Commentary: Parties trade strategic jabs in high-stakes bankruptcy petition
The conventional wisdom is that it’s not usually the best strategy to file amicus briefs in opposition to a petition asking the Court to grant review. So at first glance the decision of the National Association of Consumer Bankruptcy Attorneys (“NACBA”) to file an amicus brief in opposition to the petition in Bank of America v. Sinkfield seems dubious. But when I look more closely at the papers in this case, I come away thinking NACBA made the right call.
Although the case presents an issue that might sound narrow and technical to outsiders, it is crucially important in consumer cases, and indeed of considerable importance in commercial cases as well. The problem arises when a consumer files for bankruptcy owning an asset subject to multiple liens. Because financial institutions were so willing to grant second mortgages during the run-up to the crash of 2009, there are tens of thousands of homes that now bear multiple mortgages. Often when a consumer files for bankruptcy, the value of the home has declined so far that a sale would not produce enough money to pay off the first lien, which would leave no money at all for the second lienholder. The issue in this case is whether the bankrupt – David Sinkfield – can “strip off” the second lien, held by petitioner Bank of America, which would allow the borrower to retain the property after bankruptcy, without paying anything to the second lienholder, so long as the borrower can reach a suitable arrangement with the first lienholder.
We know from the Supreme Court’s 1992 decision in Dewsnup v. Timm that the debtor cannot strip off a first lien: if the debtor wants to keep the property it must pay off the first lien in its entirety or otherwise persuade the creditor to avert foreclosure. The question, on which the lower courts are deeply divided, is whether the reasoning of Dewsnup applies to second liens as well. It is a dense question of statutory interpretation; it is fair to acknowledge that many observers find the statutory analysis of Dewsnup itself less than ideal, which makes its extension to second liens a fair opening for disagreement. The Eleventh Circuit in this case held that Dewsnup does not extend to junior liens; several other courts of appeals have held that it does.
The brief in opposition to the petition suggests briefly that the decision is consistent with Dewsnup, but the great bulk of the opposition is devoted to arguing that Dewsnup should be overruled. Now, when you’re thinking up your leading strategies for avoiding Supreme Court review, arguing that the decision on which the petitioner relies should be overruled is usually not at the top of the list. So in comes the NACBA, presenting a more extended argument in opposition to the petition. Like Sinkfield, the NACBA does argue that Dewsnup is wrongly decided, and it more or less concedes that the question warrants review. It contends, however, that the case is a poor vehicle for review. For one thing, in this case Bank of America stipulated to a judgment against it at the trial court, giving this case the unsatisfying appearance of an agreed test case. For another, the case was summarily affirmed by the Eleventh Circuit, so the Justices would not have the benefits of briefing or analysis at the court of appeals level. Those are the kinds of arguments likely to give the Court pause before it takes on a case involving such a common conflict that it plainly will have other possible vehicles in the near future.
All in all, having read the amicus brief in opposition to the petition, I’m convinced NACBA made the right call with its amicus filing. The arguments might not persuade the Justices; Bank of America’s reply has solid responses to everything in the NACBA’s filing. But do I think the NACBA filing lowered the likelihood of a grant in this case? Absolutely. An interesting example where the unusual strategy seems to be the right one.
I should add, in the interest of candor, that I worked on the brief and presented oral argument on behalf of the United States in Dewsnup v. Timm, which surely influences my views about the questions that this dispute presents.