The Role of Normative Theory in Bankruptcy Debates

Iowa Law Review

Volumn 82, Issue 1, 1996, Pages 75-121

  Korobkin, Donald R ^a  

^a WESTERN NEW ENGLAND UNIVERSITY   (United States)

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EID: 0030334986     PISSN: 00210552     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (213)

1. John Rawls, Political Liberalism 45-46 (1993).
2. See infra notes 4 & 6.
3. See, e.g., Lynn M. LoPucki, Strange Visions in a Strange World: A Reply to Professors Bradley and Rosenzweig, 91 Mich. L. Rev. 79, 99-100 (1992) (arguing that Bradley and Rosenzweig's free-market proposal would only work in a non-existent world of perfect markets); Elizabeth Warren & Jay Lawrence Westbrook, Searching for Reorganization Realities, 72 Wash. U. L.Q. 1257, 1287 (1994) (criticizing recent free-market proposals as being removed from empirical realities and thus being entirely impractical).
4. See, e.g., Lynn M. LoPucki, Strange Visions in a Strange World: A Reply to Professors Bradley and Rosenzweig, 91 Mich. L. Rev. 79, 99-100 (1992) (arguing that Bradley and Rosenzweig's free-market proposal would only work in a non-existent world of perfect markets); Elizabeth Warren & Jay Lawrence Westbrook, Searching for Reorganization Realities, 72 Wash. U. L.Q. 1257, 1287 (1994) (criticizing recent free-market proposals as being removed from empirical realities and thus being entirely impractical).
5. See Douglas G. Baird & Thomas H. Jackson, Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy, 51 U. Chi. L. Rev. 97, 102 (1984) (providing reasons why protecting employees and other non-creditors through corporate reorganization law is, "as a matter of bankruptcy policy, fundamentally wrong"); Thomas H. Jackson, Bankruptcy, Non-Bankruptcy Entitlements, and the Creditors' Bargain, 91 Yale L.J. 857, 871-72 (1982) (indicating his goal of developing a normative theory by which to evaluate inter-creditor bankruptcy rules).
6. See Douglas G. Baird & Thomas H. Jackson, Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy, 51 U. Chi. L. Rev. 97, 102 (1984) (providing reasons why protecting employees and other non-creditors through corporate reorganization law is, "as a matter of bankruptcy policy, fundamentally wrong"); Thomas H. Jackson, Bankruptcy, Non-Bankruptcy Entitlements, and the Creditors' Bargain, 91 Yale L.J. 857, 871-72 (1982) (indicating his goal of developing a normative theory by which to evaluate inter-creditor bankruptcy rules).
7. Baird & Jackson, supra note 4, at 102-03.
8. Barry E. Adler, Financial and Political Theories of American Corporate Bankruptcy, 45 Stan. L. Rev. 311, 311-12 (1993) (arguing for a world of firms that carry no debt and concluding that corporate bankruptcy law would be unnecessary in such a world, based on the premise that coordination of debt collection is the only plausible justification for bankruptcy law); Philippe Aghion et al., Improving Bankruptcy Procedure, 72 Wash. U. L.Q. 849, 851-52 (1994) (using economic theory to identify "desirable goals for a bankruptcy procedure" and arguing that their proposal for a Chapter 11 bidding process better meets those goals); James W. Bowers, Whither What Hits the Fan?: Murphy's Law, Bankruptcy Theory, and the Elementary Economics of Loss Distribution, 26 Ga. L. Rev. 27, 35 (1991) (arguing that bankruptcy law's creditor remedies should be abolished and that nonbankruptcy law should determine distributions, based on his claim that such an approach would be "efficient" and "maximize welfare"); Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 Yale L.J. 1043, 1089 (1992) (recommending repeal of Chapter 11 as a means of achieving "more efficient allocations of the assets" of financially distressed firms and thereby enhancing "social welfare"); Robert K. Rasmussen, Debtor's Choice: A Menu Approach to Corporate Bankruptcy, 71 Tex. L. Rev. 51, 54 (1992) (arguing that bankruptcy law is merely a term of the contract between a firm and Its creditors and that a menu approach to bankruptcy law would assist parties in obtaining the "efficient contract term").
9. Barry E. Adler, Financial and Political Theories of American Corporate Bankruptcy, 45 Stan. L. Rev. 311, 311-12 (1993) (arguing for a world of firms that carry no debt and concluding that corporate bankruptcy law would be unnecessary in such a world, based on the premise that coordination of debt collection is the only plausible justification for bankruptcy law); Philippe Aghion et al., Improving Bankruptcy Procedure, 72 Wash. U. L.Q. 849, 851-52 (1994) (using economic theory to identify "desirable goals for a bankruptcy procedure" and arguing that their proposal for a Chapter 11 bidding process better meets those goals); James W. Bowers, Whither What Hits the Fan?: Murphy's Law, Bankruptcy Theory, and the Elementary Economics of Loss Distribution, 26 Ga. L. Rev. 27, 35 (1991) (arguing that bankruptcy law's creditor remedies should be abolished and that nonbankruptcy law should determine distributions, based on his claim that such an approach would be "efficient" and "maximize welfare"); Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 Yale L.J. 1043, 1089 (1992) (recommending repeal of Chapter 11 as a means of achieving "more efficient allocations of the assets" of financially distressed firms and thereby enhancing "social welfare"); Robert K. Rasmussen, Debtor's Choice: A Menu Approach to Corporate Bankruptcy, 71 Tex. L. Rev. 51, 54 (1992) (arguing that bankruptcy law is merely a term of the contract between a firm and Its creditors and that a menu approach to bankruptcy law would assist parties in obtaining the "efficient contract term").
10. Barry E. Adler, Financial and Political Theories of American Corporate Bankruptcy, 45 Stan. L. Rev. 311, 311-12 (1993) (arguing for a world of firms that carry no debt and concluding that corporate bankruptcy law would be unnecessary in such a world, based on the premise that coordination of debt collection is the only plausible justification for bankruptcy law); Philippe Aghion et al., Improving Bankruptcy Procedure, 72 Wash. U. L.Q. 849, 851-52 (1994) (using economic theory to identify "desirable goals for a bankruptcy procedure" and arguing that their proposal for a Chapter 11 bidding process better meets those goals); James W. Bowers, Whither What Hits the Fan?: Murphy's Law, Bankruptcy Theory, and the Elementary Economics of Loss Distribution, 26 Ga. L. Rev. 27, 35 (1991) (arguing that bankruptcy law's creditor remedies should be abolished and that nonbankruptcy law should determine distributions, based on his claim that such an approach would be "efficient" and "maximize welfare"); Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 Yale L.J. 1043, 1089 (1992) (recommending repeal of Chapter 11 as a means of achieving "more efficient allocations of the assets" of financially distressed firms and thereby enhancing "social welfare"); Robert K. Rasmussen, Debtor's Choice: A Menu Approach to Corporate Bankruptcy, 71 Tex. L. Rev. 51, 54 (1992) (arguing that bankruptcy law is merely a term of the contract between a firm and Its creditors and that a menu approach to bankruptcy law would assist parties in obtaining the "efficient contract term").
11. Barry E. Adler, Financial and Political Theories of American Corporate Bankruptcy, 45 Stan. L. Rev. 311, 311-12 (1993) (arguing for a world of firms that carry no debt and concluding that corporate bankruptcy law would be unnecessary in such a world, based on the premise that coordination of debt collection is the only plausible justification for bankruptcy law); Philippe Aghion et al., Improving Bankruptcy Procedure, 72 Wash. U. L.Q. 849, 851-52 (1994) (using economic theory to identify "desirable goals for a bankruptcy procedure" and arguing that their proposal for a Chapter 11 bidding process better meets those goals); James W. Bowers, Whither What Hits the Fan?: Murphy's Law, Bankruptcy Theory, and the Elementary Economics of Loss Distribution, 26 Ga. L. Rev. 27, 35 (1991) (arguing that bankruptcy law's creditor remedies should be abolished and that nonbankruptcy law should determine distributions, based on his claim that such an approach would be "efficient" and "maximize welfare"); Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 Yale L.J. 1043, 1089 (1992) (recommending repeal of Chapter 11 as a means of achieving "more efficient allocations of the assets" of financially distressed firms and thereby enhancing "social welfare"); Robert K. Rasmussen, Debtor's Choice: A Menu Approach to Corporate Bankruptcy, 71 Tex. L. Rev. 51, 54 (1992) (arguing that bankruptcy law is merely a term of the contract between a firm and Its creditors and that a menu approach to bankruptcy law would assist parties in obtaining the "efficient contract term").
12. Barry E. Adler, Financial and Political Theories of American Corporate Bankruptcy, 45 Stan. L. Rev. 311, 311-12 (1993) (arguing for a world of firms that carry no debt and concluding that corporate bankruptcy law would be unnecessary in such a world, based on the premise that coordination of debt collection is the only plausible justification for bankruptcy law); Philippe Aghion et al., Improving Bankruptcy Procedure, 72 Wash. U. L.Q. 849, 851-52 (1994) (using economic theory to identify "desirable goals for a bankruptcy procedure" and arguing that their proposal for a Chapter 11 bidding process better meets those goals); James W. Bowers, Whither What Hits the Fan?: Murphy's Law, Bankruptcy Theory, and the Elementary Economics of Loss Distribution, 26 Ga. L. Rev. 27, 35 (1991) (arguing that bankruptcy law's creditor remedies should be abolished and that nonbankruptcy law should determine distributions, based on his claim that such an approach would be "efficient" and "maximize welfare"); Michael Bradley & Michael Rosenzweig, The Untenable Case for Chapter 11, 101 Yale L.J. 1043, 1089 (1992) (recommending repeal of Chapter 11 as a means of achieving "more efficient allocations of the assets" of financially distressed firms and thereby enhancing "social welfare"); Robert K. Rasmussen, Debtor's Choice: A Menu Approach to Corporate Bankruptcy, 71 Tex. L. Rev. 51, 54 (1992) (arguing that bankruptcy law is merely a term of the contract between a firm and Its creditors and that a menu approach to bankruptcy law would assist parties in obtaining the "efficient contract term").
13. See supra notes 4 & 6. Nonetheless, two of the free-market critics do not reveal their position on the question of whether theory can furnish an authoritative viewpoint for evaluating the purposes of bankruptcy law. See Lucian Arye Bebchuk, A New Approach to Corporate Reorganizations, 101 Harv. L. Rev. 775, 776-77 (1988) (presenting an alternative "method for dividing the reorganization pie," but refusing to "advance, or indeed take any position on, the proposition that having reorganization is desirable"); Mark J. Roe, Bankruptcy and Debt: A New Model for Corporate Reorganization, 83 Colum. L. Rev. 527, 536 (1983) (basing his proposal to require all-equity reorganization plans on current bankruptcy purposes, rather than on a critical view about what bankruptcy purposes should be).
14. See supra notes 4 & 6. Nonetheless, two of the free-market critics do not reveal their position on the question of whether theory can furnish an authoritative viewpoint for evaluating the purposes of bankruptcy law. See Lucian Arye Bebchuk, A New Approach to Corporate Reorganizations, 101 Harv. L. Rev. 775, 776-77 (1988) (presenting an alternative "method for dividing the reorganization pie," but refusing to "advance, or indeed take any position on, the proposition that having reorganization is desirable"); Mark J. Roe, Bankruptcy and Debt: A New Model for Corporate Reorganization, 83 Colum. L. Rev. 527, 536 (1983) (basing his proposal to require all-equity reorganization plans on current bankruptcy purposes, rather than on a critical view about what bankruptcy purposes should be).
