U.S. Solicitor General: A Biased Advocate Before The U.S. Supreme Court On Bankruptcy Issues–Again (City of Chicago v. Fulton)

City of Chicago (Photo by Marilyn a Swanson)

By: Donald L Swanson

The case before the U.S. Supreme Court is City of Chicago v. Fulton, Case No. 19-357.  It is scheduled for oral argument on Tuesday, October 13, 2020.

Facts

The essential facts are these:

  • City of Chicago impounds Fulton’s car to collect fines and penalties totaling $11,831.20 from Fulton’s 54 separate traffic violations;
  • Fulton wants the car returned but can’t pay the fines and penalties to get it back;
  • So, Fulton files Chapter 13 bankruptcy to obtain benefits of, (i) the automatic stay prohibition against “any act . . . to exercise control over property of the estate,” and (ii) the turnover requirement in § 542(a);
  • City of Chicago refuses to surrender possession of the vehicle to Fulton in bankruptcy; so
  • Fulton demands sanctions for violating the automatic stay—and the dispute is now before the U.S. Supreme Court.  

Amicus Briefs

Multiple amicus briefs are filed on both sides of the question. 

Amicus briefs supporting the City of Chicago include:

  1. International Municipal Lawyers’ Association, arguing that “Local governments across the country rely on vehicle impoundment to enforce traffic safety laws”; and
  2. Various municipal organizations, including National Association of Counties, National League of Cities and United States Conference of Mayors, arguing that the “immediate-release rule . . . imperils enforcement of traffic safety laws and incentivizes frivolous bankruptcy filings.”

Amicus briefs supporting Fulton include:

  1. National Association of Bankruptcy Trustees, arguing that (i) the City’s conduct violates the automatic stay, and (ii) § 542(a) turnover requirements are mandatory and self-executing;
  2. National Association of Chapter Thirteen Trustees, arguing that (i) the plain meaning of § 362(a)(3) should control, (ii) any withholding of possession should be rare and temporary, and (iii) a debtor’s use of a vehicle “is often the linchpin” of an entire Chapter 13 plan; and
  3. American Civil Liberties Union, arguing, (i) the automatic stay is a “fundamental debtor protection that facilitates a fresh start,” (ii) the nationwide municipal trend of raising revenue through such fines and impoundment buries people in debt and creates a dire need for a fresh start, and (iii) a debtor regaining use of a vehicle promotes the fresh start that Congress intended by automatic stay and turnover provisions.

Solicitor General Disappoints—Again

As predictable as traffic violations in Chicago is the Solicitor General taking a biased position on bankruptcy issues—on the side of secured creditors.

The Solicitor General’s amicus brief acknowledges its conflict of interest as follows:

  • “The United States is the Nation’s largest creditor, and federal agencies often possess property of persons who have filed for bankruptcy”; and
  • “In addition, United States Trustees are charged with supervising the administration of bankruptcy cases, including overseeing private trustees who may seek to compel creditors to return property of a debtor’s estate as part of the trustees’ statutory duty.”

So . . . the Solicitor General must choose, in its amicus brief, which side it will take.  And, as always, it chooses the secured creditor side.  It rejects and abandons the interests of the bankruptcy trustees and the bankruptcy estate.

Here’s the positions it takes:

  • “The text and structure of the Bankruptcy Code demonstrate that the automatic stay does not compel turnover of property that was seized by a creditor before the bankruptcy petition was filed”;
  • “The history of Sections 362(a) and 542(a) confirms that Section 362(a)(3) does not reach the City’s passive retention of respondents’ vehicles”; and
  • “Enforcing turnover through Section 362(a)(3) is inconsistent with the broader policy of the Bankruptcy Code.”

What’s disappointing here has nothing directly to do with the substance of the Solicitor General’s legal position. The disappointment is that the Solicitor General’s position is both:

  • Directly opposite to the amicus positions taken by two bankruptcy trustee organizations; and
  • Entirely consistent with the position every secured creditor would take.

What’s most disappointing is that the Solicitor General always sides with secured creditors over what might be best for the Bankruptcy Code and the bankruptcy system in general. 

The Bankruptcy Code, and everyone who works with and applies it, deserve better from the Solicitor General. 

What we need is a representative of the U.S. Government who argues before the U.S. Supreme Court frequently on bankruptcy issues and looks exclusively to the best interests of the Bankruptcy Code and the entire bankruptcy system. 

Terrible Optics

Moreover, the Supreme Court granted this Motion: “”the Solicitor General, on behalf of the United States, respectfully moves for leave to participate in the oral argument.”

And get this. The same Motion says that the City of Chicago, “has agreed to cede ten minutes of argument time to the United States.”

So . . . the Solicitor General will be throwing the full weight of the United States Government on the side of the City of Chicago. And it will be doing so as part of the City’s own argument time.

What’s fair or right or just about that?! It’s conflicts of interest at their very worst. The optics are terrible.

Surely, the best interests of the Bankruptcy Code and our bankruptcy system will prevail here. But it looks bad!

Conclusion

This is a great disservice to our Bankruptcy Code and the bankruptcy system surrounding it:

  • the Solicitor General of the United States of America arguing before the U.S. Supreme Court in a biased manner—always in favor of the secured creditor’s position.

What’s needed is a representative of the U.S. Government arguing before the U.S. Supreme Court, frequently and consistently in an unbiased manner that focuses, exclusively, on what’s best for the Bankruptcy Code and the entire system surrounding it.

Is that too much to ask?!

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