distressed municipality

Orrick’s Marc Levinson Compares Chapter 9 to Chapter 11 for the Federal Judicial Center Website


Orrick Restructuring Senior Counsel Marc Levinson is one of the chapter 9 experts assisting in the preparation of a chapter 9 manual for bankruptcy judges and court clerks that has been posted on the website of the Federal Judicial Center, an arm of the United States Courts which educates federal judges.  Among other things, the manual will discuss the differences between chapter 9 and chapter 11 bankruptcies. The below video comparing chapter 9 v. chapter 11 was prepared at the FJC’s request that Marc draw upon his experience representing the cities of Stockton and Vallejo, California, in their chapter 9 cases. It has been posted on the FJC’s website, but note that access to the video on that website is restricted to judges. READ MORE

Sixth Circuit Finds Bankruptcy Court Cannot Force City to Provide Services in Chapter 9

On November 14, 2016, the United States Court of Appeals for the Sixth Circuit held that courts in chapter 9 cases lack authority to order a municipal debtor to provide services to its constituents. Affirming the bankruptcy court’s dismissal of customers’ claims arising from the termination of their water service by the Detroit Water and Sewerage Department, the Sixth Circuit held that section 904 of the Bankruptcy Code prohibits a chapter 9 court from entering orders that “interfere” with a municipality’s “political [and] governmental powers.” In re City of Detroit, Mich., No. 15-2236, 2016 WL 6677715 (6th Cir. Nov. 14, 2016). READ MORE

Supreme Court to Decide Extent of Puerto Rico’s Sovereign Powers

On Wednesday, January 13, 2016, the U.S. Supreme Court will hear arguments in the appeal styled under the caption Commonwealth of Puerto Rico v. Sanchez Valle, No. 15-108. In this case, the Supreme Court is asked to determine whether Puerto Rico and the United States are separate sovereigns for purposes of the Double Jeopardy Clause contained in the Fifth Amendment of the U.S. Constitution. Puerto Rico wants to be able to prosecute crimes in its courts even though the federal government had already prosecuted respondents for those same crimes. In order to do that, Puerto Rico and the United States must be treated as separate “sovereigns.”

On December 23, 2015, the United States Solicitor General filed an amicus brief on behalf of the United States taking the position that Puerto Rico and the United States are not separate sovereigns for purposes of the Double Jeopardy Clause. The United States asserts that U.S. territories, such as Puerto Rico, are not sovereigns.[1] This position is contrary to the position taken by Puerto Rico. Instead, the United States asserts that territories are under the sovereignty of the United States and subject to the plenary authority of Congress. (Brief for the United States as Amicus Curiae Supporting Respondents (“U.S. Amicus Brief”) filed in Commonwealth of Puerto Rico v. Sanchez Valle, No. 15-108, at 7.) The United States argued that “In the Territories of the United States, Congress has the entire dominion and sovereignty, national and local, Federal and state, and has full legislative power over all subjects upon which the legislature of a State might legislate within the State.” (Id. at 16.) The United States further argued that “Puerto Rico’s transition to self-government did not change its constitutional status as a U.S. territory. The United States did not cede its sovereignty over Puerto Rico, and Puerto Rico did not become a State or an independent nation.” (Id. at 21). As stated previously, Puerto Rico takes the position that it is a separate sovereign and, as such, it is able to separately prosecute crimes in its courts even if the federal government has already prosecuted for the same crimes.

Sanchez Valle will be the first of two appeals to be heard by the U.S. Supreme Court this term involving Puerto Rico. As we had previously reported, by order dated December 4, 2015, the Supreme Court also agreed to consider the appeals by the Commonwealth and the Government Development Bank regarding the constitutionality of the Commonwealth’s Debt Enforcement & Recovery Act (DERA) in the appeals styled under the caption Puerto Rico v. Franklin California Tax-Free Trust, 15-233, and Acosta-Febo v. Franklin California Tax-Free Trust, 15-255 (the “Franklin Fund Appeals”).

The Supreme Court’s decision in Sanchez Valle could have an impact on the Supreme Court’s decision regarding the constitutionality of the DERA. In filing its amicus brief, the United States asserted that “The Court’s decision [in Sanchez Valle] . . . may affect the federal government’s defense of federal legislation and policies related to Puerto Rico across a broad range of substantive areas, including congressional representation, federal benefits, federal income taxes, bankruptcy, and defense.” (Id. at 1). The hearing on the Franklin Fund Appeals has not yet been scheduled, but briefs by the parties will be filed in the coming weeks.