15. See, e.g., John D. Ayer, Through Chapter 11 with Gun or Camera, But Probably Not Both: A Field Guide, 72 Wash. U. L.Q. 883, 883-84 (1994) (distancing himself from the view that bankruptcy law can be "neatly modeled" by either the use of economic theory or "an abstract model of justice in moral philosophy"); Jean Braucher, Bankruptcy Reorganization and Economic Development, 23 Cap. U. L. Rev. 499, 511 (1994) (indicating that the "first task for business bankruptcy scholars" lies in empirical research, rather than the development of normative theory); David Gray Carbon, Philosophy in Bankruptcy, 85 Mich. L. Rev. 1341, 1389 (1987) (stating that "[t]he whole idea of finding a deep structure in a complicated, historical artifact such as the Bankruptcy Code was doomed from the start"); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 Emory L.J. 1009, 1023 (1987) (indicating that "[i]t would be irresponsible . . . to suggest that for all outcomes, special and general protections in bankruptcy can be justified or explained by one, or even several overarching policies, regardless of whether these concepts are based in equity or in economics"); Linda J. Rusch, Bankruptcy Reorganization Jurisprudence: Matters of Belief, Faith, and Hope - Stepping into the Fourth Dimension, 55 Mont. L. Rev. 9, 16 (1994) (arguing that competing theories of bankruptcy law ultimately reduce to competing "beliefs and values" which cannot be shown to be true or false); Elizabeth Warren, Bankruptcy Policy, 54 U. Chi. L. Rev. 775, 811 (1987) (criticizing Baird's use of a "single, unified theory of bankruptcy" and offering instead a "complex view of bankruptcy that constantly reminds the player how little she knows about the empirical assumptions that underlie the game or whether other elusive values influence the balance among competing interests"). Some scholars seem more inclined to accept normative theory in bankruptcy, but nonetheless express serious reservations about the methodology of currently available theories. See Karen Gross, Taking Community Interests into Account in Bankruptcy: An Essay, 72 Wash. U. L.Q. 1031, 1037 (1994) (criticizing the methodology of current bankruptcy theories as being based on "a belief in an overarching theoretical construct" and offering aspects of feminist theory as a corrective); Mary Josephine Newborn, The New Rawlsian Theory of Bankruptcy Ethics, 16 Cardozo L. Rev. 111, 146 (1994) (arguing that "[w]e need to rethink seriously the idea that we can establish and state fundamental norms in bankruptcy by using mechanistic choice procedures, whether from efficiency contractarians or deontological contractarians").
16. See, e.g., John D. Ayer, Through Chapter 11 with Gun or Camera, But Probably Not Both: A Field Guide, 72 Wash. U. L.Q. 883, 883-84 (1994) (distancing himself from the view that bankruptcy law can be "neatly modeled" by either the use of economic theory or "an abstract model of justice in moral philosophy"); Jean Braucher, Bankruptcy Reorganization and Economic Development, 23 Cap. U. L. Rev. 499, 511 (1994) (indicating that the "first task for business bankruptcy scholars" lies in empirical research, rather than the development of normative theory); David Gray Carbon, Philosophy in Bankruptcy, 85 Mich. L. Rev. 1341, 1389 (1987) (stating that "[t]he whole idea of finding a deep structure in a complicated, historical artifact such as the Bankruptcy Code was doomed from the start"); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 Emory L.J. 1009, 1023 (1987) (indicating that "[i]t would be irresponsible . . . to suggest that for all outcomes, special and general protections in bankruptcy can be justified or explained by one, or even several overarching policies, regardless of whether these concepts are based in equity or in economics"); Linda J. Rusch, Bankruptcy Reorganization Jurisprudence: Matters of Belief, Faith, and Hope - Stepping into the Fourth Dimension, 55 Mont. L. Rev. 9, 16 (1994) (arguing that competing theories of bankruptcy law ultimately reduce to competing "beliefs and values" which cannot be shown to be true or false); Elizabeth Warren, Bankruptcy Policy, 54 U. Chi. L. Rev. 775, 811 (1987) (criticizing Baird's use of a "single, unified theory of bankruptcy" and offering instead a "complex view of bankruptcy that constantly reminds the player how little she knows about the empirical assumptions that underlie the game or whether other elusive values influence the balance among competing interests"). Some scholars seem more inclined to accept normative theory in bankruptcy, but nonetheless express serious reservations about the methodology of currently available theories. See Karen Gross, Taking Community Interests into Account in Bankruptcy: An Essay, 72 Wash. U. L.Q. 1031, 1037 (1994) (criticizing the methodology of current bankruptcy theories as being based on "a belief in an overarching theoretical construct" and offering aspects of feminist theory as a corrective); Mary Josephine Newborn, The New Rawlsian Theory of Bankruptcy Ethics, 16 Cardozo L. Rev. 111, 146 (1994) (arguing that "[w]e need to rethink seriously the idea that we can establish and state fundamental norms in bankruptcy by using mechanistic choice procedures, whether from efficiency contractarians or deontological contractarians").
17. See, e.g., John D. Ayer, Through Chapter 11 with Gun or Camera, But Probably Not Both: A Field Guide, 72 Wash. U. L.Q. 883, 883-84 (1994) (distancing himself from the view that bankruptcy law can be "neatly modeled" by either the use of economic theory or "an abstract model of justice in moral philosophy"); Jean Braucher, Bankruptcy Reorganization and Economic Development, 23 Cap. U. L. Rev. 499, 511 (1994) (indicating that the "first task for business bankruptcy scholars" lies in empirical research, rather than the development of normative theory); David Gray Carbon, Philosophy in Bankruptcy, 85 Mich. L. Rev. 1341, 1389 (1987) (stating that "[t]he whole idea of finding a deep structure in a complicated, historical artifact such as the Bankruptcy Code was doomed from the start"); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 Emory L.J. 1009, 1023 (1987) (indicating that "[i]t would be irresponsible . . . to suggest that for all outcomes, special and general protections in bankruptcy can be justified or explained by one, or even several overarching policies, regardless of whether these concepts are based in equity or in economics"); Linda J. Rusch, Bankruptcy Reorganization Jurisprudence: Matters of Belief, Faith, and Hope - Stepping into the Fourth Dimension, 55 Mont. L. Rev. 9, 16 (1994) (arguing that competing theories of bankruptcy law ultimately reduce to competing "beliefs and values" which cannot be shown to be true or false); Elizabeth Warren, Bankruptcy Policy, 54 U. Chi. L. Rev. 775, 811 (1987) (criticizing Baird's use of a "single, unified theory of bankruptcy" and offering instead a "complex view of bankruptcy that constantly reminds the player how little she knows about the empirical assumptions that underlie the game or whether other elusive values influence the balance among competing interests"). Some scholars seem more inclined to accept normative theory in bankruptcy, but nonetheless express serious reservations about the methodology of currently available theories. See Karen Gross, Taking Community Interests into Account in Bankruptcy: An Essay, 72 Wash. U. L.Q. 1031, 1037 (1994) (criticizing the methodology of current bankruptcy theories as being based on "a belief in an overarching theoretical construct" and offering aspects of feminist theory as a corrective); Mary Josephine Newborn, The New Rawlsian Theory of Bankruptcy Ethics, 16 Cardozo L. Rev. 111, 146 (1994) (arguing that "[w]e need to rethink seriously the idea that we can establish and state fundamental norms in bankruptcy by using mechanistic choice procedures, whether from efficiency contractarians or deontological contractarians").
18. See, e.g., John D. Ayer, Through Chapter 11 with Gun or Camera, But Probably Not Both: A Field Guide, 72 Wash. U. L.Q. 883, 883-84 (1994) (distancing himself from the view that bankruptcy law can be "neatly modeled" by either the use of economic theory or "an abstract model of justice in moral philosophy"); Jean Braucher, Bankruptcy Reorganization and Economic Development, 23 Cap. U. L. Rev. 499, 511 (1994) (indicating that the "first task for business bankruptcy scholars" lies in empirical research, rather than the development of normative theory); David Gray Carbon, Philosophy in Bankruptcy, 85 Mich. L. Rev. 1341, 1389 (1987) (stating that "[t]he whole idea of finding a deep structure in a complicated, historical artifact such as the Bankruptcy Code was doomed from the start"); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 Emory L.J. 1009, 1023 (1987) (indicating that "[i]t would be irresponsible . . . to suggest that for all outcomes, special and general protections in bankruptcy can be justified or explained by one, or even several overarching policies, regardless of whether these concepts are based in equity or in economics"); Linda J. Rusch, Bankruptcy Reorganization Jurisprudence: Matters of Belief, Faith, and Hope - Stepping into the Fourth Dimension, 55 Mont. L. Rev. 9, 16 (1994) (arguing that competing theories of bankruptcy law ultimately reduce to competing "beliefs and values" which cannot be shown to be true or false); Elizabeth Warren, Bankruptcy Policy, 54 U. Chi. L. Rev. 775, 811 (1987) (criticizing Baird's use of a "single, unified theory of bankruptcy" and offering instead a "complex view of bankruptcy that constantly reminds the player how little she knows about the empirical assumptions that underlie the game or whether other elusive values influence the balance among competing interests"). Some scholars seem more inclined to accept normative theory in bankruptcy, but nonetheless express serious reservations about the methodology of currently available theories. See Karen Gross, Taking Community Interests into Account in Bankruptcy: An Essay, 72 Wash. U. L.Q. 1031, 1037 (1994) (criticizing the methodology of current bankruptcy theories as being based on "a belief in an overarching theoretical construct" and offering aspects of feminist theory as a corrective); Mary Josephine Newborn, The New Rawlsian Theory of Bankruptcy Ethics, 16 Cardozo L. Rev. 111, 146 (1994) (arguing that "[w]e need to rethink seriously the idea that we can establish and state fundamental norms in bankruptcy by using mechanistic choice procedures, whether from efficiency contractarians or deontological contractarians").
19. See, e.g., John D. Ayer, Through Chapter 11 with Gun or Camera, But Probably Not Both: A Field Guide, 72 Wash. U. L.Q. 883, 883-84 (1994) (distancing himself from the view that bankruptcy law can be "neatly modeled" by either the use of economic theory or "an abstract model of justice in moral philosophy"); Jean Braucher, Bankruptcy Reorganization and Economic Development, 23 Cap. U. L. Rev. 499, 511 (1994) (indicating that the "first task for business bankruptcy scholars" lies in empirical research, rather than the development of normative theory); David Gray Carbon, Philosophy in Bankruptcy, 85 Mich. L. Rev. 1341, 1389 (1987) (stating that "[t]he whole idea of finding a deep structure in a complicated, historical artifact such as the Bankruptcy Code was doomed from the start"); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 Emory L.J. 1009, 1023 (1987) (indicating that "[i]t would be irresponsible . . . to suggest that for all outcomes, special and general protections in bankruptcy can be justified or explained by one, or even several overarching policies, regardless of whether these concepts are based in equity or in economics"); Linda J. Rusch, Bankruptcy Reorganization Jurisprudence: Matters of Belief, Faith, and Hope - Stepping into the Fourth Dimension, 55 Mont. L. Rev. 9, 16 (1994) (arguing that competing theories of bankruptcy law ultimately reduce to competing "beliefs and values" which cannot be shown to be true or false); Elizabeth Warren, Bankruptcy Policy, 54 U. Chi. L. Rev. 775, 811 (1987) (criticizing Baird's use of a "single, unified theory of bankruptcy" and offering instead a "complex view of bankruptcy that constantly reminds the player how little she knows about the empirical assumptions that underlie the game or whether other elusive values influence the balance among competing interests"). Some scholars seem more inclined to accept normative theory in bankruptcy, but nonetheless express serious reservations about the methodology of currently available theories. See Karen Gross, Taking Community Interests into Account in Bankruptcy: An Essay, 72 Wash. U. L.Q. 1031, 1037 (1994) (criticizing the methodology of current bankruptcy theories as being based on "a belief in an overarching theoretical construct" and offering aspects of feminist theory as a corrective); Mary Josephine Newborn, The New Rawlsian Theory of Bankruptcy Ethics, 16 Cardozo L. Rev. 111, 146 (1994) (arguing that "[w]e need to rethink seriously the idea that we can establish and state fundamental norms in bankruptcy by using mechanistic choice procedures, whether from efficiency contractarians or deontological contractarians").
