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The Little Case That Could

By March 25, 2015May 6th, 2021No Comments

Forgive me for mixing metaphors and taking extra creative license, but do you remember the children’s story about the “Little Engine That Could”? The motto is that a little train can surmount enormous obstacles with very hard work and optimism.

Well… back in 1986 as a young lawyer for the U.S. Department of Commerce in Washington, D.C. (Ronald Reagan as CEO), I had the chance to argue my first case in federal court with the blessing of the U.S. Department of Justice. The case was seemingly a minor issue dealing with the rights of the government as a lender to a steel company in Lockport, NY which went defunct and was in bankruptcy. From the standpoint of the DOJ, the case was a “lose–lose” for my agency which loaned several million dollars to fund the construction of a steel facility. Bottom line is that the borrower and now bankruptcy debtor also owed millions to the city of Lockport, NY for unpaid state and county taxes which under NY law were senior to the millions also owed to my client Uncle Sam. The result according to established precedent would be that the sale of the steel mill at auction would not yield enough money to pay the first priority taxes owed to NY, let alone the U.S. I was told to expect no more than the golden goose egg.

The thought of the taxpayers losing millions didn’t sit well with me but I was told that the law was clear on this issue. Now, those who know me fairly well are aware that I don’t take kindly to being told I can’t do something! After hitting several brick walls, I had an epiphany that no one ever came up with before. Without getting overly technical, it was a way of arguing that actions taken after the filing of a bankruptcy petition were invalid under federal law. In this case, the borrower filed for bankruptcy before the state legislature of NY enacted its tax roll for that year. My novel argument was that the meeting of the state legislature after the filing of a bankruptcy petition was invalid under the U.S. Constitution’s “Supremacy Clause” which says Federal Law Trumps State Law in certain situations. Pretty bold – pretty gutsy – a bit like that ole little engine which said “I think I can, I think I can!

Well – I argued the case and won! It went up on appeal and was affirmed. But the tale doesn’t end here. There was an unintended twist, unfortunately.

Since my case held for the first time that state actions were invalid after bankruptcy petitions were filed, lawyers from around the country attempted to use this decision (or precedent) to strike down other laws like environmental liens, school taxes, etc. Before long, school districts were running out of money around the country because of my Little Case that Could. And I never intended that to be the case at all! All I wanted to do was win my case in court that day!

The Little Case that Could finally made it up to the U.S. Supreme Court which refused to hear the case leaving a huge mess around the country which was finally cleaned up by an Act of Congress!

Several morals to this story – Yes I won the case for my client – but at a price which was never anticipated for everyone else. As a young lawyer, I learned in a very personal way what lawyers call “Stare Decisis” which is that once a case is decided it creates a precedent for other courts and a wave that can go on and on. Always a good idea to look down the tunnel as far as you can.

The other moral is the same as the kid’s story. I believe that almost any case regardless of the odds against it (and my clients) – has an angle – a creative way to get over the mountain and win. Truth be told, that is not always possible, but a creative and optimistic attitude definitely increases the chances of success!