bankruptcy legislation in the House of Representatives had to pass through a highly expert subcommittee of the House Judiciary Committee before it would be considered by the Congress.  That subcommittee had developed a substantial body of expertise.  Unfortunately, this system has changed.  The advent and expansion of intense lobbying by well-financed interests has resulted in a different approach to the legislative process.  There is no lobby for debtors except for the public spirited academics like Elizabeth Warren, Ken Klee and the National Bankruptcy Conference and practitioners who willingly give of their time and efforts in the hope of maintaining a balance between creditor’s rights and debtor protections.  The consequence of the unbalanced and well-financed lobbying is evident in the pending legislation in Congress, which for the first time in the history of this country will effectively destroy the concept of a fresh start for individuals and, if the process continues to the extent there is a fresh start concept for businesses, perhaps that also will occur.
I do not wish to end on a sad note.  There are many challenges before us.  We have met those challenges in the past, and I hope that we will all rise to the challenges in the future.  There are new horizons before us.  Technology and globalization, as Ken Klee noted, have changed what we each do on a daily basis.  Therefore, as Larry King urged at the American College of Bankruptcy, just two days before his death, “[i]n whatever form you wish to express yourself, remember, give something back,” to assure that we will continue to have the kind of bankruptcy law that will allow us to meet the rehabilitation and discharge needs of financially distressed businesses and persons in the United States.
Consistent with that thought and in connection with the scope of possibilities of the Constitutional Power under the Bankruptcy Clause, Henry Clay on April 4, 1840 noted:

The right of the State (Nation) to the use of the unimpaired faculties of its citizens as producers, as consumers, and as defenders of the Commonwealth, is paramount to any rights or relations which can be created between citizen and citizen ….I maintain that the public right of the State (Nation) in all the faculties of its members, moral and physical, is paramount to any supposed rights which appertain to a private creditor.  This is the great principle which lies at the bottom of all bankrupt laws.

The Nation should not hesitate to use those faculties in the interests of all parties.
I thank each of you for this tremendous honor.  I acknowledge the great support and loyalty that my Business Finance and Restructuring partners and associates at Weil, Gotshal & Manges have given to me.  I thank you profusely.  I wish to each of you much success in the future and at least the same level of enjoyment that I have had in pursuing my goals.