20. See, e.g., John D. Ayer, Through Chapter 11 with Gun or Camera, But Probably Not Both: A Field Guide, 72 Wash. U. L.Q. 883, 883-84 (1994) (distancing himself from the view that bankruptcy law can be "neatly modeled" by either the use of economic theory or "an abstract model of justice in moral philosophy"); Jean Braucher, Bankruptcy Reorganization and Economic Development, 23 Cap. U. L. Rev. 499, 511 (1994) (indicating that the "first task for business bankruptcy scholars" lies in empirical research, rather than the development of normative theory); David Gray Carbon, Philosophy in Bankruptcy, 85 Mich. L. Rev. 1341, 1389 (1987) (stating that "[t]he whole idea of finding a deep structure in a complicated, historical artifact such as the Bankruptcy Code was doomed from the start"); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 Emory L.J. 1009, 1023 (1987) (indicating that "[i]t would be irresponsible . . . to suggest that for all outcomes, special and general protections in bankruptcy can be justified or explained by one, or even several overarching policies, regardless of whether these concepts are based in equity or in economics"); Linda J. Rusch, Bankruptcy Reorganization Jurisprudence: Matters of Belief, Faith, and Hope - Stepping into the Fourth Dimension, 55 Mont. L. Rev. 9, 16 (1994) (arguing that competing theories of bankruptcy law ultimately reduce to competing "beliefs and values" which cannot be shown to be true or false); Elizabeth Warren, Bankruptcy Policy, 54 U. Chi. L. Rev. 775, 811 (1987) (criticizing Baird's use of a "single, unified theory of bankruptcy" and offering instead a "complex view of bankruptcy that constantly reminds the player how little she knows about the empirical assumptions that underlie the game or whether other elusive values influence the balance among competing interests"). Some scholars seem more inclined to accept normative theory in bankruptcy, but nonetheless express serious reservations about the methodology of currently available theories. See Karen Gross, Taking Community Interests into Account in Bankruptcy: An Essay, 72 Wash. U. L.Q. 1031, 1037 (1994) (criticizing the methodology of current bankruptcy theories as being based on "a belief in an overarching theoretical construct" and offering aspects of feminist theory as a corrective); Mary Josephine Newborn, The New Rawlsian Theory of Bankruptcy Ethics, 16 Cardozo L. Rev. 111, 146 (1994) (arguing that "[w]e need to rethink seriously the idea that we can establish and state fundamental norms in bankruptcy by using mechanistic choice procedures, whether from efficiency contractarians or deontological contractarians").
21. See, e.g., John D. Ayer, Through Chapter 11 with Gun or Camera, But Probably Not Both: A Field Guide, 72 Wash. U. L.Q. 883, 883-84 (1994) (distancing himself from the view that bankruptcy law can be "neatly modeled" by either the use of economic theory or "an abstract model of justice in moral philosophy"); Jean Braucher, Bankruptcy Reorganization and Economic Development, 23 Cap. U. L. Rev. 499, 511 (1994) (indicating that the "first task for business bankruptcy scholars" lies in empirical research, rather than the development of normative theory); David Gray Carbon, Philosophy in Bankruptcy, 85 Mich. L. Rev. 1341, 1389 (1987) (stating that "[t]he whole idea of finding a deep structure in a complicated, historical artifact such as the Bankruptcy Code was doomed from the start"); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 Emory L.J. 1009, 1023 (1987) (indicating that "[i]t would be irresponsible . . . to suggest that for all outcomes, special and general protections in bankruptcy can be justified or explained by one, or even several overarching policies, regardless of whether these concepts are based in equity or in economics"); Linda J. Rusch, Bankruptcy Reorganization Jurisprudence: Matters of Belief, Faith, and Hope - Stepping into the Fourth Dimension, 55 Mont. L. Rev. 9, 16 (1994) (arguing that competing theories of bankruptcy law ultimately reduce to competing "beliefs and values" which cannot be shown to be true or false); Elizabeth Warren, Bankruptcy Policy, 54 U. Chi. L. Rev. 775, 811 (1987) (criticizing Baird's use of a "single, unified theory of bankruptcy" and offering instead a "complex view of bankruptcy that constantly reminds the player how little she knows about the empirical assumptions that underlie the game or whether other elusive values influence the balance among competing interests"). Some scholars seem more inclined to accept normative theory in bankruptcy, but nonetheless express serious reservations about the methodology of currently available theories. See Karen Gross, Taking Community Interests into Account in Bankruptcy: An Essay, 72 Wash. U. L.Q. 1031, 1037 (1994) (criticizing the methodology of current bankruptcy theories as being based on "a belief in an overarching theoretical construct" and offering aspects of feminist theory as a corrective); Mary Josephine Newborn, The New Rawlsian Theory of Bankruptcy Ethics, 16 Cardozo L. Rev. 111, 146 (1994) (arguing that "[w]e need to rethink seriously the idea that we can establish and state fundamental norms in bankruptcy by using mechanistic choice procedures, whether from efficiency contractarians or deontological contractarians").
22. See, e.g., John D. Ayer, Through Chapter 11 with Gun or Camera, But Probably Not Both: A Field Guide, 72 Wash. U. L.Q. 883, 883-84 (1994) (distancing himself from the view that bankruptcy law can be "neatly modeled" by either the use of economic theory or "an abstract model of justice in moral philosophy"); Jean Braucher, Bankruptcy Reorganization and Economic Development, 23 Cap. U. L. Rev. 499, 511 (1994) (indicating that the "first task for business bankruptcy scholars" lies in empirical research, rather than the development of normative theory); David Gray Carbon, Philosophy in Bankruptcy, 85 Mich. L. Rev. 1341, 1389 (1987) (stating that "[t]he whole idea of finding a deep structure in a complicated, historical artifact such as the Bankruptcy Code was doomed from the start"); Raymond T. Nimmer, Negotiated Bankruptcy Reorganization Plans: Absolute Priority and New Value Contributions, 36 Emory L.J. 1009, 1023 (1987) (indicating that "[i]t would be irresponsible . . . to suggest that for all outcomes, special and general protections in bankruptcy can be justified or explained by one, or even several overarching policies, regardless of whether these concepts are based in equity or in economics"); Linda J. Rusch, Bankruptcy Reorganization Jurisprudence: Matters of Belief, Faith, and Hope - Stepping into the Fourth Dimension, 55 Mont. L. Rev. 9, 16 (1994) (arguing that competing theories of bankruptcy law ultimately reduce to competing "beliefs and values" which cannot be shown to be true or false); Elizabeth Warren, Bankruptcy Policy, 54 U. Chi. L. Rev. 775, 811 (1987) (criticizing Baird's use of a "single, unified theory of bankruptcy" and offering instead a "complex view of bankruptcy that constantly reminds the player how little she knows about the empirical assumptions that underlie the game or whether other elusive values influence the balance among competing interests"). Some scholars seem more inclined to accept normative theory in bankruptcy, but nonetheless express serious reservations about the methodology of currently available theories. See Karen Gross, Taking Community Interests into Account in Bankruptcy: An Essay, 72 Wash. U. L.Q. 1031, 1037 (1994) (criticizing the methodology of current bankruptcy theories as being based on "a belief in an overarching theoretical construct" and offering aspects of feminist theory as a corrective); Mary Josephine Newborn, The New Rawlsian Theory of Bankruptcy Ethics, 16 Cardozo L. Rev. 111, 146 (1994) (arguing that "[w]e need to rethink seriously the idea that we can establish and state fundamental norms in bankruptcy by using mechanistic choice procedures, whether from efficiency contractarians or deontological contractarians").
23. Lawrence Ponoroff & F. Stephen Knippenberg, The Implied Good Faith Filing Requirement: Sentinel of an Evolving Bankruptcy Policy, 85 Nw. U. L. Rev. 919, 965 (1991).
24. Id. at 961.
25. Id. at 966.
26. See, e.g., Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J.L. & Econ. 633, 635 (1993) (responding to certain objections to his proposal for mandatory Chapter 11 auctions); James W. Bowers, The Fantastic Wisconsylvania Zero-Bureaucratic-Cost School of Bankruptcy Theory: A Comment, 91 Mich. L. Rev. 1773, 1790-92 (1993) (defending Bradley and Rosenzweig's free-market proposal against LoPucki and Warren's criticism that it is unsuited to real markets).
27. See, e.g., Douglas G. Baird, Revisiting Auctions in Chapter 11, 36 J.L. & Econ. 633, 635 (1993) (responding to certain objections to his proposal for mandatory Chapter 11 auctions); James W. Bowers, The Fantastic Wisconsylvania Zero-Bureaucratic-Cost School of Bankruptcy Theory: A Comment, 91 Mich. L. Rev. 1773, 1790-92 (1993) (defending Bradley and Rosenzweig's free-market proposal against LoPucki and Warren's criticism that it is unsuited to real markets).
28. For example, In 1987 and again in 1989 and 1992, David Gray Carlson published carefully developed critiques of various aspects of the theoretical methodology of Jackson, Baird, and Robert Scott See David Gray Carlson, Bankruptcy Theory and the Creditors' Bargain, 61 U. Cin. L. Rev. 453 (1992) [hereinafter Carlson, Creditors' Bargain]; Carlson, supra note 8; David Gray Carlson, Postpetition Interest Under the Bankruptcy Code, 43 U. Miami L. Rev. 577, 613-31 (1989) [hereinafter Carlson, Postpetition Interest]. Almost without exception, free-market critics have ignored Carlson's detailed criticisms. But see James W. Bowers, Kissing Off Economics and Misunderstanding Murphy's Law: Carbon's "On the Efficiency of Secured Lending," 80 Va. L. Rev. 2215, 2227-31 (1994) (responding to Carlson's objection that law-and-economics ignores the Theory of the Second Best). Jackson revised his central theoretical model - the creditors' bargain model - but not in a way that responded directly to Carlson's critique. See Thomas H. Jackson & Robert E. Scott, On the Nature of Bankruptcy: An Essay on Bankruptcy Sharing and the Creditors' Bargain, 75 Va. L. Rev. 155, 157 (1989) (revising the creditors' bargain model to improve its explanatory power).
29. For example, In 1987 and again in 1989 and 1992, David Gray Carlson published carefully developed critiques of various aspects of the theoretical methodology of Jackson, Baird, and Robert Scott See David Gray Carlson, Bankruptcy Theory and the Creditors' Bargain, 61 U. Cin. L. Rev. 453 (1992) [hereinafter Carlson, Creditors' Bargain]; Carlson, supra note 8; David Gray Carlson, Postpetition Interest Under the Bankruptcy Code, 43 U. Miami L. Rev. 577, 613-31 (1989) [hereinafter Carlson, Postpetition Interest]. Almost without exception, free-market critics have ignored Carlson's detailed criticisms. But see James W. Bowers, Kissing Off Economics and Misunderstanding Murphy's Law: Carbon's "On the Efficiency of Secured Lending," 80 Va. L. Rev. 2215, 2227-31 (1994) (responding to Carlson's objection that law-and-economics ignores the Theory of the Second Best). Jackson revised his central theoretical model - the creditors' bargain model - but not in a way that responded directly to Carlson's critique. See Thomas H. Jackson & Robert E. Scott, On the Nature of Bankruptcy: An Essay on Bankruptcy Sharing and the Creditors' Bargain, 75 Va. L. Rev. 155, 157 (1989) (revising the creditors' bargain model to improve its explanatory power).
