Title II of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 establishes a new specialized insolvency regime, known as orderly liquidation, for systemically significant nonbank financial companies. While well intended, Title II unfortunately raises a number of serious constitutional questions. To vest authority in an Article III judge to appoint a receiver for such companies, yet also avoid a financial panic, Dodd–Frank requires that the judicial proceedings be conducted in secret, with no notice to the public or other interested parties on pain of criminal penalties, and that the judge rule on the petition to appoint the receiver within twenty-four hours of its filing. These unprecedented procedures raise serious questions under the Due Process Clause, Article III of the Constitution, and the First Amendment. The very broad discretion given to the executive branch to decide whether a distressed financial firm should be subject to mandatory liquidation under Title II, as opposed to conventional bankruptcy, also raises questions under the uniformity requirement of the Constitution’s Bankruptcy Clause. Finally, Title II raises a number of potential issues under the Takings Clause. Given the extremely abbreviated time for judicial appointment of a receiver, the prohibition on any stay pending appeal, and the absence of any post-appointment judicial review of the decision to place a firm into receivership, there are a number of vexing questions about how and when the constitutional issues raised by Title II might be presented to the courts. This Article examines these constitutional and procedural questions and argues that Congress should amend the Dodd–Frank Act to provide for plenary judicial review after rather than before a receiver is appointed. This simple change, along with amendments tightening some of the language that indicates when orderly liquidation rather than bankruptcy is appropriate, would help ensure that the new Title II authority is not undermined by a welter of constitutional claims – if and when it becomes necessary to use this authority to avert a future financial crisis.
Banking and Finance Law | Bankruptcy Law | Law
Thomas W. Merrill & Margaret L. Merrill,
Dodd-Frank Orderly Liquidation Authority: Too Big for the Constitution?,
U. Pa. L. Rev.
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/3238