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Book Review
| David Skeel, Debt's Dominion: A History of Bankruptcy Law in America, Princeton: Princeton University Press, 2001. Pp. xi + 272. $35 (ISBN 0-691-08810-1).
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| In Debt's Dominion, David Skeel offers a wide-ranging account of two centuries of American bankruptcy law, focusing in alternate chapters on the law of individual bankruptcy and the law pertaining to corporate reorganization. A law professor heavily influenced by the public choice and interest group theories now dominant within political science and institutional economics, Skeel constructs his two-track narrative around a series of historical puzzles. Most importantly, he wishes to explain why American bankruptcy law has been so generous to debtors compared to legal regimes in other industrialized market-based economies and so inhospitable to administrative approaches to insolvency, when other such countries have invariably embraced them. In addition, he offers explanations for some key turning points in the legal treatment of American bankruptcy—why the United States only received a permanent federal bankruptcy system in 1898; why Congress reigned in the power of corporate managers over insolvent companies in 1938, requiring the appointment of independent trustees to oversee reorganization of publicly held corporations as well as the blessing of the Security and Exchange Commission for any reorganization plan; and why Congress returned substantial authority to large-scale corporate debtors in the bankruptcy reforms of 1978. Two final chapters offer more scattershot commentary on the more recent and still unresolved controversies over proposals to reform current bankruptcy law. |
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The book's first two chapters briefly and effectively survey bankruptcy law in the nineteenth century, though they break little new ground. Here, Skeel updates Charles Warren's 1935 account of early experiments with a federal bankruptcy system, grafting a theory of "legislative cycling" onto Warren's insight that the era's proponents of a federal bankruptcy system often found themselves unable to forge compromises over legislative details. Skeel also draws upon the research of historians such as Peter Tufano and Albro Martin in accounting for the common law innovations that sustained the reorganization of bankrupt postbellum railroad companies outside of a formal bankruptcy process. |
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Most of Skeel's narrative addresses the twentieth century, and the chief protagonists in this part of his story are bankruptcy professionals—federal bankruptcy judges, law professors who specialize in bankruptcy, and the bankruptcy bar, especially as represented in such professional organizations as the National Bankruptcy Conference. (Indeed, he expends substantial space chronicling the lineage of key bankruptcy law academics as well as the fluctuating reputation of bankruptcy lawyers and judges within the larger legal community; at times, the book has the feel of a nineteenth-century compendium of leading lights of the law.) Ever since the passage of the 1898 Bankruptcy Act, he persuasively contends, these individuals and organizations have comprised classic "interest groups," sharing uniquely intense concern for the contours of bankruptcy rules and disproportionate understanding of their intricacies. |
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Skeel maintains that such advantages made bankruptcy professionals the most important arbiters of congressional policy. Their lobbying provided crucial support to the continuation of a bankruptcy system in the early twentieth-century, when many rural politicians, especially in the Democratic Party, harbored the desire to limit federal power over debt relations by repealing the 1898 Bankruptcy Act, just as their political forerunners had killed the three nineteenth-century experiments with federal bankruptcy legislation. During the 1930s and 1970s, when perceptions of abuses within the bankruptcy system prompted calls for legislative overhauls, bankruptcy professionals adroitly steered Congress away from reforms that would have replaced adversarial bankruptcy proceedings with administrative procedures, thereby diminishing the role of attorneys. At the same moments, the bankruptcy lobby even managed to expand the scope of federal bankruptcy jurisdiction under the guise of technical statutory amendments. These successes depended in part on the vagaries of congressional jurisdiction, since bankruptcy legislation was handled in House and Senate Judiciary Committees, which tended to give legal organizations a warm reception, rather than in the Commerce and Banking Committees, which developed closer links to such interested governmental bureaucracies as the SEC. In the one case where Congress significantly abridged debtor control and lawyer influence—the 1938 Chandler Act, which sought to curtail "insider" influence over large corporate reorganizations—the corporate bankruptcy bar's political clout was circumscribed by its geographic concentration in New York City and its association with Wall Street institutions then beset by stinging political attacks from the Roosevelt Administration. |
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Skeel does not limit his analysis solely to the interests, strategies, and status anxiety of bankruptcy professionals. He notes that organized associations of wholesalers and retailers largely created the demand for a permanent national bankruptcy system in the late nineteenth century and that credit card companies have driven recent attempts to restrict the ability of consumers to receive full discharges from their past liabilities. He observes that the strength of American federalism created substantial roadblocks for bankruptcy reformers who advocated centralized administration, especially in the nineteenth and early twentieth centuries. And he maintains that the longstanding American commitment to providing relief to insolvent debtors reflects a powerful ideological "populism" that has counterbalanced the desire of creditors to use bankruptcy law as a means of improving their ability to collect on debts. |
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Nonetheless, Debt's Dominion would have benefited from a more searching consideration of how fundamental shifts in American political economy and culture shaped the evolution of bankruptcy policy. The 1978 reconstruction of corporate bankruptcy law provides one such example. Skeel explains the return to corporate control over bankruptcy reorganization with reference to limited enforcement capabilities within an underfunded SEC, institutional dynamics within Congress, and the insistent efforts of bankruptcy professionals intent upon extending their influence. But surely this shift was also related to the economic stagnation of the 1970s and the subsequent drumbeat in Washington for deregulation. More generally, Skeel's pro-debtor "populism" receives essentially no historical analysis; it functioned more or less the same way in the nineteenth-century world of proprietorships and partnerships as it did in the twentieth-century marketplace of multinational corporations. |
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In addition, Skeel's application of public choice theory often would have been strengthened by a more sustained presentation of relevant historical evidence, a situation especially evident in his discussion of the 1970 Bankruptcy Commission. At one point, Skeel finds himself having to explain that commission's call for the simplification of bankruptcy processes, since the commission's members were mostly lawyers, and lawyers, according to interest group theory, generally advocate legal complexity as a way to increase the demand for their services. Skeel's proposed solution to this seeming contradiction is that commissioners supported procedural simplification because they wished to keep the law from getting too complex, lest it discourage reliance on the legal system altogether. But he offers no evidentiary support for this supposition. |
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These criticisms aside, David Skeel has produced a useful overview of American bankruptcy policy that should prompt additional inquiries into an understudied subject. |
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| Edward Balleisen |
| Duke University |
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