30. For example, In 1987 and again in 1989 and 1992, David Gray Carlson published carefully developed critiques of various aspects of the theoretical methodology of Jackson, Baird, and Robert Scott See David Gray Carlson, Bankruptcy Theory and the Creditors' Bargain, 61 U. Cin. L. Rev. 453 (1992) [hereinafter Carlson, Creditors' Bargain]; Carlson, supra note 8; David Gray Carlson, Postpetition Interest Under the Bankruptcy Code, 43 U. Miami L. Rev. 577, 613-31 (1989) [hereinafter Carlson, Postpetition Interest]. Almost without exception, free-market critics have ignored Carlson's detailed criticisms. But see James W. Bowers, Kissing Off Economics and Misunderstanding Murphy's Law: Carbon's "On the Efficiency of Secured Lending," 80 Va. L. Rev. 2215, 2227-31 (1994) (responding to Carlson's objection that law-and-economics ignores the Theory of the Second Best). Jackson revised his central theoretical model - the creditors' bargain model - but not in a way that responded directly to Carlson's critique. See Thomas H. Jackson & Robert E. Scott, On the Nature of Bankruptcy: An Essay on Bankruptcy Sharing and the Creditors' Bargain, 75 Va. L. Rev. 155, 157 (1989) (revising the creditors' bargain model to improve its explanatory power).
31. For example, In 1987 and again in 1989 and 1992, David Gray Carlson published carefully developed critiques of various aspects of the theoretical methodology of Jackson, Baird, and Robert Scott See David Gray Carlson, Bankruptcy Theory and the Creditors' Bargain, 61 U. Cin. L. Rev. 453 (1992) [hereinafter Carlson, Creditors' Bargain]; Carlson, supra note 8; David Gray Carlson, Postpetition Interest Under the Bankruptcy Code, 43 U. Miami L. Rev. 577, 613-31 (1989) [hereinafter Carlson, Postpetition Interest]. Almost without exception, free-market critics have ignored Carlson's detailed criticisms. But see James W. Bowers, Kissing Off Economics and Misunderstanding Murphy's Law: Carbon's "On the Efficiency of Secured Lending," 80 Va. L. Rev. 2215, 2227-31 (1994) (responding to Carlson's objection that law-and-economics ignores the Theory of the Second Best). Jackson revised his central theoretical model - the creditors' bargain model - but not in a way that responded directly to Carlson's critique. See Thomas H. Jackson & Robert E. Scott, On the Nature of Bankruptcy: An Essay on Bankruptcy Sharing and the Creditors' Bargain, 75 Va. L. Rev. 155, 157 (1989) (revising the creditors' bargain model to improve its explanatory power).
32. For example, In 1987 and again in 1989 and 1992, David Gray Carlson published carefully developed critiques of various aspects of the theoretical methodology of Jackson, Baird, and Robert Scott See David Gray Carlson, Bankruptcy Theory and the Creditors' Bargain, 61 U. Cin. L. Rev. 453 (1992) [hereinafter Carlson, Creditors' Bargain]; Carlson, supra note 8; David Gray Carlson, Postpetition Interest Under the Bankruptcy Code, 43 U. Miami L. Rev. 577, 613-31 (1989) [hereinafter Carlson, Postpetition Interest]. Almost without exception, free-market critics have ignored Carlson's detailed criticisms. But see James W. Bowers, Kissing Off Economics and Misunderstanding Murphy's Law: Carbon's "On the Efficiency of Secured Lending," 80 Va. L. Rev. 2215, 2227-31 (1994) (responding to Carlson's objection that law-and-economics ignores the Theory of the Second Best). Jackson revised his central theoretical model - the creditors' bargain model - but not in a way that responded directly to Carlson's critique. See Thomas H. Jackson & Robert E. Scott, On the Nature of Bankruptcy: An Essay on Bankruptcy Sharing and the Creditors' Bargain, 75 Va. L. Rev. 155, 157 (1989) (revising the creditors' bargain model to improve its explanatory power).
33. For example, In 1987 and again in 1989 and 1992, David Gray Carlson published carefully developed critiques of various aspects of the theoretical methodology of Jackson, Baird, and Robert Scott See David Gray Carlson, Bankruptcy Theory and the Creditors' Bargain, 61 U. Cin. L. Rev. 453 (1992) [hereinafter Carlson, Creditors' Bargain]; Carlson, supra note 8; David Gray Carlson, Postpetition Interest Under the Bankruptcy Code, 43 U. Miami L. Rev. 577, 613-31 (1989) [hereinafter Carlson, Postpetition Interest]. Almost without exception, free-market critics have ignored Carlson's detailed criticisms. But see James W. Bowers, Kissing Off Economics and Misunderstanding Murphy's Law: Carbon's "On the Efficiency of Secured Lending," 80 Va. L. Rev. 2215, 2227-31 (1994) (responding to Carlson's objection that law-and-economics ignores the Theory of the Second Best). Jackson revised his central theoretical model - the creditors' bargain model - but not in a way that responded directly to Carlson's critique. See Thomas H. Jackson & Robert E. Scott, On the Nature of Bankruptcy: An Essay on Bankruptcy Sharing and the Creditors' Bargain, 75 Va. L. Rev. 155, 157 (1989) (revising the creditors' bargain model to improve its explanatory power).
34. However, at least one traditional scholar has provided extensive commentary on the limitations and failures of normative theory. See Carlson, supra note 8.
35. See infra Part I.
36. See infra Part II.
37. See infra Part III.
38. An appendix following the text presents a chart summarizing the classifications and examples given in this Article. See Appendix: Outline of Bankruptcy Scholarship, infra pp. 122-126.
39. Act of Nov. 6, 1978, Pub. L. No. 95-598, 92 Stat. 2549 (codified as amended at 11 U.S.C. §§ 101-1330 (1994)). The Bankruptcy Code replaced the Bankruptcy Act of 1898, ch. 541, 30 Stat. 544 (amended by the Chandler Act of June 22, 1938, ch. 575, 52 Stat. 840).
40. For simplicity, this Article restricts examples to scholarly works published in the post-Code period, although the discussion is generic.
41. For a more sociological effort to place the work of free-market critics in the context of other bankruptcy scholarship, see generally John D. Ayer, So Near to Cleveland, So Far from God: An Essay on the Ethnography of Bankruptcy, 61 U. Cin. L. Rev. 407 (1992).
42. For a discussion of the empirical data available and the difficulties of using empirical research in the bankruptcy area, see Teresa A. Sullivan et al., The Use of Empirical Data in Formulating Bankruptcy Policy, Law & Contemp. Probs., Spring 1987, at 195, 202-26.
43. Collier on Bankruptcy (15th ed. 1987).
44. Vern Countryman, The Concept of a Voidable Preference in Bankruptcy, 38 Vand. L. Rev. 713 (1985).
45. Teresa A. Sullivan et al., As We Forgive Our Debtors (1989).
46. Lynn M. LoPucki, A General Theory of the Dynamics of the State Remedies/Bankruptcy System, 1982 Wis. L. Rev. 311, 314-52.
47. Elizabeth Warren, Bankruptcy Policymaking in an Imperfect World, 92 Mich. L. Rev. 336, 343-73 (1993).
48. For further discussion of normative work including examples, see infra notes 118-80 and accompanying text.
49. The essential characteristic of reform scholarship is the effort to evaluate current law as the means of achieving given purposes. This evaluation need not lead to the conclusion that reform is necessary. Instead, reform scholarship may show that current bankruptcy law does an adequate job of achieving the specific purposes in question.
50. 11 U.S.C. § 547(b) (authorizing the trustee's avoidance of preferential transfers).
51. Examples of standard work include Susan Block-Lieb, Why Creditors File So Few Involuntary Petitions and Why the Number is Not Too Small, 57 Brook. L. Rev. 803, 852-61 (1991) (proposing specific changes in the rules governing commencement of involuntary cases to improve the ability of bankruptcy law to achieve varied goals in this area); Bruce A. Markell, Owners, Auctions, and Absolute Priority in Bankruptcy Reorganizations, 44 Stan. L. Rev. 69, 73-74 (1991) (arguing that the adoption of rules which promote competing reorganization plans will better achieve the bankruptcy purposes of "permit[ing] legitimate owner participation while guarding against owner exploitation"); Charles J. Tabb, A Critical Reappraisal of Cross-Collateralization in Bankruptcy, 60 S. Cal. L. Rev. 109, 119-74 (1986) (analyzing the arguments for and against allowing cross-collateralization in view of existing statute, case law, and current bankruptcy policy); Jay Lawrence Westbrook, Two Thoughts About Insider Preferences, 76 Minn. L. Rev. 73, 99 (1991) (concluding that the Levit decision concerning insider preferences "merely provides the logical extension of classic preference doctrine and policy in the context of modern financial practices"); and Barry L. Zaretsky, Co-Debtor Stays in Chapter 11 Bankruptcy, 73 Cornell L. Rev. 213, 219, 235-79 (1988) (developing an analytical framework to provide courts with specific guidance in addressing a debtor's request for imposition of a co-debtor stay).
52. Examples of standard work include Susan Block-Lieb, Why Creditors File So Few Involuntary Petitions and Why the Number is Not Too Small, 57 Brook. L. Rev. 803, 852-61 (1991) (proposing specific changes in the rules governing commencement of involuntary cases to improve the ability of bankruptcy law to achieve varied goals in this area); Bruce A. Markell, Owners, Auctions, and Absolute Priority in Bankruptcy Reorganizations, 44 Stan. L. Rev. 69, 73-74 (1991) (arguing that the adoption of rules which promote competing reorganization plans will better achieve the bankruptcy purposes of "permit[ing] legitimate owner participation while guarding against owner exploitation"); Charles J. Tabb, A Critical Reappraisal of Cross-Collateralization in Bankruptcy, 60 S. Cal. L. Rev. 109, 119-74 (1986) (analyzing the arguments for and against allowing cross-collateralization in view of existing statute, case law, and current bankruptcy policy); Jay Lawrence Westbrook, Two Thoughts About Insider Preferences, 76 Minn. L. Rev. 73, 99 (1991) (concluding that the Levit decision concerning insider preferences "merely provides the logical extension of classic preference doctrine and policy in the context of modern financial practices"); and Barry L. Zaretsky, Co-Debtor Stays in Chapter 11 Bankruptcy, 73 Cornell L. Rev. 213, 219, 235-79 (1988) (developing an analytical framework to provide courts with specific guidance in addressing a debtor's request for imposition of a co-debtor stay).
53. Examples of standard work include Susan Block-Lieb, Why Creditors File So Few Involuntary Petitions and Why the Number is Not Too Small, 57 Brook. L. Rev. 803, 852-61 (1991) (proposing specific changes in the rules governing commencement of involuntary cases to improve the ability of bankruptcy law to achieve varied goals in this area); Bruce A. Markell, Owners, Auctions, and Absolute Priority in Bankruptcy Reorganizations, 44 Stan. L. Rev. 69, 73-74 (1991) (arguing that the adoption of rules which promote competing reorganization plans will better achieve the bankruptcy purposes of "permit[ing] legitimate owner participation while guarding against owner exploitation"); Charles J. Tabb, A Critical Reappraisal of Cross-Collateralization in Bankruptcy, 60 S. Cal. L. Rev. 109, 119-74 (1986) (analyzing the arguments for and against allowing cross-collateralization in view of existing statute, case law, and current bankruptcy policy); Jay Lawrence Westbrook, Two Thoughts About Insider Preferences, 76 Minn. L. Rev. 73, 99 (1991) (concluding that the Levit decision concerning insider preferences "merely provides the logical extension of classic preference doctrine and policy in the context of modern financial practices"); and Barry L. Zaretsky, Co-Debtor Stays in Chapter 11 Bankruptcy, 73 Cornell L. Rev. 213, 219, 235-79 (1988) (developing an analytical framework to provide courts with specific guidance in addressing a debtor's request for imposition of a co-debtor stay).
