Solution to bankruptcy pension dispute wins award


By Jenny Whalen
Michigan Law School

A 2013 Michigan Law graduate’s proposed framework for dealing with Detroit’s public pension obligations in bankruptcy has won the Clarin M. Schwartz Award in the 2013 American College of Employee Benefits Counsel (ACEBC) Student Writing Competition.

Mark Franke’s essay, “The Detroit Pension Bankruptcy Trust: A Proposal for the Resolution of Detroit’s Pension Obligations Under Chapter 9 of the Bankruptcy Code,” won the ninth annual student writing competition in September and will see publication in the Norton Journal of Bankruptcy Law & Practice in April 2014.

“It’s always a risk going out on a limb and proposing a new idea, but when a body of practitioners recognize it as a good idea, it’s exciting,” said Franke, now a law clerk at White & Case in New York. “That recognition made me feel as though my education was meaningful and instilled some instincts in me that led to creative problem solving. It was empowering in that sense — to trust myself when thinking outside the box.”

Although the field of employee benefits was not a focus area during Franke’s legal studies, the way in which the public pension debate was playing out in Detroit appealed to the former Bankruptcy Law Society member.

“I had taken Prof. John Pottow’s bankruptcy class in the winter semester of 2012 and we studied asbestos litigation. I also revisited the subject in (lecturer) Martin Bienenstock’s Chapter 11 reorganization course that fall,” Franke said. “We didn’t study it extensively, but we read several cases in that area and that is where I drew inspiration for my paper. It was an interesting solution to a complicated problem.”

As the bankruptcy code requires all interested parties be fairly and equitably treated, Franke submitted that Detroit’s public pension plan would be a zero-sum game in the sense that should current retirees be paid in full, future retirees’ payments could be diminished.

“I started thinking about the asbestos solution in the context of bankruptcy litigation,” Franke said, specifically section 524(g) of the U.S. Bankruptcy Code, which permits companies flooded by mass asbestos tort claims to establish and fund a trust to address and pay all present and future claims. “I thought, ‘We’ve seen this kind of problem before, when interested parties have yet to be named, or are not adequately represented in proceedings and we have this regime used in asbestos litigation to advocate for rights of future claimants.’”

Franke analyzed a hypothetical Chapter 9 plan using a net present value analysis of actuarial assumptions that a current retiree might prefer more than a future retiree.

The result showed a lack of commonality of interest between the two groups and the need for separate consideration of them in the context of the fair and equitable analysis required by the code.

Furthermore, he found that improper estimation of the value of future claims by the bankruptcy court could restrict retirees’ rights to fair and equitable treatment, which he argues heightens the need for a flexible solution as in section 524(g) to deal with pensioners claims as they arise.

Subject to a multi-level review process, including an extensive rating system and rigorous citation check, the ACEBC awarded Franke’s essay the Clarin M. Schwartz Memorial Award, named in honor of the first general counsel of Fiduciary Counselors Inc., who died at the World Trade Center on Sept. 11, 2001.
In addition to publication in the Norton Journal, Franke will receive a cash award and be honored at this year’s ACEBC induction dinner and ceremony.