Date01 April 2021
AuthorPardo, Rafael I.

As the United States contends with the economic crisis triggered by the COVID-19 pandemic, federal bankruptcy law is one tool that can be used to resolve the financial distress suffered by individuals and businesses. When implementing this remedy, the question arises whether the law's application should be viewed as limited to addressing private debt matters, without regard for the public interest. This Article answers the question by looking to modern U.S. bankruptcy law's first forebear, the 1841 Bankruptcy Act, which Congress enacted in response to the depressed economic conditions following the Panic of 1837. That legislation created a judicially administered system that nationalized bankrupts' assets, some of which featured prominently in the business of slavery. This Article focuses on a specific episode from New Orleans, which at the time was the nation's third-most-populous city, had the nation's largest slave market, and had one of the nation's largest money markets. One of the bankruptcy cases commenced in that city involved the administration and sale of Banks Arcade, which was a premier commercial exchange for auctioning enslaved Black Americans. This history about how the federal administrative state restructured one component of the U.S. slavery complex should prompt critical reflection on how present-day bankruptcy law manages the fallout from a financial crisis. This Article concludes that courts have the authority to permit the public to advocate for its interests in distressed assets redeployed through the federal bankruptcy system.

Introduction 802 I. Building Bankruptcy into the Antebellum Federal Administrative State 809 A. The 1841 Act Bankruptcy Trust 811 i. The Business Trust Baseline 811 ii. The 1841 Act Bankruptcy Estate 813 iii. Appointment of the Bankruptcy Assignee 819 iv. The Powers and Duties of the Bankruptcy Assignee 822 1. Powers and Duties Similar to Those of a Normal Business Person 823 2. Powers and Duties Exceeding Those of a Normal Business Person 831 B. Nationalizing Financially Distressed Assets 835 i. The Purpose of the 1841 Act Trust 837 ii. Direction and Control of the 1841 Act Trust 846 iii. Residual Policymaking Under the 1841 Act 849 II. Building Enslaving Capacity into the Antebellum Administrative State 856 Conclusion 875 INTRODUCTION

The United States, like much of the world, currently finds itself on the road to recovery following the severe financial crisis triggered by the COVID-19 pandemic. (x) When the national economy initially cratered, those adversely affected looked to the government for help. Congress fashioned new relief measures specifically meant to target the crisis at hand, such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, (2) an economic stimulus package exceeding $2 trillion that, according to the U.S. Department of the Treasury, was intended to "provide[] fast and direct economic assistance for American workers and families, small businesses, and preserve[] jobs for American industries." (3) But Congress also relied on government programs predating the crisis, in some instances adding modifications responsive to the unique circumstances of the present situation. For example, the CARES Act made a few amendments to the Bankruptcy Code, (4) nearly all of which expressly refer to COVID-related issues. (5) This approach suggests that Congress has deemed the existing bankruptcy system to be sufficiently flexible, even in the context of a global pandemic, to address problems of overindebtedness. (6)

At first blush, such faith may be warranted. The Bankruptcy Code has been in effect for more than four decades, (7) during which time the United States has gone through several recessions, including the Great Recession. (8) If the Code helped financially distressed individuals and businesses navigate those crises, and in particular the latter one, then the Code, with some minor adjustments, should assuredly be ready to meet the exigencies of the severe economic contraction now facing the nation. Or so the argument might go.

Certainly, society has grown accustomed to seeing the federal bankruptcy system in action, from annually granting individual debtors hundreds of thousands of discharges, (9) to reorganizing and liquidating business enterprises that have been mainstays of our economy at one point or another: Bethlehem Steel, Brooks Brothers, Chrysler, Delta Airlines, Enron, General Motors, Lehman Brothers, Pacific Gas & Electric, Polaroid, RadioShack, Remington Arms, Sears, Texaco, and Washington Mutual, to name just a few. (10) To some extent, it is therefore understandable why society continues on this well-worn path.

