Research Interests: reorganization and bankruptcy; leveraged finance; corporate law; theory of the firm
Vince Buccola is an associate professor at the Wharton School, where he studies corporate financial law, especially as it pertains to distress, reorganization, and bankruptcy. Before joining the Wharton faculty, Buccola was a Bigelow Fellow at the University of Chicago Law School. He clerked for Judge Frank H. Easterbrook, of the U.S. Court of Appeals for the Seventh Circuit, and was a trial lawyer at Bartlit Beck. He is a graduate of the University of Chicago Law School (JD) and Wesleyan University (BA).
Abstract: Bankruptcy has a tort problem. Chapter 11 predictably subordinates the claims of tort and other involuntary creditors to those of financial lenders, a fact which encourages firms to rely excessively on secured debt and discount the interests of those they might incidentally harm. For this reason, many scholars have advocated changing repayment priorities to move tort creditors to the front of the line. But despite broad academic support for a new “super priority,” the idea has yet to inspire legislative action. This article proposes an alternative solution rooted in tort claims’ temporal durability rather than their priority. Chapter 11 subordinates tort claims only because of a convention that assets should emerge free-and-clear of prepetition debts if those who control the reorganization so elect. Bankruptcy courts could buck the convention and insist that tort claims follow a debtor’s assets out of Chapter 11 unless a deal otherwise is struck. The theoretical insight motivating our proposal is that durability and priority are close substitutes. In broad strokes, a super-durability norm should produce similar effects to a super-priority rule. In some respects, using durability may in fact be superior. It could avoid the need for costly, inaccurate judicial efforts to estimate the extent of debtors’ tort liability. It could also be implemented by judicial fiat and without new legislation. Whatever one thinks of implementation, taking claim durability seriously as a design variable raises questions—and extends recent debates—about when bankruptcy law needs to crystallize otherwise fluid legal relationships to achieve its ends.
Abstract: Recent high-profile attempts to repudiate municipal bonds break from what had become a stable American norm of honoring public debt. In the nineteenth century, though, hundreds of cities, towns, and counties walked away from their bonds. The Supreme Court’s handling of repudiation in the so-called “municipal bond cases” conjured intense animus. But time and the archaic prose and sheer volume of the opinions have obscured the cases’ significance. This article reconstructs the bond cases with an eye to modern disputes. It reports the results of our reading all 203 cases, decided 1859–1899, in which the Justices opined on bond validity. At a high level, our findings correct a stock narrative in the literature. The standard account paints the Court as a reliable champion of northeastern capitalists in what amounted to regional or class politics more than law. That story does not withstand scrutiny, however. We find, for example, that the Court ruled for the repudiating municipality about a third of the time. The decisions had a readily articulable logic at the heart of which lay the law/fact distinction. Estoppel barred issuers in most instances from denying factual predicates of bond validity, but it did not prevent scrutiny of legal predicates. Where law was at stake, the Justices were willing to hold bonds void on even highly technical grounds. The framework developed by the Justices over this forty-year period, we argue, may be of use to courts facing these issues once again for the first time in a century.
Abstract: Since credit derivatives began to substantially influence financial markets a decade ago, rumors have circulated about so-called “net-short” creditors who seek to damage promising albeit financially distressed companies. A recent episode pitting the hedge fund Aurelius against broadband provider Windstream is widely supposed to be a case in point and has at once fueled calls for law reform and yielded an effigy of ostensible Wall Street predation. This article argues that creditor sabotage is a myth. Net-short strategies work, if at all, by in effect burning money. When therefore an activist creditor shows its cards, as all activists must eventually do, it also reveals an opportunity for other to profit by thwarting the activist’s plans and saving threatened surplus. We discuss three sources of liquidity that targeted firms could tap to block a saboteur—“net-long” derivatives speculators, the targets’ own investors, and bankruptcy. We conclude that it is exceedingly difficult for creditors to make money hobbling debtors and that there is little reason to believe anyone tries. We then examine the Windstream case and find, consistent with our theory, that the strongest reason for thinking Aurelius aimed at sabotage, namely that everyone says so, is weak indeed. Our analysis suggests that calls for law reform are addressed to a non-existent or at worst self-correcting problem. Precisely for this reason, however, the persistent appeal of the sabotage myth is a lesson in political rhetoric. A story needn’t be true for some to find it useful.
Vincent Buccola (Forthcoming), Corporate Expression.
Abstract: The U.S. Supreme Court’s decision in Citizens United v. FEC set off a vigorous and continuing debate about the role of business firms in political life and, more specifically, about their expressive possibilities and limitations. This chapter, to be published in a forthcoming volume of Elgar’s Encyclopedia of Law and Economics, sketches the structure of the American law of corporate expression and surveys the academic literature on political expression in particular. It observes that the evaluative literature reflects two familiar but fundamentally inconsistent approaches to the business firm—one implicitly taking the firm as a black box profit-maximizer and considering the effects of its activity on the broader polity, the other quite explicitly modeling conflict within the firm and considering the effect, especially on shareholders, of managerial discretion. The first approach is naïve; the second, myopic (from a welfarist perspective). This chapter thus argues, albeit gesturally, that the welfare implications of corporate political-expressive capacities remain elusive. One’s best guess is that the effects of robust expressive capacities are directionally mixed with respect to any given firm, heterogeneous across firms, and, because incorporated and unincorporated organizational forms are reasonably close substitutes, small in the aggregate.