54. Examples of standard work include Susan Block-Lieb, Why Creditors File So Few Involuntary Petitions and Why the Number is Not Too Small, 57 Brook. L. Rev. 803, 852-61 (1991) (proposing specific changes in the rules governing commencement of involuntary cases to improve the ability of bankruptcy law to achieve varied goals in this area); Bruce A. Markell, Owners, Auctions, and Absolute Priority in Bankruptcy Reorganizations, 44 Stan. L. Rev. 69, 73-74 (1991) (arguing that the adoption of rules which promote competing reorganization plans will better achieve the bankruptcy purposes of "permit[ing] legitimate owner participation while guarding against owner exploitation"); Charles J. Tabb, A Critical Reappraisal of Cross-Collateralization in Bankruptcy, 60 S. Cal. L. Rev. 109, 119-74 (1986) (analyzing the arguments for and against allowing cross-collateralization in view of existing statute, case law, and current bankruptcy policy); Jay Lawrence Westbrook, Two Thoughts About Insider Preferences, 76 Minn. L. Rev. 73, 99 (1991) (concluding that the Levit decision concerning insider preferences "merely provides the logical extension of classic preference doctrine and policy in the context of modern financial practices"); and Barry L. Zaretsky, Co-Debtor Stays in Chapter 11 Bankruptcy, 73 Cornell L. Rev. 213, 219, 235-79 (1988) (developing an analytical framework to provide courts with specific guidance in addressing a debtor's request for imposition of a co-debtor stay).
55. Examples of standard work include Susan Block-Lieb, Why Creditors File So Few Involuntary Petitions and Why the Number is Not Too Small, 57 Brook. L. Rev. 803, 852-61 (1991) (proposing specific changes in the rules governing commencement of involuntary cases to improve the ability of bankruptcy law to achieve varied goals in this area); Bruce A. Markell, Owners, Auctions, and Absolute Priority in Bankruptcy Reorganizations, 44 Stan. L. Rev. 69, 73-74 (1991) (arguing that the adoption of rules which promote competing reorganization plans will better achieve the bankruptcy purposes of "permit[ing] legitimate owner participation while guarding against owner exploitation"); Charles J. Tabb, A Critical Reappraisal of Cross-Collateralization in Bankruptcy, 60 S. Cal. L. Rev. 109, 119-74 (1986) (analyzing the arguments for and against allowing cross-collateralization in view of existing statute, case law, and current bankruptcy policy); Jay Lawrence Westbrook, Two Thoughts About Insider Preferences, 76 Minn. L. Rev. 73, 99 (1991) (concluding that the Levit decision concerning insider preferences "merely provides the logical extension of classic preference doctrine and policy in the context of modern financial practices"); and Barry L. Zaretsky, Co-Debtor Stays in Chapter 11 Bankruptcy, 73 Cornell L. Rev. 213, 219, 235-79 (1988) (developing an analytical framework to provide courts with specific guidance in addressing a debtor's request for imposition of a co-debtor stay).
56. See supra text accompanying note 28 (defining critical claims).
57. For further discussion of critical work, including examples, see infra notes 43-59 and accompanying text.
58. See Appendix: Outline of Bankruptcy Scholarship, infra pp. 122-26 (indicating "purposes" of the different types of work and listing "questions addressed" by each type).
59. Although free-market critics seem primarily engaged in reform scholarship, they also perform observational and normative work. For example, Baird and Jackson have developed influential normative arguments by which they seek to demonstrate the validity of their critical claims. See supra notes 144-80 and accompanying text.
60. See Roe, supra note 7.
61. See id. at 530. As a means of valuing the firm for purposes of a plan's confirmation, Roe's proposal would rely upon a market-based mechanism - the court would offer 10% of the firm's shares for sale on the open market and then extrapolate the value of the whole firm from the price obtained. See id.
62. Id. at 534.
63. Id. at 534-35.
64. See id. at 535; see also 11 U.S.C. § 1129 (1994) (imposing requirements for confirmation of reorganization plans).
65. See Roe, supra note 7, at 535-36. Roe concludes: "Although Congress has not stopped liquidation even if satellite interests such as the firm's suppliers, local communities, and employees are harmed, Congress has created a structure to preserve those interests as long as the value of the firm, if it continues to operate, exceeds its liquidation value." Id. at 536.
66. It is perhaps noteworthy that Roe's proposal is among the most moderate of the free-market proposals, and that Roe himself expresses significant reservations about whether his proposal, if implemented, would successfully achieve all of the goals which current bankruptcy law seeks to achieve. See id. at 575-97. Roe acknowledges, among other things, that "jamming the market valuation into the context of an ongoing reorganization would risk re-creating the very problems that an objective market valuation might eliminate: delay and judicial inexpertise." Id. at 601. On this point, he concludes that "no one has tested either the severity of the market distortions or the capacity of legal institutions to control them during a reorganization," and thus, "the question of the superiority of a market-based reorganization on this score is one of judgment, not economic deduction or statistical observation." Id. at 580. As another example, Roe acknowledges that adoption of his proposal may require significant modification of corporate duty concepts, and that such modification itself may have far-reaching consequences, both generally and specifically in the bankruptcy context See id. at 583-84. In view of these and other potential problems and uncertainties, Roe ultimately suggests that Congress first incorporate his proposal as an optional method, rather than as a mandatory rule. See id. at 602.
67. It is not always clear from a particular article whether a scholar is engaged in standard reform or critical reform work. Lucian Bebchuk is a free-market critic who seems to be engaged in standard work, although the classification is not free from doubt The classification of Bebchuck's work as standard reform work seems warranted in view of the following characteristics of his effort first, Bebchuk explicitly states that he does not intend to take a position on the desirability of having reorganization law. See Bebchuk, supra note 7, at 776-77. Rather, his proposal accepts the continuing existence of reorganization law as a "given" and seeks to improve its effectiveness. See id. Second, Bebchuk evaluates the effectiveness of his proposal in terms of goals that he characterizes as already embodied in current law. See id. at 780-81. The goals identified by Bebchuk include preserving the parties' nonbankruptcy entitlements, maximizing the value of the reorganized firm, and minimizing reorganization costs. See id. Nowhere in his discussion does he explicitly take a critical stand on current bankruptcy purposes. However, the classification of his work as standard reform work is not certain. In discussing the goals of reorganization law, Bebchuk does not mention all the major goals of current law that are directly relevant in assessing his proposal. Such omissions include, for example, the goal of protecting the interests of small business owners who, in Roe's words, "have their identity and way of life tied up in the firm." Roe, supra note 7, at 581. This partial account of bankruptcy purposes leaves open the possibility that Bebchuk's work - although framed in terms of actual bankruptcy purposes - may implicitly rest on claims about what the purposes of bankruptcy law should be.
68. See Baird & Jackson, supra note 4, at 99-100. At certain points in his individual work. Jackson appears to give mixed signals on this issue. Most importantly, he repeatedly characterizes the purpose of debt collectivization in historical terms. See, e.g., Thomas H. Jackson, The Logic and Limits of Bankruptcy Law 13 (1986) (referring to the purpose of debt collectivization as "bankruptcy law's historical function"). This appeal to history may suggest that Jackson's framework for reform consists of empirical claims about bankruptcy purposes, and thus, that Jackson is engaged in standard work. But this suggestion is mistaken. Jackson does not intend the doubtful argument that bankruptcy law should pursue the exclusive purpose of collectivizing debt collection because bankruptcy law has pursued this function in the past While Jackson's historical references here are confusing, they do not ultimately serve as the framework for his reform efforts. Instead, he essentially uses the appeal to history as a rhetorical device by which he defines his ahistorical, critical perspective. See, e.g., id. at 2 ("Through this book I hope to establish the importance of bankruptcy law in meeting its historical goals - and the limits that notion implies for bankruptcy policy."). In this context, historical fact operates merely as a proxy for fundamental values.
69. Baird & Jackson, supra note 4, at 99.
70. Id.
71. Id. at 100.
72. See id. at 100-02.
73. See, e.g., Bowers, supra note 6, at 33 (noting that "the Code probably does embody equal distribution as a normative position"); Bradley & Rosenzweig, supra note 6, at 1043-44 ("[C]ongress was concerned that liquidations destroy valuable firm-specific assets and impose substantial costs
74. See supra note 6 (citing several free-market critics).
75. See Bradley & Rosenzweig, supra note 6, at 1078.
76. See id. at 1056 n.44.
77. See id. at 1056 (indicating that Baird has "persuasively" argued in support of limiting consideration of bankruptcy-related "sodal costs" to those of financial stakeholders); see also id. at 1088 n.108 (acknowledging that their own analysis ignores the interests of noncreditors, but then asserting that "it is by no means self-evident that the welfare of these constituencies is an appropriate concern for the law of corporate bankruptcy").
78. See Adler, supra note 6, at 324. Adler's proposal differs from that of Bradley and Rosenzweig, however, in that Adler would abolish not only corporate bankruptcy law, but also individual collection rights under nonbankruptcy law. See Barry E. Adler, A World Without Debt, 72 Wash. U. L.Q. 811, 818-19 (1994).
79. See Adler, supra note 6, at 326.
80. Bowers also relies on this critical claim to argue that firms and creditors should be left to the devices already available to them under nonbankruptcy law. See Bowers, supra note 6, at 45 (arguing that credit arrangements reveal deliberate and differentiating choices, and that "efficient collection law should honor those choices to become different").
81. See Rasmussen, supra note 6, at 100, 111-112.
82. Id. at 53.
83. Aghion, Hart and Moore also base their proposal on critical claims about bankruptcy purposes. At the outset of their article, they complain that "there has been relatively little effort to step back and ask what the goals of bankruptcy procedure should be, or to consider how one would set up an optimal bankruptcy procedure if one were starting from scratch." Aghion et al., supra note 6, at 849. While they themselves do not purport to "derive an optimal bankruptcy procedure from first principles," they nonetheless "suggest some goals that an efficient bankruptcy procedure should satisfy." Id. at 851. They then use these goals as the basis on which they develop their proposal and evaluate its merits. See id. at 861-66. In doing so, they are engaged in critical work.
84. See, e.g., LoPucki, supra note 3, at 97-106 (detailing the real-life conditions and problems which Bradley and Rosenzweig's proposal essentially ignore); Warren, supra note 27, at 385-86 (arguing that proposals by Bowers, Adler and Rasmussen mistakenly assume that collection under nonbankruptcy law is costless) ; Elizabeth Warren, The Untenable Case for Repeal of Chapter 11, 102 Yale L.J. 437, 474-77 (1992) (arguing that Bradley and Rosenzweig's "perfect markets solution" would be costly in real-life markets). But see Adler, supra note 54, at 818-25 (responding to critics); Baird, supra note 12, at 635 (responding to certain objections to his auction proposal); Bowers, supra note 12, at 1781-92 (responding to LoPucki's and Warren's criticisms of Bradley and Rosenzweig's proposal).
85. See Adler, supra note 54, at 818.
86. Cf. Braucher, supra note 8, at 511 n.52 (questioning whether it is really necessary to offer a theoretical alternative because "no theory is needed to dispose of proposals based on errors of fact and errors of analysis [by the free-market critics] in applying their own theories").
87. But see Aaron Pressman, Can Chapter 11 Be Put Back Together?, Investment Dealers' Dig., April 27, 1992, at 16 (suggesting that "[g]iven the free-market orientation of conservative politicians, the [Congressional bankruptcy] commission could seek out free-market solutions, like the abolition of Chapter 11 advocated [by Bradley and Rosenzweig] in the Yale Law Journal").
88. Warren, supra note 27, at 378.
89. Id. at 378.
90. See Lynn M. LoPucki, Reorganization Realities, Methodological Realities, and the Paradigm Dominance Game, 72 Wash. U. L.Q. 1307, 1310 (1994).
91. See infra notes 105-12, 130, 141 and accompanying text (describing traditional scholars' "value arguments" as well as responses to Baird and Jackson's normative theory).
92. Ayer, supra note 8, at 883, 904.
93. Id. at 884.
94. Ponoroff & Knippenberg, supra note 9, at 965. Along similar lines, Ponoroff and Knippenberg state that distrust of unified and formal models, such as that offered by Baird and Jackson, "naturally attends the conviction that the purposes of bankruptcy are several and varied. These purposes form the ever-shifting basis upon which bankruptcy courts must act to sort out and order a broad spectrum of interests clamoring for protection in the bankruptcy proceeding." Id. at 966.