But somewhere along the way, many have lost sight (or perhaps never took adequate notice) of the true nature of the bankruptcy system's role within the federal bureaucratic state. This oversight (or perhaps reckless disregard) has fostered an imperfect understanding of what it means to forgive debt pursuant to the federal bankruptcy system. Only after recognizing and acknowledging this limitation can we adequately evaluate whether "business as usual" serves society's best interest. (11) In other words, it may be necessary to rethink the implications of relying on bankruptcy law to respond to financial crises. To place this point in stark relief, let us revisit the fateful days before the end of World War II.

Seventy-five years after the United States detonated an atomic bomb over the Japanese city of Hiroshima, Anne Harrington reflected on Claude Eatherly's involvement in the first nuclear attack in human history. (12) Eatherly, a major in the U.S. Army Air Forces, piloted a B-29 Superfortress to assess weather conditions over Hiroshima and radioed the Enola Gay that conditions were clear to drop the bomb. (13) Harrington filters the story of Eatherly's life-long struggle with guilt over his role in the attack through the lens of the "Promethean gap." (14) The concept, created by German philosopher Giinther Anders, focuses on "[t]he discrepancy between the tremendous power of humanity's inventions and the limited ability of any single person to comprehend, let alone control the moral and practical implications of that power." (15) Servicemen like Eatherly "were the prime example of people caught in the Promethean gap." (16) They were "cogs in the atomic machine" who "came closer to connecting with the physical consequences of and responsibility for their actions than any others." (17)

The Promethean gap is recursive. In pursuit of solving problems, whether or not of their own making, humans have repeatedly devised solutions without fully anticipating, appreciating, or understanding their nature and effects. Scientific advancement through the pursuit of nuclear technology undoubtedly constitutes one of the grimmest examples giving rise to a Promethean gap. But we need not look to such extremes to find its manifestations. Even solutions to relatively innocuous problems can create a gap. The capacity of human ingenuity to produce suffering should not be understated or overlooked.

One area likely to produce Promethean gaps is the law, which is often deployed to solve problems that adversely affect the human condition. Legislatures may very well have good intentions when harnessing state power to ameliorate suffering. But the fact remains that legislatures will also fail to comprehend--or worse, turn a blind eye to--the parade of horribles that can sometimes result from interpretation and execution of legal commands. In such instances, actors responsible for giving effect to enacted law will find themselves in a Promethean gap.

Historical study can reveal how prior legal responses to crises have been problematic from the outset by generating a Promethean gap. Moreover, by examining the behavior of those subsequently caught in the gap, we can critically ask whether instituting certain safeguards might have channeled control of the law toward more normatively desirable outcomes. These lessons can enable policymakers to better evaluate whether their prescriptions for solving current crises have been optimally designed. (18)

Returning to the financial crisis spawned by the COVID-19 pandemic, why should we be wary of continuing to rely on the federal bankruptcy system to do the work that it has done without interruption for over 120 years? (19) The answer, simply put, is that policymakers, courts, and participants in the bankruptcy system have generally failed to account for the fact that the system, as presently (and historically) structured, creates a legal entity to resolve the financial distress of debtors. Moreover, that legal entity quite arguably constitutes an instrumentality of the United States. On this view, when we rely on bankruptcy law to solve overindebtedness problems, we do so through "[a] means... used by the national government." (20) Consequently, this demands attention to how the choices made in bankruptcy proceedings entail federal policymaking that can have deleterious effects not only on internal stakeholders (e.g., creditors, shareholders) but also on the public. (21) Once we layer these concerns on top of those that traditionally accompany liquidations and reorganizations (e.g., the amount of debt forgiven, the amount and order of creditor repayment), we need to adjust the inputs for the decision-making calculus in bankruptcy and the mechanisms for regulating the conduct of those who administer the law. Simply put, we need to mind the Promethean gap in bankruptcy.

Because of the high concentration of commerce in urban areas, (22) we might expect the effects of bankruptcy's Promethean gap to be especially pronounced in cities. (23) As the severity of a crisis increases, spreading further and further across multiple sectors of the economy, large swaths of urban enterprise will be implicated when sorting out the consequences of default. (24) If there is a silver lining to this type of...

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