Vincent Buccola (2019), Bankruptcy’s Cathedral: Property Rules, Liability Rules, and Distress, Northwestern University Law Review, 114 (3), pp. 705-750.
Abstract: What justifies corporate bankruptcy law in the modern economy? For forty years, economically oriented theorists have rationalized bankruptcy as an antidote to potential coordination failures associated with a company’s financial distress. But the sophistication of financial contracting and the depth of capital markets today threaten the practical plausibility, if not the theoretical soundness, of the conventional model. This Article sets out a framework for assessing bankruptcy law that accounts for changes in the technology of corporate finance. It then applies the framework to three important artifacts of contemporary American bankruptcy practice, pointing toward a radically streamlined vision of the field. Bankruptcy’s virtue, I contend, lies in its capacity to replace “property rules” that may protect investors efficiently when a company is financially healthy with “liability rules” more appropriate for distress. In domains where investors are unable to arrange state-contingent toggling rules, bankruptcy law can do it for them. This agenda plausibly justifies two important uses of Chapter 11—to effect prepackaged plans of reorganization and conclude going-concern sales—but casts doubt on what many suppose to be the sine qua non of bankruptcy, the automatic stay. More broadly, the analysis suggests that an “essential” bankruptcy law would look very different, and do much less, than the law we know.
Abstract: The most significant municipal bankruptcies in history have been filed in the last decade. Chapter 9’s newfound importance has stimulated academic attention, much of it critical, but no general framework has been developed against which scholars and policymakers can evaluate the law’s performance. This article offers a normative, economic account of municipal bankruptcy and uses that account to assess current law and suggest changes. It contends that bankruptcy’s singular aim should be to preserve spatial economies—the advantages to locating within a municipality’s unique geographic boundaries—where large public debts, by discouraging investment, threaten to dissipate them. Judged with this end in view, it is argued, Chapter 9 is a marked failure. The law’s compass is so narrow that intervention comes, if at all, only when spatial economies are likely to have been squandered and economic dysfunction taken hold. Municipal bankruptcy, as it now exists, serves mainly as an ad hoc and ill-conceived subsidy program. This article outlines changes to the law that could hasten debt relief, while acknowledging potential objections.
Abstract: This short response, prepared for the University of Pennsylvania Law Review’s symposium on Bankruptcy’s New Frontiers, takes stock of the contributions of Baird, Casey & Picker, The Bankruptcy Partition, 166 U. Pa. L. Rev. 1675 (2018), and criticizes indeterminacy in the scope of the article’s central construct. Coase’s approach to the theory of the firm would provide a useful supplemental framework, I argue. Questions about the scope of bankruptcy jurisdiction—about the kinds of investor disputes a bankruptcy process should seek to resolve—raise the same tradeoff between opportunism and information costs that Coase and scholars following in his tradition identified long ago. Although optimal scope is unknowable in any given case, the firm investors have created in fact is, I suggest, a useful starting place.
Abstract: The internal affairs doctrine is the sine qua non of modern corporate law. It assigns to a corporation’s chartering state sole authority to govern relations among constituents “inside” the firm—its stockholders, directors, and officers—while leaving to territorial law the relations between “outside” constituents and the firm. But why law should cleave an enterprise in this way is a puzzle. Economic theories of the firm can’t explain it, and the academic literature is short on answers. This article offers an account of the internal affairs doctrine that simultaneously explains the doctrine’s contours, accords with its historical emergence, and defends its status as one of the economy’s central organizing principles. It argues that the internal affairs rule is best understood as the law’s adaptive response to a collective-action problem distinctive (historically) to stockholders. Because selling shares across state borders is cheap, shares would, absent the rule, tend to flow into jurisdictions that provide stockholders with robust capital withdrawal and control rights, even where such rights, in the aggregate, would undermine the corporate form’s signal virtues. The internal affairs doctrine forestalls opportunistic trading and so facilitates capital formation. Moreover, as this article shows, the doctrine in fact emerged in the years following economic and legal changes that made such trading a threat for the first time. The prospect of opportunism, then, rather than anything inherent in the idea of the firm, defines the corporate boundary.
Abstract: The Supreme Court’s judgment last Term in Czyzewski v. Jevic Holding Corporation exposes a curious fact about modern reorganization law. In large measure, two distinctive paradigms now color interpretation of the Bankruptcy Code. One paradigm governs during the early stages of a case and is oriented toward the importance of debtor and judicial discretion to use estate assets for the general welfare. The other paradigm governs a bankruptcy’s conclusion and is oriented toward the sanctity of creditors’ bargained-for distributional entitlements. In combination, they produce practical uncertainty as well as what appears to be policy incoherence. After identifying the Janus faces of reorganization law, this essay explores their significance for modern bankruptcy practice and theory. Most strikingly, it argues that, under the conditions of modern corporate finance, the two paradigms might actually cohere in service of a more general norm of investor wealth maximization. What appear on one level of analysis to be contradictory postures may prove, upon reflection, to be but two faces of a single god.
Buccola has taught:
Drug manufacturers who face large settlements from the opioid crisis could follow the Insys example and file for bankruptcy protection, experts say.…Read MoreKnowledge at Wharton - 6/18/2019