95. Although these scholars certainly appear to make actual policies arguments, I am uncertain whether they truly intend to make this kind of argument Because my immediate concern is how certain exchanges between traditionalists and free-market critics may have hindered debate, the appearance of an actual policies argument may be enough. Nonetheless, in examining these arguments, I can think of additional possible intentions, which I detail below. As for Ayer, it is possible that he does not intend his account of bankruptcy law to answer the values of free-market critics; rather, he might intend merely to show the limits of economic analysis in generating useable bankruptcy proposals. Ayer only briefly describes the nature of his argument, and he does not make his intention clear either way. At the same time, he describes his position as being shared by scholars (including Warren, Carlson, and myself) who clearly have attempted to challenge the normative views of free-market critics about bankruptcy purposes - which suggests that he might intend that his own argument be a normative challenge after all. See Ayer, supra note 8, at 883. It is equally difficult to divine the intent of Ponoroff and Knippenberg, but for different reasons. Unlike Ayer, they clearly indicate that their appeal to actual bankruptcy purposes responds to an alternative view about bankruptcy purposes held by Baird and Jackson. See Ponoroff & Knippenberg, supra note 9, at 965. Yet Ponoroff and Knippenberg also confess that they are unsure whether Baird and Jackson's work rests on claims about what bankruptcy purposes are or what they should be. Id. at 964 n.148. If Ponoroff and Knippenberg intend to embrace the first possibility, their appeal to actual bankruptcy purposes might be intended as a response to those empirical claims that they believe to be the foundation of Baird and Jackson's approach. As shown earlier, however, although some of Jackson's isolated historical references may create confusion, Baird and Jackson's work is based on critical, not empirical claims. See supra notes 44-48 and accompanying text Alternatively, while remaining uncertain about the character of Baird and Jackson's work, Ponoroff and Knippenberg may intend to respond directly to its underlying claims - whatever they may be. In that case, Ponoroff and Knippenberg's argument responds to critical claims, and they would intend to make the actual policies argument that they appear to make.
96. See Warren, supra note 27, at 341-73 (offering an account of the functions served by the business bankruptcy system).
97. See id. at 339.
98. See id. at 340.
99. See id. at 350 ("The rationale commentators most often cite for a bankruptcy system is its ability to capture the going-concern value of a business; for many analysts, the function of bankruptcy - and hence the measure of its viability-begins and ends here.") (citing Baird and Jackson, and Bradley and Rosenzweig).
100. Id. at 343-44.
101. The account of bankruptcy policy discussed here does not occupy all of Warren's essay. In two additional parts, Warren discusses the considerations that should operate in assessing current law and in developing new legislation. First, she describes the complications that arise in evaluating the bankruptcy system in light of its multiple objectives. See Warren, supra note 27, at 373-77. As her example, Warren uses the finding that most Chapter 11 cases end in liquidation and explains how this fact alone does not necessarily mean that the system is failing to accomplish important goals. See id. Second, Warren focuses on the process of developing legislative proposals. See id. at 377-86. She describes the major constraints that affect the operation of bankruptcy law in the real world and argues that the free-market proposals too often Ignore these real-life conditions. See id.
102. See id. at 343.
103. See Appendix: Outline of Bankruptcy Scholarship, infra p. 122 (listing questions addressed by observational work).
104. See Warren, supra note 27, at 343-73. As a general matter, Warren's discussion has the following basic structure. First, Warren sketches the most general reasons why bankruptcy law pursues each of its four major "functions." She then describes in detail how bankruptcy law accomplishes those functions. In this examination of the law's operation, Warren identifies and analyzes the intermediate objectives which are the means or "devices" by which bankruptcy law accomplishes a particular function. For example, Warren begins her discussion of value-enhancement by explaining why bankruptcy law has this function: a rule that "increase[s] the value of the failing firm . . . will reduce the total costs imposed on the parties dealing with the failing debtor." Id. at 344. She then describes the "four principle devices" by which Congress seeks to "accomplish this cost savings and value conservation." Id. One of those devices is "implementation of collective creditor action." Id. In this connection, Warren explains how bankruptcy law "collectiviz[es] creditor activities" through various specific means - including the use of trustees, creditor committees, notice requirements, and stream-lined administration of the estate. Id. at 346-48.
105. Warren indirectly acknowledges this aspect of her account "The development of a list [of distributional objectives] only begins the policy inquiry. It does not explain how far to pursue a goal - should we reallocate all the resources of a business to parties who are poor risk spreaders? - nor does it resolve what to do when goals conflict. . . ." Id. at 360. The questions of "how far to pursue a goal" and "what to do when goals conflict" involve issues of what the purposes of bankruptcy law should be.
106. At certain points in her essay, Warren defends the current system in terms which suggest a critical stance on bankruptcy purposes. In explaining the current bankruptcy policy of protecting employees and other noncreditors, Warren notes that "much value is to be gained by encouraging parties to establish continuing relationships that contracts have not formalized" and "[t]o presume . . . that only the value of such [contract-based] relationships should be relevant to the policy goals of a legal system ignores this reality." Id. at 356; see also id. at 385-86 (indicating that the free-market critics "demonstrate a de facto preference for contract-based claimants," and that the question of whether the law should favor such claimants "is a debate we should have directly by focusing on the distributive implications of contract-based preferences, not a result that should be smuggled into the system through an analysis of allocative efficiency"). Nonetheless, the overriding purpose and character of Warren's account is to establish claims about current bankruptcy law and purposes, not to evaluate those purposes.
107. As discussed below, Warren's account also incorporates a nontheoretical, normative "value argument," which maintains that bankruptcy law should pursue the purposes that it currently does because such a system results in valued outcomes. See infra notes 124-29 and accompanying text. Warren's account of bankruptcy policy also might be viewed, at least incidentally, as an effort of reform scholarship. See supra notes 29-33 and accompanying text (defining standard reform and critical reform work). By describing how bankruptcy law actually performs its functions, Warren reveals the rationality and coherence of current law. She thereby offers a response to the question: How can bankruptcy law be improved as an instrument for achieving its actual purposes? That response would be: As an instrument for achieving its basic goals, bankruptcy law is structurally sound. To this limited extent, Warren's account constitutes standard reform work.
108. See Warren, supra note 27, at 341.
109. See id. at 339-40.
110. See id. at 340.
111. See id.
112. Adler, supra note 54, at 826.
113. See id.
114. Bowers makes essentially the same argument: Nor does the fact that Congress adopted those provisions automatically justify them, although most of the critics of economic evaluations of bankruptcy law seem to derive the "ought" from the "is." . . . Thus, they argue, economic analysis that tests the Code by the standard of welfare maximization is too simplified to be persuasive as an explanation for existing bankruptcy law. That argument simply accepts the fact that Congress did not maximize welfare when it adopted the current Code. . . . Functional analysis may identify policies. Identifying policies, however, is not the same as evaluating them. Bowers, supra note 6, at 70-71 (footnotes omitted).
115. In addition, a refocused version of the actual policies argument may have considerable force as an objection to one type of normative theoretical argument relied upon by free-market critics. See infra notes 153-55 and accompanying text (reformulating the actual policies argument to respond directly to Baird and Jackson's theoretical premise that bankruptcy law's basic function is to solve the common pool problem).
116. See infra notes 123-34 and accompanying text.
117. See infra notes 144-80 and accompanying text.
118. See supra notes 8-14 and accompanying text.
119. Warren, supra note 27, at 338.
120. Id.
121. Id.; see also Braucher, supra note 8, at 511 ("[T]he first task for business bankruptcy scholars should be to study what is really happening in business bankruptcy, rather than developing a detailed normative theory.").
122. Warren, supra note 27, at 338.
123. See supra notes 22-34 and accompanying text (outlining the differing types of bankruptcy scholarship).
124. Lawrence Ponoroff, Enlarging the Bargaining Table: Some Implications of the Corporate Stakeholder Model for Federal Bankruptcy Proceedings, 23 Cap. U. L. Rev. 441, 453 (1994).
125. See id. at 453.
126. See Michael T. Andrew, Executory Contracts in Bankruptcy: Understanding "Rejection", 59 U. Colo. L. Rev. 845, 866-81 (1988).
127. See id. at 848.
128. In addition to explanatory theories (such as Andrew's) that theorize about discrete aspects of bankruptcy law, there are explanatory theories that undertake to explain and unify bankruptcy law as a whole. Perhaps the most prominent example of such a theory is the "loss allocation" theory developed in separate articles by Elizabeth Warren and Raymond Nimmer. See generally Nimmer, supra note 8; Warren, supra note 8. While primarily (theoretical) observational work, this kind of account also incorporates an important normative element. It shows why the basic reasons behind bankruptcy law are good ones and, in the process, makes value arguments in support of current bankruptcy purposes. To this extent, such an account represents (nontheoretical) normative work. For a discussion of value arguments as part of normative work, see supra notes 123-39 and accompanying text.
129. See, e.g., Baird & Jackson, supra note 4, at 121-25 (using economic analysis to show that preserving the value of the secured party's interest in bankruptcy will cause junior creditors to make an efficient choice when deciding whether to reorganize or liquidate); Bowers, supra note 6, at 35-57 (developing an economic model to show that debtors are the best liquidators and distributors of their own estates). Some of the more sophisticated predictive theories in the bankruptcy area come from financial economists. See, e.g., Robert Gertner & David Scharfstein, A Theory of Workouts and the Effects of Reorganization Law, 46 J. Fin. 1189, 1192-99 (1991) (analyzing the factors that might affect the incentives of a distressed firm to make investments); Michelle J. White, The Corporate Bankruptcy Decision, 3 J. Econ. Persp. 129, 133-38, 141-44 (1989) (analyzing the incentives used by decisionmakers of distressed firms when choosing between continuation, liquidation, and formal reorganization).
130. See, e.g., Baird & Jackson, supra note 4, at 121-25 (using economic analysis to show that preserving the value of the secured party's interest in bankruptcy will cause junior creditors to make an efficient choice when deciding whether to reorganize or liquidate); Bowers, supra note 6, at 35-57 (developing an economic model to show that debtors are the best liquidators and distributors of their own estates). Some of the more sophisticated predictive theories in the bankruptcy area come from financial economists. See, e.g., Robert Gertner & David Scharfstein, A Theory of Workouts and the Effects of Reorganization Law, 46 J. Fin. 1189, 1192-99 (1991) (analyzing the factors that might affect the incentives of a distressed firm to make investments); Michelle J. White, The Corporate Bankruptcy Decision, 3 J. Econ. Persp. 129, 133-38, 141-44 (1989) (analyzing the incentives used by decisionmakers of distressed firms when choosing between continuation, liquidation, and formal reorganization).
131. See, e.g., Baird & Jackson, supra note 4, at 105-06 (arguing that the "unique function" of a bankruptcy system is to maximize the collective benefit of creditors and concluding that bankruptcy law should not alter distributional outcomes under nonbankruptcy law); Richard E. Flint, Bankruptcy Policy: Toward a Moral Justification for Financial Rehabilitation of the Consumer Debtor, 48 Wash. & Lee L. Rev. 515, 518-20 (1991) (arguing that natural law principles of morality offer the "central justification" for the existence of the bankruptcy discharge and can "aid policy makers and courts in evaluating future bankruptcy issues"); Jackson, supra note 4, at 871 (using the creditors' bargain model as the basis for showing "why bankruptcy law should make a fundamental decision to honor negotiated non-bankruptcy entitlements"); Donald R. Korobkin, Contractarianism and the Normative Foundations of Bankruptcy Law, 71 Tex. L. Rev. 541, 572-89 (1993) [hereinafter Korobkin, Contractarianism] (using a contractarian model to identify and justify normative principles of bankruptcy); Donald R. Korobkin, Rehabilitating Values: A Jurisprudence of Bankruptcy, 91 Colum. L. Rev. 717, 762-68 (1991) [hereinafter Korobkin, Values] (arguing that bankruptcy law has the distinct function of responding to the problem of financial distress and thus of resolving conflicts between diverse and conflicting values). For an analysis of the structure of normative theoretical arguments, see infra notes 124-52 and accompanying text.
132. See, e.g., Baird & Jackson, supra note 4, at 105-06 (arguing that the "unique function" of a bankruptcy system is to maximize the collective benefit of creditors and concluding that bankruptcy law should not alter distributional outcomes under nonbankruptcy law); Richard E. Flint, Bankruptcy Policy: Toward a Moral Justification for Financial Rehabilitation of the Consumer Debtor, 48 Wash. & Lee L. Rev. 515, 518-20 (1991) (arguing that natural law principles of morality offer the "central justification" for the existence of the bankruptcy discharge and can "aid policy makers and courts in evaluating future bankruptcy issues"); Jackson, supra note 4, at 871 (using the creditors' bargain model as the basis for showing "why bankruptcy law should make a fundamental decision to honor negotiated non-bankruptcy entitlements"); Donald R. Korobkin, Contractarianism and the Normative Foundations of Bankruptcy Law, 71 Tex. L. Rev. 541, 572-89 (1993) [hereinafter Korobkin, Contractarianism] (using a contractarian model to identify and justify normative principles of bankruptcy); Donald R. Korobkin, Rehabilitating Values: A Jurisprudence of Bankruptcy, 91 Colum. L. Rev. 717, 762-68 (1991) [hereinafter Korobkin, Values] (arguing that bankruptcy law has the distinct function of responding to the problem of financial distress and thus of resolving conflicts between diverse and conflicting values). For an analysis of the structure of normative theoretical arguments, see infra notes 124-52 and accompanying text.
133. See, e.g., Baird & Jackson, supra note 4, at 105-06 (arguing that the "unique function" of a bankruptcy system is to maximize the collective benefit of creditors and concluding that bankruptcy law should not alter distributional outcomes under nonbankruptcy law); Richard E. Flint, Bankruptcy Policy: Toward a Moral Justification for Financial Rehabilitation of the Consumer Debtor, 48 Wash. & Lee L. Rev. 515, 518-20 (1991) (arguing that natural law principles of morality offer the "central justification" for the existence of the bankruptcy discharge and can "aid policy makers and courts in evaluating future bankruptcy issues"); Jackson, supra note 4, at 871 (using the creditors' bargain model as the basis for showing "why bankruptcy law should make a fundamental decision to honor negotiated non-bankruptcy entitlements"); Donald R. Korobkin, Contractarianism and the Normative Foundations of Bankruptcy Law, 71 Tex. L. Rev. 541, 572-89 (1993) [hereinafter Korobkin, Contractarianism] (using a contractarian model to identify and justify normative principles of bankruptcy); Donald R. Korobkin, Rehabilitating Values: A Jurisprudence of Bankruptcy, 91 Colum. L. Rev. 717, 762-68 (1991) [hereinafter Korobkin, Values] (arguing that bankruptcy law has the distinct function of responding to the problem of financial distress and thus of resolving conflicts between diverse and conflicting values). For an analysis of the structure of normative theoretical arguments, see infra notes 124-52 and accompanying text.
134. See, e.g., Baird & Jackson, supra note 4, at 105-06 (arguing that the "unique function" of a bankruptcy system is to maximize the collective benefit of creditors and concluding that bankruptcy law should not alter distributional outcomes under nonbankruptcy law); Richard E. Flint, Bankruptcy Policy: Toward a Moral Justification for Financial Rehabilitation of the Consumer Debtor, 48 Wash. & Lee L. Rev. 515, 518-20 (1991) (arguing that natural law principles of morality offer the "central justification" for the existence of the bankruptcy discharge and can "aid policy makers and courts in evaluating future bankruptcy issues"); Jackson, supra note 4, at 871 (using the creditors' bargain model as the basis for showing "why bankruptcy law should make a fundamental decision to honor negotiated non-bankruptcy entitlements"); Donald R. Korobkin, Contractarianism and the Normative Foundations of Bankruptcy Law, 71 Tex. L. Rev. 541, 572-89 (1993) [hereinafter Korobkin, Contractarianism] (using a contractarian model to identify and justify normative principles of bankruptcy); Donald R. Korobkin, Rehabilitating Values: A Jurisprudence of Bankruptcy, 91 Colum. L. Rev. 717, 762-68 (1991) [hereinafter Korobkin, Values] (arguing that bankruptcy law has the distinct function of responding to the problem of financial distress and thus of resolving conflicts between diverse and conflicting values). For an analysis of the structure of normative theoretical arguments, see infra notes 124-52 and accompanying text.
135. See, e.g., Baird & Jackson, supra note 4, at 105-06 (arguing that the "unique function" of a bankruptcy system is to maximize the collective benefit of creditors and concluding that bankruptcy law should not alter distributional outcomes under nonbankruptcy law); Richard E. Flint, Bankruptcy Policy: Toward a Moral Justification for Financial Rehabilitation of the Consumer Debtor, 48 Wash. & Lee L. Rev. 515, 518-20 (1991) (arguing that natural law principles of morality offer the "central justification" for the existence of the bankruptcy discharge and can "aid policy makers and courts in evaluating future bankruptcy issues"); Jackson, supra note 4, at 871 (using the creditors' bargain model as the basis for showing "why bankruptcy law should make a fundamental decision to honor negotiated non-bankruptcy entitlements"); Donald R. Korobkin, Contractarianism and the Normative Foundations of Bankruptcy Law, 71 Tex. L. Rev. 541, 572-89 (1993) [hereinafter Korobkin, Contractarianism] (using a contractarian model to identify and justify normative principles of bankruptcy); Donald R. Korobkin, Rehabilitating Values: A Jurisprudence of Bankruptcy, 91 Colum. L. Rev. 717, 762-68 (1991) [hereinafter Korobkin, Values] (arguing that bankruptcy law has the distinct function of responding to the problem of financial distress and thus of resolving conflicts between diverse and conflicting values). For an analysis of the structure of normative theoretical arguments, see infra notes 124-52 and accompanying text.
136. See supra note 100 and accompanying text (citing Ponoroff's suggestion that the "stamina" of a normative theory ultimately depends "more or less" on that theory's "conformity" with "positive law rules").
137. See Jackson, supra note 4, at 860.
138. See id.
139. See Jackson & Scott, supra note 13, at 157, 158 n.5 (offering an "expanded bargain model" which "rationalizes a number of the apparent anomalies that heretofore have eroded the explanatory power of the original creditors' bargain conception").
140. See, e.g., Jackson, supra note 4, at 859-68. (arguing that in the bargain model, creditors would choose the rules that mandate pro-rata distribution and work to preserve the nonbankruptcy entitlements of secured creditors); Jackson & Scott, supra note 13, at 188-89 (indicating that the original creditors' bargain rule would support a rule requiring payment of post-petition interest to undersecured creditors).
141. Jackson, supra note 44, at 17 n.22. For Rawls's discussion of the original position, see John Rawls, A Theory of Justice 136-42 (1971).
142. Warren refers to this quality of explanatory theory when she comments that "some level of generality is critical" and "[w]ithout it, there would be little more than a series of sui generis stories with no theme to unite them and no guidance for future decisionmaking." Warren, supra note 27, at 377-78.
143. See id. at 377 ("[T]oo much abstraction may wash out significant details that should have an impact on any policy decision.").
144. See supra notes 29-33 and accompanying text (describing characteristics of standard and critical work).
145. As one example, I argued in a recent article that Congress should consider affording employees with their own committee in reorganization cases. See Donald R. Korobkin, Employee Interests in Bankruptcy, 4 Am. Bankr. Inst L. Rev. 5 (1996). My argument did not rest on theoretical considerations. Instead, the article first reviewed the protections afforded to employees under current law, concluding that most employees - in particular, nonunion workers - have little voice in the decisions that most vitally affect their interests in a reorganization case. Id. at 6-25. Using a type of functional analysis, the article then suggested that employee committees might be used to address this problem of representation. Id. at 28-32. It also considered why such a proposal may not solve the problem or may be too costly. Id. at 31-32.
146. The concern of many traditional scholars is that the predictive models of free-market critics may have failed in just this way. In particular, traditional scholars complain that free-market theories seem to assume away the very problems to which bankruptcy law responds. See LoPucki, supra note 3, at 99-100; Warren, supra note 27, at 379-82. For example, according to Warren, free-market critics seek to "design an airplane that carries no payload, flies only in a gravity-free environment, and consumes no fuel." Warren, supra note 27, at 386. In her view, a predictive theory that rests on such assumptions can only give rise to theoretical "outcomes" that are essentially irrelevant: legislative proposals that will not work under any possible real-life conditions.
147. See, e.g., Braucher, supra note 8, at 512 (Traditionalists (and again I include myself) support the normative position that concern for reliance interests is appropriate in bankruptcy."); Gross, supra note 8, at 1031 ("I believe that community interests must be taken into account in both the corporate and personal bankruptcy systems."); Nimmer, supra note 8, at 1033-34 (arguing that bankruptcy law should protect "extralegal dependencies" under some circumstances); Ponoroff & Knippenberg, supra note 9, at 961 ("[T]he Traditionalist believes that the bankruptcy system is and should be designed to address a broad range of interests affected by the collapse of a debtor enterprise."); Warren, supra note 27, at 356 (indicating that one policy of bankruptcy law should be to protect persons who are without formal legal rights but are adversely affected by firm failure).
148. See Baird & Jackson, supra note 4, at 105-06.
149. See, e.g., Adler, supra note 52, at 825 (indicating that "an explicit ex ante bargain, one that does not include ex post judicial intervention, better serves investors' collective interest") (emphasis added); Bowers, supra note 6, at 51 (arguing that creditors distinguish themselves from each other in their transactions with the firm, and that the law should honor those differences by not interfering with debt collection efforts under nonbankruptcy law); Rasmussen, supra note 6, at 58-54 (arguing that bankruptcy law is merely a term of the contract between a firm and its creditors, and that a menu-based proposal represents the best way of honoring that "contract").
150. See, e.g., Adler, supra note 52, at 826; Baird & Jackson, supra note 4, at 102-03; Bowers, supra note 6, at 80. Rasmussen's menu-based proposal also logically implies that bankruptcy law should not pursue the jobs purpose as an independent purpose. This proposal would leave the choice of bankruptcy law entirely to the firm's shareholders. See Rasmussen, supra note 6, at 53-54. There is nothing about Rasmussen's proposal that requires that the chosen bankruptcy law pursue the jobs purpose. In an earlier essay Rasmussen argued that bankruptcy law should not pursue the jobs purpose. See Robert K. Rasmussen, The Efficiency of Chapter 11, 8 Bankr. Dev. J. 319, 324 (1991).
151. See supra notes 88-90 and accompanying text (discussing how the actual policies argument blurs the distinction between what bankruptcy policy is and what it should be).
152. See supra notes 91-92 and accompanying text (explaining how the actual policies argument suggests a separate argument based on what has value).
153. See Nimmer, supra note 8, at 1017-23; Warren, supra note 8, at 785-93.
154. See Braucher, supra note 8, at 512 ; Ponoroff & Knippenberg, supra note 9, at 960-61; Warren, supra note 27, at 352-61.
155. See, e.g., Nimmer, supra note 8, at 1033 ("In allocating loss, simply disregarding potential victims of an economic failure is senseless.").
156. See, e.g., Braucher, supra note 8, at 517; Nimmer, supra note 8, at 1034; Ponoroff & Knippenberg, supra note 9, at 960-61.
157. Nimmer states: While extralegal dependencies [such as that of employees] should be considered, they should not and do not always affect the outcome of cases. The protected value of a dependent interest varies based on how easily the dependent can obtain replacement value from other sources and whether continuing the dependency is sufficiently important to outweigh the harm inflicted upon other parties . . . . If there are readily available replacements, the dependency should be ignored because closing the debtor's business produces no lasting harm to the dependents. .. . The issue involves assessing the degree of loss and the costs of avoiding that loss. Nimmer, supra note 8, at 1034; see also Warren, supra note 8, at 796 (describing the varied factors that should dictate distributional outcomes under bankruptcy law).
158. See, e.g., Braucher, supra note 8, at 517; Nimmer, supra note 8, at 1033-34; Warren, supra note 8, at 787-88.
159. In addition to relying on nontheoretical value arguments, the free-market critics also develop theoretical arguments. See infra notes 144-80 and accompanying text (describing theoretical normative arguments developed in the work of Baird and Jackson). Theoretical arguments may potentially overlap with value arguments. For example, a free-market critic may make the nontheoretical argument that the restrictive view should be adopted because it achieves the outcome of respecting market preferences as revealed in market transactions. At the same time, he might make the theoretical argument that the norm of respecting the actual preferences of commercial actors reflects our highest good, and thus it represents the principle by which the purposes of bankruptcy law should be governed. For a discussion of "principle-based arguments," see infra notes 159-80 and accompanying text.
160. See, e.g., Douglas G. Baird, A World Without Bankruptcy, Law & Contemp. Probs., Spring 1987, at 173, 183 (indicating that closing some firms is an economic gain, because the assets of nonviable firms become available to new, possibly viable firms); Baird & Jackson, supra note 4, at 102 (same).
161. While not arguing specifically in favor of the restrictive view, Bowers argues generally for the superiority of nonbankruptcy creditor remedies over bankruptcy law based on the claim that collection law should honor the original choices of a firm and its creditors. See Bowers, supra note 6, at 69, 76-80.
162. See, e.g., Douglas G. Baird, Loss Distribution, Forum Shopping, and Bankruptcy: A Reply to Warren, 54 U. Chi. L. Rev. 815, 819 (1987) (suggesting that giving special rights to workers only in bankruptcy will cause parties to file inefficient bankruptcy petitions or refrain from filing efficient ones).
163. See James W. Bowers, Rehabilitation, Redistribution or Dissipation: The Evidence for Choosing Among Bankruptcy Hypotheses, 72 Wash. U. L.Q. 955, 966 (1994) (asserting that if Chapter 11 redistributes wealth from secured creditors to other parties, then secured creditors will raise the cost of credit).
164. See Rusch, supra note 8, at 16.
165. Id.
166. This consequence might result if, for example, having a bankruptcy law that pursues the jobs purpose caused creditors to make extremely drastic reductions in the availability of credit to financially distressed businesses. Such drastic reductions in credit might force some otherwise viable businesses to fail, or lead to layoffs of workers who otherwise might have kept their jobs.
167. For example, LoPucki & William Whitford have questioned the idea that reducing forum shopping is a value by suggesting that forum shopping is not necessarily "a bad thing." See Lynn M. LoPucki & William C. Whitford, Corporate Governance in the Bankruptcy Reorganization of Large, Publicly Held Companies, 141 U. Pa. L. Rev. 669, 785-86 n.372 (1993).
168. See Rusch, supra note 8, at 16.
169. See Warren, supra note 27, at 357.
170. See Baird, supra note 133, at 824-25.
171. See Warren, supra note 8, at 787-88; Warren supra note 27, at 356.
172. An example from an entirely different sphere may help illustrate this point People generally agree that teenagers should have accurate information about sex and responsible sexual behavior. But people disagree as to whether parents or the school system should assume the primary responsibility for sex education. While the school system may be the more effective and less costly means of pursuing this goal, this fact (if proven) would not matter to some people. These persons would appeal to what they perceive as overriding moral or religious grounds for the conclusion that sex education should be the province of parents, not the schools. Naturally, the reasons why a school system should or should not pursue the goal of sex education are quite different from the reasons why a bankruptcy system should or should not (for instance) pursue the jobs purpose. Nonetheless, in both spheres, we may ask an ultimate question that reminds us that practical considerations of relative effectiveness or cost are not necessarily decisive. A legal or social institution may reflect particularly fundamental commitments that constrain our judgment about the purposes that the institution should or should not pursue.
173. See Jackson, supra note 44, at 8-13; Baird & Jackson, supra note 4, at 107-09 & 108 n.40.
174. See Jackson, supra note 44, at 8-13; Baird & Jackson, supra note 4, at 107-09.
175. See Jackson, supra note 44, at 20-27; Baird & Jackson, supra note 4, at 116-21.
176. Considered more formally, a system-based argument has the following structure: (1) The basic function of a bankruptcy system is X. (2) It is compatible (or incompatible) with the basic function X for bankruptcy law to pursue (i) purpose(s) a, b, c. . . as among its purposes; (ii) purpose a as its exclusive purpose; or (iii) purpose(s) a, b, c . . . even at the expense of purpose(s) x, y, z . . . . Therefore, it is rational (or irrational) for bankruptcy law to pursue (i) purpose(s) a, b, c . . . as among its purposes; (ii) purpose a as its exclusive purpose; or (iii) purpose(s) a, b, c . . . even at the expense of purpose(s) x, y, z . . . .
177. See supra p. 113
178. See supra notes 145-46 and accompanying text.
179. See, e.g., Paul R. Thagard, The Best Explanation: Criteria for Theory Choice, 75 J. Phil. 76, 79 (1978) (indicating that one important criterion for evaluating explanations in science is "consilience," which "serve[s] as a measure of how much a theory explains, so that we can use it to tell when one theory explains more of the evidence than another theory").
180. See Korobkin, Values, supra note 106, at 722 (describing the nature of a vindicating explanation).
181. See id. at 735-36.
182. See supra notes 55-75 and accompanying text (discussing the traditionalist's reliance on the reality of actual bankruptcy policy as a ground to reject the free-market critical claims).
183. See supra notes 68-87 and accompanying text (describing the actual policies argument).
184. See supra notes 144-47 and accompanying text (sketching Baird and Jackson's system-based argument).
185. See Korobkin, Values, supra note 106, at 732-35.
186. See Carlson, supra note 8, at 1346-47.
187. For development of this system account, see Korobkin, Values, supra note 106, at 763-68.
188. See supra notes 110-11 and accompanying text (discussing how nontheoretical normative work leaves an open question regarding the ends or goals that bankruptcy law should pursue).
189. Among other things, I will not attempt to answer here the objections of Professor Newborn to my use of a contractarian "bankruptcy choice model" to justify principles of bankruptcy. See Newborn, supra note 8, at 132-46. For my responses to other recent criticisms of this theory, see Donald R. Korobkin, Reply to Braucher and Ponoroff, 23 Cap. U. L. Rev. 521 (1994).
190. See Jackson & Scott, supra note 13, at 156 (describing the original creditors' bargain model as having a "single-minded focus" on maximizing the benefit of creditors as a group).
191. As suggested earlier, the creditors' bargain model may occupy this place In a normative theory, but might also be understood as part of an explanatory or predictive theory. See supra notes 108-12 and accompanying text (describing the creditors' bargain model as part of several types of theories).
192. See Jackson & Scott, supra note 13, at 160-61.
193. Some traditional scholars have expressed doubts about the use of contractarianism as a mode of justification in law. See, e.g., Braucher, supra note 8, at 506; Gross, supra note 8, at 1044; Newborn, supra note 8, at 146.
194. See Korobkin, Contractarianism, supra note 106, at 556-58; see also Carbon, Creditors' Bargain, supra note 13, at 475-77 (arguing that exclusion of noncreditors undermines the creditors' bargain model's force as part of a libertarian argument).
195. See Korobkin, Contractarianism, supra note 106, at 556-58; see also Carbon, Creditors' Bargain, supra note 13, at 475-77 (arguing that exclusion of noncreditors undermines the creditors' bargain model's force as part of a libertarian argument).
196. For Rawls's discussion of the veil of ignorance as part of the original position, see Rawls, supra note 112, at 136-42.
197. See Korobkin, Contractarianism, supra note 106, at 558-65.
198. See Carlson, Creditors' Bargain, supra note 13, at 459-79.
199. Id. at 463.
200. See id.
201. See, e.g., Richard A. Posner, The Economics of Justice 60-87 (1981) (contrasting the principle of social wealth maximization to utilitarianism).
202. See Carlson, Creditors' Bargain, supra note 13, at 478.
203. See Carlson, Postpetition Interest, supra note 13, at 624-25.
204. See, e.g., Ronald Dworkin, A Matter of Principle 237 (1985) (characterizing the failures of Posner's normative theory as "great"); Jules L. Coleman, Efficiency, Utility, and Wealth Maximization, 8 Hofstra L. Rev. 509, 526-39 (1980) (criticizing the principle of wealth maximization as an ethical theory); Anthony T. Kronman, Wealth Maximization as a Normative Principle, 9 J. Legal Stud. 191, 229 (1980) (concluding that "wealth maximization is an absurd principle to adopt" and that it is "not only an unsound ideal, it is an incoherent one which cannot be defended from any point of view"). Posner has recently acknowledged the force of the central criticisms developed by Kronman, Dworkin, Coleman, and others. See Richard A. Posner, The Problems of Jurisprudence 375-82 (1990).
205. See, e.g., Ronald Dworkin, A Matter of Principle 237 (1985) (characterizing the failures of Posner's normative theory as "great"); Jules L. Coleman, Efficiency, Utility, and Wealth Maximization, 8 Hofstra L. Rev. 509, 526-39 (1980) (criticizing the principle of wealth maximization as an ethical theory); Anthony T. Kronman, Wealth Maximization as a Normative Principle, 9 J. Legal Stud. 191, 229 (1980) (concluding that "wealth maximization is an absurd principle to adopt" and that it is "not only an unsound ideal, it is an incoherent one which cannot be defended from any point of view"). Posner has recently acknowledged the force of the central criticisms developed by Kronman, Dworkin, Coleman, and others. See Richard A. Posner, The Problems of Jurisprudence 375-82 (1990).
206. See, e.g., Ronald Dworkin, A Matter of Principle 237 (1985) (characterizing the failures of Posner's normative theory as "great"); Jules L. Coleman, Efficiency, Utility, and Wealth Maximization, 8 Hofstra L. Rev. 509, 526-39 (1980) (criticizing the principle of wealth maximization as an ethical theory); Anthony T. Kronman, Wealth Maximization as a Normative Principle, 9 J. Legal Stud. 191, 229 (1980) (concluding that "wealth maximization is an absurd principle to adopt" and that it is "not only an unsound ideal, it is an incoherent one which cannot be defended from any point of view"). Posner has recently acknowledged the force of the central criticisms developed by Kronman, Dworkin, Coleman, and others. See Richard A. Posner, The Problems of Jurisprudence 375-82 (1990).
207. See, e.g., Ronald Dworkin, A Matter of Principle 237 (1985) (characterizing the failures of Posner's normative theory as "great"); Jules L. Coleman, Efficiency, Utility, and Wealth Maximization, 8 Hofstra L. Rev. 509, 526-39 (1980) (criticizing the principle of wealth maximization as an ethical theory); Anthony T. Kronman, Wealth Maximization as a Normative Principle, 9 J. Legal Stud. 191, 229 (1980) (concluding that "wealth maximization is an absurd principle to adopt" and that it is "not only an unsound ideal, it is an incoherent one which cannot be defended from any point of view"). Posner has recently acknowledged the force of the central criticisms developed by Kronman, Dworkin, Coleman, and others. See Richard A. Posner, The Problems of Jurisprudence 375-82 (1990).
208. See Posner, supra note 174, at 356-57.
209. See, Ag., Dworkin, supra note 174, at 25355; Kronman, supra note 174, at 240.
210. See, e.g., Dworkin, supra note 174, at 240-49; Coleman, supra note 174, at 527; Kronman, supra note 165, at 239.
211. See Carlson, Creditor's Bargain, supra note 13, at 476-78 (concluding that the original creditors' bargain model "does not seek to maximize the wealth or happiness of society," but only "of those who own a 'firm,'" and therefore the model "is not really an economic or utilitarian theory").
212. See generally J.C.C. Smart & Bernard Williams, Utilitarianism For and Against 75-150 (1973) (criticizing utilitarianism as a social and moral theory).
213. For a related argument, see Dworkin, supra note 174, at 259-63 (arguing that an inflexible commitment to increasing social wealth is unlikely to increase overall utility).